<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[x] ANNUAL REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
------- -------
Commission File Number: 0-18392
AMERIANA BANCORP
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(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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sales price of the registrant's common stock
as quoted on the NASDAQ National Market on March 14, 2000 was $28,722,939 (for
purposes of this calculation, directors and executive officers are not treated
as "non-affiliates").
As of March 14, 2000, there were issued and outstanding 3,146,616 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, 1999 ("Annual Report") (Part II).
2. Portions of Proxy Statement for the 2000 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 and Trust of Indiana, 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 eight branch offices located in New
Castle, Middletown, Knightstown, Morristown, Greenfield, Anderson, Avon and New
Palestine, 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 center located in New
Castle, Indiana. Ameriana-Indiana completed 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 opened on December 6, 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. In
1999, Ameriana-Indiana established a Business Services Division to provide
specialized lending and other banking services for business customers.
Commercial real estate loans have increased significantly during 1999.
Ameriana-Indiana also began operating a Trust Department during 1999 which
provides trust, investment and estate planning services. 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.
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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 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.
Regulatory and Legislative Changes
On November 12, 1999, the Gramm-Leach-Bliley Act was signed into law. The
Act calls for the modernization of the banking system and could have
far-reaching effects on the financial services industry and the Company's and
the Institution's operations. For information on the provisions of this
legislation, see "Regulation -- Financial Modernization Legislation."
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,
--------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
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......... $ 30,734 10.86% $ 15,282 5.47% $ 4,930 1.64%
Residential loans............. 284,559 80.90 232,993 83.36 255,591 85.06
Commercial loans................ 1,209 .35 862 .31 19 .01
Consumer Loans:
Mobile home and auto loans.... 16,373 4.77 21,854 7.82 31,818 10.39
Education loans............... -- -- -- -- -- --
Loans secured by deposits..... 1,392 .40 1,351 .48 1,308 .44
Home improvement loans........ 1,577 .46 2,774 .99 5,629 1.87
Other......................... 7,762 2.26 4,387 1.57 1,177 .59
--------- ------ --------- ------ --------- ------
Total...................... 343,606 100.00% 279,503 100.00% 300,472 100.00%
--------- ====== --------- ====== --------- ======
Less:
Loans in process.............. 16,723 12,123 4,876
Deferred loan fees............ (129) 102 44
Loan loss reserve............. 1,534 1,284 1,163
--------- --------- ---------
Sub Total.................... 18,128 13,509 6,083
--------- --------- ---------
Total...................... $ 325,478 $ 265,994 $ 294,389
========= ========= =========
Type of Security:
Residential
Single Family (1-4 units).... $ 273,231 79.75% $ 227,574 81.42% 252,153 83.92%
5 or more dwelling units..... 11,336 3.30 5,419 1.94 3,438 1.14
Other improved real estate..... 30,726 8.94 15,282 5.47 4,930 1.16
Commercial..................... 1,209 .35 862 .31 19 .01
Deposit accounts............... 1,392 .40 1,351 .48 1,308 .44
Mobile home and auto........... 16,373 4.77 21,854 7.82 31,218 10.39
Other.......................... 9,339 2.49 7,161 2.56 7,406 2.46
--------- ------ --------- ------ --------- ------
Total...................... 343,606 100.00% 279,503 100.00% 300,472 100.00%
--------- ====== --------- ====== --------- ======
Less:
Loans in process.............. 16,723 12,123 4,876
Deferred loan fees............ (129) 102 44
Loan loss reserve............. 1,534 1.284 1,163
--------- --------- ---------
Sub Total.................... 18,128 13,509 6,083
--------- --------- ---------
Total...................... $ 325,478 $ 265,994 $ 294,389
========= ========= =========
<CAPTION>
At December 31,
------------------------------------
1996 1995
---------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans:
Non-residential loans......... $ 3,096 1.07% $ 3,670 1.35%
Residential loans............. 240,948 83.58 230,992 84.69
Commercial loans................ 24 .01 29 .01
Consumer Loans:
Mobile home and auto loans.... 31,706 11.00 29,735 10.90
Education loans............... -- -- -- --
Loans secured by deposits..... 1,395 .48 1,318 .48
Home improvement loans........ 5,645 1.96 56 .02
Other......................... 5,486 1.90 6,947 2.55
--------- ------ --------- ------
Total...................... 288,300 100.00% 272,747 100.00%
--------- ====== --------- ======
Less:
Loans in process.............. 4,495 5,463
Deferred loan fees............ 100 215
Loan loss reserve............. 1,104 1,076
--------- ---------
Sub Total.................... 5,699 6,754
--------- ---------
Total...................... $ 282,601 $ 265,993
========= =========
Type of Security:
Residential
Single Family (1-4 units).... $ 238,440 82.71% $ 227,045 83.24%
5 or more dwelling units..... 2,508 .87 3,947 1.45
Other improved real estate..... 3,096 1.07 3,670 1.35
Commercial..................... 24 .01 29 .01
Deposit accounts............... 1,395 .48 1,318 .48
Mobile home and auto........... 31,706 11.00 29,735 10.90
Other.......................... 11,131 3.86 7,003 2.57
--------- ------ --------- ------
Total...................... 288,300 100.00% 272,747 100.00%
--------- ====== --------- ======
Less:
Loans in process.............. 4,495 5,463
Deferred loan fees............ 100 215
Loan loss reserve............. 1,104 1,076
--------- ---------
Sub Total.................... 5,699 6,754
--------- ---------
Total...................... $ 282,601 $ 265,993
========= =========
</TABLE>
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The following table shows, at December 31, 1999, 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
-------------------------------------------------------------------------------
2005 and
2000 2001 - 2004 Thereafter Total
-------- ----------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Type of Loan:
Real estate mortgage.......... $ 9,747 $ 28,526 $ 278,676 $ 316,949
Other......................... 2,902 19,017 4,738 26,657
---------- ---------- --------- ----------
Total....................... $ 12,649 $ 47,543 $ 283,414 $ 343,606
========== ========== ========= ==========
</TABLE>
The following table sets forth the dollar amount of the Company's aggregate
loans due after one year from December 31, 1999 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............. $ 117,687 $ 189,515 $ 307,202
Other loans............................ 23,049 706 23,755
---------- --------- ---------
Total................................ $ 140,736 $ 190,221 $ 330,957
========== ========= =========
</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 $23.303 million were
originated for sale during 1999 and $27.277 million were sold at a gain of
$313,869. 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, five-year or seven-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 normally be obtained for
loan-to-value ratios in excess of 80%. The Institutions limit the loan-to-value
ratio to 89.9% 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. Ameriana-Indiana's commercial real estate loans increased
significantly during 1999. This was due to the establishment of the new Business
Services Division during 1999. This new operation made direct commercial loans
and more importantly purchased loan
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participations from other financial institutions. These participations in
commercial real estate loans are reviewed and approved based upon the same
credit standards as direct commercial loans at Ameriana-Indiana. Loans secured
by commercial real estate properties are generally larger and involve a greater
degree of credit risk than one- to-four family residential mortgage loans.
Because payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
by general economic conditions. If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed), the borrower's ability to
repay the loan may be impaired. To minimize the risks involved in originating
such loans, the Institutions consider, among other things, the credit worthiness
of the borrower, the location of the real estate, the condition and occupancy
levels of the security and the quality of the organization managing the
property.
The Institutions originate and/or purchase construction loans on single
family residential properties in their primary market areas. The loans are
secured by real estate, and most of the homes to be constructed are already
subject to a sales contract at the time the construction loan is made. The
Institutions' construction loans generally range in size between $100,000 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 and/or purchased 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. During fiscal 1999 construction loans
originated or purchased amounted to $50.446 million. The gross outstanding
construction loans at December 31, 1999 were:
Single family (1-4 units)............................. $ 29,648
Five or more dwelling units........................... 5,000
Other improved real estate............................ 8,323
--------
$ 42,971
========
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
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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 1999, the
Company continued to originate automobile loans. Such loans are 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
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engaging in inventory financing and commercial leasing activities. The aggregate
outstanding amount of such loans generally may not exceed 10% of the
Institutions' respective assets. The Institutions do not, as a common practice,
make unsecured commercial loans. The Company began making and purchasing the
collaterized commercial loans in 1998. The total lease and commercial portfolio
at December 31, 1999 was $1,209,000.
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 $44.717 million of loans from
brokers in 1999. Commercial real estate and construction loan originations have
been obtained by direct solicitation. Consumer loan originations are
attributable to walk-in customers who have been made aware of the Institutions'
programs by advertising, as well as direct solicitation.
The Institutions have previously sold whole loans to other financial
institutions and institutional investors. Sales of loans generate income (or
loss) at the time of sale, produce future servicing income and provide funds for
additional lending and other purposes. When the Institutions retain the
servicing of loans they sell, the Institutions retain responsibility for
collecting and remitting loan payments, inspecting the properties, making
certain insurance and tax payments on behalf of borrowers and otherwise
servicing those loans. The Institutions typically receive a fee of between .25%
and .50% per annum of the loans' principal amount for performing this service.
At December 31, 1999, the Institutions were servicing $154.552 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
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whole loans and participations are purchased on a yield basis. As of December
31, 1999, $20.924 million, or 6.23%, 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.
Year Ended December 31,
--------------------------------------
1999 1998 1997
------ ------ -----
(In thousands)
Loans Originated:
Conventional real estate loans:
Construction loans.................. $ 31,233 $ 39,737 $ 22,607
Loans on existing property.......... 41,295 72,390 28,508
Loans refinanced.................... 17,996 49,791 37,846
Other loans........................... 41,276 27,406 32,988
---------- ---------- ----------
Total loans originated........... 131,800 189,324 121,949
---------- ---------- ----------
Loans Purchased:
Real estate loans:
Conventional........................ 60,355 3,938 3,710
Mortgage-backed securities.......... -- -- --
Commercial-other collateral........... -- 2,500 --
---------- ---------- ----------
Total loans purchased............ 60,355 6,438 3,710
---------- ---------- ----------
Total loans originated and purchased.... $ 192,155 $ 195,762 $ 125,659
========== ========== ==========
Mortgage loans and leases sold.......... $ 27,277 $ 93,498 $ 29,862
========== ========== ==========
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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, 1999 (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.
Residential loans of $500,000 or more and commercial loans of $350,000 or more
but less than $1,000,000 must be approved by a committee consisting of certain
members of senior management. The Board of Directors must approve all loans in
excess of $1,000,000. 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
generally 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, 1999, was approximately $22.389 million. It has been the
Institutions' experience that few commitments expire unfunded.
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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.
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 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
13
<PAGE>
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
Real estate acquired by the Institutions as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate owned until such time
as it is sold. When such property is acquired, it is recorded at the lower of
the unpaid principal balance of the related loan or its fair value. Any
subsequent deterioration of the property is provided for in an allowance for
loss on real estate owned.
The following table sets forth information with respect to the Company's
aggregate non-performing assets at the dates indicated. At December 31, 1999,
the Company had $751,000 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,
---------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real Estate:
Residential..................................... $ 703 $ 684 $ 847 $ 694 $ 754
Commercial...................................... 226 15 -- -- --
Commercial........................................ 11 -- 19 24 29
Consumer.......................................... 231 46 11 3 6
-------- -------- -------- -------- --------
Total........................................... 1,171 745 877 721 789
-------- -------- -------- -------- --------
Accruing loans contractually past due 90
days or more:
Real Estate:
Residential..................................... 16 37 61 279 515
Commercial...................................... -- -- 57 -- --
Commercial........................................ -- -- -- -- --
Consumer.......................................... 9 3 7 36 25
-------- -------- -------- -------- --------
Total........................................... 25 40 124 315 540
-------- -------- -------- -------- --------
Total of non-accrual and
90 days past due loans....................... $ 1,196 $ 785 $ 1,002 $ 1,036 $ 1,329
======== ======== ======== ======== ========
Percentage of total loans (excluding
mortgage-backed securities)..................... .37% .30% .33% .36% .50%
========= ======== ======== ======== ========
Other non-performing assets (1)..................... $ -- $ 96 $ 160 $ 101 $ 145
========= ======== ======== ======== ========
</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.
14
<PAGE>
During 1999, the Company would have recorded gross interest income of $106
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 $40 on those loans in its net income for the year.
For additional information regarding the Company's problem assets and loss
provisions recorded thereon, see "Management's Discussion and Analysis" in 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, 1999, $233,000
and $235,000 of Ameriana-Indiana's assets were classified as Substandard and
Doubtful, $742,000 and $3,000 of Ameriana-Ohio's assets were classified as
Substandard and Doubtful, and $16,000 and $1,069,000 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
15
<PAGE>
of economic conditions in general and in various sectors of the Institutions'
respective customer bases, and periodic reviews of loan portfolio quality by the
Institutions' personnel. Specific reserves will be provided for individual loans
where the ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the security of the loan or guarantees,
if applicable. It is management's policy to establish specific reserves for
estimated losses on delinquent loans and real estate owned when it determines
that losses are anticipated to be incurred on the underlying properties. At
December 31, 1999, Ameriana-Indiana's and Ameriana-Ohio's allowances for loan
losses amounted to $1,039,000 and $495,000, 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.
16
<PAGE>
The following table sets forth an analysis of the Company's aggregate
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period...................... $ 1,284 $ 1,163 $ 1,104 $ 1,076 $ 1,022
Charge Offs:
Real Estate:
Residential..................................... -- 12 31 1 44
Commercial...................................... -- -- -- -- --
Commercial business leases........................ -- -- -- -- --
Consumer.......................................... 98 153 170 51 42
-------- -------- -------- -------- --------
.................................................... 98 165 201 52 86
-------- -------- -------- -------- --------
Recoveries:
Real Estate:
Residential..................................... -- -- -- -- 2
Commercial...................................... -- -- -- -- --
Commercial business leases........................ 4 -- -- 10 --
Consumer.......................................... 17 27 18 4 21
-------- -------- -------- -------- --------
21 27 18 14 23
-------- -------- -------- -------- --------
Net Loans Charged-Off............................... (77) (138) (183) (38) (63)
Increase from acquisition........................... -- 100 -- -- --
Provision for Loan Losses........................... 327 159 242 66 117
-------- -------- -------- -------- --------
Balance at End of Period............................ $ 1,534 $ 1,284 $ 1,163 $ 1,104 $ 1,076
======== ======== ======== ======== ========
Ratio of Net Charge-Offs to Average
Loans Outstanding During the Period............... .03% .05% .06% .01% .02%
======== ======== ======== ======== ========
Ratio of Ending Allowance for
loan losses to ending loans....................... .47% .49% .40% .39% .40%
======== ======== ======== ======== ========
</TABLE>
17
<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 future losses and does not restrict the use of the allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Total Loans Total Loans Total Loans Total Loans Total Loans
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Mortgage $ 819 92% $ 507 89% $ 476 86% $ 496 85% $ 486 86%
Commercial 11 -- 15 -- 19 -- 24 -- 34 --
Consumer 704 8 762 11 668 14 584 15 556 14
------- --- ------- --- ------- --- ------- --- ------- ---
Total Allowance for
Loan Losses $ 1,534 100% $ 1,284 100% $ 1,163 100% $ 1,104 100% $ 1,076 100%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
18
<PAGE>
Investment Activities
Interest and dividends on investment securities, mortgage-backed
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 25.37% of the Company's total interest
income (and dividends) for fiscal 1999. 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, 1999, Ameriana-Indiana's and
Ameriana-Ohio's liquidity ratios (liquid assets as a percentage of net
withdrawable savings and short-term borrowings) were 18.71% and 14.08%,
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, 1999, the market values of the Company's aggregate
investment securities, Federal Home Loan Bank stock and mortgage-backed
securities were approximately $81.481 million, $4.341 million and $14.787
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.
At December 31,
----------------------------------
1999 1998 1997
------ ------ -----
(In thousands)
Investment securities................. $ 87,735 $ 51,581 $ 35,395
Interest-bearing deposits (1)......... 6,795 41,493 10,143
FHLB stock............................ 4,341 3,588 3,412
Mortgage-backed securities............ 14,970 20,217 29,996
--------- --------- --------
Total investments................... $ 113,841 $ 116,879 $ 78,946
========= ========= ========
- ----------
(1) Consist of overnight deposits and short-term non-negotiable certificates of
deposit.
19
<PAGE>
The following table sets forth information regarding maturity distribution
and average yields for the Company's investment securities portfolio at December
31, 1999.
<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>
Federal agencies $ -- --% $ 1,700 6.21% $27,042 6.57% $58,993 7.00% $87,735 6.85%
</TABLE>
20
<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, 1999, the Company's mortgage-backed
securities consisted of the following:
Carrying Average
Amount Rate
-------- -------
(Dollars in thousands)
Variable rate:
Repricing in one year or less.................. $ 8,192 6.88%
Repricing in one to five years................. 1,554 6.75
Fixed-rate:
Maturing in five years or less................. 1,256 6.20
Maturing in five to ten years.................. 140 8.62
Maturing in more than ten years................ 3,828 7.83
---------
Total........................................ $ 14,970 7.07
=========
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.
21
<PAGE>
As of December 31, 1999, approximately 31.09%, or $110.592 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.
22
<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,
1999 Year 1998 Year 1997
------------------- ---------- ------------------- ---------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings deposits.................... $ 38,660 10.87% $ (5,518) $ 44,178 13.23% $ (536) $ 44,714 13.88%
NOW accounts........................ 33,854 9.52 1,435 32,419 9.71 10,222 22,197 6.89
Money market deposit accounts....... 38,079 10.70 8,801 29,278 8.77 21,480 7,798 2.42
Certificate accounts:
Jumbo certificates................ 40,044 11.26 11,891 28,153 8.43 4,121 24,032 7.46
Fixed-rate certificates:
12 months or less................ 75,511 21.22 15,144 60,367 18.07 (15,673) 76,040 23.60
13-24 months..................... 44,148 12.41 1,965 42,183 12.63 11,326 30,857 9.58
25-36 months..................... 56,034 15.75 (12,939) 68,973 20.65 8,477 60,496 18.77
37 months or greater............. 25,310 7.11 1,521 23,789 7.12 (26,679) 50,468 15.66
Variable rate certificate:
18 months........................ 4,119 1.16 (530) 4,649 1.39 (966) 5,615 1.74
--------- ------ --------- --------- ------ --------- --------- ------
$ 355,759 100.00% $ 21,770 $ 333,989 100.00% $ 11,772 $ 322,217 100.00%
========= ====== ========= ========= ====== ========= ========= ======
</TABLE>
23
<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, Savings 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,
-----------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- -------------------
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.................... $ 53,982 3.27% $ 36,274 3.12% $ 19,579 2.30%
Savings deposits............... 41,717 1.99 45,626 2.13 45,529 2.50
Time deposits.................. 235,867 5.34 231,141 5.69 251,670 5.77
---------- ---------- ----------
$ 331,566 4.58 $ 313,041 4.88 $ 316,778 5.09
========== ========== ==========
</TABLE>
The following table sets forth the aggregate time deposits in the Company
classified by rates as of the dates indicated.
At December 31,
---------------------------------------
1999 1998 1997
------ ------ -----
(In thousands)
Less than 4%................. $ 5,375 $ 757 $ 101
4% - 5.99%................. 176,432 169,194 153,211
6% - 7.99%................. 63,328 57,754 92,849
8% - 9.99%................. 31 409 1,346
---------- ----------- ----------
$ 245,166 $ 228,114 $ 247,507
========== =========== ==========
24
<PAGE>
The following table sets forth the amount and maturities of the Company's
time deposits at December 31, 1999.
<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%.................... $ 5,375 $ -- $ -- $ -- $ 5,375
4% - 5.99%...................... 126,626 43,658 4,235 1,913 176,432
6% - 7.99%...................... 45,557 1,882 3,720 12,169 63,328
8% - 9.99%...................... 18 -- 13 -- 31
--------- ---------- ---------- ---------- ----------
$ 177,576 $ 45,540 $ 7,968 $ 14,082 $ 245,166
========= ========== ========== ========== ==========
</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, 1999.
Savings, NOW
Certificates and MMDA
Maturity Period of Deposit Deposits
--------------- ------------ ------------
(In thousands)
Three months or less................... $ 18,192 $ 14,769
Over three through six months.......... 7,223 --
Over six through twelve months......... 6,198 --
Over twelve months..................... 8,431 --
--------- ----------
Total............................. $ 40,044 $ 14,769
========= ==========
The following table sets forth the aggregate savings activities of the
Company for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited.......... $ 6,780 $ (2,815) $ (12,690)
Interest credited......................................... 14,990 14,587 16,202
---------- ---------- ----------
Net increase (decrease) in deposits....................... $ 21,770 $ 11,772 $ 3,512
========== ========== ==========
</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
25
<PAGE>
of the Institutions' first mortgage loans or investment securities. At
December 31, 1999, Ameriana-Ohio had $37.511 million of advances outstanding
from the Federal Home Loan Bank of Cincinnati and Ameriana-Indiana had $45.0
million of advances outstanding from the Federal Home Loan Bank of Indianapolis.
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.
26
<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,
1999. 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, 1999 1998
1999 -------------------------------- -------------------------------
----------------- 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)....................... $ 327,012 7.73% $ 281,943 $ 21,703 7.70% $ 277,233 $ 22,517 8.12%
Mortgage-backed securities............... 14,970 7.07 17,280 1,080 6.25 25,236 1,663 6.59
Short-term investments and other
interest-earning assets (2)............. 98,871 6.75 98,345 6,300 6.41 67,716 4,121 6.08
--------- ----- --------- --------- ----- --------- --------- -----
Total interest-earning assets......... 440,853 7.49 397,568 29,083 7.32 370,185 28,301 7.64
Noninterest-earning assets................ 45,496 33,488 20,002
--------- --------- ---------
Total assets.......................... $ 486,349 $ 431,056 $ 390,187
========= ========= =========
Interest-bearing liabilities:
Deposits................................ $ 339,451 4.71 $ 331,566 15,194 4.58 $ 313,041 15,265 4.88
FHLB advances........................... 82,511 5.49 28,700 1,555 5.42 12,379 728 5.88
--------- ----- --------- --------- ----- --------- --------- -----
Total interest-bearing liabilities:... 421,962 4.86 360,266 16,749 4.65 325,420 15,993 4.91
----- --------- ----- --------- -----
Noninterest-bearing liabilities........... 24,358 26,958 19,522
--------- --------- ---------
Total liabilities..................... 446,320 387,224 344,942
Shareholders' equity...................... 40,029 43,832 45,245
--------- --------- ---------
Total liabilities and shareholders'
equity.............................. $ 486,349 $ 431,056 $ 390,187
========= ========= =========
Net interest income....................... $ 12,334 $ 12,308
========= =========
Interest rate spread...................... 2.63% 2.67% 2.73%
===== ===== =====
Net yield on interest-earning assets...... 3.10% 3.32%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities. 110.35% 113.76%
====== ======
<CAPTION>
---------------------------------
1997
---------------------------------
Average Average
Balance Interest Yield/Cost
------- -------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Loan portfolio (1)....................... $ 290,922 $ 23,234 7.99%
Mortgage-backed securities............... 34,005 2,319 6.82
Short-term investments and other
interest-earning assets (2)............. 54,816 3,780 6.90
--------- --------- -----
Total interest-earning assets......... 379,743 29,333 7.72
Noninterest-earning assets................ 16,940
---------
Total assets.......................... $ 396,683
=========
Interest-bearing liabilities:
Deposits................................ $ 316,778 16,114 5.09
FHLB advances........................... 19,791 1,231 6.22
--------- --------- -----
Total interest-bearing liabilities:... 336,569 17,345 5.15
--------- -----
Noninterest-bearing liabilities........... 16,253
---------
Total liabilities..................... 352,822
Shareholders' equity...................... 43,861
---------
Total liabilities and shareholders'
equity.............................. $ 396,683
=========
Net interest income....................... $ 11,988
=========
Interest rate spread...................... 2.57%
======
Net yield on interest-earning assets...... 3.16%
======
Ratio of average interest-earning assets
to average interest-bearing liabilities. 112.83%
======
</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.
27
<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, 1999, Ameriana-Indiana and Ameriana-Ohio were authorized to
invest up to approximately $11.135 million and $3.566 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 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, 1999, Ameriana-Indiana's and Ameriana-Ohio's investments
in, and loans to, their subsidiaries were approximately $3.198 million and
$13,550, 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.
Financial Modernization Legislation. On November 12, 1999, President
Clinton signed legislation which could have a far-reaching impact on the
financial services industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and authorizes bank
holding companies and national banks
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to engage in a variety of new financial activities. Among the new activities
that will be permitted to bank holding companies are securities and insurance
brokerage, securities underwriting, insurance underwriting and merchant banking.
The Federal Reserve Board, in consultation with the Secretary of the Treasury,
may approve additional financial activities. The G-L-B Act, however, prohibits
future acquisitions of existing unitary savings and loan holding companies, like
the Company, by firms which are engaged in commercial activities and limits the
permissible activities of unitary holding companies formed after May 4, 1999.
The G-L-B Act imposes new requirements on financial institutions with
respect to customer privacy. The G-L-B Act generally prohibits disclosure of
customer information to non-affiliated third parties unless the customer has
been given the opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their privacy policies
to customers annually. Financial institutions, however, will be required to
comply with state law if it is more protective of customer privacy than the
G-L-B Act. The G-L-B Act directs the federal banking agencies, the National
Credit Union Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after consultation with
the National Association of Insurance Commissioners, to promulgate implementing
regulations within six months of enactment. The privacy provisions will become
effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal Home Loan Bank
System. The G-L-B Act imposes new capital requirements on the Federal Home Loan
Banks and authorizes them to issue two classes of stock with differing dividend
rates and redemption requirements. The G-L-B Act deletes the current requirement
that the Federal Home Loan Banks annually contribute $300 million to pay
interest on certain government obligations in favor of a 20% of net earnings
formula. The G-L-B Act expands the permissible uses of Federal Home Loan Bank
advances by community financial institutions (under $500 million in assets) to
include funding loans to small businesses, small farms and small
agri-businesses. The G-L-B Act makes membership in the Federal Home Loan Bank
voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions including a
prohibition against ATM surcharges unless the customer has first been provided
notice of the imposition and amount of the fee. The G-L-B Act reduces the
frequency of Community Reinvestment Act examinations for smaller institutions
and imposes certain reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the
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Community Reinvestment Act. The G-L-B Act eliminates the SAIF special reserve
and authorizes a federal savings association that converts to a national or
state bank charter to continue to use the term "federal" in its name and to
retain any interstate branches.
The Company is unable to predict the impact of the G-L-B Act on its
operations at this time. Although the G-L-B Act reduces the range of companies
with which the Company may affiliate, it may facilitate affiliations with
companies in the financial services industry.
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 4% (3% if the institution is
rated CAMELS 1) 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
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the savings institution holds a minority interest and which are not engaged in
activities for which the capital rules require deduction of its debt and equity
investments. Adjusted total assets are reduced by the amount of assets that have
been deducted from capital, the portion of the savings institution's investments
in subsidiaries that must be netted against capital under the capital rules and,
for purposes of the core capital requirement, by qualifying supervisory
goodwill.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to use both core capital and supplementary
capital provided the amount of supplementary capital used does not exceed 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%.
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The table below represents the Institutions' historical capital position
relative to their various minimum regulatory capital requirements at December
31, 1999.
<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........................... $ 31,031 8.4% $ 8,010 6.8%
Tangible Capital Requirement............... 5,529 1.5 1,766 1.5
--------- ----- --------- -----
Excess................................... $ 25,502 6.9% $ 6,244 5.3%
========= ===== ========= =====
Core Capital............................... $ 31,031 8.4% $ 8,010 6.8%
Core Capital Requirement................... 11,057 3.0 3,531 3.0
--------- ----- --------- -----
Excess................................... $ 19,974 5.4% $ 4,479 3.8%
========= ===== ========= =====
Total Capital (i.e., Core and
Supplementary Capital)................... $ 31,599 15.6% $ 8,279 14.2%
Risk-Based Capital Requirement............. 16,220 8.0 4,673 8.0
--------- ----- --------- -----
Excess................................... $ 15,379 7.6% $ 3,606 6.2%
========= ===== ========= =====
</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 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
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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 $13,689,000. Based upon 2% of assets from the June 30,
1999 Thrift Financial Report, Ameriana-Indiana would be required to reduce
capital by 50% of the difference or $3,606,000. The excess risk-based capital
would be reduced to an excess of $11,773,000 from the previously calculated
excess of $15,379,000. 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 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;
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(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, 1999, the maximum amounts Ameriana-Indiana and
Ameriana-Ohio could lend to one borrower under the 15% standard were $4.739
million and $1.241 million, respectively. At that date, Ameriana-Indiana's and
Ameriana-Ohio's largest loans to one borrower were $2.959 million and $981,000,
respectively.
Prompt Corrective Regulatory Action. Under the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA"), the federal banking regulators are
required to take prompt corrective action if an insured depository institution
fails to satisfy certain minimum capital requirements. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees if the institution would thereafter
fail to satisfy the minimum levels for any of its capital requirements. An
institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized" institution) may be: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company that the
institution will comply with the plan until it has been adequately capitalized
on average for four consecutive quarters, under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan. A "significantly
undercapitalized" institution, as well as any undercapitalized institution that
did not submit an acceptable capital restoration plan, may be subject to
regulatory demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution could also
be required to divest the institution or the institution could be required to
divest subsidiaries. The senior executive officers of a significantly
undercapitalized
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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 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 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
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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 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, 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
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<PAGE>
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.
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, 1999, with investments in Federal Home Loan Bank stock of $2.404
million and $1.937 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, 1999, Ameriana-Indiana had $45.0 million of advances outstanding
from the Federal Home Loan Bank of Indianapolis and Ameriana-Ohio had $37.511
million of advances outstanding from the Federal Home Loan Bank of Cincinnati.
Liquidity Requirements. The Institutions are required to maintain average
daily balances of liquid assets (cash, deposits maintained pursuant to Federal
Reserve Board requirements, time and savings deposits in certain institutions,
obligations of state and political subdivisions thereof, shares in mutual funds
with certain restricted investment policies, highly rated corporate debt and
mortgage-backed securities) 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, 1999 were 18.71% and 14.08%, 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. In
addition, FDIC-insured institutions are required to pay assessments to the FDIC
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. Until December 31, 1999, SAIF-insured
institutions were required to pay FICO assessments at the rate of 6.5 basis
points while Bank Insurance Fund ("BIF") members were assessed 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; and (iii) 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, unless the investment or activity is permissible
for a national bank and a savings association.
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, the
value of property used by a savings institution in its business and liquidity
investments in an amount not exceeding 20% of total 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
System. Upon failure to qualify as a Qualified Thrift Lender for two years, a
savings institution must convert to a commercial bank.
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At December 31, 1999, approximately 76.04% and 87.64% of Ameriana-Indiana's
and Ameriana Ohio's respective assets were invested in Qualified Thrift
Investments as currently defined.
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 on the first $44.3 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, 1999, 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 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
41
<PAGE>
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).
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
42
<PAGE>
(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 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
43
<PAGE>
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 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
44
<PAGE>
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 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
45
<PAGE>
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.
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.
46
<PAGE>
Employees
As of December 31, 1999, the Company and subsidiaries had approximately 174
full-time and seven part-time employees. The employees are not represented by a
collective bargaining agreement. Management believes the Company and its
subsidiaries enjoy good relations with their personnel.
Executive Officers
<TABLE>
<CAPTION>
Age at
Name December 31, 1999 Principal Position
- ---- ----------------- ------------------
<S> <C> <C>
Harry J. Bailey 57 President and Chief Executive Officer of
Ameriana-Indiana and the Company
Grover F. Archer 59 Senior Vice President - Branch Operations of
Ameriana-Indiana.
Deborah A. Bell 47 Senior Vice President - Information Technology of
Ameriana-Indiana
Timothy G. Clark 49 Executive Vice President and Chief Operating Officer of
Ameriana-Indiana
Ronald M. Holloway 50 Senior Vice President - Lending Services of
Ameriana-Indiana
Ralph E. Kerwin 63 Senior Vice President - Deposit Services of
Ameriana-Indiana
Michael C. Olson 50 President and Chief Executive Officer of Ameriana-Ohio
Nancy A. Rogers 57 Senior Vice President - Marketing Services of
Ameriana-Indiana and Secretary of Ameriana-Indiana and
the Company
Richard E. Welling 54 Senior Vice President - Treasurer of Ameriana-Indiana
and the Company
Edward J. Wooton 46 Senior Vice President - Subsidiaries of
Ameriana-Indiana and Senior Vice President of the
Company
Jan F. Wright 56 Senior Vice President - Business Services of
Ameriana-Indiana
</TABLE>
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
47
<PAGE>
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.
Grove F. Archer joined Ameriana-Indiana as Senior Vice President - Branch
Operations in January 1999. Prior to joining Ameriana-Indiana he held the
position of Area President for one year, as Regional Administrative Manager for
six years and Senior Vice President and Director of Retail Banking for six years
at National City Bank of Indiana and its predecessor in Anderson, Indiana. Prior
to that time Mr. Archer was in senior management positions with Indiana Lawrence
Bank in North Manchester, Indiana for 16 years.
Deborah A. Bell was elected as Senior Vice President - Information
Technology in May 1998. She has been employed at Ameriana-Indiana since 1976 and
most recently served as Vice President and Director of Data Processing since
1991 after serving in that department since July 1985.
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 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.
48
<PAGE>
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 - Business Services at
Ameriana-Indiana in January 1998 and prior to that served as Senior Vice
President - Branch Operations since March 1995. He previously held the position
of Vice President and Director of Loan Origination and Processing and has been
employed by Ameriana-Indiana since 1972.
Item 2. Properties
- -------------------
Offices and Other Material Properties
The following table sets forth the location of the Company's office
facilities at December 31, 1999 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>
Ameriana-Indiana:
Main Office <C> <C> <C> <C> <C>
2118 Bundy Avenue
New Castle, Indiana.......... 1958 $3,509,028 $1,126,680 Owned 20,500
1311 Broad Street
New Castle, Indiana.......... 1890 1,398,346 436,655 Owned 18,000
956 North Beechwood Street
Middletown, Indiana.......... 1971 441,803 99,355 Owned 5,500
22 North Jefferson
Knightstown, Indiana......... 1979 575,972 194,356 Owned 3,400
1810 North State Street
Greenfield, Indiana.......... 1995 1,505,648 1,097,794 Owned 5,800
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Year Total Net Owned/ Square
Acquired Investment Book Value Leased Feet
-------- ---------- ---------- ------ ----
<S> <C> <C> <C> <C> <C>
99 Dan Jones Road
Avon, Indiana.................. 1995 1,828,565 1,547,929 Owned 12,600
1754 East 53rd Street
Anderson, Indiana.............. 1993 428,473 292,021 Owned 1,500
488 W. Main Street
Morristown, Indiana............ 1998 454,513 380,531 Owned 2,600
7435 W. U.S. 52
New Palestine, Indiana......... 1999 1,016,100 992,827 Owned 3,300
Ameriana-Ohio:
7200 Blue Ash Road
Cincinnati, Ohio............... 1992 1,438,788 604,214 Owned 9,100
2894 W. U.S. 22 & 3
Maineville, Ohio............... 1998 116,711 44,435 Leased 3,000
6385 Branch Hill-Guinea Pike
Loveland, Ohio................. 1998 73,793 41,406 Leased 1,500
Ameriana Insurance Agency, Inc.
2020 S. Memorial Drive
New Castle, Indiana............ 1987 182,804 73,197 Leased 1,200
Indiana Title Insurance Company
1309 Broad Street
New Castle, Indiana............ 1991 19,573 9,566 Leased 1,000
Ameriana Bancorp
1908 Bundy Avenue
New Castle, Indiana............ 1999 176,305 176,305 Owned 5,000
----------- -----------
Total...................... $13,166,422 $ 7,117,271
=========== ===========
</TABLE>
The Institutions use on-line processing terminals. Most of the data
processing is done by an in-house data processing center. At December 31, 1999,
the total net book value of the Company's offices and equipment (including
leasehold improvements) was $7.117 million.
50
<PAGE>
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 17 of the Notes to Consolidated
Financial Statements under "Item 7. Financial Statements", and (ii) under the
section titled "Market Information" in the Annual Report, which section is
included in the information furnished as Exhibit 13 hereof, is incorporated
herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information set forth under the section titled "Selected Financial
Data" in the Annual Report, which section is included in the information
furnished as Exhibit 13 hereof, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The information set forth under the section titled "Management's Discussion
and Analysis" in the Annual Report, which section is included in the information
furnished as Exhibit 13 hereof, is incorporated herein by reference.
Item 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.
51
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
For information concerning the directors of the Company, the information
contained under the section captioned "Proposal I -- Election of Directors" in
the Proxy Statement is incorporated herein by reference. For information
concerning the executive officers of the Company, see "Item 1. Business --
Executive Officers" under Part I of the Report, which is incorporated herein by
reference.
For information concerning compliance with Section 16(a) of the Exchange
Act, see the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement, which is incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Security Ownership" in
the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Security Ownership" in
the Proxy Statement.
(c) Changes In Control
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
52
<PAGE>
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, 1999 and
1998
(b) Consolidated Statements of Income for Each of the Three Years in
the Period Ended December 31, 1999
(c) Consolidated Statements of Shareholders' Equity for Each of the
Three Years in the Period Ended December 31, 1999
(d) Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1999
(e) Notes to Consolidated Financial Statements
All schedules for which provision is made in the applicable accounting
regulations are either not required under the related instructions or
are inapplicable, and therefore have been omitted.
3. Exhibits
3 Ameriana Bancorp Articles of Incorporation and Bylaws --
incorporated herein by reference to the Company's Registration
Statement on Form S-4 filed with the SEC on September 18, 1989
10.1 Ameriana Bancorp stock option plans and other option agreements
-- 1987 Stock Option Plan incorporated herein by reference to the
Company's Registration Statement on Form S-8 filed with the SEC
on March 30, 1990; 1996 Stock Option and Incentive Plan
incorporated herein by reference to the Company's Registration
Statement on Form S-8 filed with the SEC on May 17, 1996; other
option agreements with Charles M. Drackett, Jr., Michael E. Kent
53
<PAGE>
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 -- incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the SEC on March 30, 1999
10.5 Ameriana Bank of Indiana, F.S.B. Director Supplemental Retirement
Program Director Agreement
10.6 Ameriana Bank of Indiana, F.S.B. Director Supplemental Retirement
Program Director Agreement between Ameriana Bank of Indiana,
F.S.B. and Paul W. Prior
10.7 Executive Supplemental Retirement Plan Agreement between Ameriana
Bank of Indiana, F.S.B. and Harry J. Bailey
13 Portion of 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.
54
<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, 2000 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
<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 -- incorporated by reference to the Company's
Annual Report on Form 10-K filed with the SEC on March 30,
1999
10.5 Ameriana Bank of Indiana, F.S.B. Director Supplemental
Retirement Program Director Agreement
10.6 Ameriana Bank of Indiana, F.S.B. Director Supplemental
Retirement Program Bank between Ameriana of Indiana,
F.S.B. and Paul W. Prior
10.7 Executive Supplemental Retirement Plan Agreement between
Ameriana Bank of Indiana, F.S.B. and Harry J. Bailey
<PAGE>
Exhibit
- -------
13 Portions of Annual Report to Stockholders
21 Subsidiaries
23 Consent of Olive LLP
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.5
DIRECTOR SUPPLEMENTAL RETIREMENT PROGRAM
DIRECTOR AGREEMENT
This Agreement, made and entered into this 4th day of June, 1999, by and
between Ameriana Bank of Indiana, F.S.B., a Bank organized and existing under
the laws of the State of Indiana, hereinafter referred to as "the Bank", and
[Director], a member of the Board of Directors of the Bank, hereinafter referred
to as "the Director".
The Director has been on the Board of the Bank for several years and has
now and for years past faithfully served the Bank. It is the consensus of the
Board of Directors that the Director's services have been of exceptional merit,
in excess of the compensation paid and an invaluable contribution to the profits
and position of the Bank in its field of activity. The Board further believes
that the Director's experience, knowledge of corporate affairs, reputation and
industry contacts are of such value and his continued services so essential to
the Bank's future growth and profits that it would suffer severe financial loss
should the Director terminate his service on the Board.
Accordingly, the Board of the Bank has adopted the Ameriana Bank of
Indiana, F.S.B. Director Supplemental Retirement Program (the Plan) and it is
the desire of the Bank and the Director to enter into this Agreement under which
the Bank will agree to make certain payments to the Director upon his retirement
and to his beneficiaries in the event of his death pursuant to the Plan.
It is the intent of the parties hereto that this Agreement be considered
an arrangement maintained primarily to provide supplemental retirement benefits
for the Director, and to be considered a non-qualified benefit plan for purposes
of the Employee Retirement Security Act of 1974 (ERISA). The Director is fully
advised of the Bank's financial status and has had substantial input in the
design and operation of this benefit plan.
Therefore, in consideration of services the Director has performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Director agree as follows:
I. INDEXED PLAN
The Director is hereby subject to the terms and conditions of the Plan
adopted by the Board of Directors of the Bank to be effective on June 4,
1999; a copy of the terms and conditions of the Plan being attached hereto
as Exhibit I and made a part hereof by reference.
<PAGE>
II. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Director, his/her surviving spouse nor any other
beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify
or otherwise encumber in advance any of the benefits payable
hereunder nor shall any of said benefits be subject to seizure for
the payment of any debts, judgments, alimony or separate maintenance
owed by the Director or his beneficiary, nor be transferable by
operation of law in the event of bankruptcy, insolvency or otherwise.
In the event the Director or any beneficiary attempts assignment,
commutation, hypothecation, transfer or disposal of the benefits
hereunder, the Bank's liabilities shall forthwith cease and
terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
------------------------------------------------------------
The Bank shall not merge or consolidate into or with another bank or
sell substantially all of its assets to another bank, firm or person
until such bank, firm or person expressly agrees, in writing, to
assume and discharge the duties and obligations of the Bank under
this Agreement. This Agreement shall be binding upon the parties
hereto, their successors, beneficiaries, heirs and personal
representatives.
C. Revocation:
----------
It is agreed by and between the parties hereto that, during the
lifetime of the Director, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written consent
of the Director and the Bank.
D. Gender:
------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
----------------------------------
Nothing contained in this Agreement shall affect the right of the
Director to participate in or be covered by any qualified or non-
qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the Bank's
existing or future compensation structure.
2
<PAGE>
F. Headings:
--------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this
Agreement.
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed
by the laws of the State of Indiana.
III. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this Plan shall be
Ameriana Bank of Indiana, F.S.B. until its resignation or removal by
the Board of Directors. As Named Fiduciary and Plan Administrator,
the Bank shall be responsible for the management, control and
administration of the Director's Supplemental Retirement Program as
established herein. The Named Fiduciary may delegate to others
certain aspects of the management and operation responsibilities of
the Plan including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Director (or to his beneficiary in the
case of the Director's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made
to the Named Fiduciary and Plan Administrator named above within
sixty (60) days from the date payments are refused. The Named
Fiduciary and Plan Administrator shall review the written claim and
if the claim is denied, in whole or in part, they shall provide in
writing within sixty (60) days of receipt of such claim their
specific reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any additional material
or information necessary to perfect the claim. Such written notice
shall further indicate the additional steps to be taken by claimants
if a further review of the claim denial is desired. A claim shall be
deemed denied if the Named Fiduciary and Plan Administrator fail to
take any action within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the Named
Fiduciary and Plan Administrator in writing within sixty (60) days of
the first claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In their sole discretion, the Named
3
<PAGE>
Fiduciary and Plan Administrator shall then review the second claim
and provide a written decision within sixty (60) days of receipt of
such claim. This decision shall likewise state the specific reasons
for the decision and shall include reference to specific provisions
of the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the
dispute to a Board of Arbitration for final arbitration. Said Board
shall consist of one member selected by the claimant, one member
selected by the Bank and the third member selected by the first two
members. The Board shall operate under any generally recognized set
of arbitration rules. The parties hereto agree that they and their
heirs, personal representatives, successors and assigns shall be
bound by the decision of such Board with respect to any controversy
properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the Director
"for cause", such dispute shall likewise be submitted to arbitration
as above described and the parties hereto agree to be bound by the
decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the 30th day of August,
1999, and that, upon execution, each has received a conforming copy.
AMERIANA BANK OF INDIANA, F.S.B.
New Castle, Indiana
By:
- ------------------------ --------------------------------
Witness Title
- ------------------------ ------------------------------
Witness Director
4
<PAGE>
EXHIBIT I
AMERIANA BANK OF INDIANA, F.S.B.
DIRECTOR'S SUPPLEMENTAL RETIREMENT PROGRAM
1. DEFINITIONS
A. Effective Date:
--------------
The effective date of the Ameriana Bank of Indiana, F.S.B. Director's
Supplemental Retirement Program (the Plan) shall be June 4, 1999.
B. Plan Year:
---------
Any reference to "the Plan Year" shall mean a calendar year from
January 1 to December 31. In the year of implementation, the term
"the Plan year" shall mean the period from the effective date to
December 31 of the year of the effective date.
C. Retirement Date:
---------------
The Retirement Date shall mean retirement from service on the Board
of Directors of the Bank (the Board) which becomes effective on the
first day of the calendar month following the month in which the
Director reaches age sixty-five (65) or such later date as the
Director may actually retire.
D. Termination of Service:
----------------------
Termination of Service shall mean voluntary resignation by the
Director from service on the Board or failure of re-election to the
Board prior to the Director's Normal Retirement Age [Subparagraph I
(J)].
E. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of each Director in
the Plan. Prior to a Director's Retirement Date, such liability
reserve account shall be increased or decreased each year by an
amount equal to the annual earnings or loss for that year determined
by the Index (described in Subparagraph I (G) hereinafter), less the
Cost of Funds Expense for that year (described in Subparagraph I (H)
hereinafter).
<PAGE>
F. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for each Director in the Plan shall be
equal to the annual earnings or loss determined by the Index
[Subparagraph I (G)] less the Cost of Funds Expense [Subparagraph I
(H)].
G. Index:
-----
The Index for any Plan Year shall be the aggregate annual after-tax
income from the life insurance contract(s) described hereinbelow as
defined by FASB Technical Bulletin 85-4. This Index shall be applied
as if such insurance contracts were purchased on the Effective Date
of the Director Plan.
Insurance Company: Alexander Hamilton Life
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan IV
Insured's Age and Sex: ______________________
Riders: None
Ratings: According to the health of the insured
Option: Level Death Benefit
Face Amount: $264,000
Premiums Paid: $100,000
Number of Premium Payments: One
Assumed Purchase Date: June 4, 1999
Insurance Company: Transamerica Assurance
Policy Form: Flexible Premium Adjustable life
Policy Name: Tac Saver
Insured's Age and Sex: ________________________
Riders: None
Ratings: According to the health of the insured
Option: Level Death Benefit
Face Amount: $147,000
Premiums Paid: $100,000
Number of Premium Payments: One
Assumed Purchase Date: June 4, 1999
If such contracts of life insurance are actually purchased by the
Bank, then the actual policies as of the dates they were actually
purchased shall be used in calculations under this Director Plan. If
such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall receive
annual policy illustrations that assume the above-described policies
were purchased, or had not subsequently surrendered or lapsed, which
illustrations will be received from the
2
<PAGE>
respective insurance companies and will indicate the increase in
policy values for purposes of calculating the amount of the Index.
In either case, references to the life insurance contracts are merely
for purposes of calculating a benefit. The Bank has no obligation to
purchase such life insurance and, if purchased, the Directors and
their beneficiary(ies) shall have no ownership interest in such
policy and shall always have no greater interest in the benefits
under this Director Plan than that of an unsecured creditor of the
Bank.
H. Cost of Funds Expense:
---------------------
The Cost of Funds Expense for the year shall be calculated by taking
the sum of the amount of premiums set forth in the Indexed policies
described above plus the amount of any after-tax benefits paid to any
director pursuant to the Plan (Paragraph II hereinafter) plus the
amount of all previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average annualized after-tax Cost of
Funds of the Bank's third quarter Call Report for the Plan Year as
filed with the Office of Thrift Supervision Annual Thrift Financial
Report of the Ameriana Bank of Indiana, F.S.B.
I. Change of Control:
-----------------
A Change of Control shall be deemed to have occurred if, at any time
during the period of tenure of the director, more than twenty five
percent (25%) of the Parent's or Bank's outstanding Common Stock, or
equivalent in voting power of any class or classes of outstanding
securities of the Parent or Bank ordinarily entitled to vote in
elections of directors of Parent or Bank, shall be acquired by any
other corporations or other person or group. "Group" shall mean
persons who act in concert as described in Section 13 (d) of the
Securities Exchange Act of 1934, as amended.
J. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the Director
attains age sixty-five (65).
3
<PAGE>
II. INDEX BENEFITS
A. Retirement Benefits:
-------------------
Those Directors who remain on the Board of the Bank until the "Normal
Retirement Age" defined in Subparagraph I (J), shall be entitled to
receive the balance in their Pre-Retirement Account in ten (10) equal
annual installments commencing thirty days following the Director's
retirement. In addition to these payments and commencing in the Plan
Year in which the Director retires, the Index Retirement Benefit (as
defined in Subparagraph I (F) above) for each Plan Year shall be paid
to the Director until the Director's death.
B. Termination of Service:
----------------------
Subject to Subparagraph II (D) hereinbelow, should the Director
suffer a termination of service, the Director shall be entitled to
receive ten percent (10%) times the number of full years of service
on the Board from the date of first service [to a maximum of one
hundred percent (100%)], times the balance in the Pre-Retirement
Account paid over ten (10) years in equal installments commencing
thirty (30) days following the Director's Normal Retirement Age
[Subparagraph I (J)]. In addition to these payments and commencing in
the Plan Year in which the Director attains Normal Retirement Age,
ten percent (10%) times the number of full years of service on the
Board from the date of first service [to a maximum of one hundred
percent (100%)], times the Index Retirement Benefit for each year
shall be paid to the Director until the Director's death.
C. Death:
-----
Should the Director die prior to having received that portion of the
Pre-Retirement Account the Director was entitled to pursuant to
Subparagraph II (A) or (B) herein above, as the case may be, the
unpaid balance of the Pre-Retirement Account shall be paid to the
beneficiary selected by the Director and filed with the Bank. In the
absence of or a failure to designate a beneficiary, the unpaid
balance shall be paid in a lump sum to the personal representative of
the Director's estate.
D. Discharge for Cause:
-------------------
Should the Director be discharged for cause, all benefits under this
Agreement shall be forfeited. A termination for "cause" shall include
termination because of the Director'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, or
material breach of any provision of this
4
<PAGE>
Agreement.
E. Disability Benefit:
------------------
In the event the Director becomes disabled prior to Termination of
Service, and the Director's employment is terminated because of such
disability, he shall immediately begin receiving the benefits in
Subparagraph II (A) above. Such benefit shall begin without regard to
the Director's Normal Retirement Age and the Director shall be one
hundred percent (100%) vested in the entire benefit amount. The term
"disability" shall mean the complete inability of the Director to
perform the Director's duties as determined by an independent
physician selected with the approval of the Bank and the Director.
F. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided under
this Agreement.
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Directors, their beneficiaries, or any successor in interest shall be and
remain simply a general creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the extent, nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such funding at any time, in whole or in part. At
no time shall any Director be deemed to have any lien nor right, title or
interest in or to any specific funding investment or to any assets of the
Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Director, then the Director shall assist the
Bank by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
IV. CHANGE OF CONTROL
Upon a Change of Control [as defined in Subparagraph I (I) herein], if the
Director is subsequently terminated, except for cause, then the Director
shall receive the benefits promised in this Agreement upon attaining
Normal Retirement Age, as if the Director had been continuously serving
the Bank until Normal Retirement Age. The Director will also
5
<PAGE>
remain eligible for all promised death benefits in this Agreement. In
addition, no sale, merger or consolidation of the Bank shall take place
unless the new or surviving entity expressly acknowledges the obligations
under this Agreement and agrees to abide by its terms.
This Director's Supplemental Retirement Program adopted this 30th day of
August, 1999.
AMERIANA BANK OF INDIANA, F.S.B.
New Castle, Indiana
--------------------------------
Chairman of the Board
6
<PAGE>
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Alexander Hamilton Life Insurance Company
Transamerica Assurance
Policy Number: AH5061969
50415116
Bank: Ameriana Bank of Indiana, F.S.B.
Insured: ___________________________
Relationship of Insured to Bank: Director
The respective rights and duties of the Bank and the Insured in the above-
referenced policy shall be pursuant to the terms set forth below:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use
of the Insured all in accordance with this Agreement. The Bank alone may,
to the extent of its interest, exercise the right to borrow or withdraw on
the policy cash values. Where the Bank and the Insured (or assignee, with
the consent of the Insured) mutually agree to exercise the right to
increase the coverage under the subject Split Dollar policy, then, in such
event, the rights, duties and benefits of the parties to such increased
coverage shall continue to be subject to the terms of this Agreement.
7
<PAGE>
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive the Insured's share of the
proceeds payable upon the death of the Insured, and to elect and change a
payment option for such beneficiary, subject to any right or interest the
Bank may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank
(or its administrator) will report to the Insured the amount of imputed
income each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraphs VII and IX herein, the division of the death
proceeds of the policy is as follows:
A. Should the Insured be employed by the Bank, retired from the Bank, or
terminated from the Bank due to disability, at the time of his or her
death, the Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent
(80%) of the net at risk insurance portion of the proceeds. The net
at risk insurance portion is the total proceeds less the cash value
of the policy.
B. Should the Insured not be employed by the Bank at the time of his or
her death, the Insured's beneficiary(ies), designated in accordance
with Paragraph III, shall be entitled to the following percentage of
the proceeds described in Subparagraph VI (A) hereinabove that
corresponds to the number of full years the Insured has been employed
with the Bank since the date of first employment:
Total Years
of Employment
with the Bank Vested
------------- ------
1 or more 10% per year
(to a maximum of 100%)
8
<PAGE>
C. The Bank shall be entitled to the remainder of such proceeds.
D. The Bank and the Insured (or assignees) shall share in any interest
due on the death proceeds on a pro rata basis as the proceeds due
each respectively bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's
cash value, as that term is defined in the policy contract, less any
policy loans and unpaid interest or cash withdrawals previously incurred
by the Bank and any applicable surrender charges. Such cash value shall be
determined as of the date of surrender or death as the case may be.
VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits,
on expiration of the deferment period, shall be determined under the
provisions of this Agreement by regarding such endowment proceeds or the
commuted value of such annuity benefits as the policy's cash value. Such
endowment proceeds or annuity benefits shall be considered to be like
death proceeds for the purposes of division under this Agreement.
IX. TERMINATION OF AGREEMENT
This Agreement shall terminate if the Insured shall be discharged from
employment with the Bank for cause. The term "for cause" shall mean gross
negligence or gross neglect or the commission of a felony or gross
misdemeanor involving moral turpitude, fraud, dishonesty or willful
violation of any law that results in any adverse effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a forty-five
(45) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment referred to hereinabove shall
be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement; or
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
9
<PAGE>
If, within said forty-five (45) day period, the Insured fails to exercise
said option, fails to procure the entire aforestated cash payment, or
dies, then the option shall terminate, and the Insured (or assignee)
agrees that all of the Insured's rights, interest and claims in the policy
shall terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or interest
in the subject policy nor any rights, options, privileges or duties
created under this Agreement.
XI. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Ameriana Bank of Indiana, F.S.B. is hereby designated the "Named
Fiduciary" until resignation or removal by the Board of Directors. As
Named Fiduciary, the Bank shall be responsible for the management,
control, and administration of this Split Dollar Plan as established
herein. The Named Fiduciary may allocate to others certain aspects of the
management and operation responsibilities of the Plan, including the
employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIII. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XIV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the insurance policy, they should contact the office named
above, and they will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named Fiduciary
what further requirements are necessary.
10
<PAGE>
The Insurer will evaluate and make a decision as to payment. If the claim
is payable, a benefit check will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, they
should contact the office named above and they will assist in making
inquiry to the Insurer. All objections to the Insurer's actions should be
in writing and submitted to the office named above for transmittal to the
Insurer.
XV. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVI. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at New Castle, Indiana this 30th day of August, 1999.
AMERIANA BANK OF INDIANA, F.S.B.
New Castle, Indiana
By:
- ------------------------ --------------------------------
Witness Title
- ------------------------ --------------------------------
Witness Director
11
<PAGE>
Exhibit 10.6
DIRECTOR SUPPLEMENTAL RETIREMENT PROGRAM
DIRECTOR AGREEMENT
This Agreement, made and entered into this 4th day of June, 1999, by and
between Ameriana Bank of Indiana, F.S.B., a Bank organized and existing under
the laws of the State of Indiana, hereinafter referred to as "the Bank", and
Paul W. Prior, a member of the Board of Directors of the Bank, hereinafter
referred to as "the Director".
The Director has been on the Board of the Bank for several years and has
now and for years past faithfully served the Bank. It is the consensus of the
Board of Directors that the Director's services have been of exceptional merit,
in excess of the compensation paid and an invaluable contribution to the profits
and position of the Bank in its field of activity. The Board further believes
that the Director's experience, knowledge of corporate affairs, reputation and
industry contacts are of such value and his continued services so essential to
the Bank's future growth and profits that it would suffer severe financial loss
should the Director terminate his service on the Board.
Accordingly, the Board of the Bank has adopted the Ameriana Bank of
Indiana, F.S.B. Director Supplemental Retirement Program (the Plan) and it is
the desire of the Bank and the Director to enter into this Agreement under which
the Bank will agree to make certain payments to the Director upon his retirement
and to his beneficiaries in the event of his death pursuant to the Plan.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Director, and to be considered a non-qualified benefit plan for purposes of
the Employee Retirement Security Act of 1974 (ERISA). The Director is fully
advised of the Bank's financial status and has had substantial input in the
design and operation of this benefit plan.
Therefore, in consideration of services the Director has performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Director agree as follows:
1. INDEXED PLAN
The Director is hereby subject to the terms and conditions of the Plan
adopted by the Board of Directors of the Bank to be effective on June 4,
1999; a copy of the terms and conditions of the Plan being attached hereto
as Exhibit I and made a part hereof by reference.
<PAGE>
II. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Director, his/her surviving spouse nor any other
beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify
or otherwise encumber in advance any of the benefits payable hereunder
nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the
Director or his beneficiary, nor be transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. In the event the
Director or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder, the
Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
------------------------------------------------------------
The Bank shall not merge or consolidate into or with another bank or
sell substantially all of its assets to another bank, firm or person
until such bank, firm or person expressly agrees, in writing, to
assume and discharge the duties and obligations of the Bank under this
Agreement. This Agreement shall be binding upon the parties hereto,
their successors, beneficiaries, heirs and personal representatives.
C. Revocation:
----------
It is agreed by and between the parties hereto that, during the
lifetime of the Director, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written consent
of the Director and the Bank.
D. Gender:
------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
----------------------------------
Nothing contained in this Agreement shall affect the right of the
Director to participate in or be covered by any qualified or non-
qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the Bank's
existing or future compensation structure.
2
<PAGE>
F. Headings:
--------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed by
the laws of the State of Indiana.
III. ERISA PROVISION
A. Named Fiduciary and Plan Administrator.
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this Plan shall be
Ameriana Bank of Indiana, F.S.B. until its resignation or removal by
the Board of Directors. As Named Fiduciary and Plan Administrator, the
Bank shall be responsible for the management, control and
administration of the Director's Supplemental Retirement Program as
established herein. The Named Fiduciary may delegate to others certain
aspects of the management and operation responsibilities of the Plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Director (or to his beneficiary in the
case of the Director's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made
to the Named Fiduciary and Plan Administrator named above within sixty
(60) days from the date payments are refused. The Named Fiduciary and
Plan Administrator shall review the written claim and if the claim is
denied, in whole or in part, they shall provide in writing within
sixty (60) days of receipt of such claim their specific reasons for
such denial, reference to the provisions of this Agreement upon which
the denial is based and any additional material or information
necessary to perfect the claim. Such written notice shall further
indicate the additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be deemed denied
if the Named Fiduciary and Plan Administrator fail to take any action
within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the Named
Fiduciary and Plan Administrator in writing within sixty (60) days of
the first claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In their sole discretion, the Named
3
<PAGE>
Fiduciary and Plan Administrator shall then review the second claim
and provide a written decision within sixty (60) days of receipt of
such claim. This decision shall likewise state the specific reasons
for the decision and shall include reference to specific provisions of
the Plan Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the
dispute to a Board of Arbitration for final arbitration. Said Board
shall consist of one member selected by the claimant, one member
selected by the Bank and the third member selected by the first two
members. The Board shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and their heirs,
personal representatives, successors and assigns shall be bound by the
decision of such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the Director "for
cause", such dispute shall likewise be submitted to arbitration as
above described and the parties hereto agree to be bound by the
decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the 30th day of August,
1999, and that, upon execution, each has received a conforming copy.
AMERIANA BANK OF INDIANA, F.S.B.
New Castle, Indiana
/s/ R. Scott Hayes By:/s/ Harry J. Bailey, President
- ------------------ -------------------------------------
Witness Title
/s/ R. Scott Hayes /s/ Paul W. Prior
- ------------------ ----------------------------------
Witness Paul W. Prior
4
<PAGE>
EXHIBIT I
AMERIANA BANK OF INDIANA, F.S.B.
DIRECTOR'S SUPPLEMENTAL RETIREMENT PROGRAM
1. DEFINITIONS
A. Effective Date:
--------------
The effective date of the Ameriana Bank of Indiana, F.S.B. Director's
Supplemental Retirement Program (the Plan) shall be June 4, 1999.
B. Plan Year:
---------
Any reference to "the Plan Year" shall mean a calendar year from
January 1 to December 31. In the year of implementation, the term "the
Plan year" shall mean the period from the effective date to December
31 of the year of the effective date.
C. Retirement Date:
---------------
The Retirement Date shall mean retirement from service on the Board of
Directors of the Bank (the Board) which becomes effective on the first
day of the calendar month following the month in which the Director
reaches age eighty-three (83) or such other date as the Consulting
Agreement between the Director and the Bank dated the 30th day of
August, 1999, shall terminate, whichever event shall first occur.
D. Termination of Service:
----------------------
Termination of Service shall mean voluntary resignation by the
Director from service on the Board or failure of re-election to the
Board prior to the Director's Normal Retirement Age [Subparagraph I
(J].
E. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of each Director in
the Plan. Prior to a Director's Retirement Date, such liability
reserve account shall be increased or decreased each year by an amount
equal to the annual earnings or loss for that year determined by the
Index (described in Subparagraph I (G)hereinafter), less the Cost of
Funds Expense for that year (described in Subparagraph I (H)
hereinafter).
<PAGE>
F. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for each Director in the Plan shall be
equal to the annual earnings or loss determined by the Index
[Subparagraph I (G)] less the Cost of Funds Expense [Subparagraph I
(H)].
G. Index:
-----
The Index for any Plan Year shall be the aggregate annual after-tax
income from the life insurance contract(s) described hereinbelow as
defined by FASB Technical Bulletin 85-4. This Index shall be applied
as if such insurance contracts were purchased on the Effective Date of
the Director Plan.
Insurance Company: Southland Life Insurance
Policy Form: Flexible Premium Adjustable Life
Policy Name: Max UL
Insured's Age and Sex: 79, Male
Riders: None
Ratings: According to the health of the insured
Option: Level Death Benefit
Face Amount: $1,089,294
Premium Paid: $910,000
Number of Premium Payments: One
Assumed Purchase Paid June 4, 1999
If such contracts of life insurance are actually purchased by the
Bank, then the actual policies as of the dates they were actually
purchased shall be used in calculations under this Director Plan. If
such contracts of life insurance are not purchased or are subsequently
surrendered or lapsed, then the Bank shall receive annual policy
illustrations that assume the above-described policies were purchased,
or had not subsequently surrendered or lapsed, which illustrations
will be received from the respective insurance companies and will
indicate the increase in policy values for purposes of calculating the
amount of the Index.
In either case, references to the life insurance contracts are merely
for purposes of calculating a benefit. The Bank has no obligation to
purchase such life insurance and, if purchased, the Directors and
their beneficiary(ies) shall have no ownership interest in such policy
and shall always have no greater interest in the benefits under this
Director Plan than that of an unsecured creditor of the Bank.
2
<PAGE>
H. Cost of Funds Expense:
---------------------
The Cost of Funds Expense for the year shall be calculated by taking
the sum of the amount of premiums set forth in the Indexed policies
described above plus the amount of any after-tax benefits paid to any
director pursuant to the Plan (Paragraph II hereinafter) plus the
amount of all previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average annualized after-tax Cost of Funds
of the Bank's third quarter Call Report for the Plan Year as filed
with the Office of Thrift Supervision Annual Thrift Financial Report
of the Ameriana Bank of Indiana, F.S.B.
I. Change of Control:
-----------------
A Change of Control shall be deemed to have occurred if, at any time
during the tenure of the Executive, more than twenty five percent
(25%) of the Parent's or Bank's outstanding Common Stock, or
equivalent in voting power of any class or classes of outstanding
securities of the Parent or Bank ordinarily entitled to vote in
elections of directors of Parent or Bank, shall be acquired by any
other corporations or other person or group. "Group" shall mean
persons who act in concert as described in Section 13 (d) of the
Securities Exchange Act of 1934, as amended.
J. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the Director
attains age eighty-three (83) or such other date as the Consulting
Agreement between the Director and the Bank dated the 30th day of
August, 1999, shall terminate, whichever event shall first occur.
II. INDEX BENEFITS
A. Retirement Benefits:
-------------------
Those Directors who remain on the Board of the Bank until the "Normal
Retirement Age" defined in Subparagraph I (I), shall be entitled to
receive the balance in their Pre-Retirement Account in seven (7) equal
annual installments commencing thirty days following the Director's
retirement. In addition to these payments and commencing in the Plan
Year in which the Director retires, the Index Retirement Benefit (as
defined in Subparagraph I (F) above) for each Plan Year shall be paid
to the Director until the Director's death.
3
<PAGE>
B. Termination of Service:
----------------------
Subject to Subparagraph II (D) hereinbelow, should the Director suffer
a termination of service, the Director shall be entitled to receive
ten percent (10%) times the number of full years of service on the
Board from the date of first service [to a maximum of one hundred
percent (100%)], times the balance in the Pre-Retirement Account paid
over seven (7) years in equal installments commencing thirty (30) days
following the Director's Normal Retirement Age [Subparagraph I (J)].
In addition to these payments and commencing in the Plan Year in which
the Director attains Normal Retirement Age, ten percent (10%) times
the number of full years of service on the Board from the date of
first service [to a maximum of one hundred percent (100%)], times the
Index Retirement Benefit for each year shall be paid to the Director
until the Director's death.
C. Death:
-----
Should the Director die prior to having received that portion of the
Pre-Retirement Account the Director was entitled to pursuant to
Subparagraph II (A) or (B) herein above, as the case may be, the
unpaid balance of the Pre-Retirement Account shall be paid to the
beneficiary selected by the Director and filed with the Bank. In the
absence of or a failure to designate a beneficiary, the unpaid balance
shall be paid in a lump sum to the personal representative of the
Director's estate.
D. Discharge for Cause:
-------------------
Should the Director be discharged for cause, all benefits under this
Agreement shall be forfeited. A termination for "cause" shall include
termination because of the Director'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, or
material breach of any provision of this Agreement.
E. Disability Benefit:
------------------
In the event the Director becomes disabled prior to Termination of
Service, and the Director's employment is terminated because of such
disability, he shall immediately begin receiving the benefits in
Subparagraph II (A) above. Such benefit shall begin without regard to
the Director's Normal Retirement Age and the Director shall be one
hundred percent (100%) vested in the entire benefit amount. The term
"disability" shall mean the complete inability of the Director to
perform the Director's duties as determined by an independent
physician selected with the approval of the Bank and the Director.
4
<PAGE>
F. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided under
this Agreement.
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The
Directors, their beneficiaries, or any successor in interest shall be and
remain simply a general creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the extent, nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in part,
through the purchase of life insurance, mutual funds, disability policies
or annuities, the Bank reserves the absolute right, in its sole discretion,
to terminate such funding at any time, in whole or in part. At no time
shall any Director be deemed to have any lien nor right, title or interest
in or to any specific funding investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Director, then the Director shall assist the
Bank by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
IV. CHANGE OF CONTROL
Upon a Change of Control [as defined in Subparagraph I (I) herein], if the
Director is subsequently terminated, except for cause, then the Director
shall receive the benefits promised in this Agreement upon attaining Normal
Retirement Age, as if the Director had been continuously serving the Bank
until Normal Retirement Age. The Director will also remain eligible for all
promised death benefits in this Agreement. In addition, no sale, merger or
consolidation of the Bank shall take place unless the new or surviving
entity expressly acknowledges the obligations under this Agreement and
agrees to abide by its terms.
5
<PAGE>
This Director's Supplemental Retirement Program adopted this 30th day of
August, 1999.
AMERIANA BANK OF INDIANA, F.S.B.
New Castle, Indiana
/s/ Paul W. Prior
---------------------------------------
Chairman of the Board
/s/ Harry J. Bailey
---------------------------------------
President
6
<PAGE>
AGREEMENT FOR CONSULTING SERVICES
THIS AGREEMENT made and entered into this 30th day of August, 1999, by and
between Ameriana Bank of Indiana, F.S.B. (hereafter the "Bank") and Paul W.
Prior (hereafter the "Consultant").
WITNESSETH:
WHEREAS, it is the consensus of the Board of Directors that the
Consultant's services to the Bank in the past have been of exceptional merit and
have constituted an invaluable contribution to the general welfare of the Bank,
and have brought it to its present status of operating efficiency and its
present position; and,
WHEREAS, the experience of the Consultant, his knowledge of the affairs of
the Bank, his reputation and contacts in the industry are so valuable that
assurance of his continued services is essential for the future growth and
profitability, and it is in the best interest of the Bank to arrange terms of
continued service for the Consultant so as to reasonably assure his remaining
availability to the Bank as a Consultant after his retirement and,
WHEREAS, the Consultant is willing to continue to provide his consulting
services to the Bank provided the Bank agrees to pay to him in accordance with
the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of services performed in the past and to be
performed in the future as well as of the mutual promises and convenience herein
contained, it is agreed as follows:
ARTICLE I
1.1 It is mutually agreed that during the three (3) year period following his
retirement from active service as a director of the Bank, the Consultant
shall, at the request of the Bank, be available at reasonable times and
places as may be mutually agreed upon, to render services to the senior
management and board of directors of the Bank at its principal office in an
advisory or consulting capacity.
1.2 For said services, the Bank shall pay the consultant the annual sum of
nineteen thousand eight hundred and no/100ths dollars ($19,800.00).
<PAGE>
1.3 The consultant will keep himself informed concerning the affairs of the
Bank through reports, which the Bank will supply, and such other means as
may be agreed upon. The Consultant shall not be required to travel from
whatever place he may then be living or staying for the purposes of such
consultation unless all expenses incurred by him shall be paid by the Bank.
1.4 In furnishing such consultative services, the Consultant shall not be an
employee of the Bank, but shall act in the capacity of an independent
contractor.
ARTICLE II
2.1 During the said three (3) years following retirement, the Consultant shall
not become the owner of, nor engage, directly or indirectly, in any
business which is substantially similar to the business of the Bank, either
as a partner, stockholder, officer, director, employee or otherwise, within
an area of one hundred (100) miles from the Bank's principal location,
unless the Bank has first consented in writing thereto.
2.2 The payments provided for herein are conditioned upon the consultant
fulfilling the foregoing requirements and, in the event the consultant
shall at any time materially breach any of the foregoing requirements, the
Board of Directors of the Bank may, by a Resolution, at any regular or
special meeting, suspend or eliminate payment during the period of such
breach. What constitutes a material breach shall be determined at the
discretion of the Board of Directors.
ARTICLE III
3.1 The Bank shall not merge or consolidate into or with another corporation,
or reorganize or sell substantially all of its assets to another
corporation, firm, or person unless said entity agrees to assume and
discharge the obligations of the Bank under this Agreement.
3.2 The Agreement shall be binding upon and inure to the benefit of the
Consultant and the Bank, and any successor organization which shall succeed
to substantially all of its assets and business.
ARTICLE IV
During the lifetime of the consultant, this Agreement may be amended or
revoked at any time, in whole or in part, by mutual agreement of the Parties.
<PAGE>
ARTICLE V
Any notice, consent or demand required or permitted to be given under the
provisions of this Agreement shall be in writing, and shall be signed by the
party giving or making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail, postage
prepaid, addressed to such party's last known address as shown on the records of
the Bank. The date of such mailing shall be deemed the date of notice, consent
or demand.
ARTICLE VI
This Agreement shall be governed by the laws of the State of Indiana. This
agreement is solely between the Bank and the Consultant. This Agreement shall be
binding upon the designated recipients, beneficiaries, heirs, executors and
administrators of the Consultant and upon the successors and assigns of the
Bank.
ATTEST:
/s/ Davena K. Littrell By: /s/ Harry J. Bailey
- ----------------------------- ---------------------------------
Title: President
--------------------------
/s/ Davena K. Littrell /s/ Paul W. Prior
- ----------------------------- ---------------------------------
<PAGE>
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Southland life Insurance Company
Policy Number: 0600084671
Bank: Ameriana Bank of Indiana, F.S.B.
Insured: Paul W. Prior
Relationship of Insured to Bank: Director
The respective rights and duties of the Bank and the Insured in the above-
referenced policy shall be pursuant to the terms set forth below:
1. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw on the
policy cash values. Where the Bank and the Insured (or assignee, with the
consent of the Insured) mutually agree to exercise the right to increase
the coverage under the subject Split Dollar policy, then, in such event,
the rights, duties and benefits of the parties to such increased coverage
shall continue to be subject to the terms of this Agreement.
<PAGE>
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive the Insured's share of the proceeds
payable upon the death of the Insured, and to elect and change a payment
option for such beneficiary, subject to any right or interest the Bank may
have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in force.
22. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank (or
its administrator) will report to the Insured the amount of imputed income
each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraphs VII and IX herein, the division of the death proceeds
of the policy is as follows:
A. Should the Insured be employed by the Bank, retired from the Bank, or
terminated from the Bank due to disability, at the time of his or her
death, the Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty percent
(80%) of the net at risk insurance portion of the proceeds. The net at
risk insurance portion is the total proceeds less the cash value of
the policy.
B. Should the Insured not be employed by the Bank at the time of his or
her death, the Insured's beneficiary(ies), designated in accordance
with Paragraph III, shall be entitled to the following percentage of
the proceeds described in Subparagraph VI (A) hereinabove that
corresponds to the number of full years the Insured has been employed
with the Bank since the date of first employment:
Total Years of
Employment
with the Bank Vested
------------- ------
1 or more 10% per year
(to a maximum of 100%)
<PAGE>
C. The Bank shall be entitled to the remainder of such proceeds.
D. The Bank and the Insured (or assignees) shall share in any interest
due on the death proceeds on a pro rata basis as the proceeds due
each respectively bears to the total proceeds, excluding any such
interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's
cash value, as that term is defined in the policy contract, less any
policy loans and unpaid interest or cash withdrawals previously incurred
by the Bank and any applicable surrender charges. Such cash value shall be
determined as of the date of surrender or death as the case may be.
VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits,
on expiration of the deferment period, shall be determined under the
provisions of this Agreement by regarding such endowment proceeds or the
commuted value of such annuity benefits as the policy's cash value. Such
endowment proceeds or annuity benefits shall be considered to be like
death proceeds for the purposes of division under this Agreement.
IX. TERMINATION OF AGREEMENT
This Agreement shall terminate if the Insured shall be discharged from
employment with the Bank for cause. The term "for cause" shall mean gross
negligence or gross neglect or the commission of a felony or gross
misdemeanor involving moral turpitude, fraud, dishonesty or willful
violation of any law that results in any adverse effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a forty-five
(45) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment referred to hereinabove shall
be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement; or
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
<PAGE>
If, within said forty-five (45) day period, the Insured fails to exercise
said option, fails to procure the entire aforestated cash payment, or
dies, then the option shall terminate, and the Insured (or assignee)
agrees that all of the Insured's rights, interest and claims in the policy
shall terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or interest
in the subject policy nor any rights, options, privileges or duties
created under this Agreement.
XI. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Ameriana Bank of Indiana, F.S.B. is hereby designated the "Named
Fiduciary" until resignation or removal by the Board of Directors. As
Named Fiduciary, the Bank shall be responsible for the management,
control, and administration of this Split Dollar Plan as established
herein. The Named Fiduciary may allocate to others certain aspects of the
management and operation responsibilities of the Plan, including the
employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIII. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XIV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the insurance policy, they should contact the office named
above, and they will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named Fiduciary
what further requirements are necessary.
<PAGE>
The Insurer will evaluate and make a decision as to payment. If the claim
is payable, a benefit check will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, they
should contact the office named above and they will assist in making
inquiry to the Insurer. All objections to the Insurer's actions should be
in writing and submitted to the office named above for transmittal to the
Insurer.
XV. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVI. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as herein developed upon receiving an executed
copy of this Agreement. Payment or other performance in accordance with the
policy provisions shall fully discharge the Insurer for any and all
liability.
Executed at New Castle, Indiana this 30th day of August, 1999.
AMERIANA BANK OF INDIANA, F.S.B.
New Castle, Indiana
/s/ R. Scott Hayes By: /s/ Harry J. Bailey, President
- ------------------ ---------------------------------------
Witness Title
/s/ R. Scott Hayes /s/ Paul W. Prior
- ------------------ -------------------------------------------
Witness Paul W. Prior
<PAGE>
EXHIBIT 10.7
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT
This Agreement, made and entered into this 6th day of May, 1999, by and
between Ameriana Bank of Indiana, FSB, a Bank organized and existing under the
laws of the State of Indiana, hereinafter referred to as "the Bank", and Harry
J. Bailey, a Key Employee and the Executive of the Bank, hereinafter referred to
as "the Executive".
The Executive has been in the employ of the Bank and has now and for years
past faithfully served the Bank. It is the consensus of the Board of Directors
of the Bank (the Board) that the Executive's services have been of exceptional
merit, in excess of the compensation paid and an invaluable contribution to the
profits and position of the Bank in its field of activity. The Board further
believes that the Executive's experience, knowledge of corporate affairs,
reputation and industry contacts are of such value and his continued services
are so essential to the Bank's future growth and profits that it would suffer
severe financial loss should the Executive terminate his services.
Accordingly, it is the desire of the Bank and the Executive to enter into
this Agreement under which the Bank will agree to make certain payments to the
Executive upon the Executive's retirement and, alternatively, to the Executive's
beneficiary(ies) in the event of the Executive's premature death while employed
by the Bank.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive, as a member of a select group of management or highly-compensated
employees of the Bank for purposes of the Employee Retirement Security Act of
1974 (ERISA). The Executive is fully advised of the Bank's financial status and
has been fully advised to his satisfaction regarding the design and operation of
this benefit plan.
Therefore, in consideration of the Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Executive, agree as follows:
I. DEFINITIONS
A. Effective Date:
--------------
The Effective Date of this Agreement shall be February 23, l999.
B. Plan Year:
----------
Any reference to "Plan Year" shall mean a calendar year from January 1
to December 31. In the year of implementation, the term "Plan Year"
shall mean the period from the effective date to December 31 of the
year of the effective date.
<PAGE>
C. Retirement Date:
----------------
Retirement Date shall mean retirement from service with the Bank which
becomes effective on the first day of the calendar month following the
month in which the Executive reaches the Executive's sixty-fifth (65)
birthday, or such earlier or later date as the Board may approve as
the Executive's Retirement Date.
D. Termination of Service:
----------------------
Termination of Service shall mean voluntary resignation of service by
the Executive or the Bank's discharge of the Executive without cause
("cause" defined in Subparagraph III (D) hereinafter), prior to the
Normal Retirement Age (described in Subparagraph I (J) hereinafter).
E. Pre-Retirement Account:
-----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Executive.
Prior to termination of service or the Executive's retirement, such
liability reserve account shall be increased or decreased each Plan
Year (including the Plan Year in which the Executive ceases to be
employed by the Bank) by an amount equal to the annual earnings or
loss for that Plan Year determined by the Index (described in
Subparagraph I (G) hereinafter), less the Cost of Funds Expense for
that Plan Year (described in Subparagraph I (H) hereinafter).
F. Index Retirement Benefit:
-------------------------
The Index Retirement Benefit for the Executive for any year shall be
equal to the excess of the annual earnings (if any) determined by the
Index [Subparagraph I (G)] for that Plan Year over the Cost of Funds
Expense [Subparagraph I (H)] for that Plan Year.
G. Index:
------
The Index for any Plan Year shall be the aggregate annual after-tax
income from the life insurance contracts described hereinafter as
defined by FASB Technical Bulletin 85-4. This Index shall be applied
as if such insurance contracts were purchased on the effective date
hereof.
2
<PAGE>
Insurance Company: Alexander Hamilton
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan IV
Insured's Age and Sex: 56, Male
Riders: None
Ratings: According to health of proposed insured
Option: Level Death Benefit
Face Amount: $2,298,000
Premiums Paid: $1,410,000
Number of premium Payments: One
Assumed Purchase Date: February 23, 1999
Insurance Company: Jefferson-Pilot
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan IV
Insured's Age and Sex: 56, Male
Riders: None
Ratings: According to health of proposed insured
Option: Level Death Benefit
Face Amount: $2,298,000
Premiums Paid: $1,410,000
Number of premium Payments: One
Assumed Purchase Date: February 23, 1999
If such contracts of life insurance are actually purchased by the Bank
then the actual policies as of the dates they were purchased shall be
used in calculations under this Agreement. If such contracts of life
insurance are not purchased or are subsequently surrendered or lapsed,
then the Bank shall receive annual policy illustrations that assume
the above-described policies were purchased from the above named
insurance company(ies) on the Effective Date from which the increase
in policy value will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are merely
for purposes of calculating a benefit. The Bank has no obligation to
purchase such life insurance and, if purchased, the Executive and the
Executive's beneficiary(ies) shall have no ownership interest in such
policy and shall always have no greater interest in the benefits under
this Agreement than that of an unsecured general creditor of the Bank.
H. Cost of Funds Expense:
----------------------
The Cost of Funds Expense for any Plan Year shall be calculated by
taking the
3
<PAGE>
sum of the amount of premiums set forth in the Indexed policies
described above plus the amount of any after-tax benefits paid to the
Executive pursuant to this Agreement (Paragraph III hereinafter) plus
the amount of all previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average after-tax cost of funds as
published in the third quarter Office of Thrift Supervision Annual
Thrift Financial Report of the Ameriana Bank of Indiana, FSB.
I. Change of Control:
-----------------
A Change of Control shall be deemed to have occurred if, at any time
during the period of employment of the Executive, more than twenty
five percent (25%) of the Parent's or Bank's outstanding Common Stock.
or equivalent in voting power of any class or classes of outstanding
securities of the Parent or Bank ordinarily entitled to vote in
elections of directors of Parent or Bank, shall be acquired by any
other corporations or other person or group. "Group" shall mean
persons who act in concert as described in Section 13 (d) of the
Securities Exchange Act of 1934, as amended.
J. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the Executive
attains age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the Executive,
nor shall any conditions herein create specific employment rights to the
Executive nor limit the right of the Employer to discharge the Executive
with or without cause. In a similar fashion, no provision shall limit the
Executive's rights to voluntarily sever his employment at any time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to effect nor
limit the Executive's current or prospective salary increases, cash bonuses
or profit-sharing distributions or credits.
A. Retirement Benefits:
--------------------
Should the Executive continue to be employed by the Bank until "Normal
Retirement Age" defined in Subparagraph I (J), the Executive shall be
entitled to receive the balance in his Pre-Retirement Account [as
defined in Subparagraph I
4
<PAGE>
(E)] in ten (10) equal annual installments commencing thirty (30) days
following the Executive's Retirement Date. In addition to these
payments, commencing with the Plan Year in which the Executive attains
the Executive's Retirement Date, the Index Retirement Benefit (as
defined in Subparagraph I (F) above) for each year shall be paid to
the Executive until the Executive's death.
B. Termination of Service:
-----------------------
Subject to Subparagraph III (D) hereinafter, should the Executive
suffer a Termination of Service [defined in Subparagraph I (D)], the
Executive shall be entitled to receive five percent (5%) times the
number of full years the Executive has served the Bank from the
Executive's fifth anniversary of service from the Effective Date of
this Agreement (to a maximum of 100%), times the balance in the
Pre-Retirement Account paid over ten (10) years in equal installments
commencing at the Normal Retirement Age [Subparagraph I (J)]. In
addition to these payments and commencing in the Plan Year in which
the Executive attains Normal Retirement Age, five percent (5%) times
the number of full years the Executive has served the Bank from the
Executive's fifth anniversary of service from the Effective Date of
this Agreement (to a maximum of 100%), times the Index Retirement
Benefit for each year shall be paid to the Executive until the
Executive's death.
C. Death:
-----
Should the Executive die prior to having received the full balance of
the Pre-Retirement Account, the unpaid balance of the Pre-Retirement
Account shall be paid in a lump sum to the beneficiary selected by the
Executive and filed with the Bank. In the absence of or a failure to
designate a beneficiary, the unpaid balance shall be paid in a lump
sum to the personal representative of the Executive's estate.
D. Discharge for Cause and Termination of Service:
-----------------------------------------------
Should the Executive be discharged prior to five (5) full years of
employment from the Effective Date of this Agreement or be discharged
for cause at any time, all Benefits under this Agreement shall be
forfeited.
A termination for "cause" shall include termination because of the
Executive'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, or material breach of any provision of
this Agreement.
5
<PAGE>
E. Disability Benefit:
------------------
In the event the Executive becomes disabled prior to Termination of
Service, and the Executive's employment is terminated because of such
disability, he shall immediately begin receiving the benefits in
Subparagraph III (A) above. Such benefit shall begin without regard to
the Executive's Normal Retirement Age and the Executive shall be one
hundred percent (100%) vested in the entire benefit amount. The term
"disability" shall mean the complete inability of the Executive to
perform the Executive's duties as determined by an independent
physician selected with the approval of the Bank and the Executive.
F. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided under
this Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The
Executive, the Executive's beneficiary(ies) or any successor in interest to
the Executive shall be and remain simply a general creditor of the Bank in
the same manner as any other creditor having a general claim for matured
and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in part,
through the purchase of life insurance, mutual funds, disability policies
or annuities, the Bank reserves the absolute right, in its sole discretion,
to terminate such funding at any time, in whole or in part. At no time
shall the Executive be deemed to have any lien or right, title or interest
in or to any specific funding investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist the
Bank by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL AND COVENANT NOT TO COMPETE
(i) Change of Control:
-----------------
Upon a Change of Control (as defined in Subparagraph I (I) herein), if
the Executive's employment is subsequently terminated, except for
cause, or the
6
<PAGE>
present capacity or circumstances in which the Executive is employed
is changed or is reduced the Executive's responsibilities or authority
or compensation or other benefits provided under this Agreement
without the Executive's written consent, then the Executive shall
receive the benefits promised in this Agreement upon attaining Normal
Retirement Age, as if the Executive had been continuously employed by
the Bank until the Executive's Normal Retirement Age. The Executive
will also remain eligible for all promised death benefits in this
Agreement. In addition, no sale, merger or consolidation of the Bank
shall take place unless the new or surviving entity expressly
acknowledges the obligations under this Agreement and agrees to abide
by its terms.
(ii) Covenant Not to Compete:
-----------------------
Executive agrees during the term hereof and for five (5) years after
the termination of this Agreement that he will not directly or
indirectly engage in or become an owner, agent, officer, director or
shareholder, as defined hereinafter, of any business which competes
with any of the businesses conducted by Employer, Ameriana Bancorp or
any of the subsidiaries of either in any of the following states,
to-wit: Indiana, Ohio, Kentucky, Illinois, and/or Michigan. Employer
and Employee agree that the term of this Covenant against Competition
and the geographical area described here are reasonable, given the
nature of the businesses being conducted by Employer, its parent and
their subsidiaries, and given the plans for the conduct of business
which are being made by Employer in its strategic plans. In the event
Executive breaches this provision, Employer may cancel all benefits
provided herein upon giving Executive twenty-one (21) days written
notice and an opportunity to cure said breach. For purposes of this
paragraph, the Executive shall be deemed a shareholder if the
Executive acquires five percent (5%) or more of any publicly traded or
privately held entity.
Vl. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Executive, his/her surviving spouse nor any other
beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify
or otherwise encumber in advance any of the benefits payable hereunder
nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the
Executive or the Executive's beneficiary(ies), nor be transferable by
operation of law in the event of bankruptcy, insolvency or otherwise.
In the event the Executive or any beneficiary attempts assignment,
commutation, hypothecation, transfer or disposal of the benefits
hereunder, the Bank's liabilities shall forthwith cease and terminate.
7
<PAGE>
B. Binding Obligation of Bank and any Successor in Interest:
--------------------------------------------------------
The Bank expressly agrees that it shall not merge or consolidate into
or with another bank or sell substantially all of its assets to
another bank, firm or person until such bank, firm or person expressly
agrees, in writing, to assume and discharge the duties and obligations
of the Bank under this Agreement. This Agreement shall be binding upon
the parties hereto, their successors, beneficiary(ies), heirs and
personal representatives.
C. Revocation:
-----------
It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written assent
of the Executive and the Bank.
D. Gender:
-------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
----------------------------------
Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or
non-qualified pension, profit-sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part
of the Bank's existing or future compensation structure.
F. Headings:
---------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed by
the laws of the State of Indiana.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this Plan shall be
Ameriana Bank of Indiana, FSB until its removal by the Board. As Named
Fiduciary and
8
<PAGE>
Administrator, the Bank shall be responsible for the management,
control and administration of the Salary Continuation Agreement as
established herein. The Named Fiduciary may delegate to others certain
aspects of the management and operation responsibilities of the plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Executive (or to his beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made
to the Plan Administrator named above within ninety (90) days from the
date payments are refused. The Plan Administrator shall review the
written claim and if the claim is denied, in whole or in part, they
shall provide in writing within ninety (90) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based and any
additional material or information necessary to perfect the claim.
Such written notice shall further indicate the additional steps to be
taken by claimants if a further review of the claim denial is desired.
A claim shall be deemed denied if the Plan Administrator fails to take
any action within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first claim
denial. Claimants may review this Agreement or any documents relating
thereto and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Plan Administrator shall then
review the second claim and provide a written decision within ninety
(90) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is
based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the
dispute to a Board of Arbitration for final arbitration. Said Board
shall consist of one member selected by the claimant, one member
selected by the Bank, and the third member selected by the first two
members. The Board shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and their heirs,
personal representatives, successors and assigns shall be bound by the
decision of such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the Executive
"for cause", such dispute shall likewise be submitted to arbitration
as above described and the
9
<PAGE>
parties hereto agree to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the 6th day of May,
1999 and that, upon execution, each has received a conforming copy.
AMERIANA BANK OF
INDIANA, FSB
New Castle, Indiana
/s/ Nancy A. Rodgers By: /s/ Paul W. Prior
- ----------------------------- ---------------------------------
Witness Title
/s/ Davena K, Littrell /s/ Harry J. Bailey
- ----------------------------- ---------------------------------
Witness Harry J. Bailey
<PAGE>
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Alexander Hamilton Life Insurance Company
Jefferson-Pilot Life Insurance Company
Policy Number: AH5052474
JP5058508
Bank: Ameriana Bank of Indiana, FSB
Insured: Harry J. Bailey
Relationship of Insured to Bank: Executive
The respective rights and duties of the Bank and the Insured in the above-
referenced policy shall be pursuant to the terms set forth below:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of
the Insured all in accordance with this Agreement. The Bank alone may, to
the extent of its interest, exercise the right to borrow or withdraw on the
policy cash values. Where the Bank and the Insured (or assignee, with the
consent of the Insured) mutually agree to exercise the right to increase
the coverage under the subject Split Dollar policy, then, in such event,
the rights, duties and benefits of the parties to such increased coverage
shall continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive the Insured's share of the proceeds
payable upon the death of the Insured, and to elect and change a payment
option for such beneficiary, subject to any right or interest the Bank may
have in such proceeds, as provided in this Agreement.
<PAGE>
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank (or
its administrator) will report to the Insured the amount of imputed income
each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
policy is as follows:
A. Should the Insured be employed by the Bank, retired from the Bank, or
from the Bank due to disability at the time of his or her death the
Insured's beneficiary(ies), designated in accordance with Paragraph
III, shall be entitled to an amount equal to eighty percent (80%) of
the net at risk insurance portion of the proceeds. The net at risk
insurance portion is the total proceeds less the cash value of the
policy.
B. Should the Insured not be employed by the Bank at the time of his or
her death, the Insured's beneficiary(ies), designated in accordance
with Paragraph III, shall be entitled to the following percentage of
the proceeds described in Subparagraph VI (A) hereinabove that
corresponds to the of full years the Insured has been employed with
the Bank from the date of this Agreement:
Total Years
of Employment
with the Bank Vested
--------------- ------
0 -4 0%
5 or more 5% per year (to a maximum
of 100%)
C. The Bank shall be entitled to the remainder of such proceeds.
D. The Bank and the Insured (or assignees) shall share in any interest
due on the death proceeds on a pro rata basis as the proceeds due each
respectively bears to the total proceeds, excluding any such interest.
2
<PAGE>
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's
cash value, as that term is defined in the policy contract, less any
policy loans and unpaid interest or cash withdrawals previously incurred
by the Bank and any applicable surrender charges. Such cash value shall be
determined as of the date of surrender or death as the case may be.
VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits,
on expiration of the deferment period, shall be determined under the
provisions of this Agreement by regarding such endowment proceeds or the
commuted value of such annuity benefits as the policy's cash value. Such
endowment proceeds or annuity benefits shall be considered to be like
death proceeds for the purposes of division under this Agreement.
IX. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following:
1. The Insured shall leave the employment of the Bank (voluntarily or
involuntarily) prior to five (5) full years of employment with the
Bank from the date of this Agreement, or
2. The Insured shall be discharged from employment with the Bank for
cause. A for "cause" shall include termination because of the
Executive'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, or material breach of any provision of
this Agreement.
Upon such termination, the Insured (or assignee) shall have a forty-five
(45) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment referred to hereinabove shall
be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement; or
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
3
<PAGE>
If, within said forty-five (45) day period, the Insured fails to exercise
said option, fails to procure the entire aforestated cash payment, or
dies, then the option shall terminate, and the Insured (or assignee)
agrees that all of the Insured's rights, interest and claims in the policy
shall terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or interest
in the subject policy nor any rights, options, privileges or duties
created under this Agreement.
XI. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Ameriana Bank of Indiana, FSB is hereby designated the "Named Fiduciary"
until resignation or removal by the Board of Directors. As Named
Fiduciary, the Bank shall be responsible for the management, control, and
administration of this Split Dollar Plan as established herein. The Named
Fiduciary may allocate to others certain aspects of the management and
operation responsibilities of the Plan, including the employment of
advisors and the delegation of any ministerial duties to qualified
individuals.
XIII. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XIV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the insurance policy, they should contact the office named
above, and they will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named Fiduciary
what further requirements are necessary. The Insurer will evaluate and
make a decision as to payment. If the claim is payable, a benefit check
will be issued to the Named Fiduciary.
4
<PAGE>
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, they
should contact the office named above and they will assist in making
inquiry to the Insurer. All objections to the Insurer's actions should be
in writing and submitted to the office named above for transmittal to the
Insurer.
XV. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVI. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will respect
the rights of the parties as herein developed upon receiving an executed
copy of this Agreement. Payment or other performance in accordance with the
policy provisions shall fully discharge the Insurer for any and all
liability.
Executed at New Castle, Indiana this 6th day of May, 1999.
AMERIANA BANK OF
INDIANA, FSB
New Castle, Indiana
/s/ Nancy A. Rodgers By:/s/Paul W. Prior
- ------------------------ --------------------------
Witness Title
/s/ Davena K. Littrell /s/ Harry J. Bailey
- ------------------------ ---------------------------
Witness Harry J. Bailey
5
<PAGE>
EXHIBIT 13
SELECTED FINANCIAL DATA
Ameriana Bancorp and Subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
At December 31
Summary of Financial Condition 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 14,637 $ 7,545 $ 5,066 $ 4,939 $ 4,474
Loans and mortgage-backed securities 340,448 286,212 324,386 321,142 311,007
Interest-bearing deposits, investments and
other interest-earning assets 98,871 96,662 45,537 54,749 27,669
Other assets 32,393 15,299 15,879 15,925 13,663
- ----------------------------------------------------------------------------------------------------------------------
Total assets $486,349 $405,718 $390,868 $396,755 $356,813
- ----------------------------------------------------------------------------------------------------------------------
Deposits $355,759 $333,989 $322,217 $318,705 $290,785
Other liabilities 90,561 26,380 24,216 34,105 18,913
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 446,320 360,369 346,433 352,810 309,698
- ----------------------------------------------------------------------------------------------------------------------
Shareholders' equity 40,029 45,349 44,435 43,945 47,115
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $486,349 $405,718 $390,868 $396,755 $356,813
======================================================================================================================
<CAPTION>
Year Ended December 31
Summary of Earnings 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 29,083 $ 28,301 $ 29,332 $ 28,567 $ 25,608
Interest expense 16,749 15,993 17,345 16,705 14,368
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 12,334 12,308 11,987 11,862 11,240
Provision for loan losses 328 159 242 66 117
Other income 3,302 3,429 2,864 2,433 2,214
Other expense 10,509 9,655 8,985 10,520 8,155
- ----------------------------------------------------------------------------------------------------------------------
Income before taxes 4,799 5,923 5,624 3,709 5,182
Income taxes 1,467 2,085 1,992 1,305 1,945
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 3,332 $ 3,838 $ 3,632 $ 2,404 $ 3,237
======================================================================================================================
Basic earnings per share (1) $ .98 $ 1.08 $ 1.02 $ .65 $ .84
Diluted earnings per share (1) $ .98 $ 1.06 $ 1.01 $ .65 $ .83
- ----------------------------------------------------------------------------------------------------------------------
Dividends declared per share (1) $ .60 $ .59 $ .56 $ .52 $ .44
- ----------------------------------------------------------------------------------------------------------------------
Book value per share (1) $ 12.72 $ 12.92 $ 12.49 $ 12.14 $ 12.13
======================================================================================================================
<CAPTION>
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------------
Other Selected Data 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets .77% .98% .92% .62% .93%
Return on average equity 7.60 8.48 8.28 5.39 7.00
Ratio of average equity to average assets 10.17 11.60 11.06 11.41 13.22
Dividend payout ratio (2) 61.22% 55.66% 55.45% 80.00% 53.01%
Number of full-service offices:
Ameriana Bank and Trust of Indiana 9 8 7 6 6
Ameriana Bank of Ohio, F.S.B. 3 3 1 1 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 total dividends per share declared and net income per share for
the year.
1
<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 and Trust of Indiana
("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 Company owns Indiana Title Insurance
Company, which sells title insurance and performs real estate closings. The
Company also owns Ameriana Insurance Agency, Inc., which operates a general
insurance agency in three locations. ABI has a brokerage operation through its
wholly owned subsidiary Ameriana Financial Services, Inc., which also owns a
partial interest in a life insurance company. ABO operates a brokerage operation
through its subsidiary Deer Park Services Corporation.
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. Levels of other income and operating expenses also significantly
affect net income.
Management believes that interest rate risk, i.e., the sensitivity of income
and net asset values to changes in interest rates, is one of the most
significant determinants of the Company's ability to generate future earnings.
Accordingly, the Company has implemented a long-range plan intended to minimize
the effect of changes in interest rates on operations. The asset and liability
management policies of the Company are designed to stabilize long-term net
interest income by managing the repricing terms, rates and relative amounts of
interest-earning assets and interest-bearing liabilities. The Company's
portfolio of investments increased $36,154,000 during 1999 compared to the
balance at year-end 1998. These increases were all in callable agency bonds and
the total portfolio averages a return of 6.85%. The Company's portfolio of loans
has increased $63,707,000 in 1999 and the percentage of fixed-rate to
adjustable-rate mortgage loans and short-term balloon loans has also increased
during 1999. The mix of fixed-rate to adjustable-rate and short-term balloon
loans was 36% to 56% at year-end 1999, compared to 33% to 53% at year-end 1998
and 23% to 62% at year-end 1997. This increase in fixed-rate loans was caused
by the low interest rates during the first few months of the year and the
customers satisfaction with the lower fixed-rate loans and some refinancing
of existing variable-rate loans. As rates increased during 1999, the real estate
loan demand decreased and the customers preference changed to the variable-rate
real estate loan. As of year-end almost all real estate loans were being made
with variable rates. The Company did retain some fifteen-year fixed-rate
mortgage loans but sold most fixed-rate loans. The decrease in the fixed-rate
loan demand and sales to the secondary market resulted in less gain on sales of
loans in 1999 versus 1998 and 1997. Total loan volume for 1999 was $192,155,000
and was composed of real estate secured loans totaling $150,879,000 and
$41,276,000 of other collateralized loans. The Company sold $27,277,000 of
fixed-rate loans in 1999 compared to $93,498,000 of fixed-rate loans in 1998 and
$29,862,000 in 1997. Loans at December 31, 1999 and 1998, respectively,
consisted of $315,937,000 and $244,095,000 that were real estate secured loans,
$24,860,000 and $29,016,000 that were installment loans $1,209,000 and $862,000
of commercial loans and $1,393,000 and $1,351,000 of loans secured by deposits.
2
<PAGE>
During the year all types of deposits, except for savings, increased. Demand
deposits increased $10,235,000 and 16.90% with the biggest increase being to the
money market rate accounts, while total certificates increased $17,052,000 and
7.48%, which was mostly due to increases of over $11 million in negotiated-rate
certificates primarily from local county governmental entities. Savings
deposits decreased $5,517,000 and 12.49% due mostly to movement to higher
interest-bearing demand deposit rate products. The overall change in deposits
was an increase of $21,770,000 and 6.52% at December 31, 1999, compared to
December 31, 1998. 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. These increases in deposits through purchases
were maintained and even increased during 1999. To fund the increase in the
assets, borrowings from the Federal Home Loan Bank increased $65,410,000 from
$17,101,000 at December 31, 1998. The Company's leveraging of the balance sheet
added to net income during 1999. 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 and ownership of a full-service general lines property and
casualty insurance agency, a title insurance company and brokerage services.
As noted above, loans sold decreased during 1999 over 1998 and servicing of
sold loans as of December 31, 1999 decreased to $154,000,000 from $181,000,000
and $117,000,000 at December 31, 1998 and 1997, respectively. ABO sold
$19,572,000 of loan servicing for a gain of $67,000 in May 1999. No sales or
purchases of loan servicing occurred in 1998. ABI sold $53,692,000 of loan
servicing rights for a gain of $96,000 during November 1997 and purchased
$25,941,000 of loan servicing rights in October 1997.
3
<PAGE>
Interest Sensitivity
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1999.
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
Months Months 1 to 3 3 to 5 5 to 10
Or Less To 1 Year Years Years Years
Rate Sensitive Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balloon and adjustable-
rate loans (1) $ 84,051 $ 28,743 $ 23,722 $ 40,191 $ 27,509
Fixed-rate loans (1) 32,963 186 2,209 3,972 13,620
Other loans 6,266 443 7,167 9,030 1,794
Other investments (2) 11,036 100 200 1,500 27,042
- ------------------------------------------------------------------------------------------------------------------------------------
Total 134,316 29,472 33,298 54,693 69,965
- ------------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits:
Certificate accounts 118,019 60,915 52,376 10,533 3,323
Money market
deposit accounts 38,079 - - - -
Passbook accounts 38,625 - - - -
NOW accounts 17,581 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 212,304 60,915 52,376 10,533 3,323
FHLB advances 73,800 - 421 16 8,274
- ------------------------------------------------------------------------------------------------------------------------------------
Total 286,104 60,915 52,797 10,549 11,597
- ------------------------------------------------------------------------------------------------------------------------------------
Asset/liability gap $(151,788) $ (31,443) $ (19,499) $ 44,144 $ 58,368
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Gap Information:
- ------------------------------------------------------------------------------------------------------------------------------------
Gap as a percentage
of total assets (31.21)% (6.46)% (4.01)% 9.07% 12.00%
Cumulative gap $(151,788) $(183,231) $(202,730) $(158,586) $(100,218)
Cumulative gap as
a percentage of
total assets (31.21)% (37.67%) (41.68)% (32.61)% (20.61)%
====================================================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
More
10 to 20 Than
Years 20 Years Total
Rate Sensitive Assets:
- ------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Balloon and adjustable-
rate loans (1) $ - $ - $204,216
Fixed-rate loans (1) 42,586 33,917 129,453
Other loans 207 - 24,907
Other investments (2) 58,993 - 98,871
- --------------------------------------------------------------------------------
Total 101,786 33,917 457,447
- --------------------------------------------------------------------------------
Rate Sensitive Liabilities:
- --------------------------------------------------------------------------------
Deposits:
Certificate accounts - - 245,166
Money market
deposit accounts - - 38,079
Passbook accounts - - 38,625
NOW accounts - - 17,581
- --------------------------------------------------------------------------------
Total Deposits - - 339,451
FHLB advances - - 82,511
- --------------------------------------------------------------------------------
Total - - 421,962
- --------------------------------------------------------------------------------
Asset/liability gap $101,786 $33,917 $ 35,485
- --------------------------------------------------------------------------------
Additional Gap Information:
- --------------------------------------------------------------------------------
Gap as a percentage
of total assets 20.93% 6.97%
Cumulative gap $ 1,568 $35,485
Cumulative gap as
a percentage of
total assets .32% 7.30%
================================================================================
</TABLE>
(1) Includes mortgage loans and mortgage-backed securities. Amounts are stated
without reductions of $18.128 million for deferred fees, unearned income,
undisbursed loan proceeds and allowance for loan losses.
(2) Includes Interest-bearing demand deposits, interest-bearing time deposits,
investment securities, and Federal Home Loan Bank stock.
- --------------------------------------------------------------------------------
4
<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 and ABO both file Schedule CMR. 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 that 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, 1999, 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 300 basis points. At June 30, 1999, 2% of the present value of ABO's
assets was $1.826 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 $5.823 million at December 31, 1999, ABO would have
been required to make a $1.999 million 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 10.75% from 14.17% which
is still 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)
+300 bp* $-1,154 $-8,875 -115% -1.09% -772 bp
+200 bp 1,898 -5,823 -75 1.73 -489 bp
+100 bp 4,913 -2,808 -36 4.34 -228 bp
0 bp 7,720 6.63
- -100 bp 9,967 2,247 +29 8.35 +172 bp
- -200 bp 10,887 3,167 +41 8.99 +236 bp
- -300 bp 11,547 3,827 +50 9.42 +279 bp
* basis points
5
<PAGE>
Also presented below, as of December 31, 1999, 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 300 basis points. At June 30, 1999, 2% of the
present value of ABI's assets was $6.477 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 $13.689 million at
December 31, 1999, ABI would have been required to make a $3.606 million
deduction from its total capital available to calculate its risk-based capital
requirement. This reduction in capital would reduce ABI's risk-based capital
ratio to 13.81% from 15.58%, which is still 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)
+300 bp* $ 9,544 $-20,773 -69% 2.80% -549 bp
+200 bp 16,628 -13,689 -45 4.76 -353 bp
+100 bp 23,691 -6,626 -22 6.62 -167 bp
0 bp 30,317 8.29
- -100 bp 35,897 5,580 +18 9.63 +134 bp
- -200 bp 36,485 6,168 +20 9.73 +144 bp
- -300 bp 36,874 6,557 +22 9.79 +150 bp
* basis points
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
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
6
<PAGE>
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
thousand deduction from its total capital available to calculate its risk-based
capital requirement. This reduction in capital would reduce ABI'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
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 that 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 interest-earning assets and the weighted average interest rates paid
on the Company's interest-bearing liabilities, together with the net yield on
interest-earning assets.
Year Ended December 31
----------------------
Weighted Average Yield: 1999 1998 1997
- ------------------------------------------------------------------------------
Loans and mortgage-backed securities 7.62% 7.99% 7.86%
Other interest-earning assets 6.41 6.08 6.90
All interest-earning assets 7.32 7.64 7.72
Weighted Average Cost:
- ------------------------------------------------------------------------------
Deposits 4.58 4.88 5.09
Federal Home Loan Bank advances 5.42 5.88 6.22
All interest-bearing liabilities 4.65 4.91 5.15
- ------------------------------------------------------------------------------
Interest Rate Spread (spread between weighted average
yield on all interest-earning assets and all
interest-bearing liabilities) 2.67 2.73 2.57
- ------------------------------------------------------------------------------
Net Yield (net interest income as a percentage of
average interest-earning assets) 3.10 3.32 3.16
- ------------------------------------------------------------------------------
7
<PAGE>
At December 31
--------------
Weighted Average Interest Rates: 1999 1998 1997
- ------------------------------------------------------------------------------
Loans and mortgage-backed securities 7.70% 7.88% 7.95%
Other interest-earning assets 6.75 5.72 6.56
Total interest-earning assets 7.49 7.36 7.77
Deposits 4.71 4.71 4.93
Federal Home Loan Bank advances 5.49 5.34 6.04
Total interest-bearing liabilities 4.86 4.74 4.99
Interest rate spread 2.63 2.62 2.78
- ------------------------------------------------------------------------------
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
l999 vs. l998 l998 vs. l997
- -------------------------------------------------------------------------------------------------------------
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 $ (350) $(1,047) $(1,397) $(1,790) $ 417 $(1,373)
Other interest-earning assets 1,952 227 2,179 820 (479) 341
- -------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,602 (820) 782 (970) (62) (1,032)
- -------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits 876 (947) (71) (188) (661) (849)
FHLB advances 889 (62) 827 (439) (64) (503)
- -------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,765 (1,009) 756 (627) (725) (1,352)
- -------------------------------------------------------------------------------------------------------------
Change in net interest income $ (163) $ 189 $ 26 $ (343) $ 663 $ 320
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Results of Operations
Net Interest Income: The Company's average portfolio balance of loan and
mortgage-backed securities decreased 14.63% to $299,223,000 for 1999, from
$303,666,000 for 1998. This average portfolio had decreased 6.22% for 1998 over
the $323,793,000 average for 1997. The ending balance of loans has been
$326,805,000, $263,097,000 and $294,133,000 for 1999, 1998 and 1997,
respectively. The ending balances for mortgage-backed securities has been
$14,970,000, $20,217,000 and $29,996,000 for 1999, 1998 and 1997, respectively.
Loan originations and purchases were down 1.84% to $192,155,000 in 1999
compared with $195,762,000 in 1998 and were up 55.79% in 1998 compared with
$125,659,000 in 1997. Fixed-rate mortgage loans in the amount of $27,277,000,
$93,498,000 and $29,862,000 were originated and sold into the secondary market
during 1999, 1998 and 1997, respectively. Purchased loans increased
substantially in 1999, totaling $60,355,000 versus $6,438,000 in 1998 and
$3,710,000 in 1997. The majority of the purchased loans were commercial
participations in loans from other financial institutions with commercial real
estate as collateral.
No purchases of mortgage-backed securities were made in 1999, 1998 or 1997 as
rates were not advantageous for long-term investments. All purchases in prior
years had been in the form of 15-year fixed-rate government agency insured
securities.
8
<PAGE>
Average interest-earning assets increased $27,383,000 or 7.40% to $397,568,000
in 1999 from $370,185,000 in 1998. The 1999 increase was in average other
interest-earning assets, mostly investment securities, as average loans and
mortgage-backed securities decreased 14.63% to $299,223,000 in 1999 from
$302,469,000 in 1998. Average interest-earning assets decreased $9,558,000 or
2.52% 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. Excess funds were used by the institutions during early 1999 to
purchase fixed-rate investments consisting of government agency bonds. The loan
demand increased during the year and the borrowings from the Federal Home Loan
Bank increased by the end of 1999. In 1998, ABO maintained borrowings from the
Federal Home Loan Bank and used the funds for leveraging assets, and the
Institutions took advantage of these borrowings and leveraged assets in 1997.
These borrowed funds were also 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 7.32% in
1999 and 7.64% in 1998 and 7.72% in 1997. Total interest income was $29,083,000,
$28,301,000 and $29,333,000 for 1999, 1998 and 1997, respectively. The $782,000
increase in interest income in 1999 were increases of $1,602,000 related to
volume increases reduced by $820,000 due to rate decreases while the $1,032,000
decrease in interest income in 1998 was $970,000 related to volume decreases and
$62,000 related to rate decreases.
Average interest-bearing liabilities increased $34,846,000 or 10.71% to
$360,266,000 in 1999 from $325,420,000 in 1998. The increase was composed of
average interest-bearing demand deposits increasing $17,708,000 while average
savings deposits decreased $3,909,000, average certificates of deposits
increased $4,726,000 and average borrowings from the Federal Home Loan Bank
increased $16,321,000. Average interest-bearing liabilities decreased
$11,149,000 in 1998 from $336,569,000 in 1997. The decrease was composed of
average interest-bearing demand deposits increasing $16,275,000 while average
savings deposits increased $217,000, average certificates of deposits decreasing
$20,229,000 and average borrowings from the Federal Home Loan Bank decreased
$7,412,000. Total interest expense was $16,749,000, $15,993,000 and $17,345,000
for 1999, 1998 and 1997, respectively. The $756,000 increase of interest expense
in 1999 was due to volume increases of $1,765,000 and rate decreases of
$1,009,000 while the $1,352,000 decrease in 1998 was due to volume decreases of
$627,000 and rate decreases of $725,000.
The net interest spread, which is the mathematical difference between the
yield on average interest-earning assets and cost of interest-bearing
liabilities, 2.67% in 1999, 2.73% in 1998 and 2.57% in 1997. The net yield,
which is interest income as percent of average earning assets, was 3.10% in
1999, 3.32% in 1998 and 3.16% in 1997.
Provision for Loan Losses: The provision for loan losses was $327,500 in 1999,
$159,000 in 1998 and $242,000 in 1997. The provision is the amount that is added
to the allowance for loan losses for charge-offs. The allowance for loan losses
was .47% of loans at December 31, 1999 and .49% of net loans at December 31,
1998, 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 $78,000, $138,000 and $182,000 for the years
1999, 1998 and 1997, respectively. Non-performing assets (e.g. real estate
owned, non-accrual loans and loans 90 days or more past due) were $1,196,000,
$881,000 and $1,162,000 at December 31, 1999, 1998 and 1997, respectively. The
1999 provision includes $172,000 for a non-performing loan which was acquired in
the Cardinal State Bank purchase. This loan was written-off during the first
quarter of 2000. 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 changes in loan charge-offs, non-performing loans, loan delinquencies,
economic conditions in the Company's lending area and loan growth or reduction
during each year.
Other Income: Other income was $3,302,000, $3,429,000 and $2,864,000 for 1999,
1998 and 1997, respectively. The 1999 gains on sale of loans and servicing
rights of $381,000 was significantly lower than the 1998 gains of $1,055,000 and
lower than the $597,000 in 1997. These changes are due to the difference in
demand for fixed-rate real estate loans and their sales to the secondary market.
The 1999 amount also included $67,000 from the sale of servicing by ABO, and
1997 included $96,000 from the sale of servicing by ABI. Operating losses
associated with the limited partnership amounted to $245,000 in 1999, $154,000
in 1998 and $164,000 in 1997. The Institutions invested in life insurance on
employees and directors which had a cash surrender value of $16,118,000 at
December 31, 1999. The majority of the policies were purchased during 1999 and,
accordingly, the income increase in cash surrender value of life insurance was
$447,000 in 1999 and
9
<PAGE>
$16,000 in both 1998 and 1997.
Other Expense: Operating expenses were $10,509,000, $9,655,000 and $8,985,000
for 1999, 1998 and 1997, respectively. The increase in 1999 was due to normal
increases and to additional expense of operating a new trust department,
commercial loan department and a new branch that ABI opened during December
1999. The 1999 expenses also included additional costs related to Year 2000
compliance. 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 the
Institutions, three computer conversions and, to a lesser degree, to Year 2000
compliance. The conversion of the Institutions to the same mainframe system has
provided for a reduction of data processing expense during 1999.
Income Tax Expense: Income tax expense was $1,467,000 in 1999, $2,085,000 in
1998 and $1,992,000 in 1997. The effective federal tax rate decreased to 30.6%
in 1999 from 35.2% in 1998 and 35.4% in 1997. The decrease in tax expense in
1999 is due to lower pretax income and to a lower effective tax rate due to the
nontaxable insurance income. The increase in taxes from 1997 to 1998 is due to
increased pretax income. The tax credits from the limited partnership were
$206,000, $212,000 and $183,000 during 1999, 1998 and 1997, respectively.
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, 1999, 1998 and l997 were 18.71%, 29.4% and
11.7%, respectively, for ABI and 14.08%, 17.65% and 6.6%, 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, 1999, the Company's commitments for loans in process totaled
$22,389,000. 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 small 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.
An amendment of the 1996 Stock Option Plan, which provides for the granting of
incentive and nonqualified stock options, was approved by the shareholders in
April 1998 and 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 9,235
shares in 1999, 29,768 shares in 1998 and 32,838 shares in 1997 were exercised.
See Note 11 to the consolidated financial statements for option activity and the
pro forma effect on net income.
In April 1999, the Company's Board of Directors approved an additional one-
year and $5,000,000 for the stock repurchase program. The stock repurchase
program, which began in July 1998, was a one-year repurchase program of
$5,000,000 to acquire up to 10% of the Company's outstanding common stock. The
Company repurchased 374,130 shares in 1999 and 201,388 shares in 1998 at an
aggregate cost of $6,747,000 and $3,358,000, respectively. In 1997, the Company
repurchased 91,525 shares under a previous repurchase program at a cost of
$1,311,000. In addition, the Company retired 173 shares at a cost of $3,000 for
fractional shares created by the 1998 stock split.
10
<PAGE>
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.
Current Accounting Issues
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in 1998 and becomes
effective for all fiscal years beginning after June 15, 2000. 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 will 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 became 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 be
accounted for under SFAS No. 134.
Year 2000 Issue
During 1998 and 1999, the Company spent many man-hours reviewing, testing and
remediating its computer systems, all hardware, processes and third-party
vendors for the effect that the millennium change might have on any computer
chips and computer programming. The time expended provided the Company with a
trouble-free transition from 1999 to 2000. There are certain dates in the future
that are estimated to provide additional problems, and the Company will continue
to monitor for any problems in the future. The external costs of the Year 2000
compliance was not significant, and the internal personnel costs associated with
Year 2000 compliance were not measured by the Company.
11
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------
Assets 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash on hand and in other institutions $ 14,636,884 $ 7,545,308
Interest-bearing demand deposits 5,295,715 38,005,929
Interest-bearing time deposits 1,499,000 3,487,000
Investment securities held to maturity (fair value of $81,481,000 and
$51,512,000) 87,735,008 51,581,077
Mortgage-backed securities held to maturity (fair value of $14,787,000
and $20,437,000) 14,970,002 20,217,346
Mortgage loans held for sale 207,400 4,181,256
Loans, net of allowance for loan losses of $1,534,278 and $1,284,286 325,270,461 261,813,134
Real estate owned 96,408
Premises and equipment 7,117,271 6,091,944
Stock in Federal Home Loan Bank 4,341,300 3,587,700
Mortgage servicing rights 910,273 1,076,948
Investments in unconsolidated affiliates 1,179,244 1,424,455
Intangible assets 1,852,360 2,057,464
Cash surrender value of life insurance 16,117,534 210,738
Other assets 5,216,968 4,341,456
- -------------------------------------------------------------------------------------------------------
Total assets $486,349,420 $405,718,163
========================================================================================================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------
Liabilities:
Deposits
Noninterest-bearing $ 16,308,154 $ 14,633,031
Interest-bearing 339,450,706 319,356,272
- -------------------------------------------------------------------------------------------------------
Total deposits 355,758,860 333,989,303
Advances from Federal Home Loan Bank 82,510,982 17,100,699
Drafts payable 3,901,316 4,353,792
Advances by borrowers for taxes and insurance 823,111 1,030,976
Other liabilities 3,326,611 3,894,245
- -------------------------------------------------------------------------------------------------------
Total liabilities 446,320,880 360,369,015
- -------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock (5,000,000 shares authorized; none issued)
Common stock ($1.00 par value; authorized 15,000,000 shares; issued
shares: 1999--3,145,791 and 1998--3,510,686) 3,145,791 3,510,686
Additional paid-in capital 492,226 6,775,114
Retained earnings--substantially restricted 36,390,523 35,063,348
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 40,028,540 45,349,148
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $486,349,420 $405,718,163
=======================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest on loans $21,703,270 $22,517,412 $23,234,010
Interest on mortgage-backed securities 1,079,649 1,662,731 2,318,561
Interest on investment securities 5,106,912 2,588,876 3,307,166
Other interest and dividend income 1,193,036 1,531,570 473,076
- -------------------------------------------------------------------------------------------------------------
Total interest income 29,082,867 28,300,589 29,332,813
- -------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 15,194,165 15,265,293 16,114,262
Interest on Federal Home Loan Bank advances 1,554,841 727,546 1,231,172
- -------------------------------------------------------------------------------------------------------------
Total interest expense 16,749,006 15,992,839 17,345,434
- -------------------------------------------------------------------------------------------------------------
Net Interest Income 12,333,861 12,307,750 11,987,379
Provision for loan losses 327,500 159,000 242,000
- -------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 12,006,361 12,148,750 11,745,379
- -------------------------------------------------------------------------------------------------------------
Other Income:
Net loan servicing fees 266,488 190,584 319,000
Other fees and service charges 1,066,827 911,384 702,046
Brokerage and insurance commissions 1,199,381 1,268,461 1,179,728
Net loss on investments in unconsolidated affiliates (191,559) (153,960) (130,351)
Gains on sales of loans and servicing rights 380,619 1,055,424 597,226
Increase in cash surrender value of life insurance 446,591 16,178 16,250
Other 133,692 140,814 179,930
- -------------------------------------------------------------------------------------------------------------
Total other income 3,302,039 3,428,885 2,863,829
- -------------------------------------------------------------------------------------------------------------
Other Expense:
Salaries and employee benefits 6,052,484 5,248,336 5,090,073
Net occupancy expense 1,465,263 1,366,579 1,280,703
Federal insurance premium 181,919 193,833 204,634
Data processing expense 275,276 389,126 325,327
Printing and office supplies 346,211 339,381 302,043
Other 2,188,301 2,117,470 1,782,069
- -------------------------------------------------------------------------------------------------------------
Total other expense 10,509,454 9,654,725 8,984,849
- -------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 4,798,946 5,922,910 5,624,359
Income taxes 1,466,951 2,084,530 1,992,490
- -------------------------------------------------------------------------------------------------------------
Net Income $ 3,331,995 $ 3,838,380 $ 3,631,869
=============================================================================================================
Basic Earnings Per Share $ .98 $ 1.08 $ 1.02
=============================================================================================================
Diluted Earnings Per Share $ .98 $ 1.06 $ 1.01
=============================================================================================================
Dividends Declared Per Share $ .60 $ .59 $ .56
=============================================================================================================
</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, 1997 $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
Net income -- -- 3,331,995 3,331,995
Dividends declared -- -- (2,004,820) (2,004,820)
Purchase of common stock (374,130) (6,372,553) -- (6,746,683)
Exercise of stock options 9,235 89,665 -- 98,900
- ----------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $3,145,791 $ 492,226 $36,390,523 $40,028,540
====================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,331,995 $ 3,838,380 $ 3,631,869
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans and real estate owned 349,100 191,000 242,000
Depreciation and amortization 573,786 695,678 631,108
Equity in loss of limited partnership 245,211 153,910 163,810
Mortgage servicing rights amortization 191,371 221,568 118,853
Goodwill amortization 190,410 148,588 28,320
Deferred income taxes 76,389 177,086 129,036
(Gains) losses on sales of real estate owned 4,607 (28,350) (25,202)
Increase in cash surrender value (446,591) (16,178) (16,250)
Mortgage loans originated for sale (23,303,462) (96,259,078) (30,534,904)
Proceeds from sale of mortgage loans 27,411,087 93,861,572 30,193,705
Gains on sale of loans and servicing rights (380,619) (1,055,424) (597,226)
Decrease (increase) in other assets (884,576) (172,157) 55,745
Increase (decrease) in drafts payable (452,476) 128,320 (332,206)
Increase (decrease) in other liabilities (793,935) (62,266) 823,068
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,112,297 1,822,649 4,511,726
- -------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- -------------------------------------------------------------------------------------------------------------------------------
Net change in interest-bearing time deposits 1,988,000 (3,487,000) --
Purchase of investment securities held to maturity (43,061,489) (82,193,490) (6,800,000)
Proceeds from maturity of securities held to maturity -- 5,000,000 --
Proceeds from calls of securities held to maturity 6,992,969 60,985,198 22,150,000
Principal collected on mortgage-backed securities held to maturity 5,151,322 9,628,554 8,423,491
Net change in loans (63,883,649) 45,177,038 (11,664,366)
Mortgage servicing rights purchased -- -- (247,442)
Proceeds from sales of mortgage servicing rights 246,807 -- 648,516
Proceeds from sales of real estate owned 139,400 244,608 156,400
Net purchases of premises and equipment (1,587,054) (212,566) (780,025)
Investment in unconsolidated affiliate -- -- 4,564
Cash received in acquisitions -- 19,607,676 --
Premiums paid on life insurance (15,461,000) -- --
Other investing activities (725,524) (141,420) (52,900)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (110,200,218) 54,608,598 11,838,238
- -------------------------------------------------------------------------------------------------------------------------------
Financing Activities
- -------------------------------------------------------------------------------------------------------------------------------
Net change in demand and passbook deposits 4,717,936 17,892,349 (392,297)
Net change in certificates of deposit 17,051,621 (40,013,911) 3,958,584
Advances from Federal Home Loan Bank 88,000,000 9,000,000 72,100,000
Repayment of Federal Home Loan Bank advances (22,589,717) (7,914,916) (82,632,988)
Proceeds from exercise of stock options 98,900 378,666 179,784
Purchase of common stock (6,746,683) (3,358,061) (1,311,214)
Cash dividends paid (2,062,774) (2,070,028) (1,986,793)
Payment for fractional shares -- (3,189) --
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 78,469,283 (26,089,090) (10,084,924)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (25,618,638) 30,342,157 6,265,040
Cash and cash equivalents at beginning of year 45,551,237 15,209,080 8,944,040
- -------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 19,932,599 $ 45,551,237 $ 15,209,080
===============================================================================================================================
</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 and Trust of Indiana ("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 the thrifts and other subsidiaries. The Company
provides various banking services and engages in loan servicing activities for
investors and operates in a single significant business segment. 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 1998 and 1997 amounts have
been made to conform with 1999 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 by 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, 1999, 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 Split: 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. Per share and shares outstanding amounts and stock option plan
data for all periods presented have been adjusted to give effect to the split.
<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 Cardinal 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 Cardinal and the Morristown branch have been
included since their acquisition date. Intangible assets are being amortized
over their estimated useful lives.
3. Investment Securities
Investment securities held to maturity at December 31, 1999, included
federal agencies at an amortized cost of $87,735,000 with a fair value of
approximately $81,481,000 and gross unrealized (losses) of $(6,254,000).
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.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities held to maturity at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------------------------------
Maturity Distribution at December 31, 1999:
<S> <C> <C>
Due in one through five years $ 1,700,000 $ 1,665,794
Due after five through ten years 27,041,954 25,638,107
Due after ten years 58,993,054 54,177,201
- --------------------------------------------------------------------------------------------------------
$87,735,008 $81,481,102
========================================================================================================
</TABLE>
Investment securities with a total amortized cost of $54,418,000 and
$15,000,000 were pledged at December 31, 1999 and 1998, to secure FHLB advances.
4. Loans and Mortgage-Backed Securities
Loans receivable consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Residential mortgage loans $284,351,425 $228,812,624
Commercial mortgage loans 30,733,671 15,281,926
Installment loans 25,712,301 29,015,602
Commercial loans 1,208,869 861,579
Loans secured by deposits 1,392,585 1,350,858
- ----------------------------------------------------------------------------------------------------------
343,398,851 275,322,589
- ----------------------------------------------------------------------------------------------------------
Deduct:
- ----------------------------------------------------------------------------------------------------------
Undisbursed loan proceeds 16,722,769 12,123,253
Deferred loan fees (costs), net (128,657) 101,916
Allowance for loan losses 1,534,278 1,284,286
- ----------------------------------------------------------------------------------------------------------
18,128,390 13,509,455
- ----------------------------------------------------------------------------------------------------------
$325,270,461 $261,813,134
==========================================================================================================
</TABLE>
Loans being serviced for investors, primarily the Federal Home Loan
Mortgage Corporation and Federal National Mortgage Association, by the Company
totaled approximately $154,000,000, $181,000,000 and $117,000,000 as of December
31, 1999, 1998 and 1997, 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, 1999 and 1998 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, 1999 or 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing rights:
Balance at beginning of year $1,076,948 $ 526,367 $ 780,770
Servicing rights capitalized 180,100 691,145 416,555
Servicing rights acquired in acquisition -- 81,004 --
Servicing rights sold (155,404) -- (552,105)
Amortization of servicing rights (191,371) (221,568) (118,853)
- -------------------------------------------------------------------------------------------------------
Balance at end of year $ 910,273 $1,076,948 $ 526,367
=======================================================================================================
</TABLE>
At December 31, 1999 and 1998, the Company had outstanding commitments to
originate loans of approximately $22,389,000 and $6,600,000, which were
primarily for adjustable-rate mortgages 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 $18,405,000 and
$19,335,000, 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 statements of condition.
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 creditworthiness 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, 1999 and 1998,
was $14,787,000 and $20,437,000, respectively. Gross unrealized gains and
(losses) on mortgage-backed securities at December 31, 1999 and 1998, were
$29,000 and $(212,000), and $259,000 and $(39,000), respectively. Mortgage-
backed securities with a total amortized cost of $7,119,000 and $4,861,000, were
pledged at December 31, 1999 and 1998, respectively, 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans:
Balance at beginning of year $1,284,286 $1,163,490 $1,103,513
Provision for losses 327,500 159,000 242,000
Increase from acquisition -- 100,000 --
Net charge-offs:
Charge-offs (98,284) (165,616) (200,242)
Recoveries 20,776 27,412 18,219
- --------------------------------------------------------------------------------------------------------
Net charge-offs (77,508) (138,204) (182,023)
- --------------------------------------------------------------------------------------------------------
Balance at end of year $1,534,278 $1,284,286 $1,163,490
========================================================================================================
Real estate owned:
Balance at beginning of year $ 32,000 $ -- $ --
Provision for losses 21,600 32,000 --
Net charge-offs:
Charge-offs (53,600) -- --
Recoveries -- -- --
- --------------------------------------------------------------------------------------------------------
Net charge-offs (53,600) -- --
- --------------------------------------------------------------------------------------------------------
Balance at end of year $ -- $ 32,000 $ --
========================================================================================================
</TABLE>
6. Premises and Equipment
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,372,595 $ 1,288,595
Land improvements 527,084 491,037
Office buildings 6,936,168 6,152,910
Furniture and equipment 4,217,991 3,621,326
Automobiles 112,584 121,914
- ----------------------------------------------------------------------------------------------------------
13,166,422 11,675,782
Less accumulated depreciation 6,049,151 5,583,838
- ----------------------------------------------------------------------------------------------------------
$ 7,117,271 $ 6,091,944
==========================================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
7. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates include an investment in a limited
partnership of $726,206 and $971,417 at December 31, 1999 and 1998. 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 $245,211, $153,960 and
$163,810 for 1999, 1998 and 1997 on its investment, and low income housing tax
credits of $205,857, $212,316 and $183,200. Available financial statements for
the partnership as of December 31, 1999 and 1998, reported total assets of
$15,664,000 and $19,575,000; total partners' equity of $12,336,000 and
$15,337,000 and for each of the three years in the period ended December 31,
1999, a net loss of $2,607,000, $2,700,000 and $2,786,000, 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, 1999, 1998 and
1997 were $53,652, $50 and $33,459, respectively. Commission income also
generated through this affiliate is included in Other Income.
8. Deposits
Deposits consist of the following:
- ----------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
Demand $ 71,932,666 $ 61,697,281
Savings 38,659,957 44,177,406
Certificates of $100,000 or more 40,044,201 28,153,275
Other certificates 205,122,036 199,961,341
- ----------------------------------------------------------------------------
$355,758,860 $333,989,303
============================================================================
Certificates maturing in years ending after December 31, 1999:
- ---------------------------------------------------------------------------
2000 $177,576,197
2001 45,539,972
2002 7,968,309
2003 9,004,247
2004 1,650,842
Thereafter 3,426,670
- ---------------------------------------------------------------------------
$245,166,237
===========================================================================
Interest paid on deposits approximated interest expense in 1999, 1998 and
1997.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
9. Borrowings
Borrowings at December 31, 1999 and 1998 totaling $82,510,982 and
$17,100,699 with a weighted average rate of 5.49% and 5.34%, respectively,
consist solely of Federal Home Loan Bank advances.
The advances are secured by a combination of first-mortgage loans in an
amount equal to at least 150% of the advances and/or mortgage-backed securities
and investment securities equal to the amount of the advance and using only 95%
of their book value adjusted for decreases in market value. Some advances are
subject to restrictions or penalties in the event of prepayment.
Interest paid on borrowings was $1,361,291, $721,779 and $1,245,589 for
1999, 1998 and 1997.
- -----------------------------------------------------------------------------
Maturities in years ending December 31:
2000 $75,257,800
2001 1,244,403
2002 1,003,552
2003 955,310
2004 909,570
Thereafter 3,140,347
- -----------------------------------------------------------------------------
$82,510,982
=============================================================================
10. Income Taxes
Significant components of the Company's deferred tax assets and liabilities are
as follows:
- -------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation $ 23,877 $ 13,750
General loan loss reserves 525,394 513,785
Other 126,539 80,830
675,810 608,365
- -------------------------------------------------------------------------------
Deferred tax liabilities:
FHLB stock dividends (362,729) (320,943)
Tax bad debt reserves (283,783) (326,098)
Purchase accounting adjustments (89,971) (92,761)
Deferred loan fees (120,267) (60,675)
Mortgage servicing rights (311,654) (347,674)
Other (174,219) (50,638)
- -------------------------------------------------------------------------------
(1,342,623) (1,198,789)
- -------------------------------------------------------------------------------
Net tax liabilities $ (666,813) $ (590,424)
===============================================================================
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The effective income tax rate on income from continuing operations is
reconciled to the statutory corporate tax rate as follows:
- -------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 4.4 4.7 4.5
Tax credits (4.3) (3.6) (3.3)
Cash surrender value of life insurance (3.2) (.1) (.1)
Other (.3) .2 .3
- -------------------------------------------------------------------------------
Effective tax rate 30.6% 35.2% 35.4%
===============================================================================
The provision for income taxes consists of the following:
- -------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Federal:
Current $1,093,809 $1,520,647 $1,497,023
Deferred 55,648 142,810 112,679
- -------------------------------------------------------------------------------
1,149,457 1,663,457 1,609,702
- -------------------------------------------------------------------------------
State:
Current 296,752 386,797 366,431
Deferred 20,742 34,276 16,357
- -------------------------------------------------------------------------------
317,494 421,073 382,788
- -------------------------------------------------------------------------------
$1,466,951 $2,084,530 $1,992,490
===============================================================================
The Company paid $1,749,000, $1,722,000 and $1,460,000 of state and federal
income taxes in 1999, 1998 and 1997, respectively.
11. Employee Benefits and Life Insurance
The Company is a participating employer in a multi-employer defined benefit
pension plan sponsored by the Pentegra Group 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 $39,300, $27,800 and $18,400 in 1999, 1998 and 1997,
respectively.
The Company approved arrangements that provide retirement and death
benefits to certain officers and directors. The benefits to be paid are being
accrued over the period of active service to the eligibility dates. The accrual
of benefits totaled $46,534 for 1999. In connection with these benefits, life
insurance on these officers and directors has been purchased with the proceeds
from the policies to be utilized for the payment of benefits. The cash value of
these polices at December 31, 1999 totaled approximately $7,770,000.
In addition, other life insurance on certain officers and directors has
been purchased. These policies had a cash value of approximately $8,348,000 at
December 31, 1999.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
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.
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,
1999, 1998 and 1997. The number of shares and prices have been restated to give
effect to the Company's 1998 stock split.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
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 256,481 $14.18 277,890 $13.87 137,390 $10.68
Granted 9,800 16.78 8,800 15.50 185,130 14.99
Exercised (9,235) 10.11 (29,768) 12.18 (32,838) 6.64
Forfeited/expired (1,541) 14.32 (441) 13.02 (11,792) 14.32
- --------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 255,505 14.43 256,481 14.18 277,890 13.87
====================================================================================================================
Options exercisable at year end 216,169 14.16 196,552 13.68 199,130 14.02
Weighted-average fair value of
options granted during the year $ 3.80 $ 3.24 $ 3.18
</TABLE>
As of December 31, 1999, 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>
$9.43 - 12.53 72,455 $12.46 5.9 years 72,455 $12.46
14.32 - 18.30 183,050 15.26 7.4 years 143,714 15.02
</TABLE>
During 1998 and 1997, shares totaling 499 and 5,236 were tendered as
partial payment for shares exercised.
There were 152,582 shares under the 1996 Plan available for grant at
December 31, 1999.
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>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rates 5.0-6.0% 5.6% 5.9-6.6%
Dividend yields 3.7% 3.3% 3.5%
Expected volatility factors of market price of common stock 23.4% 14.5% 15.0%
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>
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $3,331,995 $3,838,380 $3,631,869
Pro forma 3,230,861 3,754,731 3,328,517
Basic earnings per share As reported .98 1.08 1.02
Pro forma .95 1.05 .93
Diluted earnings per share As reported .98 1.06 1.01
Pro forma .95 1.04 .92
</TABLE>
12. Shareholders' Equity
The Company's Board of Directors has approved periodically the repurchase
of up to 10% of the Company's outstanding shares of common stock. Such
purchases are made subject to market conditions in open market or block
transactions.
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.
In addition, without prior approval, current regulations allow ABI and ABO
to pay dividends to the Company not exceeding retained net income for the
applicable calendar year to date, plus retained net income for the preceding two
years. Application is required by ABI and ABO to pay dividends in excess of this
restriction. At December 31, 1999, the shareholders' equity of ABI was
$31,596,692. Although well capitalized, under regulations in effect, ABI is
required to apply to the OTS to pay dividends to the Company. The shareholders'
equity of ABO was $9,169,157, of which approximately $103,000 was available for
payment of dividends.
13. Earnings Per Share
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
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 $3,331,995 3,386,444 $ .98 $3,838,380 3,561,831 $ 1.08 $3,631,869 3,571,560 $1.02
====================================================================================================================================
Effect of Dilutive Stock Options -- 30,291 -- 48,568 -- 38,973
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share
Income available to common
shareholders and assumed
conversions $3,331,995 3,416,735 $ .98 $3,838,380 3,610,399 $ 1.06 $3,631,869 3,610,533 $1.01
====================================================================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
14. Regulatory Capital
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 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, 1999 and 1998, ABI and
ABO are categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since December 31, 1999, that
management believes have changed this classification.
Actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
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% $16,220,000 15.6% $31,599,000 8.0% $4,673,000 14.2% $8,279,000
Tier 1 capital (to risk-weighted assets) 4.0 8,110,000 15.3 31,031,000 4.0 2,337,000 13.7 8,010,000
Core capital/1/ (to adjusted total assets) 3.0 11,057,000 8.4 31,031,000 3.0 3,531,000 6.8 8,010,000
Core capital/1/ (to adjusted tangible assets) 2.0 7,371,000 8.4 31,031,000 2.0 2,354,000 6.8 8,010,000
Tangible capital (to adjusted total assets) 1.5 5,529,000 8.4 31,031,000 1.5 1,766,000 6.8 8,010,000
/1/ As defined by regulatory agencies
</TABLE>
<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
Tier 1 capital (to risk-weighted assets) 4.0 6,006,000 21.7 32,551,000 4.0 1,853,000 16.9 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
Core capital/1/ (to adjusted tangible assets) 2.0 6,251,000 10.4 32,551,000 2.0 1,813,000 8.7 7,842,000
Tangible capital (to adjusted total assets) 1.5 4,688,000 10.4 32,551,000 1.5 1,360,000 8.7 7,842,000
/1/ As defined by regulatory agencies
</TABLE>
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, 1999, include 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.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
15. Fair Value of Financial Instruments
Fair values are based on estimates using present value and other valuation
techniques in instances where quoted market prices are not available. These
techniques are significantly affected by the assumptions used, including
discount rates and estimates of future cash flows. As such, the derived fair
value estimates cannot be compared to independent markets and, further, may not
be realizable in an immediate settlement of the instruments. Accordingly, the
aggregate fair value amounts presented do not represent, and should not be
construed to represent, the underlying value of the Company.
The following table presents the estimates of fair value of financial
instruments (In Thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 14,637 $ 14,637 $ 7,545 $ 7,545
Interest-bearing deposits 5,296 5,296 38,006 38,006
Interest-bearing time deposits 1,499 1,499 3,487 3,487
Investment securities held to maturity 87,735 81,481 51,581 51,512
Mortgage-backed securities held to maturity 14,970 14,787 20,217 20,437
Loans receivable, including loans held for sale, net 325,478 320,705 265,994 269,480
Interest receivable 2,629 2,629 2,731 2,731
Stock in FHLB 4,341 4,341 3,588 3,588
Cash surrender value of life insurance 16,118 16,118 211 211
Liabilities:
Deposits 355,759 353,832 333,989 335,990
FHLB advances 82,511 82,058 17,101 17,002
Interest payable 541 541 435 435
Drafts payable 3,901 3,901 4,354 4,354
Advances by borrowers for taxes and insurance 823 823 1,031 1,031
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash, Interest-Bearing Deposits, Stock in FHLB and Cash Surrender Value of
Life Insurance: The carrying amounts reported in the consolidated statements of
condition for cash on hand and in other institutions, interest-bearing deposits,
stock in FHLB, and cash surrender value of life insurance 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. A core deposit
intangible component in the fair value estimate is not included, 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
16. Parent Company Financial Information
The following are condensed financial statements for the parent company,
Ameriana Bancorp, only:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
Statements of Condition 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 1,622 $ 915
Advances to subsidiaries 1,103,000 2,757,000
Investments in thrift subsidiaries 40,765,849 42,310,321
Investments in other subsidiaries and affiliates 1,544,074 1,858,863
Other assets 400,796 280,718
- --------------------------------------------------------------------------------
$43,815,341 $47,207,817
================================================================================
Liabilities and shareholders' equity:
Notes payable to subsidiaries, net of discount $ 2,966,225 $ 849,389
Notes payable, other 360,608 450,760
Miscellaneous liabilities 459,968 558,520
Shareholders' equity 40,028,540 45,349,148
- --------------------------------------------------------------------------------
$43,815,341 $47,207,817
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------
Statements of Income 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries $ 5,150,000 $4,620,114 $ 6,600,000
Interest income 84,152 214,809 152,952
- ------------------------------------------------------------------------------------------------------
5,234,152 4,834,923 6,752,952
Operating expense 537,691 624,634 578,477
- ------------------------------------------------------------------------------------------------------
Income before income tax credit and equity in undistributed
income of subsidiaries 4,696,461 4,210,289 6,174,475
Income tax credit 480,101 433,130 412,785
- ------------------------------------------------------------------------------------------------------
5,176,562 4,643,419 6,587,260
Equity in undistributed income of subsidiaries and affiliates
(distributions in excess of equity in income) (1,844,567) (805,039) (2,955,391)
- ------------------------------------------------------------------------------------------------------
Net Income $ 3,331,995 $3,838,380 $ 3,631,869
======================================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------
Statements of Cash Flows 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 3,331,995 $ 3,838,380 $ 3,631,869
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in undistributed income of subsidiaries and affiliates 1,844,567 805,039 2,955,391
Noncash dividend -- (1,020,114) --
Accretion 66,837 84,719 108,756
Increase in other assets 56,227 (11,303) (39,974)
Increase (decrease) in miscellaneous liabilities (25,905) 97,490 2,150
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,273,721 3,794,211 6,658,192
- ----------------------------------------------------------------------------------------------------------
Investing Activities:
Advances to subsidiaries -- -- (3,140,000)
Repayment of advances to subsidiaries 1,654,000 2,580,000 --
Net purchase of premiums and equipment (176,305) -- --
Cash paid in acquisition -- (1,121,534) --
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 1,477,695 1,458,466 (3,140,000)
- ----------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from note payable to subsidiary 2,300,000 -- --
Repayment of notes payable to subsidiaries (250,000) (300,000) (300,000)
Repayment of notes payable, other (90,152) -- --
Cash dividends paid (2,062,774) (2,073,217) (1,986,793)
Purchase of common stock (6,746,683) (3,358,061) (1,311,214)
Proceeds from exercise of stock options 98,900 378,666 179,784
- ----------------------------------------------------------------------------------------------------------
Net cash used by financing activities (6,750,709) (5,352,612) (3,418,223)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 707 (99,935) 99,969
Cash at beginning of year 915 100,850 881
- ----------------------------------------------------------------------------------------------------------
Cash at end of year $ 1,622 $ 915 $ 100,850
==========================================================================================================
</TABLE>
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
17. Quarterly Data (unaudited)
Summarized quarterly financial data for 1999 and 1998 is as follows
(dollars in thousands, except for per share data):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total interest income $6,887 $6,882 $7,343 $7,971
Total interest expense 3,834 3,802 4,256 4,857
Net interest income 3,053 3,080 3,087 3,114
Provision for loan losses 38 30 30 230
Net income 797 861 1,073 601
- --------------------------------------------------------------------------------
Basic earnings per share .23 .25 .32 .18
- --------------------------------------------------------------------------------
Diluted earnings per share .23 .25 .32 .18
- --------------------------------------------------------------------------------
Dividends declared per share .15 .15 .15 .15
- --------------------------------------------------------------------------------
Stock price range
High 17.63 16.75 17.50 17.13
Low 15.50 15.25 16.38 14.38
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
</TABLE>
* Adjusted for 11-for-10 stock split.
<PAGE>
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
17. Quarterly Data (unaudited)
Summarized quarterly financial data for 1999 and 1998 is as follows
(dollars in thousands, except for per share data):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total interest income $6,887 $6,882 $7,343 $7,971
Total interest expense 3,834 3,802 4,256 4,857
Net interest income 3,053 3,080 3,087 3,114
Provision for loan losses 38 30 30 230
Net income 797 861 1,073 601
- --------------------------------------------------------------------------------
Basic earnings per share* .23 .25 .32 .18
- --------------------------------------------------------------------------------
Diluted earnings per share* .23 .25 .32 .18
- --------------------------------------------------------------------------------
Dividends declared per share* .15 .15 .15 .15
- --------------------------------------------------------------------------------
Stock price range*
High 17.63 16.75 17.50 17.13
Low 15.50 15.25 16.38 14.38
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
</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, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Olive, LLP
- ---------------------------
Indianapolis, Indiana
February 3, 2000
<PAGE>
Market Information
Americana Bancorp's common shares trade on the Nasdaq Stock Market under the
symbol ASBI. As of March 24, 2000, the Company had approximately 2,100
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.
Form 10-K Report
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, for the year ended December 31, 1999, may be obtained
without charge by writing to Mr. Harry J. Bailey, President and Chief Executive
Officer, Americana Bancorp, 2118 Bundy Avenue, New Castle, Indiana 47362.
<PAGE>
EXHIBIT 21
Percentage State of
Subsidiaries (1) Owned Incorporation
- ---------------- ----- -------------
Ameriana Bank and Trust of Indiana (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) 14% Louisiana
Deer Park Service Corporation (5) 100% Ohio
- ----------
(1) Operations of the Company's wholly-owned direct subsidiaries,
Ameriana-Indiana, Ameriana-Ohio, Ameriana Insurance Agency, Inc. 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 1/7 owned through stock investment and
less than 1/7 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.
1
<PAGE>
Exhibit 23
Consent of Olive LLP
We hereby 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 3, 2000, contained in the 1999 Annual
Report on Form 10-K of Ameriana Bancorp.
/s/ Olive LLP
Indianapolis, Indiana
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,637
<INT-BEARING-DEPOSITS> 6,795
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 102,705
<INVESTMENTS-MARKET> 96,268
<LOANS> 326,805
<ALLOWANCE> 1,534
<TOTAL-ASSETS> 486,349
<DEPOSITS> 355,759
<SHORT-TERM> 72,258
<LIABILITIES-OTHER> 8,050
<LONG-TERM> 10,253
0
0
<COMMON> 3,638
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<TOTAL-LIABILITIES-AND-EQUITY> 486,349
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<INTEREST-TOTAL> 29,083
<INTEREST-DEPOSIT> 15,194
<INTEREST-EXPENSE> 16,749
<INTEREST-INCOME-NET> 12,334
<LOAN-LOSSES> 327
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<EXPENSE-OTHER> 10,509
<INCOME-PRETAX> 4,799
<INCOME-PRE-EXTRAORDINARY> 3,332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,332
<EPS-BASIC> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 3.10
<LOANS-NON> 1,171
<LOANS-PAST> 25
<LOANS-TROUBLED> 751
<LOANS-PROBLEM> 1,085
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<CHARGE-OFFS> 98
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 1,534
<ALLOWANCE-DOMESTIC> 1,534
<ALLOWANCE-FOREIGN> 0
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</TABLE>
