<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Quarter Ended:
- ---------------------
September 30, 1998 Commission File Number: 0-18392
-------
Ameriana Bancorp
----------------
Indiana 35-1782688
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2118 Bundy Avenue, New Castle, Indiana 47362-1048
- -------------------------------------- ----------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (765)529-2230
-------------
Securities registered pursuant to Section 12(g) of Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES XX NO ___
As of November 11, 1998, there were issued and outstanding
3,187,820 shares of the registrant's common stock.
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AMERIANA BANCORP AND SUBSIDIARIES
CONTENTS
PART I - FINANCIAL INFORMATION Page No.
--------
ITEM 1 - Financial Statements
Consolidated Statements of Condition as of
September 30, 1998 and December 31, 1997 . . . . . 3
Consolidated Statements of Income for the
Three Months Ended September 30, 1998 and 1997
and the Nine Months Ended September 30, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998
and 1997. . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . 6
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 8
ITEM 3 - Quantitative and Qualitative
Disclosures About Market Risk. . . . . . . .13
PART II - OTHER INFORMATION . . . . . . . . . . . . . .16
SIGNATURES. . .. . . . . . . . . . . . . . . . . . . . .17
2<PAGE>
<PAGE>
ITEM I - FINANCIAL STATEMENTS
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
ASSETS
<S> <C> <C>
Cash on hand and in other institutions $ 6,379,663 $ 5,066,177
Interest-bearing deposits 30,107,826 10,142,902
Investment securities held to maturity (market
value: 1998--$40,820,000; 1997--$35,300,000) 40,592,868 35,394,512
Stock in Federal Home Loan Bank (at cost, which
approximates market value) 3,567,200 3,412,100
Mortgage-backed securities held to maturity
(market value: 1998--$22,874,000;
1997--$30,164,000) 22,561,622 29,996,499
Mortgage loans held for sale 3,469,644 1,419,471
Loans receivable 278,743,677 294,133,100
Allowance for loan losses (1,248,605) (1,163,490)
------------ ------------
Net loans receivable 277,495,072 292,969,610
Real estate owned 173,689 159,994
Premises and equipment 6,235,673 5,909,205
Mortgage servicing rights 911,819 526,367
Investments in unconsolidated subsidiaries 1,454,405 1,578,365
Goodwill 2,029,975 69,700
Other assets 3,687,673 4,222,600
------------ ------------
Total assets $398,667,129 $390,867,502
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 12,010,006 $ 8,746,447
Interest-bearing 319,218,472 313,470,716
------------ ------------
Total deposits 331,228,478 322,217,163
Advances from Federal Home Loan Bank 12,530,203 16,015,615
Drafts payable 2,997,655 4,225,472
Advances by borrowers for taxes and insurance 1,177,664 955,121
Other liabilities 5,493,920 3,019,261
------------ ------------
Total liabilities 353,427,920 346,432,632
Shareholders' Equity:
Preferred stock (5,000,000 shares
authorized; none issued) -- --
Common stock ($1.00 par value; authorized
15,000,000 shares; issued shares:
1998 - 3,207,070; 1997 - 3,233,207) 3,207,070 3,233,207
Additional paid-in capital 7,082,360 7,571,955
Retained earnings 34,949,779 33,629,708
------------ ------------
Total shareholders' equity 45,239,209 44,434,870
------------ ------------
Total liabilities and shareholders'
equity $398,667,129 $390,867,502
============ ============
</TABLE>
See accompanying notes.
3<PAGE>
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $5,682,688 $5,902,426 $16,965,847 $17,249,940
Interest on mortgage-backed securities 373,456 561,194 1,320,865 1,791,159
Interest on investment securities 741,755 747,340 1,860,643 2,659,017
Other interest and dividend income 405,410 118,580 1,058,921 339,126
---------- ---------- ----------- -----------
Total interest income 7,203,309 7,329,540 21,206,276 22,039,242
Interest Expense:
Interest on deposits 3,891,691 4,098,429 11,441,724 12,023,905
Interest on Federal Home Loan Bank advances 184,610 244,180 544,587 993,965
---------- ---------- ----------- -----------
Total interest expense 4,076,301 4,342,609 11,986,311 13,017,870
---------- ---------- ----------- -----------
Net interest income 3,127,008 2,986,931 9,219,965 9,021,372
Provision for Loan Losses 36,000 60,000 108,000 147,000
---------- ---------- ----------- -----------
Net interest income after provision
for loan losses 3,091,008 2,926,931 9,111,965 8,874,372
Other Income:
Net loan servicing fees 64,181 64,986 166,832 234,248
Other fees and service charges 272,819 183,650 672,751 532,660
Brokerage and insurance commissions 293,462 299,697 960,939 870,801
Loss on investments in unconsolidated
subsidiaries (33,960) (8,810) (123,960) (108,810)
Gains on sales of loans 164,074 124,926 645,664 336,350
Other 43,249 88,978 130,979 135,876
---------- ---------- ----------- -----------
Total other income 803,825 753,427 2,453,205 2,001,125
Other Expense:
Salaries and employee benefits 1,311,948 1,263,020 3,871,448 3,757,555
Net occupancy expense 354,336 316,179 1,009,519 944,572
Federal insurance premium 49,860 51,054 151,077 152,960
Data processing expense 78,432 82,448 297,067 246,071
Goodwill 60,905 8,982 109,073 23,142
Other 577,045 453,599 1,645,162 1,472,225
---------- ---------- ----------- -----------
Total other expense 2,432,526 2,175,282 7,083,346 6,596,525
---------- ---------- ----------- -----------
Income before income taxes 1,462,307 1,505,076 4,481,824 4,278,972
Income taxes 529,774 511,078 1,605,801 1,519,167
---------- ---------- ----------- -----------
Net income $ 932,533 $ 993,998 $ 2,876,023 $ 2,759,805
========== ========== =========== ===========
Basic Earnings Per Share $ 0.28 $ 0.31 $ 0.88 $ 0.85
========== ========== =========== ===========
Diluted Earnings Per Share $ 0.28 $ 0.30 $ 0.87 $ 0.84
========== ========== =========== ===========
Dividends Declared Per Share $ 0.16 $ 0.16 $ 0.48 $ 0.46
========== ========== =========== ===========
</TABLE>
See accompanying notes.
4 <PAGE>
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,876,023 $ 2,759,805
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans and real estate
owned 108,000 147,000
Depreciation and amortization 497,661 467,469
Mortgage servicing rights amortization 129,184 95,556
Goodwill amortization 109,073 21,240
Deferred income taxes 62,709 --
Loans originated for sale (60,441,130) (18,167,451)
Proceeds from sales of loans 59,039,621 18,503,801
Gain on sales of loans (648,664) (336,350)
Loss (gain) on sales of real estate owned (18,859) 187
Decrease (increase)in other assets 757,190 (29,536)
Decrease in drafts payable (1,227,817) (2,227,001)
Increase in other liabilities 1,866,507 2,852,634
----------- -----------
Net cash provided (used) by operating
activities 3,109,498 4,087,354
INVESTING ACTIVITIES
Purchase of investment securities held to
maturity (54,389,345) (6,000,000)
Proceeds from maturity of securities held
to maturity 5,000,000 --
Proceeds from calls of securities held to
maturity 44,185,198 16,750,000
Principal collected on mortgage-backed securities
held to maturity 7,326,518 6,803,032
Net change in loans-decrease (increase) 29,554,024 (14,989,779)
Proceeds from sale of real estate owned 192,327 156,400
Mortgage servicing rights capitalized (514,636) (91,036)
Net purchases of premises and equipment (206,806) (683,823)
Investment in unconsolidated affiliate 123,960 113,374
Cash received in acquisitions 19,613,181 --
Other investing activities (132,984) (58,090)
----------- -----------
Net cash provided (used) by investing
activities 50,751,437 2,000,078
FINANCING ACTIVITIES
Increase (decrease) in demand and passbook deposits 13,617,103 (2,922,656)
Increase (decrease) in certificates of deposit (38,499,490) 5,897,949
Advances from Federal Home Loan Bank 4,000,000 52,700,000
Repayment of Federal Home Loan Bank advances (7,485,412) (60,119,571)
Proceeds from exercise of stock options 322,137 153,853
Purchase of common stock (2,978,906) (1,311,214)
Cash dividends paid (1,557,957) (1,469,816)
----------- -----------
Net cash provided (used) by financing
activities (32,582,525) (7,071,455)
----------- -----------
Increase (decrease) in cash and cash equivalents 21,278,410 (984,023)
Cash and cash equivalents at beginning of period 15,209,079 8,944,040
----------- -----------
Cash and cash equivalents at end of period $36,487,489 $ 7,960,017
=========== ===========
Supplemental information:
Interest paid $10,218,913 $11,168,740
Income taxes paid 1,472,400 1,010,000
</TABLE>
See accompanying notes.
5<PAGE>
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AMERIANA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The unaudited interim consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and disclosures
required by generally accepted accounting principals for
complete financial statements. In the opinion of management,
the financial statements reflect all adjustments (comprised only
of normal recurring adjustments and accruals) necessary to
present fairly the Company's financial position as of September
30, 1998, results of operations for the three-month and nine-
month periods ending September 30, 1998 and 1997, and changes in
cash flows for the nine-month periods ended September 30, 1998
and 1997. A summary of the Company's significant accounting
policies is set forth in Note 1 of Notes to Consolidated
Financial Statements in the Company's annual report on Form 10-K
for the year ended December 31, 1997.
NOTE B - - SHAREHOLDERS' EQUITY
On August 24, 1998, the Board of Directors declared a quarterly
cash dividend of $.16 per share. This dividend was accrued for
payment to shareholders of record on September 11, 1998, and was
paid on October 2, 1998.
During the nine months ended September 30, 1998, 21,008 new
shares were issued via exercise of stock options and total
equity was increased by $322,137 due to cash proceeds and tax
benefits from these stock option exercises. The Company also
issued 114,955 shares of stock in relation to the purchase of
Cardinal State Bank, see Note D for further details.
The Company repurchased 162,100 shares of its common stock on
the market during the third quarter for a total of $2,978,906.
The price of stock repurchased ranged from $18.125 to $18.50 per
share.
6<PAGE>
<PAGE>
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings per Share:
Income available to
common shareholders $932,533 3,263,423 $.28 $993,998 3,231,258 $.31
Effect of dilutive stock options -- 37,625 -- 50,700
- ------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Income available to
common shareholders and
assumed conversions $932,533 3,301,048 $.28 $993,998 3,281,958 $.30
- ------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings per Share:
Income available to
common shareholders $2,876,023 3,252,952 $.88 $2,759,805 3,251,276 $.85
Effect of dilutive stock options -- 46,746 -- 27,730
- ------------------------------------------------------------------------------------------
Income available to
common shareholders and
assumed conversions $2,876,023 3,299,698 $.87 $2,759,805 3,279,006 $.84
- ------------------------------------------------------------------------------------------
</TABLE>
NOTE C - - RECLASSIFICATIONS
Certain reclassifications of 1997 amounts have been made to
conform to the 1998 presentation.
NOTE D - - PROPOSED TRANSACTION
On July 1, 1998, the Company completed the purchase of Cardinal
State Bank ("Cardinal") Maineville, Ohio and merged its two
locations into the Ameriana Bank of Ohio. The transaction was
recorded as a purchase. Holders of outstanding shares of
Cardinal had the right to convert their shares into a
combination of cash and Company common stock and/or Company
promissory notes. The Company paid $999,993 in cash, issued
114,955 shares of common stock, issued $450,760 of promissory
notes and paid $129 for fractional shares. The total purchase
price for Cardinal was $3,707,826 including expenses and valuing
the Company's common stock at the closing price of $18.625 per
share. The Cardinal acquisition included $14,380,000 of loans,
$9,384,000 of cash and investments and $21,521,000 of deposits.
The Company booked goodwill totaling $1,284,000 related to this
transaction.
7<PAGE>
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- -------
This Quarterly Report on Form 10-Q ("Form Q") may contain
statements which constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this
Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company primarily with
respect to future events and future financial performance.
Readers of this Form 10-Q are cautioned that any such forward
looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual
results may differ materially from those in the forward looking
statements as a result of various factors. The accompanying
information contained in this Form 10-Q identifies important
factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan
demand to other financial institutions; substantial changes in
financial markets; changes in real estate values and the real
estate market or regulatory changes.
The largest components of the Company's total revenue and total
expenses 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. Levels of other income
and operating expenses also significantly affect net income.
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 an relative amounts of interest-
earning assets and interest bearing liabilities.
RESULTS OF OPERATIONS
- ---------------------
During the first nine months of 1998, the Company was compelled
by low fixed rate mortgage rates to make fixed rate loans and
sell them to the secondary market. The past theory of
emphasizing variable rate mortgage loans and keeping them in the
portfolio could not be continued because consumers were
satisfied with the low fixed rates. The loans outstanding
decreased $15,389,423 and 5.23% to $278,743,677 during this
period. This decrease is due to not retaining new fixed rate
loans made but selling a significant portion to the secondary
market and to refinancing of existing loans in the portfolio,
which were also sold to the secondary market. The mortgage
loans
8<PAGE>
<PAGE>
held for sale increased during the first nine months, but
these are loans that have been committed to be sold to the
secondary market but had not been delivered as of September 30,
1998 and December 31, 1997. Loan closings and sales of loans to
the secondary market set records with loan sales for the first
nine months of 1998 totaling $59,039,621 compared to $18,503,801
during the first nine months of 1997. The Company retains
servicing on all loans sold to the secondary market. See
comments on other income for detail of gains on loans sold.
The net interest spread (difference between yield on interest-
earning assets and cost on interest-bearing liabilities) has
increased both during the three and nine months ended September
30, 1998, compared to the same periods in 1997. This increase
of .15% during the third quarter of 1998 is due to an increase
of .10% in yield on interest-earning assets plus a .05%
reduction of cost of interest-bearing liabilities during the
third quarter when compared to the third quarter of 1997. This
reduction of the cost of liabilities has resulted from decreased
borrowings from the Federal Home Loan Bank and decreased
wholesale deposits that have higher costs. These changes where
made possible by the mortgage loan repayments already discussed
and the acquisition of $12 million of deposits with the branch
purchase completed on February 27, 1998, and the acquisition of
additional liquidity purchased with Cardinal. The net interest
spread for the nine months ended September 30, 1998, compared to
the same period in 1997 was up .13% due to an increase of .01%
in yields on interest-earning assets and a .12% decrease in cost
of interest-bearing liabilities during the nine months.
The following table summarizes the Company's average interest-
earning assets and average interest-bearing liabilities and net
interest-earning assets with their rates and the net interest
spreads (difference between rates on average assets and
liabilities) for the three and nine month periods ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in Thousands)
----------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest-earning assets $366,611 $377,550 $366,803 $381,585
Interest-bearing liabilities 321,709 339,145 320,256 339,763
-------- -------- -------- --------
Net interest-earning assets $ 44,902 $ 38,405 $ 46,547 $ 41,822
Average yield on:
Interest-earning assets 7.80% 7.70% 7.73% 7.72%
Interest-bearing liabilities 5.03 5.08 5.00 5.12
-------- -------- -------- --------
Net interest spread 2.77% 2.62% 2.73% 2.60%
-------- -------- -------- --------
</TABLE>
Net interest income for the third quarter of 1998 was $3,127,008
and was $140,077 and 4.69% more than the $2,986,931 during the
third quarter of 1997. Net interest income for the nine months
ended September 30, 1998, was $9,219,965 and was $198,593 and
2.20% more than the $9,021,372 during the same nine months in
1997. The nine months increase is due to lower interest income
being more than offset by lower interest expense. The $833,000
decrease in interest income on interest-earning assets is a
combination of a decrease of $925,000 because of lower
outstanding average interest-earning assets offset by $92,000
because of reduced rates on average interest-earning assets
during the nine months. The $1,032,000 decrease in interest
expense
9<PAGE>
<PAGE>
is a combination of a decrease of $807,000 because of lower
outstanding average interest-bearing liabilities plus $225,000
because of reduced rates on average interest-bearing liabilities
during the nine months. The net interest margin ratio, which is
net income divided by average earning assets, increased to 3.38%
for the third quarter of 1998 compared to 3.14% for the third
quarter of 1997. This same ratio for the nine months ended
September 30, 1998, increased to 3.36% from 3.16% for the same
period in 1997.
The provision for loan losses was $36,000 during the third
quarter of 1998 compared to $60,000 during the same period in
1997. The provision for loan losses for the nine months ended
September 30, 1998, was $108,000 compared to $147,000 during the
first nine months of 1997. Net charge-offs were $38,817 and
$88,435 for the third quarter of 1998 and 1997, respectively.
The net charge-offs for the nine months ended September 30, 1998
and 1997 were $122,885 and $156,628, respectively. The
allowance for loan losses did increase $100,000 because of the
purchase of Cardinal. The following table summarizes the
Company's non-performing assets at the end of the periods:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, December 31, September 30,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Loans:
Non-accrual $ 780 $ 877 $ 717
Over 90 days delinquent 227 124 126
Real estate owned 174 160 270
------ ------ ------
Total $1,181 $1,161 $1,113
------ ------ ------
</TABLE>
Management believes the allowance for loan losses is adequate
and that sufficient provision has been provided to absorb any
losses, which may ultimately be incurred on non-performing loans
and the remainder of the portfolio. The allowance for loan
losses as a percentage of loans at the end of the period was
.45%, .40% and .37% at September 30, 1998, December 31, 1997 and
September 30, 1997, respectively.
Total other income for the third quarter of 1998 increased
$50,398 and 6.69% to $803,825 from $753,427 in the same period
during 1997. Total other income for the nine months ended
September 30, 1998, was up $452,080 and 22.59% to $2,453,205
from $2,001,125 during the first nine months of 1997. As noted
earlier, gains on sales of loans to the secondary market were at
record levels and gains during the third quarter of 1998
increased $39,148 and 31.34% to $164,074 from $124,926 during
the same period in 1997. Gains on sales of loans increased
$309,314 and 91.96% during the nine months ended September 30,
1998, to $645,664 from $336,350 during the same period in 1997.
Brokerage and insurance commissions decreased during the third
quarter but increased $90,138 and 10.35% to $960,939 during the
first nine months of 1998 from $870,801 during the first nine
months of 1997. This increase is due to income from our
insurance agency and title insurance company which can be linked
to increased housing sales, to increased insurance business from
the purchase of insurance policies from an agency and to a good
economy. The net loan servicing fees remained consistent during
the third quarter and decreased $67,416 and 28.78% to $166,832
during the first nine months of 1998 from $234,248 during the
same period in 1997 and is due to increased amortization of
purchased servicing rights due to loan payoffs. The quantity of
sold loans with servicing retained caused net loan servicing
fees to remain the same during the third quarter. Servicing
income on sold loans is offsetting the reductions due to loan
payoffs. Other fees and servicing charges for the third quarter
increased $89,169 and 48.55% to $272,819 from
10
<PAGE>
$183,650 in the same period during 1997 and increased $140,091
and 26.30% to $672,751 during the first nine months of 1998 from
$532,660 during the same period in 1997. These increases relate
to various items as a result of the emphasis the Company is
placing on reviewing all customer fees.
Total other expense increased $257,244 and 11.83% during the
third quarter of 1998 to $2,432,526 from $2,175,282 during the
same period in 1997 and increased $486,821 and 7.38% to
$7,083,346 during the first nine months of 1998 from $6,596,525
during the first nine months of 1997. The salary and employee
benefit expenses increased $48,928 and 3.87% during the third
quarter of 1998 to $1,311,948 from $1,263,020 during the same
period in 1997. This increase is due to the addition of a new
branch on February 27, 1998, the addition of Cardinal and to
increased salaries due to additional loan closings, insurance
and brokerage sales and title insurance business. Salary
expense for the first nine months of 1998 increased $113,893 and
3.03% to $3,871,448 from $3,757,555 during the same period in
1997. The data processing expense increased $50,996 and 20.72%
during the first nine months of 1998 to $297,067 from $246,071
during the same period in 1997. The data processing operations
of our Ohio bank subsidiaries were converted to the same in-
house computer system already operated by our Indiana bank
subsidiary from an outside service bureau effective June 1,
1998. This conversion increased current expense because of
related one time costs, but will provide for decreased expenses
during subsequent periods due to the ability to control expense
increases in future years and for more consistent sales and
reporting to our customers. The data processing for Cardinal
will be converted to our in-house computer system in November
1998 and will increase expenses in the fourth quarter but should
also decrease expenses in future periods. The increase in
goodwill expense to $109,073 during the first nine months of
1998 compared to $23,142 during the same period in 1997 is due
to increased amortization related to the new branch purchased,
to insurance business purchased and to the Cardinal purchase.
The efficiency ratio, which is total other expense (excluding
amortization of goodwill) divided by net interest income before
the provision for loan loss plus total other income, changed
slightly to 59.75% during the first nine months of 1998 from
59.64% during the same period in 1997.
FINANCIAL CONDITION
- -------------------
The Company's principal sources of funds are cash generated from
operations, savings deposits, loan principal repayments and
advances from the Federal Home Loan Bank ("FHLB"). As of
September 30, 1998, the Company's cash and investments totaled
$77,080,357 and 19.33% of total assets. This compares with
$50,603,591 and 12.95% of total assets at December 31, 1997.
The Company's banking subsidiaries, Ameriana Bank of Indiana
("ABI") and Ameriana Bank of Ohio ("ABO") have regulatory
liquidity ratios of 21.31% and 19.72%, respectively, which
exceeds the 4.0% liquidity base set by the Office of Thrift
Supervision ("OTS").
The banking subsidiaries in the past and ABO currently employs a
strategy to increase interest income through the purchase of
investments with the proceeds of advances from the FHLB. FHLB
borrowings are currently all a liability of ABO, and have
decreased $3,485,412 and 21.76% to $12,530,203 during the first
nine months of 1998 from $16,015,615 at December 31, 1997.
The regulatory minimum net worth requirement for ABI and ABO
under the most stringent of the three capital regulations (total
risk-based capital to risk-weighted assets) at September 30,
1998, was $13,065,000 and $3,919,000,
11<PAGE>
<PAGE>
respectively. At September 30, 1998, ABI had total risk based
capital of $32,832,000 and ABO had $8,546,000.
At September 30, 1998, the Company's commitments for loans in
process totaled $13,447,000, with 86.69% being for single-family
residential mortgage loans. Management believes the Company's
liquidity, ability to sell loans to the secondary market and
other sources of funds will be sufficient to fund all
outstanding commitments and other cash needs.
12<PAGE>
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
INTEREST RATE RISK
- ------------------
ABI and ABO are subject to interest rate risk to the degree that
their interest-bearing liabilities, primarily deposits, mature
or reprice at different rates than their interest-earning
assets. Although having liabilities that mature or reprice less
frequently on average than assets will be beneficial in times of
rising interests rates, such an asset/liability structure will
result in lower net income during periods of declining interest
rates, unless offset by other factors.
It is important to ABI and ABO to manage the relationship
between interest rates and the effect on their net portfolio
value ("NPV"). This approach calculates the difference between
the present value of expected cash flows from assets and the
present value of expected cash flows from liabilities, as well
as cash flows from off-balance sheet contracts. Assets and
liabilities are managed within the context of the marketplace,
regulatory limitations and within its limits on the amount of
change in NPV, which is acceptable given certain interests rate
changes.
The OTS issued a regulation, which uses a net market value
methodology to measure the interest rate risk exposure of
savings associations. Under this OTS regulation an
institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the
institution's NPV in an amount not exceeding 2% of the present
value of its assets. Savings associations with over $300
million in assets or less than a 12% risk-based capital ratio
are required to file OTS Schedule CMR. Data from Schedule CMR
is used by the OTS to calculate changes in NPV (and the related
"normal" level of interest rate risk) based upon certain
interest rate changes (discussed below). Associations which do
not meet either of the filing requirements are not required to
file OTS Schedule CMR, but may do so voluntary. ABI, with
assets over $300 million, is required to file the Schedule. As
ABO does not meet either of these requirements, it is not
required to file Schedule CMR, although it does so voluntarily.
Under regulation, associations which must file are required to
take a deduction (the interest rate risk capital component) from
their total capital available to calculate their risk based
capital requirement if their interest rate exposure is greater
than "normal". The amount of that deduction is one-half of the
difference between (a) the institution's actual calculated
exposure to a 200 basis point interest rate increase or decrease
(whichever results in the greater pro forma decrease in NPV) and
(b) its "normal" level of exposure which is 2% of the present
value of its assets.
The following information and schedule for ABO and the
subsequent information and schedule for ABI are required to be
presented. The current analysis for ABO and ABI performed by
the OTS as of September 30, 1998, has not been received from
the OTS and the following interest rate risk measurements for
ABO and the subsequent rate risk measurements for ABI are being
submitted with information from the OTS analysis as of June 30,
1998. Management believes
13<PAGE>
<PAGE>
there has been no significant change in the interest rate risk
measures since June 30, 1998, for either ABO or ABI.
Presented below, as of June 30, 1998, is an analysis performed
by the OTS of ABO's interest rate risk as measured by changes in
NPV for instantaneous and sustained parallel shifts in the yield
curve, in 100 basis point increments, up and down 400 basis
points. At June 30, 1998, 2% of the present value of ABO'S
assets was approximately $1.499 million. Because the interest
rate risk of a 200 basis point decrease in market rates (which
was greater than the interest rate risk of a 200 basis point
increase) was approximately $1.084 million at June 30, 1998, ABO
would not have been required to make a deduction from its
capital available to calculate its risk based capital
requirement if it had been subject to the OTS's reporting
requirements under this methodology.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- ----------------------------------------------------------------------------------------
Change Dollar Dollar Percent
In Rates Amount Change Change NPV Ratio Change
- ----------------------------------------------------------------------------------------
(Dollars in thousands)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+400 bp* $6,077 $-1,496 -20% 8.48% -139 bp
+300 bp 6,850 -723 -10% 9.35% - 52 bp
+200 bp 7,441 -132 - 2% 9.96% + 9 bp
+100 bp 7,727 154 + 2% 10.18% +31 bp
0 bp 7,573 9.87%
- -100 bp 7,125 -448 - 6% 9.21% -65 bp
- -200 bp 6,489 -1,084 -14% 8.34% -153 bp
- -300 bp 5,993 -1,580 -21% 7.64% -233 bp
- -400 bp 5,609 -1,964 -26% 7.07% -279 bp
* basis points
</TABLE>
Presented below, as of June 30, 1998, is an analysis performed
by the OTS, of ABI's interest rate risk as measured by changes
in NPV for instantaneous and sustained parallel shifts in the
yield curve, in 100 basis point increments, up an down 400 basis
points. At June 30, 1998, 2% of the present value of ASB's
assets was approximately $6.062 million. Because the interest
rate risk of a 200 basis point increase in market rates (which
was greater that the interest rate risk of a 200 basis point
decrease) was approximately $1.818 million at June 30, 1998, ABI
would not have been required to make a deduction from its
capital available to calculate its risk based capital
requirement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- ----------------------------------------------------------------------------------------
Change Dollar Dollar Percent
In Rates Amount Change Change NPV Ratio Change
- ----------------------------------------------------------------------------------------
(Dollars in thousands)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+400 bp* $31,646 $- 6,972 -18% 10.87% -177 bp
+300 bp 34,528 - 4,089 -11% 11.67% - 96 bp
+200 bp 36,800 -1,818 - 5% 12.27% - 36 bp
+100 bp 38,240 -377 -1% 12.61% - 2 bp
0 bp 38,617 12.63%
- -100 bp 38,785 168 +0% 12.59% - 4 bp
- -200 bp 38,900 283 + 1% 12.53% - 10 bp
- -300 bp 39,709 1,092 + 3% 12.66% + 3 bp
- -400 bp 40,981 2,364 + 6% 12.92% + 28 bp
* basis points
</TABLE>
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented
above. For example, although certain assets and liabilities may
have similar maturities or periods to
14
<PAGE>
repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. Additionally,
certain assets, such as adjustable-rate loans, have features,
which restrict changes in interest rates on a short-term basis
and over the life of the asset. Further, in the event of a
change in interest rates, expected rates of prepayments on loans
and early withdrawals from certificates could likely deviate
significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase. The Company
considers all of these factors in monitoring its exposure to
interest rate risk.
YEAR 2000 ISSUE
- ---------------
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
("Year 2000") approaches. The Year 2000 problem is pervasive
and complex as virtually every computer operation and any
equipment with computer chips may be affected in some way by the
rollover of the two-digit year value to 00. The issue is
whether computer systems and computer chips will properly
recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The
Company is utilizing both internal and external resources to
identify, correct or reprogram and test all systems for the Year
2000 compliance. It is anticipated that all reprogramming
efforts will be complete by December 31, 1998, allowing adequate
time for testing. The Company has identified some systems that
will not be in compliance and they will be replaced. These
systems should be replaced in adequate time to allow for testing
and implementation before the Year 2000. To date, confirmations
have been received from the Company's primary processing vendors
indicating that these systems will be in compliance and
operating properly for processing of transactions in the year
2000. Although the Company is extending a great deal of
Management time reviewing, checking, selecting some new systems
and equipment and implementing Year 2000 changes for both
computer systems and equipment, the expenses for the Year 2000
compliance are not expected to have a material impact on the
Company's earnings.
OTHER
- -----
The Securities and Exchange Commission ("SEC") maintains
reports, proxy information, statements and other information
regarding registrants that file electronically with the SEC,
including the Company. The address is (http://www.sec.gov).
15<PAGE>
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
-----------------
No changes have taken place in regard to the legal
proceedings disclosed in the registrant's report on
Form 10-K for the year ended December 31, 1997.
ITEM 2 - Changes in Securities
---------------------
Not Applicable
ITEM 3 - Defaults in Senior Securities
-----------------------------
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
ITEM 5 - Other Information
-----------------
Not Applicable
ITEM 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 27 Financial Data Schedule for 3rd quarter
fiscal year 1998
(b) Reports on Form 8-K
The Registrant did not file a Current Report on Form
8-K during the quarter covered by this Report.
16
<PAGE>
<PAGE>
SIGNATURES
AMERIANA BANCORP AND SUBSIDIARIES
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.
AMERIANA BANCORP
DATE: November 11, 1998 /s/ Harry J. Bailey
-------------------
Harry J. Bailey
President and
Chief Executive Officer
(Duly Authorized Representative)
DATE: November 11, 1998 /s/ Richard E. Welling
----------------------
Richard E. Welling
Senior Vice President-
Treasurer
(Principal Financial Officer
and Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,380
<INT-BEARING-DEPOSITS> 30,107
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 66,722
<INVESTMENTS-MARKET> 67,261
<LOANS> 278,744
<ALLOWANCE> 1,249
<TOTAL-ASSETS> 398,667
<DEPOSITS> 331,228
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,669
<LONG-TERM> 12,530
<COMMON> 10,289
0
0
<OTHER-SE> 34,950
<TOTAL-LIABILITIES-AND-EQUITY> 45,239
<INTEREST-LOAN> 16,966
<INTEREST-INVEST> 3,181
<INTEREST-OTHER> 1,059
<INTEREST-TOTAL> 21,206
<INTEREST-DEPOSIT> 11,442
<INTEREST-EXPENSE> 11,986
<INTEREST-INCOME-NET> 9,220
<LOAN-LOSSES> 108
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,083
<INCOME-PRETAX> 4,481
<INCOME-PRE-EXTRAORDINARY> 2,876
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,876
<EPS-PRIMARY> .88
<EPS-DILUTED> .87
<YIELD-ACTUAL> 3.36
<LOANS-NON> 780
<LOANS-PAST> 227
<LOANS-TROUBLED> 998
<LOANS-PROBLEM> 1,645
<ALLOWANCE-OPEN> 1,163
<CHARGE-OFFS> 146
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,249
<ALLOWANCE-DOMESTIC> 136
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,219
</TABLE>
