<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-18392
AMERIANA BANCORP
----------------------------
(Exact Name of Registrant as Specified in Its Charter)
Indiana 35-1782688
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or 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 (765) 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. [_]
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 17, 1999 was $49,517,000
(for purposes of this calculation, directors and executive officers are not
treated as "non-affiliates").
As of March 15, 1999, there were issued and outstanding 3,471,386 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, 1998 ("Annual Report") (Part II).
2. Portions of Proxy Statement for the 1999 Annual Meeting of Shareholders
("Proxy Statement") (Part III).
<PAGE>
PART I
Item 1. Business
- -----------------
Forward-Looking Statements
When used in this Annual Report on Form 10-K, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area, and competition that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
General
The Company. Ameriana Bancorp (the "Company") is the holding company
for Ameriana Bank of Indiana, F.S.B., New Castle, Indiana ( "Ameriana-Indiana")
and "Ameriana Bank of Ohio, F.S.B," Cincinnati, Ohio ("Ameriana-Ohio").
Ameriana-Indiana and Ameriana-Ohio, both Federally chartered savings banks, are
collectively referred to as the "Institutions."
The Company holds all of the stock of the Institutions and, through
them, operates two separate savings banks. In addition, the Company owns Indiana
Title Insurance Company, which provides title insurance services in Central
Indiana. The Company owns Ameriana Insurance Agency, Inc. ("AIA"), which provide
insurance sales with offices
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in New Castle, Greenfield, and Avon, Indiana. The Company also maintains a
minority interest in a limited partnership organized to acquire and manage real
estate investments which qualify for federal tax credits.
Ameriana-Indiana. Ameriana-Indiana is a federally chartered stock
savings bank which began operations in 1890. Since 1935, Ameriana-Indiana has
been a member of the Federal Home Loan Bank System and its savings deposits are
federally insured by the Savings Association Insurance Fund ("SAIF"),
administered by the Federal Deposit Insurance Corporation ("FDIC"). Ameriana-
Indiana's main office is located at 2118 Bundy Avenue, New Castle, Indiana. It
also conducts business through seven branch offices located in New Castle,
Middletown, Knightstown, Morristown, Greenfield, Anderson and Avon, Indiana.
Ameriana-Indiana, through a wholly owned subsidiary, Ameriana Financial
Services, Inc., 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 centers located in New Castle,
Greenfield and Avon, Indiana. Ameriana-Indiana recently began the construction
of a new full service banking facility in New Palestine, Indiana to extend its
reach southeast of the greater Indianapolis area. This new branch is expected to
open in the second half of 1999.
The business of Ameriana-Indiana 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. Ameriana-Indiana also makes home improvement loans and consumer loans
and through its subsidiary engages in insurance and brokerage activities.
Ameriana-Indiana recently established a new Business Services Division to
provide specialized lending and other banking services for business customers.
The principal sources of funds for Ameriana-Indiana's lending activities include
deposits received from the general public, principal amortization and prepayment
of loans. Ameriana-Indiana's primary sources of income are interest and fees on
loans and interest on investments. Ameriana-Indiana has from time to time
purchased loans and loan participations in the secondary market. Ameriana-
Indiana also invests in various federal and government agency obligations and
other investment securities permitted by applicable laws and regulations,
including mortgage-backed securities. Ameriana-Indiana's principal expenses are
interest paid on deposit accounts and operating expenses incurred in the
operation of Ameriana-Indiana.
Ameriana-Ohio. Ameriana-Ohio is a federally chartered stock savings
bank which began operations in 1915. Ameriana-Ohio has been a member of the
Federal Home Loan Bank System since 1933, and its savings deposits have
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been federally insured since 1952. Ameriana-Ohio's main office is located at
7200 Blue Ash Road, Cincinnati, Ohio. Ameriana-Ohio's primary market area
includes Deer Park and nearby communities in Hamilton county, as well as
adjoining Butler, Clermont and Warren counties. On July 1, 1998, Ameriana-Ohio
acquired Cardinal State Bank, an Ohio-chartered commercial bank which conducted
business through a main office and one branch office located in the Cincinnati,
Ohio area. With the Cardinal acquisition and merger into Ameriana-Ohio,
Ameriana-Ohio now has two branch offices in Maineville and Loveland, Ohio.
The business of Ameriana-Ohio 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. Ameriana-Ohio also
invests in mortgage-backed securities. The principal sources of funds for
Ameriana-Ohio's lending activities include deposits received from the general
public, principal amortization and prepayment of loans. Ameriana-Ohio's primary
sources of income are interest and fees on loans and interest on investments.
Ameriana-Ohio's principal expenses are interest paid on deposit accounts and
operating expenses.
Proposed Legislative Changes
Legislation has been reintroduced in the U.S. House of Representatives
which calls for the modernization of the banking system and which would
significantly affect the operations and regulatory structure of the financial
services industry, including savings institutions like Ameriana-Indiana and
Ameriana-Ohio. Management cannot predict at this time what form the final
legislation might take, or if enacted into law, whether such legislation would
result in any significant adverse financial and tax effects. For additional
information, see "-- Regulation -- Proposed Legislative and Regulatory Changes."
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.
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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 Ameriana-
Indiana's mortgage loan portfolio is secured by real estate located in Henry,
Hancock, Hendricks, Madison, Shelby, Delaware and Marion counties in the state
of Indiana, and the majority of Ameriana-Ohio's mortgage loan portfolio is
secured by real estate located in Hamilton, Butler, Clermont and Warren counties
in the state of Ohio.
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The following table sets forth information concerning the Company's
aggregate loans by type of loan and security at the dates indicated. Residential
mortgage loans held for sale are included in this table, and mortgage-backed
securities are not included in this table.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
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 ......... $ 15,282 5.47% $ 4,930 1.64% $ 3,096 1.07%
Residential loans ............. 232,993 83.36 255,591 85.06 240,948 83.58
Commercial loans ................ 862 .31 19 .01 24 .01
Consumer Loans:
Mobile home and auto loans .... 21,854 7.82 31,818 10.39 31,706 11.00
Education loans ............... -- -- -- -- -- --
Loans secured by deposits ..... 1,351 .48 1,308 .44 1,395 .48
Home improvement loans ........ 2,774 .99 5,629 1.87 5,645 1.96
Other ......................... 4,387 1.57 1,177 .59 5,486 1.90
-------- ------------ -------- ------------ -------- ------------
Total ...................... 279,503 100.00% 300,472 100.00% 288,300 100.00%
-------- ============ -------- ============ -------- ============
Less:
Loans in process .............. 12,123 4,876 4,495
Deferred loan fees ............ 102 44 100
Loan loss reserve ............. 1,284 1,163 1,104
-------- -------- --------
Sub Total .................... 13,509 6,083 5,699
-------- -------- --------
Total ...................... $265,994 $294,389 $282,601
======== ======== ========
Type of Security:
Residential
Single Family (1-4 units) .... $227,574 81.42% 252,153 83.92% $238,440 82.71%
5 or more dwelling units ..... 5,419 1.94 3,438 1.14 2,508 .87
Other improved real estate ..... 15,282 5.47 4,930 1.16 3,096 1.07
Commercial or industrial leases 862 .31 19 .01 24 .01
Deposit accounts ............... 1,351 .48 1,308 .44 1,395 .48
Mobile home and auto ........... 21,854 7.82 31,218 10.39 31,706 11.00
Other .......................... 7,161 2.56 7,406 2.46 11,131 3.86
-------- ------------ -------- ------------ -------- ------------
Total ...................... 279,503 100.00% 300,472 100.00% 288,300 100.00%
-------- ============ -------- ============ -------- ============
Less:
Loans in process .............. 12,123 4,876 4,495
Deferred loan fees ............ 102 44 100
Loan loss reserve ............. 1.284 1,163 1,104
-------- -------- --------
Sub Total .................... 13,509 6,083 5,699
-------- -------- --------
Total ...................... $265,994 $294,389 $282,601
======== ======== ========
<CAPTION>
1995 1994
----------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans:
Non-residential loans ......... $ 3,670 1.35% $ 5,795 2.18%
Residential loans ............. 230,992 84.69 237,579 89.34
Commercial loans ................ 29 .01 39 .01
Consumer Loans:
Mobile home and auto loans .... 29,735 10.90 15,671 5.89
Education loans ............... -- -- 255 .10
Loans secured by deposits ..... 1,318 .48 1,249 .47
Home improvement loans ........ 56 .02 109 .04
Other ......................... 6,947 2.55 5,231 1.97
-------- ------------ -------- ------------
Total ...................... 272,747 100.00% 265,928 100.00%
-------- ============ -------- ============
Less:
Loans in process .............. 5,463 5,389
Deferred loan fees ............ 215 398
Loan loss reserve ............. 1,076 1,022
-------- --------
Sub Total .................... 6,754 6,809
-------- --------
Total ...................... $265,993 $259,119
======== ========
Type of Security:
Residential
Single Family (1-4 units) .... $227,045 83.24% $234,601 88.22%
5 or more dwelling units ..... 3,947 1.45 2,978 1.12
Other improved real estate ..... 3,670 1.35 5,795 2.18
Commercial or industrial leases 29 .01 39 .01
Deposit accounts ............... 1,318 .48 1,249 .47
Mobile home and auto ........... 29,735 10.90 15,671 5.89
Other .......................... 7,003 2.57 5,595 2.11
-------- ------------ -------- ------------
Total ...................... 272,747 100.00% 265,928 100.00%
-------- ============ -------- ============
Less:
Loans in process .............. 5,463 5,389
Deferred loan fees ............ 215 398
Loan loss reserve ............. 1,076 1,022
-------- --------
Sub Total .................... 6,754 6,809
-------- --------
Total ...................... $265,993 $259,119
======== ========
</TABLE>
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The following table shows, at December 31, 1998, 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
-----------------------------------------------
2004 and
1999 2000 - 2003 Thereafter Total
-------- ----------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C>
Type of Loan:
Real estate mortgage ....... $ 4,695 $ 20,494 $223,086 $248,275
Other ...................... 4,292 21,365 5,571 31,228
-------- -------- -------- --------
Total .................... $ 8,987 $ 41,859 $228,657 $279,503
======== ======== ======== ========
</TABLE>
The following table sets forth the dollar amount of the Company's
aggregate loans due after one year from December 31, 1998 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 ........... $ 87,227 $156,353 $243,580
Other loans .......................... 25,787 1,149 26,936
-------- -------- --------
Total .............................. $113,014 $157,502 $270,516
======== ======== ========
</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-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, saleable in the secondary
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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. Fixed rate mortgage loans in the amount of $116.594 million were
originated for sale during 1998 and $93.498 million were sold at a gain of
$1,055,000. Mortgage loans held for sale are those loans that have been
committed to be sold, but have not closed as of the end of the year.
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 1998
construction loan originations amounted to $39.737 million. The loans are
secured by real estate, and most of the homes
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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' commercial real
estate loans range from $100,000 to $3,000,000. 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 ten years or less. At December 31, 1998,
Ameriana-Indiana had $21.049 million in outstanding construction loans;
Ameriana-Ohio had $2.127 million 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 1998, the
Company continued to originate automobile loans. Such loans are
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originated both directly with customers and through automobile dealers in the
Company's lending areas. The volume of automobile loans has decreased due to low
competitive rates and the Company not being willing to meet these low rates.
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 applicable law, 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. Ameriana-Indiana entered asset-based commercial
lending, primarily commercial leasing, in 1986 but discontinued originations in
this type of lending during 1989. The Company began making and purchasing the
collateralized commercial loans in 1998. The total lease and commercial
portfolio at December 31, 1998 was $862,000.
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. The Institutions also obtain
loans from paid brokers. The Institutions obtained $17.256 million of loans from
brokers in 1998. 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
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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 fee of
between .25% and .50% per annum of the loans' principal amount for performing
this service. At December 31, 1998, the Institutions were servicing $181.336
million of loans for others.
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, 1998, $5.629 million, or 2.12%, 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,
-------------------------------
1998 1997 1996
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Loans Originated:
Conventional real estate loans:
Construction loans ..................... $ 39,737 $ 22,607 $ 14,885
Loans on existing property ............. 72,390 28,508 32,115
Loans refinanced ....................... 49,791 37,846 42,178
Other loans .............................. 27,406 32,988 29,275
-------- -------- --------
Total loans originated .............. 189,324 121,949 118,453
-------- -------- --------
Loans Purchased:
Real estate loans:
Conventional ........................... 3,938 3,710 --
Mortgage-backed securities ............. -- -- 2,532
Commercial-other collateral .............. 2,500 -- --
-------- -------- --------
Total loans purchased ............... 6,438 3,710 2,532
-------- -------- --------
Total loans originated and purchased ....... $195,762 $125,659 $120,985
======== ======== ========
Mortgage loans and leases sold ............. $ 93,498 $ 29,862 $ 18,359
======== ======== ========
</TABLE>
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For additional information, see "Management's Discussion and Analysis--
Results of Operations" included in the Annual Report to Stockholders for the
fiscal year ended December 31, 1998 (the "Annual Report"), which is filed as
Exhibit 13 to this report.
Loan Underwriting. 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.
Ameriana-Indiana's loan officers and/or loan committees, analyze the loan
application and the property to be used as collateral and subsequently approves
or denies the loan request. Individual salaried employees are authorized to
approve loans up to their individual lending limits and loan parameters. Loans
of $300,000 or more but less than $750,000 must be approved by a committee
consisting of certain members of senior management. The Board of Directors must
approve all loans in excess of $750,000. 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. Ameriana-Ohio's loan committee,
consisting of authorized officers, may approve loan applications up to $250,000.
Ameriana-Ohio's Board of Directors reviews and approves loan applications in
excess of $250,000.
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,
1998, was approximately $6.612 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.
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When possible, 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 range from none
to 1.00 point (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 1.00 point. 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 the Annual 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 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
12
<PAGE>
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, 1998,
the Company had $701,000 of 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.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real Estate:
Residential ............................ $ 684 $ 847 $ 694 $ 754 $ 339
Commercial ............................. 15 -- -- -- 144
Commercial business leases .............. -- 19 24 29 39
Consumer ................................ 46 11 3 6 4
------ ------ ------ ------ ------
Total ................................. 745 877 721 789 526
------ ------ ------ ------ ------
Accruing loans contractually past due 90
days or more:
Real Estate:
Residential ............................ 37 61 279 515 122
Commercial ............................. -- 57 -- -- --
Commercial business leases .............. -- -- -- -- --
Consumer ................................ 3 7 36 25 15
------ ------ ------ ------ ------
Total ................................. 40 124 315 540 137
------ ------ ------ ------ ------
Total of non-accrual and
90 days past due loans ............. $ 785 $1,002 $1,036 $1,329 $ 663
====== ====== ====== ====== ======
Percentage of total loans (excluding
mortgage-backed securities) ........... .30% .33% .36% .50% .25%
====== ====== ====== ====== ======
Other non-performing assets (1) ........... $ 96 $ 160 $ 101 $ 145 $ 182
====== ====== ====== ====== ======
</TABLE>
- ------------------
(1) 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 1998, the Company would have recorded gross interest income of
$39,000 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 $6,000 on those loans in its net income for the
year. For additional information
13
<PAGE>
regarding the Company's problem assets and loss provisions recorded thereon, see
"Management's Discussion and Analysis" in the Annual Report, Exhibit 13 hereto.
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 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% 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, 1998, $365,000
and $41,000 of Ameriana-Indiana's assets were classified as Substandard and
Doubtful, $672,000 and $1,000 of Ameriana-Ohio's assets were classified as
Substandard and Doubtful, and $104,000 and $1,750,000 of Ameriana-Indiana's and
Ameriana-Ohio'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
14
<PAGE>
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, 1998, Ameriana-Indiana's and
Ameriana-Ohio's allowances for loan losses amounted to $984,000 and $300,000,
respectively.
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,
-----------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period .......... $ 1,163 $ 1,104 $ 1,076 $ 1,022 $ 968
Charge Offs:
Real Estate:
Residential ......................... 12 31 1 44 66
Commercial .......................... -- -- -- -- --
Commercial business leases ............ -- -- -- -- 78
Consumer .............................. 153 170 51 42 27
------- ------- ------- ------- -------
165 201 52 86 171
------- ------- ------- ------- -------
Recoveries:
Real Estate:
Residential ......................... -- -- -- 2 17
Commercial .......................... -- -- -- -- 10
Commercial business leases ............ -- -- 10 -- 2
Consumer .............................. 27 18 4 21 15
------- ------- ------- ------- -------
27 18 14 23 44
------- ------- ------- ------- -------
Net Loans Charged-Off ................... (138) (183) (38) (63) (127)
Increase from acquisition ............... 100 -- -- -- --
Provision for Possible Loan Losses ...... 159 242 66 117 181
------- ------- ------- ------- -------
Balance at End of Period ................ $ 1,284 $ 1,163 $ 1,104 $ 1,076 $ 1,022
======= ======= ======= ======= =======
Ratio of Net Charge-Offs to Average
Loans Outstanding During the Period.... .05% .06% .01% .02% .05%
======= ======= ======= ======= =======
Ratio of Ending Allowance for
possible loan losses to ending loans... .49% .40% .39% .40% .39%
======= ======= ======= ======= =======
</TABLE>
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,
----------------------------------------------------------------------------------
1998 1997 1996
----------------------- ------------------------- --------------------------
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)
<S> <C> <C> <C> <C> <C> <C>
Loans:
Real Estate Mortgage .................. $ 507 89% $ 476 86% $ 496 85%
Commercial business leases ............ 15 -- 19 -- 24 --
Consumer .............................. 762 11 668 14 584 15
------ ------ ------ ------ ------ ------
Total Allowance for Loan
Losses ............................. $1,284 100% $1,163 100% $1,104 100%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------------ ----------------------
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> <C>
Loans
Real Estate Mortgage ............... $ 486 86% $ 508 92%
Commercial business leases ......... 34 -- 34 --
Consumer ........................... 556 14 480 8
------ ------ ------ ------
Total Allowance for Loan
Losses .......................... $1,076 100% $1,022 100%
====== ====== ====== ======
</TABLE>
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 14.56% of the Company's total interest income (and dividends) for
fiscal 1998. 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, 1998, Ameriana-Indiana's and Ameriana-Ohio's liquidity ratios
(liquid assets as a percentage of net withdrawable savings and short-term
borrowings) were 29.40% and 17.65%, 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, 1998, the market values of the Company's aggregate
investment securities, Federal Home Loan Bank stock and mortgage-backed
securities were approximately $51.512 million, $3.588 million and $20.437
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,
------------------------------------
1998 1997 1996
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Investment securities ................ $ 51,581 $ 35,395 $ 50,744
Interest-bearing deposits (1) ........ 41,493 10,143 4,005
FHLB stock ........................... 3,588 3,412 3,311
Mortgage-backed securities ........... 20,217 29,996 38,542
-------- -------- --------
Total investments .................. $116,879 $ 78,946 $ 96,602
======== ======== ========
</TABLE>
- --------------------
(1) Consist of overnight deposits and short-term non-negotiable certificates of
deposit.
17
<PAGE>
The following table sets forth information regarding maturity
distribution and average yields for the Company's investment securities
portfolio at December 31, 1998.
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5-10 Years Over 10 Years Total
------------------ ----------------- ------------------ ------------------ ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal agencies... $ -- --% $1,700 6.21% $15,922 6.12% $33,959 6.44% $51,581 6.33%
</TABLE>
18
<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, 1998, 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 .......................... $10,731 7.45%
Repricing in one to five years ......................... 2,179 7.60
Fixed rate:
Maturing in five years or less ......................... 1,941 6.09
Maturing in five to ten years .......................... 189 8.32
Maturing in more than ten years ........................ 5,177 7.91
-------
Total ................................................ $20,217 7.46%
======= ====
</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 savings accounts, NOW accounts,
money market accounts, fixed-interest-rate certificates with varying maturities,
and negotiated-rate jumbo certificates with various maturities. The Institutions
also offer tax-deferred individual retirement, Keogh retirement, and simplified
employer plan retirement accounts.
19
<PAGE>
As of December 31, 1998, approximately 31.70%, or $105.875 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 Ameriana-
Indiana and quarterly for Ameriana-Ohio. 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.
20
<PAGE>
The following table sets forth the change in dollar amount of deposits
in the various types of deposit accounts offered by the Institutions between the
dates indicated.
<TABLE>
<CAPTION>
Increase Increase
Balance at (Decrease) Balance at (Decrease) Balance at
December 31, From Prior December 31, From Prior December 31,
1998 Year 1997 Year 1996
-------------------- ---------- -------------------- ---------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings deposits .................. $ 44,178 13.23% $ (536) $ 44,714 13.88% $ (2,072) $ 46,786 14.68%
NOW accounts ...................... 32,419 9.71 10,222 22,197 6.89 1,812 20,385 6.40
Money market deposit accounts ..... 29,278 8.77 21,480 7,798 2.42 (133) 7,931 2.49
Certificate accounts:
Jumbo certificates .............. 28,153 8.43 4,121 24,032 7.46 6,827 17,205 5.40
Fixed rate certificates:
12 months or less .............. 60,367 18.07 (15,673) 76,040 23.60 (12,590) 88,630 27.81
13-24 months ................... 42,183 12.63 11,326 30,857 9.58 (2,926) 33,783 10.60
25-36 months ................... 68,973 20.65 8,477 60,496 18.77 27,226 33,270 10.44
37 months or greater ........... 23,789 7.12 (26,679) 50,468 15.66 (13,760) 64,228 20.14
Variable rate certificate:
18 months ...................... 4,649 1.39 (966) 5,615 1.74 (872) 6,487 2.04
--------- ------ --------- --------- ------ --------- --------- ------
$ 333,989 100.00% 11,772 $ 322,217 100.00% $ 3,512 $ 318,705 100.00%
========= ====== ========= ========= ====== ========= ========= ======
</TABLE>
21
<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 Institutions currently offer a variety of
deposit products as options to the customer. They include noninterest-bearing
and interest-bearing NOW accounts, Passbook accounts, Money Market Demand
Accounts, ("MMDA") and Certificates of Deposit ranging in terms from three
months to seven years.
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,
-----------------------------------------------------------------------
1998 1997 1996
-------------------- ------------------- --------------------
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.................... $ 36,274 3.12% $ 19,579 2.30% $ 28,691 1.66%
Savings deposits............... 45,626 2.13 45,529 2.50 48,556 2.59
Time deposits.................. 231,141 5.69 251,670 5.77 233,330 5.76
---------- ---------- ----------
$ 313,041 4.88 $ 316,778 5.09 $ 310,577 4.89
========== ========== ==========
</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,
------------------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Less than 4% ................ $ 757 $ 101 $ 224
4% - 5.99% ................. 169,194 153,211 161,862
6% - 7.99% ................. 57,754 92,849 77,787
8% - 9.99% ................. 409 1,346 3,730
-------- -------- --------
$228,114 $247,507 $243,603
======== ======== ========
</TABLE>
22
<PAGE>
The following table sets forth the amount and maturities of the Company's
time deposits at December 31, 1998.
<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%.................... $ 688 $ 26 $ 41 $ 2 $ 757
4% - 5.99%...................... 102,986 43,386 14,032 8,790 169,194
6% - 7.99%...................... 18,971 33,995 1,355 3,433 57,754
8% - 9.99%...................... 391 18 -- -- 409
--------- ---------- ---------- ---------- ----------
$ 123,036 $ 77,425 $ 15,428 $ 12,225 $ 228,114
========= ========== ========== ========== ==========
</TABLE>
The following table indicates the amount of the Company's certificates of
deposit and other deposits of $100,000 or more by time remaining until maturity
at December 31, 1998.
<TABLE>
<CAPTION>
Passbook, NOW
Certificates and MMDA
Maturity Period of Deposit Deposits
- --------------- ------------ --------------
(In thousands)
<S> <C> <C>
Three months or less......................... $ 5,398 $ 15,209
Over three through six months................ 5,448 --
Over six through twelve months............... 7,151 --
Over twelve months........................... 10,156 --
--------- ----------
Total................................... $ 28,153 $ 15,209
========= ==========
</TABLE>
The following table sets forth the aggregate savings activities of the
Company for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited.... $ (2,815) $ (12,690) $ 12,928
Interest credited................................... 14,587 16,202 14,992
---------- ---------- ----------
Net increase (decrease) in deposits............... $ 11,772 $ 3,512 $ 27,920
========== ========== ==========
</TABLE>
Borrowings. Deposits are the primary sources of funds for the Institutions'
lending and investment activities and for their general business purposes.
Ameriana-Indiana and Ameriana-Ohio 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
23
<PAGE>
of the Institutions' first mortgage loans or investment securities. At December
31, 1998, Ameriana-Ohio had $17.01 million of advances outstanding from the
Federal Home Loan Bank of Cincinnati and Ameriana-Indiana had no advances
outstanding.
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.
24
<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,
1998. 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, 1998 1997
1998 ------------------------------- -------------------------------
---------------- Average Average
Balance Rate Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ------ ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan portfolio (1) ........................ $265,994 7.92% $277,233 $ 22,517 8.12% $290,922 $ 23,234 7.99%
Mortgage-backed securities ................ 20,217 7.35 25,236 1,663 6.59 34,005 2,319 6.82
Short term investments and other
interest-earning assets (2) .............. 96,662 5.72 67,716 4,121 6.08 54,816 3,780 6.90
-------- ------- -------- -------- ------- -------- -------- -------
Total interest-earning assets .......... 382,873 7.36 370,185 28,301 7.64 379,743 29,333 7.72
Noninterest-earning assets ................. 22,845 20,002 16,940
-------- -------- --------
Total assets ........................... $405,718 $390,187 $396,683
======== ======== ========
Interest-bearing liabilities:
Deposits ................................. $319,356 4.71 $313,041 15,265 4.88 $316,778 16,114 5.09
FHLB advances ............................ 17,101 5.34 12,379 728 5.88 19,791 1,231 6.22
-------- ------- -------- -------- ------- -------- -------- -------
Total interest-bearing liabilities: .... 336,457 4.74 325,420 15,993 4.91 336,569 17,345 5.15
------- -------- ------- -------- -------
Noninterest-bearing liabilities ............ 23,912 19,522 16,253
-------- -------- --------
Total liabilities ...................... 360,369 344,942 352,822
Shareholders' equity ....................... 45,349 45,245 43,861
-------- -------- --------
Total liabilities and shareholders'
equity ............................... $405,718 $390,187 $396,683
======== ======== ========
Net interest income ........................ $ 12,308 $ 11,988
======== ========
Interest rate spread ....................... 2.62% 2.73% 2.57%
======= ======== ========
Net yield on interest-earning assets ....... 3.32% 3.16%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities .. 113.76% 112.83%
======== ========
<CAPTION>
----------------------------------
1996
----------------------------------
Average Average
Balance Interest Yield/Cost
------- -------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Loan portfolio (1) ........................ $276,752 $ 22,060 7.97%
Mortgage-backed securities ................ 42,326 2,880 6.80
Short term investments and other
interest-earning assets (2) .............. 54,846 3,627 6.61
-------- -------- --------
Total interest-earning assets .......... 373,924 28,567 7.64
Noninterest-earning assets ................. 16,483
--------
Total assets ........................... $390,407
========
Interest-bearing liabilities:
Deposits ................................. $310,577 15,183 4.89
FHLB advances ............................ 25,987 1,522 5.86
-------- -------- --------
Total interest-bearing liabilities: .... 336,564 16,705 4.96
-------- -------- --------
Noninterest-bearing liabilities ............ 9,289
--------
Total liabilities ...................... 345,853
Shareholders' equity ....................... 44,554
--------
Total liabilities and shareholders'
equity ............................... $390,407
========
Net interest income ........................ $ 11,862
========
Interest rate spread ....................... 2.68%
========
Net yield on interest-earning assets ....... 3.17%
========
Ratio of average interest-earning assets
to average interest-bearing liabilities .. 111.10%
========
</TABLE>
- -------------
(1) Excludes income earned on late charges and inspection fees. Average
balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions,
investment securities and FHLB stock.
25
<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, 1998, Ameriana-Indiana and Ameriana-Ohio were authorized to
invest up to approximately $9.395 million and $2.758 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 Ameriana-Indiana and Ameriana-Ohio 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 and all the stock of AIA, which provides
insurance products to the communities it serves. AIA was dividended to the
Company on December 31, 1998 by Ameriana-Indiana. The Company recently expanded
its title services by opening a second location in the Avon, Indiana branch.
Ameriana-Indiana has one direct wholly-owned subsidiary, Ameriana Financial
Services, Inc. ("AFS"). AFS offers insurance products through 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. Ameriana-Ohio
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, 1998, Ameriana-Indiana's and Ameriana-Ohio's investments
in, and loans to, their subsidiaries were approximately $2.976 million and
$9.397, 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.
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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, Shelby 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 banks, 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 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.
Proposed Legislative and Regulatory Changes. The U.S. Congress is in the
process of drafting legislation which may have a profound effect on the
financial services industry. On January 6, 1999 legislation restructuring the
activities and regulations oversight of the financial services industry ("H.R.
10"), was reintroduced in the U.S. House
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of Representatives. The stated purposes of the legislation are to enhance
consumer choice in the financial services marketplace, level the playing field
among providers of financial services and increase competition. H.R. 10 would
permit affiliations between commercial banks, securities firms, insurance
companies and, subject to certain limitations, other commercial enterprises
allowing holding companies to offer new services and products. H.R. 10 removes
many of the statutory restrictions contained in current laws regulating the
financial services industry. In particular, H.R. 10 repeals the Glass-Steagall
Act prohibitions on banks affiliating with securities firms and thereby allowing
holding companies to engage in securities underwriting and dealing without
limits and to sponsor and act as distributor for mutual funds and also removes
the Bank Holding Company Act's prohibitions on insurance underwriting allowing
holding companies to underwrite and broker any type of insurance product. H.R.
10 also calls for a new regulatory framework of financial institutions and their
holding companies. The legislation preserves the thrift charter and all existing
thrift powers, but would restrict the activities of new unitary thrift holding
companies. At this time, it is unknown how H.R. 10 will be modified, or if
enacted into law, what form the final version of the legislation might take and
how the legislation may affect the business and operations and competitive
environment of the Company and the Institutions.
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
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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 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 CAMELS 1 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
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leverage ratio of less than 4.0% (or 3.0% if the institution has a CAMELS 1
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 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 Institutions meet substantially all the
standards
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adopted in the interagency guidelines and, therefore, does not believe that the
implementation of these regulatory standards will materially affect their
operations.
Additionally, the FDICIA required each federal banking agency to establish
standards relating to the adequacy of asset and earnings quality. In 1995, these
agencies, including the OTS, issued guidelines relating to asset and earnings
quality. Under these 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 have a material effect on the Institutions.
Year 2000 Readiness Disclosure. The federal banking agencies, including the
OTS, have also established Year 2000 readiness safety and soundness guidelines
requiring all insured depository institutions to implement procedures by
specified key dates to ensure the institution can continue business operations
after January 1, 2000. Every institution must identify its internal and external
"mission-critical" systems (i.e., those systems vital to the continuance of a
core business activity) and develop a written plan establishing priorities,
oversight and reasonable deadlines to complete the testing and renovation of
mission-critical systems. In addition, an institution must prepare a written
business resumption contingency plan that defines scenarios where
mission-critical systems might fail, evaluates contingency options to keep
business operations going and provides for testing of the contingency plan by an
independent party. Every depository institution must also identify among its
customers those persons that represent a material risk to the institution in the
event the customer is not Year 2000 compliant and implement appropriate risks
controls to manage and mitigate the customer's Year 2000 risk to the
institution.
The federal banking agencies will examine the institution's overall
progress in meeting the Year 2000 readiness guidelines. In the event an
institution has failed to renovate its mission-critical systems or is not on
schedule with key dates, the institution must draft a remediation contingency
plan outlining alternative strategies to comply with the guidelines and locate
available third party providers. The agencies, in their sole discretion, may
take actions under the FDICIA, the safety and soundness guidelines or any other
action available to them, including enforcement action, to ensure an
institution's Year 2000 readiness. For information regarding the Institutions'
Year 2000 readiness, see
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"Management's Discussion and Analysis and Results of Operations -- Year 2000
Readiness Disclosure" in the Annual Report.
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.
Ameriana-Indiana and Ameriana-Ohio were in compliance with this requirement at
December 31, 1998, with investments in Federal Home Loan Bank stock of $2.404
million and $1.184 million, 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. At
December 31, 1998, Ameriana-Ohio had $17.01 million, of advances outstanding
from the Federal Home Loan Bank of Cincinnati and Ameriana-Indiana had no
advances outstanding.
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 4%) of their
respective net withdrawable savings deposits plus short-term borrowings.
Monetary penalties may be imposed for failure to meet liquidity requirements.
The liquidity ratios of Ameriana-Indiana and Ameriana-Ohio at December 31, 1998
were 29.40% and 17.65%, respectively.
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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 sets 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, 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.
The FDIC has adopted an assessment schedule for SAIF deposit insurance
premiums where the assessment rate for well-capitalized institutions with the
highest supervisory ratings is zero and institutions in the worst risk
assessment category are 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.
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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 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 it 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
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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, 1998, approximately 94.28% and 89.98% of Ameriana-Indiana's
and Ameriana Ohio's respective assets were invested in Qualified Thrift
Investments as currently defined.
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 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 has a CAMELS 1
rating). 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 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
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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 its
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, a portion of the savings institution's general loss allowances and
up to 45% of unrealized gains on equity securities. 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 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, 1998, Ameriana-Indiana had $2.976 million, or 9.0% of its
total regulatory capital, invested in or lent to its subsidiary, AFS, which is
indirectly engaged in insurance underwriting
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activities not permissible to national banks. Due to the relatively small
percentage of Ameriana-Indiana's capital invested in or lent to its subsidiary,
Ameriana-Indiana does not anticipate that the required deductions described
above will have a material effect on Ameriana-Indiana's capital.
The table below represents the Institutions' historical capital position
relative to their various minimum regulatory capital requirements at December
31, 1998.
<TABLE>
<CAPTION>
Ameriana-Indiana Ameriana-Ohio
--------------------- ---------------------
Percent of Percent of
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible Capital ................ $32,551 10.4% $ 7,842 8.7%
Tangible Capital Requirement .... 4,688 1.5 1,360 1.5
------- ---- ------- ----
Excess ........................ $27,863 8.9% $ 6,482 7.2%
======= ==== ======= ====
Core Capital .................... $32,551 10.4% $ 7,842 8.7%
Core Capital Requirement ........ 9,376 3.0 2,720 3.0
------- ---- ------- ----
Excess ........................ $23,175 7.4% $ 5,122 5.7%
======= ==== ======= ====
Total Capital (i.e., Core and
Supplementary Capital) ........ $33,052 22.0% $ 8,100 17.5%
Risk-Based Capital Requirement .. 12,011 8.0 3,705 8.0
------- ---- ------- ----
Excess ........................ $21,041 14.0% $ 4,395 9.5%
======= ==== ======= ====
</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 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 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
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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 may 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
Ameriana-Indiana's current level of interest rate risk exposure, it is subject
to additional capital requirements.
The 200 basis point immediate increase in rates would create a net
portfolio decrease of $7,620,000. Based upon 2% of assets from the June 30, 1998
Thrift Financial Report, Ameriana-Indiana would be required to reduce capital by
50% of the difference or $754,000. The excess risk-based capital would be
reduced to an excess of $20,287,000 from the previously calculated excess of
$21,041,000. Based on Ameriana-Ohio's current level of interest rate risk
exposure it is not 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 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
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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 its 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 15% of unimpaired
capital and surplus. Certain types of loans are exempted from the lending
limits, including loans secured by savings deposits.
At December 31, 1998, the maximum amounts Ameriana-Indiana and
Ameriana-Ohio could lend to one borrower under the 15% standard were $4.957
million and $1.215 million, respectively. At that date, Ameriana- Indiana's and
Ameriana-Ohio's largest loans to one borrower were $4.472 million and $565,000,
respectively.
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a thrift institution must maintain average daily reserves equal to 3% net
transaction accounts from $4.9 million to $46.5 million, plus 10% of the
remainder. These percentages are subject to adjustment by the Federal Reserve
Board. Because required reserves must be maintained in the form of vault cash or
in a noninterest-bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's
interest-earning assets. At December 31, 1998, the Institutions met their
respective reserve requirements.
Savings and Loan Holding Companies. Since its acquisition of all of
Ameriana-Indiana'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 Ameriana-Ohio in
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
39
<PAGE>
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 institution as of March 5, 1987, or (iii) when the
statutes of the state where an institution to be acquired is located
specifically permit 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 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
Ameriana-Indiana 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).
40
<PAGE>
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 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. 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
41
<PAGE>
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.
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 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. In addition, Section
106 of the Bank Holding Company Act 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 Ameriana-Ohio 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 Ameriana-Ohio, 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 Institutions) 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
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
42
<PAGE>
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 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,
the holding company would be required to register as a bank holding company and
would 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.
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 Ameriana-Indiana and
43
<PAGE>
Ameriana-Ohio which met certain definitional tests and other conditions
prescribed by the Code benefitted 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 were separated
into "qualifying real property loans," which generally were loans secured by
interests in certain real property, and nonqualifying loans, which were all
other loans. The bad debt reserve deduction with respect to nonqualifying loans
was 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 was 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"). Ameriana-Indiana and
Ameriana-Ohio historically used whichever method resulted in the highest bad
debt reserve deduction in any given year.
Legislation that was 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 loss reserve that exceeds the pre-1988
tax loan loss reserve. Ameriana-Indiana and Ameriana-Ohio 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 after December
31, 1997. Recapture is mandatory no later than for tax years beginning after
December 31, 1997.
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.
44
<PAGE>
State Taxation. The State of Indiana imposes a franchise tax which is
assessed on qualifying financial institutions, such as Ameriana-Indiana. 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. Ameriana-Ohio 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 1.4% for 1999. 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 included in the Annual
Report and appearing at Exhibit 13 to this report.
Employees
As of December 31, 1998, the Company and subsidiaries had approximately 162
full-time and 10 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.
45
<PAGE>
Executive Officers
Age at
Name December 31, 1998 Principal Position
- ---- ----------------- ------------------
Harry J. Bailey 56 President and Chief Executive Officer
of Ameriana-Indiana and the Company
Timothy G. Clark 48 Executive Vice President and Chief
Operating Officer of Ameriana-Indiana
Ronald M. Holloway 49 Senior Vice President and Chief
Lending Officer of Ameriana-Indiana
Ralph E. Kerwin 62 Senior Vice President, Deposit
Services of Ameriana-Indiana
Michael C. Olson 49 President and Chief Executive Officer
of Ameriana-Ohio
Nancy A. Rogers 56 Senior Vice President - Marketing
Services of Ameriana-Indiana and
Secretary of Ameriana-Indiana and the
Company (since retirement of
Mr. Pruim effective January 1, 1998
-- see above).
Richard E. Welling 53 Senior Vice President - Treasurer of
Ameriana-Indiana and Company (since
retirement of Mr. Pruim effective
January 1, 1998.
Edward J. Wooton 45 Senior Vice President - Subsidiaries
of Ameriana-Indiana and Senior Vice
President of the Company
Jan F. Wright 55 Senior Vice President - Branch
Operations of Ameriana-Indiana
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 Ameriana-Indiana
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 Ameriana-Indiana since February 1984.
He has been a director of Ameriana-Indiana since 1987 and a director of the
Company since its formation.
Timothy G. Clark joined Ameriana-Indiana as Executive Vice President and
Chief Operating Officer on September 2, 1997. He previously held the position of
Regional Executive and Area President at National City Bank
46
<PAGE>
of Indiana in Seymour, Indiana for 5 years and prior to that held senior
management positions with Central National Bank in Greencastle, Indiana for 5
years and Hancock Bank & Trust in Greenfield, Indiana for 13 years.
Ronald M. Holloway has been employed by Ameriana-Indiana 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
Ameriana-Indiana.
Ralph E. Kerwin has been employed by Ameriana-Indiana 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 Ameriana-Ohio in March 1995. He was formerly Senior Vice
President - Branch Operations and Marketing of Ameriana-Indiana and the Chief
Executive Officer of Citizens Federal prior to its merger with Ameriana-Indiana
in 1988. He has been employed in the thrift industry since 1974.
Nancy A. Rogers was elected as Senior Vice President - Marketing Services
in March 1995 and was also appointed Secretary of the Company and
Ameriana-Indiana in 1998. She has been employed at Ameriana-Indiana since 1964
and most recently served as Vice President and Director of Advertising and
Public Relations.
Richard E. Welling, a certified public accountant, joined Ameriana-Indiana
as a Senior Vice President on December 1, 1997, and was appointed Treasurer of
the Company and Ameriana-Indiana in 1998. Prior to joining Ameriana-Indiana, he
was employed as Secretary, Treasurer and Chief Financial Officer of AMBANC Corp.
in Vincennes, Indiana, where he had been employed for eleven years.
Edward J. Wooton joined the staff of Ameriana-Indiana in August 1985 as
Senior Vice President Subsidiaries and directs diversified operations of
Ameriana-Indiana. He came to Ameriana-Indiana 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. He was appointed Senior
Vice President of the Company in 1989.
Jan F. Wright was elected as Senior Vice President - Branch Operations in
March 1995 and has been employed by Ameriana-Indiana since 1972. He previously
held the position of Vice President and Director of Loan Origination and
Processing.
47
<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, 1998 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>
Ameriana-Indiana:
Main Office
2118 Bundy Avenue
New Castle, Indiana............. 1958 $ 3,313,338 $ 1,046,702 Owned 20,500
1311 Broad Street
New Castle, Indiana............. 1890 1,364,654 442,712 Owned 18,000
956 North Beechwood Street
Middletown, Indiana............. 1971 441,803 111,158 Owned 5,500
22 North Jefferson
Knightstown, Indiana............ 1979 572,297 200,516 Owned 3,400
1810 North State Street
Greenfield, Indiana............. 1995 1,469,709 1,142,867 Owned 5,800
99 Dan Jones Road
Avon, Indiana................... 1995 1,826,738 1,637,300 Owned 12,600
1754 East 53rd Street
Anderson, Indiana............... 1993 424,658 313,437 Owned 1,500
488 W. Main Street
Morristown, Indiana............. 1998 451,053 396,498 Owned 2,600
Ameriana-Ohio:
7200 Blue Ash Road
Cincinnati, Ohio................ 1992 1,379,102 605,627 Owned 9,100
2894 W. U.S. 22 & 3
Maineville, Ohio................ 1998 126,711 60,963 Leased 3,000
6385 Branch Hill-Guinea Pike
Loveland, Ohio.................. 1998 71,145 48,354 Leased 1,500
Ameriana Insurance Agency, Inc.
2020 S. Memorial Drive
New Castle, Indiana............. 1987 223,034 82,251 Leased 1,200
Indiana Title Insurance Company
1309 Broad Street
New Castle, Indiana............. 1991 11,540 3,559 Leased 1,000
------------- ------------
Total..................... $ 11,675,782 $ 6,091,944
============= ============
</TABLE>
48
<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, 1998,
the total net book value of the Company's offices and equipment (including
leasehold improvements) was $6.092 million.
Item 3. Legal Proceedings
- -------------------------
The Company and its subsidiaries are not a party to any material pending
legal proceedings.
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 18 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.
49
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------------------------------------------------------------------
The information required by this item contained in 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.
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
50
<PAGE>
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.
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, 1998 and
1997
(b) Consolidated Statements of Income for Each of the Three Years in
the Period Ended December 31, 1998
(c) Consolidated Statements of Shareholders' Equity for Each of the
Three Years in the Period Ended December 31, 1998
(d) Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1998
(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
51
<PAGE>
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-Indiana Employment Agreements with Harry J. Bailey and Edward
J. Wooton -- agreements with Mr. Bailey 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 Form of Employment Agreement with Senior Officers, Richard E. Welling,
Timothy G. Clark and Michael C. Olson incorporated herein by reference
to Exhibit 10.2 hereto
10.4 Ameriana Bancorp 1996 Stock Option and Incentive Plan, as amended in
1998
13 Annual Report to Stockholders
21 Subsidiaries
23 Consent of Olive LLP
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.
52
<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 30, 1999 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: By: /s/ Harry J. Bailey
--------------------------------- ----------------------------------
Paul W. Prior Harry J. Bailey
Chairman of the Board President, Chief Executive Officer
and Director
(Principal Executive Officer)
By: /s/ Richard E. Welling By: /s/ Donald C. Danielson
-------------------------------- ----------------------------------
Richard E. Welling Donald C. Danielson
Senior Vice President - Treasurer Director
(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
53
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
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-Indiana Employment Agreements with Harry J. Bailey, and
Edward J. Wooton -- agreements with Mr. Bailey 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 Form of Employment Agreement with Senior Officers, Richard E. Welling,
Timothy G. Clark and Michael C. Olson incorporated herein by reference
to Exhibit 10.2 hereto
10.4 Ameriana Bancorp 1996 Stock Option and Incentive Plan, as amended in
1998
13 Annual Report to Stockholders
21 Subsidiaries
23 Consent of Olive LLP
27 Financial Data Schedule
54
<PAGE>
AMERIANA BANCORP
1996 STOCK OPTION AND INCENTIVE PLAN
AS AMENDED*
1. Purpose of the Plan.
The purpose of this Plan is to advance the interests of the Company
through providing select key Employees and Directors of the Company and
its Affiliates with the opportunity to acquire Shares. By encouraging
such stock ownership, the Company seeks to attract, retain and motivate
the best available personnel for positions of substantial responsibility
and to provide additional incentive to Directors and key Employees of the
Company or any Affiliate to promote the success of the business.
2. Definitions.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section
424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in
accordance with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options, SARs, and Deferred
Stock Awards (unless the context clearly indicates a different
meaning).
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof.
(g) "Common Stock" shall mean the common stock of the Company.
(h) "Company" shall mean Ameriana Bancorp.
(i) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company
or an Affiliate. Continuous Service shall not be considered
interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Company, in the case of transfers
between payroll locations of the Company or between the Company,
an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
(i-A) "Deferred Stock Award" shall mean an award made pursuant to
Paragraph 10A of the Plan.
(j) "Director" shall mean any member of the Board, and any member of
the board of directors of any Affiliate that the Board has by
resolution designated as being eligible for participation in this
Plan.
- ------------------------------
* Includes the 1996 Amendment, 1997 Amendment, 1998 Amendment, and Second 1998
Amendment.
<PAGE>
(k) "Disability" shall mean a physical or mental condition, which in
the sole and absolute discretion of the Committee, is reasonably
expected to be of indefinite duration and to substantially prevent
a Participant from fulfilling his or her duties or
responsibilities to the Company or an Affiliate.
(l) "Effective Date" shall mean the date specified in Paragraph 14
hereof.
(m) "Employee" shall mean any person employed by the Company or an
Affiliate.
(n) "Exercise Price" shall mean the price per Optioned Share at which
an Option or SAR may be exercised.
(o) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be
and is identified as an "incentive stock option" within the
meaning of Section 422 of the Code.
(p) "Market Value" shall mean the fair market value of the Common
Stock, as determined under Paragraph 7(b) hereof.
(q) "Non-Employee Director" shall have the meaning provided in Rule
16b-3.
(r) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be
and is not identified as an ISO.
(s) "Option" means an ISO and/or a Non-ISO.
(t) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(u) "Participant" shall mean any person who receives an Award pursuant
to the Plan.
(v) "Plan" shall mean this Ameriana Bancorp 1996 Stock Option and
Incentive Plan.
(w) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(x) "Share" shall mean one share of Common Stock.
(y) "SAR" (or "Stock Appreciation Right") means a right to receive the
appreciation in value, or a portion of the appreciation in value,
of a specified number of shares of Common Stock.
(z) "Year of Service" shall mean a full twelve-month period, measured
from the date of an Award and each annual anniversary of that
date, during which a Participant has not terminated Continuous
Service for any reason.
3. Term of the Plan and Awards.
(a) Term of the Plan. The Plan shall continue in effect for a term of
ten years from the Effective Date, unless sooner terminated
pursuant to Paragraph 16 hereof. No Award shall be granted under
the Plan after five years from the Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan
shall be established by the Committee, but shall not exceed 10
years; provided, however, that in the case of an Employee who
2
<PAGE>
owns Shares representing more than 10% of the outstanding Common
Stock at the time an ISO is granted, the term of such ISO shall
not exceed five years; and provided further that the term of a
Deferred Stock Award may exceed 10 years if the Agreement granting
the Deferred Stock Award specifically provides for a term that
expires no more than 10 years after termination of a Participant's
Continuous Service.
4. Shares Subject to the Plan.
(a) General Rule. Except as otherwise required under Section 11, the
aggregate number of Shares deliverable pursuant to Awards shall
not exceed 320,0001 Shares. Such Shares may either be (i)
authorized but unissued Shares, (ii) Shares held in treasury, or
(iii) shares held in a grantor trust maintained by the Company. If
any Awards should expire, become unexercisable, or be forfeited
for any reason without having been exercised, the Optioned Shares
shall, unless the Plan shall have been terminated, be available
for the grant of additional Awards under the Plan.
(b) Special Rule for SARs. The number of Shares with respect to which
an SAR is granted, but not the number of Shares which the Company
delivers or could deliver to an Employee or individual upon
exercise of an SAR, shall be charged against the aggregate number
of Shares remaining available under the Plan; provided, however,
that in the case of an SAR granted in conjunction with an Option,
under circumstances in which the exercise of the SAR results in
termination of the Option and vice versa, only the number of
Shares subject to the Option shall be charged against the
aggregate number of Shares remaining available under the Plan. The
Shares involved in an Option as to which option rights have
terminated by reason of the exercise of a related SAR, as provided
in Paragraph 10 hereof, shall not be available for the grant of
further Options under the Plan.
5. Administration of the Plan.
(a) Composition of the Committee. The Plan shall be administered by
the Committee, which shall consist of not less than two (2)
members of the Board who are Non-Employee Directors. Members of
the Committee shall serve at the pleasure of the Board. In the
absence at any time of a duly appointed Committee, the Plan shall
be administered by those members of the Board who are Non-Employee
Directors.
(b) Powers of the Committee. Except as limited by the express
provisions of the Plan or by resolutions adopted by the Board, the
Committee shall have sole and complete authority and discretion
(i) to select Participants and grant Awards, (ii) to determine the
form and content of Awards to be issued in the form of Agreements
under the Plan, (iii) to interpret the Plan, (iv) to prescribe,
amend and rescind rules and regulations relating to the Plan, and
(v) to make other determinations necessary or advisable for the
administration of the Plan. The Committee shall have and may
exercise such other power and authority as may be delegated to it
by the Board from time to time. A majority of the entire Committee
shall constitute a quorum and the action of a majority of the
members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a
meeting, shall be deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee.
Each such Agreement shall constitute a binding contract between
the Company and the Participant, and every Participant, upon
acceptance of such
- -----------------------------
/1/ Reflects four-for-three stock split in the form of a stock dividend
effective March 15, 1996.
3
<PAGE>
Agreement, shall be bound by the terms and restrictions of the
Plan and of such Agreement. The terms of each such Agreement shall
be in accordance with the Plan, but each Agreement may include
such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms of
the Plan. In particular, the Committee shall set forth in each
Agreement (i) the Exercise Price of an Option or SAR, (ii) the
number of Shares subject to, and the expiration date of, the
Award, (iii) the manner, time and rate (cumulative or otherwise)
of exercise or vesting of such Award, and (iv) the restrictions,
if any, to be placed upon such Award, or upon Shares which may be
issued upon exercise of such Award.
The Chairman of the Committee and such other Directors and
officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Company and to
cause them to be delivered to the recipients of Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations
and interpretations of the Committee shall be final and conclusive
on all persons affected thereby.
(e) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Committee
shall be indemnified by the Company in connection with any claim,
action, suit or proceeding relating to any action taken or failure
to act under or in connection with the Plan or any Award, granted
hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of
Directors.
6. Grant of Options.
(a) General Rule. The Committee shall make the Awards required under
Paragraph 9 of this Plan, and shall otherwise have the discretion
to make Awards only to Employees (including Employees who are
Directors) to Directors, and to directors of Affiliates. In
selecting those Employees to whom Awards will be granted and the
number of shares covered by such Awards, the Committee shall
consider the position, duties and responsibilities of the eligible
individuals, the value of their services to the Company and its
Affiliates, and any other factors the Committee may deem relevant.
(b) Special Rules for ISOs. The aggregate Market Value, as of the
date the Option is granted, of the Shares with respect to which
ISOs are exercisable for the first time by an Employee during any
calendar year (under all incentive stock option plans, as defined
in Section 422 of the Code, of the Company or any present or
future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in
excess of the foregoing limitations, in which case such Options
granted in excess of such limitation shall be Options which are
Non-ISOs.
7. Exercise Price for Options.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 50% (100% for ISOs) of
the Market Value of the Optioned Shares on the date of grant. In
the case of an Employee who owns Shares representing more than
10% of the Company's outstanding Shares of Common Stock at the
time an ISO is granted, the Exercise Price shall not be less than
110% of the Market Value of the Optioned Shares at the time the
ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ
National Market System) on the date in question, then the Market
Value per Share shall be the average of the highest and lowest
selling price on such
4
<PAGE>
exchange on such date, or if there were no sales on such date,
then the Exercise Price shall be the mean between the bid and
asked price on such date. If the Common Stock is traded otherwise
than on a national securities exchange on the date in question,
then the Market Value per Share shall be the mean between the bid
and asked price on such date, or, if there is no bid and asked
price on such date, then on the next prior business day on which
there was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and
absolute discretion.
8. Exercise of Options.
(a) Generally. Any Option granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under
the terms of the Plan and of the Agreement granted to a
Participant. An Option may not be exercised for a fractional
Share.
(b) Procedure for Exercise. A Participant may exercise Options,
subject to provisions relative to its termination and limitations
on its exercise, only by (1) written notice of intent to exercise
the Option with respect to a specified number of Shares, and (2)
payment to the Company (contemporaneously with delivery of such
notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number
of Shares with respect to which the Option is then being
exercised. Each such notice (and payment where required) shall be
delivered, or mailed by prepaid registered or certified mail,
addressed to the Treasurer of the Company at the Company's
executive offices. Common Stock utilized in full or partial
payment of the Exercise Price for Options shall be valued at its
Market Value at the date of exercise, and may consist of Shares
subject to the Option being exercised. Upon a Participant's
exercise of an Option, the Company may, in the discretion of the
Committee, pay to the Participant a cash amount up to but not
exceeding the amount of dividends, if any, declared on the
underlying Shares between the date of grant and the date of
exercise of the Option.
(c) Period of Exercisability. Except to the extent otherwise provided
in the terms of an Agreement, an Option may be exercised by a
Participant only while he is an Employee and has maintained
Continuous Service from the date of the grant of the Option, or
within three months after termination of such Continuous Service
(but not later than the date on which the Option would otherwise
expire), except if the Employee's Continuous Service terminates by
reason of --
(1) "Just Cause" which for purposes hereof shall have the meaning
set forth in any unexpired employment or severance agreement
between the Participant and the Company (and, in the absence
of any such agreement, shall mean termination because of the
Employee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist
order), then the Participant's rights to exercise such Option
shall expire on the date of such termination;
(2) death, then to the extent that the Participant would have
been entitled to exercise the Option immediately prior to his
death, such Option of the deceased Participant may be
exercised within two years from the date of his death (but
not later than the date on which the Option would otherwise
expire) by the personal representatives of his estate or
person or persons to whom his rights under such Option shall
have passed by will or by laws of descent and distribution;
5
<PAGE>
(3) Disability, then to the extent that the Participant would
have been entitled to exercise the Option immediately prior
to his or her Disability, such Option may be exercised within
one year from the date of termination of employment due to
Disability, but not later than the date on which the Option
would otherwise expire.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the
effective date thereof, shall be final and conclusive on all
persons affected thereby.
(e) Six-Month Holding Period. Notwithstanding any other provision of
this Plan to the contrary, Common Stock that is purchased upon
exercise of an Option or SAR may not be sold within the six-month
period following the grant date of that Option or SAR, except in
the event of the Participant's death or Disability, or such other
event as the Board may specifically deem appropriate.
9. Grants of Options to Non-employee Directors.
(a) Automatic Grants. Notwithstanding any other provisions of this
Plan, each Director who is not an Employee but is a Director on
the Effective Date shall receive, on said date, Non-ISOs to
purchase 8,0002 Shares. The Exercise Price per Share will be equal
to the Market Value of a Share on the date of grant. Each Director
who joins the Board after the Effective Date and who is not then
an Employee shall receive, on the date of joining the Board, Non-
ISOs to purchase 8,0002 of the Shares reserved under Paragraph
4(a) of the Plan, at an Exercise Price per Share equal to its
Market Value on the date of grant.
(b) Terms of Exercise. Options received under the provisions of this
Paragraph may be exercised from time to time by (a) written notice
of intent to exercise the Option with respect to all or a
specified number of the Optioned Shares, and (b) payment to the
Company (contemporaneously with the delivery of such notice), in
cash, in Common Stock, or a combination of cash and Common Stock,
of the amount of the Exercise Price for the number of the Optioned
Shares with respect to which the Option is then being exercised.
Each such notice and payment shall be delivered, or mailed by
prepaid registered or certified mail, addressed to the Treasurer
of the Company at the Company's executive offices. A Director who
exercises Options pursuant to this Paragraph may satisfy all
applicable federal, state and local income and employment tax
withholding obligations, in whole or in part, by irrevocably
electing to have the Company withhold shares of Common Stock, or
to deliver to the Company shares of Common Stock that he already
owns, having a value equal to the amount required to be withheld;
provided that to the extent not inconsistent herewith, such
election otherwise complies with those requirements of Paragraphs
8 and 19 hereof.
Options granted under this Paragraph shall become exercisable on
the date that the Plan receives stockholder approval pursuant to
Paragraph 14 hereof. Such Options shall have a term of ten years
and expire one year after the date on which a Director terminates
Continuous Service on the Board, but in no event later than the
date on which such Options would otherwise expire. In the event of
such Director's death during the term of his directorship, Options
granted under this Paragraph shall become immediately exercisable,
and may be exercised within two years from the date of his death
by the personal representatives of his estate or person or persons
to whom his rights under such Option shall have passed by will or
by laws of descent and distribution, but in no event later than
the date on which such Options would otherwise expire. In the
event of such Director's Disability
- ------------------------
/2/ Reflects four-for-three stock split in the form of a stock dividend
effective March 15, 1996.
6
<PAGE>
during his or her directorship, the Director's Option shall become
immediately exercisable, and such Option may be exercised within
one year of the termination of directorship due to Disability, but
not later than the date that the Option would otherwise expire.
Unless otherwise inapplicable or inconsistent with the provisions
of this Paragraph, the Options to be granted to Directors
hereunder shall be subject to all other provisions of this Plan.
(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the
effective date thereof, shall be final and conclusive on all
persons affected thereby.
10. SARs (Stock Appreciation Rights).
(a) Granting of SARs. In its sole discretion, the Committee may from
time to time grant SARs to Employees either in conjunction with,
or independently of, any Options granted under the Plan. An SAR
granted in conjunction with an Option may be an alternative right
wherein the exercise of the Option terminates the SAR to the
extent of the number of shares purchased upon exercise of the
Option and, correspondingly, the exercise of the SAR terminates
the Option to the extent of the number of Shares with respect to
which the SAR is exercised. Alternatively, an SAR granted in
conjunction with an Option may be an additional right wherein both
the SAR and the Option may be exercised. An SAR may not be granted
in conjunction with an ISO under circumstances in which the
exercise of the SAR affects the right to exercise the ISO or vice
versa, unless the SAR, by its terms, meets all of the following
requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the
Exercise Price of the ISO and the Market Value of the Shares
subject to the ISO at the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is transferable,
and under the same conditions;
(4) The SAR may be exercised only when the ISO may be exercised;
and
(5) The SAR may be exercised only when the Market Value of the
Shares subject to the ISO exceeds the Exercise Price of the
ISO.
(b) Exercise Price. The Exercise Price as to any particular SAR shall
not be less than the Market Value of the Optioned Shares on the
date of grant.
(c) Timing of Exercise. Any election by a Participant to exercise SARs
shall be made during the period beginning on the 3rd business day
following the release for publication of quarterly or annual
financial information and ending on the 12th business day
following such date. This condition shall be deemed to be
satisfied when the specified financial data is first made publicly
available. In no event, however, may an SAR be exercised within
the six-month period following the date of its grant.
The provisions of Paragraph 8(c) regarding the period of
exercisability of Options are incorporated by reference herein,
and shall determine the period of exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under
the terms of the Plan and of the Agreement granted to a
Participant, provided that an SAR may not be exercised for a
fractional Share. Upon exercise of
7
<PAGE>
an SAR, the Participant shall be entitled to receive, without
payment to the Company except for applicable withholding taxes, an
amount equal to the excess of (or, in the discretion of the
Committee if provided in the Agreement, a portion of the excess
of) the then aggregate Market Value of the number of Optioned
Shares with respect to which the Participant exercises the SAR,
over the aggregate Exercise Price of such number of Optioned
Shares. This amount shall be payable by the Company, in the
discretion of the Committee, in cash or in Shares valued at the
then Market Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not inconsistent
herewith, the provisions of Paragraph 8(b) as to the procedure for
exercising Options are incorporated by reference, and shall
determine the procedure for exercising SARs.
10A. Deferred Stock Awards
The Committee may in its discretion make Deferred Stock Awards, to
Employees who are highly compensated within the meaning of Title I of the
Employee Retirement Income Security Act of 1974 as amended, in the form
of Shares that will be transferred to such Employees only upon
satisfaction of (i) any terms and conditions set forth in the Agreement
effecting the Deferred Stock Award, and (ii) the requirements of
Paragraph 19 of the Plan.
11. Effect of Changes in Common Stock Subject to the Plan.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of
shares reserved for issuance under the Plan, and the number and
kind of shares subject to outstanding Awards, and the Exercise
Price thereof, shall be proportionately adjusted for any increase,
decrease, change or exchange of Shares for a different number or
kind of shares or other securities of the Company which results
from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares,
or similar event in which the number or kind of shares is changed
without the receipt or payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In
the event of (i) the liquidation or dissolution of the Company,
(ii) a merger or consolidation in which the Company is not the
surviving entity, or (iii) the sale or disposition of all or
substantially all of the Company's assets (any of the foregoing to
be referred to herein as a "Transaction"), all outstanding Awards,
together with the Exercise Prices thereof, shall be equitably
adjusted for any change or exchange of Shares for a different
number or kind of shares or other securities which results from
the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to
subparagraphs (a) or (b)(1) hereof shall be made in such a manner
as not to constitute a modification, within the meaning of Section
424(h) of the Code, of outstanding ISOs.
(d) Conditions and Restrictions on New, Additional, or Different
Shares or Securities. If, by reason of any adjustment made
pursuant to this Paragraph, a Participant becomes entitled to new,
additional, or different shares of stock or securities, such new,
additional, or different shares of stock or securities shall
thereupon be subject to all of the conditions and restrictions
which were applicable to the Shares pursuant to the Award before
the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph,
the issuance by the Company or an Affiliate of shares of stock of
any class, or of securities convertible into Shares or stock of
another class, for cash or property or for labor or services
either upon direct sale or upon the exercise of rights or warrants
to subscribe therefor, shall not affect, and no adjustment shall
be
8
<PAGE>
made with respect to, the number, class, or Exercise Price of
Shares then subject to Awards or reserved for issuance under the
Plan.
(f) Certain Special Dividends. The Exercise Price of shares subject to
outstanding Awards shall be proportionately adjusted upon the
payment of a special large and nonrecurring dividend that has the
effect of a return to capital to the stockholders, except that
this subparagraph (f) shall not apply to any dividend which is
paid to the Participant pursuant to Paragraph 8(b) hereof.
12. Non-Transferability of Awards.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent
and distribution. Notwithstanding any other provision of this Plan to the
contrary, to the extent permissible under Rule 16b-3, a Participant who
is granted Non-ISOs pursuant to this Plan may transfer such Non-ISOs to
his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust, provided that Non-ISOs so transferred may not again be
transferred other than to the Participant originally receiving the grant
of Non-ISOs or to an individual or trust to whom such Participant could
have transferred Non-ISOs pursuant to this Section 12. Non-ISOs which are
transferred pursuant to this Section 12 shall be exercisable by the
transferee subject to the same terms and conditions as would have applied
to such Non-ISOs in the hands of the Participant originally receiving the
grant of such Non-ISOs.
13. Time of Granting Awards.
The date of grant of an Award shall, for all purposes, be the later of
the date on which the Committee makes the determination of granting such
Award, and the Effective Date. Notice of the determination shall be given
to each Participant to whom an Award is so granted within a reasonable
time after the date of such grant.
14. Effective Date.
The Plan shall become effective immediately upon its approval by the
Board, provided that the effectiveness of the Plan and any Awards granted
pursuant to the Plan shall be contingent upon a favorable vote of
stockholders owning at least a majority of the total votes present, or
represented, and entitled to be cast at a duly called meeting of the
Company's stockholders held in accordance with applicable laws.
15. Modification of Awards.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of
any outstanding Award, provided no such modification shall confer on the
holder of said Award any right or benefit which could not be conferred on
him by the grant of a new Award at such time, or impair the Award without
the consent of the holder of the Award.
16. Amendment and Termination of the Plan.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or
terminate the Plan.
No amendment, suspension or termination of the Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights
or obligations under any Award theretofore granted.
9
<PAGE>
17. Conditions Upon Issuance of Shares.
(a) Compliance with Securities Laws. Shares of Common Stock shall not
be issued with respect to any Award unless the issuance and
delivery of such Shares shall comply with all relevant provisions
of law, including, without limitation, the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, any
applicable state securities law, and the requirements of any stock
exchange upon which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company to obtain
approval from any regulatory body or authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder shall relieve the Company of any liability
in respect of the non-issuance or sale of such Shares. As a
condition to the exercise of an Option or SAR, the Company may
require the person exercising the Option or SAR to make such
representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of
federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as
it may deem appropriate or desirable, including but not limited to
the authority to impose a right of first refusal or to establish
repurchase rights or both of these restrictions.
18. Reservation of Shares.
The Company, during the term of the Plan, will reserve and keep available
a number of Shares sufficient to satisfy the requirements of the Plan.
19. Withholding Tax.
The Company's obligation to deliver Shares upon exercise of Options
and/or SARs shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and employment tax withholding
obligations. The Committee, in its discretion, may permit the Participant
to satisfy the obligation, in whole or in part, by irrevocably electing
to have the Company withhold Shares, or to deliver to the Company Shares
that he already owns, having a value equal to the amount required to be
withheld. The value of the Shares to be withheld, or delivered to the
Company, shall be based on the Market Value of the Shares on the date the
amount of tax to be withheld is to be determined. As an alternative, the
Company may retain, or sell without notice, a number of such Shares
sufficient to cover the amount required to be withheld.
20. No Employment or Other Rights.
In no event shall an Employee's or Director's eligibility to participate
or participation in the Plan create or be deemed to create any legal or
equitable right of the Employee, Director, or any other party to continue
service with the Company or any Affiliate of such corporation. Except to
the extent provided in Paragraphs 6(b) and 9(a), no Employee or Director
shall have a right to be granted an Award or, having received an Award,
the right to again be granted an Award. However, an Employee or Director
who has been granted an Award may, if otherwise eligible, be granted an
additional Award or Awards.
21. Governing Law.
The Plan shall be governed by and construed in accordance with the laws
of the State of Indiana, except to the extent that federal law shall be
deemed to apply.
10
<PAGE>
EXHIBIT 13
Ameriana Bancorp and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At December 31
Summary of Financial Condition 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 7,545 $ 5,066 $ 4,939 $ 4,474 $ 5,513
Interest-bearing deposits and investment
securities 93,074 45,537 54,749 27,669 11,303
Loans and mortgage-backed securities 286,212 324,386 321,142 311,007 307,496
Other assets 18,887 15,879 15,925 13,663 11,042
- ------------------------------------------------------------------------------------------------------
Total assets $405,718 $390,868 $396,755 $356,813 $335,354
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Deposits $333,989 $322,217 $318,705 $290,785 $277,439
Other liabilities 26,380 24,216 34,105 18,913 12,325
Total liabilities 360,369 346,433 352,810 309,698 289,764
Shareholders' equity 45,349 44,435 43,945 47,115 45,590
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $405,718 $390,868 $396,755 $356,813 $335,354
- ------------------------------------------------------------------------------------------------------
Year Ended December 31
Summary of Earnings 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Interest income $ 28,301 $ 29,332 $ 28,567 $ 25,608 $ 21,877
Interest expense 15,993 17,345 16,705 14,368 10,647
- ------------------------------------------------------------------------------------------------------
Net interest income 12,308 11,987 11,862 11,240 11,230
Provision for loan losses 159 242 66 117 181
Other income 3,429 2,864 2,433 2,214 2,589
Other expense 9,655 8,985 10,520 8,155 8,495
- ------------------------------------------------------------------------------------------------------
5,923 5,624 3,709 5,182 5,143
Income taxes 2,085 1,992 1,305 1,945 1,881
- ------------------------------------------------------------------------------------------------------
Income from continuing operations 3,838 3,632 2,404 3,237 3,262
Income from discontinued operations -- -- -- -- 1,450
- ------------------------------------------------------------------------------------------------------
Net income $ 3,838 $ 3,632 $ 2,404 $ 3,237 $ 4,712
- ------------------------------------------------------------------------------------------------------
Basic earnings per share (1):
Income from continuing operations $ 1.08 $ 1.02 $ .65 $ .84 $ .84
Income from discontinued operations -- -- -- -- .37
Basic earnings per share $ 1.08 $ 1.02 $ .65 $ .84 $ 1.21
- ------------------------------------------------------------------------------------------------------
Diluted earnings per share (1):
Income from continuing operations $ 1.06 $ 1.01 $ .65 $ .83 $ .82
Income from discontinued operations -- -- -- -- .36
- ------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.06 $ 1.01 $ .65 $ .83 $ 1.18
- ------------------------------------------------------------------------------------------------------
Dividends declared per share (1) $ .59 $ .56 $ .52 $ .44 $ .58
- ------------------------------------------------------------------------------------------------------
Book value per share (1) $ 12.92 $ 12.49 $ 12.14 $ 12.13 $ 11.79
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
Other Selected Data 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets .98% .92% .62% .93% 1.43%
Return on average equity 8.48 8.28 5.39 7.00 10.59
Ratio of average equity to average assets 11.60 11.06 11.41 13.22 13.54
Dividend payout ratio (2) 56% 55% 80% 53% 50%
Number of full-service offices:
Ameriana Bank of Indiana, F.S.B. 8 7 6 6 6
Ameriana Bank of Ohio, F.S.B. 3 1 1 2 2
</TABLE>
- --------------------------------------------------------------------------------
(1) Restated to reflect four-for-three stock split declared in 1996 and the
eleven-for-ten stock split in 1998.
(2) Based on diluted earnings from continuing operations and excluding special
dividends.
<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 Bank of Indiana, F.S.B.
("ABI"). In 1990, the Company acquired all of ABI's common stock in connection
with ABI's reorganization into the holding company form of ownership. In 1992,
the Company acquired Ameriana Bank of Ohio, F.S.B. ("ABO"). Collectively, ABI
and ABO 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's
portfolio of loans has decreased $31,035,680 in 1998 and the percentage of
fixed-rate to adjustable-rate mortgage loans and short-term balloon loans has
also increased during 1998. The mix of fixed-rate to adjustable-rate and short-
term balloon loans was 33% to 52% in 1998 compared with 1997 being 23% to 62%
and 1996 being 26% to 60%. This increase in fixed rate loans was caused by the
low interest rates and the customers being satisfied with the lower fixed rate
loans and the refinancing of existing variable rate loans. The Company's past
emphasis on adjustable-rate loans could not be maintained because of the low
interest rate cycle. The Company did retain some fifteen year fixed rate
mortgage loans but sold most fixed rate loans and had historical sales of loans
to the secondary market. Total loan volume for 1998 was $195,762,000 and was
composed of real estate secured loans totaling $165,856,000, $11,798,000 of
which were equity lines of credit, and $29,906,000 of other loans. The Company
sold $93,498,000 of fixed rate-loans in 1998 compared with $29,862,000 in 1997
and $18,359,000 in 1996. Loans at December 31, 1998 and 1997, respectively,
consisted of $244,095,000 and $259,101,000 that were real estate secured loans,
$29,016,000 and $38,623,000 that were installment loans and $2,212,000 and
$1,328,000 of other loans.
The Company's primary goal in the management of its liabilities is to maintain
the stability of deposit accounts. During the year deposits increased, and the
Company was able to eliminate its reliance on purchasing negotiated-rate
certificates primarily from local county governmental entities. ABI purchased
over $12 million of deposits in a branch purchase on February 27, 1998, and ABO
purchased over $21 million of deposits in a bank purchase on July 1, 1998. The
Company has been able to control its liability needs and deposits increased
$11,772,000 at December 31, 1998, over December 31, 1997, and borrowings from
the Federal Home Loan Bank increased $1,085,000 to $17,101,000 from $16,016,000
at December 31, 1997. These borrowings from the Federal Home Loan Bank are being
used for arbitrage transactions by ABO. The Company continues to experience
competitive forces on its deposits from other institutions in the marketplace,
but the Company was able to compete with these investing alternatives by
providing additional investment choices for its customers through its 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.
<PAGE>
As noted above, loans sold increased during 1998 over 1997, and servicing of
sold loans as of December 31, 1998 and 1997, increased to $181,000,000 from
$117,000,000, respectively. No sales or purchases of loan servicing were done in
1998. ABI sold $53,692,000 of loan servicing rights for a gain of $96,410 during
November 1997 and purchased $25,941,000 of loan servicing rights in October
1997.
Interest Sensitivity
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1998.
This table assumes no prepayments of loans, no early redemption of 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
Rate Sensitive Assets:
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balloon and adjustable-
rate loans (1) $ 73,608 $ 33,753 $ 20,053 $ 15,620 $ 14,486 $ -- $ -- $157,520
Fixed-rate loans (1) 18,513 301 3,263 3,333 13,104 39,034 22,372 99,920
Other loans 18,021 642 7,878 14,538 917 286 -- 42,282
Other investments (2) 41,593 3,187 500 1,500 23,932 25,949 -- 96,661
- --------------------------------------------------------------------------------------------------------------------
Total 151,735 37,883 31,694 34,991 52,439 65,269 22,372 396,383
- --------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
- --------------------------------------------------------------------------------------------------------------------
Deposits:
Certificate accounts 70,756 54,753 90,380 9,163 3,063 -- -- 228,115
Money market
deposit accounts 30,751 -- -- -- -- -- -- 30,751
Savings accounts 44,150 -- -- -- -- -- -- 44,150
NOW accounts 16,340 -- -- -- -- -- -- 16,340
- --------------------------------------------------------------------------------------------------------------------
Total Deposits 161,997 54,753 90,380 9,163 3,063 -- -- 319,356
FHLB advances -- -- 621 16,480 -- -- 17,101
- --------------------------------------------------------------------------------------------------------------------
Total 161,997 54,753 91,001 9,163 19,543 -- -- 336,457
- --------------------------------------------------------------------------------------------------------------------
Asset/liability gap $(10,262) $(16,870) $(59,307) $ 25,828 $ 32,896 $65,269 $22,372 $ 59,926
- --------------------------------------------------------------------------------------------------------------------
Additional Gap Information:
- --------------------------------------------------------------------------------------------------------------------
Gap as a percentage
of total assets (2.53)% (4.16)% (14.62)% 6.37% 8.11% 16.09% 5.51%
Cumulative gap $(10,262) $(27,132) $(86,439) $ (60,611) $(27,715) $37,554 $59,926
Cumulative gap as
a percentage of
total assets (2.53)% (6.69)% (21.31)% (14.94)% (6.83)% 9.25% 14.77%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes mortgage loans and mortgage-backed securities. Amounts are stated
without reductions of $13.509 million for deferred fees, unearned income,
undisbursed loan proceeds and allowance for loan losses.
(2) Includes certificates of deposit, investment securities, interest-bearing
deposits and stock in Federal Home Loan Bank.
<PAGE>
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 interest 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
interest rate changes.
The Office of Thrift Supervision ("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
voluntarily. 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 the 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 on the Thrift Financial Report filed two quarters earlier.
Presented below, as of December 31, 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 $1.535 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 $1.113 million at December 31, 1998, ABO would not
have been required to make a capital deduction.
- --------------------------------------------------------------------------------
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)
+400 bp* $ 9,781 $ -628 -6% 11.07% -8 bp
+300 bp 10,397 -12 0% 11.56% +41 bp
+200 bp 10,781 371 +4% 11.79% +64 bp
+100 bp 10,805 395 +4% 11.67% +52 bp
0 bp 10,409 11.15%
- -100 bp 9,793 -616 -6% 10.42% -73 bp
- -200 bp 9,296 -1,113 -11% 9.80% -135 bp
- -300 bp 9,080 -1,330 -13% 9.46% -169 bp
- -400 bp 8,813 -1,596 -15% 9.07% -208 bp
* basis points
<PAGE>
Also presented below, as of December 31, 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 and down 400 basis points. At June 30, 1998, 2% of the
present value of ABI's assets was $6.113 million. Because the interest rate
risk of a 200 basis point increase in market rates (which was greater than the
interest rate risk of a 200 basis point decrease) was $7.620 million at December
31, 1998, ABI would have been required to make a $754,000 deduction from its
total capital available to calculate its risk based capital requirement. This
reduction in capital would reduce ABO's risk-based capital ratio to 21.5% from
22.0%, which is still far in excess of the required risk-based capital ratio of
8.0%.
- --------------------------------------------------------------------------------
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)
+400 bp* $27,724 $-16,888 -38% 9.23% -447 bp
+300 bp 32,548 -12,063 -27% 10.59% -311 bp
+200 bp 36,992 -7,620 -17% 11.79% -191 bp
+100 bp 40,952 -3,659 -8% 12.80% -90 bp
0 bp 44,612 13.70%
- -100 bp 45,743 2,982 +7% 13.82% +92 bp
- -200 bp 53,040 8,429 +19% 15.67% +197 bp
- -300 bp 58,640 14,029 +31% 16.93% +323 bp
- -400 bp 64,241 19,629 +44% 18.12% +442 bp
* basis points
Presented below, as of December 31, 1997, 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 December 31, 1997, 2% of the present value of
ABO's assets was approximately $1.5 million. Because interest risk of a 200
basis point increase in market rates (which was greater than the interest rate
risk of a 200 basis point decrease) was $1.9 million at December 31, 1997, ABO
would have been required to make a deduction of approximately $200 thousand from
its total capital available to calculate its risk based capital requirement if
it had been subject to the OTS's reporting requirements under this methodology.
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
+400 bp* $2,524 $-4,786 -65% 3.59% -591 bp
+300 bp 4,013 -3,298 -45% 5.55% -395 bp
+200 bp 5,392 -1,918 -26% 7.28% -222 bp
+100 bp 6,549 -762 -10% 8.65% -85 bp
0 bp 7,310 9.50%
- -100 bp 7,648 338 +5% 9.82% +33 bp
- -200 bp 7,658 348 +5% 9.76% +27 bp
- -300 bp 7,691 381 +5% 9.73% +23 bp
- -400 bp 7,986 676 +9% 9.99% +50 bp
* basis points
Also presented below, as of December 31, 1997, 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 and down 400 basis points. At December 31, 1997, 2% of the
present value of ABI's assets was approximately $6.5 million. Because the
interest rate risk of a 200 basis point increase in market rates (which was
greater than the interest rate risk of a 200 basis point decrease) was $5.6
million at December 31, 1997, ABI would not have been required to make a
deduction from its total capital available to calculate its risk based capital
requirement.
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
+400 bp* $28,061 $-14,699 -34% 9.28% -392 bp
+300 bp 32,907 -9,854 -23% 10.66% -254 bp
+200 bp 37,143 -5,617 -13% 11.80% -140 bp
+100 bp 40,513 -2,248 -5% 12.67% -53 bp
0 bp 42,761 13.20%
- -100 bp 44,258 1,497 +4% 13.52% +32 bp
- -200 bp 45,743 2,982 +7% 13.82% +63 bp
- -300 bp 47,740 4,980 +12% 14.25% +105 bp
- -400 bp 50,652 7,892 +18% 14.90% +170 bp
* basis points
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or periods to
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.
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.
Year Ended December 31
----------------------
Weighted Average Yield: 1998 1997 1996
- --------------------------------------------------------------------------------
Loans and mortgage-backed securities 7.99% 7.86% 7.82%
Other interest-earning assets 6.08 6.90 6.61
All interest-earning assets 7.64 7.72 7.64
Weighted Average Cost:
- --------------------------------------------------------------------------------
Deposits 4.88 5.09 4.89
Federal Home Loan Bank advances 5.88 6.22 5.86
All interest-bearing liabilities 4.91 5.15 4.96
- --------------------------------------------------------------------------------
Interest Rate Spread (spread between weighted average
yield on all interest-earning assets and all
interest-bearing liabilities) 2.73 2.57 2.68
- --------------------------------------------------------------------------------
Net Yield (net interest income as a percentage of
average interest-earning assets) 3.32 3.16 3.17
- --------------------------------------------------------------------------------
<PAGE>
At December 31
----------------------
Weighted Average Interest Rates: 1998 1997 1996
- ------------------------------------------------------------------------------
Loans and mortgage-backed securities 7.88% 7.95% 7.92%
Other interest-earning assets 5.72 6.56 6.92
Total interest-earning assets 7.36 7.77 7.77
Deposits 4.71 4.93 4.93
Federal Home Loan Bank advances 5.34 6.04 5.83
Total interest-bearing liabilities 4.74 4.99 5.00
Interest rate spread 2.62 2.78 2.77
- ------------------------------------------------------------------------------
Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income, interest expense and net interest income 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) and (2) changes in
rate (changes in rate multiplied by old volume). 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 31
- ---------------------------------------------------------------------------------------------------------------
l998 vs. l997 l997 vs. l996
Increase(Decrease) Increase(Decrease)
Due to Change in Due to Change in
- ---------------------------------------------------------------------------------------------------------------
Net Net
Volume Rate Change Volume Rate Change
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and mortgage-backed securities $(1,790) $ 417 $(1,373) $ 458 $154 $ 612
Other interest-earning assets 820 (479) 341 (2) 155 153
- ---------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ (970) $ (62) $(1,032) $ 456 $309 $ 765
- ---------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits $ (188) $(661) $ (849) $ 738 $193 $ 931
FHLB advances (439) (64) (503) (381) 90 (291)
- ---------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ (627) $(725) $(1,352) $ 357 $283 $ 640
- ---------------------------------------------------------------------------------------------------------------
Change in net interest income $ (343) $ 663 $ 320 $ 99 $ 26 $ 125
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Results of Operations
Net Interest Income: The Company's loan and mortgage-backed securities
portfolio decreased 12.59% to $283,315,000 at December 31, 1998, from
$324,130,000 at December 31, 1997. This portfolio had increased .82% at
December 31, 1997, from $321,499,000 at December 31, 1996. As previously noted,
loans decreased due to low fixed rate loans and the refinancing of existing
loans. The mortgage-backed securities were purchased in past years when
investable funds exceeded demand for mortgage loans in the Company's market
area. Mortgage-backed securities also continue to reduce in outstanding due to
refinancing into the low fixed rate loans.
Loan originations and purchases including equity lines of credit were up
55.79% to $195,762,000 in 1998 compared with $125,659,000 in 1997 and were up
3.86% in 1997 compared to $120,985,000 in 1996. Fixed-rate mortgage loans in the
amount of $93,498,000, $29,862,000 and $18,359,000 were originated and sold into
the secondary market during 1998, 1997 and 1996, respectively.
No purchases of mortgage-backed securities were made in 1998 or 1997 as rates
were not advantageous for long term investments. During 1996 the Company
purchased $2,532,000 of mortgage-backed securities. All purchases have been in
the form of 15-year fixed-rate government agency insured securities.
<PAGE>
Average interest-earning assets decreased $9,558,000 or 2.52% to $370,185,000
in 1998 from $379,743,000 in 1997. The 1998 decrease was in average loans and
average mortgage-backed securities while other interest-earning assets
increased. Average interest-bearing assets increased $5,819,000 or 1.56% in
1997 over $373,924,000 in 1996. The 1997 increase was in average loans while
average mortgage-backed securities decreased and other interest-earning assets
remained the same. In 1998 ABO maintained borrowings from the Federal Home Loan
Bank and used the funds for leveraging assets and both institutions took
advantage of these borrowings and leveraged assets in 1997 and 1996. These
borrowed funds were used to acquire government backed bonds and/or insured bank
certificates of deposits at a spread to the cost of borrowed funds.
The average yield on the Company's total interest-earning assets was 7.64% in
1998 and 7.72% in 1997 and 7.64% in 1996. Total interest income was
$28,301,000, $29,333,000 and $28,567,000 for 1998, 1997 and 1996, respectively.
The $1,032,000 decrease in interest income in 1998 were reductions of $970,000
related to volume decreases and $62,000 related to rate decreases while the
$765,000 increase in interest income in 1997 was $456,000 related to volume
increases and $309,000 related to rate increases.
Average interest-bearing liabilities decreased $11,149,000 or 3.31% to
$325,420,000 in 1998 from $336,569,000 in 1997. The decrease was composed of
average interest bearing demand deposits increasing while average savings
deposits remained stable and both average certificates of deposit and average
borrowings from the Federal Home Loan Bank decreased. Average interest-bearing
liabilities increased only $5,000 in 1997 over $336,564,000 in 1996. Total
interest expense was $15,993,000, $17,345,000 and $16,705,000 for 1998, 1997 and
1996, respectively. The $1,352,000 reduction of interest expense in 1998 was
due to volume decreases of $627,000 and rate decreases of $725,000 while the
$640,000 increase in 1997 was due to volume increases of $357,000 and rate
increases of $283,000.
The net interest spread, which is the mathematical difference between the
yield on average interest-bearing assets and cost of average interest-bearing
liabilities was 2.73% in 1998, 2.57% in 1997 and 2.68% in 1996. The net yield,
which is interest income as percent of average earning assets, was 3.32% in
1998, 3.16% in 1997 and 3.17% in 1996.
Provision for Loan Losses: The provision for loan losses was $159,000 in 1998,
$242,000 in 1997 and $66,000 in 1996. The provision is the amount that is added
to the allowance for loan losses for future charge-offs. The allowance for loan
loss was .49% of loans at December 31, 1998, and .40% of net loans at December
31, 1997, and represents management's best estimate of expected charge-offs in
the loan portfolio. Net loan charge-offs have historically been less than the
annual provision for loan losses and were $138,000, $182,000 and $39,000 in
1998, 1997 and 1996, respectively. Non-performing assets (e.g. real estate
owned, non-accrual loans and loans 90 days or more past due) were $881,000,
$1,162,000 and $1,137,000 at December 31, 1998, 1997 and 1996, respectively.
The Company believes it has established an adequate allowance for loan losses in
accordance with generally accepted accounting principles. The variation in the
amount of provision charged against income is directly related to loan charge
offs, loan delinquencies, economic conditions in the Company's lending area and
loan growth or reduction during each year.
Other Income: Other income was $3,429,000, $2,864,000 and $2,433,000 for 1998,
1997 and 1996, respectively. The increase in 1998 over 1997 and 1997 over 1996
were due mainly to increased gains on sale of loans to the secondary market and
to a gain on the sale of servicing rights. These gains were $1,055,000,
$597,000 and $324,000 in 1998, 1997 and 1996, respectively. Other income also
increased in 1997 because of a gain on the sale of land. The land had been
purchased for a branch sight and the excess land was sold at a gain of $57,000.
Operating losses associated with the limited partnership amounted to $154,000 in
1998, $164,000 in 1997 and $152,000 in 1996.
Other Expense: Operating expenses were $9,655,000, $8,985,000 and $10,520,000
for 1998, 1997 and 1996, respectively. The increase in 1998 was due to an
increase of one branch by ABI and an increase of two branches by ABO, expenses
related to the name change of both institutions, three computer conversions and
to a lesser degree to the Year 2000 work while the decrease in 1997 was due to
the lack of the one time special Savings Association Insurance Fund ("SAIF")
assessment and to the lower federal insurance premiums instituted after the
special assessment which both totaled $2,335,000 less in 1997 compared to 1996.
Expense increased in 1997 due to the opening of a new branch by ABI. Expenses
increased in both 1998 and 1997 due to increases in new loan volume and
associated expenses.
<PAGE>
Income Tax Expense: Income tax expense increased to $2,085,000 in 1998 from
$1,992,000 in 1997 and $1,305,000 for 1996. The effective federal tax rate has
remained consistent at 35.2%, 35.4% and 35.2% for 1998, 1997 and 1996,
respectively, The increase in the dollar amount of taxes is due to increased
pretax income each year.
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 not pledged as collateral. 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 4% of their liquidity base.
Liquidity ratios at December 31, 1998, 1997, and l996 were 29.4%, 11.7% and
11.8%, respectively, for ABI and 17.65%, 6.6% and 4.7%, respectively, for ABO.
The Institutions have exceeded their monthly average liquidity requirement for
all periods presented.
Historically, funds provided by operations, loan principal repayments and new
deposits have been the Company's principal sources of liquid funds. In
addition, the Company has the ability to obtain funds through the sale of new
mortgage loans and through borrowings from the Federal Home Loan Bank system.
At December 31, 1998, the Company's commitments for loans in process totaled
$6,600,000. Management believes that the Company's liquidity and other sources
of funds will be sufficient to fund all outstanding commitments and other cash
needs. A good portion of these commitments are for fixed-rate mortgage loans
which will be sold immediately into the secondary market.
On November 23, 1998, the Board of Directors declared an eleven-for-ten stock
split effected in the form of a dividend on common stock outstanding at the
close of business on December 18, 1998. This stock split was payable on January
4, 1999, and all per share information in this report has been restated to
reflect this split.
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. In addition, the Company adopted the 1996 Stock Option Plan, which
provides for the granting of incentive and non-qualified stock options. An
amendment of the 1996 Plan approved by the shareholders in April 1998 extended
the plan's term to ten years and increased the number of shares reserved under
the plan from 176,000 to 352,000 shares. Options for 29,768, 32,838 and 57,456
shares were exercised in 1998, 1997 and 1996, respectively. See note 11 to the
consolidated financial statements for option activity and the pro forma effect
on net income.
In July 1998, the Company's Board of Directors approved a one-year repurchase
program to acquire up to 10% of the Company's outstanding common stock,
approximately 330,000 shares, at a cumulative cost not to exceed $5,000,000.
The Company repurchased 201,388 shares in 1998 at an aggregate cost of
$3,358,061 through December 31, 1998. In 1997 and 1996, the Company repurchased
91,525 and 258,307 shares, respectively, under previous repurchase programs at a
cost of $1,311,214 and $3,964,198, respectively. In addition the Company
retired 173 shares at a cost of $3,189 for fractional shares created by the 1998
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.
<PAGE>
Current Accounting Issues
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in 1998 and will
become effective for all fiscal years beginning after June 15, 1999. SFAS No.
133 was issued to require the recording of derivatives on the balance sheet at
their fair value. SFAS No. 133 also acknowledges that the method of recording a
gain or loss depends on the use of the derivative. If certain conditions are
met a derivative may be specifically designed as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability of an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign currency-denominated forecasted
transaction. This new Statement applies to all entities. If hedge accounting
is elected by the entity, the method of assessing the effectiveness of the
hedging derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge. The Company
does not currently nor does it expect to have derivative instruments or hedge
transactions. If these instruments or activities are undertaken in the future,
SFAS No. 133 would be implemented.
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
was issued in 1998 and will become effective for interim and annual financial
periods beginning after December 15, 1998. This statement amends SFAS No. 65
which was previously amended by SFAS nos. 115 and 125, and requires a mortgage
banking enterprise to classify a mortgage-backed security as a trading security
following the securitization of the mortgage loan held for sale. This statement
further amends SFAS No. 65 to require that after securitization of mortgage
loans held for sale, an entity engaged in mortgage banking activities must
classify the resulting mortgage-backed security or other retained interests
based on the entity's ability and intent to sell or hold those investments. The
Company is not currently securitizing mortgage loans. If securitization of
mortgage loans is initiated by the Company, any portion retained will accounted
for under SFAS No. 134.
Year 2000 Readiness Disclosure
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. Computer chips that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Company has
developed an extensive Year 2000 Compliance Plan. The Company has completed the
assessment process of all its business processes to make a determination of
areas that could be affected by the Year 2000 problem. The review included all
hardware, software and any interaction with third party vendors. The Company is
in the process of testing all on-site hardware and software. In addition, the
Company will be testing the interfaces and communications with those third party
vendors with which it conducts business through automated or computerized
processes. The Company expects to complete all testing of all identified areas
during the second quarter of 1999.
The Company believes that its assessment, remediation and testing of all of
its hardware, software and processes have adequately addressed all Year 2000
issues. The Company has, however, developed, and will continue to modify, a
Business Resumption Plan ("Plan"). The Plan attempts to anticipate all
scenarios of failure, either in our own systems or the failure of an
organization on which the Company is dependent for services. The Plan creates
alternate plans to conduct business in the event of any system failure.
The Company has committed a great deal of management time in creating and
implementing its Year 2000 Compliance Plan. To date the Company has not incurred
a significant amount of external costs in the remediation and replacement of
existing systems and did not track internal personnel costs associated with the
Year 2000 work. Management believes that expenses associated with the Year 2000
compliance have not, nor are they expected to have, a material impact on the
Company's net income.
<PAGE>
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Condition
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------
Assets 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash on hand and in other institutions $ 7,545,308 $ 5,066,177
Interest-bearing demand deposits 38,005,929 10,142,903
Interest-bearing time deposits 3,487,000 --
Investment securities held to maturity (fair value of $51,512,000 and
$35,300,000) 51,581,077 35,394,511
Mortgage-backed securities held to maturity (fair value of $20,437,000
and $30,164,000) 20,217,346 29,996,499
Mortgage loans held for sale 4,181,256 1,419,471
Loans, net of allowance for loan losses of $1,284,286 and $1,163,490 261,813,134 292,969,610
Real estate owned 96,408 159,994
Premises and equipment 6,091,944 5,909,205
Stock in Federal Home Loan Bank 3,587,700 3,412,100
Mortgage servicing rights 1,076,948 526,367
Investments in unconsolidated affiliates 1,424,455 1,578,365
Intangible assets 2,057,464 69,700
Other assets 4,552,194 4,222,600
- -------------------------------------------------------------------------------------------------------
Total assets $405,718,163 $390,867,502
=======================================================================================================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------
Liabilities
Deposits
Noninterest-bearing $ 14,633,031 $ 8,746,447
Interest-bearing 319,356,272 313,470,716
- -------------------------------------------------------------------------------------------------------
Total deposits 333,989,303 322,217,163
Advances from Federal Home Loan Bank 17,100,699 16,015,615
Drafts payable 4,353,792 4,225,472
Advances by borrowers for taxes and insurance 1,030,976 955,121
Other liabilities 3,894,245 3,019,261
- -------------------------------------------------------------------------------------------------------
Total liabilities 360,369,015 346,432,632
- -------------------------------------------------------------------------------------------------------
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--3,510,686 and 1997--3,233,207) 3,510,686 3,233,207
Additional paid-in capital 6,775,114 7,571,955
Retained earnings--substantially restricted 35,063,348 33,629,708
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 45,349,148 44,434,870
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $405,718,163 $390,867,502
=======================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest on loans $22,517,412 $23,234,010 $22,060,098
Interest on mortgage-backed securities 1,662,731 2,318,561 2,880,392
Interest on investment securities 2,588,876 3,307,166 2,987,237
Other interest and dividend income 1,531,570 473,076 639,761
- -------------------------------------------------------------------------------------------------------------
Total interest income 28,300,589 29,332,813 28,567,488
- -------------------------------------------------------------------------------------------------------------
Interest Expense
Interest on deposits 15,265,293 16,114,262 15,183,543
Interest on Federal Home Loan Bank advances 727,546 1,231,172 1,521,693
- -------------------------------------------------------------------------------------------------------------
Total interest expense 15,992,839 17,345,434 16,705,236
- -------------------------------------------------------------------------------------------------------------
Net Interest Income 12,307,750 11,987,379 11,862,252
Provision for loan losses 159,000 242,000 66,000
- -------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 12,148,750 11,745,379 11,796,252
- -------------------------------------------------------------------------------------------------------------
Other Income
Net loan servicing fees 190,584 319,000 328,804
Other fees and service charges 911,384 702,046 657,042
Brokerage and insurance commissions 1,268,461 1,179,728 1,197,628
Loss on investments in unconsolidated affiliates (153,960) (130,351) (121,760)
Gains on sales of loans and servicing rights 1,055,424 597,226 324,265
Other 156,992 196,180 46,836
- -------------------------------------------------------------------------------------------------------------
Total other income 3,428,885 2,863,829 2,432,815
- -------------------------------------------------------------------------------------------------------------
Other Expense:
Salaries and employee benefits 5,248,336 5,090,073 4,752,664
Net occupancy expense 1,366,579 1,280,703 1,070,388
Federal insurance premium 193,833 204,634 660,608
Data processing expense 389,126 325,327 321,173
Printing and office supplies 339,381 302,043 289,109
Savings Association Insurance Fund assessment -- -- 1,878,897
Other 2,117,470 1,782,069 1,547,379
- -------------------------------------------------------------------------------------------------------------
Total other expense 9,654,725 8,984,849 10,520,218
- -------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 5,922,910 5,624,359 3,708,849
Income taxes 2,084,530 1,992,490 1,305,344
- -------------------------------------------------------------------------------------------------------------
Net Income $ 3,838,380 $ 3,631,869 $ 2,403,505
=============================================================================================================
Basic Earnings Per Share $1.08 $1.02 $.66
=============================================================================================================
Diluted Earnings Per Share $1.06 $1.01 $.65
=============================================================================================================
Dividends Declared Per Share $.59 $.56 $.52
=============================================================================================================
</TABLE>
See accompanying notes.
<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, 1996 $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
Net income -- -- 3,631,869 3,631,869
Dividends declared -- -- (2,010,360) (2,010,360)
Purchase of common stock (83,205) (1,228,009) -- (1,311,214)
Exercise of stock options 25,093 154,691 -- 179,784
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,233,207 7,571,955 33,629,708 44,434,870
Net income -- -- 3,838,380 3,838,380
Dividends declared -- -- (2,082,555) (2,082,555)
Eleven-for-ten stock split 318,996 -- (318,996) --
Payment for fractional shares in connection
with eleven-for-ten stock split -- -- (3,189) (3,189)
Purchase of common stock (183,080) (3,174,981) -- (3,358,061)
Stock issued in purchase of subsidiary 114,955 2,026,082 -- 2,141,037
Exercise of stock options 26,608 352,058 -- 378,666
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $3,510,686 $ 6,775,114 $35,063,348 $45,349,148
===================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
Operating Activities
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 3,838,380 $ 3,631,869 $ 2,403,505
Adjustments to reconcile net income to net cash provided by operating activities
Provision for losses on loans and real estate owned 191,000 242,000 66,000
Depreciation and amortization 695,678 631,108 575,387
Equity in loss of limited partnership 153,910 163,810 152,555
Mortgage servicing rights amortization 221,568 118,853 122,813
Goodwill amortization 148,588 28,320 28,320
Deferred income taxes 177,086 129,036 128,907
Gains on sales of real estate owned (28,350) (25,202) (12,241)
Mortgage loans originated for sale (96,259,078) (30,534,904) (19,105,599)
Proceeds from sale of mortgage loans 93,861,572 30,193,705 18,581,503
Gains on sale of loans and servicing rights (1,055,424) (597,226) (324,265)
Decrease (increase) in other assets (188,335) 39,495 (854,060)
Increase (decrease) in drafts payable 128,320 (332,206) 2,035,746
Increase (decrease) in other liabilities (62,266) 823,068 (561,808)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,822,649 4,511,726 3,236,763
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- ------------------------------------------------------------------------------------------------------------------------------
Purchase of interest-bearing time deposits (3,487,000) -- --
Purchase of investment securities held to maturity (82,193,490) (6,800,000) (30,944,003)
Proceeds from maturity of securities held to maturity 5,000,000 -- --
Proceeds from calls of securities held to maturity 60,985,198 22,150,000 2,800,000
Principal collected on mortgage-backed securities held to maturity 9,628,554 8,423,491 8,856,215
Purchases of mortgage-backed securities held to maturity -- -- (2,531,581)
Net change in loans 45,177,038 (11,664,366) (16,150,843)
Mortgage servicing rights purchased -- (247,442) (224,724)
Proceeds from sales of mortgage servicing rights -- 648,516 --
Proceeds from sales of real estate owned 244,608 156,400 226,277
Net purchases of premises and equipment (212,566) (780,025) (1,510,395)
Investment in unconsolidated affiliate -- 4,564 --
Cash received in acquisitions 19,607,676 -- --
Other investing activities (141,420) (52,900) (326,974)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 54,608,598 11,838,238 (39,806,028)
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities
- ------------------------------------------------------------------------------------------------------------------------------
Net change in demand and passbook deposits 17,892,349 (392,297) (1,225,470)
Net change in certificates of deposit (40,013,911) 3,958,584 29,180,452
Advances from Federal Home Loan Bank 9,000,000 72,100,000 86,000,000
Repayment of Federal Home Loan Bank advances (7,914,916) (82,632,988) (72,455,066)
Proceeds from exercise of stock options 378,666 179,784 272,701
Purchase of common stock (3,358,061) (1,311,214) (3,965,544)
Cash dividends paid (2,070,028) (1,986,793) (1,837,091)
Payment for fractional shares (3,189) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (26,089,090) (10,084,924) 35,969,982
- ------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 30,342,157 6,265,040 (599,283)
Cash and Cash Equivalents at Beginning of Year 15,209,080 8,944,040 9,543,323
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 45,551,237 $ 15,209,080 $ 8,944,040
==============================================================================================================================
</TABLE>
See accompanying notes.
<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 Bank of Indiana, FSB ("ABI"), Ameriana Bank of Ohio, FSB
("ABO"), 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 ("OTS"). The Company's gross revenues are substantially earned from
the various banking services provided by ABI and ABO. The Company also earns
brokerage and insurance commissions from the services provided by the other
subsidiaries.
ABI 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. ABO 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 1997 and 1996 amounts have
been made to conform with 1998 presentation.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on
hand and in other institutions and interest-bearing demand 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
("FHLB") 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.
Mortgage Loans Held for Sale: Mortgage loans held for sale are carried at
the lower of aggregate cost or market. Net unrealized losses are recognized
through a valuation allowance for charges to income.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Loans: Loans are carried at the principal amount outstanding. A loan is
impaired when, based on current information or events, it is probable that the
Company will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Payments with
insignificant delays not exceeding 90 days outstanding are not considered
impaired. Certain nonaccrual and substantially delinquent loans may be
considered to be impaired. The Company considers its investment in one-to-four
family residential loans and installment loans to be homogeneous and therefore
excluded from separate identification of evaluation of impairment. Interest
income is accrued on the principal balances of loans. The accrual of interest
on impaired and nonaccrual loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. When interest
accrual is discontinued, all unpaid accrued interest is reversed when considered
uncollectible. Interest income is subsequently recognized only to the extent
cash payments are received. Certain loan fees and direct costs are being
deferred and amortized as an adjustment of yield on the loans over the
contractual lives of the loans. When a loan is paid off or sold, any
unamortized loan origination fee balance is credited to income.
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.
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, 1998, 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.
Intangible assets: Intangible assets are being amortized on an accelerated
or straight-line basis not exceeding a period of up to 15 years. Such assets
are periodically evaluated as to the recoverability of their carrying value.
Earnings per Share: Earnings per share is computed by dividing net income
by the weighted average number of common and potential common shares outstanding
during each year.
Stock Splits: On November 23, 1998, the Board of Directors declared an
eleven-for-ten stock split effected in the form of a dividend under which every
ten shares of the Company's common stock outstanding on the close of business on
December 18, 1998, were converted into eleven shares of common stock. No
fractional shares were issued; cash in lieu of fractional shares was paid to
shareholders. 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 all periods presented have been adjusted
to give effect to the splits.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
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.
Stock Options: Stock options are generally granted for a fixed number of
shares with an exercise price equal to the fair value of the shares at the date
of grant. The Company accounts for and will continue to account for these stock
option grants in accordance with Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants.
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. Acquisitions
On July 1, 1998, the Company completed the purchase of Cardinal State Bank
("Cardinal"), Maineville, Ohio and merged its two locations into ABO. The
transaction was recorded under the purchase method of accounting. The Company
paid $1,121,534 in cash including expenses, and issued 126,451 shares of common
stock and $450,760 of promissory notes for a total purchase price of $3,713,331.
The Cardinal acquisition included $14,380,000 of loans, $9,384,000 of cash and
cash equivalents and $21,521,000 of deposits. The Company recorded intangible
assets totaling $1,351,000 related to the transaction.
On February 27, 1998, the Company completed the purchase of deposits and
branch facility in Morristown, Indiana from National City Bank of Indiana. The
transaction was recorded under the purchase method of accounting. The
Morristown acquisition included assets and liabilities of $12,394,000, including
cash of $11,346,000, and deposits of $12,388,000. Intangible assets of $684,000
were recorded.
The results of operations of the Cardinal locations and the Morristown
branch have been included since their acquisition date. Intangible assets are
being amortized over estimated useful lives.
3. Investment Securities
Investment securities held to maturity at December 31, 1998, included
federal agencies at an amortized cost of $51,581,000 with a fair value of
approximately $51,512,000 and gross unrealized gains and (losses) of $15,000 and
$(84,000), respectively. Investment securities at December 31, 1997, included
federal agencies at an amortized cost of $35,395,000 with a fair value of
approximately $35,300,000 and gross unrealized gains and (losses) of $4,000 and
$(99,000), respectively.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities held to maturity at
December 31, 1998, 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.
- --------------------------------------------------------------------------------
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------
Maturity Distribution at December 31, 1998
Due in one through five years $ 1,700,000 $ 1,705,000
Due after five through ten years 15,922,000 15,874,000
Due after ten years 33,959,000 33,933,000
- --------------------------------------------------------------------------------
$51,581,000 $51,512,000
================================================================================
Investment securities with a total amortized cost of $15,000,000 and
$10,897,000 were pledged at December 31, 1998 and 1997, to secure FHLB advances.
4. Loans and Mortgage-Backed Securities
Loans receivable consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Residential mortgage loans $228,812,624 $254,171,680
Commercial mortgage loans 15,281,926 4,929,752
Installment loans 29,015,602 38,623,118
Commercial loans 861,579 19,383
Loans secured by deposits 1,350,858 1,308,257
- --------------------------------------------------------------------------------
275,322,589 299,052,190
- --------------------------------------------------------------------------------
Deduct
- --------------------------------------------------------------------------------
Undisbursed loan proceeds 12,123,253 4,875,813
Deferred loan fees, net 101,916 43,277
Allowance for loan losses 1,284,286 1,163,490
- --------------------------------------------------------------------------------
13,509,455 6,082,580
- --------------------------------------------------------------------------------
$261,813,134 $292,969,610
================================================================================
Loans being serviced for investors, primarily the Federal Home Loan
Mortgage Corporation and Federal National Mortgage Association, by the Company
totaled approximately $181,000,000, $117,000,000 and $145,000,000 as of December
31, 1998, 1997 and 1996, respectively. Such loans are not reflected in the
preceding table.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The aggregate fair value of capitalized mortgage servicing rights at
December 31, 1998 and 1997 is based on comparable market values and expected
cash flows, with impairment assessed based on portfolio characteristics
including product type, investor type and interest rates. No valuation
allowance was necessary at December 31, 1998 or 1997.
- -----------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Mortgage servicing rights
Balance at beginning of year $ 526,367 $ 780,770 $ 577,068
Servicing rights capitalized 691,145 416,555 326,515
Servicing rights acquired in acquisition 81,004
Servicing rights sold -- (552,105) --
Amortization of servicing rights (221,568) (118,853) (122,813)
- -----------------------------------------------------------------------------
Balance at end of year $1,076,948 $ 526,367 $ 780,770
=============================================================================
At December 31, 1998 and 1997, the Company had outstanding commitments to
originate loans of approximately $6,600,000 and $8,600,000, which were primarily
for adjustable-rate mortgage with rates that are determined just prior to
closing loans or fixed-rate mortgage loans with rates locked in at the time of
loan commitment. The majority of the fixed rate loans are sold at the time the
rates are locked. In addition, the Company had $19,335,000 and $13,509,000,
respectively, of conditional commitments for lines of credit and credit card
receivables. Exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The same
credit policies are used in making such commitments as are used for instruments
that are included in the consolidated balance sheet. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Each customer's credit worthiness is evaluated on a case-by-case
basis. The amount of collateral obtained, if deemed necessary upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, real estate, equipment, and income-
producing commercial properties.
The fair value of mortgage-backed securities at December 31, 1998 and 1997,
was $20,437,000 and $30,164,000, respectively. Gross unrealized gains and
(losses) on mortgage-backed securities at December 31, 1998 and 1997, were
$259,000 and $(39,000), and $315,000 and $(147,000), respectively. Mortgage-
backed securities with a total amortized cost of $4,861,000 and $8,847,000, were
pledged at December 31, 1998 and 1997, to secure FHLB advances.
<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:
- -------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Loans
Balance at beginning of year $1,163,490 $1,103,513 $1,076,038
Provision for losses 159,000 242,000 66,000
Increase from acquisition 100,000 -- --
Net charge-offs
Charge-offs (165,616) (200,242) (51,970)
Recoveries 27,412 18,219 13,445
- -------------------------------------------------------------------------------
Net charge-offs (138,204) (182,023) (38,525)
- -------------------------------------------------------------------------------
Balance at end of year $1,284,286 $1,163,490 $1,103,513
===============================================================================
Real estate owned
Balance at beginning of year $ -- $ -- $ --
Provision for losses 32,000 -- --
Net charge-offs
Charge-offs -- -- --
Recoveries -- -- --
- -------------------------------------------------------------------------------
Net charge-offs -- -- --
- -------------------------------------------------------------------------------
Balance at end of year $ 32,000 $ -- $ --
===============================================================================
5. Premises and Equipment
Premises and equipment consists of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Land $ 1,288,595 $ 1,240,892
Land improvements 491,037 414,736
Office buildings 6,152,910 5,846,340
Furniture and equipment 3,621,326 3,424,872
Automobiles 121,914 66,688
- --------------------------------------------------------------------------------
11,675,782 10,993,528
Less accumulated depreciation 5,583,838 5,084,323
- --------------------------------------------------------------------------------
$ 6,091,944 $ 5,909,205
================================================================================
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
5. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates include an investment in a limited
partnership of $971,417 and $1,125,377 at December 31, 1998 and 1997. This
investment represents a 6.4 % equity in the partnership, which was organized to
acquire and manage real estate investments. Total cash contributed was
$1,458,849 in 1995. The Company recorded a net loss of $153,960, $163,810 and
$152,555 for 1998, 1997 and 1996 on its investment, and low income housing tax
credits of $212,316, $183,200 and $115,364. Available financial statements for
the partnership as of December 31, 1998 and 1997, reported total assets of
$19,574,555 and $24,085,704; total partners' equity of $15,337,026 and
$18,590,389 and for each of the three years in the period ended December 31,
1998, a net loss of $2,700,000, $2,785,509 and $1,732,056, with the losses
allocated based on the dates of partners' contributions and other factors.
In addition, the Company has invested $453,038 in a life insurance company.
Dividends from this affiliate for the years ended December 31, 1998, 1997 and
1996 were $50, $33,459 and $30,795, respectively. Commission income also
generated through this affiliate is included in Other Income.
6. Deposits
Deposits consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Demand $ 61,697,281 $ 29,995,452
Savings 44,177,406 44,714,378
Certificates of $100,000 or more 28,153,275 47,630,340
Other certificates 199,961,341 199,876,993
- --------------------------------------------------------------------------------
$333,989,303 $322,217,163
================================================================================
Certificates maturing in years ending after December 31, 1998:
- --------------------------------------------------------------------------------
1999 $123,036,396
2000 77,425,057
2001 15,428,359
2002 2,936,171
2003 6,227,083
Thereafter 3,061,550
- --------------------------------------------------------------------------------
$228,114,616
================================================================================
Interest paid on deposits approximated interest expense in 1998, 1997 and
1996.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
9. Borrowings
Borrowings consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
- -------------------------------------------------------------------------------
Advances from FHLB:
Maturities in years ending
December 31:
1998 $ 7,600,000 5.88%
1999 1,000,000 5.98
2001 $ 621,106 6.30% 809,168 6.30
2004 25,772 8.15 38,633 8.15
2005 3,220,149 6.60 3,769,808 6.60
2006 2,359,127 5.65 2,798,006 5.66
2008 10,874,545 4.84
- --------------------------------------------------------------------------------
$17,100,699 5.34% $16,015,615 6.04%
================================================================================
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 $721,779, $1,245,589 and $1,495,037 for
1998, 1997 and 1996.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Deferred compensation $ 14,000 $ 33,000
General loan loss reserves 514,000 466,000
Other 80,000 83,000
- -------------------------------------------------------------------------------
608,000 582,000
- -------------------------------------------------------------------------------
Deferred tax liabilities
FHLB stock dividends (321,000) (294,000)
Tax bad debt reserves (326,000) (391,000)
Purchase accounting adjustments (93,000) (96,000)
Deferred loan fees (61,000) (74,000)
Mortgage servicing rights (348,000) (95,000)
Other (50,000) (46,000)
- -------------------------------------------------------------------------------
(1,199,000) (996,000)
- -------------------------------------------------------------------------------
Net tax liabilities $ (591,000) $(414,000)
===============================================================================
</TABLE>
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
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 4.7 4.5 4.8
Tax credits (3.6) (3.3) (3.1)
Other .1 .2 (.5)
- -------------------------------------------------------------------------------
Effective tax rate 35.2% 35.4% 35.2%
================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $1,520,647 $1,497,023 $ 934,021
Deferred 142,810 112,679 102,062
- ------------------------------------------------------------------------------
1,663,457 1,609,702 1,036,083
- ------------------------------------------------------------------------------
State
Current 386,797 366,431 242,416
Deferred 34,276 16,357 26,845
- ------------------------------------------------------------------------------
421,073 382,788 269,261
- ------------------------------------------------------------------------------
$2,084,530 $1,992,490 $1,305,344
==============================================================================
</TABLE>
The Company paid $1,722,000, $1,460,000 and $1,675,000 of state and
federal income taxes in 1998, 1997 and 1996, respectively.
11. Employee Benefits
The Company is a participating employer in a multi-employer defined
benefit pension plan sponsored by the Pentegra Group (formerly known as the
Financial Institutions Retirement Fund) and a 401(k) plan also administered by
the Pentegra Group. The plans cover substantially all full-time employees of the
Company. Since the defined benefit pension plan is a multi-employer plan, no
separate actuarial valuations are made with respect to each participating
employer. Contributions for ABI's defined benefit plan have not been required
since June 1987, because the plan reached the Internal Revenue Service's full
funding limitation. ABO's plan requires cash contributions. Pension expense for
the plans totaled $27,800, $18,400 and $41,000 in 1998, 1997 and 1996,
respectively.
Under the 1987 Stock Option Plan and the 1996 Stock Option and Incentive
Plan ("1996 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 non
incentive stock options to be granted at less than market value at plan
committee discretion. Options vest and are fully exercisable when granted or
over an extended period 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. An amendment of the 1996 Plan approved by the shareholders
in April 1998 extended the plan's term by five years and increased the number of
shares reserved under the plan from 176,000 to 352,000 shares.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
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,
1998, 1997 and 1996. The number of shares and prices have been restated to give
effect to the Company's 1998 and 1996 stock splits.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 277,890 $13.87 137,390 $10.68 142,046 $ 7.55
Granted 8,800 15.50 185,130 14.99 52,800 12.53
Exercised (29,768) 12.18 (32,838) 6.64 (57,456) 4.55
Forfeited/expired (441) 13.02 (11,792) 14.32 -- --
--------- -------- ---------
Outstanding at end of year 256,481 14.18 277,890 13.87 137,390 10.68
========= ======== =========
Options exercisable at year end 196,552 13.68 199,130 14.02 137,390 10.68
Weighted-average fair value of
options granted during the year $ 3.24 $ 3.18 $ 2.15
</TABLE>
As of December 31, 1998, 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 Contractual Number Average
Range of Shares Exercise Price Life of Shares Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.57 3,300 $ 5.57 1 month 3,300 $ 5.57
9.43 - 12.53 81,690 12.42 6.9 years 81,690 12.42
14.32 - 18.30 171,491 15.18 8.3 years 111,562 14.85
</TABLE>
During 1998, 1997 and 1996, shares totaling 499, 5,236 and 2,925 were
tendered as partial payment for shares exercised.
There were 162,382 shares under the 1996 Plan available for grant at
December 31, 1998.
SFAS No. 123, Stock-Based Compensation, was effective for the Company in
1996. This Statement established 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>
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Risk-free interest rates 5.6% 5.9-6.6% 6.0%
Dividend yields 3.3% 3.5% 4.1%
Expected volatility factors of market price of common stock 14.5% 15.0% 15.1%
Weighted-average expected life of the options 8 years 8 years 8 years
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
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>
1998 1997 1996
----------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $3,838,380 $3,631,869 $2,403,505
Pro forma 3,754,731 3,328,517 2,334,805
Basic earnings per share As reported 1.08 1.02 .66
Pro forma 1.05 .93 .64
Diluted earnings per share As reported 1.06 1.01 .65
Pro forma 1.04 .92 .63
</TABLE>
12. Shareholders' Equity
In July 1998, 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
$5,000,000. The Company repurchased 201,388 shares under this program during
1998. The Company repurchased shares during 1997 and 1996 under previous
repurchase programs.
The payment of dividends by the Company depends substantially upon
receipt of dividends from ABI and ABO, which are subject to various regulatory
restrictions on the payment of dividends. Under regulations of the OTS, ABI and
ABO 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 three
categories (categories based upon capital levels) is applicable for the savings
institution. ABI and ABO 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 ABI's and ABO's
regulatory capital requirements) at the beginning of the calendar year. Under
these regulations, the maximum permissible dividends at December 31, 1998, that
ABI and ABO could pay are $9.2 million and $1.3 million, respectively. Net worth
of ABI and ABO at December 31, 1998, was $33.2 million and $9.1 million,
respectively.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
13. Earnings Per Share
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Per Share Average Per Share Average Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to common
shareholders $3,838,380 3,561,831 $1.08 $3,631,869 3,571,560 $1.02 $2,403,505 3,669,394 $.66
===================================================================================================
Effect Of Dilutive Stock Options -- 48,568 -- 38,973 -- 37,901
===================================================================================================
Diluted Earnings Per Share
Income available to common
shareholders and assumed
conversions $3,838,380 3,610,399 $1.06 $3,631,869 3,610,533 $1.01 $2,403,505 3,707,295 $.65
===================================================================================================
</TABLE>
14. Regulatory Capital and Insurance Fund Assessment
ABI and ABO are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations. The ratios are intended to
measure capital relative to assets and credit risk associated with those assets
and off-balance sheet exposures. The capital category assigned can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging
from well capitalized to critically undercapitalized. Classification in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1998 and 1997,
ABI and ABO are categorized as well capitalized and met all subject capital
adequacy requirements. There are no conditions or events since December 31,
1998, that management believes have changed this classification.
Actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ABI ABO
- ------------------------------------------------------------------------------------------------------------------------------------
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% $12,011,000 22.0% $33,052,000 8.0% $3,705,000 17.5% $8,100,000
Core capital/1/ (to adjusted tangible assets) 3.0 9,376,000 10.4 32,551,000 3.0 2,720,000 8.7 7,842,000
Core capital/1/ (to adjusted total assets) 3.0 9,376,000 10.4 32,551,000 3.0 2,720,000 8.7 7,842,000
/1/ As defined by regulatory agencies
</TABLE>
Tangible capital at December 31, 1998, for ABI and ABO was $32,551,000
and $7,842,000, which amounts were 10.4% and 8.7% of tangible assets and
exceeded the required ratio of 1.5%.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
ABI ABO
- ----------------------------------------------------------------------------------------------------------------------------------
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% $14,318,000 18.8% $33,712,000 8.0% $3,086,000 14.4% $5,552,000
Core capital/1/ (to adjusted tangible assets) 3.0 9,450,000 10.6 33,263,000 3.0 2,255,000 7.1 5,349,000
Core capital/1/ (to adjusted total assets) 3.0 9,463,000 10.6 33,263,000 3.0 2,255,000 7.1 5,349,000
/1/ As defined by regulatory agencies
</TABLE>
Tangible capital at December 31, 1997, for ABI and ABO was $33,263,000 and
$5,349,000, which amounts were 10.6% and 7.1% of tangible assets and exceeded
the required ratio of 1.5%.
The banking subsidiaries have qualified under provisions of the Internal
Revenue Code which permit them to deduct from taxable income a provision for bad
debts which differs from the provision for such losses charged against income.
Accordingly, their retained earnings at December 31, 1998, 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 ("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 in 1996 totaled
approximately $1,879,000, before taxes, and was charged against 1996 income.
15. Year 2000
Like all entities, the Company and subsidiaries are exposed to risks
associated with the Year 2000 Issue, which affects computer software and
hardware; transactions with customers, vendors, and other entities; and
equipment dependent upon microchips. The Company has begun and is continuing
its extensive efforts to identify and remediate potential Year 2000 problems.
It is not possible for any entity to guarantee the results of its own
remediation efforts or to accurately predict the impact of the Year 2000 Issue
on third parties with which the Company and subsidiaries do business. If
remediation efforts of the Company or third parties with which the Company and
subsidiaries do business are not successful, the Year 2000 Issue could have
negative effects on the Company's financial condition and results of operations
in the near term.
16. 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.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the estimates of fair value of financial
instruments (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 7,545 $ 7,545 $ 5,066 $ 5,066
Interest-bearing deposits 38,006 38,006 10,143 10,143
Interest-bearing time deposits 3,487 3,487 -- --
Investment securities held to maturity 51,581 51,512 35,395 35,300
Mortgage-backed securities held to maturity 20,217 20,437 29,996 30,164
Loans receivable, including loans held for sale, net 265,994 269,480 294,389 298,223
Interest receivable 2,731 2,731 2,723 2,723
Stock in FHLB 3,588 3,588 3,412 3,412
Liabilities
Deposits 333,989 335,990 322,217 322,051
FHLB advances 17,101 17,002 16,016 16,001
Interest payable 435 435 401 401
Drafts payable 4,354 4,354 4,225 4,225
Advances by borrowers for taxes and insurance 1,031 1,031 955 955
</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 FHLB: The carrying amounts
reported in the consolidated statements of condition for cash on hand and in
other institutions, interest-bearing deposits and stock in FHLB 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.
FHLB Advances: The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current FHLB 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.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Financial Information
The following are condensed financial statements for the parent company,
Ameriana Bancorp, only:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
Statements of Condition 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 915 $ 100,850
Advances to subsidiaries 2,757,000 5,337,000
Investments in thrift subsidiaries 42,310,321 39,060,304
Investments in other subsidiaries and affiliates 1,858,863 1,356,345
Other assets 280,718 93,544
- --------------------------------------------------------------------------------
$47,207,817 $45,948,043
================================================================================
Liabilities and shareholders' equity
Note payable to subsidiaries, net of discount $ 1,300,149 $ 1,064,670
Miscellaneous liabilities 558,520 448,503
Shareholders' equity 45,349,148 44,434,870
- --------------------------------------------------------------------------------
$47,207,817 $45,948,043
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------
Statements of Income 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from thrift subsidiaries $4,620,114 $ 6,600,000 $3,300,000
Interest income 214,809 152,952 160,361
- -----------------------------------------------------------------------------------------------------
4,834,923 6,752,952 3,460,361
Operating expense 624,634 578,477 744,476
- -----------------------------------------------------------------------------------------------------
Income before income tax credit and equity in undistributed
income of subsidiaries 4,210,289 6,174,475 2,715,885
Income tax credit 433,130 412,785 409,528
- -----------------------------------------------------------------------------------------------------
4,643,419 6,587,260 3,125,413
Equity in undistributed income of subsidiaries and affiliates
(distributions in excess of equity in income) (805,039) (2,955,391) (721,908)
- -----------------------------------------------------------------------------------------------------
Net Income $3,838,380 $ 3,631,869 $2,403,505
=====================================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------
Statements of Cash Flows 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 3,838,380 $ 3,631,869 $ 2,403,505
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in undistributed income of subsidiaries and affiliates 805,039 2,955,391 721,908
Noncash dividend (1,020,114) -- --
Interest expense 84,719 108,756 121,940
Increase in other assets (11,303) (39,974) (49,818)
Increase (decrease) in miscellaneous liabilities 97,490 2,150 (25,537)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,794,211 6,658,192 3,171,998
- ----------------------------------------------------------------------------------------------------------
Investing Activities
Advances to subsidiaries (3,140,000) --
Repayment of advances to subsidiaries 2,580,000 -- 2,658,000
Cash paid in acquisition (1,121,534) -- --
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 1,458,466 (3,140,000) 2,658,000
- ----------------------------------------------------------------------------------------------------------
Financing Activities
Repayment of note payable to subsidiary (300,000) (300,000) (300,000)
Cash dividends paid (2,073,217) (1,986,793) (1,837,091)
Purchase of common stock (3,358,061) (1,311,214) (3,965,544)
Proceeds from exercise of stock options 378,666 179,784 272,701
- ----------------------------------------------------------------------------------------------------------
Net cash used by financing activities (5,352,612) (3,418,223) (5,829,934)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (99,935) 99,969 64
Cash at beginning of year 100,850 881 817
- ----------------------------------------------------------------------------------------------------------
Cash at end of year $ 915 $ 100,850 $ 881
==========================================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
18. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
Summarized quarterly financial data for 1998 and 1997 is as follows (Dollars in thousands, except for per share data):
- -----------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Total interest income $7,053 $6,950 $7,203 $7,095
Total interest expense 4,007 3,903 4,076 4,007
Net interest income 3,046 3,047 3,127 3,088
Provision for loan losses 36 36 36 51
Net income 1,029 915 932 962
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share* .29 .26 .26 .27
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share* .28 .25 .26 .27
- -----------------------------------------------------------------------------------------------------------------------------
Dividends declared per share* .145 .145 .145 .150
- -----------------------------------------------------------------------------------------------------------------------------
Stock price range*
High 19.32 20.00 18.07 19.00
Low 17.27 16.93 16.14 15.68
- -----------------------------------------------------------------------------------------------------------------------------
1997
Total interest income $7,297 $7,413 $7,330 $7,293
Total interest expense 4,291 4,385 4,343 4,327
Net interest income 3,006 3,028 2,987 2,966
Provision for loan losses 36 51 60 95
Net income 877 889 994 872
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share* .25 .24 .28 .25
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share* .25 .24 .27 .25
- -----------------------------------------------------------------------------------------------------------------------------
Dividends declared per share* .136 .136 .145 .145
- -----------------------------------------------------------------------------------------------------------------------------
Stock price range*
High 14.89 15.45 20.00 20.00
Low 14.09 13.86 14.77 17.05
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted for 11-for-10 stock split.
<PAGE>
Report of Independent Auditors
To the Shareholders and
Board of Directors
Ameriana Bancorp
New Castle, Indiana
We have audited the accompanying consolidated statements of condition of
Ameriana Bancorp and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Olive LLP
Indianapolis, Indiana
February 5, 1999
<PAGE>
Corporate Information
Market Information
Ameriana Bancorp's common shares trade on the Nasdaq Stock Market under the
symbol ASBI. As of March 26, 1999, the Company had approximately 2,200
shareholders, including beneficial owners holding shares in nominee or "street"
name.
See Note 12 to Consolidated Financial Statements for restrictions on the payment
of cash dividends.
<PAGE>
EXHIBIT 21
Percentage State of
Subsidiaries (1) Owned Incorporation
- ---------------- ---------- -------------
Ameriana Bank of Indiana, F.S.B. (2) 100% United States
Ameriana Bank of Ohio, F.S.B. (2) 100% United States
Indiana Title Insurance Company (2) 100% Indiana
Ameriana Insurance Agency, Inc. (2) 100% Indiana
Ameriana Financial Services, Inc. (3) 100% Indiana
Family Financial Life (4) 19% Louisiana
Deer Park Service Corporation (5) 100% Ohio
- -------------
(1) Operations of the Company's wholly-owned direct subsidiaries,
Ameriana-Indiana, Ameriana-Ohio, Ameriana Insurance and Indiana Title, and
Ameriana-Indiana'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 Ameriana-Indiana, a
first-tier subsidiary of the Company.
(4) 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 Ameriana-Indiana, a
first-tier subsidiary of the Company.
(5) Second-tier subsidiary of the Company 100% owned by Ameriana-Ohio, a
first-tier subsidiary of the Company.
<PAGE>
EXHIBIT 23
CONSENT OF OLIVE LLP
We consent to the incorporation by reference in the Registration Statements on
Form S-8, File No. 33-31034, File No. 333-04013 and File No. 333-56111, of our
report dated February 5, 1999 contained in the 1998 Annual Report on Form 10-K
of Ameriana Bancorp.
/s/ Olive LLP
Indianapolis, Indiana
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,545
<INT-BEARING-DEPOSITS> 41,493
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 20,217
<INVESTMENTS-MARKET> 20,437
<LOANS> 263,097
<ALLOWANCE> 1,284
<TOTAL-ASSETS> 405,718
<DEPOSITS> 333,989
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,279
<LONG-TERM> 17,101
0
0
<COMMON> 10,286
<OTHER-SE> 35,063
<TOTAL-LIABILITIES-AND-EQUITY> 405,718
<INTEREST-LOAN> 22,517
<INTEREST-INVEST> 4,252
<INTEREST-OTHER> 1,532
<INTEREST-TOTAL> 28,301
<INTEREST-DEPOSIT> 15,265
<INTEREST-EXPENSE> 15,993
<INTEREST-INCOME-NET> 12,308
<LOAN-LOSSES> 159
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,655
<INCOME-PRETAX> 5,923
<INCOME-PRE-EXTRAORDINARY> 3,838
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,838
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 3.32
<LOANS-NON> 745
<LOANS-PAST> 40
<LOANS-TROUBLED> 701
<LOANS-PROBLEM> 1,486
<ALLOWANCE-OPEN> 1,163
<CHARGE-OFFS> 165
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 1,284
<ALLOWANCE-DOMESTIC> 1,284
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
