<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[x] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
--------------- --------------
Commission File Number: 0-18392
AMERIANA BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1782688
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
r organization) Identification No.)
2118 Bundy Avenue, New Castle, Indiana 47362-1048
- --------------------------------------------- ----------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (317) 529-2230
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sales price of the registrant's common
stock as quoted on the NASDAQ National Market System on March 21, 1997 was
$44,272,743 (for purposes of this calculation, directors and executive officers
are not treated as "non-affiliates").
As of March 21, 1997, there were issued and outstanding 3,261,206
shares of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the Fiscal Year Ended
December 31, 1996 ("Annual Report") (Part II).
2. Portions of Proxy Statement for the 1997 Annual Meeting of Shareholders
("Proxy Statement") (Part III).
<PAGE>
PART I
Item 1. Business
- -----------------
General
The Company. Ameriana Bancorp (the "Company") was incorporated under
Indiana law in August 1989 for the purpose of becoming the holding company for
Ameriana Savings Bank, F.S.B., New Castle, Indiana (the "Bank"). On March 19,
1990, the Company acquired all of the Bank's outstanding common stock, and each
previously outstanding share of the Bank's common stock became a share of the
Company's common stock, in connection with the Bank's reorganization into the
holding company form of ownership.
On August 31, 1992, the Company acquired all of the outstanding common
stock of Deer Park Financial Corporation ("DPFC"), the former holding company
for Deer Park Federal Savings and Loan Association, Cincinnati, Ohio (the
"Association"). Subsequently, DPFC was dissolved and liquidated into the
Company, leaving the Association as a direct subsidiary of the Company.
The Company holds all of the stock of the Bank and Association and,
through them, operates two separate savings institutions. The information in
this report, including financial statements and related information, as of the
dates and for the periods before August 31, 1992 primarily relates to the Bank
and its subsidiaries and as of the dates and for the periods after August 31,
1992 primarily relates to the Bank and Association and their subsidiaries. In
this report, the Bank and Association are collectively referred to as the
"Institutions". In addition, the Company owns Indiana Title Insurance Company,
which provides title insurance services in Central Indiana. In 1995, the Company
invested $1,458,849 in a minority interest in a limited partnership organized to
acquire and manage real estate investments which qualify for federal tax
credits.
The Company's executive offices are the same as those of the Bank
described below.
The Bank. The Bank is a federally chartered savings bank which began
operations in 1890. Since 1935, the Bank has been a member of the Federal Home
Loan Bank System, and its savings deposits have been federally insured. On
February 25, 1987, the Bank converted to a capital stock savings bank.
The Bank's main office is located at 2118 Bundy Avenue, New Castle,
Indiana. It also conducts business through five branch offices located in New
Castle, Middletown, Knightstown, Greenfield and Anderson, Indiana. In 1995, the
Bank purchased land in Avon, Indiana on which the Bank constructed a new branch
in 1996, which
1
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opened for business on January 22, 1997. The Bank, through a wholly owned
subsidiary, also operates an insurance agency with offices in New Castle,
Anderson and Greenfield, Indiana, has an ownership interest in a life insurance
underwriting firm located in New Orleans, Louisiana, and offers a full line of
investments and securities products through its brokerage center.
The business of the Bank consists primarily of attracting deposits from
the general public and originating mortgage loans on single family residences,
and to a lesser extent on multi-family housing and commercial property. The Bank
also makes home improvement loans and consumer loans and through its subsidiary
engages in insurance and brokerage activities. The principal sources of funds
for the Bank's lending activities include deposits received from the general
public, principal amortization and prepayment of loans. The Bank's primary
sources of income are interest and fees on loans and interest on investments.
The Bank has engaged from time to time in purchasing loans and loan
participations in the secondary market. The Bank also invests in various federal
and government agency obligations and other investment securities permitted by
applicable laws and regulations, including mortgage-backed securities. The
Bank's principal expenses are interest paid on deposit accounts and operating
expenses incurred in the operation of the Bank.
The Association. The Association is a federally chartered savings and
loan association which began operations in 1915. The Association has been a
member of the Federal Home Loan Bank System since 1933, and its savings deposits
have been federally insured since 1952. On February 26, 1988, the Association
converted to a capital stock savings and loan association.
The Association's main office is located at 7200 Blue Ash Road,
Cincinnati, Ohio. The Association formerly operated a branch office in
Cincinnati, but, after regulatory approval, closed it on March 27, 1996. The
Association operates a loan production office which was opened in 1996. The
Association's primary market area includes Deer Park and nearby communities in
Hamilton county, as well as adjoining Butler, Clermont and Warren counties.
The business of the Association consists primarily of attracting
deposits from the general public and originating permanent and construction
first mortgage loans on one- to four-family residences, as well as second
mortgage loans on such properties and other types of consumer loans. The
Association also invests in mortgage-backed securities. The principal sources of
funds for the Association's lending activities include deposits received
2
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from the general public, principal amortization and prepayment of loans. The
Association's primary sources of income are interest and fees on loans and
interest on investments. The Association's principal expenses are interest paid
on deposit accounts and operating expenses.
Proposed Legislative Changes. Legislation recently introduced in the
Senate and the House of Representatives could have a profound impact on the
operations of commercial banks and savings institutions, including the Bank and
the Association. Such legislation includes proposals to eliminate regulatory
distinctions between banks and savings associations under federal law and would
ease the merger of the Savings Association Insurance Fund ("SAIF") and the Bank
Insurance Fund ("BIF"), the two deposit insurance funds. In its current form,
the legislation would require all federally chartered savings associations to
convert to national banks or state depository institutions effective on a
to-be-specified date. The legislation will be subject to major revisions during
the current session of Congress.
Lending and Investment Activities
General. The principal lending activity of the Institutions has been
the origination of conventional first mortgage loans secured by residential
property and to a lesser extent commercial real estate, equity lines of credit
and consumer loans. The residential mortgage loans have been predominantly
secured by single family homes and have included construction loans.
The Institutions may originate or purchase whole loans or loan
participations secured by real estate located in any part of the United States.
Notwithstanding this nationwide lending authority, the majority of the Bank's
mortgage loan portfolio is secured by real estate located in Henry, Hancock,
Madison, Delaware and Marion counties in the state of Indiana, and the majority
of the Association's mortgage loan portfolio is secured by real estate located
in Hamilton, Butler, Clermont and Warren counties in the state of Ohio.
During the loan approval process, the Institutions assess both the
borrower's ability to repay the loan and the adequacy of the underlying
security. Potential residential borrowers complete an application which is
submitted to a salaried loan officer. As part of the loan application process,
the Institutions obtain information concerning the income, financial condition,
employment and credit history of the applicant. In addition, qualified
appraisers inspect and appraise the property which is offered to secure the
loan.
3
<PAGE>
The Bank's loan committee, consisting of certain officers of the Bank,
analyzes the loan application and the property to be used as collateral and
subsequently approves or denies the loan request. If the loan amount is less
than $300,000, it must be approved by a loan committee consisting of certain
members of management. Loans of $300,000 or more but less than $500,000 must be
approved by a committee consisting of certain members of senior management. The
Board of Directors must approve all loans in excess of $500,000. In connection
with the origination of single family residential adjustable-rate mortgages
("ARMs"), borrowers are qualified at a rate of interest equal to the second year
rate, assuming the maximum increase. It is the policy of management to make
loans to borrowers who not only qualify at the low initial rate of interest, but
who would also qualify following an upward interest rate adjustment. The
Association's loan committee, consisting of authorized officers of the
Association, may approve loan applications up to $250,000. The Association's
Board of Directors reviews and approves loan applications in excess of $250,000.
4
<PAGE>
The following table sets forth information concerning the Company's
aggregate loans by type of loan and security at the dates indicated. Mortgage-
backed securities are not included in this table.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1996 1995
-------------------- ---------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans:
Non-residential loans............... $ 3,096 1.07% $ 3,670 1.35%
Residential loans................... 240,948 83.58 230,992 84.69
Consumer Loans:
Mobile home and auto loans.......... 31,706 11.00 29,735 10.90
Education loans..................... -- -- -- --
Loans secured by deposits........... 1,395 .48 1,318 .48
Home improvement loans.............. 5,645 1.96 56 .02
Other............................... 5,486 1.90 6,947 2.55
Leases.............................. 24 .01 29 .01
--------- ------ --------- ------
Total............................ 288,300 100.00% 272,747 100.00%
--------- ====== --------- ======
Less:
Loans in process.................... 4,495 5,463
Deferred loan fees.................. 100 215
Loan loss reserve................... 1,104 1,076
--------- ---------
Sub Total.......................... 5,699 6,754
--------- ---------
Total............................. $ 282,601 $ 265,993
========= =========
Type of Security:
Residential
Single Family (1-4 units)........... $ 238,440 82.71% $ 227,045 83.24%
5 or more dwelling units............ 2,508 .87 3,947 1.45
Other improved real estate........... 3,096 1.07 3,670 1.35
Commercial or industrial leases...... 24 .01 29 .01
Deposit accounts..................... 1,395 .48 1,318 .48
Mobile home and auto................. 31,706 11.00 29,735 10.90
Other................................ 11,131 3.86 7,003 2.57
--------- ------ --------- ------
Total............................. 288,300 100.00% 272,747 100.00%
--------- ====== --------- ======
Less:
Loans in process.................... 4,495 5,463
Deferred loan fees.................. 100 215
Loan loss reserve................... 1,104 1,076
--------- ---------
Sub Total.......................... 5,699 6,754
--------- ---------
Total............................. $ 282,601 $ 265,993
========== =========
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1994 1993 1992(a)
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans:
Non-residential loans............... $ 5,795 2.18% $ 6,960 3.00% $ 6,475 2.80%
Residential loans................... 237,579 89.34 214,111 92.33 215,895 93.22
Consumer Loans:
Mobile home and auto loans.......... 15,671 5.89 4,300 1.85 3,123 1.35
Education loans..................... 255 .10 200 .09 238 .10
Loans secured by deposits........... 1,249 .47 1,521 .66 1,747 .75
Home improvement loans.............. 109 .04 24 .01 71 .03
Other............................... 5,231 1.97 4,628 2.00 3,730 1.61
Leases.............................. 39 .01 144 .06 321 .14
--------- ------ --------- ------ --------- ------
Total............................ 265,928 100.00% 231,888 100.00% 231,600 100.00%
--------- ====== --------- ====== --------- ======
Less:
Loans in process.................... 5,389 3,948 2,734
Deferred loan fees.................. 398 519 723
Loan loss reserve................... 1,022 968 796
--------- --------- ---------
Sub Total.......................... 6,809 5,435 4,253
--------- --------- ---------
Total............................. $ 259,119 $ 226,453 $ 227,347
========= ========= =========
Type of Security:
Residential
Single Family (1-4 units)........... $ 234,601 88.22% $ 210,604 90.82% $ 212,699 91.84%
5 or more dwelling units............ 2,978 1.12 3,507 1.51 3,196 1.38
Other improved real estate........... 5,795 2.18 6,960 3.00 6,475 2.80
Commercial or industrial leases...... 39 .01 144 .06 321 .14
Deposit accounts..................... 1,249 .47 1,521 .66 1,747 .75
Mobile home and auto................. 15,671 5.89 4,300 1.85 3,123 1.35
Other................................ 5,595 2.11 4,852 2.10 4,039 1.74
--------- ------ --------- ------ --------- ------
Total............................. 265,928 100.00% 231,888 100.00% 231,600 100.00%
--------- ====== --------- ====== --------- ======
Less:
Loans in process.................... 5,389 3,948 2,734
Deferred loan fees.................. 398 519 723
Loan loss reserve................... 1,022 968 796
--------- --------- ---------
Sub Total.......................... 6,809 5,435 4,253
--------- --------- ---------
Total............................. $ 259,119 $ 226,453 $ 227,347
========= ========= =========
</TABLE>
- ------------
(a) Reflects the Company's acquisition of the Association effective
August 31, 1992.
5
<PAGE>
The following table shows, at December 31, 1996, the Company's
aggregate loans based on their contractual terms to maturity (mortgage-backed
securities are not included). Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Contractual principal repayments of loans do not necessarily
reflect the actual term of the loan portfolio. The average life of mortgage
loans is substantially less than their contractual terms because of loan
prepayments and because of enforcement of due-on-sale clauses, which give the
Institutions the right to declare a loan immediately due and payable in the
event, among other things, that the borrower sells the real property subject to
the mortgage and the loan is not repaid. The average life of mortgage loans
tends to increase, however, when current mortgage loan rates substantially
exceed rates on existing mortgage loans.
<TABLE>
<CAPTION>
Amounts of Loans which Mature in
--------------------------------------------------------------------------------
2002 and
1997 1998 - 2001 Thereafter Total
-------- ----------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Type of Loan:
Real estate mortgage........... $ 3,606 $ 9,943 $ 230,495 $ 244,044
Other.......................... 3,079 35,740 5,437 44,256
---------- ---------- ----------- -----------
Total........................ $ 6,685 $ 45,683 $ 235,932 $ 288,300
========== ========== =========== ===========
</TABLE>
The following table sets forth the dollar amount of the Company's
aggregate loans due after one year from December 31, 1996 which have
predetermined interest rates and which have floating or adjustable interest
rates (mortgage-backed securities are not included).
<TABLE>
<CAPTION>
Fixed Adjustable
Rate Rate Total
------ ---------- -------
(In thousands)
<S> <C> <C> <C>
Real estate mortgage loans............. $ 68,942 $ 171,496 $ 240,438
Other loans............................ 35,675 5,502 41,177
---------- --------- ---------
Total................................ $ 104,617 $ 176,998 $ 281,615
========== ========= =========
</TABLE>
Residential Real Estate Lending. The Institutions' primary lending
activities are the origination of loans on one-to-four family residential
dwelling units. The Institutions currently offer fixed-interest-rate first
mortgage and second mortgage loans. The fixed-rate mortgage loans provide for a
maturity of ten to thirty years, with the thirty-year loan bearing a slightly
higher rate of interest. The terms of the first mortgage loans generally conform
to the guidelines established by the Federal Home Loan Mortgage Corporation
("FHLMC") and are, therefore,
6
<PAGE>
saleable in the secondary mortgage market. The fixed-rate second mortgage loans
provide for a maturity of ten years and bear interest at a rate slightly higher
than that borne by the first mortgage loans. At the time the Institutions make a
fixed-rate mortgage loan, they determine whether the loan will be held in
portfolio or sold, based primarily on the interest rate and term of the loan.
Once placed in portfolio, loans are not sold. Loans originated for sale are
promptly sold in the secondary market. Mortgage loans in the amount of $18.4
million were originated and sold during 1996.
The Institutions emphasize the origination of ARMs for portfolio. The
Institutions currently offer several types of ARMs either as first-lien mortgage
loans or as second-lien mortgage loans which are adjustable semi-annually,
annually, or on three-year or five-year intervals and indexed to the yields on
comparable United States Treasury securities.
The Institutions limit the maximum loan-to-value ratio on one-to-four
family residential first mortgages to 95% of the appraised value with the
requirement that private mortgage insurance be obtained for loan-to-value ratios
in excess of 80%. The Institutions limit the loan-to-value ratio to 80% on
second mortgages on one-to-four family dwellings.
The Institutions' residential lending activities also include loans
secured by multi-family residential structures, which are structures consisting
of over four separate dwelling units. This has not constituted a significant
portion of the Institutions' lending activities to date. Multi-family
residential structures are generally income producing properties. The
Institutions generally do not lend above 75% of the appraised values of
multi-family residences on first mortgage loans or above 70% on second mortgage
loans (including in the 70% amount any first mortgage loan outstanding against
the property).
Construction and Commercial Real Estate Lending. The Institutions
originate loans secured by existing commercial properties and construction loans
on residential real estate. The Institutions' commercial real estate loans are
secured by churches, nursing homes, hotels/motels, and other income-producing
properties. The Institutions originate construction loans on single family
residential properties in their primary market areas, and during fiscal 1996
construction loan originations amounted to $14.9 million. The loans are secured
by real estate, and most of the homes to be constructed are already subject to a
sales contract at the time the construction loan is made. The Institutions'
construction loans generally range in size between $50,000 and $500,000, and the
Institutions'
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commercial real estate loans range from $100,000 to $1,000,000. Substantially
all of the commercial and construction loans originated by the Institutions have
either adjustable interest rates with maturities of 30 years or less or are
loans with fixed interest rates and maturities of five years or less. At
December 31, 1996, the Bank had $9.9 million in outstanding construction loans;
the Association had $325,000 in outstanding construction loans.
Loans involving construction financing present a greater level of risk
than loans for the purchase of existing homes since collateral value and
construction costs can only be estimated at the time the loan is approved. The
Institutions have sought to minimize this risk by limiting construction lending
to qualified borrowers in their respective market areas and by limiting the
number of construction loans outstanding at any time to individual builders. In
addition, most of the Institutions' construction loans are made on homes which
are pre-sold, for which permanent financing is already arranged.
The Institutions' underwriting criteria are designed to evaluate and
minimize the risks of each construction loan. Among other things, the
Institutions consider evidence of the availability of permanent financing or a
takeout commitment to the borrower; the reputation of the borrower and his or
her financial condition; the amount of the borrower's equity in the project;
independent appraisal and review of cost estimates; preconstruction sale and
leasing information; and cash flow projections of the borrower.
The aggregate amount of loans which a federally chartered savings
institution may make on the security of liens on non-residential real property
generally may not exceed 400% of the institution's regulatory capital. These
limits on non-residential real property lending have not materially affected the
Institutions' respective lending activities.
Consumer Loans. Federally chartered thrift institutions are authorized
to make secured and unsecured consumer loans up to 35% of the institution's
assets. In addition, a federal thrift institution has lending authority above
the 35% category for certain consumer loans, such as home equity loans, property
improvement loans, mobile home loans and loans secured by savings accounts. The
consumer loans granted by the Institutions have included loans on automobiles
and other consumer goods, as well as education loans, loans secured by savings
accounts, credit cards, and secured and unsecured lines of credit. In 1996, the
Company continued to increase the amount of its automobile loans outstanding as
part of its strategic plan. The increase in such loans was $2.0 million and
$14.1
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million in 1996 and 1995, respectively. Such loans were originated both directly
with customers and through automobile dealers in the Company's lending areas.
Management believes that the shorter terms and the normally higher
interest rates available on various types of consumer loans have been helpful in
maintaining profitable spreads between average loan yields and costs of funds.
Consumer loans do, however, pose additional risks of collectibility when
compared to traditional types of loans granted by thrift institutions such as
residential first mortgage loans. The Institutions have sought to reduce this
risk by primarily granting secured consumer loans.
Commercial Business Lending. Under laws and regulations enacted during
the past several years, the Institutions are permitted to make secured and
unsecured loans for commercial, corporate, business and agricultural purposes,
including issuing letters of credit and engaging in inventory financing and
commercial leasing activities. The aggregate outstanding amount of such loans
generally may not exceed 10% of the Institutions' respective assets. The
Institutions do not, as a common practice, make unsecured commercial loans. The
Bank entered asset-based commercial lending, primarily commercial leasing, in
1986 but discontinued originations in this type of lending during 1989. The Bank
sold a portion of its leasing portfolio during 1989 and plans to divest itself
of the remaining portfolio either through normal repayment or sale. The
remaining portfolio at December 31, 1996 was $24,000, net of unearned finance
charges.
Originations, Purchases and Sales. Historically, all residential and
commercial real estate loans have been originated directly by the Institutions
through salaried loan officers. Residential loan originations have been
attributable to referrals from real estate brokers and builders, depositors and
walk-in customers, and commissioned loan agents. Commercial real estate and
construction loan originations have been obtained by direct solicitation.
Consumer loan originations are attributable to walk-in customers who have been
made aware of the Institutions' programs by advertising, as well as direct
solicitation.
The Institutions have previously sold whole loans to other financial
institutions and institutional investors. Sales of loans generate income (or
loss) at the time of sale, produce future servicing income and provide funds for
additional lending and other purposes. When the Institutions retain the
servicing of loans they sell, the Institutions retain responsibility for
collecting and remitting loan payments, inspecting the properties, making
certain insurance and tax payments on behalf of borrowers and otherwise
servicing those loans. The Institutions typically receive a
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fee of between .25% and .50% per annum of the loans' principal amount for
performing this service. At December 31, 1996, the Institutions were servicing
$145 million of loans for others. Sales have been primarily to the FHLMC.
Management believes that purchases of loans and loan participations are
generally desirable, primarily when area mortgage demand is less than the supply
of funds available for local mortgage origination or when loan terms are
available in areas outside the Institutions' respective local lending areas
which are more favorable to their investment requirements. Additionally,
purchases of loans may be made in order to diversify the Institutions' lending
portfolios. The Institutions' loan purchasing activities fluctuate
significantly. The servicing of purchased loans is generally performed by the
seller. In order to cover servicing costs, a portion of the interest being paid
by the borrower is retained by the servicer. In addition to whole loan
purchases, the Institutions also purchase participation interests in loans. Both
whole loans and participations are purchased on a yield basis. As of December
31, 1996, $9.3 million, or 3.2%, of the Institutions' aggregate loans consisted
of purchased loans which were serviced by others.
The following table shows aggregate loans originated, purchased and
sold by the Company during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Loans Originated:
Conventional real estate loans:
Construction loans............................. $ 14,885 $ 12,616 $ 17,013
Loans on existing property..................... 32,115 17,733 34,403
Loans refinanced............................... 42,178 16,882 34,046
Other loans..................................... 29,275 34,769 21,889
-------- -------- --------
Total loans originated......................... 118,453 82,000 107,351
-------- -------- --------
Loans Purchased:
Real estate loans:
Conventional.................................... -- -- --
Mortgage-backed securities...................... 2,532 4,964 --
-------- -------- --------
Total loans purchased ......................... 2,532 4,964 --
-------- -------- --------
Total loans originated and purchased............. $120,985 $ 86,964 $107,351
======== ======== ========
Mortgage loans and leases sold................... $ 18,359 $ 11,180 $ 8,622
======== ======== ========
</TABLE>
For additional information, see "Management's Discussion and Analysis
- -- Results of Operations" in Part II of this Report.
10
<PAGE>
Loan Commitments. Conventional loan commitments by the Institutions are
granted for periods of up to 60 days. The total amount of the Institutions'
aggregate outstanding commitments to originate real estate loans at December 31,
1996, was approximately $3.9 million. It has been the Institutions' experience
that few commitments expire unfunded.
Loan Fee and Servicing Income. In addition to interest earned on loans,
the Institutions receive income through servicing of loans and fees in
connection with loan originations, loan modifications, late payments and changes
of property ownership and for miscellaneous services related to the loan. Income
from these activities is volatile and varies from period to period with the
volume and type of loans made.
The Institutions charge loan origination fees which are calculated as a
percentage of the amount borrowed and are charged to the borrower at the time of
origination of the loan. The fees received in connection with the origination of
commercial real estate loans generally amount to 3 points (one point being
equivalent to 1% of the principal amount of the loan). The fees received in
connection with the origination of conventional one-to-four family mortgages
typically range from none to 3.00 points. In accordance with Statement of
Financial Accounting Standards No. 91, loan origination and commitment fees and
certain direct loan origination costs are deferred and the net amount amortized
as an adjustment of yield over the contractual life of the related loans.
For additional information, see Note 4 of the Consolidated Financial
Statements in Part II of this Report.
Delinquencies. When a borrower defaults upon a required payment on a
loan, the Institutions contact the borrower and attempt to induce the borrower
to cure the default. A late payment notice is mailed to the borrower after a
payment is 10 days past due. An additional late payment notice is mailed to the
borrower and a telephone contact is made after a payment is 15 days past due. If
the delinquency on a mortgage loan exceeds 90 days and is not cured through the
Institutions' normal collection procedures or an acceptable arrangement is not
worked out with the borrower, the Institutions will institute measures to remedy
the default, including commencing a foreclosure action.
Non-Performing Assets and Asset Classification. Loans are reviewed on a
regular basis and are placed on a non-accrual status when, in the opinion of
management, the collection of additional interest is doubtful. Residential
mortgage loans are placed on non-accrual status when either principal or
interest is 90 days or more past
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<PAGE>
due unless they are adequately secured and there is reasonable assurance of full
collection of principal and interest. Consumer loans generally are charged off
when the loan becomes over 120 days delinquent. Commercial business and real
estate loans are placed on non-accrual status when the loan is 90 days or more
past due. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income. Subsequent payments are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
Real estate acquired by the Institutions as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold. When such property is acquired, it is recorded at the lower
of the unpaid principal balance of the related loan or its fair value. Any
subsequent deterioration of the property is provided for in an allowance for
loss on real estate owned.
The following table sets forth information with respect to the
Company's aggregate non-performing assets at the dates indicated. At
December 31, 1996, the Company had no restructured loans or other problem loans
for which the Company had serious doubts as to the ability of the borrowers to
comply with the existing payment terms and conditions.
12
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1996 1995 1994 1993 1992 (a)
------ ------ ------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real Estate:
Residential....................................... $ 694 $ 754 $ 339 $ 1,298 $ 258
Commercial........................................ -- -- 144 -- --
Commercial business leases......................... 24 29 39 108 132
Consumer........................................... 3 6 4 1 53
-------- -------- -------- -------- --------
Total............................................. 721 789 526 1,407 443
-------- -------- -------- -------- --------
Accruing loans contractually past due 90 days or
more:
Real Estate:
Residential....................................... 279 515 122 290 629
Commercial........................................ -- -- -- -- --
Commercial business leases......................... -- -- -- -- 36
Consumer........................................... 36 25 15 13 20
-------- -------- -------- -------- --------
Total............................................. 315 540 137 303 685
-------- -------- -------- -------- --------
Total of non-accrual and
90 days past due loans.......................... $ 1,036 $ 1,329 $ 663 $ 1,710 $ 1,128
======== ======== ======== ======== ========
Percentage of total loans (excluding
mortgage-backed securities)....................... .36% .50% .25% .74% .49%
======== ======== ======== ======== ========
Other non-performing assets (b)..................... $ 101 $ 145 $ 182 $ 943 $ 2,031
======== ======== ======== ======== ========
</TABLE>
- ----------------
(a) Reflects the Company's acquisition of the Association effective
August 31, 1992.
(b) Other non-performing assets represents property acquired through
foreclosure or repossession. This property is carried at the lower of
its fair market value or the principal balance of the related loan.
During 1996, the Company would have recorded gross interest income of
$41,000 on the loans set forth above as accounted for on a non-accrual basis, if
such loans had been current in accordance with their terms. Instead, the Company
included interest income of $33,000 on those loans in its net income for the
year. For additional information regarding the Company's problem assets and loss
provisions recorded thereon, see "Management's Discussion and Analysis" in Part
II of this Report.
Federal regulations require that each savings institution shall classify
its assets on a regular basis. In addition, in connection with examinations of
savings institutions, OTS examiners have authority to identify problem assets
and, if appropriate, classify them. The regulation provides for three asset
classification categories (i.e., Substandard, Doubtful and Loss). The
regulations also have a Special Mention category, described as assets which
13
<PAGE>
do not currently expose a savings institution to a sufficient degree of risk to
warrant classification but do possess credit deficiencies or potential
weaknesses deserving management's close attention. Assets classified as
Substandard or Doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified Loss, the savings
institution must either establish specified allowances for loan losses in the
amount of 100 percent of the portion of the asset classified Loss, or charge off
such amount. General loss allowances established to cover possible losses
related to assets classified Substandard or Doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses do not qualify as regulatory capital. OTS examiners
may disagree with the savings institution's classifications and amounts
reserved. Based on management's review of the Institutions' assets at December
31, 1996, $465,000 and $33,000 of the Bank's assets were classified as
Substandard and Loss, $535,000 of the Association's assets were classified as
Substandard, and $159,000 and $1,259,000 of the Bank's and Association's assets
were designated as Special Mention, respectively.
Reserves for Losses on Loans and Real Estate
In making loans, management recognizes the fact that credit losses will
be experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.
It is management's policy to maintain reserves for estimated losses on
loans and real estate acquired. General loan loss reserves are provided based
on, among other things, estimates of the historical loan loss experience,
evaluation of economic conditions in general and in various sectors of the
Institutions' respective customer bases, and periodic reviews of loan portfolio
quality by the Institutions' personnel. Specific reserves will be provided for
individual loans where the ultimate collection is considered questionable by
management after reviewing the current status of loans which are contractually
past due and considering the net realizable value of the security of the loan or
guarantees, if applicable. It is management's policy to establish specific
reserves for estimated losses on delinquent loans and real estate owned when it
determines that losses are anticipated to be incurred on the underlying
properties. At December 31, 1996, the Bank's and Association's allowances for
loan losses amounted to $909,000 and $195,000, respectively.
14
<PAGE>
Future reserves may be necessary if economic conditions or other
circumstances differ substantially from the assumptions used in making the
initial determinations. There can be no assurance that regulators, in reviewing
the Institutions' loan portfolios in the future, will not ask the Institutions
to increase their allowance for loan losses, thereby negatively affecting their
financial condition and earnings.
The following table sets forth an analysis of the Company's aggregate
allowance for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992 (a)
------ ------ ------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period...................... $ 1,076 $ 1,022 $ 968 $ 796 $ 819
Addition from Acquisition of the
Association (a).................................... -- -- -- -- 167
-------- -------- -------- -------- --------
Balance before Charge-Offs, Recoveries
and Provision for Possible Loan Losses............. 1,076 1,022 968 796 986
-------- -------- -------- -------- --------
Charge Offs:
Real Estate:
Residential..................................... 1 44 66 50 284
Commercial...................................... -- -- -- 91 470
Commercial business leases........................ -- -- 78 26 21
Consumer.......................................... 51 42 27 36 25
-------- -------- -------- -------- --------
52 86 171 203 800
-------- -------- -------- -------- --------
Recoveries:
Real Estate:
Residential..................................... -- 2 17 19 46
Commercial...................................... -- -- 10 -- --
Commercial business leases........................ 10 -- 2 -- --
Consumer.......................................... 4 21 15 32 13
-------- -------- -------- -------- --------
14 23 44 51 59
-------- -------- -------- -------- --------
Net Loans Charged-Off............................... (38) (63) (127) (152) (741)
Provision for Possible Loan Losses.................. 66 117 181 324 551
-------- -------- -------- -------- --------
Balance at End of Period............................ $ 1,104 $ 1,076 $ 1,022 $ 968 $ 796
======== ======== ======== ======== ========
Ratio of Net Charge-Offs to Average
Loans Outstanding During the Period............... .01% .02% .05% .07% .36%
======== ======== ======== ======== ========
</TABLE>
_______________
(a) Reflects the Company's acquisition of the Association effective August
31, 1992.
15
<PAGE>
The following table sets forth a breakdown of the Company's aggregate
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of further losses and does not restrict the use of the allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------- -------------------- -------------------------------
Percent of Percent of Percent of
Total Loans Total Loans Total Loans
in Each in Each in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Loans:
<S> <C> <C> <C> <C> <C> <C>
Real Estate Mortgage............. $ 496 85% $ 486 86% $ 508 92%
Commercial business leases....... 24 -- 34 -- 34 --
Consumer......................... 584 15 556 14 480 8
------- ---- -------- --- ------- ----
Total Allowance for Loan
Losses........................ $ 1,104 100% $ 1,076 100% $ 1,022 100%
======== === ======== === ======= ===
<CAPTION>
At December 31,
-----------------------------------------------------------
1993 1992(a)
---------------------------- ---------------------------
Percent of Percent of
Total Loans Total Loans
in Each in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
Loans:
Real Estate Mortgage............. $ 605 95% $ 479 96%
Commercial business leases....... 100 -- 78 --
Consumer......................... 263 5 239 4
------- --- ------ ---
Total Allowance for Loan
Losses........................ $ 968 100% $ 796 100%
======= === ====== ===
</TABLE>
______________
(a) Reflects the Company's acquisition of the Association effective August 31,
1992.
16
<PAGE>
Investment Activities
Interest and dividends on investment securities, Federal Home Loan Bank
stock and interest-bearing deposits provides the second largest source of income
for the Company (after interest on loans and mortgage-backed securities),
constituting 12.7% of the Company's total interest income (and dividends) for
fiscal 1996. The Institutions maintain their liquid assets in excess of the
minimum requirements imposed by regulation at levels believed adequate to meet
requirements of normal banking activities and potential savings outflows. At
December 31, 1996, the Bank's and Association's liquidity ratios (liquid assets
as a percentage of net withdrawable savings and short-term borrowings) were
11.8% and 4.7%, respectively.
The Institutions have the authority to invest in various types of liquid
assets, including short-term United States Treasury obligations and securities
of various federal agencies, certificates of deposit at insured savings and
loans and banks, bankers' acceptances, and federal funds. The Institutions may
also invest a portion of their assets in certain commercial paper and corporate
debt securities. The Institutions are also authorized to invest in mutual funds
and stocks whose assets conform to the investments that the Institutions are
authorized to make directly.
At December 31, 1996, the market values of the Company's aggregate
investment securities, Federal Home Loan Bank stock and mortgage-backed
securities were approximately $49.8 million, $3.3 million and $38.7 million,
respectively. The following table sets forth the carrying value of the Company's
short-term investments, Federal Home Loan Bank stock, and mortgage-backed
securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Investment securities........................ $ 50,744 $ 22,600 $ 7,000
Interest-bearing deposits (a)................ 4,005 5,069 4,303
FHLB stock................................... 3,311 2,984 2,947
Mortgage-backed securities................... 38,542 45,014 48,376
-------- --------- --------
Total investments............................ $ 96,602 $ 75,667 $ 62,626
======== ========= ========
</TABLE>
______________
(a) Consist of overnight deposits and short-term non-negotiable certificates
of deposit.
17
<PAGE>
The Company's mortgage-backed securities include both fixed- and
adjustable-rate securities, though the Company emphasizes adjustable-rate
investments in order to enhance the interest rate sensitivity of its
interest-earning assets. At December 31, 1996, the Company's mortgage-backed
securities consisted of the following:
<TABLE>
<CAPTION>
Carrying Average
Amount Rate
-------- -------
(Dollars in thousands)
<S> <C> <C>
Variable rate:
Repricing in one year or less.......................... $ 24,969 7.10%
Fixed rate:
Maturing in five years or less......................... 5,234 6.70
Maturing in five to ten years.......................... 624 8.01
Maturing in more than ten years........................ 7,715 7.82
--------- ----
Total................................................ $ 38,542 7.20%
========= ====
</TABLE>
As members of the Federal Home Loan Bank System, the Institutions must
maintain minimum levels of liquid assets which vary from time to time. See
"Regulation -- Federal Home Loan Bank System." Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to return on loans.
Sources of Funds
General. Savings accounts and other types of deposits have
traditionally been an important source of the Institutions' funds for use in
lending and for other general business purposes. In addition to deposit
accounts, the Institutions derive funds from loan repayments, loan sales,
borrowings and operations. The availability of funds from loan sales is
influenced by general interest rates and other market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in deposits or
deposit inflows at less than projected levels and may be used on a longer term
basis to support expanded lending activities.
Deposits. The Institutions attract both short-term and long-term
deposits from the general public by offering a wide assortment of deposit
accounts and interest rates. The Institutions offer regular passbook accounts,
NOW accounts, money market accounts, fixed-interest-rate certificates with
varying maturities, and negotiated-rate jumbo
18
<PAGE>
certificates with various maturities. The Institutions also offer tax-deferred
individual retirement, Keogh retirement, and simplified employer plan retirement
accounts.
As of December 31, 1996, approximately 24%, or $75.1 million, of the
Institutions' aggregate deposits consisted of various savings and demand deposit
accounts from which customers are permitted to withdraw funds at any time
without penalty.
Interest earned on passbook and statement accounts is paid from the
date of deposit to the date of withdrawal and compounded semi-annually for the
savings bank and quarterly for the Association. Interest earned on NOW and money
market deposit accounts is paid from the date of deposit to the date of
withdrawal and compounded and credited monthly. The interest rate on these
accounts is established by management.
The Institutions also make available to their depositors a number of
certificates of deposit with various terms and interest rates to be competitive
in their respective market areas. These certificates have minimum deposit
requirements as well.
19
<PAGE>
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by the Institutions
between the dates indicated.
<TABLE>
<CAPTION>
Increase
Balance at (Decrease) Balance at
December 31, From Prior December 31,
1996 Year 1995
------------------- ----------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Passbook accounts................... $ 46,786 14.68% $ (869) $ 47,655 16.39%
NOW accounts........................ 20,385 6.40 823 19,562 6.73
Money market deposit accounts....... 7,931 2.49 (1,179) 9,110 3.13
Certificate accounts:
Jumbo certificates................ 17,205 5.40 17,107 98 .03
Fixed rate certificates:
12 months or less................ 88,630 27.81 4,927 83,703 28.78
13-24 months..................... 33,783 10.60 11,340 22,443 7.72
25-36 months..................... 33,270 10.44 1,141 32,129 11.05
37 months or greater............. 64,228 20.14 (5,053) 69,281 23.83
Variable rate certificate:
18 months........................ 6,487 2.04 (317) 6,804 2.34
---------- ------ ---------- ----------- ------
$ 318,705 100.00% $ 27,920 $ 290,785 100.00%
========== ====== ========== =========== ======
<CAPTION>
Increase
(Decrease) Balance at
From Prior December 31,
Year 1994
----------- -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Passbook accounts................... $ (3,997) $ 51,652 18.62%
NOW accounts........................ (551) 20,113 7.25
Money market deposit accounts....... (777) 9,887 3.56
Certificate accounts:
Jumbo certificates................ (2,744) 2,842 1.02
Fixed rate certificates:
12 months or less................ 10,442 73,261 26.41
13-24 months..................... (12,008) 34,451 12.42
25-36 months..................... 5,985 26,144 9.42
37 months or greater............. 19,268 50,013 18.03
Variable rate certificate:
18 months........................ (2,272) 9,076 3.27
---------- --------- ------
$ 13,346 $ 277,439 100.00%
========== ========= ======
</TABLE>
20
<PAGE>
The variety of deposit accounts offered by the Institutions has
permitted them to be competitive in obtaining funds and has allowed them to
respond with flexibility to, but without eliminating the threat of,
disintermediation (the flow of funds away from depository institutions such as
savings institutions into direct investment vehicles such as government and
corporate securities). In addition, the Institutions have become much more
subject to short-term fluctuation in deposit flows, as customers have become
more interest rate conscious. The ability of the Institutions to attract and
maintain deposits and their costs of funds have been, and will continue to be,
significantly affected by money market conditions.
The following table sets forth the Institutions' aggregate deposits (in
thousands) and related information as of December 31, 1996 by various product
categories.
<TABLE>
<CAPTION>
Interest Minimum Minimum Percentage of
Rate Term Category Amount Balances Total Savings
- -------- ------- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C>
1.31% None NOW Accounts $ 1 $ 20,385 6.40%
2.56 None Passbook & Statement Accounts 1 46,786 14.68
2.55 None Money Market Demand Accounts 2,500 7,931 2.49
Certificates of Deposit
-----------------------
5.00 18 months 18 Month Variable IRA Account 1 6,487 2.04
5.30 Various Fixed Term, Non-renewable 95,000 17,205 5.40
4.06 3 months Fixed Term, Variable Rate 500 1,306 .41
4.65 5 months Fixed Term, Variable Rate 500 336 .10
4.70 6 months Fixed Term, Variable Rate 500 18,044 5.66
5.64 9 months Fixed Term, Variable Rate 500 10,791 3.39
5.55 11 months Fixed Term, Variable Rate 500 23,711 7.44
5.06 12 months Fixed Term, Variable Rate 500 34,442 10.81
5.46 18 months 18 Month Fixed IRA Accounts 500 3,092 .97
6.05 19 months Fixed Term, Variable Rate 500 14,373 4.51
5.74 24 months Fixed Term, Variable Rate 500 16,318 5.12
5.97 30 months Fixed Term, Variable Rate 500 20,043 6.29
5.85 36 months Fixed Term, Variable Rate 500 13,227 4.15
6.97 37 months Fixed Term, Variable Rate 500 34,970 10.97
5.58 48 months Fixed Term, Variable Rate 500 2,983 .94
5.87 60 months Fixed Term, Variable Rate 500 13,641 4.28
7.15 72 months Fixed Term, Variable Rate 500 837 .26
7.31 84 months Fixed Term, Variable Rate 500 2,016 .63
6.93 96 months Fixed Term, Variable Rate 1,000 7,407 2.32
6.98 9-10 Years Fixed Term, Variable Rate 1,000 2,234 .70
3.27 1-8 Years Old fixed rate Certificates 1,000 140 .04
- ---- -------- ------
4.93% Total Deposits $318,705 100.00%
==== ======== ======
</TABLE>
21
<PAGE>
The following table sets forth the Company's average aggregate balances
and interest rates. Average balances are derived from balances which management
does not believe are materially different from daily balances (actual daily
balances cannot be obtained without undue effort and expense).
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing
demand deposits............... $ 28,691 1.66% $ 28,977 1.80% $ 31,397 1.81%
Savings deposits................ 48,556 2.59 49,160 2.68 54,584 2.64
Time deposits................... 233,330 5.76 213,930 5.72 189,353 4.54
--------- --------- ---------
$ 310,577 4.89 $ 292,067 4.82 $ 275,334 3.85
========= ========= =========
</TABLE>
The following table sets forth the aggregate time deposits in the
Company classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Less than 4%......................... $ 224 $ 1,940 $ 45,494
4% - 5.99%......................... 161,862 113,540 113,118
6% - 7.99%......................... 77,787 90,175 25,803
8% - 9.99%......................... 3,730 8,803 11,372
---------- ----------- ----------
$ 243,603 $ 214,458 $ 195,787
========== =========== ==========
</TABLE>
The following table sets forth the amount and maturities of the
Institutions' time deposits at December 31, 1996.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------
Less Than More Than
Rate One Year 1-2 Years 2-3 Years 3 Years Total
---- ------- --------- --------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Less than 4%.................... $ 167 $ 4 $ -- $ 53 $ 224
4% - 5.99%...................... 127,482 22,192 6,711 5,477 161,862
6% - 7.99%...................... 22,156 41,765 5,621 8,245 77,787
8% - 9.99%...................... 2,419 937 347 27 3,730
--------- ---------- ---------- ---------- ----------
$ 152,224 $ 64,898 $ 12,679 $ 13,802 $ 243,603
========= ========== ========== ========== ==========
</TABLE>
22
<PAGE>
The following table indicates the amount of the Institutions'
certificates of deposit and other deposits of $100,000 or more by time remaining
until maturity at December 31, 1996.
<TABLE>
<CAPTION>
Passbook, NOW
Certificates and MMDA
Maturity Period of Deposit Deposits
--------------- ------------ ----------
(In thousands)
<S> <C> <C>
Three months or less......................... $ 17,740 $ 7,809
Over three through six months................ 6,332 --
Over six through twelve months............... 5,280 --
Over twelve months........................... 8,370 --
--------- ----------
Total................................... $ 37,722 $ 7,809
========= ==========
</TABLE>
The following table sets forth the aggregate savings activities of the
Company for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited........... $ 12,928 $ (752) $ (7,332)
Interest credited.......................................... 14,992 14,098 7,960
-------- --------- ---------
Net increase (decrease) in deposits...................... $ 27,920 $ 13,346 $ 628
======== ========= =========
</TABLE>
Borrowings. Savings deposits are the primary sources of funds for the
Institutions' lending and investment activities and for their general business
purposes. The Bank and Association can also use advances (borrowings) from the
Federal Home Loan Banks of Indianapolis and Cincinnati, respectively, to
supplement their supplies of lendable funds, to meet deposit withdrawal
requirements and to extend the terms of their liabilities. Advances from the
Federal Home Loan Bank are typically secured by the Institutions' stock in its
Federal Home Loan Bank and a portion of the Institutions' first mortgage loans
or investment securities. At December 31, 1996, the Bank and Association had
$14.0 million and $12.5 million, respectively, of advances outstanding from the
Federal Home Loan Banks of Indianapolis and Cincinnati, respectively.
The Federal Home Loan Banks function as central reserve banks providing
credit for savings institutions and certain other member financial institutions.
As members, the Institutions are required to own capital stock in their Federal
Home Loan Bank and are authorized to apply for advances on the security of such
stock and certain of their home mortgages and other assets (principally,
securities which are obligations of, or guaranteed by, the United States)
provided certain standards related to creditworthiness have been met.
23
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the
Company's aggregate average yield on assets and average cost of liabilities for
the periods indicated and average yields earned and rates paid at December 31,
1996. Such yields and costs are derived by dividing income or expenses by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from balances which management does not
believe are materially different from daily balances (actual daily balances
cannot be obtained without undue effort and expense).
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
At December 31, 1996
------------------------------------
1996 Average
-------------------------------
Balance Average Rate Balance Interest Yield/Cost
------- ------------ ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan portfolio (a)............................. $282,601 8.02% $276,752 $ 22,060 7.97%
Mortgage-backed securities..................... 38,542 7.20 42,326 2,880 6.80
Short term investments and other
interest-earning assets (b)................... 58,060 6.92 54,846 3,627 6.61
-------- ----- -------- -------- ------
Total interest-earning assets............... 379,203 7.77 373,924 28,567 7.64
Non-interest-earning assets..................... 17,552 16,483
-------- --------
Total assets................................ $396,755 $390,407
======== ========
Interest-bearing liabilities:
Deposits...................................... $318,705 4.93 $310,577 15,183 4.89
FHLB advances................................. 26,549 5.83 25,987 1,522 5.86
-------- ----- -------- -------- ------
Total interest-bearing liabilities:......... 345,254 5.00 336,564 16,705 4.96
----- --------
Non-interest-bearing liabilities................ 7,556 9,289
-------- --------
Total liabilities........................... 352,810 345,853
Shareholders' equity............................ 43,945 44,554
-------- --------
Total liabilities and shareholders'
equity.................................... $396,755 $390,407
======== ========
Net interest income............................. $ 11,862
========
Interest rate spread............................ 2.77% 2.68%
===== ======
Net yield on interest-earning assets............. 3.17%
======
Ratio of average interest-earning assets
to average interest-bearing liabilities....... 111.10%
=======
<CAPTION>
----------------------------------------------------------------------------
1995 1994
---------------------------------- -----------------------------------
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan portfolio (a)............................. $268,110 $ 21,078 7.86% $243,735 $ 17,841 7.32%
Mortgage-backed securities..................... 46,529 3,137 6.74 53,830 3,095 5.75
Short term investments and other
interest-earning assets (b)................... 20,427 1,393 6.82 18,305 941 5.14
-------- --------- ------ -------- -------- ------
Total interest-earning assets............... 335,066 25,608 7.64 315,870 21,877 6.92
Non-interest-earning assets..................... 14,630 12,657
-------- --------
Total assets................................ $349,696 $328,527
======== ========
Interest-bearing liabilities:
Deposits...................................... $292,067 14,079 4.82 $275,334 10,599 3.85
FHLB advances................................. 4,586 289 6.31 894 48 5.29
-------- -------- ------ -------- -------- ------
Total interest-bearing liabilities:......... 296,653 14,368 4.84 276,228 10,647 3.85
-------- ------ -------- ------
Non-interest-bearing liabilities................ 6,797 7,801
-------- --------
Total liabilities........................... 303,450 284,029
Shareholders' equity............................ 46,246 44,498
-------- --------
Total liabilities and shareholders'
equity.................................... $349,696 $328,527
======== ========
Net interest income............................. $ 11,240 $ 11,230
======== ========
Interest rate spread............................ 2.80% 3.07%
====== ======
Net yield on interest-earning assets............ 3.35% 3.56%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities....... 112.95% 114.35%
====== ======
</TABLE>
(a) Excludes income earned on late charges and inspection fees. Average
balances include non-accrual loans.
(b) Includes interest-bearing deposits in other financial institutions,
investment securities and FHLB stock.
24
<PAGE>
Subsidiary Activities
As federally chartered savings institutions, the Institutions are
permitted to invest an amount equal to 2% of their respective assets in
subsidiaries with an additional investment of 1% of assets where such investment
serves primarily community, inner-city and community-development purposes. Under
such limitations at December 31, 1996, the Bank and Association were authorized
to invest up to approximately $9.9 million and $2.2 million, respectively, in
the stock of or loans to subsidiaries. In addition, institutions meeting
regulatory capital requirements and certain other tests, which the Institutions
do, may invest up to 50% of their regulatory capital in conforming first
mortgage loans to subsidiaries.
The Company owns all of the stock of the Bank and Association and
operates as a multiple thrift holding company. The Company also owns all of the
stock of Indiana Title Insurance Company, which provides title insurance
services in the communities it serves.
The Bank has one direct wholly-owned subsidiary, Ameriana Financial
Services, Inc. ("AFS"). AFS offers insurance products through (i) its ownership
of Ameriana Insurance Agency, New Castle, Indiana, a full service life and
casualty insurance agency, and (ii) its ownership of an interest in Family
Financial Life Insurance Company, New Orleans, Louisiana which offers a full
line of credit related insurance products. AFS also operates a brokerage
facility in conjunction with Linsco/Private Ledger. The Association has one
direct wholly-owned subsidiary, Deer Park Service Corporation, which operates a
brokerage facility in conjunction with Money Concepts/Pinnacle Financial
Advisors, Inc.
At December 31, 1996, the Bank's and Association's investments in, and
loans to, their subsidiaries were approximately $3.3 million and $4,000,
respectively, consisting of direct equity investments and lines of credit.
Savings institutions whose deposits are insured by the SAIF are
required to give the FDIC and the OTS 30 days' prior notice before establishing
or acquiring a new subsidiary, or commencing any new activity through an
existing subsidiary. Both the FDIC and the Director of the OTS have authority to
order termination of subsidiary activities determined to pose a risk to the
safety or soundness of the institution. In addition, regulatory capital
requirements require savings institutions to phase-out the amount of their
investments in and extensions of credit to subsidiaries engaged in activities
not permissible to national banks from capital in determining regulatory capital
25
<PAGE>
compliance. AFS' indirect insurance underwriting activities are not permissible
to national banks, but the Bank does not anticipate that any resulting deduction
from capital will materially affect its capital for regulatory compliance
purposes. See "Regulation -- Regulatory Capital Requirements."
Competition
The Institutions experience substantial competition both in attracting
and retaining savings deposits and in the making of mortgage and other loans.
Direct competition for savings deposits comes from other savings institutions,
commercial banks, and credit unions located in the Institutions' respective
market areas. Additional significant competition for savings deposits comes from
money market mutual funds and corporate and government debt securities.
The primary factors in competing for loans are interest rates and loan
origination fees and the range of services offered by the various financial
institutions. Competition for origination of real estate loans normally comes
from other thrift institutions, commercial banks, mortgage bankers, mortgage
brokers and insurance companies. The Institutions have been able to compete
effectively in their respective market areas.
The Institutions have offices in Henry, Hancock, Hendricks and Madison
Counties in Indiana and in Hamilton County, Ohio. In addition to the financial
institutions which have offices in these counties, the Institutions compete with
several commercial banks and savings institutions in surrounding counties, many
of which have assets which are substantially larger than the Institutions'.
Regulation
General. As federally chartered savings institutions, the Institutions
are subject to extensive regulation by the OTS. The lending activities and other
investments of the Institutions must comply with various federal regulatory
requirements. The OTS periodically examines the Institutions for compliance with
various regulatory requirements. The FDIC also has the authority to conduct
special examinations of SAIF members. The Institutions must file reports with
the OTS describing their activities and financial condition. The Institutions
are also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). This
supervision and regulation is intended primarily for the protection of
depositors. As a savings and
26
<PAGE>
loan holding company, the Company is subject to the OTS' regulation,
examination, supervision and reporting requirements. Certain of these regulatory
requirements are referred to below or appear elsewhere herein.
Prompt Corrective Regulatory Action. Under the Federal Deposit
Insurance Corporation Improvement Act ("FDICIA"), the federal banking regulators
are required to take prompt corrective action if an insured depository
institution fails to satisfy certain minimum capital requirements. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized" institution) may be: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses. The capital
restoration plan must include a guarantee by the institution's holding company
that the institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters, under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution into capital compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized" institution, as well as any undercapitalized institution that
did not submit an acceptable capital restoration plan, may be subject to
regulatory demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution could also
be required to divest the institution or the institution could be required to
divest subsidiaries. The senior executive officers of a significantly
undercapitalized institution may not receive bonuses or increases in
compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls below a "critical capital level," the institution will be subject to
conservatorship or receivership within
27
<PAGE>
90 days unless periodic determinations are made that forbearance from such
action would better protect the deposit insurance fund. Unless appropriate
findings and certifications are made by the appropriate federal bank regulatory
agencies, a critically undercapitalized institution must be placed in
receivership if it remains critically undercapitalized on average during the
calendar quarter beginning 270 days after the date it became critically
undercapitalized.
Under implementing regulations, the federal banking regulators,
including the OTS, generally will measure a depository institution's capital
adequacy on the basis of the institution's total risk-based capital ratio (the
ratio of its total capital to risk-weighted assets), Tier 1 risk-based capital
ratio (the ratio of its core capital to risk-weighted assets) and leverage ratio
(the ratio of its core capital to adjusted total assets). Under the regulations,
a savings institution that is not subject to an order or written directive to
meet or maintain a specific capital level will be deemed "well capitalized" if
it also has: (i) a total risk-based capital ratio of 10% or greater; (ii) a Tier
1 risk-based capital ratio of 6.0% or greater; and (iii) a leverage ratio of
5.0% or greater. An "adequately capitalized" savings institution is an
institution that does not meet the definition of well capitalized and has: (i) a
total risk-based capital ratio of 8.0% or greater; (ii) a Tier 1 capital
risk-based ratio of 4.0% or greater; and (iii) a leverage ratio of 4.0% or
greater (or 3.0% or greater if the institution has a composite 1 OTS rating). An
"undercapitalized" savings institution is an institution that has (i) a total
risk-based capital ratio less than 8.0%; or (ii) a Tier 1 risk-based capital
ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0% (or 3.0% if
the institution has a composite 1 OTS rating). A "significantly
undercapitalized" savings institution is defined as an institution that has: (i)
a total risk- based capital ratio of less than 6.0%; or (ii) a Tier 1 risk-based
capital ratio of less than 3.0%; or (iii) a leverage ratio of less than 3.0%. A
"critically undercapitalized" savings institution is defined as an institution
that has a ratio of "tangible equity" core capital to total assets of less than
2.0%. Tangible equity is defined as core capital plus cumulative perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory goodwill and certain purchased mortgage servicing rights. The OTS
may reclassify a well capitalized savings institution as adequately capitalized
and may require an adequately capitalized or undercapitalized institution to
comply with the supervisory actions applicable to institutions in the next lower
capital category (but may not reclassify a significantly undercapitalized
institution as critically undercapitalized) if the OTS determines, after notice
28
<PAGE>
and an opportunity for a hearing, that the institution is in an unsafe or
unsound condition or that the institution has received and not corrected a less-
than-satisfactory rating for any composite rating category. The Institutions are
classified as well capitalized under the regulations.
Standards for Safety and Soundness. FDICIA requires each federal bank
regulatory agency to prescribe, by regulation, safety and soundness standards
for institutions under its authority. In 1995, these agencies, including the
OTS, released Interagency Guidelines Establishing Standards for Safety and
Soundness and published a final rule establishing deadlines for submission and
review of safety and soundness compliance plans. The guidelines require savings
institutions to maintain internal controls and information systems and internal
audit systems that are appropriate for the size, nature and scope of the
institution's business. The guidelines also establish certain basic standards
for loan documentation, credit underwriting, interest rate risk exposure and
asset growth. The guidelines further provide that savings institutions should
maintain safeguards to prevent the payment of compensation, fees and benefits
that are excessive or that could lead to material financial loss and should take
into account factors such as comparable compensation practices at comparable
institutions. If the OTS determines that a savings institution is not in
compliance with the safety and soundness guidelines, it may require the
institution to submit an acceptable plan to achieve compliance with the
guidelines. A savings institution must submit an acceptable compliance plan to
the OTS within 30 days of receipt of a request for such a plan. Failure to
submit or implement a compliance plan may subject the institution to regulatory
sanctions. Management believes that the Bank and Association meet substantially
all the standards adopted in the interagency guidelines and, therefore, does not
believe that the implementation of these regulatory standards will materially
affect their operations.
Additionally, each federal banking agency is required to establish
standards relating to the adequacy of asset and earnings quality. In 1995, these
agencies, including the OTS, issued proposed guidelines relating to asset and
earnings quality. Under the proposed guidelines, a savings institution should
maintain systems, commensurate with its size and the nature and scope of its
operations, to identify problem assets and prevent deterioration in those assets
as well as to evaluate and monitor earnings and ensure that earnings are
sufficient to maintain adequate capital and reserves. Management does not
believe that the asset quality and earnings standards, in the form proposed by
the OTS, would have a material effect on the Bank or Association.
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Federal Home Loan Bank System. The Institutions are members of the
Federal Home Loan Bank System. The Federal Home Loan Bank System consists of 12
regional Federal Home Loan Banks subject to supervision and regulation by the
Federal Housing Finance Board ("FHFB"). The Federal Home Loan Banks provide a
central credit facility primarily for member institutions. As members of the
Federal Home Loan Banks of Indianapolis and Cincinnati, the Institutions are
required to acquire and hold shares of capital stock in their respective Federal
Home Loan Banks amounts at least equal to the greater of 1% of the aggregate
unpaid principal of their residential mortgage loans, home purchase contracts
and similar obligations at the beginning of each year, or 5% of outstanding
advances (borrowings) from the Federal Home Loan Banks, whichever is greater.
The Bank and Association were in compliance with this requirement at December
31, 1996, with investments in Federal Home Loan Bank stock of $2.4 million and
$900,000, respectively.
The Federal Home Loan Banks serve as reserve or central banks for their
member institutions within their assigned regions. They are funded primarily
from proceeds derived from the sale of consolidated obligations of the Federal
Home Loan Bank System. They make advances to members in accordance with policies
and procedures established by the FHFB and their Boards of Directors. As of
December 31, 1996, the Bank and Association had $14.0 million and $12.5 million,
respectively, of advances from their respective Federal Home Loan Banks.
Liquidity Requirements. The Institutions are required to maintain
average daily balances of liquid assets (cash, certain time deposits, bankers'
acceptances, specified obligations of the United States government, states or
federal agencies, shares in mutual funds with certain restricted investment
policies and highly rated corporate debt, and commercial paper) equal to a
monthly average of not less than a specified percentage (currently 5%) of their
respective net withdrawable savings deposits plus short-term borrowings. The
Institutions are also required to maintain average daily balances of short-term
liquid assets at a specified percentage (currently 1%) of the total of their
respective net withdrawable savings accounts and borrowings payable in one year
or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The liquidity ratios of the Bank and Association at December 31,
1996 were 11.8% and 4.7%, respectively (much of which qualified as short-term
liquidity). The Institutions exceeded their monthly average requirements in
1996. A substantial sustained decline in savings deposits
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<PAGE>
could adversely affect the Institutions' liquidity which could result in
restricted operations and additional borrowings from the Federal Home Loan Bank.
Insurance of Accounts. The Institutions are required to pay assessments
based on a percentage of their insured deposits to the FDIC for insurance of
their accounts by the FDIC through the SAIF. Under the Federal Deposit Insurance
Act, the FDIC is required to set semi-annual assessments for SAIF-insured
institutions at a level necessary to maintain the designated reserve ratio of
the SAIF to 1.25% of estimated insured deposits or to a higher percentage of
estimated insured deposits that the FDIC determines to be justified for that
year by circumstances indicating a significant risk of substantial future losses
to the SAIF.
Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is based on
the institution's capital level and supervisory evaluations. Based on the data
reported to regulators for date closest to the last day of the seventh month
preceding the semi-annual assessment period, institutions are assigned to one of
three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
For the past several semi-annual periods, institutions with
SAIF-assessable deposits, like the Institutions, have been required to pay
higher deposit insurance premiums than institutions with deposits insured by the
BIF. In order to recapitalize the SAIF and address the premium disparity, the
recently-enacted Deposit Insurance Funds Act of 1996 authorized the FDIC to
impose a one-time special assessment on institutions with SAIF-assessable
deposits based on the amount determined by the FDIC to be necessary to increase
the reserve levels of the SAIF to the
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<PAGE>
designated reserve ratio of 1.25% of insured deposits. Institutions were
assessed at the rate of 65.7 basis points based on the amount of their
SAIF-assessable deposits as of March 31, 1995. As a result of the special
assessment the Bank and Association incurred a pre-tax expense of $1,532,000 and
$347,000, respectively, during the quarter ended September 30, 1996.
The FDIC has proposed a new assessment schedule for SAIF deposit
insurance pursuant to which the assessment rate for well-capitalized
institutions with the highest supervisory ratings would be reduced to zero and
institutions in the lowest risk assessment classification will be assessed at
the rate of 0.27% of insured deposits. Until December 31, 1999, however, SAIF-
insured institutions, will be required to pay assessments to the FDIC at the
rate of 6.5 basis points to help fund interest payments on certain bonds issued
by the Financing Corporation ("FICO") an agency of the federal government
established to finance takeovers of insolvent thrifts. During this period, BIF
members will be assessed for these obligations at the rate of 1.3 basis points.
After December 31, 1999, both BIF and SAIF members will be assessed at the same
rate for FICO payments.
SAIF members generally are prohibited from converting to the BIF, also
administered by the FDIC, or merging with or transferring assets to a BIF member
before the date on which the SAIF first meets or exceeds the designated reserve
ratio of 1.25% of insured deposits. The FDIC, however, may approve such a
transaction in the case of a SAIF member in default or if the transaction
involves an insubstantial portion of the deposits of each participant. In
addition, mergers, transfers of assets and assumptions of liabilities may be
approved by the appropriate bank regulator so long as deposit insurance premiums
continue to be paid to the SAIF for deposits attributable to the SAIF members
plus an adjustment for the annual rate of growth of deposits in the surviving
bank without regard to subsequent acquisitions. Each depository institution
participating in a SAIF-to-BIF conversion transaction is required to pay an exit
fee to the SAIF equal to 0.90% of the deposits transferred and an entrance fee
to the BIF based on the current reserve ratio of the BIF. A savings institution
could adopt a commercial bank or savings bank charter if the resulting bank
remains a SAIF member.
The FDIC has adopted a regulation which provides that any insured
depository institution with a ratio of Tier 1 capital to total assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition, which
would constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however,
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will not initiate termination of insurance proceedings if the depository
institution has entered into and is in compliance with a written agreement with
its primary regulator, and the FDIC is a party to the agreement, to increase its
Tier 1 capital to such level as the FDIC deems appropriate. Tier 1 capital is
defined as the sum of common stockholders' equity, noncumulative perpetual
preferred stock (including any related surplus) and minority interests in
consolidated subsidiaries, minus all intangible assets other than mortgage
servicing rights and qualifying supervisory goodwill eligible for inclusion in
core capital under OTS regulations and minus identified losses and investments
in certain securities subsidiaries. Insured depository institutions with Tier 1
capital equal to or greater than 2% of total assets may also be deemed to be
operating in an unsafe or unsound condition notwithstanding such capital level.
The regulation further provides that in considering applications that must be
submitted to it by savings institutions, the FDIC will take into account whether
the savings institution is meeting the Tier 1 capital requirement for state
non-member banks of 4% of total assets for all but the most highly rated state
non-member banks.
Qualified Thrift Lender Test. The Institutions are subject to OTS
regulations which use the concept of a Qualified Thrift Lender to determine
eligibility for Federal Home Loan Bank advances and for certain other purposes.
A savings institution that does not meet the Qualified Thrift Lender test must
either convert to a bank charter or comply with the following restrictions on
its operations: (i) the institution may not engage in any new activity or make
any new investment, directly or indirectly, unless such activity or investment
is permissible for a national bank; (ii) the branching powers of the institution
shall be restricted to those of a national bank; (iii) the institution shall not
be eligible to obtain any advances from its Federal Home Loan Bank; and (iv)
payment of dividends by the institution shall be subject to the rules regarding
payment of dividends by a national bank. Upon the expiration of three years from
the date the institution ceases to be a Qualified Thrift Lender, it must cease
any activity, and not retain any investment not permissible for a national bank
and immediately repay any outstanding Federal Home Loan Bank advances (subject
to safety and soundness considerations).
To qualify as a Qualified Thrift Lender, a savings institution must
either qualify as a "domestic building and loan association" under the Internal
Revenue Code or maintain at least 65% of its "portfolio" assets in Qualified
Thrift Investments. Portfolio assets are defined as total assets less
intangibles, property used by a savings institution in its business and
liquidity investments in an amount not exceeding 20% of assets. Qualified Thrift
Investments
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consist of: (i) loans, equity positions or securities related to domestic,
residential real estate or manufactured housing and educational, small business
and credit card loans and (ii) 50% of the dollar amount of residential mortgage
loans subject to sale under certain conditions but do not include any intangible
assets. Subject to a 20% of portfolio assets limit, however, savings
institutions are able to treat as Qualified Thrift Investments 200% of their
investments in loans to finance "starter homes" and loans for construction,
development or improvement of housing and community service facilities or for
financing small businesses in "credit-needy" areas. A savings institution must
maintain its status as a Qualified Thrift Lender for nine out of every 12
months. A savings institution that fails to maintain Qualified Thrift Lender
status will be permitted to requalify once and if its fails the Qualified Thrift
Lender Test a second time, it will become immediately subject to all penalties
as if all time limits on such penalties had expired. Failure to qualify as a
Qualified Thrift Lender results in a number of sanctions, including the
imposition of certain operating restrictions imposed on national banks and a
restriction on obtaining additional advances from the Federal Home Loan Bank
System. Upon failure to qualify as a Qualified Thrift Lender for two years, a
savings institution must convert to a commercial bank.
At December 31, 1996, approximately 86% and 94% of the Bank's and
Association's respective assets were invested in Qualified Thrift Investments as
currently defined, substantially in excess of the percentage required to qualify
them as Qualified Thrift Lenders.
Regulatory Capital Requirements. Under OTS regulations, savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3% of adjusted total assets and
"total" capital, a combination of core and "supplementary" capital, equal to at
least 8% of "risk-weighted" assets. In addition, the OTS has recently adopted
regulations which impose certain restrictions on savings institutions that have
a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1
capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital
to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated
Composite 1 under the OTS examination rating system). See "-- Prompt Corrective
Regulatory Action." For purposes of the regulation, Tier 1 capital has the same
definition as core capital which is defined as common shareholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
related surplus, minority interests in the equity accounts of fully consolidated
subsidiaries, certain nonwithdrawable accounts and
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pledged deposits and "qualifying supervisory goodwill." Core capital is
generally reduced by the amount of the savings institution's intangible assets
for which no market exists. Limited exceptions to the deduction of intangible
assets are provided for purchased mortgage servicing rights and qualifying
supervisory goodwill. Tangible capital is given the same definition as core
capital but does not include qualifying supervisory goodwill and is reduced by
the amount of all the savings institution's intangible assets with only a
limited exception for purchased mortgage servicing rights. Both core and
tangible capital are further reduced by an amount equal to the savings
institution's debt and equity investments in subsidiaries engaged in activities
not permissible for national banks, unless the subsidiaries are engaged in
activities undertaken as agent for customers or in mortgage banking activities,
or the subsidiaries are depository institutions or holding companies therefor.
Adjusted total assets are a savings institution's consolidated total
assets, as determined under generally accepted accounting principles, adjusted
for certain goodwill amounts, by a prorated portion of the assets of
subsidiaries in which the savings institution holds a minority interest and
which are not engaged in activities for which the capital rules require
deduction of its debt and equity investments. Adjusted total assets are reduced
by the amount of assets that have been deducted from capital, the portion of the
savings institution's investments in subsidiaries that must be netted against
capital under the capital rules and, for purposes of the core capital
requirement, by qualifying supervisory goodwill.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to use both core capital and supplementary
capital provided the amount of supplementary capital used does not exceed the
saving institution's core capital. Supplementary capital is defined to include
certain preferred stock issues, nonwithdrawable accounts and pledged deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other capital instruments and a portion of the savings institution's general
loss allowances. Total core and supplementary capital are reduced by the amount
of certain high loan-to-value ratio land loans and non-residential construction
loans, and equity investments other than those deducted from core and tangible
capital.
The risk-based capital requirement is measured against the amount of
risk-weighted assets which equals the sum of the amount of each asset and
credit-equivalent amount of each off-balance sheet item after such asset or item
is multiplied by an assigned risk weight. Under the OTS risk-weighting system,
cash and securities backed by the
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full faith and credit of the U.S. government are given a 0% risk weight.
Mortgage-backed securities that qualify under the Secondary Mortgage Enhancement
Act, including those issued, or fully guaranteed as to principal and interest,
by the Federal National Mortgage Association or the FHLMC are assigned a 20%
risk weight. Single-family first mortgages not more than 90 days past due with
loan-to-value ratios under 80%, multi-family mortgages (maximum 36 dwelling
units) with loan-to-value ratios under 80% and average annual occupancy rates
over 80%, and certain qualifying loans for the construction of one- to
four-family residences pre-sold to home purchasers are assigned a risk weight of
50%. Consumer loans and residential construction loans are assigned a risk
weight of 100%.
In determining compliance with the regulatory capital standards, all of
a savings institution's investments in and extensions of credit to any
subsidiary engaged in activities not permissible for a national bank are to be
deducted from the savings institution's capital. Certain subsidiaries are
exempted from this treatment, including any subsidiary engaged in impermissible
activities solely as agent for its customers (unless the FDIC determines
otherwise), subsidiaries engaged solely in mortgage banking, and subsidiary
depository institutions and holding companies therefor that were acquired prior
to May 1, 1989. At December 31, 1996, the Bank had $3.2 million, or 9% of its
total regulatory capital, invested in or lent to its subsidiary, AFS, which is
indirectly engaged in insurance underwriting activities not permissible to
national banks. Due to the relatively small percentage of the Bank's capital
invested in or lent to its subsidiary, the Bank does not anticipate that the
required deductions described above will have a material effect on the Bank's
capital or that the subsidiary will cease its insurance agency activities.
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The table below represents the Institutions' historical capital
position relative to their various minimum regulatory capital requirements at
December 31, 1996.
<TABLE>
<CAPTION>
The Bank The Association
------------------- -------------------
Percent Percent
of of
Amount Assets(1) Amount Assets(1)
------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible Capital........................... $ 35,828 11.0% $ 5,295 7.3%
Tangible Capital Requirement............... 4,857 1.5 1,088 1.5
--------- ----- --------- ------
Excess................................... $ 30,971 9.5% $ 4,207 5.8%
========= ===== ========= ======
Core Capital............................... $ 35,828 11.0% $ 5,295 7.3%
Core Capital Requirement................... 9,715 3.0 2,176 3.0
--------- ----- --------- ------
Excess................................... $ 26,113 8.0% $ 3,119 4.3%
========= ===== ========= ======
Total Capital (i.e., Core and
Supplementary Capital)................... $ 36,237 20.0% $ 5,475 16.0%
Risk-Based Capital Requirement............. 14,482 8.0 2,743 8.0
--------- ----- --------- ------
Excess................................... $ 21,755 12.0% $ 2,732 8.0%
========= ===== ========= ======
</TABLE>
- -------------------------
(1) Based on adjusted total assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirement.
The OTS has proposed an amendment to its capital regulations
establishing a minimum core capital ratio of 3% for savings institutions rated
composite 1 under the OTS rating system. For all other savings institutions, the
minimum core capital ratio will be from 4% to 5%. In determining the amount of
additional core capital, the OTS will assess both the quality of risk management
systems and the level of overall risk in each individual savings institution
through the supervisory process on a case-by-case basis. As a result, while the
exact effect on the Institutions cannot be predicted at this time, based on the
OTS proposal, it is anticipated that the Bank's and Association's core capital
requirements could increase to between 4% and 5%.
The OTS requires savings institutions with more than a "normal" level
of interest rate risk to maintain additional total capital. A savings
institution's interest rate risk is measured in terms of the sensitivity of its
"net portfolio value" to changes in interest rates. Net portfolio value is
defined, generally, as the present value of expected cash inflows from existing
assets and off-balance sheet contracts less the present value of expected cash
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<PAGE>
outflows from existing liabilities. A savings institution will be considered to
have a "normal" level of interest rate risk exposure if the decline in its net
portfolio value after an immediate 200 basis point increase or decrease in
market interest rates (whichever results in the greater decline) is less than
two percent of the current estimated economic value of its assets. A savings
institution with a greater than normal interest rate risk is required to deduct
from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets.
The OTS calculates the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital will be based on
the institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS will require any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis. Based upon the
Institutions' current level of interest rate risk exposure, neither is subject
to additional capital requirements.
In addition to requiring generally applicable capital standards for
savings institutions, the Director of OTS is authorized to establish the minimum
level of capital for a savings institution at such amount or at such ratio of
capital-to-assets as the Director determines to be necessary or appropriate for
such institution in light of the particular circumstances of the institution.
The Director of OTS may treat the failure of any savings institution to maintain
capital at or above such level as an unsafe or unsound practice and may issue a
directive requiring any savings institution which fails to maintain capital at
or above the minimum level required by the Director to submit and adhere to a
plan for increasing capital. Such an order may be enforced in the same manner as
an order issued by the FDIC.
Loans-to-One-Borrower Limitations. Savings institutions generally are
subject to the lending limits applicable to national banks. With certain
limited exceptions, an institution's loans and extensions of credit
38
<PAGE>
outstanding at one time to a person and not fully secured shall not exceed 15%
of the unimpaired capital and surplus of the savings institution on an unsecured
basis. Loans and extensions of credit fully secured by certain readily
marketable collateral may represent an additional 10% of unimpaired capital and
surplus. Savings institutions are additionally authorized to make loans to one
borrower, for any purpose, in an amount not to exceed $500,000 or, by order of
the Director of OTS, in an amount not to exceed the lesser of $30,000,000 or 30%
of unimpaired capital and surplus to develop residential housing, provided: (i)
the purchase price of each single-family dwelling in the development does not
exceed $500,000; (ii) the savings institution is in compliance with the fully
phased-in regulatory capital standards; (iii) the loans comply with applicable
loan-to-value requirements; and (iv) the aggregate amount of loans made under
this authority does not exceed 150% of unimpaired capital and surplus. A savings
institution is also authorized to make loans to one borrower to finance the sale
of real property acquired in satisfaction of debts in an amount up to 50% of
unimpaired capital and surplus. The lending limits generally do not apply to
purchase money mortgage notes taken from the purchaser of real estate acquired
by the institution in satisfaction of debts previously contracted if no new
funds are advanced to the borrower and the savings institution is not placed in
a more detrimental position as a result of the sale. Certain types of loans are
exempted from the lending limits, including loans secured by savings deposits.
Management does not believe the foregoing loans-to-one-borrower limits
will have a substantial impact on the Institutions, except in the event of the
extension of lines of credit to borrowers who are in excess of the loans-to-
one-borrower limits. As to such borrowers, the Institutions would be obliged to
sell existing loans, enter into participation agreements, or not enter into any
additional loans pending reduction of outstanding loan balances with such
borrowers, before extending additional lines of credit. At December 31, 1996,
the maximum amounts the Bank and Association could lend to one borrower under
the 15% standard were $5.4 million and $800,000, respectively. At that date, the
Bank's and Association's largest loans to one borrower were $1.6 million and
$600,000, respectively.
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a thrift institution must maintain average daily reserves equal to 3% of
the first $49.3 million of transaction accounts, plus 10% of the remainder.
These percentages are subject to adjustment by the Federal Reserve Board.
Because required reserves
39
<PAGE>
must be maintained in the form of vault cash or in a noninterest-bearing
account at a Federal Reserve Bank, theeffect of the reserve requirement is to
reduce the amount of the institution's interest-earning assets. At December
31, 1996, the Institutions met their respective reserve requirements.
Savings and Loan Holding Companies. Since its acquisition of all of the
Bank's stock in March 1990, the Company has been a savings and loan holding
company within the meaning of the Home Owners' Loan Act. As such, the Company is
registered with the OTS and is subject to regulation, examination, supervision
and reporting requirements. Upon its acquisition of the Association in August
1992, the Company became a multiple savings and loan holding company subject to
additional regulatory requirements. As subsidiaries of the Company, the
Institutions are subject to certain restrictions in their dealings with the
Company and its affiliates.
The Home Owners' Loan Act generally prohibits a savings and loan
holding company, without prior approval of the Director of the OTS, from (i)
acquiring control of any other savings institution or savings and loan holding
company or acquiring all or substantially all of the assets thereof, or (ii)
acquiring or retaining more than 5% of the voting shares of a savings
institution or holding company thereof which is not a subsidiary. A savings and
loan holding company may not acquire as a separate subsidiary savings
institution which has principal offices outside of the state where the principal
office of its subsidiary institution is located, except (i) in the case of
certain emergency acquisitions approved by the FDIC, (ii) if the holding company
controlled (as defined) such institutions as of March 5, 1987, or (iii) when the
statutes of the state where an institution to be acquired is located
specifically authorize such an acquisition. Under certain circumstances a
savings and loan holding company is permitted to acquire, with the approval of
the Director of the OTS, up to 15% of previously unissued voting shares of an
undercapitalized savings institution for cash without that savings institution
being deemed controlled by the holding company. Except with the prior approval
of the Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may also acquire control of any savings institution, other
than a subsidiary of such holding company, or any other savings and loan holding
company.
A bank holding company, upon receipt of appropriate approvals from the
Federal Reserve Board and the Director of the OTS, is authorized to acquire
control of any savings institution or holding company thereof wherever
40
<PAGE>
located. Similarly, a savings and loan holding company may acquire control of a
bank. A savings institution acquired by a bank holding company (i) may, so long
as the thrift continues to meet the qualified thrift lender test, continue to
branch to the same extent as permitted to other non-affiliated savings
institutions similarly chartered in the state, and (ii) cannot continue any
non-banking activities not authorized for bank holding companies. Savings
institutions acquired by a bank holding company may, if located in a state where
the bank holding company is legally authorized to acquire a bank, be converted
to the status of a bank but deposit insurance assessments and payments continue
to be paid by the institution to the SAIF. A savings institution so converted to
a bank becomes subject to the branching restrictions applicable to banks. Under
certain circumstances, a savings institution acquired by a bank holding company
may be merged with an existing bank subsidiary of the holding company (deposit
insurance assessments and payments attributable to the merged savings
institution will continue to be those of and paid to SAIF pursuant to a
prescribed formula).
Transactions between savings institutions and any affiliate are
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
savings institution is any company or entity which controls, is controlled by or
is under common control with the savings institution. In a holding company
context, the parent holding company of a savings institution and any companies
(including other savings institutions) which are controlled by such parent
holding company are affiliates of the savings institution. Generally, Sections
23A and 23B (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and contain
an aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable, to
the institution or subsidiary as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and similar other types of transactions. In addition to the
restrictions imposed by Section 23A and 23B, no savings institution may (i) loan
or otherwise extend credit to an affiliate, except for an affiliate which
engages only in activities which are permissible for bank holding companies, or
(ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the
41
<PAGE>
savings institution. The Director of the OTS is granted the authority to impose
more stringent restrictions when appropriate for reasons of safety and
soundness.
Extensions of credit by savings institutions to executive officers,
directors and principal shareholders are subject to the restrictions set forth
in Section 22(h) of the Federal Reserve Act and the Federal Reserve Board's
Regulation O thereunder. Under Section 22(h), loans to an executive officer and
to holders of more than 10% of any class of a savings institution's voting
stock, and certain affiliated entities of either, may not exceed together with
all other outstanding loans to such person and affiliated entities the
institution's loan to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus and an additional 10% of such
capital and surplus for loans fully secured by certain readily marketable
collateral). Section 22(h) also prohibits loans, above amounts prescribed by the
appropriate federal banking agency, to directors, executive officers and holders
of more than 10% of any class of a savings institution's voting stock, and their
respective affiliates, unless such is approved in advance by a majority of the
board of directors of the institution with an "interested" director not
participating in the voting. The Federal Reserve Board has prescribed the loan
amount (which includes all other outstanding loans to such person), as to which
such prior board of director approval is required, as being the greater of
$25,000 or 5% of capital and surplus (up to $500,000). Further, Section 22(h)
and Regulation O require that loans to directors, executive officers and
principal shareholders be made on terms substantially the same as offered in
comparable transactions to other persons. Section 22(h) also generally prohibits
a savings institution from paying the overdrafts of any of its executive
officers or directors.
Savings institutions are also subject to the requirements and
restrictions of Section 22(g) of the Federal Reserve Act on loans to executive
officers (as implemented by the Federal Reserve Board's Regulation O) and the
restrictions of 12 U.S.C. ss.1972 on certain tying arrangements and extensions
of credit by correspondent banks. Section 22(g) of the Federal Reserve Act
requires that loans to executive officers or depository institutions not be made
on terms more favorable than those afforded than other borrowers, requires
approval by the board of directors of a depository institution for extensions of
credit to executive officers of the institution, and imposes reporting
requirements for and additional restrictions on the type, amount and terms of
credits to such officers. Section 1972 prohibits a depository institution from
extending credit to or offering any other services, or fixing or varying the
42
<PAGE>
consideration for such extensions of credit or service, on the condition that
the customer obtain some additional service from the institution or certain of
its affiliates or not obtain services of a competitor of the institution,
subject to certain exceptions. Section 1972 also prohibits extensions of credit
to executive officers, directors, and greater than 10% stockholders of a
depository institution by any other institution which has a correspondent
banking relationship with the institution, unless such extension of credit is on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons and does not involve more than the normal risk
of repayment or present other unfavorable features.
Prior to its acquisition of the Association in August 1992, the Company
operated as a unitary savings and loan holding company. There generally were no
restrictions on the business activities of the Company as a unitary savings and
loan holding company, or those of the Company's nonbanking subsidiaries. Upon
the Company's acquisition of the Association, the Company became a multiple
savings and loan holding company. As a result, the activities of the Company and
any of its subsidiaries (other than the Bank and Association) have thereafter
been subject to certain restrictions. The Home Owners' Loan Act limits the
business activities of multiple savings and loan holding companies and their
nonbanking subsidiaries to (i) furnishing or performing management services for
a subsidiary savings institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by the
former Federal Savings and Loan Insurance Corporation by regulation as of March
6, 1987 to be engaged in by multiple savings and loan holding companies or (vii)
subject to prior approval of the OTS, those activities authorized by the Federal
Reserve Board as permissible for bank holding companies, unless the OTS
prohibits or limits such activities for savings and loan holding companies. The
activities authorized by the OTS for multiple savings and loan holding companies
as of March 6, 1987 include a variety of activities including, among other
things, the origination, purchase, sale and servicing of various loans, the
provision of clerical services primarily for affiliates, the provision of
certain other management services to affiliates and other multiple holding
companies and the underwriting or reinsuring of credit life insurance in
connection with extensions of credit by a savings association subsidiary or
another savings and loan holding company or subsidiary thereof. The OTS
43
<PAGE>
has also approved various real estate-related activities for multiple holding
companies including the acquisition of unimproved lots or the acquisition of
unimproved real estate for prompt development and subdivision, the development,
subdivision and construction of improvement of acquired real estate for sale or
rental, the acquisition of improved real estate and mobile homes to be held for
rental or sale, the acquisition of improved real estate for remodeling,
rehabilitation, modernization, renovation or demolition or rebuilding for sale
or rental and the maintenance and management of improved real estate. In the
event any savings association subsidiary of a multiple savings and loan holding
company fails to satisfy the Qualified Thrift Lender test and does not requalify
within one year, however, the holding company would be required to register as a
bank holding company and become subject to the more stringent activity
limitations applicable to bank holding companies.
In addition to the foregoing restrictions, if the Director of the OTS
determines that there is reasonable cause to believe that the continuation by a
savings and loan holding company of an activity constitutes a serious risk to
the financial safety, soundness, or stability of its subsidiary savings
institutions, the Director of the OTS may impose such restrictions as deemed
necessary to address such risk, including limiting (i) payment of dividends by
the savings institution(s), (ii) transactions between the savings institution(s)
and their affiliates, and (iii) any activities of the savings institution(s)
that might create a serious risk that the liabilities of the holding company and
its affiliates may be imposed on the savings institution.
Federal and State Taxation
The Company and its subsidiaries file a consolidated federal income tax
return on a calendar year end. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur. Any income of the Company and its other subsidiaries would
not be subject to the bad debt deductions allowed to the Institutions, whether
or not consolidated tax returns are filed. The Institutions, however, must
reduce their taxable incomes for purposes of computing their bad debt reserve
deductions under the percentage of taxable income method by their allocable
shares of loss attributable to the activities of non-thrift members of the
consolidated group if those members' activities are functionally related to the
activities of the Institutions.
44
<PAGE>
Federal Taxation. Thrift institutions are subject to the provisions of
the Internal Revenue Code of 1986 (the "Code") in the same general manner as
other corporations. However, institutions such as the Bank and the Association
which meet certain definitional tests and other conditions prescribed by the
Code may benefit from certain favorable provisions regarding their deductions
from taxable income for annual additions to their bad debt reserve. For purposes
of the bad debt reserve deduction, loans are separated into "qualifying real
property loans," which generally are loans secured by interests in certain real
property, and nonqualifying loans, which are all other loans. The bad debt
reserve deduction with respect to nonqualifying loans must be based on actual
loss experience. For tax years beginning before January 1, 1996, the amount of
the bad debt reserve deduction with respect to qualifying real property loans
may be based upon actual loss experience (the "experience method") or a
percentage of taxable income determined without regard to such deduction (the
"percentage of taxable income method"). The Bank and the Association
historically used whichever method resulted in the highest bad debt reserve
deduction in any given year.
Legislation that is effective for tax years beginning after December
31, 1995 requires institutions to recapture into taxable income over a six
taxable year period the portion of the tax loan reserve that exceeds the
pre-1988 tax loan loss reserve. The Bank and the Association will no longer be
allowed to use the percentage of taxable income method for tax loan loss
provisions, but would be allowed to use the experience method of accounting for
bad debts. There will be no future effect on net income from the recapture
because the taxes on these bad debts reserves has already been accrued as a
deferred tax liability.
The legislation provides for a suspension of this recapture if the
institution meets the "residential loan requirement." This requirement is met if
the principal amount of residential loans that the institution originates during
its first taxable year after December 31, 1995, exceeds the average of the
principal amounts of residential loans made by the institution during the six
most recent taxable years beginning before January 1, 1996. If the requirement
is met, the recapture is suspended until a taxable year beginning December 31,
1997, or until the residential loan requirement is not met in a subsequent year.
The Bank and the Association expect to meet this requirement for the taxable
year ended December 31, 1996.
45
<PAGE>
Under the percentage of taxable income method, the bad debt reserve
deduction for qualifying real property loans was computed as a percentage, which
Congress has reduced from as much as 60% in prior years to 8% of taxable income,
with certain adjustments, effective for taxable years beginning after 1986. The
allowable deduction under the percentage of taxable income method (the
"percentage bad debt deduction") for taxable years beginning before 1987 was
scaled downward in the event that less than 82% of the total dollar amount of
the assets of an association were within certain designated categories. When the
percentage method bad debt deduction was lowered to 8%, the 82% qualifying
assets requirement was lowered to 60%. For all taxable years, there is no
deduction in the event that less than 60% of the total dollar amount of the
assets of an association falls within such categories. Moreover, in such case,
the Bank could be required to recapture, generally over a period of up to four
years, their existing bad debt reserve. As of December 31, 1996, more than the
required amount of the Bank's total assets fell within such category.
The bad debt deduction under the percentage of taxable income method
was subject to certain limitations. First, the amount added to the reserve for
losses on qualifying real property loans may not have exceeded the amount
necessary to increase the balance of such reserve at the close of the taxable
year to 6% of such loans outstanding at the end of the taxable year. Further,
the addition to the reserve for losses on qualifying real property loans could
not have exceeded the amount which, when added to that year's addition to the
bad debt reserve for losses on nonqualifying loans, equaled the amount by which
12% of total deposits or withdrawable accounts of depositors at year-end
exceeded the sum of surplus, undivided profits and reserves at the beginning of
the year. Finally, the percentage bad debt deduction under the percentage of
taxable income method was reduced by the deduction for losses on nonqualifying
loans.
Earnings appropriated to an institution's bad debt reserve and claimed
as a tax deduction are not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless such amount is included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.
The Company's federal income tax returns have been audited through
1988.
46
<PAGE>
State Taxation. The State of Indiana imposes a franchise tax which is
assessed on qualifying financial institutions, such as the Bank. The tax is
based upon federal taxable income before net operating loss carryforward
deductions (adjusted for certain Indiana modifications) and is levied at a rate
of 8.5% of adjusted taxable income. The Association is subject to an Ohio
franchise tax based on its net worth plus certain reserve amounts. Total net
worth for this purpose is reduced by certain exempt assets. The resulting net
taxable value is taxed at a rate of 1.5%.
The Company's Indiana income tax returns have been audited through
1989, and its Ohio franchise tax returns have not been audited during the past
five years. For additional information, see Note 10 of the Consolidated
Financial Statements in Part II of this Report.
Employees
As of December 31, 1996, the Company and subsidiaries had approximately
141 full-time and 21 part-time employees. The employees are not represented by a
collective bargaining agreement. Management believes the Company and its
subsidiaries enjoy good relations with their personnel.
Executive Officers
<TABLE>
<CAPTION>
Age at
Name December 31, 1996 Principal Position
- ---- ----------------- ------------------
<S> <C> <C>
Harry J. Bailey 54 President and Chief Executive
Officer of the Bank
Ronald M. Holloway 47 Senior Vice President and Chief
Lending Officer of the Bank
Ralph E. Kerwin 60 Senior Vice President, Deposit
Services of the Bank
Michael C. Olson 47 President and Chief Executive
Officer of the Association
Howard J. Pruim 52 Senior Vice President - Secretary/Treasurer
and Chief Financial Officer of the Bank
Nancy A. Rogers 54 Senior Vice President - Marketing Services
of the Bank
Edward J. Wooton 43 Senior Vice President - Subsidiaries
of the Bank
Jan F. Wright 53 Senior Vice President - Branch Operations
of the Bank
</TABLE>
47
<PAGE>
Unless otherwise noted, all officers have held the position described
below for at least the past five years.
Harry J. Bailey has been President of the Company and the Bank since
May 1990 and was appointed Chief Executive Officer in December 1990. Mr. Bailey
had been the Executive Vice President and Chief Operating Officer of the Company
since its formation in 1989 and of the Bank since February 1984. He has been a
director of the Bank since 1987 and a director of the Company since its
formation.
Ronald M. Holloway has been employed by the Bank since 1973 and was
elected Senior Vice President and Chief Lending Officer in December 1995. Mr.
Holloway previously was responsible for the loan servicing department of the
Bank.
Ralph E. Kerwin has been employed by the Bank since 1964 and heads the
funds acquisition function as Senior Vice President - Deposit Services.
Michael C. Olson was elected to the position of President and Chief
Executive Officer of the Association in March 1995. He was formerly Senior Vice
President - Branch Operations and Marketing of the Bank and the Chief Executive
Officer of Citizens Federal prior to its merger with the Bank in 1988. He has
been employed in the thrift industry since 1974.
Howard J. Pruim, a certified public accountant, has been Senior Vice
President - Treasurer and Chief Financial Officer of the Bank since 1973 and was
elected Corporate Secretary in 1991. He also directs the accounting, data
processing and personnel functions. For the previous seven years, he was with
Ernst and Young as an auditor.
Nancy A. Rogers was elected as Senior Vice President - Marketing
Services in March 1995. She has been employed at the Bank since 1964 and most
recently served as Vice President and Director of Advertising and Public
Relations.
Edward J. Wooton joined the staff of the Bank in August 1985 as Senior
Vice President - Subsidiaries and directs diversified operations of the Bank. He
came to the Bank from the Management Advisory Services Group of Deloitte and
Touche, and prior to that he was an operations officer of a thrift institution
in the Chicago area.
Jan F. Wright was elected as Senior Vice President - Branch Operations
in March 1995 and has been employed by the Bank since 1972. He previously held
the position of Vice President and Director of Loan Origination and Processing.
48
<PAGE>
Item 2. Properties
- -------------------
Offices and Other Material Properties
The following table sets forth the location of the Company's office
facilities at December 31, 1996 and certain other information relating to these
properties at that date.
<TABLE>
<CAPTION>
Year Total Net Owned/ Square
Acquired Investment Book Value Leased Feet
-------- ---------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
The Bank:
Main Office
2118 Bundy Avenue
New Castle, Indiana............. 1958 $ 2,995,796 $ 960,798 Owned 20,500
1311 Broad Street
New Castle, Indiana............. 1890 1,402,372 505,433 Owned 18,000
956 North Beechwood Street
Middletown, Indiana............. 1971 448,559 136,311 Owned 5,500
22 North Jefferson
Knightstown, Indiana............ 1979 578,580 223,462 Owned 3,400
1810 North State Street
Greenfield, Indiana............. 1995 1,530,657 1,337,824 Owned 5,800
99 Dan Jones Road
Avon, Indiana................... 1995 1,351,586 1,341,425 Owned 12,600
1754 East 53rd Street
Anderson, Indiana............... 1993 400,417 338,797 Owned 1,500
The Association:
7200 Blue Ash Road
Cincinnati, Ohio................ 1992 853,284 661,960 Owned 9,100
1171 East Kemper Road
Cincinnati, Ohio
(Loan production office)........ 1996 23,712 21,624 Leased 2,600
Ameriana Insurance Agency
2020 S. Memorial Drive
New Castle, Indiana............. 1987 197,969 93,111 Leased 1,200
812 Central Avenue
Anderson, Indiana............... 1995 838 587 Leased 800
------------ ------------
Total..................... $ 9,783,770 $ 5,621,332
============ ============
</TABLE>
49
<PAGE>
The Institutions use on-line processing terminals. Most of the data
processing is done by an in-house data processing center. At December 31, 1996,
the total net book value of the Company's offices and equipment (including
leasehold improvements) was $5.6 million.
Item 3. Legal Proceedings
- -------------------------
The Company and its subsidiaries are not a party to any material
pending legal proceedings. See Note 2 to the Consolidated Financial Statements
in Part II of this Report.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
- -----------------------------------------------------------------------------
Matters
- -------
The information set forth (i) in Note 16 of the Notes to Consolidated
Financial Statements under "Item 7. Financial Statements" and (ii) under the
section titled "Market Information" in the Annual Report, which section is
included in the information furnished as Exhibit 13 hereof, is incorporated
herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information set forth under the section titled "Selected Financial
Data" in the Annual Report, which section is included in the information
furnished as Exhibit 13 hereof, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The information set forth under the section titled "Management's
Discussion and Analysis" in the Annual Report, which section is included in the
information furnished as Exhibit 13 hereof, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Independent Auditor's Report and related consolidated financial
statements and notes in the Annual Report, which report, statements and notes
are included in the information furnished as Exhibit 13 hereof, are incorporated
herein by reference.
50
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
For information concerning the directors of the Company, the
information contained under the section captioned "Proposal I -- Election of
Directors" in the Proxy Statement is incorporated herein by reference. For
information concerning the executive officers of the Company, see "Item 1.
Business -- Executive Officers" under Part I of the Report, which is
incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Security Ownership" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Security Ownership" in the Proxy Statement.
(c) Changes In Control
The Company is not aware of any arrangements, including any
pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Company.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Transactions with Management" in the Proxy
Statement.
51
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
1. Report of Independent Auditor
2. Financial Statements
(a) Consolidated Statements of Condition at December
31, 1996 and 1995
(b) Consolidated Statements of Income for Each of the
Three Years in the Period Ended December 31, 1996
(c) Consolidated Statements of Shareholders' Equity for
Each of the Three Years in the Period Ended
December 31, 1996
(d) Consolidated Statements of Cash Flows for Each of
the Three Years in the Period Ended December 31,
1996
(e) Notes to Consolidated Financial Statements
All schedules for which provision is made in the applicable
accounting regulations are either not required under the
related instructions or are inapplicable, and therefore have
been omitted.
3. Exhibits
3 Ameriana Bancorp Articles of Incorporation and
Bylaws -- incorporated herein by reference to the
Company's Registration Statement on Form S-4 filed
with the SEC on September 18, 1989
10.1 Ameriana Bancorp stock option plans and other
option agreements -- 1987 Stock Option Plan
incorporated herein by reference to the Company's
Registration Statement on Form S-8 filed with the
SEC on March 30, 1990; 1996 Stock Option and
Incentive Plan incorporated herein by reference to
the Company's Registration Statement on Form S-8
filed with the SEC on May 17, 1996; other option
agreements with Charles M. Drackett, Jr., Michael
E. Kent and Ronald R. Pritzke incorporated herein
by reference to the Company's Registration
Statement on Form S-8 filed with the SEC on May 17,
1996.
52
<PAGE>
10.2 Ameriana Bank, F.S.B. Employment Agreements with
Harry J. Bailey, Howard J. Pruim and Edward J.
Wooton -- agreements with Messrs. Bailey and Pruim
incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the SEC on
March 25, 1994; agreement with Mr. Wooton
incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the SEC on
March 28, 1995
10.3 Ameriana Bancorp Consulting Agreement with Paul W.
Prior -- incorporated herein by reference to the
Company's Annual Report on Form 10-K filed with the
SEC on March 28, 1991.
11 Statement re Computation of Earnings Per Share
13 Portions of Annual Report
21 Subsidiaries
23 Consent of Geo. S. Olive & Co. LLC
27 Financial Data Schedule
4. Reports on Form 8-K
The Company did not file a current report on Form 8-K during the fourth
quarter of the fiscal year covered by this report.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the date set
forth below.
AMERIANA BANCORP
Date: March 20, 1997 By: /s/ Harry J. Bailey
------------------------------------
Harry J. Bailey
President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities indicated as of the date set forth above.
By: /s/ Paul W. Prior By: /s/ Harry J. Bailey
---------------------------- --------------------------------
Paul W. Prior Harry J. Bailey
Chairman of the Board President, Chief Executive
Officer and a Director
(Principal Executive Officer)
By: /s/ Howard J. Pruim By: /s/ Donald C. Danielson
------------------------------- --------------------------------
Howard J. Pruim Donald C. Danielson
Senior Vice President and Director
Chief Financial Officer
(Principal Financial and
Accounting Officer)
By: /s/ Charles M. Drackett, Jr. By: /s/ R. Scott Hayes
------------------------------- --------------------------------
Charles M. Drackett, Jr. R. Scott Hayes
Director Director
By: /s/ Michael E. Kent By: /s/ Ronald R. Pritzke
------------------------------- --------------------------------
Michael E. Kent Ronald R. Pritzke
Director Director
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
3 Ameriana Bancorp Articles of Incorporation and Bylaws --
incorporated herein by reference to the Company's
Registration Statement on Form S-4 filed with the SEC on
September 18, 1989
10.1 Ameriana Bancorp stock option plans and other option
agreements -- 1987 Stock Option Plan incorporated herein
by reference to the Company's Registration Statement on
Form S-8 filed with the SEC on March 30, 1990; 1996 Stock
Option and Incentive Plan incorporated herein by
reference to the Company's Registration Statement on
Form S-8 filed with the SEC on May 17, 1996; other option
agreements with Charles M. Drackett, Jr., Michael E. Kent
and Ronald R. Pritzke incorporated herein by reference to
the Company's Registration Statement on Form S-8 filed
with the SEC on May 17, 1996
10.2 Ameriana Bank, F.S.B. Employment Agreements with Harry J.
Bailey, Howard J. Pruim and Edward J. Wooton --
agreements with Messrs. Bailey and Pruim incorporated
herein by reference to the Company's Annual Report on
Form 10-K filed with the SEC on March 25, 1994; agreement
with Mr. Wooton incorporated herein by reference to the
Company's Annual Report on Form 10-K filed with the SEC
on March 28, 1995
10.3 Ameriana Bancorp Consulting Agreement with Paul W.
Prior -- incorporated by reference to the Company's
Annual Report on Form 10-K filed with the SEC on
March 28, 1991.
11 Computation of Earnings Per Share
13 Portions of Annual Report
21 Subsidiaries
23 Consent of Geo. S. Olive & Co. LLC
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 11
Computation of Earnings Per Share
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE ON PRIMARY AND FULLY DILUTED BASES
Ameriana Bancorp
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Average Shares Outstanding:
Net income................................................... $ 2,403,505 $ 3,237,371 $ 4,711,594
Average number of common shares outstanding.................. 3,335,813 3,511,257 3,542,592
Earnings per average shares outstanding (1).................. $ .72 $ .92 $ 1.33
Primary:
Net income................................................... $ 2,403,505 $ 3,237,371 $ 4,711,594
Average number of common shares outstanding.................. 3,335,813 3,511,257 3,542,592
Add incremental shares:
Stock option............................................... 16,667 38,761 54,608
----------- ----------- -----------
Adjusted average shares...................................... 3,352,480 3,550,018 3,597,200
Primary earnings per share (1)............................... $ .72 $ .91 $ 1.31
Fully Diluted:
Net Income................................................... $ 2,403,505 $ 3,237,371 $ 4,711,594
Average number of common shares outstanding.................. 3,335,813 3,511,257 3,542,592
Add incremental shares:
Stock options.............................................. 27,568 44,176 57,675
----------- ----------- -----------
Adjusted average shares...................................... 3,363,381 3,555,433 3,600,267
Fully diluted earnings per share (1)......................... $ .71 $ .91 $ 1.31
</TABLE>
- ----------------
(1) Due to the immaterial difference between primary and fully diluted
earnings per share and earnings per average share outstanding, earnings
per average share outstanding only is disclosed.
The above per share calculations reflect the 4 for 3 stock split declared
in February 1996.
<PAGE>
Exhibit 13
Portions of Annual Report
<PAGE>
===================================
AMERIANA BANCORP AND SUBSIDIARIES
-----------------------------------
Selected Financial Data
===================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Financial Condition 1996 1995 1994 1993 1992(3)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 4,939 $ 4,474 $ 5,513 $ 4,034 $ 4,394
Interest-bearing deposits and investment
securities 54,749 27,669 11,303 22,016 23,581
Loans and mortgage-backed securities 321,142 311,007 307,496 288,625 283,588
Other assets 15,925 13,663 11,042 11,168 11,583
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 396,755 $ 356,813 $ 335,354 $ 325,843 $ 323,146
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits $ 318,705 $ 290,785 $ 277,439 $ 276,811 $ 277,941
Other liabilities 34,105 18,913 12,325 5,301 4,068
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 352,810 309,698 289,764 282,112 282,009
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 43,945 47,115 45,590 43,731 41,137
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 396,755 $ 356,813 $ 335,354 $ 325,843 $ 323,146
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Earnings 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 28,567 $ 25,608 $ 21,877 $ 22,515 $ 22,765
Interest expense 16,705 14,368 10,647 11,290 12,268
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 11,862 11,240 11,230 11,225 10,497
Provision for loan losses 66 117 181 324 551
Other income 2,433 2,214 2,589 2,548 1,817
Other expense 10,520 8,155 8,495 7,632 6,526
- ------------------------------------------------------------------------------------------------------------------------------------
3,709 5,182 5,143 5,817 5,237
Income taxes 1,305 1,945 1,881 2,257 2,003
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 2,404 3,237 3,262 3,560 3,234
Income from discontinued operations -- -- 1,450 -- --
Income from change in accounting principle -- -- -- 127 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,404 $ 3,237 $ 4,712 $ 3,687 $ 3,234
====================================================================================================================================
Earnings per share (1):
Income from continuing operations $ .72 $ .92 $ .92 $ 1.01 $ .93
Income from discontinued operations -- -- .41 -- --
Income from change in accounting principle -- -- -- .04 --
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ .72 $ .92 $ 1.33 $ 1.05 $ .93
====================================================================================================================================
Dividends declared per share (1) $ .57 $ .48 $ .64 $ .41 $ .34
====================================================================================================================================
Book value per share (1) $ 13.35 $ 13.34 $ 12.97 $ 12.33 $ 11.75
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
Other Selected Data 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Return on average assets .62% .93% 1.43% 1.14% 1.10%
Return on average equity 5.39 7.00 10.59 8.67 8.09
Ratio of average equity to average assets 11.41 13.22 13.54 13.12 13.60
Dividend payout ratio (2) 78% 52% 49% 40% 37%
Number of full-service offices:
Ameriana Bank 6 6 6 5 5
Deer Park Federal Savings and Loan Association 1 2 2 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated to reflect three-for-two stock split declared in 1993 and four-for-
three stock split declared in 1996.
(2) Based on income from continuing operations and excluding special dividends.
(3) Includes the effect of the acquisition of Deer Park Federal on August 31,
1992.
(4) Amounts have been restated to conform to current classifications.
2
<PAGE>
----------------------------------------
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------
General
Ameriana Bancorp (the "Company") was incorporated under Indiana law for the
purpose of becoming the holding company for Ameriana Savings Bank, F.S.B.(the
"Bank"). In 1990, the Company acquired all of the Bank's common stock in
connection with the Bank's reorganization into a holding company form of
ownership. In 1991, the Company formed Indiana Title Insurance Company for the
purpose of underwriting and issuing title insurance policies and serving as an
escrow agent to close loans for others. In 1992, the Company acquired Deer Park
Federal Savings and Loan Association (the "Association"). Collectively, the
Bank and Association are referred to as the "Institutions" in this discussion
and analysis. In 1995, the Company purchased a minority interest in a limited
partnership organized to acquire and manage real estate investments which
qualify for federal tax credits.
The largest components of the Company's total revenue and total expense are
interest income and interest expense, respectively. Consequently, the Company's
earnings are primarily dependent on its net interest income, which is determined
by (i) the difference between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities ("interest rate spread"),
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. Net income also is significantly affected by levels of other
income and operating expenses.
Management believes that interest rate risk, i.e., the sensitivity of income
and net asset values to changes in interest rates, is one of the most
significant determinants of the Company's ability to generate future earnings.
Accordingly, the Company has implemented a long-range plan intended to minimize
the effect of changes in interest rates on operations. The asset and liability
management policies of the Company are designed to stabilize long-term net
interest income by managing the repricing terms, rates and relative amounts of
interest-earning assets and interest-bearing liabilities.
The Company has maintained a consistent percentage of fixed-rate mortgage
loans in its portfolio for several years. Its portfolio at December 31, 1996,
was composed of 60% adjustable-rate mortgages and short-term balloon loans and
26% of long-term fixed-rate mortgage loans. This compared with a portfolio mix
at December 31, 1993, of 70% and 26%, respectively. During this three-year
period, the Company has increased its consumer loan portfolio to increase
revenues while maintaining a reasonably short maturity on its portfolio. The
Company's emphasis on interest-sensitive assets has resulted in a more stable
and predictable level of net interest income in recent years. The Company has
not experienced a higher default ratio on its adjustable-rate loan portfolio
compared with its fixed-rate loan portfolio.
The Company's primary goal in the management of its liabilities is to maintain
the stability of deposit accounts. During the year ended December 31, 1996, the
Company offered special rates on selected certificate accounts with maturities
approximating the expected duration or repricing frequency of its current loan
originations. In addition, the Company increased its activity in negotiated-
rate certificates primarily with local and county governmental entities. The
results of the Company's deposit acquisition activities were reflected in a
total increase of $27.9 million. While other forms of investments continued to
provide alternatives to the Institutions' certificate offerings during 1996, the
Company was able to compete with these investing alternatives by providing
additional investment choices for its customers through its securities brokerage
and insurance products.
The Company has continued to increase the level of non-interest-sensitive fee
income producing assets. These activities include an equity interest in a life
insurance company, a full-service general lines property and casualty insurance
agency, a title insurance company, and a brokerage service. During 1996, sales
of brokerage and insurance products set a new record for commissions earned.
The Company continued to increase its loan servicing portfolio through the
origination and sale of fixed-rate mortgage loans and by purchasing the
servicing rights to mortgage loans. While the amount of loans serviced for
others increased by $19 million from the 1995 level, fee income increased only
slightly from the preceding year's amount due to the amortization of capitalized
servicing rights.
Interest Sensitivity
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 3l, l996.
This table assumes no prepayments of loans, no early redemption of
3
<PAGE>
----------------------------------------
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------
securities at call dates, no early withdrawals of certificates of deposit and no
extension of deposit account sensitivity relating to core deposit stability.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
6 6 More
Months Months l to 3 3 to 5 5 to 10 l0 to 20 than
or Less to l Year Years Years Years Years 20 Years Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
- ---------------------------------------------------------------------------------------------------------------------------
Balloon and adjustable-
rate loans (1) $112,113 $ 52,258 $ 20,727 $ 5,041 $ 6,326 $ -- $ -- $196,465
Fixed-rate loans (1) 8,144 549 2,404 6,314 18,467 35,400 14,842 86,120
Other loans 8,373 240 8,098 24,472 2,970 103 -- 44,256
Other investments (2) 6,917 499 5,300 16,000 200 29,144 -- 58,060
- ---------------------------------------------------------------------------------------------------------------------------
Total 135,547 53,546 36,529 51,827 27,963 64,647 14,842 384,901
- ---------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
- ---------------------------------------------------------------------------------------------------------------------------
Deposits:
Certificate accounts 98,425 56,757 74,619 8,800 5,002 -- -- 243,603
Money market
deposit accounts 7,931 -- -- -- -- -- -- 7,931
Passbook accounts 46,786 -- -- -- -- -- -- 46,786
NOW accounts 20,385 -- -- -- -- -- -- 20,385
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits 173,527 56,757 74,619 8,800 5,002 -- -- 318,705
FHLB advances 17,900 -- -- 986 7,663 -- -- 26,549
- ---------------------------------------------------------------------------------------------------------------------------
Total 191,427 56,757 74,619 9,786 12,665 -- -- 345,254
- ---------------------------------------------------------------------------------------------------------------------------
Asset/liability gap $(55,880) $ (3,211) $(38,090) $ 42,041 $ 15,298 $64,647 $14,842 $ 39,647
- ---------------------------------------------------------------------------------------------------------------------------
Additional Gap Information:
- ---------------------------------------------------------------------------------------------------------------------------
Gap as a percentage
of total assets (14.08)% (.81)% (9.60)% 10.60% 3.86% 16.29% 3.73%
Cumulative gap $(55,880) $(59,091) $(97,181) $(55,140) $(39,842) $24,805 $39,647
Cumulative gap as
a percentage of
total assets (14.08)% (14.89)% (24.49)% (13.89)% (10.03)% 6.26% 9.99%
===========================================================================================================================
</TABLE>
(1) Includes mortgage loans and mortgage-backed securities. Amounts are stated
without reductions of $5.699 million for deferred fees, unearned income,
undisbursed loan proceeds and allowance for loan losses.
(2) Includes investment securities, interest-bearing deposits and stock in
Federal Home Loan Bank.
Yields Earned and Rates Paid
The following tables set forth the weighted average yields earned on the
Company's assets and the weighted average interest rates paid on the Company's
liabilities, together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 3l
- --------------------------------------------------------------------------------
Weighted Average Yield: 1996 l995 l994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans and mortgage-backed securities 7.82% 7.70% 7.04%
Other interest-earning assets 6.61 6.82 5.14
All interest-earning assets 7.64 7.64 6.92
- --------------------------------------------------------------------------------
Weighted Average Cost:
- --------------------------------------------------------------------------------
Deposits 4.89 4.82 3.85
Federal Home Loan Bank advances 5.86 6.31 5.29
All interest-bearing liabilities 4.96 4.84 3.85
- --------------------------------------------------------------------------------
Interest Rate Spread (spread between weighted average
yield on all interest-earning assets and all
interest-bearing liabilities) 2.68 2.80 3.07
- --------------------------------------------------------------------------------
Net Yield (net interest income as a percentage of
average interest-earning assets) 3.17 3.35 3.56
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
----------------------------------------
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
At December 3l
- -------------------------------------------------------------------------------
Weighted Average Interest Rates: 1996 l995 l994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans and mortgage-backed securities 7.92% 7.93% 7.33%
Other interest-earning assets 6.92 6.37 6.19
Total interest-earning assets 7.77 7.79 7.28
Deposits 4.93 5.00 4.29
Federal Home Loan Bank advances 5.83 6.23 5.99
Total interest-bearing liabilities 5.00 5.06 4.33
Interest rate spread 2.77 2.73 2.95
- -------------------------------------------------------------------------------
</TABLE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (l) changes in volume
(changes in volume multiplied by old rate); (2) changes in rate (changes in rate
multiplied by old volume); and (3) other changes. No material amounts of loan
fees or out-of-period interest is included in the table. Dollars are in
thousands.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 3l
- ------------------------------------------------------------------------------------------------------------------
l996 vs. l995 l995 vs. l994
- ------------------------------------------------------------------------------------------------------------------
Increase(Decrease) Increase(Decrease)
Due to Change in Due to Change in
- ------------------------------------------------------------------------------------------------------------------
Net Net
Volume Rate Other Change Volume Rate Other Change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and mortgage-backed securities $ 342 $379 $ 5 $ 726 $1,201 $1,965 $113 $3,279
Other interest-earning assets 2,347 (42) (71) 2,234 109 307 36 452
- ------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $2,689 $337 $(66) $2,960 $1,310 $2,272 $149 $3,731
- ------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits $ 892 $200 $ 13 $1,105 $ 644 $2,673 $163 $3,480
FHLB advances 1,350 (21) (97) 1,232 195 9 38 242
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $2,242 $179 $(84) $2,337 $ 839 $2,682 $201 $3,722
==================================================================================================================
</TABLE>
Results of Operations
Net Interest Income: The Company's loan and mortgage-backed securities
portfolio increased 3.3% to $321,142,000 at December 3l, l996, from $311,007,000
as of December 3l, l995. The portfolio increased 1.1% at year-end 1995 over the
amount of $307,496,000 at December 31, 1994. Because available investable funds
have occasionally exceeded demand for variable-rate mortgage loans in the
Company's market area, the Company has periodically purchased mortgage-backed
securities to supplement its portfolio.
Loans originated for portfolio in l996, which totaled $100,094,000, reflected
a 41.3% increase from originations of $70,820,000 in l995. This increase
reflected a higher level of mortgage lending which was partially offset by a
decrease in consumer lending activity during the year. In l994, originations
totaled $98,729,000. The decrease in activity in 1995 compared with 1994 was
attributable to a lower level of mortgage lending as refinancing activities
slowed from 1994 due to higher interest rates. The Institutions did not
actively solicit fixed-rate mortgage loans through the use of fee or rate
incentives. Fixed-rate loans in the amount of $18,359,000, $11,180,000 and
$8,622,000 were originated and sold into the secondary market during 1996, 1995
and 1994, respectively.
During 1996 and 1995, the Company purchased $2,532,000 and $4,964,000,
respectively, in mortgage-backed securities. No purchases were made in 1994 as
a greater portion of the Institutions' investable funds were used in loan
originations. All purchases have been in the form of 15-year fixed-rate
government agency insured securities.
5
<PAGE>
----------------------------------------
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------
Interest-earning assets at December 31, 1996, increased to $379,202,000
compared with $341,660,000 in l995 and $321,745,000 in l994. The increases in
1996 and 1995, which were primarily for investment securities, resulted from
leveraging of assets through the use of advances from the Federal Home Loan Bank
system and increases in deposits. Loans and mortgage-backed securities
increased $10,135,000 in 1996 from 1995.
The average yield on the Company's loan and mortgage-backed securities
portfolio was 7.82% in l996, compared with yields of 7.70% in l995 and 7.04% in
l994. The higher yield in 1996 reflected the generally higher level of interest
rates during much of the year and the repricing of variable-rate products in
line with the current higher levels. The yield on total interest-earning assets
was 7.64% in l996 compared with 7.64% in l995 and 6.92% in l994 and reflected
the increased amount of investment securities acquired in late 1995 and early
1996. Total interest income was $28,567,000, $25,608,000 and $21,877,000 for
1996, 1995 and 1994, respectively.
The average cost of interest-bearing liabilities was 4.96% in l996, 4.84% in
l995 and 3.85% in l994. Interest expense increased 16.3% in l996 to $16,705,000
compared with $14,368,000 in l995, primarily because of the increase in the
average amount of both FHLB advances and deposits outstanding. Interest expense
in l994 was $l0,647,000.
Net interest income was $11,862,000, $11,240,000 and $11,230,000 in 1996, 1995
and 1994, respectively. Changes in the level of net interest income resulted in
a net yield of 3.17% for l996. This compared with a net yield of 3.35% in 1995
and 3.56% in 1994. Through leveraging of its assets, the Company increased the
level of net interest income. However, the Company's net yield decreased during
1996 as leveraging activities produced smaller yields than its core business
activities. The Company's net interest spread at December 31, 1996, was 2.77%
compared with 2.73% at December 31, 1995.
Provision for Loan Losses: The provision for loan losses decreased to $66,000
in l996 versus $117,000 in l995 and $181,000 in l994. The provisions reflect
management's evaluation of prevailing economic conditions and their potential
effect on loan defaults. Non-performing assets (e.g. real estate owned, non-
accrual loans and loans 90 days or more past due) were $1,137,000, $1,474,000
and $845,000 at December 31, 1996, 1995 and 1994, respectively. The Company
believes it has established adequate allowances for loan losses in accordance
with generally accepted accounting principles.
Other Income: Other income was $2,433,000, $2,214,000 and $2,589,000 for 1996,
1995 and 1994, respectively. The increase in 1996 from 1995 was attributable to
increased volume in insurance and brokerage commissions and gains on the sale of
loans. The decrease in 1995 from 1994 was primarily from reduced levels of
sales of insurance and loan brokerage commissions which were partially offset by
an increased volume of gains on sales of mortgage loans compared with the
preceding year. In addition, other income in 1995 and 1994 included gains on
the sale of office buildings which amounted to $117,000 and $71,000,
respectively. In 1996, operating losses associated with the limited partnership
amounted to $152,000, compared with $13,000 in 1995.
Other Expense: Operating expenses were $10,520,000, $8,155,000 and $8,495,000
in 1996, 1995 and 1994, respectively. Excluding the special SAIF assessment in
1996 amounting to $1,879,000, operating expense in 1996 was $8,641,000, or 6.0%
over the 1995 level. Compensation and occupancy expense increases, amounting to
$116,000 and $111,000, respectively, were in large part a result of the
Company's higher levels of loan originations, brokerage commissions, and
establishing its market presence in the Indianapolis market in anticipation of
its branch opening in January 1997. The reduction in 1995 costs from 1994
levels was attributable to reduced commissions resulting from the reduced level
of sales of brokerage and insurance products.
Income Tax Expense: Income tax expense decreased to $1,305,000 for 1996 from
$1,944,000 for 1995 and $1,881,000 for 1994, as a result of lower pre-tax income
and an increase in federal tax credits to $115,000 for 1996 compared with
$25,000 for 1995 associated with the Company's limited partnership investment.
Discontinued Operations: In l988, the Company discontinued the operations of
its mortgage banking subsidiary, Indiana Western Mortgage ("IWM"). All
significant assets of IWM were subsequently sold or otherwise liquidated. In
1994, the Company settled a litigation judgment for $3,100,000. After expenses
and taxes, the Company recorded a recovery of loss from discontinued operations
in the amount of $1,450,000.
Current Accounting Issues
Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting for
Mortgage Servicing Rights, was issued in 1995 and was effective for the Company
in 1996. This statement applies to capitalization of servicing rights for loans
originated, and then sold, with servicing rights retained. The Company
capitalized $102,000 of such servicing rights in 1996 in compliance with this
new accounting standard.
6
<PAGE>
----------------------------------------
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------
SFAS No. 123, Stock-Based Compensation, was issued in 1995 and was effective
for the Company in 1996. This statement establishes a fair value based method
of accounting for stock-based compensation plans. The Company has disclosed the
effects on 1996 net income and earnings per share resulting from grants of stock
options in 1996 and 1995 in the notes to the consolidated financial statements.
Liquidity and Capital Resources
The Institutions are required by regulation to maintain liquidity ratios at
certain minimum levels. The regulations specify the types of assets that
qualify for liquidity, which generally include cash, federal funds sold,
certificates of deposit and qualifying types of United States Treasury and
agency securities and other investments having maturities of five years or less.
Such investments serve as a source of funds upon which the Institutions may rely
to meet deposit withdrawals and other short-term needs. The required level of
such liquidity is calculated on a "liquidity base" consisting of net
withdrawable accounts plus borrowings due within one year or less. Presently,
the Institutions are required to maintain liquid assets as described above of at
least 5% of their liquidity base. Short-term liquid assets (one year or less)
may not be less than l% of the Institutions' liquidity base.
The Company has traditionally maintained liquidity ratios well above
regulatory levels. Total consolidated liquidity ratios at December 31, l996,
l995 and l994 were 10.6%, 12.2% and 6.1%, respectively. The increase in 1995
reflected the Institutions' use of funds borrowed from the FHLB system which
were invested in securities which added to the Company's liquid assets while
increasing net interest income.
Historically, funds provided by operations, loan principal repayments and new
deposits have been the Company's principal sources of funds. In addition, the
Company has the ability to obtain funds through the sale of mortgage loans and
through borrowings from the Federal Home Loan Bank System.
At December 3l, l996, the Company's commitments for loans in process totaled
$3,900,000. Management believes that the Company's liquidity and other sources
of funds will be sufficient to fund all outstanding commitments and other cash
needs.
On February 26, 1996, the Board of Directors declared a four-for-three stock
split of the common stock outstanding at the close of business on March 15,
1996. All per share amounts have been restated to reflect the split.
On June 19, 1996, the Board of Directors authorized the purchase of up to 10%
of the Company's outstanding shares of the Company's common stock at an
aggregate cost not to exceed $4,500,000. Through December 31, 1996, the Company
acquired 289,360 shares at an aggregate cost of $3,964,198 under this program
and a previous program which expired in 1996. In addition, the Company retired
98 shares at a cost of $1,346 for fractional shares created by the 1996 stock
split.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this
report have been prepared in accordance with generally accepted accounting
principles. This requires the measurement of financial position and operating
results in terms of historical dollars without consideration of changes in the
relative purchasing power of money over time due to inflation.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or at
the same rate as changes in the prices of goods and services, which are directly
affected by inflation, although interest rates may fluctuate in response to
perceived changes in the rate of inflation.
7
<PAGE>
========================================
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION
========================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------
Assets 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash on hand and in other institutions $ 4,939,489 $ 4,474,687
Interest-bearing deposits 4,004,551 5,068,636
Investment securities held to maturity 50,744,304 22,599,948
Stock in Federal Home Loan Bank 3,311,500 2,984,500
Mortgage-backed securities held to maturity 38,541,544 45,014,264
Loans receivable 283,704,065 267,068,683
Allowance for loan losses (1,103,513) (1,076,038)
- ---------------------------------------------------------------------------------
Net loans receivable 282,600,552 265,992,645
Real estate owned 101,401 145,298
Premises and equipment 5,621,332 4,519,277
Mortgage servicing rights 780,770 577,068
Investments in unconsolidated affiliates 1,746,695 1,898,832
Other assets 4,362,968 3,538,176
- ---------------------------------------------------------------------------------
Total assets $396,755,106 $356,813,331
- ---------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities:
Deposits $318,705,367 $290,785,360
Advances from Federal Home Loan Bank 26,548,603 13,003,669
Drafts payable 4,557,678 2,521,932
Advances by borrowers for taxes and insurance 951,902 1,024,070
Other liabilities 2,046,765 2,363,611
- ---------------------------------------------------------------------------------
Total liabilities 352,810,315 309,698,642
- ---------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock (5,000,000 shares authorized;
none issued)
Common stock ($1.00 par value; authorized
15,000,000 shares;
issued shares: 1996--3,291,319;
1995--2,648,403) 3,291,319 2,648,403
Additional paid-in capital 8,645,273 12,981,032
Retained earnings--substantially restricted 32,008,199 31,485,254
- ---------------------------------------------------------------------------------
Total shareholders' equity 43,944,791 47,114,689
- ---------------------------------------------------------------------------------
Total liabilities and shareholders' equity $396,755,106 $356,813,331
=================================================================================
</TABLE>
See accompanying notes.
8
<PAGE>
=====================================
AMERIANA BANCORP AND SUBSIDIARIES
-------------------------------------
Consolidated Statements of Income
=====================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest on loans $22,060,098 $21,077,954 $17,840,710
Interest on mortgage-backed securities 2,880,392 3,136,899 3,095,034
Interest on investment securities 2,987,237 489,958 384,778
Other interest and dividend income 639,761 903,216 556,168
- --------------------------------------------------------------------------------
Total interest income 28,567,488 25,608,027 21,876,690
- --------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 15,183,543 14,078,877 10,599,184
Interest on Federal Home Loan Bank
advances 1,521,693 289,184 47,313
- --------------------------------------------------------------------------------
Total interest expense 16,705,236 14,368,061 10,646,497
- --------------------------------------------------------------------------------
Net interest income 11,862,252 11,239,966 11,230,193
Provision for Loan Losses 66,000 116,716 181,324
- --------------------------------------------------------------------------------
Net interest income after provision
for loan losses 11,796,252 11,123,250 11,048,869
- --------------------------------------------------------------------------------
Other Income:
Net loan servicing fees 328,804 314,803 324,738
Other fees and service charges 657,042 598,395 827,989
Brokerage and insurance commissions 1,197,628 978,956 1,114,301
Income (loss) on investments in
unconsolidated affiliates (121,760) 12,780 25,775
Gains on sales of loans 324,265 116,110 70,823
Other 46,836 192,854 225,118
- --------------------------------------------------------------------------------
Total other income 2,432,815 2,213,898 2,588,744
- --------------------------------------------------------------------------------
Other Expense:
Salaries and employee benefits 4,752,664 4,636,449 4,836,076
Net occupancy expense 1,070,388 959,558 956,260
Federal insurance premium 660,608 652,245 634,028
Data processing expense 321,173 256,398 222,737
Savings Association Insurance Fund
assessment 1,878,897 -- --
Other 1,836,488 1,650,676 1,845,681
- --------------------------------------------------------------------------------
Total other expense 10,520,218 8,155,326 8,494,782
- --------------------------------------------------------------------------------
Income from continuing operations
before income taxes
and discontinued operations 3,708,849 5,181,822 5,142,831
Income taxes 1,305,344 1,944,451 1,881,237
- --------------------------------------------------------------------------------
Income from continuing operations
before discontinued operations 2,403,505 3,237,371 3,261,594
Discontinued operations - recovery of
costs from discontinued operations,
net of income taxes of $747,000 -- -- 1,450,000
- --------------------------------------------------------------------------------
Net Income $ 2,403,505 $ 3,237,371 $ 4,711,594
================================================================================
Earnings Per Share:
Income from continuing operations $ .72 $ .92 $ .92
Income from discontinued operations -- -- .41
================================================================================
Earnings Per Share $ .72 $ .92 $ 1.33
================================================================================
Dividends Declared Per Share $ .57 $ .48 $ .64
================================================================================
Average Number of Shares Outstanding 3,335,813 3,511,257 3,542,592
================================================================================
</TABLE>
See accompanying notes.
9
<PAGE>
======================================================
AMERIANA BANCORP AND SUBSIDIARIES
------------------------------------------------------
Consolidated Statements of Shareholders' Equity
======================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Earnings Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $2,659,950 $13,596,190 $27,474,500 $43,730,640
Net income -- -- 4,711,594 4,711,594
Dividends declared -- -- (2,251,471) (2,251,471)
Purchase of common stock (62,327) (857,076) -- (919,403)
Exercise of stock options 39,250 279,823 -- 319,073
- --------------------------------------------------------------------------------------
Balance at December 31, 1994 2,636,873 13,018,937 29,934,623 45,590,433
Net income -- -- 3,237,371 3,237,371
Dividends declared -- -- (1,686,740) (1,686,740)
Purchase of common stock (19,500) (278,087) -- (297,587)
Exercise of stock options 31,030 240,182 -- 271,212
- --------------------------------------------------------------------------------------
Balance at December 31, 1995 2,648,403 12,981,032 31,485,254 47,114,689
Net income -- -- 2,403,505 2,403,505
Dividends declared -- -- (1,880,560) (1,880,560)
Four-for-three stock split 831,319 (831,319) -- --
Purchase of common stock (234,825) (3,730,719) -- (3,965,544)
Exercise of stock options 46,422 226,279 -- 272,701
- --------------------------------------------------------------------------------------
Balance at December 31, 1996 $3,291,319 $ 8,645,273 $32,008,199 $43,944,791
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
10
<PAGE>
=======================================
AMERIANA BANCORP AND SUBSIDIARIES
---------------------------------------
Consolidated Statements of Cash Flows
=======================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------
Operating Activities 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 2,403,505 $ 3,237,371 $ 4,711,594
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans and real estate owned 66,000 116,716 197,324
Depreciation and amortization 575,387 505,169 489,057
Equity in loss of limited partnership 152,137 12,908 --
Mortgage servicing rights amortization 122,813 57,028 38,860
Goodwill amortization 28,320 28,320 28,319
Deferred income taxes 128,907 287,796 119,732
Gains on sales of real estate owned (12,241) (34,744) (76,774)
Decrease (increase) in other assets (854,060) (555,077) 282,223
Increase in drafts payable 2,035,746 163,232 320,553
Decrease in other liabilities (561,390) (178,628) (156,070)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,085,124 3,640,091 5,954,818
- --------------------------------------------------------------------------------------------------------------
Investing Activities
- --------------------------------------------------------------------------------------------------------------
Purchase of investment securities held to maturity (30,944,003) (15,899,938) (2,000,000)
Proceeds from calls of securities held to maturity 2,800,000 300,000 --
Principal collected on mortgage-backed securities
held to maturity 8,856,215 8,183,421 13,565,949
Purchases of mortgage-backed securities held to maturity (2,531,581) (4,963,547) --
Net change in loans (16,897,413) (7,301,920) (33,473,003)
Mortgage servicing rights capitalized (326,515) (358,271) (234,953)
Proceeds from sales of real estate owned 226,277 318,766 1,376,385
Net purchases of premises and equipment (1,510,395) (696,203) (1,026,296)
Investment in unconsolidated affiliate -- (1,458,849) --
Other investing activities (326,974) (29,939) (63,865)
- --------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (40,654,389) (21,906,480) (21,855,783)
- --------------------------------------------------------------------------------------------------------------
Financing Activities
- --------------------------------------------------------------------------------------------------------------
Decrease in NOW, MMDA, and passbook deposits (1,225,470) (5,324,173) (4,471,807)
Increase in certificates of deposit 29,180,452 18,714,226 5,252,246
Advances from Federal Home Loan Bank 86,000,000 18,300,000 6,082,650
Repayment of Federal Home Loan Bank advances (72,455,066) (11,378,981) --
Proceeds from exercise of stock options 272,701 271,212 319,073
Purchase of common stock (3,965,544) (297,587) (919,403)
Cash dividends paid (1,837,091) (2,291,261) (1,595,703)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 35,969,982 17,993,436 4,667,056
- --------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (599,283) (272,953) (11,233,909)
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 9,543,323 9,816,276 21,050,185
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 8,944,040 $ 9,543,323 $ 9,816,276
==============================================================================================================
</TABLE>
See accompanying notes.
11
<PAGE>
==============================================
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================
1. Nature of Operations and Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Ameriana Bancorp (the "Company") and its wholly owned subsidiaries:
Ameriana Savings Bank ("Ameriana"), Deer Park Federal Savings and Loan
Association ("Deer Park"), Ameriana Financial Services, Inc., Indiana Title
Insurance Company and Ameriana Insurance Agency, Inc. All significant
intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of its thrift and other subsidiaries. The Company
provides various banking services and engages in loan servicing activities for
investors. The thrifts are subject to the regulation of the Office of Thrift
Supervision. The Company's gross revenues are substantially earned from the
various banking services provided by Ameriana and Deer Park. The Company also
earns brokerage and insurance commissions from the services provided by the
other subsidiaries.
Ameriana generates loans and receives deposits from customers located
primarily in East Central Indiana. The economy of Ameriana's primary market,
while not dominated by any single employer, is significantly influenced by the
agriculture and automotive-related industries. Deer Park generates loans and
receives deposits from customers located primarily in Southwestern Ohio. Loans
are generally secured by specific items of collateral including real property
and consumer assets. The Company has sold various loans to investors while
retaining the servicing rights.
Reclassifications: Certain reclassifications of 1995 and 1994 amounts have
been made to conform with the 1996 presentation.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on hand
and in other institutions and interest-bearing deposits.
Investment Securities: Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Stock in Federal Home Loan Bank: Stock in the Federal Home Loan Bank is stated
at cost and the amount of stock the Company is required to own is determined by
regulation.
Mortgage-Backed Securities: Mortgage-backed securities represent participating
interests in pools of long-term first mortgage loans originated and serviced by
the issuers of the securities. Mortgage-backed securities are acquired and held
for investment purposes and, accordingly, are stated at cost adjusted for
amortization of premiums and accretion of discounts, both computed by methods
which produce a level yield. The Company has the intent and ability to hold
these securities to maturity considering all foreseeable events and conditions.
Loans Receivable: Loans receivable are carried at the principal amount
outstanding. Interest income is computed based upon the principal amount of the
loans outstanding. The Company discontinues the accrual of interest on impaired
loans when, in management's opinion, the borrower may be unable to meet payments
as they become due. When interest accrual is discontinued, the Company charges
all previously accrued and unpaid interest against income.
Certain loan origination and commitment fees and certain direct loan
origination costs are deferred and amortized as an adjustment of yield over the
contractual life of the related loans.
Real Estate Owned: Real estate owned arises from loan foreclosure or deed in
lieu of foreclosure and is carried at the lower of cost (the unpaid balance at
the date of acquisition plus foreclosure and other related costs) or fair value.
Subsequent to acquisition, an allowance is recorded for any excess of carrying
value over fair value minus estimated selling costs. Costs of improvements made
to facilitate sales are capitalized; costs of holding the property are charged
to expense.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level believed adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on an evaluation of the portfolio including consideration of past loan loss
experience, current economic conditions, volume, growth and composition of the
loan portfolio, the probability of collecting all amounts due, and other
relevant factors. Impaired loans are measured by the present value of expected
future cash flows, or the fair value of the collateral of the loan, if
collateral dependent. The allowance is increased by provisions for loan losses
charged against income.
12
<PAGE>
==============================================
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1996, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the areas within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the related assets. Maintenance
and repairs are expensed as incurred while major additions and improvements are
capitalized.
Earnings Per Share: Earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period.
Stock Split: On February 26, 1996, the Board of Directors declared a four-for-
three stock split under which every three shares of the Company's common stock
outstanding at the close of business on March 15, 1996, were converted into four
shares of common stock. No fractional shares were issued; cash in lieu of
fractional shares was paid to shareholders. Per share and shares outstanding
amounts and stock option plan data for 1995 and 1994 have been adjusted to give
effect to the four-for-three stock split.
Mortgage Servicing Rights: Mortgage servicing rights on originated loans are
capitalized by allocating the total cost of the mortgage loans between the
mortgage servicing rights and the loans based on their relative fair values.
Capitalized servicing rights, which include purchased servicing rights, are
amortized in proportion to and over the period of estimated servicing revenues.
Income Taxes: Income tax in the consolidated statements of income includes
deferred income tax provisions or benefits for all significant temporary
differences in recognizing income and expenses for financial reporting and
income tax purposes. The Company and its subsidiaries file consolidated tax
returns. The parent company and subsidiaries are charged or given credit for
income taxes as though separate returns were filed.
2. Discontinued Operations
In 1988, the Company elected to discontinue the operations of Indiana Western
Mortgage, a wholly owned mortgage banking subsidiary of the Company located in
Irvine, California. Since 1988, the Company and its Indiana Western Mortgage
subsidiary had been engaged in various legal actions. During 1991, the Company
settled the last significant legal action pending against the Company and
Indiana Western. During 1993, the Company was granted a $4.65 million judgment
to obtain insurance proceeds to cover claims arising from the closing of Indiana
Western which were previously denied by the insurance carrier, and the judgment
was appealed. In 1994, upon the settlement of the judgment which amounted to
$3,100,000, the Company recognized a recovery from discontinued operations in
the amount of $1,450,000, net of taxes and other expenses.
3. Investment Securities
Investment securities held to maturity at December 31, 1996, included federal
agencies at an amortized cost of $50,744,000 with a fair value of approximately
$49,794,000 and gross unrealized gains and (losses) of $18,000 and $(968,000),
respectively. Investment securities at December 31, 1995, included federal
agencies at an amortized cost of $22,600,000 with a fair value of approximately
$22,792,000 and gross unrealized gains of $192,000.
The amortized cost and fair value of securities held to maturity at December
31, 1996, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because issuers may have the right to call or
prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Amortized Fair
Cost Value
- -----------------------------------------------------------------------
<S> <C> <C>
Maturity Distribution at December 31, 1996:
Due in one through five years $21,400,000 $21,251,000
Due after five through ten years 200,000 199,000
Due after ten years 29,144,000 28,344,000
- -----------------------------------------------------------------------
$50,744,000 $49,794,000
=======================================================================
</TABLE>
Investment securities with a total amortized cost of $20,897,000 were pledged
at December 31, 1996, to secure FHLB advances.
13
<PAGE>
==============================================
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================
4. Loans and Mortgage-Backed Securities
<TABLE>
<CAPTION>
Loans receivable consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential mortgage loans $240,948,085 $230,992,283
Commercial mortgage loans 3,095,546 3,669,507
Installment loans 42,837,100 36,738,688
Lease financing 23,933 28,808
Loans secured by deposits 1,394,658 1,317,587
- --------------------------------------------------------------------------------
288,299,322 272,746,873
- --------------------------------------------------------------------------------
Deduct:
- --------------------------------------------------------------------------------
Undisbursed loan proceeds 4,495,420 5,463,446
Deferred loan fees, net 99,837 214,744
- --------------------------------------------------------------------------------
4,595,257 5,678,190
- --------------------------------------------------------------------------------
$283,704,065 $267,068,683
================================================================================
</TABLE>
Loans being serviced for investors, primarily the FHLMC and FNMA, by the
Company totaled approximately $145,000,000 and $126,000,000 as of December 31,
1996 and 1995, respectively. Such loans are not reflected in the preceding
table.
In 1996, the Company adopted SFAS No. 122, Accounting for Mortgage Servicing
Rights, which requires capitalization of retained mortgage servicing rights on
originated and purchased loans. The aggregate fair value of capitalized
mortgage servicing rights approximated the carrying value at December 31, 1996,
based on comparable market values and expected cash flows, with impairment
assessed based on portfolio characteristics including product type, investor
type and interest rates.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing rights:
Balance at beginning of year $ 577,068 $275,825 $ 79,732
Servicing rights capitalized 326,515 358,271 234,953
Amortization of servicing rights (122,813) (57,028) (38,860)
- -------------------------------------------------------------------------------
Balance at end of year $ 780,770 $577,068 $275,825
===============================================================================
</TABLE>
At December 31, 1996 and 1995, the Company had outstanding commitments to
originate loans of approximately $3,900,000 and $6,500,000, which were primarily
for adjustable-rate mortgage loans or fixed-rate mortgage loans with rates that
are determined just prior to closing. In addition, the Company had $8,100,000
and $4,100,000, respectively, of conditional commitments for lines of credit and
credit card receivables.
The fair value of mortgage-backed securities at December 31, 1996 and 1995,
was $38,710,000 and $45,412,000, respectively. Gross unrealized gains and
(losses) on mortgage-backed securities at December 31, 1996 and 1995, were
$345,000 and $(177,000); and $489,000 and $(91,000), respectively. Mortgage-
backed securities with a total amortized cost of $11,516,000 and $14,350,000,
were pledged at December 31, 1996 and 1995, to secure FHLB advances.
14
<PAGE>
==============================================
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================
5. Allowance for Losses
Changes to the allowances for losses on loans and real estate owned are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans:
Balance at beginning of year $1,076,038 $1,022,294 $ 968,264
Provision for losses 66,000 116,716 181,324
Net charge-offs:
Charge-offs (51,970) (86,293) (171,257)
Recoveries 13,445 23,321 43,963
- -------------------------------------------------------------------------------
Net charge-offs (38,525) (62,972) (127,294)
- -------------------------------------------------------------------------------
Balance at end of year $1,103,513 $1,076,038 $1,022,294
===============================================================================
Real estate owned:
Balance at beginning of year $ -- $ 16,000 $ 65,723
Provision for losses -- -- 16,000
Net charge-offs:
Charge-offs -- (16,000) (65,723)
Recoveries -- -- --
- -------------------------------------------------------------------------------
Net charge-offs -- (16,000) (65,723)
- -------------------------------------------------------------------------------
Balance at end of year $ -- $ -- $ 16,000
===============================================================================
</TABLE>
6. Premises and Equipment
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $1,177,692 $1,177,692
Land improvements 366,536 373,984
Office buildings 5,221,036 4,183,115
Furniture and equipment 2,970,193 3,155,653
Automobiles 48,313 74,969
- -------------------------------------------------------------------------------
9,783,770 8,965,413
Less accumulated depreciation 4,162,438 4,446,136
- -------------------------------------------------------------------------------
$5,621,332 $4,519,277
===============================================================================
</TABLE>
7. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates include an investment in a limited
partnership of $1,294,000 and $1,446,000 at December 31, 1996 and 1995. This
investment represents a 6.4% equity in the partnership, which was organized to
acquire and manage real estate investments. Total cash contributed was
$1,459,000 in 1995. The Company recorded a net loss of $152,000 and $13,000 for
1996 and 1995 on its investment, and low income housing tax credits of $115,000
and $25,000. Available financial statements for the partnership as of and for
the periods ended December 31, 1996 and 1995, reported total assets of
$31,000,000 and $37,000,000; total partners' equity of $21,000,000 and
$26,000,000 and a net loss of $1,911,000 and $441,000, with the losses allocated
based on the dates of partners' contributions and other factors.
In addition, the Company has invested $453,000 in a life insurance company.
Dividends from this affiliate for the years ended December 31, 1996, 1995 and
1994, were $30,000, $26,000 and $26,000, respectively. Commission income also
generated through this affiliate is included in Other Income.
8. Deposits
<TABLE>
<CAPTION>
Deposits consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
Type 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Demand deposits $ 28,316,507 $ 28,672,268
Passbook accounts 46,785,620 47,655,329
Certificates of $100,000 or more 37,722,367 20,235,128
Other certificates 205,880,873 194,222,635
- --------------------------------------------------------------------------------
$318,705,367 $290,785,360
================================================================================
</TABLE>
15
<PAGE>
----------------------------------------------
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
<TABLE>
<CAPTION>
Certificates maturing in years ending after December 31, 1996:
- --------------------------------------------------------------------------------
<S> <C>
1997 $152,226,615
1998 64,897,300
1999 12,678,077
2000 6,316,303
2001 2,483,337
Thereafter 5,001,608
- --------------------------------------------------------------------------------
$243,603,240
================================================================================
</TABLE>
Interest paid on deposits approximated interest expense in 1996, 1995 and
1994.
9. Borrowings
<TABLE>
<CAPTION>
Borrowings consist of the following:
- --------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advances from FHLB:
Maturities in years ending December 31:
1996 $ 5,000,000 5.59%
1997 $17,900,000 5.69% 2,000,000 7.10
2001 985,777 6.30 -- --
2004 48,634 8.15 62,889 8.15
2005 4,342,914 6.60 5,940,780 6.47
2006 3,271,278 5.66 -- --
- --------------------------------------------------------------------------------------------
$26,548,603 5.86 $13,003,669 6.24
============================================================================================
</TABLE>
Certain advances are secured by first-mortgage loans in an amount equal to at
least 150% of the advances. Other advances are secured by mortgage-backed
securities or investment securities. Advances are subject to restrictions or
penalties in the event of prepayment.
Interest paid on borrowings was $1,495,037, $274,515 and $12,829 for 1996,
1995 and 1994.
10. Income Taxes
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax assets and liabilities are as follows:
- ----------------------------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 52,000 $ 97,000
Deferred loan fees -- 55,000
General loan loss reserves 442,000 424,000
Other 98,000 95,000
- ----------------------------------------------------------------------------------------------------------------------
592,000 671,000
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
FHLB stock dividends 271,000 252,000
Tax bad debt reserves 393,000 417,000
Purchase accounting adjustments 105,000 118,000
Deferred loan fees 30,000 --
Other 78,000 40,000
- ----------------------------------------------------------------------------------------------------------------------
877,000 827,000
- ----------------------------------------------------------------------------------------------------------------------
Net tax liabilities $(285,000) $(156,000)
======================================================================================================================
</TABLE>
16
<PAGE>
==============================================
AMERIANA BANCORP AND SUBSIDIARIES
----------------------------------------------
Notes to Consolidated Financial Statements
==============================================
The effective income tax rate on income from continuing operations is
reconciled to the statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 4.8 4.6 5.1
Change in valuation allowance -- -- (2.0)
Tax credits (3.1) (.5) --
Other (.5) (.6) (.5)
- -----------------------------------------------------------------------------------------------------------
Effective tax rate 35.2% 37.5% 36.6%
===========================================================================================================
The provision for income taxes consists of the following:
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Federal:
Current $ 934,021 $1,327,631 $1,319,267
Deferred 102,062 252,687 196,857
- -----------------------------------------------------------------------------------------------------------
$1,036,083 1,580,318 1,516,124
- -----------------------------------------------------------------------------------------------------------
State:
Current 242,416 329,024 442,238
Deferred 26,845 35,109 (77,125)
- -----------------------------------------------------------------------------------------------------------
269,261 364,133 365,113
- -----------------------------------------------------------------------------------------------------------
$1,305,344 $1,944,451 $1,881,237
===========================================================================================================
</TABLE>
The Company paid $1,675,000, $1,606,000 and $2,210,000 of state and federal
income taxes in 1996, 1995 and 1994, respectively.
11. Employee Benefits
The Company is a participating employer in a multi-employer defined benefit
pension plan sponsored by the Financial Institutions Retirement Fund ("FIRF")
and a 401(k) plan also administered by FIRF. The plans cover substantially all
full-time employees of the Company. Contributions to Ameriana's defined benefit
plan have not been required since June 1987 because the plan reached the
Internal Revenue Service's full funding limitation. Deer Park's plan requires
cash contributions. According to FIRF, plan assets exceeded vested benefits as
of June 30, 1996, the date of the most recent actuarial valuation. Pension
expense for both plans totaled $41,000, $47,000 and $56,000 in 1996, 1995 and
1994, respectively. The Company's portion of the FIRF plan assets has not been
determined.
Under the 1987 Stock Option Plan and the 1996 Stock Option and Incentive Plan,
the Company has granted options to individuals to purchase common stock at a
price equal to the fair market value at the date of grant, subject to the terms
and conditions of the plans. Plan terms permit certain nonincentive stock
options to be granted at less than market value at plan committee discretion.
Options vest and are fully exercisable when granted subject to continuous
employment or under other conditions set forth in the plans. The period for
exercising options shall not exceed ten years from the date of grant. The plans
also permit grants of stock appreciation rights.
The following is a summary of the status of the Company's stock option plans
and changes in those plans as of and for the years ended December 31, 1996, 1995
and 1994. The number of shares and prices have been restated to give effect to
the Company's 1996 stock split.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 129,133 $ 8.30 134,366 $ 5.76 187,699 $5.55
Granted 48,000 13.78 44,000 13.78 -- --
Exercised (52,233) 5.01 (43,633) 5.43 (53,333) 5.03
Forfeited/expired -- -- (5,600) 10.19 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 124,900 11.75 129,133 8.30 134,366 5.76
==============================================================================================================================
Options exercisable at year end 124,900 11.75 129,133 8.30 125,966 5.51
Weighted average fair value of
options granted during the year $ 2.37 $ 2.63
</TABLE>
17
<PAGE>
================================================
AMERICANA BANCORP AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================
As of December 31, 1996, other information in exercise price ranges for
options outstanding and exercisable is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------- ------------------------------------
Outstanding Exercisable
- -------------------------------------------------------------------------------- ------------------------------------
Weighted Weighted Average Weighted
Exercise Price Number Average Remaining Number Average
Range of Shares Exercise Price Contractual Life of Shares Exercise Price
- -------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
$5.00 - 6.13 28,300 $ 5.41 1.1 years 28,300 $ 5.41
10.38 - 13.78 96,600 13.60 8.9 years 96,600 13.60
</TABLE>
During 1996, 1995 and 1994, shares totaling 2,659, 2,260 and 1,000 were
tendered as partial payment for shares exercised.
There were 112,000 and 43,400 shares under the 1996 Plan and the 1987 Plan
available for grant at December 31, 1996.
The Company's stock option plans are accounted for in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The exercise price of each option was
equal to the market price of the Company's stock on the date of grant;
therefore, no compensation expense was recognized.
SFAS No. 123, Stock-Based Compensation, is effective for the Company in
1996. This Statement establishes a fair value based method of accounting for
stock-based compensation plans. Although the Company has elected to follow APB
No. 25, SFAS No. 123 requires pro forma disclosures of net income and earnings
per share as if the Company had accounted for its employee stock options under
that Statement. The fair value of each option grant was estimated on the grant
date using an option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rates 6.0% 6.0%
Dividend yields 4.1% 3.7%
Expected volatility factors of market price of common stock 15.1% 15.5%
Weighted-average expected life of the options 8 years 8 years
</TABLE>
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income As reported $2,403,505
Pro forma 2,334,805
Earnings per share As reported .72
Pro forma .70
</TABLE>
12. Shareholders' Equity
In June 1996, the Company's Board of Directors approved a one-year stock
repurchase program to acquire up to 10% of the Company's outstanding common
stock, or approximately 330,000 shares, at a cumulative cost not to exceed
$4,500,000. Through December 31, 1996, the Company acquired 41,378 shares at an
aggregate cost of $562,349 under this program. In 1995, the Company's Board of
Directors had also approved a one-year stock repurchase program to acquire up to
10% of the Company's outstanding common stock, or approximately 346,667 shares,
at a cumulative cost not to exceed $4,500,000, and 247,982 shares at an
aggregate cost of $3,401,849 were acquired by the Company under this program in
1996. During 1994, a previous stock repurchase plan was initiated, and the
Company acquired 109,000 shares at an aggregate cost of $1,215,900 during 1995
and 1994. In addition, the Company retired 98 shares at a cost of $1,346 in 1996
in connection with its 1996 stock split and 103 shares at a cost of $1,090 in
1994 in connection with its 1993 stock split. Share amounts are restated for the
1996 stock split.
The payment of dividends by the Company depends substantially upon receipt
of dividends from Ameriana and Deer Park, which are subject to various
regulatory restrictions on the payment of dividends. Under regulations of the
Office of Thrift Supervision ("OTS"), Ameriana and Deer Park may not declare or
pay a cash dividend or repurchase any of their capital stock if the effect
thereof would cause the net worth of those entities to be reduced below
regulatory capital requirements or the amount required for their liquidation
accounts. Prior notice of any dividend is required to be given to the OTS.
OTS regulations provide additional limitations on the extent to which a
savings institution may pay cash dividends or repurchase stock. The extent to
which such cash distributions are limited will depend upon which of
18
<PAGE>
================================================
AMERICANA BANCORP AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================
three categories (categories based upon capital levels) is applicable for the
savings institution. Ameriana and Deer Park are currently "tier one
institutions" and, therefore, are able to make cash distributions to the Company
during any calendar year up to 100% of their net income during that calendar
year plus the amount that would reduce by one-half their surplus capital
(capital in excess of Ameriana's and Deer Park's regulatory capital
requirements) at the beginning of the calendar year. Under these regulations,
the maximum permissible dividends at December 31, 1996, that Ameriana and Deer
Park could pay are $11.7 million and $1.3 million, respectively. Net worth of
Ameriana and Deer Park at December 31, 1996, was $36.6 million and $5.3 million,
respectively.
13. Regulatory Capital and Insurance Fund Assessment
Ameriana and Deer Park are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate actions by the regulatory agencies
that, if undertaken, could have a material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the thrifts must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
At December 31, 1996, Ameriana and Deer Park met all capital adequacy
requirements to which they are subject, and the most recent notification from
the regulatory agency categorized them as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
Ameriana and Deer Park must maintain a minimum total risk-based capital, core
capital to adjusted tangible assets and core capital to adjusted total assets of
10.0%, 6.0% and 5.0%, respectively. There have been no conditions or events
since that notification that management believes have changed this
categorization.
Actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Ameriana Deer Park
- -----------------------------------------------------------------------------------------------------------------------------------
Required For Adequate Required For Adequate
Capital (1) Actual Capital Capital (1) Actual Capital
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount Ratio Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1)
(to risk-weighted assets) 8.0% $14,482,000 20.0% $36,237,000 8.0% $2,743,000 16.0% $5,475,000
Core capital (1)
(to adjusted tangible assets) 3.0 9,715,000 11.1 35,828,000 3.0 2,176,000 7.3 5,295,000
Core capital (1)
(to adjusted total assets) 3.0 9,737,000 11.0 35,828,000 3.0 2,178,000 7.3 5,295,000
</TABLE>
(1) As defined by regulatory agencies
Tangible capital at December 31, 1996, for Ameriana and Deer Park was
$35,828,000 and $5,295,000, which amounts were 11.1% and 7.3% of tangible assets
and exceeded the required ratio of 1.5%.
The Company has qualified under provisions of the Internal Revenue Code
which permit the Company to deduct from taxable income a provision for bad debts
which differs from the provision for such losses charged against income.
Accordingly, retained earnings at December 31, 1996, includes an allocation of
income to bad debt deductions of approximately $11,883,000 for which no
provision for federal income taxes has been made. If, in the future, this
portion of retained earnings is used for any purpose other than to absorb bad
debt losses, including redemption of bank stock or excess dividends, or loss of
"bank" status, federal income taxes may be imposed at the then applicable rates.
The unrecorded deferred income tax liability on the above amount was
approximately $4,000,000.
The deposits of the Company's thrift subsidiaries are presently insured by
the Savings Association Insurance Fund (the "SAIF"). A recapitalization plan for
the SAIF was signed into law on September 30, 1996, which provided for a special
assessment on all SAIF-insured institutions to enable the SAIF to achieve its
required level of reserves. The assessment of .0657% was effected based on
deposits as of March 31, 1995. The Company's special assessment totaled
approximately $1,879,000, before taxes, and was charged against current-year
income.
19
<PAGE>
================================================
AMERIANA BANCORP AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================
14. Fair Value of Financial Instruments
Fair value disclosures of financial instruments are made to comply with the
requirements of SFAS No. 107, Disclosures About Fair Value of Financial
Instruments. The fair values are based on estimates using present value and
other valuation techniques in instances where quoted market prices are not
available. These techniques are significantly affected by the assumptions used,
including discount rates and estimates of future cash flows. As such, the
derived fair value estimates cannot be compared to independent markets and,
further, may not be realizable in an immediate settlement of the instruments.
Accordingly, the aggregate fair value amounts presented do not represent, and
should not be construed to represent, the underlying value of the Company.
The following table presents the estimates of fair value of financial
instruments (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 4,939 $ 4,939 $ 4,475 $ 4,475
Interest-bearing deposits 4,005 4,005 5,069 5,069
Investment securities held to maturity 50,744 49,794 22,600 22,792
Mortgage-backed securities held to maturity 38,542 38,710 45,014 45,412
Loans receivable 282,601 285,476 265,993 271,235
Interest receivable 1,873 1,873 2,097 2,097
Stock in FHLB 3,312 3,312 2,985 2,985
Liabilities:
Deposits 318,705 319,207 290,785 293,130
FHLB advances 26,549 26,431 13,004 13,004
Interest payable 506 506 367 367
Drafts payable 4,558 4,558 2,522 2,522
Advances by borrowers for taxes and insurance 952 952 1,024 1,024
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash, Interest-Bearing Deposits and Stock in Federal Home Loan Bank: The
carrying amounts reported in the consolidated statements of condition for cash
on hand and in other institutions, interest-bearing deposits and stock in
Federal Home Loan Bank approximate those assets' fair values.
Investment and Mortgage-Backed Securities: Fair values are based on quoted
market prices.
Loans Receivable: The fair values for loans receivable are estimated using
a discounted cash flow calculation that applies interest rates used to price new
similar loans to a schedule of aggregated expected monthly maturities on loans.
Interest Receivable/Payable: The fair value of accrued interest
receivable/payable approximates carrying values.
Deposits: The fair values of interest-bearing demand and savings accounts
are equal to the amount payable on demand at the balance sheet date. Fair values
for certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on deposits to a
schedule of aggregated expected monthly maturities on deposits. SFAS No. 107
does not allow for inclusion of a core deposit intangible component in the fair
value estimate, and although it would be impractical from a cost-benefit
standpoint to estimate that value, the Company realizes that the dollar amount
could be significant.
Federal Home Loan Bank Advances: The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current Federal
Home Loan Bank advance rates for periods comparable to the remaining terms to
maturity of these advances.
Drafts Payable and Advances by Borrowers for Taxes and Insurance: The fair
value approximates carrying value.
20
<PAGE>
=============================================================
AMERIANA BANCORP AND SUBSIDIARIES
-------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=============================================================
<TABLE>
<CAPTION>
15. Parent Company Financial Information
The following are condensed financial statements for the parent company, Ameriana Bancorp, only:
- -----------------------------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Condition 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash $ 881 $ 817
Advances to subsidiaries 2,197,000 4,855,000
Investment in thrift subsidiaries 41,904,334 42,527,724
Investments in other subsidiaries and affiliates 1,472,268 1,570,786
Other assets 53,570 3,752
- -----------------------------------------------------------------------------------------------------------------------------------
$45,628,053 $48,958,079
===================================================================================================================================
Liabilities and shareholders' equity:
Note payable to subsidiary, net of discount $ 1,260,476 $ 1,438,536
Miscellaneous liabilities 422,786 404,854
Shareholders' equity 43,944,791 47,114,689
- -----------------------------------------------------------------------------------------------------------------------------------
$45,628,053 $48,958,079
===================================================================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Income 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from thrift subsidiaries $ 3,300,000 $ 4,500,000 $ 3,000,000
Interest income 160,361 162,594 110,249
- -----------------------------------------------------------------------------------------------------------------------------------
3,460,361 4,662,594 3,110,249
Operating expense 622,536 507,081 651,888
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax credit and equity in
undistributed income of subsidiaries 2,837,825 4,155,513 2,458,361
Income tax credit 409,528 199,465 220,378
- -----------------------------------------------------------------------------------------------------------------------------------
3,247,353 4,354,978 2,678,739
Equity in undistributed income of subsidiaries
(distributions in excess of equity in income) (843,848) (1,117,607) 2,032,855
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $2,403,505 $ 3,237,371 $ 4,711,594
===================================================================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 2,403,505 $ 3,237,371 $ 4,711,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries and affiliates 843,848 1,117,607 (2,032,855)
Decrease (increase) in other assets (49,818) 21,252 145,114
Decrease in miscellaneous liabilities (25,537) (148,975) (94,240)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,171,998 4,227,255 2,729,613
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Advances to subsidiaries -- (1,809,000) (534,000)
Repayment of advances to subsidiaries 2,658,000 -- --
Investment in unconsolidated affiliate -- (100,000) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 2,658,000 (1,909,000) (534,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Repayment of note payable to subsidiary (300,000) -- --
Cash dividends paid (1,837,091) (2,291,261) (1,595,703)
Purchase of common stock (3,965,544) (297,587) (919,403)
Proceeds from exercise of stock options 272,701 271,212 319,073
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (5,829,934) (2,317,636) (2,196,033)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 64 619 (420)
Cash at beginning of year 817 198 618
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 881 $ 817 $ 198
===================================================================================================================================
</TABLE>
21
<PAGE>
=============================================================
AMERIANA BANCORP AND SUBSIDIARIES
-------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=============================================================
<TABLE>
<CAPTION>
16. Quarterly Data (Unaudited)
Summarized quarterly financial data for 1996 and 1995 is as follows (dollars in thousands, except for per share data):
- -----------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Total interest income $6,895 $7,029 $7,288 $7,355
Total interest expense 3,989 4,113 4,281 4,322
Net interest income 2,906 2,916 3,007 3,033
Provision for loan losses 18 21 24 3
Net income (loss) 900 842 (234) 896
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share .26 .25 (.07) .27
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends declared per share .14 .14 .14 .15
- -----------------------------------------------------------------------------------------------------------------------------------
Stock price range:
High 14.44 14.25 15.50 16.25
Low 13.31 12.88 13.25 14.00
- -----------------------------------------------------------------------------------------------------------------------------------
1995
Total interest income $6,042 $6,419 $6,575 $6,572
Total interest expense 3,180 3,565 3,800 3,823
Net interest income 2,862 2,854 2,775 2,749
Provision for loan losses 78 31 5 3
Net income 806 781 843 807
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share .23 .22 .24 .23
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends declared per share .11 .11 .13 .13
- -----------------------------------------------------------------------------------------------------------------------------------
Stock price range:
High 12.00 12.19 13.50 14.63
Low 11.06 11.06 11.44 13.31
===================================================================================================================================
</TABLE>
=============================================================
AMERIANA BANCORP AND SUBSIDIARIES
-------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
=============================================================
To the Shareholders and
Board of Directors
Ameriana Bancorp
New Castle, Indiana
We have audited the consolidated statements of condition of Ameriana Bancorp
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Ameriana Bancorp and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
February 7, 1997
22
<PAGE>
Exhibit 21
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
Percentage State of
Subsidiaries (1) Owned Incorporation
- ---------------- ---------- -------------
<S> <C> <C>
Ameriana Savings Bank, F.S.B. (2) 100% United States
Deer Park Federal Savings and Loan Association (2) 100% United States
Indiana Title Insurance Company (2) 100% Indiana
Ameriana Financial Services, Inc. (3) 100% Indiana
Ameriana Insurance Agency, Inc. (4) 100% Indiana
Family Financial Life (5) 19% Louisiana
Deer Park Service Corporation (6) 100% Ohio
</TABLE>
- --------------
(1) Operations of the Company's wholly-owned direct subsidiaries, the Bank,
the Association and Indiana Title, and the Bank's wholly-owned
subsidiary, AFS, are included in the Company's consolidated financial
statements attached as an exhibit to the Annual Report.
(2) First-tier subsidiary of the Company.
(3) Second-tier subsidiary of the Company 100% owned by the Bank, a first-
tier subsidiary of the Company.
(4) Third-tier subsidiary of the Company 100% owned by AFS, a second-tier
subsidiary of the Company 100% owned by the Bank, a first-tier subsidiary
of the Company.
(5) Third-tier subsidiary of the Company 1/10 owned through stock investment
and less than 1/10 owned through partnership interests of AFS, a second-
tier subsidiary of the Company 100% owned by the Bank, a first-tier
subsidiary of the Company.
(6) Second-tier subsidiary of the Company 100% owned by the Association, a
first-tier subsidiary of the Company.
<PAGE>
Exhibit 23
Consent of Geo. S. Olive & Co. LLC
<PAGE>
CONSENT OF GEO. S. OLIVE & CO. LLC
We consent to the incorporation by reference in the Registration Statements on
Form S-8's, File No. 33-31034 and File No. 333-4013, of our report dated
February 7, 1997 contained in the 1996 Annual Report on Form 10-K of Americana
Bancorp.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,939,489
<INT-BEARING-DEPOSITS> 4,004,551
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 92,597,348
<INVESTMENTS-MARKET> 91,816,000
<LOANS> 283,704,065
<ALLOWANCE> 1,103,513
<TOTAL-ASSETS> 396,755,106
<DEPOSITS> 318,705,367
<SHORT-TERM> 17,900,000
<LIABILITIES-OTHER> 7,556,345
<LONG-TERM> 8,648,603
0
0
<COMMON> 11,936,592
<OTHER-SE> 32,008,199
<TOTAL-LIABILITIES-AND-EQUITY> 396,755,106
<INTEREST-LOAN> 22,060,098
<INTEREST-INVEST> 5,867,629
<INTEREST-OTHER> 639,761
<INTEREST-TOTAL> 28,567,488
<INTEREST-DEPOSIT> 15,183,543
<INTEREST-EXPENSE> 16,705,236
<INTEREST-INCOME-NET> 11,862,252
<LOAN-LOSSES> 66,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,520,218
<INCOME-PRETAX> 3,708,849
<INCOME-PRE-EXTRAORDINARY> 2,403,505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,403,505
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<YIELD-ACTUAL> 3.17
<LOANS-NON> 721,000
<LOANS-PAST> 315,000
<LOANS-TROUBLED> 798,000
<LOANS-PROBLEM> 1,418,000
<ALLOWANCE-OPEN> 1,076,038
<CHARGE-OFFS> 51,970
<RECOVERIES> 13,445
<ALLOWANCE-CLOSE> 1,103,513
<ALLOWANCE-DOMESTIC> 1,103,513
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
