U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
Form 10-SB
General Form For Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PTC Bancorp
(Name of Small Business Issuer in its charter)
Indiana 35-1606016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Reservoir Hill Road
9014 State Road 101
P.O. Box 7
Brookville, Indiana 47012
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 765-647-3591
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
<PAGE>
PART I
(Alternative 3)
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
PTC Bancorp (the "Company") is a one bank holding company engaged in
the commercial banking business through its wholly-owned subsidiary, People's
Trust Company, Brookville, Indiana (the "Bank"), a full service commercial
bank with local branches located in Dearborn, Franklin, Jefferson, Ripley,
Rush, Switzerland, Fayette, Decatur and Wayne counties, Indiana.
The Company was incorporated on April 24, 1984, for the purpose of
becoming a bank holding company and acquiring all of the outstanding stock of
the Bank.
BANKING SERVICES. The Bank is engaged in the general full-service commercial
and consumer banking business. It receives demand and time deposits, makes
and services secured and unsecured loans, performs fiduciary and trust
services, and provides a wide variety of personal and corporate services,
including safe deposit facilities.
The Bank offers various types of checking accounts, including commercial
accounts and minimum balance individual accounts. Various types of savings
accounts, individual retirement accounts, money market accounts, certificates
of deposit, and other time deposit accounts are also offered. The Bank's
lending department makes commercial, agricultural, industrial, consumer, and
real estate loans to individuals and businesses. It also engages in
installment credit lending. Through its trust department, the Bank acts as
custodian, trustee, conservator of estates, executor under wills, and
generally engages in other trust services.
The business of the Bank is not seasonal to any material degree and the
Bank is not dependent upon a single or a few principal customers. The loss of
any single customer or a small group of customers by the Bank would not have a
material adverse effect upon the operations or earnings of the Bank.
MARKET AREA AND COMPETITION. The Bank operates in Dearborn, Franklin,
Jefferson, Ripley, Rush, Fayette, Decatur, Switzerland and Wayne counties in
Indiana. It is the major bank (in terms of asset size) in Franklin and Rush
counties but not the major bank in any of the other counties served. The Bank
competes with a variety of other banks and savings institutions in all
localities.
The banking business in Indiana is highly competitive and the Bank
encounters competition in all phases of its business. The Bank competes with
other banks, as well as with savings banks, savings and loan associations,
credit unions and other financial institutions. Since 1986, bank holding
companies resident in various states have been able to purchase Indiana banks.
Various purchases by non-Indiana bank holding companies have been completed
and, therefore, Indiana banking companies also face competition from out-of-
state banks. See "REGULATION AND SUPERVISION."
The principal methods of competition include loan interest rates,
interest rates paid on deposits, efforts to obtain deposits and types of
service provided.
<PAGE>
LENDING ACTIVITIES.
- ------------------
TYPES OF LOANS. The loan portfolio at the dates indicated is presented
below:
<TABLE>
<CAPTION>
December 31
1996 1995
(in thousands)
------------------------
<S> <C> <C>
Commercial and industrial loans.............................................. $ 22,986 $ 19,574
Real estate loans (includes $ 8,302 and $7,278 secured by farm land)......... 88,110 75,462
Construction loans........................................................... 13,650 9,583
Real estate - non farm, nonresidential....................................... 34,810 28,714
Agricultural production financing and other loans to farmers................. 4,895 5,171
Individuals' loans for household and other personal expenditures............. 24,543 26,330
Tax-exempt loans............................................................. 8,107 7,787
Other loans.................................................................. 207 874
Less: Unearned interest on loans............................................ (345) (316)
---------- ----------
Total loans......................................................... $ 196,963 $ 173,179
========== ==========
</TABLE>
LOAN AND LEASE MATURITY ANALYSIS. The breakdown of types of loans
outstanding as of the dates indicated below is as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
After One
One Year But Within After
(Dollars in Thousands) or Less Five Years Five Years Total
- ---------------------- ------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial................................... $ 75,189 $ 12,170 $ 11,182 $ 98,541
Mortgage..................................... 58,835 6,097 6,980 71,912
Consumer and other........................... 8,111 17,789 610 26,510
--------- --------- --------- ---------
Total loans.............................. $ 142,135 $ 36,056 $ 18,772 $ 196,963
========= ========= ========= =========
</TABLE>
The amount of loans due after one year which have floating or adjustable
interest rates was $10,350 at December 31, 1996, and the amount which had
pre-determined interest rates was $44,478 as of such date.
The Bank's commercial loan portfolio includes loans to businesses in the
manufacturing, wholesale, retail, transportation, restaurant and hotel
industries. As of December 31, 1996, total loans to any particular group of
customers engaged in similar activities and having similar economic
characteristics did not exceed 10% of total loans. However, a substantial
natural geographic concentration of credit risk exists within the Bank's
market area.
ALLOWANCE FOR LOAN LOSSES. In the banking industry, loan losses are one
of the costs of doing business. Although the Bank emphasizes early detection
and charge-off of loan losses, it is inevitable that at any time certain
losses exist in the portfolio which have not been specifically identified.
Accordingly, the provision for loan losses is charged to earnings on an
anticipatory basis, and recognized loan losses are deducted from the allowance
so established. Over time, all net loan losses must be charged to earnings.
During the year, an estimate of the loss experience for the year serves as a
starting point in determining the appropriate level for the provision.
However, the amount actually provided in any period may be greater or less
than net loan losses, based on management's judgment as to the appropriate
level of the allowance for loan losses. The determination of the provision in
any period is based on management's continuing review and evaluation of the
loan portfolio, and its judgment as to the impact of current economic
conditions on the portfolio. The evaluation by management includes
consideration of
2
<PAGE>
past loan loss experience, changes in the composition of the loan portfolio,
and the current condition and amount of loans outstanding. The following table
summarizes the loan loss experience for the periods indicated.
<TABLE>
<CAPTION>
Analysis of the Allowance for Loan Losses
Years Ended December 31
-----------------------------
1996 1995
(in thousands, except ratios)
<S> <C> <C>
Allowance for loan losses:
Balance at January 1......................... $1,722 $1,601
Charge-offs:
Commercial................................... 297 248
Real estate mortgage......................... 10 182
Installment loans............................ 419 425
------ ------
Total charge-offs............................ 726 855
Recoveries:
Commercial................................... 14 60
Real estate mortgage......................... 16 19
Installment.................................. 146 157
------ ------
Total recoveries........................... 176 236
------ ------
Net charge-offs.............................. 550 619
------ ------
Provision for loan losses 828 740
Balance at end of period.......................... $2,000 $1,722
====== ======
Ratios:
Net charge-offs during the
period to average loans and leases
outstanding during the period................ 0.30% 0.36%
</TABLE>
The following table shows an allocation of the allowance for loan
losses and percent of loans in each category to total loans for the periods
indicated.
<TABLE>
<CAPTION>
December 31
-------------------------------------
1996 1996 1995 1995
(in thousands, except percents)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial............................ $ 674 50.0% $ 132 47.1%
Real estate - mortgage................ 45 37.8 65 37.5
Installment and other................. 328 12.2 336 15.4
Unallocated........................... 953 - 1,189 -
------ ------ ------ ------
$2,000 100.0% $1,722 100.0%
====== ====== ====== ======
</TABLE>
LOAN LOSS CHARGE-OFF PROCEDURES. The Bank has weekly internal loan
committee meetings at which loan delinquencies, maturities and problems are
reviewed and new loans in excess of authorized officer limits are approved or
disapproved. The Bank Board receives and reviews reports on loans monthly,
including delinquencies.
The Bank Board's Loan Committee meets bi-monthly to approve or
disapprove all new loans in excess of $600 thousand and reviews all loans made
or renewed during the preceding month.
All charge-offs are approved by the Bank Board or Loan Committee of the
Board. The Bank charges off loans when a determination is made that all or a
portion of a loan is uncollectible or as a result of examinations by DFI and
FDIC.
3
<PAGE>
NONPERFORMING LOANS. Nonperforming loans are nonaccrual loans,
restructured loans, and loans over 90 days past due and still accruing. Loans
are placed on a nonaccrual basis generally when in management's judgment the
collateral value and financial condition of the borrower do not justify accruing
interest. Interest previously recorded but not deemed collectible is reversed
and charged against current income. Interest income on these loans is then
recognized when collected.
Restructured loans are loans for which the contractual interest rate has
been reduced or other concessions are granted to the borrower because of a
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans.
The following table reflects nonperforming loans for the period
indicated:
<TABLE>
<CAPTION>
December 31
-------------------
1996 1995
(in thousands)
<S> <C> <C>
Nonperforming loans:
Nonaccrual loans................................................ $1,794 $ 629
Restructured loans.............................................. 0 0
Accruing loans 90 days or more past due......................... 34 835
------- -------
Total nonperforming loans....................................... 1,828 1,464
Other real estate owned............................................ 24 0
Total nonperforming assets...................................... $1,852 $1,464
Allowance for possible loan and lease losses....................... $2,000 $1,722
Allowance as a percentage of nonperforming loans................... 108.0% 117.6%
Allowance as a percentage of total loans........................... 1.02% 0.99%
Nonperforming loans and other real estate owned
as a percentage of total loans and other real estate owned...... 0.94% 0.84%
Nonperforming loans as a percentage of total loans................. 0.93% 0.84%
======= =======
</TABLE>
The effect of non-accrual loans upon interest income is not deemed
material by management.
In addition to the loans classified as nonperforming, there were other
loans totaling $3,013 at December 31, 1996 and $666 at December 31, 1995, which
management was closely monitoring the borrowers' ability to comply with payment
terms but where conditions did not warrant classification as nonperforming
loans. As of December 31, 1996, there were no classified assets other than
loans and other real estate shown above.
INVESTMENT SECURITIES. The Company's investment portfolio is an important
source of liquidity. The following table shows the amortized cost of securities
available for sale at the dates indicated:
4
<PAGE>
Securities Available for Sale
<TABLE>
<CAPTION>
December 31
-------------------
1996 1995
(in thousands)
<S> <C> <C>
U.S. Treasury and government agencies................ $30,066 $27,893
State and political subdivisions..................... 1,971 2,337
Mortgage backed securities........................... 2,583 2,783
Other debt securities................................ 1,906 3,599
Equity securities.................................... 1,521 1,522
------- -------
Total................................................ $38,047 $38,134
======= =======
</TABLE>
The following table shows the amortized cost of securities held to
maturity at the dates indicated:
Securities Held to Maturity
<TABLE>
<CAPTION>
December 31
-------------------
1996 1995
(in thousands)
<S> <C> <C>
U.S. Treasury and government agencies................ $ 168 $ 155
State and political subdivisions..................... 24,188 17,895
Mortgage backed securities........................... 297 951
Other debt securities................................ 566 500
------- -------
Total............................................... $25,219 $19,501
======= =======
</TABLE>
The amortized cost of debt securities at December 31, 1996, by
contractual maturity are show below. Actual maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Also, mortgage
backed securities are presented by contractual maturity below; however, these
securities typically experience periodic paydowns and prepayments.
The maturity distribution and average yields for the debt securities
available for sale were:
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5-10 Years Over 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury and
government
agencies........... $4,590 4.99% $24,476 6.39% $1,000 7.73% $ -0- 0.00%
Mortgage-backed
securities......... 110 5.25 783 6.66 529 8.14 1,161 7.58
State and political
subdivision*....... 460 5.20 1,157 9.65 304 8.20 50 9.22
Other debt
securities......... 11 6.62 1,577 6.08 -0- 0.00 318 7.60
------ ----- ------- ----- ------ ----- ------ -----
Totals............. $5,171 5.02% $27,993 6.51% $1,833 7.93% $1,529 7.64%
====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
*Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 34% tax rate.
5
<PAGE>
The maturity distribution and average yields for securities held to
maturity were:
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5-10 Years Over 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury and
government
agencies........... $ -0- 0.00% $ -0- 0.00% $ -0- 0.00% $ 168 8.13%
Mortgage-backed
securities......... 213 4.75 84 6.90 -0- 0.00 -0- 0.00
State and political
subdivision*....... 3,411 7.49 17,809 6.92 1,958 7.68 1,010 7.08
Other debt
securities......... -0- 0.00 566 5.41 -0- 0.00 -0- 0.00
------ ----- ------- ----- ------ ----- ------ -----
Totals............. $3,624 7.33% $18,459 6.87% $1,958 7.68% $1,178 7.23%
====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
*Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 34% tax rate.
TIME DEPOSITS OVER $100,000. As of December 31, 1996, certificates of
deposit and other time deposits of $100,000 or more mature as follows:
(Dollars in thousands) December 31, 1996
---------------------- -----------------
3 months or less $ 9,234
Over 3 months through 6 months 5,886
Over 6 months through 12 months 6,444
Over 12 months 7,387
--------
Total $ 28,949
========
As of December 31, 1996, the Company held no securities of any single
issuer, other than U.S. Government securities, that exceeded 10% of
shareholders' equity. Although the Company holds securities issued by
municipalities within the State of Indiana which, in the aggregate, exceeds 10%
of shareholders' equity, none of the holdings from individual issuers exceed
this threshold.
EMPLOYEES. At December 31, 1996, the Bank employed approximately 115
full-time and 24 part-time individuals. The Bank provides a variety of
employment benefits and considers relations with its employees to be excellent.
The Company has officers but no employees at the present time.
REGULATION AND SUPERVISION. The Company and the Bank are subject to
extensive regulation under federal and state laws which significantly affect
their respective activities and the competitive environment in which they
operate.
BANK HOLDING COMPANY REGULATION. The Company is registered as a bank
holding company is subject to the regulations of the Board of Governors of the
Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act
of 1956, as amended ("BHCA"). Bank holding companies are required to file
periodic reports with and are subject to periodic examination by the Federal
Reserve. The Federal Reserve has issued regulations under the BHCA requiring
a bank holding company to serve as a source of financial and managerial
strength to its subsidiary banks. It is the policy of the Federal Reserve
that, pursuant to this requirement, a bank holding company should stand ready
to use its resources to provide adequate capital funds to its subsidiary banks
during periods of financial stress or adversity. Additionally, under the
Federal Deposit Insurance Corporation
6
<PAGE>
Improvement Act of 1991 ("FDICIA"), a bank holding company is required to
guarantee the compliance of any insured depository institution subsidiary that
may become "undercapitalized" (as defined in the statute) with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized,
or (ii) the amount that is necessary (or would have been necessary) to bring the
institution into compliance with all applicable capital standards as of the time
the institution fails to comply with such capital restoration plan. Under the
BHCA, the Federal Reserve has the authority to require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
and stability of any bank subsidiary of the bank holding company.
The Company is prohibited by the BHCA from acquiring direct or indirect
control of more than 5% of the outstanding shares of any class of voting stock
or substantially all of the assets of any bank or merging or consolidating
with another bank holding company without prior approval of the Federal
Reserve. The BHCA also prohibits the Company from acquiring control of any
bank operating outside the State of Indiana unless such action is specifically
authorized by the statutes of the state where the bank to be acquired is
located. Additionally, the Company is prohibited by the BHCA from engaging in
or from acquiring ownership or control of more than 5% of the outstanding
shares of any class of voting stock of any company engaged in a non-banking
business unless such business is determined by the Federal Reserve to be so
closely related to banking as to be a proper incident thereto. The BHCA does
not place territorial restrictions on the activities of such non-banking
related activities.
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES. The Federal
Reserve is the federal regulatory and examining authority for bank holding
companies. The Federal Reserve has adopted capital adequacy guidelines for
bank holding companies.
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital
to risk-weighted assets (including certain off-balance sheet activities such
as standby letters of credit) of 8%. At least half of the total required
capital must be "Tier 1 capital," consisting principally of common
stockholders' equity, noncumulative perpetual preferred stock, a limited
amount of cumulative perpetual preferred stock and minority interest in the
equity accounts of consolidated subsidiaries, less certain goodwill items. The
remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, cumulative perpetual preferred stock, and a limited
amount of general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio
under which the bank holding company must maintain a minimum level of Tier 1
capital to total consolidated assets of 3% in the case of bank holding companies
which have the highest regulatory examination ratings and are not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 1% to 2% above the stated minimum.
The Company and the Bank were in full compliance with all regulatory
capital requirements at December 31, 1996. Regulatory capital ratios for the
Company of December 31, 1996 are shown below:
Tier 1 Capital to Risk-Weighted Assets................. 10.54%
Total Risk Based Capital to Risk-Weighted Assets....... 11.60%
Tier 1 Leverage Ratio.................................. 6.73%
BANK REGULATION. The Bank is organized under the laws of the State of
Indiana and is subject to the supervision of the DFI, whose examiners conduct
periodic examinations of state banks. The Bank is not a member of the Federal
Reserve System, so its principal federal regulator is the FDIC, which also
conducts periodic examinations of the Bank. All of the Bank's deposits are
insured by the Bank Insurance Fund ("BIF") administered by the FDIC and are
subject to the FDIC's rules and regulations respecting the insurance of
deposits. See "REGULATION AND SUPERVISION--DEPOSIT INSURANCE."
7
<PAGE>
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and truth-in
savings disclosure, equal credit opportunity, fair credit reporting, trading
in securities and other aspects of banking operations. Current federal law
also requires banks, among other things, to make deposited funds available
within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging
as principal in activities that are not permitted for national banks, unless
(i) the FDIC determines that the activity would pose no significant risk to
the appropriate deposit insurance fund, and (ii) the bank is, and continues to
be, in compliance with all applicable capital standards. These restrictions
have not had a material adverse effect on Bank operations.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is currently a member of the
Federal Home Loan Bank ("FHLB") System. FHLB membership provides the Bank with
a ready source from which to borrow short-term funds from time to time. The
FHLB System consists of 12 regional banks. The Federal Housing Finance Board
("FHFB"), an independent agency, controls the FHLB System including the FHLB of
Indianapolis, to which the Bank belongs. The FHLB System provides a central
credit facility primarily for member financial institutions. The Bank is
required to hold shares of capital stock in the FHLB of Indianapolis in an
amount at least equal to the greater of 1% of the aggregate principal amount of
its unpaid residential mortgage loans, home purchase contracts and similar
obligations at the end of each calendar year, 0.3% of its assets or 1/20 (or
such greater fraction established by the FHLB) of outstanding FHLB advances,
commitments, lines of credit and letters of credit. The FHLB pays dividends on
the capital stock held by their members.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB of
Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. Eligible collateral includes first mortgage loans less
than 90 days delinquent or securities evidencing interests therein, securities
(including mortgage-backed securities) issued, insured or guaranteed by the
federal government or any agency thereof, FHLB deposits and, to a limited
extent, real estate with readily ascertainable value in which a perfected
security interest may be obtained. All long-term advances must be used to
provide funds for residential home financing and the FHLB has established
standards of community service that members must meet to maintain access to
long-term advances.
Interest rates charged for advances vary depending upon maturity, the
cost of funds to the FHLB of Indianapolis and the purpose of the borrowing.
BANK CAPITAL REQUIREMENTS. The FDIC has adopted risk-based capital
ratio guidelines to which the Bank is subject. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations.
Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet commitments to four risk weighted categories, with higher
levels of capital being required for the categories perceived as representing
greater risk.
Like the capital guidelines established by the Federal Reserve for the
Company, these guidelines divide a banks capital into two tiers. The first
tier (Tier 1) includes common equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interest in
equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations). Supplementary (Tier 2)
capital includes, among other items, cumulative perpetual and long-term
limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debt and the allowance for loan and
lease losses, subject to certain limitations, less required deductions. Banks
are required to maintain a total risk-based capital ratio of 8%, of which 4%
must be Tier 1 capital. The FDIC may, however, set higher capital
requirements when a bank's
8
<PAGE>
particular circumstances warrant. Banks experiencing or anticipating
significant growth are expected to maintain capital ratios, including tangible
capital positions, well above the minimum levels.
In addition, the FDIC established guidelines prescribing a minimum Tier
1 leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of
3% for banks that meet certain specified criteria, including that they have
the highest regulatory rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier 1
leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis
points.
Certain regulatory capital ratios for the Bank at December 31, 1996 are
shown below:
Tier 1 Capital to Risk-Weighted Assets................ 10.40%
Total Risk Based Capital to Risk-Weighted Assets...... 11.46%
Tier 1 Leverage Ratio................................. 6.63%
DIVIDEND LIMITATIONS. Under Federal Reserve supervisory policy, a bank
holding company generally should not maintain its existing rate of cash
dividends on common shares unless (i) the organization's net income available
to common shareholders over the past year has been sufficient to fully fund
the dividends and (ii) the prospective rate or earnings retention appears
consistent with the organization's capital needs, asset quality, and overall
financial condition. The Company's Board of Directors has adopted a policy
consistent with these guidelines. The FDIC also has authority under the
Financial Institutions Supervisory Act to prohibit a bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice in light of the financial condition of the bank.
Under Indiana law, the Bank may pay dividends so long as its capital is
unimpaired and it has unimpaired retained surplus equal to 25% of capital.
Dividends may not exceed undivided profits on hand (less losses, bad debts and
expenses). The most stringent capital requirement affecting the Bank,
however, are those established by the prompt corrective action provisions of
FDICIA, which are discussed below. The Bank's capital levels at December 31,
1996 exceeded the criteria established to be designated as a "well
capitalized" bank, which requires a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage
ratio of 5% or greater.
LENDING LIMITS. Under Indiana law, the total loans and extension of
credit by an Indiana-chartered bank to a borrower outstanding at one time and
not fully secured may not exceed 15% of such bank's capital and unimpaired
surplus. An additional amount up to 10% of the bank's capital and unimpaired
surplus may be loaned to the same borrower if such loan is fully secured by
readily marketable collateral having a market value, as determined by reliable
and continuously available price quotations, at least equal to the amount of
such additional loans outstanding.
SAFETY AND SOUNDNESS STANDARDS. On February 2, 1995, the federal
banking agencies adopted final safety and soundness standards for all insured
depository institutions. The standards, which were issued in the form of
guidelines rather than regulations, relate to internal controls, information
systems, internal audit systems, loan underwriting and documentation,
compensation and interest rate exposure. In general, the standards are
designed to assist the federal banking agencies in identifying and addressing
problems at insured depository institutions before capital becomes impaired.
If an institution fails to meet these standards, the appropriate federal
banking agency may require the institution to submit a compliance plan.
Failure to submit a compliance plan may result in enforcement proceedings.
Additional standards on earnings and classified assets are expected to be
issued in the near future.
BRANCHES AND AFFILIATES. Establishment of bank branches is subject to
approval of the DFI and FDIC and geographic limits established by state laws.
Indiana's branch banking law permits a bank having its principal place of
business in the State of Indiana to establish branch offices in any county in
Indiana without geographic restrictions and effective after June, 1997 to
established branches outside the State of Indiana. A bank may also
9
<PAGE>
merge with any national or state chartered bank located anywhere in the State of
Indiana without geographic restrictions.
The Bank is subject to Sections 22(h), 23A and 23B of the Federal
Reserve Act, which restrict financial transactions between banks and
affiliated companies. The statute limits credit transactions between a bank
and its executive offices and its affiliates, prescribes terms and conditions
for bank affiliate transactions deemed to be consistent with safe and sound
banking practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
FDICIA. FDICIA requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks which do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. The Bank meets
all requirements to be considered as "well capitalized".
The FDIC adopted regulations to implement the prompt corrective action
provisions of FDICIA, effective as of December 19, 1992. Among other things,
the regulations define the relevant capital measures for the five capital
categories. An institution is deemed to be "well capitalized" if it has a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater, and a leverage ratio of 5% or greater, and is not
subject to a regulatory order, agreement or directive to meet and maintain a
specific capital level for any capital measure. An institution is deemed to
be "adequately capitalized" if it has a total risk-based capital ratio of 8%
or greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally
a leverage ratio of 4% or greater. An institution is deemed to be
"undercapitalized" if it has a total risk-based capital ratio of less than 8%,
a Tier 1 risk-based capital ratio of less than 4%, or generally a leverage
ratio of less than 4%, and "significantly undercapitalized" if it has a total
risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution is deemed
to be "critically undercapitalized" if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by any company that controls the
undercapitalized institution as described above. If an "undercapitalized"
bank fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. "Significantly undercapitalized" banks are
subject to one or more of a number of requirements and restrictions, including
an order by the FDIC to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks, and restrictions on compensation of executive
officers. "Critically undercapitalized" institutions may not, beginning 60
days after becoming "critically undercapitalized", make any payment of
principal or interest on certain subordinated debt or extend credit for a highly
leveraged transaction or enter into any transaction outside the ordinary course
of business. In addition, "critically undercapitalized" institutions are
subject to appointment of a receiver or conservator.
DEPOSIT INSURANCE. The Bank's deposits are insured up to $100,000 per
insured account, by the Bank Insurance Fund ("BIF"). As an institution whose
deposits are insured by BIF, the Bank is required to pay deposit insurance
premiums to BIF.
The BIF is required to maintain a reserve ratio of 1.25% of estimated
insured deposits, subject to an increase to 1.5% if the FDIC believes there is
a significant risk of substantial future losses. If the FDIC believes that an
increase in the insurance rates is necessary to reach these reserve ratios, it
may increase the insurance premiums applicable to the BIF. If the reserve
ratio is in excess of an amount designated by statute, credits against future
premiums may be granted.
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance for members of the BIF. The FDIC may increase assessment
rates for the fund if necessary to restore the fund's ratio of reserves to
insured deposits to the target level within a reasonable time and may decrease
such rates if such target level has been met. The FDIC has established a
risk-based assessment system for BIF members. Under this
10
<PAGE>
system, assessments vary depending on the risk the institution poses to its
deposit insurance fund. Such risk level is determined based on the
institution's capital level and the FDIC's level of supervisory concern about
the institution. Assessment rates range from 0% for an institution in the
highest catagory (i.e. well capitalized) to .27% for an institution in the
lowest catagory (i.e. undercapitalized and substantial supervisory concern).
ADDITIONAL MATTERS. In addition to the matters discussed above, the
Company and the Bank are subject to additional regulation of their activities,
including a variety of consumer protection regulations affecting their
lending, deposit and collection activities and regulations affecting secondary
mortgage market activities.
The earnings of financial institutions, including the Company and the
Bank, are also affected by general economic conditions and prevailing interest
rates, both domestic and foreign and by the monetary and fiscal policies of
the U.S. Government and its various agencies, particularly the Federal
Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, the Indiana General
Assembly and various regulatory agencies, including those referred to above.
It cannot be predicted with certainty whether such legislation or
administrative action will be enacted or the extent to which the banking
industry in general or the Company and the Bank in particular would be
affected thereby.
PENDING MERGER. On June 2, 1997, the Company entered into an agreement
in principle (the "Agreement") with Indiana United Bancorp ("IUBC") which is
expected to lead to a merger of the Company into IUBC. Under the Agreement,
each of the approximately 1,057,132 shares of Common Stock and Common Stock
equivalents of the Company would be converted into the right to receive 1,075
shares of Common Stock of IUBC. Assuming each Company common and common
equivalent share is exchanged for the right to receive 1,075 shares of Common
Stock of IUBC, IUBC will issue 1,136,417 shares of IUBC common stock in exchange
for the Company's Common Stock.
The Agreement is subject to the consummation of a definitive merger
agreement no later than December 31, 1997, which will require the fulfillment
of various conditions, including regulatory approval, shareholder approval, and
the receipt of fairness, tax and accounting opinions. It is anticipated that
the merger will qualify as a tax-free reorganization and will be accounted for
as a "pooling of interests."
Upon consummation of the merger, the combined entity will have a board of
directors of ten members, five of whom shall be designated by the Company.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
- -------
The business of the Company consists of holding and administering its
interest in the Bank. The principal business of the Bank consists of
attracting deposits from consumer and commercial customers and making loans to
individuals and businesses. The Bank offers various products for depositors,
including checking and savings accounts, certificates of deposit and safe
deposit boxes. Loans consist principally of loans to individuals secured by
mortgage liens on residential properties, consumer loans generally secured by
liens on personal property, and loans to businesses generally secured by liens
on business assets such as inventory, accounts receivable, commercial real
estate and other property. The Bank also offers trust services to individuals,
businesses and institutions.
11
<PAGE>
The Bank operates 17 banking offices in nine eastern and southeastern
counties in Indiana. In 1996, the Bank opened new banking offices in
Greensburg and Connersville area and in the first quarter of 1997 purchased an
office in Hanover. The Bank will continue to take advantage of opportunities
to expand its number of locations if the expansion appears to represent a
profitable opportunity, however, there is no assurance this will occur.
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1997
- ----------------------------------------------------
The following discussion and analysis provides information regarding the
Company's financial condition as of March 31, 1997, and results of operations
for the three months ended March 31, 1997 and 1996. It should be read in
connection with the consolidated financial statements and notes thereto. All
dollar amounts shown herein are in thousands except per share amounts.
EARNINGS
- --------
Net income for the three months ended March 31, 1997 was $891 compared to
$746 for the same three months in 1996, which represented a $145 or 19.4%
increase. Earnings per share also increased from $.73 to $.87 per share for the
same period. Higher net interest income, which was partially offset by higher
provision for loan losses and non-operating expenses, accounted for most of the
increase in net income.
Net interest income increased from $2,456 for the three months ended March
31, 1996 to $2,778 for the same period in 1997, for a $322 or 13.1% increase.
Substantially all of this increase was related to higher volumes (average
balances) of interest earning assets and interest bearing liabilities. Average
loans were about $24.5 million higher for the three months ended March 31, 1997,
compared to the same period in 1996. Average interest bearing deposits were
approximately $20.1 million higher.
Provision for loan losses increased from $132 to $190, a $58 increase.
Net charge-offs were $339 for the first quarter of 1997 versus $73 for the first
quarter of 1996. Impaired loans were $1,000 at March 31, 1997 compared to
$153 at March 31, 1996.
Non-interest income declined slightly from $580 to $537 for the three
months ended March 31, 1996 and 1997, respectively. There was no travel
commission income in 1997 compared to $47 in 1996. The travel company, a
subsidiary of the Bank, was sold in the second quarter of 1996.
Non-interest expense increased from $1,767 for the three months ended
March 31, 1996 to $1,845 for the same period in 1997, or a $78 increase. Most
of the increase was due to higher other operating expenses, primarily attributed
to higher marketing and postage expenses. Marketing expense was higher due to
more frequent special deposit promotions in 1997. Postage expense increased
because of additional mailings to new deposit customers from the Hanover
branch.
Provision for income taxes was relatively unchanged from 1996 to 1997.
Although income before income taxes was $143 higher for the three months ended
March 31, 1997 compared to the same period in 1996, non-taxable income on loans
and securities was also higher.
FINANCIAL CONDITION
- -------------------
Total assets declined $6,390 from December 31, 1996 to March 31, 1997.
Gross loans increased by $4,464 or 2.3% during the same period; however this
was offset by a decline in cash and cash equivalents of $11,750. There were
no other significant changes in asset balances.
Gross loans increased by $4,464 during the first quarter of 1997. Most
of the loan growth occurred in residential and commercial real estate loan
categories. Although total loans were unaffected, there was also a
12
<PAGE>
reclassification from commercial loans into commercial real estate loans of
about $6 million, due to a change in collateral code classifications.
The allowance for loan losses declined from $2,000 at December 31, 1996 to
$1,851 at March 31, 1997. Net charge offs were $339 for the three months ended
March 31, 1997. A partial charge off of $300 was taken on the Bennett Funding
loan relationship during the first quarter of 1997, reducing its carrying amount
from $1,300 to $1,000. A final settlement on or resolution of this credit is
expected during the second or third quarter of 1997.
Total deposits decreased by $6,287 or 2.3% from December 31, 1996 to March
31, 1997. Demand deposits decreased by $10,413, which was mostly due to
unusually large short-term public funds deposits at year end 1996, and a
refunded bond issue from the trust department. Average demand deposits balances
actually increased by about $1.7 million or 7.4% from 1996 to 1997.
During the first quarter of 1997, the Company assumed $6,788 of deposits
and acquired a branch facility from another institution. The $240 premium paid
in assuming these deposits was set up a an intangible asset. The branch
facility was located in Hanover, Indiana.
Shareholder's equity increased slightly from December 31, 1996 to March
31, 1997. Regulatory capital ratios improved slightly over the same period,
primarily due to lower total and risk based assets.
YEAR ENDED DECEMBER 31, 1995 AND 1996
- -------------------------------------
The following discussion and analysis provides information regarding the
Company's consolidated financial condition and results of operations as of and
for the years ended December 41, 1995 and 1996. The discussion should be read
in conjunction with the financial information contained in "Description of
Business" and the consolidated financial statement and notes thereto. All
dollar amounts shown herein are in thousands except per share amounts.
EARNINGS SUMMARY
- ----------------
The Company's net income for 1996 was $3,276 compared with net income
for 1995 of $2,907, an increase of $369 or 12.7%. Earnings per share were
$3.17 in 1996 compared to $2.86 for 1995.
NET INTEREST INCOME
- -------------------
Net interest income is the principal component of net income for the
Company and is determined by the relative size and characteristics of
interest-earnings assets and interest-bearing liabilities. The increase in
net income in 1996 resulted primarily from an increase in net interest income.
For the years ended December 31, 1996 and 1995 net interest income was $10,422
and $9,585 respectively. This represents an increase in 1996 of $840 (8.03%).
Growth in net interest income as drawn primarily from growth in earning
assets. Average earning assets increased to $257,011 in 1996 from $234,731 in
1995, an increase of $22,280 (9.5%). The most significant increase in average
earning assets occurred in average loans which increased $16,943 (10.1%) to
$184,447 in 1996. Increasing loan balances was the primary cause of the
increase in net interest income during 1996. The following table sets forth,
for the periods indicated, information regarding the average balances of
interest-earning assets and interest-bearing liabilities, the dollar amount of
interest income and interest expense, and the resulting yield on average
interest-earning assets and rates on average interest-bearing liabilities.
Average balances are also provided for non-earning assets, non-interest-
bearing liabilities and shareholders' equity.
Net interest income also depends on the rates paid on assets and the
rates paid on liabilities. The net interest margin represents net interest
income as a percent of average earning assets. The net interest margin, or
13
<PAGE>
margin on earning assets, was 4.39% in 1996 and 4.37% in 1995. Interest rates
were low and stable during this time period and the result has been about the
same margins.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS
(Dollars in thousands)
1996 1995
------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
- --------------
Short-term Investments:
Interest-bearing balances
with Banks $ 2,274 $ 130 5.72% $ 1,034 $ 62 6.00%
Federal Funds Sold 7,317 433 5.92% 7,923 473 5.97
Securities:
Taxable 38,224 2,440 6.38% 39,394 2,498 6.34%
Non-taxable (1) 24,749 1,805 7.29% 18,876 2,424 7.54%
Loans and Leases: (2)
Taxable (3) 176,529 16,658 9.44% 160,915 15,062 9.36%
Non-taxable (1) 7,918 708 .94% 6,589 582 8.83%
-------- ------- ----- -------- ------- -----
Total Earning Assets $257,011 $22,174 8.63% $234,731 $20,101 8.56%
======== ======= ===== ======== ======= =====
Cash and Due from Banks 6,992 6,196
Premises and equipment,net 3,246 2,971
Intangible assets 1,678 1,899
Accrued interest receivable
and other assets 3,384 3,051
Less: Allowance for Loan Loss (1,976) (1,607)
-------- --------
TOTAL ASSETS $270,335 $247,241
======== ========
INTEREST BEARING
- ----------------
LIABILITIES
-----------
Savings and Interest-bearing
Demand Deposits $ 78,529 $ 2,247 2.86% $ 75,087 $ 2,155 2.87%
Time Deposits 148,079 8,590 5.80% 132,604 7,579 5.72%
Notes Payable 782 60 7.67% 1,247 102 8.18%
-------- ------- ----- -------- ------- -----
Total Interest-bearing
Liabilities $227,390 $10,897 4.79% $208,938 $ 9,836 4.71%
======== ======= ===== ======== ======= =====
Demand Deposit Accounts 20,136 18,778
Other Liabilities 2,396 1,879
-------- --------
TOTAL LIABILITIES 249,922 229,595
-------- --------
Shareholders' Equity 20,413 17,646
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $270,335 $247,241
======== ========
Net Interest/Spread $11,277 3.84% $10,265 3.85%
======= ===== ======= =====
Margin 4.39% 4.37%
===== =====
</TABLE>
14
<PAGE>
(1) Effective tax rates were determined as though interest earned on the
Company's investments in municipal bonds and loans was fully taxable.
Interest yields on state and municipal securities are presented on a
fully taxable equivalent basis using a 34% tax rate.
(2) Interest income on loans included fees of $437 and $370 for 1996 and
1995.
(3) Non-accrual loans are included in average balance.
The following table presents information regarding the Company's
interest income and interest expense for the periods indicated. The table
presents the amount of change in interest income or interest expense which is
attributable to the change in the average balance (volume) and the amount of
change which is related to change in rates. The net change, attributable to
the combined impact of volume and rate, has been allocated proportionately to
the change due to volume and the change due to rate. Increases in balances
were responsible for an increase in net interest income of $1,058 during 1996,
however, this was offset by a decrease in spread of $46 resulting in a $1,012
increase in net interest income.
<TABLE>
<CAPTION>
(Dollars in thousands)
1996-1995
Change Change
Total Due To Due To
Change Volume Rate
------ ------ ----
<S> <C> <C> <C>
EARNING ASSETS
Short-term Investments
Interest-bearing balances
with Banks $ 68 $ 71 $ (3)
Federal Funds Sold (40) - (40)
Securities:
Taxable (58) (75) 17
Non-taxable 381 430 (49)
Loans and Leases:
Taxable 1,596 1,472 124
Non-taxable 126 119 7
------- ------- -----
Total Earning Assets $2,073 $2,017 $ 56
======= ======= =====
INTEREST BEARING
LIABILITIES
Savings and Interest-Bearing
Demand Deposits $ 92 $ 99 $ (7)
Time Deposits 1,011 896 115
Notes Payable (42) (36) (6)
------- ------- -----
Total Interest-bearing
Liabilities 1,061 959 102
======= ======= =====
Net Interest/Spread $1,012 $1,058 $(46)
======= ======= =====
</TABLE>
NON-INTEREST INCOME
- -------------------
Total non-interest income was $2,349 in 1996 and $1,902 in 1995. This
reflected an increase in 1996 of $447 (23.5%). Service charges on deposit
accounts were relatively flat in 1996 compared to 1995. The amounts were
$1,199 in 1996 compared to $1,192 in 1995.
15
<PAGE>
Mortgage banking revenues included net gains and losses realized when
mortgage loans were sold into the secondary market, service fee revenue earned
from servicing those loans after they were sold and point income generated
from customers at time of closing. Mortgage banking revenue, as reflected in
the Company's financial statements, has not been reduced by the associated
costs, such as compensation expense, which is shown elsewhere within non-
interest expense. Total mortgage banking revenue was $795 in 1996 and $447 in
1995. This reflects an increase in 1996 of $348 (78%). The majority of this
increase is from the Company adopting FAS 122 which recognizes the income value
of servicing rights. This increased income in mortgage banking $225 in 1996.
The Bank sold its travel agency in April, 1996 so it could concentrate
its focus on additional banking facilities, products and services. As a
result travel commission decreased from $178 in 1995 to $66 in 1996 (62.8%).
The Company does not engage in the purchase and sale of securities with the
intent to generate gains. The Company may sell available-for-sale securities
for liquidity or to manage its asset/liability position. During 1996, such
sales, as well as gains and losses realized when securities were called prior
to their maturity, generated net gains of $104 compared to losses in 1995 of
$76.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense, or overhead, includes the costs of personnel,
occupancy, data processing equipment, insurance, and other costs of sustaining
operations. Overhead for the years ended December, 1996 and 1995 were $7,103
and $6,639, respectively. This reflects increases of $464 (7%) in 1996. More
than half of total non-interest expense was comprised of salaries and employee
benefits. During 1996 and 1995 salaries and employee benefits were $4,137 and
$3,725, respectively. This represents an 11% increase which was due to the
bank opening and staffing two new branches during 1996. The new branches are
expected to have a positive effect on net income by the beginning of 1998.
FDIC insurance expense decreased $249 in 1996 as a result of a decrease
in the premium rates charged to insured banks. Other operating expenses
increased $208 from 1995 to 1996 for a variety of reasons, including higher
advertising and promotional expenses, legal and professional fees, and charge
card expenses.
INCOME TAXES
- ------------
The Company's income tax expense was affected primarily by the level of
pre-tax income. As income increased, tax expense did as well. Tax expense
for 1996 increased $364 over 1995. The Company can and does purchase tax-free
investments and originates tax-free loans as a means of generating tax-free
income, effectively mitigating tax expense.
ASSET AND LIABILITY MANAGEMENT
- ------------------------------
The Company engages in a formal process of measuring and defining the
amount of interest rate risk. Interest rate risk is the effect on net
interest income resulting from changes in interest rates. The goal of the
asset and liability management process is to maintain a high, yet stable, net
interest margin by identifying the degree of interest rate risk and developing
tactics and strategies to mitigate the extent to which net interest income
will be affected by changes in interest rates.
The following tables illustrate the repricing opportunities, or "rate
sensitivity" of interest-earning assets and interest bearing liabilities. A
repricing may occur if the rate on the asset or liability changes as interest
rates change, or, when the rate is fixed, at the time they mature. The "gap"
is the difference between rate sensitive assets and rate sensitive liabilities
within a specific time frame. Gap is considered an indicator of the effect a
change in interest may have on net interest income.
As of December 31, 1996, the Company's rate sensitive liabilities
exceeded rate sensitive assets through one year. This would indicate that if
rates increase, net interest income may decrease. In order to determine
accurately the effect of changes in interest rates, the repricing effect of
each type of interest-earning asset and
16
<PAGE>
interest-bearing liability must be measured. Assets and liabilities have
different characteristics and the magnitude of change differs for each.
Management continually monitors the changes to net interest income which may
result from changing interest rates.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in thousands)
0-3 4-12 1-5 After Non-interest
months months years 5 years Bearing Total
------ ------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive Assets:
Cash and due from banks $ 10,772 $ - $ - $ - $ 2,213 $ 12,985
Fed Funds Sold 13,200 - - - - 13,200
Interest bearing balances - - - - - -
with financial institutions - 898 999 - - 1,897
Securities 3,460 5,538 46,828 7,768 - 63,594
Loans 40,103 100,731 36,897 17,337 1,895 196,963
Allowance for Loan Loss - - - - (2,000) (2,000)
Other assets - - - - 9,936 9,936
-------- -------- -------- -------- -------- --------
Total Assets $ 67,535 $107,167 $ 84,724 $ 25,105 $ 12,044 $296,575
-------- -------- -------- -------- -------- --------
Rate-sensitive Liabilities:
Non-interest bearing deposits $ - $ - $ - $ - $ 32,350 $ 32,350
Passbook Savings - 30,114 - - - 30,114
Interest bearing deposits 57,654 - - - - 57,654
CD's >100M 9,232 12,330 7,388 - - 28,950
CD's >100M 22,296 47,173 39,924 12 - 109,405
IRA's 2,115 3,369 7,169 - - 12,653
Note Payable 500 - - - - 500
Other liabilities - - - - 3,296 3,296
Capital - - - - 21,653 21,653
-------- -------- -------- -------- -------- --------
Total liabilities $ 91,797 $ 92,986 $ 54,481 $ 32,362 $ 57,299 $296,575
-------- -------- -------- -------- -------- --------
Periodic Gap $(24,262) $ 14,181 $ 30,243 $ 25,093 $(12,905)
Cumulative Gap $(24,262) $(10,081) $ 20,162 $ 45,255 $ -
</TABLE>
A significant assumption that creates the large negative gap in the 0 to
3 month category is that all interest-bearing demand accounts are subject to
immediate repricing. While it is true that contractually, those accounts are
subject to immediate repricing, the rates paid on those accounts are not
generally tied to specific indices and are influenced by market conditions and
other factors. Accordingly, a general movement in interest rates, either up
or down, may not have any immediate effect on the rates paid on these deposit
accounts. The foregoing table illustrates only one source of information
about sensitivity to interest rate movements. The core of the Company's asset
and liability management process consists of simulations that take into
account the time that various assets and liabilities may reprice and the
degree to which various categories of such assets and liabilities will respond
to general interest rate movements. Interest rate risk can only be
represented by a measurement of the effects of changing interest rates given
the capacity for, and magnitude of, change on specific assets and liabilities.
LIQUIDITY
- ---------
Liquidity refers to the availability of funds to meet deposit
withdrawals, fund loan commitments and pay expenses. During 1996, the
Company's loan portfolio increased to $197 million at December 31, 1996 from
$173
17
<PAGE>
million at December 31, 1995, an increase of $24 or 13.7%. Increases in
deposits provided on source of funding for loan growth in 1996. Average
interest-bearing deposits increased $21 (10%) between 1995 and 1996. Additional
funding for loan growth was provided through sales and maturities of securities.
A common measure of liquidity is the loan to deposit ratio. As of
December 31, the loan to deposit ratio of 72.6% in 1996, and 71.7% in 1995.
Increasing this ratio was an important goal for the Company's management
during 1996, and significantly added to the Company's profitability.
Loan commitments include unfunded portions of lines of credit and
commercial letters of credit. These unfunded commitments may or may not
require funding. At December 31, 1996 and 1995, such commitments totaled $30
million and $18 million, respectively. Loan commitments generate fee income for
the Company.
LOAN QUALITY
- ------------
The Company has maintained a high level of quality in the loan
portfolio. Non-performing loans are those loans which are past due more than
90 days and still accruing interest and those loans on which the Company no
longer accrues interest. As of December 31, 1996 and 1995, non-performing
loans totaled $1,828 and $1,464, respectively. As a percent of total loans,
non-performing loans were .93% at December 31, 1996 and .84% at December 31,
1995.
The provision for loan losses is a charge to earnings to provide for
potential loan losses. The provisions for loan losses was $828 in 1996 and
$740 in 1995. Coverage of potential loan losses is provided by the allowance
for loan losses. The adequacy of the allowance for loan losses is evaluated
at least quarterly by the credit review function and management based upon a
review of identified loans with more than a normal degree of risk, historical
loss percentages, and present and forecasted economic conditions affecting
borrowers. At December 31, the allowance for loan losses was $2,000 for 1996
and $1,722 for 1995. As a percent of total loans, the allowance for loan
losses was 1.02% and .99% at those points in time. Management's analysis
indicates that the allowance for loan losses at December 31, 1996, was
adequate to cover potential losses on identified loans with credit problems
and on the remaining portfolio. Contained within the general allowance for
loan loss specific allocations can be made if management can determine a loss.
In the case of the "Bennett Funding" loans management had specifically
reserved $475. Bennett Funding is a Syracuse, New York company which filed
for protection under the bankruptcy code in April, 1996.
Gross loan charge-offs in 1996 and 1995 were $726 and $855 respectively.
As a percentage of average loans, gross loan charge-offs were .39% and .51%
for those periods.
Effective January 1, 1995, the Company was required to adopt Financial
Accounting Standard No. 114 (FAS 114) which required recognition of loan
impairment. Loans are considered impaired if full principal or interest
payments are not anticipated. Impaired loans are carried at the present value
of expected cash flows discounted at the loan's effective interest rate or at
the fair value of the collateral if the loan is collateral dependent. A
portion of the allowance for loan losses is allocated to impaired loans. The
Company's average investment in impaired loans during 1996 was $844. At
December 31, 1996, $1,300 of loans were deemed to be impaired and $475 of the
allowance for loan losses was allocated to those loans. At December 31, 1995,
impaired loans were $129. The large increase in impaired loans was related to
loans to Bennett Funding.
CAPITAL
- -------
In June, 1994, the Company completed a rights offering of its common
shares at $25.00 per share ($15.50 per share when adjusted for a subsequent
stock split and stock dividend). The net proceeds after commissions and
expenses from the sale of 60,000 shares were approximately $1,480. This rights
offering included options which were exercised in January 1996, resulting in the
issuance of 28,449 shares for a total of $485 at $17.05 per share ($15.50 when
adjusted for a subsequent stock dividend). In April, 1996, the Company
repurchased 22,632 shares at a market price of $30 per share ($27.27 when
adjusted for a subsequent stock dividend).
18
<PAGE>
Both the Company and the Bank are required to comply with capital
requirements promulgated by their primary regulators. Those regulations
require the maintenance of specified levels of capital to total assets (the
leverage ratio) and to risk-weighted assets (the risk-based capital ratio).
These regulations require maintaining a leverage ratio of at least 5% for "well
capitalized" entities and a total risk-based capital ratio of at least 10%.
The Company and the Bank were in full compliance with all regulatory
capital requirements at December 31, 1996. The following table indicates the
Company's actual capital levels at the dates indicated.
<TABLE>
<CAPTION>
REGULATORY CAPITAL REQUIREMENTS
Minimum Required
To be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to
Risk
Weighted Assets)
Company $21,836 11.60% $15,055 8.0% $18,819 10.0%
Bank $21,487 11.46% $14,995 8.0% $18,744 10.0%
Tier I Capital (to
Risk
Weighted Assets
Company $19,836 10.54% $ 7,528 4.0% $11,291 6.0%
Bank $19,487 10.40% $ 7,498 4.0% $11,246 6.0%
Tier I Capital (to
Average Assets)
Company $19,836 6.73% $11,795 4.0% $14,744 5.0%
Bank $19,487 6.63% $11,753 4.0% $14,692 5.0%
</TABLE>
The Company and Bank at year-end 1996 were categorized as well
capitalized.
SELECTED FINANCIAL RATIOS
- -------------------------
The following table indicated certain key financial ratios for the
Company for the years indicated:
1996 1995
---- ----
Return on Assets 1.21% 1.18%
Return on Equity 16.05% 16.48%
Dividend Payout 21% 19%
Ratio
Equity to Assets 7.55% 7.14%
Ratio
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
Financial Accounting Standard No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, was issued by
the Financial Accounting Standards Board in 1996. It revises the accounting
for transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is effective for some
transactions in 1997 and others in 1998. The effect on the financial statements
is not expected to be material.
19
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
-----------------------
The Bank's principal office is located in Brookville, Indiana and
fourteen (14) of its branches are owned in fee simple by the Bank. The Bank's
branches at the Marsh Supermarket in Rushville, the Whitewater Valley Shopping
Center in Connersville, and the Jay C Supermarket in Greensburg, Indiana are
leased from third parties. These leases expire in January 31, 2015, February
28, 2012 and February 28, 2020, respectively.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 31, 1997,
regarding ownership of Common Stock of the Company by (i) the only persons
known by the Company to own beneficially more than 5% thereof; (ii) the
directors and the chief executive officer of the Company individually and
(iii) all officers and directors of the Company as a group.
NAME AND ADDRESS
- ----------------
OF
--
BENEFICIAL OWNER SHARES PERCENT
- ---------------- ------ -------
Robert S. Dunevant........... 223,535 (1) ............... 21.82%
3402 N. Dearborn Road
West Harrison
In 47060
James L. Saner, Sr........... 17,006 (2) ............... 1.64%
105 S. Mulberry
Batesville
IN 47006
Dale J. Deffner.............. 72,166 (3) ............... 7.05%
11013 Lakeside Terrace
Brookville
IN 47012
Dale E. Smith................ 32,436 (4) ............... 3.17%
13103 N SR 1
Brookville
IN 47012
John E. Back................. 30,833 (5) ............... 3.01%
1072 Fairfield
Brookville
IN 47012
All officers and
directors as a group
(5 people) (6)............. 375,976 ............... 36.3%
1. Includes 95,482 shares owned by Helen Dunevant, his wife and 1,773 options
to purchase shares which are currently exercisable or exercisable within
sixty (60) days.
20
<PAGE>
2. Includes 3,320 shares in a self-directed IRA; 532 shares in Mr. Saner's
wife's IRA, 184 shares owed for the benefit of Mr. Saner's sons and
10,840 options to purchase shares which are currently exercisable or
exercisable within sixty (60) days.
3. Includes 35,581 shares owned by Mr. Deffner's wife directly and in an
IRA and 3,225 shares owned by Mr. Deffner in a self-directed IRA.
4. Includes 16,300 shares owned by Mr. Smith's wife and 8,817 shares held
in trust for Mr. Smith's grandchildren for which he is trustee.
5. Includes 23,377 shares owned by Mr. Back's wife.
6. Includes 12,613 options to purchase shares which are currently exercisable
or exercisable within sixty (60) days.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The directors and executive officers of the Company and the Bank, their
respective ages at March 31, 1997 and their respective positions with the
Company and Bank are listed below:
NAME AGE POSITION
---- --- --------
Robert S. Dunevant 76 Chairman of the Board
of the Company
James L. Saner, Sr. 45 President, Chief
Executive Officer and
Director of the Company
and the Bank
Dale E. Smith 63 Secretary and Director
of the Company and
Director of the Bank
John E. Back 67 Director of the Company
and the Bank
Dale J. Deffner 64 Director of the Company
and Chairman of the Board
of the Bank
Dieter K.H. Johnsen 62 Director of the Bank
Larry A. Johnson 47 Director of the Bank
Norman L. Winkler 59 Director of the Bank
Mark W. Dunevant 41 Senior Vice President
of the Bank
Elaine M. Cook 55 Senior Vice President
of the Bank
21
<PAGE>
John C. Parker 44 Senior Vice President and
Comptroller of the Bank
Lynn T. Gordon 47 Executive Vice President
of the Bank
Lloyd L. Estep III 37 Vice President of the Bank
Robert S. Dunevant has been Chairman of the Board of the Company since
1984. He was President of Farmers and Merchants State Bank of Oldenburg when
it merged with the Bank in 1983 and served as President/CEO of the Bank from
1983 until his retirement in 1988. He lives in West Harrison, Indiana. Robert
Dunevant is the father of Mark Dunevant.
James L. Saner, Sr. has been President, Chief Executive Officer and a
director of the Company and Bank since 1989. He lives in Batesville, Indiana.
Dale E. Smith has been Secretary and a director of the Company and the
Bank since 1983. He is President of Smith Realty and Insurance, Inc. in
Brookville and lives in Franklin County, Indiana.
John E. Back has been a director of the Company and the Bank since 1987.
From 1949 until his retirement in 1990 he was employed by Sperry Rubber &
Plastics most recently as Senior Vice President. He lives in Brookville,
Indiana.
Dale J. Deffner has been a director of the Company since 1984 and a
director of the Bank since 1974. He lives in Brookville, Indiana. He is a
Licensed Public Accountant and has been a partner of Deffner & Tebbe
Accounting Firm in Brookville since 1969.
Dieter K.H. Johnsen has been a director of the Bank since 1989. He owns
Dieter K.H. Johnsen, Inc., a veneering business and has engaged in that
business for more than five years. He lives in Aurora, Indiana.
Larry A. Johnson has been a director of the Bank since 1987. He has
owned a liquor store in Rushville, Indiana since 1991. Prior to that he
worked for a farm implement dealer in Rushville. Mr. Johnson resides in Rush
County, Indiana.
Norman L. Winkler has been a director of the Bank since 1987. He has
been a lifelong farmer and resident of Rush County, Indiana.
Mark W. Dunevant has been Senior Vice President of the Bank since
February, 1995. From 1991 to February, 1995 he served as a Vice President of
the Bank and a regional manager of branches. He has been employed by the Bank
since 1981. Mark Dunevant is the son of Robert Dunevant.
Elaine Cook has been Senior Vice President/Compliance Officer of the
Bank since 1990 and has been with the Bank since 1988 when the Bank of
Versailles was merged with People's Trust Company. She was President of Bank
of Versailles from 1978 until the merger and lives in Versailles, Indiana.
John Parker has been Senior Vice President/Controller of the Bank since
1990 and has been with the Bank since 1988. He was previously employed by
Ripley County Bank in Versailles, Indiana. He resides in Versailles, Indiana.
Lynn T. Gordon was named Executive Vice President on January 1, 1997. He
has been with the Bank since November, 1993 serving as Senior Vice
President/Retail Services. Prior to that he worked for Star Bank for several
years.
22
<PAGE>
Lloyd L. Estep III was named Senior Commercial Lender in December, 1996.
He has been with the Bank since 1987, serving as a commercial lender and Vice
President.
Directors are elected annually by the shareholders. Officers are
elected annually by, and serve at the pleasure of, the Board.
ITEM 6. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the remuneration of James L. Saner, the
Company's Chief Executive Officer and the only executive officer whose total
compensation exceeded $100,000 for the year ended December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
All Other
Long Term Compensation Compen-
Annual Compensation Awards Payouts sation
----------------------------------- ----------------------------------- ---------
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP
Name and Salary Bonus sation Award(s) Options Payouts
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James L. Saner, Sr. 1996 127,000 30,000 - -0- 500 -0- -0-
CEO 1995 120,000 25,000 - -0- 1,650 -0- -0-
1994 110,000 20,000 - -0- 1,775 -0- -0-
</TABLE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#)(1) Fiscal Year $/Sh) Date
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
James L. Saner, Sr. 550 21.27% $27.27 11/1/05
</TABLE>
(1) Generally, options granted under the Stock Option Plans become
exercisable over a four-year period, 25% each year, and are subject to the
employee's continued employment. Stock options are issued at the estimated
fair market value on the date of grant.
23
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
10,840/ 172,764/
James L. Saner, Sr. -0- -0- 3,783 46,042
</TABLE>
DIRECTORS' FEES. The Bank pays outside directors $3,600 per year, plus
committee fees of $3,000 per year for the Loan Committee and $800 per year for
all other committees. The Company pays outside directors' fees of $10,000 per
year. Neither the Company nor the Bank provides any other benefits to
directors except that each director is provided life insurance coverage of
$10,000 while serving as a board member.
STOCK OPTION PLANS. The Company maintains two stock compensation plans
to provide continuing long-term incentives to selected eligible key employees
and directors of the Company and the Bank, to provide a means of rewarding
outstanding performance by such individuals and to enable the Company and the
Bank to attract and retain key personnel necessary for the continued long-term
growth and profitability of the Company. The Company's Nonqualified Stock
Option Plan (the "Nonqualified Plan") covers an aggregate of 10,648 shares of
Common Stock. The Company's Incentive Stock Option Plan (the "Incentive Plan")
covers an aggregate of 33,719 shares of Common Stock.
THE NONQUALIFIED PLAN. The Nonqualified Plan is administered by the
Board of Directors (the "Board"). The Board may interpret the Nonqualified
Plan and, subject to its provisions, may prescribe, amend and rescind rules
and make all other determinations necessary or desirable for the
administration of the Nonqualified Plan. Subject to certain limits set forth
in the Nonqualified Plan, the Board has complete discretion to select the
participants, establish the manner in which options are granted and exercised,
cancel or modify options in certain situations, and otherwise prescribe all of
the terms and provisions of options granted under the Nonqualified Plan. All
options granted under the Nonqualified Plan are non-qualified stock options.
As of March 31, 1997, 1,949 were outstanding under the Nonqualified Plan
and available for exercise with an effective exercise prices of $13.24 to $13.34
per share (which was 100% of the book value of the shares on the date of grant).
The individuals participating in the Nonqualified Plan incur personal taxable
income and the Company receives a tax deduction for the difference between the
market value and the exercise price upon exercise of the options.
THE INCENTIVE PLAN. The Incentive Plan is administered by a committee
composed of at least three members of the Board of Directors, none of whom are
eligible to participate in the Incentive Plan (the "Committee"). The
Committee may interpret the Incentive Plan and, subject to its provisions, may
prescribe, amend and rescind rules and make all other determinations necessary
or desirable for the administration of the Incentive Plan. Subject to certain
limits set forth in the Incentive Plan, the Committee has complete discretion
to select the participants, establish the manner in which options are granted
and exercised, cancel or modify options in certain situations, and otherwise
prescribe all of the terms and provisions of options granted under the
Incentive Plan.
As of March 31, 1997, options for 30,731 shares of Common Stock had been
granted under the Incentive Plan. Of the 30,731 shares subject to outstanding
options, options for 9,995 shares are fully
24
<PAGE>
vested and options for the remaining 20,736 shares are subject to a four year
vesting schedule. The option exercise prices range from $14.65 to $27.27 per
share which was the Board of Director's determination of the stock's fair market
value per share at the date of grant.
Options under the Incentive Plan may only be "incentive stock options"
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"). The exercise price of incentive stock options granted
under the Incentive Plan may not be less than 100% of the fair market value of
the Common Stock on the date of grant, as determined by the Committee, and the
term of any option may not exceed ten years. With respect to any employee who
owns stock possessing more than 10% of the voting power of the outstanding
stock of the Company, the exercise price of any incentive stock option must be
at least equal to 110% of the fair market value of such shares on the date of
grant, and the term of any option may be no longer than five years. The
aggregate fair market value of the Common Stock (determined at the date of the
option grant) with respect to which incentive stock options are exercisable
for the first time by any individual during any calendar year may not exceed
$100,000.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
From time to time, the Bank makes loans to its directors and officers
and to directors, officers and principal shareholders of the Company. At
December 31, 1996, such loans and extensions of credit totaled, in the
aggregate, $2,139,417. Such loans and all similar loans or advances
outstanding during any of the two prior years, were made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and have not involved
more than the normal risk of collectibility or presented other unfavorable
features. All such loans were in the ordinary course of business. The
Company expects the Bank will engage in similar transactions in the future to
the extent permitted by applicable federal and state banking laws.
Dale E. Smith, one of the directors and the Secretary of the Company and
the Bank, is the President and principal shareholder of Smith Insurance and
Real Estate Agency. From time to time, the Company and the Bank utilize the
services provided by that Agency. Such payments were $15,699 in 1995 and
$37,753 in 1996.
ITEM 8. DESCRIPTION OF SECURITIES
-------------------------
The rights of the holders of capital stock of the Company are
established pursuant to the Articles of Incorporation and the By-laws of the
Company. The Articles of Incorporation are subject to amendment from time to
time by a majority vote of the Directors and shareholders of the Company. The
By-laws may be amended by majority vote of the Directors. The foregoing and
following discussion consists of a summary of the terms of the authorized
capital stock of the Company and is qualified in its entirety by the current
terms of the entire Articles of Incorporation of the Company.
The Company is authorized to issue 2,000,000 shares of Common Stock, no
par value, and 1,000,000 shares of Preferred Stock.
COMMON STOCK
- ------------
As of March 31, 1997, there were 1,024,452 shares of Common Stock
outstanding which were held of record by approximately 544 shareholders. The
holders of shares of Common Stock are entitled to one vote per share upon all
matters coming before the shareholders for a vote, including the election of
directors, but do not have cumulative voting rights or preemptive rights.
Shares of Common Stock are not redeemable, do not have any conversion rights,
and are not liable for assessments. After the payment of preferential
dividends to holders of any series or class of Preferred Stock if created in
the future having a dividend preference as may be determined and authorized by
the Board of Directors, holders of Common Stock are entitled to receive
dividends when and as declared by the Board of Directors from funds legally
available therefor. Upon any liquidation, dissolution or winding up of the
Company, or upon the merger, consolidation, reorganization, or the sale of the
assets of the Company, holders of Common Stock are entitled to receive pro
rata all assets remaining available for
25
<PAGE>
distribution to shareholders after satisfaction of all amounts owed to creditors
of the Company and any preferential rights of the holders of Preferred Stock if
any are created in the future.
PREFERRED STOCK
- ---------------
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, voting rights, terms of redemption
prices liquidation preferences and the number of shares constituting any
series or the designation of such series, without further vote or action by
the stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the shareholders and may adversely affect the voting and
other rights of the holders of the Common Stock. At present, the Company has
no plans to issue any of the Preferred Stock.
INDIANA LAW
- -----------
Under the Indiana Business Corporation Law ("IBCL"), several provisions
could affect the acquisition of the shares of or control over the Company. The
IBCL contains a Control Share Acquisition Chapter that may have the effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. The Control Share Acquisition Chapter, which is
currently applicable to the Company, provides that, unless otherwise provided in
a corporation's articles of incorporation or bylaws, shares acquired in certain
acquisitions of the corporation's stock (which take the acquiror over the
successive thresholds of 20%, 33% and 50% of the corporation's stock) will be
accorded voting rights only if a majority of the disinterested shareholders
approves a resolution granting the potential acquiror the ability to vote such
shares. An Indiana corporation is subject to the Control Share Acquisition
Chapter if it has 100 or more shareholders and its principal place of business
is in Indiana. An Indiana corporation otherwise subject to the Control Share
Acquisition Chapter may elect not to be governed by the statute by so providing
in its articles of incorporation or bylaws. The Company has not made such an
election and, therefore, the Company is subject to the statute.
In addition to the Control Share Acquisition Chapter, the IBCL contains
a Business Combinations Chapter. The Business Combinations Chapter provides
that, unless a company elects not to be governed by that chapter, certain
Indiana corporations and a 10% or greater shareholder may not engage in
certain business combinations, including mergers, sales of assets,
recapitalizations, and reverse stock splits for five years following the date
on which the shareholder obtained a 10% or greater ownership interest, unless
the acquisition has been approved in advance of that date by the Board of
Directors. In addition, if prior approval is not obtained, the Company and
such shareholder may not consummate a business combination unless a majority
of disinterested shareholders approve the transaction or all shareholders
receive a price per share determined in accordance with the Business
Combinations Chapter.
The IBCL specifically authorizes directors, in considering the best
interests of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, the
communities in which offices or other facilities of the corporation are
located, and any other factors the directors consider pertinent. Under the
IBCL, directors are not required to approve a proposed business combination or
other corporation action if the directors determine in good faith, after
considering and weighing as they deem appropriate the effects of such action
on the corporation's constituents, that such approval is not in the best
interest of the corporation. The IBCL explicitly provides that the different
or higher degree of scrutiny imposed in Delaware and certain other
jurisdictions upon director actions taken in response to potential changes in
control are inconsistent with the proper application of the applicable
provisions of the IBCL.
In taking or declining to take any action or in making any
recommendation to a corporation's shareholders with respect to any matter,
directors are authorized under the IBCL to consider both the short-term and
long-term interests of the corporation as well as interests of other
constituencies and other relevant factors. Any determination made with
respect to the foregoing by a majority of disinterested directors shall
conclusively be presumed to be valid unless it can be demonstrated that such
determination was not made in good faith.
26
<PAGE>
Because of the foregoing provisions of the IBCL, the Board has
flexibility in responding to unsolicited proposals to acquire the Company, and
accordingly, it may be more difficult for an acquiror to gain control of the
Company in a transaction not approved by the Board.
The IBCL also imposes restrictions in connection with shareholder
derivative proceedings. The IBCL provides that if a shareholder of the
corporation files a derivative complaint, the corporation's board of directors
may establish a committee of disinterested directors or other disinterested
persons to investigate the complaint. The IBCL authorizes a stay of any court
proceedings on the complaint until the investigation of such committee is
completed. If the committee determines that pursuit of the claim through the
derivative proceeding would not be in the best interests of the corporation,
then the committee can terminate the derivative proceeding. The conclusion of
the committee is determinative unless the shareholder who filed the complaint
can demonstrate that the committee was not disinterested or did not act in
good faith.
REGISTRAR/TRANSFER AGENT
------------------------
The Bank serves as the registrar and transfer agent for the Common
Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
-------------------------------------------------------------------
OTHER SHAREHOLDER MATTERS
-------------------------
Although the shares of common stock have been traded sporadically in the
over-the-counter market, there is no established public trading market for the
shares. Because of the very limited trading, historical bid prices must be
considered somewhat arbitrary and not reflective of any actual value of the
shares or an actual trading range. The only historical bid prices of which
the Company has a record are those provided to the Company upon its request by
the brokers known by the Company to deal in the Company's common stock. As of
March 31, 1997, approximately 1,024,452 shares of common stock were
outstanding held of record by approximately 544 persons, and there were
outstanding options which were exercisable on that date (or within 60 days
thereof) for approximately 11,904 shares of common stock. All of the
outstanding shares are common stock are eligible for sale pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended.
The following table sets forth the high and low bid prices and the last
sale price for the common stock for the quarters during the years indicated,
based upon information obtained by management of the Company from the only
broker known by the Company to deal in the Company's common stock. Management
of the Company has not verified the accuracy of the following information. The
referenced prices may not reflect an actual tracking range and may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Bid Price Per Share
-------------------
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
High $25 $25 $25.50 $25.50
Low 25 25 25 25.50
Last Sale 25 25 25.50 25.50
1996
----
High $25.50 $30 $30 $31
Low 25.50 25.50 30 30
Last Sale 25.50 30 30 31
1997
----
High $31 $31
Low 31 31
Last Sale 31 31
</TABLE>
27
<PAGE>
The principal source of revenue of the Company is dividends from the
Bank. Therefore, the Company is dependent upon the dividends paid by the Bank
for funds to pay dividends on the common stock. The Bank's ability to pay
dividends to the Company, the Company's ability to pay dividends to holders of
the shares and the ability of the Bank to loan funds to the Company are all
restricted and limited as described in "DESCRIPTION OF BUSINESS--REGULATION
AND SUPERVISION." The Company has declared cash dividends on its common stock
as follows: (adjusted for stock dividends in 1995 and 1996)
Cash Dividends
Calendar Quarter Per Common Share
---------------- ----------------
1995:
First Quarter . . . . . . . . . $ .125
Second Quarter . . . . . . . . . .130
Third Quarter . . . . . . . . . .130
Fourth Quarter . . . . . . . . . .145
1996:
First Quarter . . . . . . . . . $ .145
Second Quarter . . . . . . . . . .165
Third Quarter . . . . . . . . . .165
Fourth Quarter . . . . . . . . . .185
The Company currently anticipates paying quarterly cash dividends
although the payment of such dividends is subject to the discretion of the
Board of Directors. The declaration of future dividends will depend on, among
other things, the earnings, financial condition and cash requirements of the
Company at the time such payment is considered, and on the ability of the
Company to receive dividends from the Bank the amount of which is subject to
regulatory limitations. No assurance can be given that any future dividends
will be declared or paid.
ITEM 2. LEGAL PROCEEDINGS
-----------------
The Bank from time to time is a party to routine litigation incidental
to its business. The Company is not currently a party to any material
litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
In connection with a rights offering, the Company issued, pursuant
to an exemption under Regulation A, 60,000 shares in June, 1994 and 28,449
shares in January, 1996. The June, 1994 shares were offered only to current
existing shareholders of the Company at $25.00 per share. In that offering,
each purchasing shareholder was given an option to purchase one additional share
at $25.00 per share (subject to stock splits and dividends) for every three
shares purchased in the offering. The option was exercisable only in the event
that the Company, in its sole discretion, elected to make shares available to
purchase pursuant to the option. The options were exercised in January, 1996.
28
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The Indiana Business Corporation law, as amended, authorizes Indiana
corporations to indemnify officers and directors from liability for non-
negligent acts and omissions, and permits the purchase of insurance on behalf
of such persons in this regard. In addition, the shareholders of a
corporation may approve the inclusion of other or additional indemnification
provisions in the articles of incorporation and by-laws.
The by-laws of the Registrant require the Registrant to indemnify any
person who is or was a director of officer of the Registrant against any and
all liabilities and reasonable expenses incurred by such person in connection
with or resulting from any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of the
Registrant, or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, provided that it is determined: (i)
such person's conduct was in good faith; (ii) such person reasonably believed
his or her conduct was in or not opposed to the best interests of the
Registrant; and (iii) in the case of criminal proceedings, such person had no
reasonable cause to believe his or her conduct was unlawful.
29
<PAGE>
P.T.C. BANCORP
Brookville, Indiana
FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (unaudited)
CONTENTS
REPORT OF INDEPENDENT AUDITORS ............................. 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ........................ 2
CONSOLIDATED STATEMENTS OF INCOME .................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS .............. 5
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY ............................ 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ......... 8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
P.T.C. Bancorp
Brookville, Indiana
We have audited the accompanying consolidated balance sheets of P.T.C. Bancorp
as of December 31, 1996 and 1995, and the related consolidated statements of
income, cash flows, and changes in shareholders' equity for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 referred to above
present fairly, in all material respects, the financial position of P.T.C.
Bancorp as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Indianapolis, Indiana
January 23, 1997
1
<PAGE>
P.T.C. BANCORP
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995 and
March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
(Unaudited)
March 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 14,435,227 $ 26,185,347 $ 24,474,107
Interest bearing balances with
financial institutions 1,897,000 1,897,000 2,386,369
Securities available for sale,
at fair value 37,582,871 38,375,826 38,426,368
Securities held to maturity 26,550,696 25,218,575 19,500,690
Loans, net of deferred loan fees 201,427,459 196,963,140 173,178,986
Allowance for loan losses (1,850,979) (2,000,324) (1,721,947)
------------ ------------ ------------
Net loans 199,576,480 194,962,816 171,457,039
Premises and equipment, net 3,787,746 3,511,742 3,066,738
Intangible assets 1,803,887 1,619,480 1,838,483
Accrued interest receivable and
other assets 4,552,251 4,805,212 3,561,956
------------ ------------ ------------
$290,186,158 $296,575,998 $264,711,750
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 22,206,049 $ 32,349,585 $ 19,752,746
Interest bearing deposits 242,633,810 238,777,267 221,981,686
------------ ------------ ------------
Total deposits 264,839,859 271,126,852 241,734,432
Notes payable 407,500 500,000 1,000,000
Accrued interest payable and
other liabilities 2,737,698 3,295,811 2,759,219
------------ ------------ ------------
Total liabilities 267,985,057 274,922,663 245,493,651
------------ ------------ ------------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value;
1,000,000 shares authorized,
no shares issued and
outstanding
Common stock, $1 stated value:
2,000,000 shares authorized,
1,024,452, 1,024,276
and 924,069 shares issued 1,024,452 1,024,276 924,069
and outstanding
Additional paid-in capital 10,415,318 10,413,146 7,908,794
Retained earnings 10,718,921 10,017,584 10,208,434
Unrealized gain on securities
available for sale, net 42,410 198,329 176,802
------------ ------------ ------------
Total shareholders' equity 22,201,101 21,653,335 19,218,099
------------ ------------ ------------
$290,186,158 $296,575,998 $264,711,750
============ ============ ============
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 17,125,228 $ 15,446,482
Interest on investment securities
Taxable 2,440,146 2,497,641
Non-taxable 1,190,681 940,240
Interest on balances with
financial institutions 129,627 62,347
Interest on federal funds sold 433,394 473,399
------------ ------------
Total interest income 21,319,076 19,420,109
INTEREST EXPENSE
Interest on deposits 10,837,329 9,733,562
Interest on notes payable 59,968 101,717
------------ ------------
Total interest expense 10,897,297 9,835,279
------------ ------------
NET INTEREST INCOME 10,421,779 9,584,830
Provision for loan losses 828,000 740,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 9,593,779 8,844,830
NON-INTEREST INCOME
Service charges on deposit accounts 1,198,556 1,192,275
Mortgage banking income 795,208 446,859
Securities gains/(losses) 103,650 (76,367)
Travel commission income 66,249 177,906
Other income 185,480 161,004
------------ ------------
Total non-interest income 2,349,143 1,901,677
NON-INTEREST EXPENSES
Salaries and employee benefits 4,136,754 3,724,693
Occupancy and equipment expense 832,571 763,126
Data processing expense 372,441 349,613
FDIC assessment 2,000 250,796
Other operating expenses 1,759,694 1,551,058
------------ ------------
Total non-interest expense 7,103,460 6,639,286
------------ ------------
INCOME BEFORE INCOME TAXES 4,839,462 4,107,221
Provision for income taxes 1,563,693 1,199,964
------------ ------------
NET INCOME $ 3,275,769 $ 2,907,257
============ ============
Net income per share $ 3.17 $ 2.86
============ ============
Weighted average common shares outstanding 1,031,922 1,016,476
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,516,436 $ 4,029,611
Interest on investment securities
Taxable 588,626 600,596
Non-taxable 321,927 268,177
Interest on balances with financial
institutions 26,186 39,551
Interest on federal funds sold 101,512 162,299
------------ ------------
Total interest income 5,554,687 5,100,234
INTEREST EXPENSE
Interest on deposits 2,767,705 2,624,842
Interest on notes payable 9,125 19,800
------------ ------------
Total interest expense 2,776,830 2,644,642
------------ ------------
NET INTEREST INCOME 2,777,857 2,455,592
Provision for loan losses 190,000 132,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,587,857 2,323,592
NON-INTEREST INCOME
Service charges on deposit accounts 298,481 286,745
Mortgage banking income 197,562 206,418
Securities gains/(losses) - -
Travel commission income - 47,622
Other income 41,165 39,482
------------ ------------
Total non-interest income 537,208 580,267
NON-INTEREST EXPENSES
Salaries and employee benefits 1,053,875 1,069,955
Occupancy and equipment expense 275,380 232,147
Data processing expense 94,190 92,954
FDIC assessment 5,164 500
Other operating expenses 416,105 371,404
------------ ------------
Total non-interest expense 1,844,714 1,766,960
------------ ------------
INCOME BEFORE INCOME TAXES 1,280,351 1,136,899
Provision for income taxes 389,490 390,613
------------ ------------
NET INCOME $ 890,861 $ 746,286
============ ============
Net income per share $ 0.87 $ 0.73
============ ============
Weighted average common shares outstanding 1,024,335 1,026,907
============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,275,769 $ 2,907,257
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 282,456 294,920
Provision for loan losses 828,000 740,000
(Gain)/loss on sale of securities (103,650) 76,367
Amortization of intangible assets 219,003 230,006
Change in accrued interest receivable and other assets (1,257,376) 17,776
Net amortization/(accretion) on securities 115,337 (86,123)
Change in accrued interest payable and other liabilities 536,591 655,718
------------ ------------
Net cash from operating activities 3,896,130 4,835,921
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (727,460) (633,368)
Loans made to customers and principal collections thereon (24,333,777) (14,701,975)
Proceeds from sales, maturities, and principal paydowns
of securities available for sale 17,658,091 21,903,216
Proceeds from maturities and principal paydowns
of securities held to maturity 7,121,140 5,514,261
Purchases of securities available for sale (17,615,607) (20,898,559)
Purchases of securities held to maturity (12,807,006) (6,712,188)
Net change in deposits with other financial institutions 489,369 (1,102,398)
------------ ------------
Net cash from investing activities (30,215,250) (16,631,011)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts 29,392,420 19,435,429
Payments on note payable (500,000) (407,500)
Dividends paid (678,929) (542,520)
Redemption of shares of stock (689,590) -
Proceeds from issuance of stock 506,459 -
------------ ------------
Net cash from financing activities 28,030,360 18,485,409
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,711,240 6,690,319
Cash and cash equivalents at beginning of year 24,474,107 17,783,788
------------ ------------
Cash and cash equivalents at end of year $ 26,185,347 $ 24,474,107
============ ============
Cash paid during the period for:
Interest $ 10,879,210 $ 9,223,655
Income taxes 1,721,825 1,224,500
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 890,861 $ 746,286
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 123,036 91,035
Provision for loan losses 190,000 132,000
(Gain)/loss on sale of securities - -
Amortization of intangible assets 55,971 55,048
Change in accrued interest receivable and other assets 354,716 230,559
Net amortization/(accretion) on securities 28,320 19,799
Change in accrued interest payable and other liabilities (558,113) (165,594)
------------ ------------
Net cash from operating activities 1,084,791 1,109,133
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (399,040) (169,771)
Loans made to customers and principal collections thereon (4,803,664) (6,115,775)
Proceeds from sales, maturities, and principal paydowns
of securities available for sale 2,569,178 3,981,168
Proceeds from maturities and principal paydowns
of securities held to maturity 1,279,205 1,770,038
Purchases of securities available for sale (1,981,482) (6,135,240)
Purchases of securities held to maturity (2,692,060) (5,427,776)
Net change in deposits with other financial institutions - 95,101
------------ ------------
Net cash from investing activities (6,027,863) (12,002,255)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts (13,075,424) (5,371,743)
Deposits assumed in branch acquisition, net of
premium paid ($240,379) 6,548,052 -
Payments on note payable (92,500) (92,500)
Dividends paid (189,524) (152,393)
Proceeds from issuance of stock 2,348 484,015
------------ ------------
Net cash from financing activities (6,807,048) (5,132,621)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (11,750,120) (16,025,743)
Cash and cash equivalents at beginning of period 26,185,347 24,474,107
------------ ------------
Cash and cash equivalents at end of period $ 14,435,227 $ 8,448,364
============ ============
Cash paid during the period for:
Interest $ 2,782,201 $ 2,733,307
Income taxes 86,000 95,000
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995 and
Three months ended March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
------ ---------- --------
<S> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 $ 857,627 $ 6,155,621 $ 9,868,073
Net income 2,907,257
Cash dividends ($.53 per share) (542,520)
Cancellation of treasury shares (17,907) (186,854)
10% stock dividend (Note 1) 84,349 1,940,027 (2,024,376)
Change in unrealized gain/(loss)
on securities
------------ ------------ ------------
BALANCES AT DECEMBER 31, 1995 924,069 7,908,794 10,208,434
Net income 3,275,769
Cash dividends ($.66 per share) (678,929)
10% stock dividend (Note 1) 92,923 2,694,767 (2,787,690)
Redemption of shares (22,634 shares) (22,634) (666,956)
Exercised stock options (1,469 shares) 1,469 19,934
Issuance of shares to existing
shareholders (28,449 shares) 28,449 456,607
Change in unrealized gain/(loss)
on securities
------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 1,024,276 10,413,146 10,017,584
Net income (unaudited) 890,861
Cash dividends ($.18 per share)
(unaudited) (189,524)
Exercised stock options (176 shares) 176 2,172
Change in unrealized gain/(loss)
on securities (unaudited)
------------ ------------ ------------
BALANCE AT MARCH 31, 1997 (UNAUDITED) $ 1,024,452 $ 10,415,318 $ 10,718,921
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain/(loss)
on Securities Total
Treasury Available Shareholders'
Stock for Sale Equity
-------- ------------- -------------
<S> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 $ (204,761) $ (909,344) $ 15,767,216
Net income 2,907,257
Cash dividends ($.53 per share) (542,520)
Cancellation of treasury shares 204,761 -
10% stock dividend (Note 1) -
Change in unrealized gain/(loss)
on securities 1,086,146 1,086,146
------------ ------------ ------------
BALANCES AT DECEMBER 31, 1995 - 176,802 19,218,099
Net income 3,275,769
Cash dividends ($.66 per share) (678,929)
10% stock dividend (Note 1) -
Redemption of shares (22,634 shares) (689,590)
Exercised stock options (1,469 shares) 21,403
Issuance of shares to existing
shareholders (28,449 shares) 485,056
Change in unrealized gain/(loss)
on securities 21,527 21,527
------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 - 198,329 21,653,335
Net income (unaudited) 890,861
Cash dividends ($.18 per share)
(unaudited) (189,524)
Exercised stock options (176 shares) 2,348
Change in unrealized gain/(loss)
on securities (unaudited) (155,919) (155,919)
------------ ------------ ------------
BALANCE AT MARCH 31, 1997 (UNAUDITED) $ - $ 42,410 $ 22,201,101
============ ============ ============
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of P.T.C. Bancorp (Company) and its wholly-owned subsidiary, People's
Trust Company (Bank). All significant intercompany transactions have been
eliminated in consolidation.
Description of Business: P.T.C. Bancorp generates mortgage, commercial, and
installment loans and receives deposits from customers located primarily in
southeastern Indiana. The majority of the Company's loans are secured by
specific items of collateral including business assets, consumer assets and
real property.
Use of Estimates in the Preparation of Financial Statements: 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, liabilities, revenues and expenses. Actual
results could differ from those estimates. Estimates that are more
susceptible to change in the near term include the allowance for loan losses
and fair values of certain securities.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
amounts due from banks and federal funds sold. Generally, federal funds are
sold for one-day periods. The Company reports net cash flows for customer
loan transactions, deposit transactions, and deposits made with other
institutions.
Securities: Securities are classified by management at date of purchase as
available for sale or held to maturity. Securities classified as available
for sale are securities that might be sold in response to changes in interest
rates, changes in prepayment risk, or other similar factors, and which are
carried at fair value. The unrealized gain/(loss) on securities available for
sale is reflected as a separate component of shareholders' equity, net of tax.
Securities classified as held to maturity are securities that the Company has
both the ability and positive intent to hold to maturity and are carried at
amortized cost (cost adjusted for amortization of premium or accretion of
discounts). Interest income on securities is recognized using the level yield
basis. Gains and losses on sales of securities are computed on a specific
identification basis.
Loans Held for Sale: During the normal course of business, the Company
originates certain mortgage loans for the purpose of selling them in certain
secondary markets. These loans are carried at the lower of aggregate cost or
market value.
Loans: Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs, the allowance for loan losses, and charge-offs.
Interest income is reported on the interest method and includes amortization
of net deferred loan fees and costs over the loan term.
(Continued)
8
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest income is not reported when full loan repayment is in doubt,
typically when payments are past due over 90 days. Interest received on such
loans is recognized on the cash basis or reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance
required based on past loan loss experience, known and inherent risks in the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of
similar nature such as residential mortgage, consumer, and credit card loans,
and on an individual loan basis for other loans. If a loan is impaired, a
portion of the allowance is allocated so that the loan is reported, net, at
the present value of estimated future cash flows using the loan's existing
rate. Loans are evaluated for impairment when payments are delayed, typically
90 days or more, or when the internal grading system indicates a doubtful
classification.
Servicing Rights: Upon adopting Financial Accounting Standard No. 122 at the
start of 1996, servicing rights represent the allocated value of servicing
rights retained on loans sold. Servicing rights are expensed in proportion
to, and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates and term. Any impairment of a grouping
is reported as a valuation allowance.
Premises and Equipment: Premises and equipment are stated at cost, net of
accumulated depreciation. Depreciation is charged to operating expense over
the useful lives of assets and is computed on straight-line and accelerated
methods. Maintenance and repairs are charged to operations as incurred.
Improvements are capitalized and disposals are recorded in the year sold or
abandoned.
Intangible Assets: Intangible assets consist of goodwill and core deposit
intangibles. Goodwill is being amortized on a straight-line method over
fifteen years. The core deposit is being amortized based on the estimated
life of the deposits assumed, which is ten years.
(Continued)
9
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Options: Expenses for compensation under stock option plans is based on
APB Opinion 25, with expense reported only if options are granted below market
price at date of grant. Proforma disclosures of net income and earnings per
share as required by FASB Statement No. 123 are not presented, because the
fair value of options granted during 1996 and 1995 is not material.
Income Taxes: Deferred tax liabilities and assets are determined at each
balance sheet date. They are measured by applying enacted tax laws to future
amounts that will result from differences in the financial statement and tax
basis of assets and liabilities. Recognition of deferred tax assets is
limited by the establishment of a valuation reserve unless management
concludes that they are more likely than not going to result in future tax
benefits to the Company. Income tax expense is the amount paid for the
current year income tax liability plus or minus the change in deferred taxes.
Earnings Per Share: Earnings per share is based on the weighted average
common shares outstanding. The Company declared a 10 percent stock dividend
in November, 1995 and 1996. Earnings and dividend per share amounts have been
retroactively restated. Stock options are not materially dilutive for
earnings per share purposes.
NOTE 2 - SECURITIES
The amortized cost and fair values of securities available for sale are as
follows at March 31, 1997:
<TABLE>
<CAPTION>
(Unaudited)
1997
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $29,959,498 $ 91,151 $ (103,770) $ 29,946,879
State and political subdivisions 1,851,376 49,661 (325) 1,900,712
Mortgage-backed and other
asset-backed securities 2,311,970 33,750 (9,082) 2,336,638
Corporate debt securities 1,864,355 28,323 (19,482) 1,873,196
Equity securities 1,525,446 - - 1,525,446
----------- ------------ ------------ ------------
Totals $37,512,645 $ 202,885 $ (132,659) $ 37,582,871
=========== ============ ============ ============
</TABLE>
(Continued)
10
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair values of securities available for sale are as
follows at December 31:
<TABLE>
<CAPTION>
1996
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $30,066,088 $ 255,260 $ (42,771) $ 30,278,577
State and political subdivisions 1,971,500 63,384 (338) 2,034,546
Mortgage-backed and other
asset-backed securities 2,582,657 46,082 (7,177) 2,621,562
Corporate debt securities 1,906,294 38,374 (24,399) 1,920,269
Equity securities 1,520,872 - - 1,520,872
----------- ------------ ------------ ------------
Totals $38,047,411 $ 403,100 $ (74,685) $ 38,375,826
=========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1995
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $27,892,354 $ 232,387 $ (51,533) $ 28,073,208
State and political subdivisions 2,336,997 78,183 (4,562) 2,410,618
Mortgage-backed and other
asset-backed securities 2,782,970 50,560 (6,849) 2,826,682
Corporate debt securities 3,599,169 8,896 (14,315) 3,593,750
Equity securities 1,522,110 - - 1,522,110
----------- ------------ ------------ ------------
Totals $38,133,600 $ 370,026 $ (77,259) $ 38,426,368
=========== ============ ============ ============
</TABLE>
The amortized cost and fair values of securities held to maturity are as
follows at March 31, 1997:
<TABLE>
<CAPTION>
(Unaudited)
1997
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 171,092 $ 21,216 $ - $ 192,308
State and political subdivisions 25,121,371 144,031 (66,701) 25,198,701
Mortgage-backed securities 248,792 - - 248,792
Other debt securities 1,009,441 - (2,916) 1,006,525
----------- ------------ ------------ ------------
Totals $26,550,696 $ 165,247 $ (69,617) $ 26,646,326
=========== ============ ============ ============
</TABLE>
(Continued)
11
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair values of securities held to maturity are as
follows at December 31:
<TABLE>
<CAPTION>
1996
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 167,763 $ 29,632 $ - $ 197,395
State and political subdivisions 24,187,781 228,516 (50,568) 24,365,729
Mortgage-backed securities 296,915 37,800 (223) 334,492
Other debt securities 566,116 94 (2,846) 563,364
----------- ------------ ------------ ------------
Totals $25,218,575 $ 296,042 $ (53,637) $ 25,460,980
=========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1995
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 154,914 $ 41,972 $ - $ 196,886
State and political subdivisions 17,895,268 244,728 (32,592) 18,107,406
Mortgage-backed securities 950,508 61,933 - 1,012,441
Other debt securities 500,000 - - 500,000
----------- ------------ ------------ ------------
Totals $19,500,690 $ 348,633 $ (32,592) $ 19,816,733
=========== ============ ============ ============
</TABLE>
(Continued)
12
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair value of securities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CPATION>
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 5,061,467 $ 5,065,127 $ 3,411,075 $ 3,432,023
Due after one year through
five years 27,210,079 27,418,423 18,374,449 18,492,951
Due after five years through
ten years 1,303,734 1,344,787 1,957,637 1,977,253
Due after ten years 368,602 405,055 1,178,499 1,224,261
----------- ----------- ----------- -----------
Total fixed maturity debt
securities 33,943,882 34,233,392 24,921,660 25,126,488
Mortgage-backed securities 2,582,657 2,621,562 296,915 334,492
Equity securities 1,520,872 1,520,872 - -
----------- ----------- ----------- -----------
$38,047,411 $38,375,826 $25,218,575 $25,460,980
=========== =========== =========== ===========
</TABLE>
Proceeds from sales of securities during 1996 and 1995 were $3,736,825 and
$3,573,149. Gross gains of $122,427 and gross losses of $18,777 were
realized on sales of available for sale securities in 1996. Gross gains of
$8,408 and gross losses of $84,775 were realized on sales of available for
sale securities in 1995.
There were no sale of securities for the three months ended March 31, 1997 and
1996 (unaudited).
At December 31, 1996 and 1995, securities carried at $2,263,725 and $5,773,900
were pledged to secure public deposits and for other purposes. At March 31,
1997, pledged securities were $2,255,592 (unaudited).
(Continued)
13
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 3 - LOANS
Loans are comprised of the following classifications:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Real estate-residential $ 77,947,000 $ 74,433,000 $ 61,544,000
Real estate-commercial 54,546,000 43,370,000 36,140,000
Real estate construction 12,674,000 13,650,000 9,583,000
Commercial 33,270,000 41,655,000 39,518,000
Consumer 20,462,000 21,325,000 23,723,000
Other 2,866,000 2,875,000 2,987,000
Deferred loan fees (338,000) (345,000) (316,000)
------------ ------------ ------------
Total loans, net of deferred loan fees $201,427,000 $196,963,000 $173,179,000
============ ============ ============
</TABLE>
Residential real estate loans include loans held for sale at December 31, 1996
and 1995 of $430,000 and $2,117,000, respectively, and $262,000 (unaudited) at
March 31, 1997.
Mortgage loans serviced for others are not reported as assets. These loans
totaled $86,495,000 and $69,090,000 at year-end 1996 and 1995. At year-end
1996, mortgage servicing rights were $225,000. Activity during 1996 included
$258,000 of additions and amortization expense of $33,000. There was no
valuation allowance at year-end 1996.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 2,000,324 $ 1,721,947 $ 1,600,551
Provision for loan losses 190,000 828,000 740,000
Losses charged to the allowance (381,705) (725,569) (855,690)
Recoveries credited to the allowance 42,360 175,946 237,086
------------ ------------ ------------
Ending balance $ 1,850,979 $ 2,000,324 $ 1,721,947
============ ============ ============
</TABLE>
(Continued)
14
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired loans were as follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Year-end or period-end loans with no
allowance for loan losses allocated $ - $ - $ 128,797
Year-end or period-end loans with allowance
for loan losses allocated 1,000,000 1,300,000 -
Amount of the allowance allocated 275,000 475,000 -
Average of impaired loans during
the year or period 1,150,000 844,059 490,179
Interest income recognized during impairment - 27,756 -
Cash-basis interest income recognized - 27,756 -
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Land $ 351,916 $ 351,916 $ 351,916
Buildings and improvements 3,994,089 3,738,630 3,418,627
Equipment and furniture 2,625,278 2,481,732 2,090,435
------------ ------------ ------------
Total 6,971,283 6,572,278 5,860,978
Less accumulated depreciation 3,183,537 3,060,536 2,794,240
------------ ------------ ------------
Total premises and equipment, net $ 3,787,746 $ 3,511,742 $ 3,066,738
============ ============ ============
</TABLE>
NOTE 6 - DEPOSITS
Certificates of deposits in denominations of $100,000 or more as of December
31, 1996 and 1995 were $28,948,860 and $24,318,073, respectively, and
$29,889,476 (unaudited) at March 31, 1997.
At year-end 1996, stated maturities of time deposits were:
1997 $ 96,265,835
1998 36,673,139
1999 9,893,852
2000 6,163,774
2001 1,955,978
Thereafter 29,172
------------
$150,981,750
============
(Continued)
15
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 7 - NOTES PAYABLE
The Company has a note payable maturing on December 31, 1998, which is secured
by 100% of the Bank's common stock. Payments are due each quarter, consisting
of $92,500 principal plus accrued interest. Interest is calculated based on
the LIBOR rate plus 2.85% (7.44% at December 31, 1996).
NOTE 8 - BENEFIT PLANS
The Company maintains a 401(K) profit-sharing plan covering substantially all
employees. Under this plan, employer matching contributions are 50% of
employee contributions, up to 6% of eligible salary, plus a profit sharing
allocation to all eligible employees. Annual contributions are at the
discretion of the Board of Directors. Contributions provided for the 401(K)
plan and charged to operations totaled $157,893 and $148,657 in 1996 and 1995.
The Company maintains a stock option plan covering directors and executive
officers. Options are granted at no less than fair value of the Company's
stock. Accordingly, no compensation cost has been recognized. Options under
the officer plan are generally subject to a 4-year vesting schedule, and
expire five years from date of vesting. There were 5,060 options granted
during 1995, and 2,365 during 1996. At year-end 1996, there were 30,731
options outstanding under the officer plan with a weighted average exercise
price of $16.93, and range of exercise prices of $14.65 - $27.27. There were
no options granted in 1995 or 1996 under the director's plan. At year-end
1996, there were 2,096 options outstanding with an effective price of $13.23
per share.
NOTE 9 - INCOME TAXES
An analysis of the components of income taxes follows:
1996 1995
Current income taxes $1,551,766 $1,354,446
Deferred income taxes 11,927 (154,482)
---------- ----------
Total income taxes $1,563,693 $1,199,964
========== ==========
(Continued)
16
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 9 - INCOME TAXES (Continued)
The difference between the financial statement tax provision and amounts
computed by applying the federal income tax rate of 34% to pretax income is
reconciled as follows:
1996 1995
---- ----
Computed expected provision $ 1,645,417 $ 1,396,455
Tax effect of:
Tax-exempt interest income (545,956) (448,220)
Non-deductible interest expense 94,244 74,669
State income tax, net 278,603 231,799
Other items 91,385 (54,739)
----------- -----------
Applicable income tax $ 1,563,693 $ 1,199,964
=========== ===========
The net deferred tax asset is comprised of the following components:
1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses $ 549,957 $ 439,692
Deferred compensation 55,737 60,490
Core deposit intangibles 67,258 53,394
Other 5,348 117,030
----------- -----------
678,300 670,606
Deferred tax liabilities:
Unrealized gain on securities
available-for-sale (130,085) (115,965)
Depreciation (32,575) (16,113)
Accretion on securities (20,553) (17,394)
----------- -----------
(183,213) (149,472)
Valuation allowance - -
----------- -----------
Net deferred tax asset $ 495,087 $ 521,134
=========== ===========
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company, in the ordinary course of business, has loans, commitments and
contingent liabilities, such as guarantees, commitments to extend credit,
etc., which are not reflected in the accompanying consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial guarantees is represented by the contractual
amounts of those instruments. The Company uses the same credit policy to make
such commitments as it uses for on-balance-sheet items.
(Continued)
17
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
The contractual amount of these financial instruments are summarized as
follows:
(Unaudited)
1997 1996 1995
---- ---- ----
Commitments to extend credit $24,810,000 $26,634,000 $15,879,000
Standby letters of credit 2,193,000 2,349,000 2,111,000
The commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established under the contract.
Generally, such commitments are for no more than one year, and most are
variable rate contracts. These commitments are primarily credit card,
overdraft protection, and commercial lines of credit.
Since many commitments expire without being used, the amounts do not
necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation
of the borrower, and may include accounts receivable, inventory, property,
land and other items.
At December 31, 1996 and 1995, the Company was required by the Federal Reserve
to have $3,542,000 and $2,704,000 on deposit or as cash in hand. These
reserves do not earn interest.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors, officers and principal shareholders of the Company were
also customers of the Bank. The aggregate amount of loans to these persons
totaled $2,139,417 and $2,520,434 at December 31, 1996 and 1995, and
$2,197,210 (unaudited) at March 31, 1997.
Related party deposits totaled $1,337,157 at year-end 1996.
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments: For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
(Continued)
18
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Securities: For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar instruments.
Loans Receivable: The fair value of loans is estimated by discounting future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities: The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Notes Payable: Carrying value is a reasonable estimate of fair value for this
adjustable rate instrument.
Off-Balance Sheet Items: Carrying value is a reasonable estimate of fair
value. These instruments are short term in nature.
The estimated fair values of financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1996
Carrying Value Fair Value
-------------- ----------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 28,082,000 $ 28,082,000
Securities available for sale 38,376,000 38,376,000
Securities held to maturity 25,219,000 25,461,000
Loans 196,963,000 196,816,000
Financial liabilities:
Deposits (271,127,000) (271,807,000)
Notes payable (500,000) (500,000)
Off balance sheet items - -
</TABLE>
<TABLE>
<CAPTION>
1995 1995
Carrying Value Fair Value
-------------- ----------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 26,860,000 $ 26,860,000
Securities available for sale 38,426,000 38,426,000
Securities held to maturity 19,500,000 19,817,000
Loans 171,457,000 172,189,000
Financial liabilities:
Deposits (241,735,000) (242,814,000)
Notes payable (1,000,000) (1,000,000)
Off balance sheet items - -
</TABLE>
(Continued)
19
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 13 - REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action
that could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is asset
growth and expansion, and plans for capital restoration are required. The
minimum requirements are:
Capital to Risk-
Weighted Assets
--------------- Tier 1 Capital
Total Tier 1 to Average Assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year end 1996, consolidated actual capital levels (in thousands) and
minimum required levels were:
<TABLE>
<CAPTION>
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets)
Consolidated $ 21,836 11.60% $ 15,055 8.0% $ 18,819 10.0%
Bank $ 21,487 11.46% $ 14,995 8.0% $ 18,744 10.0%
Tier I Capital (to Risk
Weighted Assets)
Consolidated $ 19,836 10.54% $ 7,528 4.0% $ 11,291 6.0%
Bank $ 19,487 10.40% $ 7,498 4.0% $ 11,246 6.0%
Tier 1 Capital (to
Average Assets)
Consolidated $ 19,836 6.73% $ 11,795 4.0% $ 14,744 5.0%
Bank $ 19,487 6.63% $ 11,753 4.0% $ 14,692 5.0%
</TABLE>
(Continued)
20
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
and March 31, 1997 (Unaudited)
NOTE 13 - REGULATORY MATTERS (Continued)
The Company and Bank at year-end 1996 were categorized as well capitalized.
At March 31, 1997, actual capital ratios were as follows:
(Unaudited)
-----------
Total Capital (to Risk Weighted Assets)
Consolidated 11.62%
Bank 11.59%
Tier I Capital (to Risk Weighted Assets)
Consolidated 10.65%
Bank 10.61%
Tier I Capital (to Average Assets)
Consolidated 7.05%
Bank 7.02%
NOTE 14 - PENDING ACCOUNTING CHANGES
Financial Accounting Standard No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities, was issued by the
Financial Accounting Standards Board in 1996. It revises the accounting for
transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is effective for some
transactions in 1997 and others in 1998. The effect on the financial
statements is not expected to be material.
NOTE 15 - SUBSEQUENT EVENT (UNAUDITED)
On June 2, 1997, the Company agreed in principle to merge with Indiana United
Bancorp (IUB). IUB is a $340 million bank and thrift holding company located
in Greensburg, Indiana. Under terms of the agreement, each outstanding common
share of P.T.C. Bancorp, including shares outstanding under option plans, will
be converted into 1.075 common shares of IUB. The proposed transaction
requires a definitive agreement and approval by regulatory authorities and
shareholders of both companies. The proposed transaction is expected to be
consummated by the end of 1997. It is expected to be accounted for as a
pooling-of-interests.
21
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Document Page
- ----------- -------- ----
2.1 Articles of Incorporation of P.T.C. Bancorp
2.2 By-Laws of P.T.C. Bancorp
3.1 Certificate of Common Stock *
6.1 Nonstatutory Stock Option Plan, as amended June 30, 1997
6.2 Form of Nonstatutory Stock Option Agreement *
6.3 Incentive Stock Option Plan, as amended June 30, 1997
6.4 Form of Incentive Stock Option Agreement *
6.5 Commercial Installment Note May, 1994. Payable to National
City Bank, Indiana. *
6.6 Loan Agreement dated May, 1994 with National City Bank,
Indiana *
6.7 Stock Pledge Agreement dated May, 1994 with National
City Bank, Indiana *
6.8 Advances, Pledge and Security Agreement dated February 13, 1995
with Federal Home Loan Bank. *
15.1 Subsidiaries of the Registrant - Peoples Trust Company *
27.1 Financial Data Schedule *
* Previously filed
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
P.T.C. BANCORP
Dated: July 8, 1997 By: /s/ James L. Saner, Sr.
---------------- -----------------------------
James L. Saner, Sr.
President and Chief
Executive Officer
Exhibit 2.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
OF
--
PTC BANCORP
-----------
PTC Bancorp (hereinafter referred to as the "Corporation"), existing
pursuant to the Indiana Business Corporation Law, desiring to give notice of
corporate action effectuating these Amended and Restated Articles of
Incorporation, sets forth the following facts:
ARTICLE I
---------
Name
----
The name of the Corporation is PTC Bancorp.
ARTICLE II
----------
The Amended and Restated Articles
---------------------------------
The exact text of the Corporation's Articles of Incorporation now is as
follows:
See Attached Exhibit A
ARTICLE III
-----------
Manner of Adoption and Vote
---------------------------
1. Action by Directors. The Board of Directors of the Corporation, by
unanimous vote at a meeting on March 30, 1993, duly adopted a resolution that
the provisions and terms of its Articles of Incorporation be amended and
restated as set forth in these Amended and Restated Articles of Incorporation.
2. Action by Shareholders. The shareholders of the Corporation
entitled to vote in respect of the Amended and Restated Articles of
Incorporation adopted these Amended and Restated Articles of Incorporation. The
Amended and Restated Articles of Incorporation were adopted by vote of the
shareholders during the April 27, 1993 meeting called by the Board of Directors.
The only class of capital stock is common stock with shares outstanding. The
result of such vote is as follows:
SHAREHOLDERS ENTITLED TO VOTE: 567,389
SHAREHOLDERS VOTED IN FAVOR: 391,697
SHAREHOLDERS VOTED AGAINST: 0
<PAGE>
3. Compliance with Legal Requirements. The manner of adoption of these
Amended and Restated Articles of Incorporation constitute full legal compliance
with the provisions of the Act, the Articles of Incorporation, and the By-Laws
of the Corporation.
IN WITNESS WHEREOF, the undersigned officer, for and on behalf of the
Corporation, executes the foregoing Amended and Restated Articles of
Incorporation this 27 day of April, 1993.
/s/ James L. Saner, Sr.
------------------------------
James L. Saner, Sr., President
This instrument prepared by Robert T. Wildman
HENDERSON, DAILY, WITHROW & DEVOE
2600 One Indiana Square
Indianapolis, Indiana 46204
(317) 639-4121
2
<PAGE>
Exhibit A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
OF
--
PTC BANCORP
-----------
ARTICLE I
---------
Name
----
The name of the Corporation is PTC Bancorp (the "Corporation").
ARTICLE II
----------
Purposes
--------
The purposes for which the Corporation is formed are the transaction,
either alone or as a partner, joint venturer or otherwise, of any and all lawful
business for which corporations may be incorporated under the Act and to
otherwise possess, exercise, and enjoy all rights, powers and privileges
conferred upon bank holding companies by the Bank Holding Company Act of 1956,
as amended and as hereafter amended or supplemented, and all other rights and
powers authorized by the laws of the State of Indiana, and the laws of the
United States of America applicable to bank holding companies and the
regulations of the Board of Governors of the Federal Reserve System.
ARTICLE III
-----------
Authorized Shares
-----------------
The total number of shares which the Corporation shall have authority to
issue is 3,000,000 shares, consisting of 2,000,000 shares of common stock with
no par value (the "Common Stock") which have unlimited voting rights and are
entitled to receive the net assets of the Corporation upon dissolution and
1,000,000 shares of preferred stock without par value (the "Preferred Stock")
with respect to which the Board of Directors of the Corporation is authorized to
determine the series and classes of Preferred Stock and determine the rights,
privileges and voting power of the Preferred Stock by amending the Articles of
Incorporation of the Corporation without further shareholder voting consent or
ratification, prior to issuance of preferred stock.
ARTICLE IV
----------
Voting Rights of Shares
-----------------------
Except as otherwise provided in the Act or in these Articles of
Incorporation, every shareholder of the Corporation shall have the right, at
every shareholders' meeting, to one
3
<PAGE>
vote for each share of stock standing in such shareholder's name on the books of
the Corporation upon all questions, including election of directors, merger,
liquidation and the sale of all or substantially all of the assets of the
Corporation.
ARTICLE V
---------
Incorporator
------------
The name and post office address of the incorporator of the Corporation was
Michael E. Williams, 2800 Indiana National Bank Tower, Indianapolis, Indiana
46204.
This instrument prepared by Robert T. Wildman
HENDERSON, DAILY, WITHROW & DEVOE
2600 One Indiana Square
Indianapolis, Indiana 46204
(317) 639-4121
4
Exhibit 2.2
BY-LAWS
OF
PTC BANCORP
ARTICLE I
---------
Section 1. Name. The name of the corporation is PTC Bancorp
("Corporation").
Section 2. Principal Office of the Resident Agent. The post-office
address of the principal office of the Corporation is State Road 101 & Reservoir
Bill Rd., Box 7, Brookville, Indiana 47012, and the name and post-office address
of its Resident Agent in charge of such office is Robert S. Dunevant, State Road
101 & Reservoir Hill Rd., Box 7, Brookville, Indiana 47012.
Section 3. Seal. The seal of the Corporation shall be circular in form
and mounted upon a metal die, suitable for impressing the same upon paper. About
the upper periphery of the seal shall appear the words "PTC Bancorp" and about
the lower periphery thereof the word "Indiana". In the center of the seal shall
appear the word "Seal".
ARTICLE II
----------
The fiscal year of the Corporation shall begin each year on the first day
of January and end on the last day of December of the same year.
ARTICLE III
-----------
Capital Stock
-------------
Section 1. Number of Shares and Classes of Capital Stock. The total
number of shares of capital stock which the Corporation shall have authority to
issue shall be as stated in the Articles of Incorporation.
Section 2. Consideration for No Par Value Shares. The shares of stock of
the Corporation without par value shall be issued or sold in such manner and for
such amount of consideration as may be fixed from time to time by the Board of
Directors. Upon payment of the consideration fixed by the Board of Directors,
such shares of stock shall be fully paid and nonassessable.
Section 3. Consideration for No Par Value Shares. Treasury shares may be
disposed of by the Corporation or such consideration as may be determined from
time to time by the Board of Directors.
Section 4. Payment for Shares. The consideration for the issuance of
shares of capital stock of the Corporation may be paid, in whole or in part, in
money, in other property, tangible or intangible, or in labor actually performed
for, or services actually rendered to the Corporation;
<PAGE>
provided, however, that the part of the surplus of the Corporation which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for the issuance of such shares. When
payment of the consideration for which a share was authorized to be issued shall
have been received by the Corporation, or when surplus shall have been
transferred to stated capital upon the issuance of a share dividend, such share
shall be declared and taken to be fully paid and not liable to any further call
or assessment, and the holder thereof shall not be liable for any further
payments thereon. In the absence of actual fraud in the transaction, the
judgment of the Board of Directors as to the value of such property, labor or
services received as consideration, or the value placed by the Board of
Directors upon the corporate assets in the event of a share dividend, shall be
conclusive. Promissory notes, uncertified checks, or future services shall not
be accepted in payment or part payment of the capital stock of the Corporation,
except as permitted by The Indiana General Corporation Act.
Section 5. Certificate for Shares. Each holder of capital stock of the
Corporation shall be entitled to a stock certificate, signed by the President or
a Vice President and the Secretary or any Assistant Secretary of the
Corporation, stating the name of the registered holder, the number of shares
represented by such certificate, the par value of each share of stock or that
such shares of stock are without par value, and that such shares are fully paid
and nonassessable. If such shares are not fully paid, the certificates shall be
legibly stamped to indicate the percent which has been paid, and as further
payments are made, the certificate shall be stamped accordingly. If the
Corporation is authorized to issue shares of more than one class, every
certificate shall state the kind and class of shares represented thereby, and
the relative rights, interests, preferences and restrictions of such class, or a
summary thereof; provided, that such statement may be omitted from the
certificate if it shall be set forth upon the face or back of the certificate
that such statement, in full, will be furnished by the Corporation to any
shareholder upon written request and without charge.
Section 6. Facsimile Signatures. If a certificate is countersigned by the
written signature of a transfer agent other than the Corporation or its
employee, the signatures of the officers of the Corporation may be facsimiles.
If a certificate is countersigned by the written signature of a registrar other
than the Corporation or its employee, the signatures of the transfer agent and
the officers of the Corporation may be facsimiles. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of its issue.
Section 7. Transfer of Shares. The shares of capital stock of the
Corporation shall be transferable only on the books of the Corporation upon
surrender of the certificate or certificates representing the same, properly
endorsed by the registered holder or by his duly authorized attorney or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 8. Cancellation. Every certificate surrendered to the Corporation
for exchange or transfer shall be canceled, and no new certificate or
certificates shall be issued in exchange for
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any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 10 of this Article III.
Section 9. Transfer Agent and Registrar. The Board of Directors may
appoint a transfer agent and a registrar for each class of capital stock of the
Corporation and may require all certificates representing such shares to bear
the signature of such transfer agent and registrar. Shareholders shall be
responsible for notifying the transfer agent and registrar for the class of
stock held by such shareholder in writing of any changes in their addresses from
time to time, and failure so to do shall relieve the Corporation, its
shareholders, directors, officers, transfer agent and registrar of liability for
failure to direct notices, dividends, or other documents or property to an
address other than the one appearing upon the records of the transfer agent and
registrar of the Corporation.
Section 10. Lost Stolen or Destroyed Certificates. The Corporation may
cause a new certificate or certificates to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his legal representative, to give the Corporation a bond in such sum and in
such form as it may direct to indemnify against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate. The
Corporation, in its discretion, may authorize the issuance of such new
certificates without any bond when in its judgment it is proper to do so.
Section 11. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of such shares to receive dividends, to vote as such owner, to hold liable for
calls and assessments, and to treat as owner in all other respects, and shall
not be bound to recognize any equitable or other claims to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Indiana.
Section 12. Options to Officers and Employees. The issuance, including
the consideration, of rights or options to directors, officers or employees of
the Corporation, and not to the shareholders generally, to purchase from the
Corporation shares of its capital stock shall be approved by the affirmative
vote of the holders of a majority of the shares entitled to vote thereon or
shall be authorized by and consistent with a plan approved by such a vote of the
shareholders. The price to be received for any shares having a par value, other
than treasury shares to be issued upon the exercise of such rights or options,
shall not be less than the par value thereof.
ARTICLE IV
----------
Meetings of Shareholders
------------------------
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Section 1. Place of Meeting. Meetings of shareholders of the Corporation
shall be held at such place, within or without the State of Indiana, as may from
time to time be designated by the Board of Directors, or as may be specified in
the notices or waivers of notice of such meetings.
Section 2. Annual Meeting. The annual meeting of shareholders for the
election of Directors, and for the transaction of such other business as may
properly come before the meeting, shall be held on the second Tuesday in March
of each year, if such day is not a holiday, and if a holiday, then on the first
following day that is not a holiday, or in lieu of such day may be held on such
other day as the Board of Directors may set by resolution, but not later than
the end of the fifth month following the close of the fiscal year of the
Corporation. Failure to hold the annual meeting at the designated time shall
not work any forfeiture or a dissolution of the Corporation, and shall not
affect otherwise valid corporate acts.
Section 3. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Board of Directors or the
President and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
shareholders holding of record not less than one-fourth of all the shares
outstanding and entitled by the Articles of Incorporation to vote on the
business for which the meeting is being called.
Section 4. Notice of Meetings. A written or printed notice, stating the
place, day and hour of the meeting, and in case of a special meeting, or when
required by any other provision of The Indiana General Corporation Act, or of
the Articles of Incorporation, as now or hereafter amended, or these By-Laws,
the purpose or purposes for which the meeting is called, shall be delivered or
mailed by the Secretary, or by the officers or persons calling the meeting, to
each shareholder of record entitled by the Articles of Incorporation, as now or
hereafter amended, and by The Indiana General Corporation Act to vote at such
meeting, at such address as appears upon the records of the Corporation, at
least ten (10) days before the date of the meeting. Notice of any such meeting
may be waived in writing by any shareholder, if the waiver sets forth in
reasonable detail the purpose or purposes for which the meeting is called, and
the time and place thereof. Attendance at any meeting in person, or by proxy,
shall constitute a waiver of notice of such meeting. Each shareholder, who has
in the manner above provided waived notice of a shareholders' meeting, or who
personally attends a shareholders' meeting, or is represented thereat by a proxy
authorized to appear by an instrument of proxy, shall be conclusively presumed
to have been given due notice of such meeting. Notice of any adjourned meeting
of stockholders shall not be required to be given if the time and place thereof
are announced at the meeting at which the adjournment is taken, except as may be
expressly required by law.
Section 5. Addresses of Shareholders. The address of any shareholder
appearing upon the records of the Corporation shall be deemed to be the latest
address of such shareholder appearing on the records maintained by the Transfer
Agent for the class of stock held by such shareholder.
Section 6. Voting at Meetings.
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(a) Quorum. The holders of record of a majority of the issued and
outstanding stock of the Corporation entitled to vote at such meeting, present
in person or by proxy, shall constitute a quorum at all meetings of stockholders
for the transaction of business, except where otherwise provided by law, the
Articles of Incorporation or these By-Laws. In the absence of a quorum, any
officer entitled to preside at, or act as secretary of, such meeting shall have
the power to adjourn the meeting from time to time until a quorum shall be
constituted. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the original
meeting, but only those stockholders entitled to vote at the original meeting
shall be entitled to vote at any adjournment or adjournments thereof unless a
new record date is fixed by the Board of Directors for the adjourned meeting.
(b) Voting Rights. Except as otherwise provided by law or by the
provisions of the Articles of Incorporation, every shareholder shall have the
right at every shareholders' meeting to one vote for each share of stock having
voting power, registered in his name on the books of the Corporation on the date
for the determination of shareholders entitled to vote, on all matters coming
before the meeting including the election of directors. At any meeting of the
shareholders, every shareholder having the right to vote shall be entitled to
vote in person, or by proxy executed in writing by the shareholder or a duly
authorized attorney in fact and bearing a date not more than eleven months prior
to its execution, unless a longer time is expressly provided therein.
(c) Required Vote. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of The Indiana
General Corporation Act or of the Articles of Incorporation or by these By-Laws,
a greater vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 7. Voting List. The Transfer Agent of the Corporation shall make,
at least five days before each election of directors, a complete list of the
shareholders entitled by the Articles of Incorporation, as now or hereafter
amended, to vote at such election, arranged in alphabetical order, with the
address and number of shares so entitled to vote held by each, which list shall
be on file at the principal office of the Corporation and subject to inspection
by any shareholder. Such list shall be produced and kept open at the time and
place of election and subject to the inspection of any shareholder during the
holding of such election. The original stock register or transfer book, or a
duplicate thereof kept in the State of Indiana, shall be the only evidence as to
who are the shareholders entitled to examine such list or the stock ledger or
transfer book or to vote at any meeting of the shareholders.
Section 8. Fixing of Record Date to Determine Shareholders Entitled to
Vote. The Board of Directors may prescribe a period not exceeding 50 days prior
to meetings of the shareholders, during which no transfer of stock on the books
of the Corporation may be made; or, in lieu of prohibiting the transfer of stock
may fix a day and hour not more than 50 days prior to the holding of any meeting
of shareholders as the time as of which shareholders entitled to notice of, and
to vote at, such meeting shall be determined, and all persons who are holders of
record of
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voting stock at such time, and no others, shall be entitled to notice of, and to
vote at, such meeting. In the absence of such a determination, such date shall
be 10 days prior to the date of such meeting.
Section 9. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the Corporation entitled to vote
for the election of directors. Nominations, other than those made by or on
behalf of the existing management of the Corporation, shall be made in writing
and shall be delivered or mailed to the president of the Corporation not less
than 10 days nor more than 50 days prior to any meeting of shareholders called
for the election of directors. Such notification shall contain the following
information to the extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of each proposed
nominee; (c) the total number of shares of capital stock of the Corporation that
will be voted for each proposed nominee; (d) the name and residence address of
the notifying shareholder; and (e) the number of shares of capital stock of the
Corporation owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded by the chairman of
the meeting, and upon his instructions, the vote tellers may disregard all votes
cast for each such nominee.
ARTICLE V
---------
Board of Directors
------------------
Section 1. Election, Number and Term of Office. Directors shall be elected
at the annual meeting of shareholders, or, if not so elected, at a special
meeting of shareholders called for that purpose, by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors.
The number of Directors of the Corporation to be elected by the holders of
the shares of stock entitled by the Articles of Incorporation to elect Directors
shall be seven (7) unless changed by amendment of this section.
All Directors elected by the holders of such shares, except in the case of
earlier resignation, removal or death, shall hold office until their respective
successors are chosen and qualified. Directors need not be shareholders of the
Corporation.
Any vacancy on the Board of Directors caused by an increase in the number
of Directors shall be filled by a majority vote of the members of the Board of
Directors, until the next annual or special meeting of the shareholders or, at
the discretion of the Board of Directors, such vacancy may be filled by vote of
the shareholders at a special meeting called for that purpose. No decrease in
the number of Directors shall have the effect of shortening the term of any
incumbent Director.
Section 2. Vacancies. Any vacancy occurring in the Board of Directors
caused by resignation, death or other incapacity shall be filled by a majority
vote of the remaining members
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of the Board of Directors, until the next annual meeting of the shareholders. If
the vote of the remaining members of the Board shall result in a tie, such
vacancy, at the discretion of the Board of Directors, may be filled by vote of
the shareholders at a special meeting called for that purpose.
Section 3. Annual Meeting of Directors. The Board of Directors shall meet
each year immediately after the annual meeting of the shareholders, at the place
where such meeting of the shareholders has been held either within or without
the State of Indiana, for the purpose of organization, election of officers, and
consideration of any other business that may properly come before the meeting.
No notice of any kind to either old or new members of the Board of Directors for
such annual meeting shall be necessary.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places, either within or without the State of
Indiana, as may be fixed by the Directors. Such regular meetings of the Board of
Directors may be held without notice or upon such notice as may be fixed by the
Directors. A member of the Board of Directors may participate in a meeting of
the Board by means of a conference telephone or similar communications equipment
by which all persons participating in the meeting can communicate with each
other and participation by these means constitutes presence in person at the
meeting.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by not less than a
majority of the members of the Board of Directors. Notice of the time and place,
either within or without the State of Indiana, of a special meeting shall be
served upon or telephoned to each Director at least twenty-four hours, or
mailed, telegraphed or cabled to each Director at his usual place of business or
residence at least forty-eight hours, prior to the time of the meeting.
Directors, in lieu of such notice, may sign a written waiver of notice either
before the time of the meeting, at the meeting or after the meeting. Attendance
by a director in person at any such special meeting shall constitute a waiver of
notice.
Section 6. Quorum. A majority of the actual number of Directors elected
and qualified, from time to time, shall be necessary to constitute a quorum for
the transaction of any business except the filling of vacancies, and the act of
a majority of the Directors present at the meeting, at which a quorum is
present, shall be the act of the Board of Directors, unless the act of a greater
number is required by The Indiana General Corporation Act, by the Articles of
Incorporation, or by these By-Laws. A Director, who is present at a meeting of
the Board of Directors, at which action on any corporate matter is taken, shall
be conclusively presumed to have assented to the action taken, unless (a) his
dissent shall be affirmatively stated by him at and before the adjournment of
such meeting (in which event the fact of such dissent shall be entered by the
secretary of the meeting in the minutes of the meeting), or (b) he shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. The right of dissent provided for by
either clause (a) or clause (b) of the immediately preceding sentence shall not
be available, in respect of any matter acted upon at any meeting, to a Director
who voted at the meeting in favor of such matter and did not change his vote
prior to the time that the result of the vote on such matter was announced by
the chairman of such meeting.
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Section 7. Consent Action by Directors. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if prior to such action a written consent to
such action is signed by all members of the Board of Directors or such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
Section 8. Removal of Directors. Any or all members of the Board of
Directors may be removed, with or without cause, at a meeting of shareholders
called expressly for that purpose by a vote of the holders of not less than a
majority of the outstanding shares of capital stock then entitled to vote at the
election of directors.
Section 9. Dividends. The Board of Directors shall have power,
subject to any restrictions contained in The Indiana General Corporation Act or
in the Articles of Incorporation and out of funds legally available therefor, to
declare and pay dividends upon the outstanding capital stock of the Corporation
as and when they deem expedient. Before declaring any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time in their absolute discretion
deem proper for working capital, or as a reserve or reserves to meet
contingencies or for such other purposes as the Board of Directors shall deem
conducive to the interests of the Corporation and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 10. Distributions Out of Capital Surplus. The Board of Directors
of the Corporation may from time to time distribute to its shareholders out of
the capital surplus of the Corporation a portion of its assets, in cash or
property, without the assent or vote of the shareholders, provided that with
respect to such distribution the requirements of the Indiana General Corporation
Act other than shareholder approval are satisfied.
Section 11. Fixing of Record Date to Determine Shareholders Entitled to
Receive Corporate Benefits. The Board of Directors may fix a day and hour not
exceeding 50 days preceding the date fixed for payment of any dividend or for
the delivery of evidence of rights, or for the distribution of other corporate
benefits, or for a determination of shareholders for any other purpose, as a
record time-for the determination of the shareholders entitled to receive any
such dividend, rights or distribution, and in such case only shareholders of
record at the time so fixed shall be entitled to receive such dividend, rights
or distribution. If no record date is fixed for the determination of
shareholders entitled to receive payment of a dividend, the end-of the day on
which the resolution of the Board of Directors declaring such dividend is
adopted shall be the record date for such determination.
Section 12. Interest of Directors in Contracts. Any contract or other
transaction between the Corporation or any corporation in which this Corporation
owns a majority of the capital stock shall be valid and binding, notwithstanding
that the directors or officers of this Corporation are identical or that some or
all of the directors or officers, or both, are also directors or officers of
such other corporation.
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Any contract or other transaction between the Corporation and one or more
of its directors or members or employees, or between the Corporation and any
firm of which one or more of its directors are members or employees or in which
they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are stockholders, members,
directors, officers, or employees or in which they are interested, shall be
valid for all purposes, notwithstanding the presence of such director of
directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and notwithstanding his
or their participation in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall
authorize, approve and ratify such contract or transaction by a vote of a
majority of the directors present, such interested director or directors to be
counted in determining whether a quorum is present, but not to be counted in
calculating the majority of such quorum necessary to carry such vote. This
Section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
Section 13. Committees. The Board of Directors may, by resolution adopted
by a majority of the actual number of Directors elected and qualified, from time
to time, designate from among its members an executive committee and one or more
other committees, each of which, to the extent provided in the resolution, the
Articles of Incorporation, or these By-Laws, may exercise all of the authority
of the Board of Directors of the Corporation, including, but not limited to, the
authority to issue and sell or prove any contract to issue and sell, securities
or shares of the Corporation or designate the terms of a series of a class of
securities or shares of the Corporation. The terms which may be affixed by each
such committee include, but are not limited to, the price, dividend rate, and
provisions of redemption, a sinking fund, conversion, voting, or preferential
rights or other features of securities or class or series of a class of shares.
Each such committee may have full power to adopt a final resolution which sets
forth those terms-and to authorize a statement of such terms to be filed with
the Secretary of State. However, no such committee has the authority to declare
dividends or distributions, amend the Articles of Incorporation or the By-Laws,
approve a plan of merger or consolidation even if such plan does not require
shareholder approval, reduce earned or capital surplus, authorize or approve the
reacquisition of shares unless pursuant to a general formula or method specified
by the Board of Directors, or recommend to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof. No member of any such
committee shall continue to be a member thereof after he ceases to be a Director
of the Corporation. The calling and holding of meetings of any such committee
and its method of procedure shall be determined by the Board of Directors. A
member of the Board of Directors shall not be liable for any action taken by any
such committee if he is not a member of that committee and has acted in good
faith and in a manner he reasonably believes is in the best interest of the
Corporation.
ARTICLE VI
----------
Officers
--------
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Section 1. Principal Officers. The principal officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents, a
Treasurer and a Secretary. The Corporation may also have, at the discretion of
the Board of Directors, such other subordinate officers as may be appointed in
accordance with the provisions of these By-Laws. Any two or more offices may be
held by the same person, except the duties of President and Secretary shall not
be performed by the same person. No person shall be eligible for the office of
Chairman of the Board or President who is not a director of the Corporation.
Section 2. Election and Term of Office. The principal officers of the
Corporation shall be chosen annually by the Board of Directors at the annual
meeting thereof. Each such officer shall hold office until his successor shall
have been duly chosen and qualified, or until his death, or until he shall
resign, or shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any principal officer may be removed, either with or
without cause, at any time, by resolution adopted at any meeting of the Board of
Directors by a majority of the actual number of Directors elected and qualified
from time to time.
Section 4. Subordinate Officers. In addition to the principal officers
enumerated in Section 1 of this Article VI, the Corporation may have one or more
Assistant Treasurers, one or more Assistant Secretaries and such other officers,
agents and employees as the Board of Directors may deem necessary, each of whom
shall hold office for such period, may be removed with or without cause, have
such authority, and perform such duties as the President, or the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any principal officer the power to appoint and to remove any such subordinate
officers, agents or employees.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Chairman of the Board or to the Board of Directors or to
the President or to the Secretary. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. Any vacancy in any office for any cause may be
filled for the unexpired portion of the term in the manner prescribed in these
By-Laws for election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board, who shall be
chosen from among the Directors, shall preside at all meetings of shareholders
and at all meetings of the Board of Directors. He shall perform such other
duties and have such other powers as, from time to time, may be assigned to him
by the Board of Directors.
Section 8. President. The President, who shall be chosen from among the
Directors, shall be the chief executive officer of the Corporation and as such
shall have general supervision of the affairs of the Corporation, subject to the
control of the Board of Directors. He shall be an
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ex officio member of all standing committees. In the absence or disability of
the Chairman of the Board, the President shall preside at all meetings of
shareholders and at all meetings of the Board of Directors. Subject to the
control and direction of the Board of Directors, the President may enter into
any contract or execute and deliver any instrument in the name and on behalf of
the Corporation. In general, he shall perform all duties and have all the
powers incident to the office of President, as herein defined, and all such
other duties and powers as, from time to time, may be assigned to him by the
Board of Directors.
Section 9. Vice Presidents. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President and Executive Vice President, perform the
duties and exercise the powers of the President. They shall perform such other
duties and have such other powers as the President or the Board of Directors may
from time to time assign. Section 10. Treasurer. The Treasurer shall have charge
and custody of, and be responsible for, all funds and securities of the
Corporation and shall deposit all such funds in the name of the Corporation in
such banks or other depositories as shall be selected by the Board of Directors.
He shall upon request exhibit at all reasonable times his books of account and
records to any of the directors of the Corporation during business hours at the
office of the Corporation where such books and records shall be kept; shall
render upon request by the Board of Directors a statement of the condition of
the finances of the Corporation at any meeting of the Board of Directors or at
the annual meeting of the shareholders; shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; and in
general, shall perform all duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the President or the
Board of Directors. The Treasurer shall give such bond, if any, for the
faithful discharge of his duties as the Board of Directors may require.
Section 11. Secretary. The Secretary shall keep or cause to be kept in
the books provided for that purpose the minutes of the meetings of the
shareholders and of the Board of Directors; shall duly give and serve all
notices required to be given in accordance with the provisions of these By-Laws
and by The Indiana General Corporation Act; shall be custodian of the records
and of the seal of the Corporation and see that the seal is affixed to all
documents, the execution of which on behalf of the Corporation under its seal is
duly authorized in accordance with the provisions of these By-Laws; and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him by the President or
the Board of Directors.
Section 12. Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors, and the salaries of any
subordinate officers may be fixed by the President.
Section 13. Voting Corporation's Securities. Unless otherwise ordered by
the Board of Directors, the Chairman of the Board, the President and Secretary,
and each of them, are appointed attorneys and agents of the Corporation, and
shall have full power and authority in the name and on behalf of the
Corporation, to attend, to act, and to vote all stock or other securities
entitled to be voted at any meetings of security holders of corporations, or
associations in which
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the Corporation may hold securities, in person or by proxy, as a stockholder or
otherwise, and at such meetings shall possess and may exercise any and all
rights and powers incident to the ownership of such securities, and which as the
owner thereof the Corporation might have possessed and exercised, if present, or
to consent in writing to any action by any such other corporation or
association. The Board of Directors by resolution from time to time may confer
like powers upon any other person or persons.
ARTICLE VII
-----------
Indemnification
---------------
Section 1. Indemnification of Directors, Officers and Employees. Every
person who is or was a director, officer or employee of this Corporation or of
any other corporation for which he is or was serving in any capacity at the
request of this Corporation shall be indemnified by this Corporation against any
and all liability and expense that may be incurred by him in connection with or
resulting from or arising out of any claim, action, suit or proceeding, provided
that such person is wholly successful with respect thereto or acted in good
faith in what he reasonably believed to be in or not opposed to the best
interests of this Corporation or such other corporation, as the case may be,
and, in addition, in any criminal action or proceeding in which he had no
reasonable cause to believe that his conduct was unlawful. As used herein,
"claim, action, suit or proceeding" shall include any claim, action, suit or
proceeding (whether brought by or in the right of this Corporation or such other
corporation or otherwise), civil, criminal, administrative or investigative,
whether actual or threatened or in connection with an appeal relating thereto,
in which a director, officer or employee of this Corporation may become
involved, as a party or otherwise,
(i) by reason of his being or having been a director, officer or
employee of this Corporation or such other corporation or arising
out of his status as such or
(ii) by reason of any past or future action taken or not taken by him in
any such capacity, whether or not he continues to be such at the
time such liability or expense is incurred.
The terms "liability" and "expense" shall include, but shall not be limited to,
attorneys' fees and disbursements, amounts of judgments, fines or penalties, and
amounts paid in settlement by or on behalf of a director, officer or employee,
but shall not in any event include any liability or expenses on account of
profits realized by him in the purchase or sale of securities of the Corporation
in violation of the law. The termination of any claim, action, suit or
proceeding, by judgment, settlement (whether with or without court approval) or
conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not create a presumption that a director, officer or employee did not meet
the standards of conduct set forth in this paragraph. Any such director,
officer or employee who has been wholly successful with respect to any such
claim, action, suit or proceeding shall be entitled to indemnification as a
matter of right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made only if (i) the
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Board of Directors acting by a quorum consisting of Directors who are not
parties to or who have been wholly successful with respect to such claim,
action, suit or proceeding shall find that the director, officer or employee has
met the standards of conduct set forth in the preceding paragraph; or (ii)
independent legal counsel shall deliver to the Corporation their written opinion
that such director, officer or employee has met such standards of conduct. If
several claims, issues or matters of action are involved, any such person may be
entitled to indemnification as to some matters even though he is not entitled as
to other matters.
The Corporation may advance expenses to or, where appropriate, may at its
expense undertake the defense of any such director, officer or employee upon
receipt of an undertaking by or on behalf of such person to repay such expenses
if it should ultimately be determined that he is not entitled to indemnification
hereunder.
The provisions of this Section shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act during, before or after the adoption
hereof.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any person concerned may otherwise be entitled by contract
or as a matter of law and shall inure to the benefit of the heirs, executors and
administrators of any such person.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation as a
director, officer, employee or agent of another corporation against any
liability asserted against him and incurred by him in any capacity or arising
out of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Section or
otherwise.
ARTICLE VIII
------------
Amendments
----------
The power to make, alter, amend, or repeal these By-Laws is vested in the Board
of Directors, but the affirmative vote of a majority of the actual number of
directors elected and qualified, from time to time, shall be necessary to effect
any alteration, amendment or repeal of these By-Laws.
13
Exhibit 6.1
PTC BANCORP
NONSTATUTORY STOCK OPTION PLAN
------------------------------
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. "AFFILIATE" means a corporation in which the Company
owns, directly or indirectly, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock of such corporation.
SECTION 1.2. "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
SECTION 1.3. "CODE" means the Internal Revenue Code of 1986, as
amended.
SECTION 1.4. "COMMON SHARES" means the Common Shares, without par
value, of the Company.
SECTION 1.5. "COMPANY" means PTC Bancorp, an Indiana corporation,
and any successor thereto.
SECTION 1.6. "EFFECTIVE DATE" means July 6, 1993.
SECTION 1.7. "ELIGIBLE EMPLOYEE" means any full-time senior
management employee of the Company or an Affiliate.
SECTION 1.8. "ELIGIBLE PERSON" means any Eligible Employee or any
director of the Company or an Affiliate who is not an Eligible Employee.
SECTION 1.9. "OPTION" means an option, granted by the Company
pursuant to the Plan, to purchase shares of Common Stock.
SECTION 1.10. "OPTION AGREEMENT" means a written agreement or
agreements as described in Section 4.3 between the Company and an Eligible
Person evidencing an Option.
SECTION 1.11. "OPTION PRICE" means the price for each share of
Common Stock as determined in Section 4.3(a).
SECTION 1.12. "OPTIONEE" means an Eligible Person to whom an
Option has been granted under the Plan.
SECTION 1.13. "PLAN" means the "PTC Bancorp Nonstatutory Stock
Option Plan" set forth in this document.
SECTION 1.14. "SEPARATION FROM SERVICE" means with respect to an
Eligible Employee any voluntary or involuntary termination of an Eligible
Employee's employment with the Company or an Affiliate for any reason other than
death, but shall not include termination of employment by reason of an Eligible
Employee's transfer of employment between the Company or an Affiliate, and means
with respect to other Eligible Persons, the cessation of such person's service
on the Board of Directors of the Company or an Affiliate
1
<PAGE>
for any reason other than death. The effective date for Separation from Service
shall not include any period for which an Eligible Person may receive accrued
vacation or severance benefits in any form for such service.
ARTICLE II
PURPOSE
SECTION 2.1. PURPOSE. The purpose of the Plan is to reward
Eligible Persons for their service to the Company or its Affiliates, to induce
Eligible Persons to remain affiliated with or in the employ of the Company and
to encourage Eligible Persons to obtain or increase, on the terms set forth
herein, stock ownership in the Company. The Board of Directors has determined
that the Plan will promote continuity of management and increased incentive and
personal interest in the welfare of the Company by those who are primarily
responsible for shaping and carrying out the long-range plans of the Company and
securing its continued growth and financial success.
ARTICLE III
ADMINISTRATION
SECTION 3.1. GENERAL. The Plan shall be administered by the
Board of Directors which, subject to the terms and conditions of the Plan, shall
have the authority to determine, in its sole and absolute discretion, all
questions arising under the Plan, including, but not limited to, the selection
of the Eligible Persons to whom grants of Options shall be made, the terms and
conditions of each such grant, the time at which such grants shall be made, the
number of Common Shares to be optioned under each such grant, all questions
related to the exercisability of Options and all questions relating to
adjustments to be made pursuant to Article VI hereof. The Board of Directors
shall also establish and carry out reasonable interpretations and applications
of the Plan and shall perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
SECTION 3.2. CONFLICTS OF INTEREST. A grant of an Option to a
member of the Board of Directors may be made only after approval of such grant
by a majority of disinterested members of the Board of Directors.
SECTION 3.3. DELEGATION OF POWERS. The Board of Directors may,
in its sole and absolute discretion, delegate specified powers and
responsibilities given it under the Plan to a committee, a majority of which
shall be members of the Board of Directors. The Board of Directors shall
appoint the members of such committee, who shall serve at the pleasure of the
Board of Directors.
ARTICLE IV
OPTIONS
SECTION 4.1. ELIGIBILITY. The Board of Directors may grant
Options to any person who is an Eligible Person.
2
<PAGE>
SECTION 4.2. NUMBER OF SHARES SUBJECT TO OPTIONS. The aggregate
number of Common Shares which may be issued upon the exercise of all Options
shall not exceed six thousand (6,000) Common Shares; subject, however, to the
provisions of Article VI hereof. The Common Shares issued upon the exercise of
Options may be authorized but unissued Common Shares or Common Shares issued and
subsequently reacquired by the Company. In the event any Options shall, for any
reason, terminate, expire or be surrendered without having been exercised in
full, the Common Shares subject to such Option (but not purchased thereunder)
shall again be available for Options to be granted.
SECTION 4.3. TERMS AND CONDITIONS OF OPTIONS. Any Option shall
be evidenced by an Option Agreement executed by the Company and the Optionee,
and shall contain such terms and be in such form as the Board of Directors may
from time to time approve subject to the following terms, conditions and
limitations:
(A) OPTION PRICE. The option price per Common Share with respect
to each such Option shall be determined by the Board of Directors at the time of
issuance of the Option but shall be not less than the book value of the shares
at the time the options are issued.
(B) DURATION OF OPTION. Each Option shall expire in accordance
with the provisions of the Plan or, if earlier, the date fixed by the Board of
Directors and set forth in the Option Agreement at the time such Option is
granted.
(C) VESTING OF OPTION. Unless otherwise determined by the Board
of Directors at the time of grant of an Option, the right of an Optionee who is
an Eligible Employee to exercise an Option shall vest and become effective only
to the extent set forth below and after the Optionee has been continuously
employed by the Company or an Affiliate for the time periods specified below:
Aggregate
Percentage Length of Continuous
Vested Employment After Option Grant
---------- -----------------------------
25% After 12 months from date of
Option Grant
50% After 24 months from date of
Option Grant
75% After 36 months from date of
Option Grant
100% After 48 months from date of
Option Grant
For these purposes, an Optionee shall be deemed to have been "continuously
employed" so long as the Optionee receives compensation from the Company or an
Affiliate at customary and regular intervals, without any interruptions, in
accordance with the established payroll policies.
Options granted to directors of the Company or its Affiliates
shall be fully vested at the time of issuance unless otherwise determined by the
Board of Directors at the time of grant of an Option.
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<PAGE>
The Options granted herein shall become exercisable for the entire
Option Shares (to the extent not previously vested or exercised) immediately
prior to the consummation of any of the following events: (i) the sale or
transfer by the Company or an Affiliate of all or substantially all of its
assets; (ii) the sale or exchange in one transaction of outstanding shares of
the Company having at least two-thirds (2/3) of the total number of votes that
may be cast for the election of the Board of Directors of the Company; (iii) any
cash tender offer or exchange offer, contested election, or any combination of
the foregoing transactions, as a result of which the persons who are Directors
of the Company before the transaction shall cease to constitute a majority of
the Board of Directors of the Company or any successor to the Company; or (iv)
any merger or other business combination or similar action of the Company in
which the Shareholders of the Company receive less than fifty percent (50%)
voting interest in the new continuing entity.
(D) EXERCISE RIGHTS. Each Option shall be exercisable by the
Optionee (or his or her successors if Section 4.3(f) is applicable) only to the
extent the Option is vested. Notwithstanding the foregoing, no Option granted
under the Plan shall be exercisable if the Optionee is in violation of, or has
violated, any agreement between the Optionee and the Company.
(E) EXERCISE OF OPTION. On and after the date any portion of the
Option becomes exercisable pursuant to Section 4.3(d) the Optionee with respect
to such Option may only exercise such Option to the extent vested by written
exercise and subscription agreement which shall:
(i) state the election to exercise the Option, the number of Common
Shares in respect of which it is being exercised, the person(s) in whose name(s)
the stock certificate(s) for such shares is (are) to be registered, including
pertinent address(es) and social security number(s);
(ii) contain such representations and agreements, if any, as may be
required by the Company related to the Optionee's investment intent regarding
the acquisition of such Common Shares and other provisions related to applicable
exemptions from Federal or state securities law registration requirements;
(iii) contain such agreement, if any, as may be required by the
Company related to restrictions on the transferability of such Common Shares;
(iv) be signed by the Optionee; and
(v) be in writing and delivered in person or by mail to the
President of the Company.
Notwithstanding anything in the Plan to the contrary, no Option
shall be exercised if the issuance of the Common Shares upon such exercise would
constitute a violation of any applicable Federal or state securities laws or
other laws or regulations.
(F) DEATH OF OPTIONEE. If an Optionee dies while in the employ
of the Company or any Affiliate, an Option granted to such deceased Optionee may
be exercised (to the extent vested) by the personal representative, executor, or
administrator of such deceased Optionee's estate, or by the person or persons to
whom the Option has been transferred under the Optionee's last will and
testament or the applicable laws of descent and distribution, for a period of
twelve (12) months after the Optionee's death provided, however, such right of
exercise shall not effect the earlier expiration of such Option as provided in
the Plan or the
4
<PAGE>
applicable Option Agreement. Options granted to an Optionee shall automatically
expire twelve (12) months after such Optionee's death. The Company shall be
under no obligation to honor any notice of exercise or to deliver certificates
representing the Common Shares purchased pursuant to any exercise until the
Company is satisfied as to the authority of the person or persons exercising the
Option.
(G) DISABILITY OF OPTIONEE. Notwithstanding other terms and
provisions of this Plan, in the event an Optionee ceases to be employed with the
Company as a result of such Optionee's total and permanent disability, such
Optionee may, but only within six (6) months (or such other period of time not
exceeding twelve (12) months as is determined by the Board, with such
determination being made at the time of grant of the Option and reflected in the
Option Agreement) from the date of such termination (but in no event later than
the date of expiration of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent such Optionee was entitled to
exercise it at the date of such termination. To the extent such Optionee was
not entitled to exercise the Option at the date of termination, or if such
Optionee does not exercise such Option which such Optionee was entitled to
exercise within the time specified herein, the Option shall terminate.
(H) PAYMENT UPON EXERCISE OF OPTION. Payment of the option price
by the Optionee shall be made in cash or by a check drawn on a United States
bank and tendered to the Company on the date of exercise or by such other
consideration which is acceptable to the Board of Directors.
(I) NONTRANSFERABILITY OF OPTIONS. No Option shall be
transferable or assignable, in whole or in part, by an Optionee, except to the
extent exercise is permitted upon the death of the Optionee pursuant to Section
4.3(f) hereof. Each Option shall be exercisable, during the Optionee's
lifetime, only by the Optionee. No Option shall be pledged or hypothecated in
any way and no Option shall be subject to execution, attachment or similar
process or to any claim or interest of a spouse upon divorce from an Optionee or
pursuant to community property laws. Any attempt by an Optionee to transfer,
assign, pledge or hypothecate any Option, or any execution, attachment or
similar process against any such Option, shall cause the immediate expiration of
such Option.
(J) SEPARATION FROM SERVICE. Unless otherwise determined by the
Board of Directors at the time of grant, upon an Optionee's Separation from
Service all unexercised Options held by the Optionee shall expire upon the date
of his or her Separation from Service.
(K) NO OBLIGATION TO MAKE OPTIONS EXERCISABLE. The establishment
of the Plan does not create an obligation which would in any way require the
Company or Board of Directors to engage in any action which would result in the
Options becoming exercisable.
ARTICLE V
AMENDMENT, SUSPENSION OR TERMINATION
SECTION 5.1. GENERAL. The Board of Directors may from time to
time suspend or terminate the Plan or may amend it from time to time in such
respects as the Board of Directors may in its sole and absolute discretion deem
advisable.
SECTION 5.2. EFFECT OF AMENDMENT, SUSPENSION OR TERMINATION OF
EXISTING OPTIONS. Except as provided in the Plan, no amendment, suspension or
termination of the Plan, without an Optionee's consent, shall materially impair
any of the rights or
5
<PAGE>
obligations of the Company or the Optionee with respect to any Option
theretofore granted to such Optionee.
SECTION 5.3. AUTOMATIC TERMINATION OF PLAN. The Plan shall
automatically terminate and all Options granted hereunder shall expire on
December 31, 2002.
ARTICLE VI
ADJUSTMENTS
SECTION 6.1. RECAPITALIZATION. In the event that the issued and
outstanding Common Shares are, at any time after the Effective Date of the Plan,
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or an Affiliate by reason of a
recapitalization, reclassification, stock split-up, combination of shares or
dividend or other distribution payable in capital stock, appropriate adjustment
shall be made by the Board of Directors in the number and kind of shares for the
purchase of which Options may be granted under the Plan. In addition, the Board
of Directors shall make appropriate adjustment in the number and kind of shares
as to which outstanding Options, or portions thereof then unexercised, shall be
exercisable. Such adjustment in outstanding Options shall be made without
change in the total price applicable to the unexercised portion of the Option
and with a corresponding adjustment in the option price per share.
SECTION 6.2. DISSOLUTION OR LIQUIDATION. In the event of the
dissolution or complete liquidation of the Company, any Option shall terminate
as of a date to be fixed by the Board of Directors; provided, however, that not
less than thirty (30) days' written notice of the date so fixed shall be given
to each Optionee and each such Optionee shall have the right during such period
to exercise his or her Option as to all or any part of the Common Shares covered
thereby to the extent vested.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. RESTRICTIONS ON ISSUING COMMON SHARES. The Common
Shares shall not be issued pursuant to the exercise of an Option unless the
transferability of the Common Shares so issued and/or the actual issuance of the
Common Shares comply with all relevant provisions of law, including, but not
limited to, the (i) restrictions, if any, imposed by the Indiana Securities Law,
as amended, (ii) restrictions, if any, imposed by the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the United States Securities and Exchange Commission
thereunder, and (iii) requirements of any stock exchange upon which the Common
Shares may then be listed. The Board of Directors, shall, in its sole
discretion, determine if such restrictions or such issuance of Common Shares so
complies with all relevant provisions of law.
SECTION 7.2. LEGENDS. Certificates for Common Shares issued upon
exercise of an Option shall carry a legend indicating that transfer is subject
to compliance with applicable securities laws.
SECTION 7.3. WITHHOLDING, ETC. Common Shares shall not be issued
upon the exercise of any Option unless and until withholding obligations with
respect to any Federal or state taxes, if any, or other withholding obligations,
if any, imposed by any governmental
6
<PAGE>
entity have, in the opinion of the Board of Directors, been satisfied by the
Company or the Optionee or provisions for their satisfaction have been made by
the Company or the Optionee.
SECTION 7.4. OTHER RESTRICTIONS. The Board of Directors may, in
any Option Agreement with an Optionee, or at the time certificates representing
Common Shares are actually issued pursuant to the exercise of an Option, place
such further restrictions on the transferability of any Common Shares to be
issued to the Optionee or upon the exercise of the Option as the Board of
Directors may, in its sole and absolute discretion, determine to be reasonable,
appropriate or necessary and may require the Optionee to agree to certain
repurchase rights.
SECTION 7.5. USE OF PROCEEDS. The proceeds received by the
Company from the sale of Common Shares pursuant to the exercise of Options shall
be added to the Company's general funds and used for general corporate purposes.
SECTION 7.6. RIGHTS AS A SHAREHOLDER. An Optionee shall have no
rights as a shareholder with respect to Common Shares covered by any Option
until the date of issuance by the Company of the applicable stock certificates.
No adjustment shall be made for cash dividends or other rights not specifically
provided for in the Plan for which the record date is prior to the date of such
issuance of the applicable stock certificates.
Adopted by Board - July 6, 1993
Amended by Board - June 30, 1997
7
Exhibit 6.3
PTC BANCORP
INCENTIVE STOCK OPTION PLAN
---------------------------
1. PURPOSES OF THE PLAN. The purposes of this Incentive Stock Option Plan
are to attract and retain the best available personnel, to provide additional
incentive to the Employees of PTC Bancorp (the "Company") and to promote the
success of the Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON SHARES" shall mean the Common Shares, without par value,
of the Company.
(d) "COMPANY" shall mean PTC Bancorp, an Indiana corporation.
(e) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(f) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422A of the Code.
(g) "OPTION" shall mean a stock option granted pursuant to the Plan.
(h) "OPTION AGREEMENT" shall mean a written agreement or agreements
between the Company and an Employee evidencing the terms of an Option.
(i) "OPTION PRICE" means the price for each Common Share which is the
subject of an Option as determined in accordance with Section 7.
(j) "OPTION SHARES" shall mean the Common Shares subject to an
Option.
(k) "OPTIONEE" shall mean an Employee who receives an Option.
(l) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(m) "PLAN" shall mean this PTC Bancorp Incentive Stock Option Plan.
(n) "SHARE" shall mean a Common Share, as adjusted in accordance with
Section 10 of the Plan.
(o) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 425(f) of the Code.
<PAGE>
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares under the Plan is 19,000 Common
Shares. The Shares may be authorized, but unissued, or reacquired Common
Shares. If any Option should expire or become unexercisable for any reason
without having been exercised in full, then the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options; (ii) to determine, upon review of relevant information and in
accordance with Section 7 of the Plan, the fair market value of the Common
Shares; (iii) to determine the Option Price per Share of Options to be granted,
which Option Price shall be determined in accordance with Section 7 of the Plan;
(iv) to determine the Employees to whom, and the time or times at which, Options
shall be granted and the number of shares to be represented by each Option; (v)
to interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions of
each Option granted (which need not be identical) and, with the consent of the
holder thereof, modify or amend each Option; (viii) to accelerate or defer (with
the consent of the Optionee) the exercise date of any Option, consistent with
the provisions of Section 5 of the Plan; (ix) to authorize any person to execute
on behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Board; and (x) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(c) VESTING OF OPTION. Unless otherwise determined by the Board at the
time of grant of an Option, the right of an Optionee to exercise an Option shall
vest and become effective only to the extent set forth below and after the
Optionee has been continuously employed by the Company or a Parent or Subsidiary
of the Company for the time periods specified below:
Aggregate
Percentage Length of Continuous
Vested Employment After Option Grant
---------- -----------------------------
25% After 12 months from date of
Option Grant
50% After 24 months from date of
Option Grant
75% After 36 months from date of
Option Grant
100% After 48 months from date of
Option Grant
For these purposes, an Optionee shall be deemed to have been "continuously
employed" so long as the Optionee receives compensation from the Company or a
Parent or Subsidiary of the Company at customary and regular intervals, without
any interruptions, in accordance with the established payroll policies.
2
<PAGE>
The Options granted herein shall become exercisable for the entire Option
Shares (to the extent not previously vested or exercised) immediately prior to
the consummation of any of the following events: (i) the sale or transfer by
the Company or a Parent or Subsidiary of the Company of all or substantially all
of its assets; (ii) the sale or exchange in one transaction of outstanding
shares of the Company having at least two-thirds (2/3) of the total number of
votes that may be cast for the election of the Board of the Company; (iii) any
cash tender offer or exchange offer, contested election, or any combination of
the foregoing transactions, as a result of which the persons who are Directors
of the Company before the transaction shall cease to constitute a majority of
the Board of Directors of the Company or any successor to the Company; or (iv)
any merger or other business combination or similar action of the Company in
which the Shareholders of the Company receive less than fifty percent (50%)
voting interest in the new continuing entity.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. An
Employee who has been granted an Option may, if such Employee is otherwise
eligible, be granted additional Option(s).
(b) No Incentive Stock Option may be granted to an Employee which,
when aggregated with all other incentive stock options granted to such Employee
by the Company or any Parent or Subsidiary, would result in Shares having an
aggregate fair market value (determined for each Share as of the date of grant
of the Option covering such Share) in excess of $100,000 becoming first
available to purchase upon exercise of one or more Incentive Stock Options
during any calendar year.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment by the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate his or her
employment or services at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 12 of the Plan.
7. OPTION PRICE AND CONSIDERATION.
(a) The Option Price for Shares to be issued pursuant to exercise of
an Option shall be such price as is determined by the Board, but shall be
subject to the following in the case of an Incentive Stock Option:
(i) if granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the Option Price shall be no less than 110% of the fair market value
per Share on the date of grant; or
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(ii) if granted to any other Employee, the Option Price shall be
no less than 100% of the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Shares, the fair market value per Share shall be the mean of the bid and
asked prices [or the closing price per Share if the Common Shares are listed on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System] of the Common Shares for the date of grant, as reported
in THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by the
NASDAQ System) or, in the event the Common Shares are listed on a stock
exchange, the fair market value per Share shall be the closing price on such
exchange on the date of grant of the Option, as reported in THE WALL STREET
JOURNAL.
(c) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the Board
and may consist entirely of cash, check, promissory note, other Common Shares
having a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, or any
combination of such methods of payment, or such other consideration and method
of payment for the issuance of Shares to the extent permitted under the Indiana
Business Corporation Law, as amended.
8. OPTIONS.
(a) TERM OF OPTION. The term of each Incentive Stock Option shall be
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Option granted to
an Employee who, at the time the Option is granted, owns stock representing more
than ten percent (l0%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Option Agreement.
(b) EXERCISE OF OPTION.
(i) EXERCISE RIGHTS. Each Option shall be exercisable by the Optionee (or
his or her successors if Section 8(b)(iii) is applicable) only to the extent the
Option is vested. Notwithstanding the foregoing, no Option granted under the
Plan shall be exercisable if the Optionee is in violation of, or has violated,
any agreement between the Optionee and the Company.
(ii) EXERCISE OF OPTION. On and after the date any portion of the Option
becomes exercisable pursuant to Section 8(b)(i) the Optionee with respect to
such Option may only exercise such Option to the extent vested by written
exercise and subscription agreement which shall:
(A) state the election to exercise the Option, the number of
Common Shares in respect of which it is being exercised, the person(s) in whose
name(s) the stock certificate(s) for such shares is (are) to be registered,
including pertinent address(es) and social security number(s);
(B) contain such representations and agreements, if any, as may be
required by the Company related to the Optionee's investment intent regarding
the acquisition of such Common Shares and other provisions related to applicable
exemptions from Federal or state securities law registration requirements;
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<PAGE>
(C) contain such agreement, if any, as may be required by the
Company related to restrictions on the transferability of such Common Shares;
(D) be signed by the Optionee; and
(E) be in writing and delivered in person or by mail to the
President of the Company.
Notwithstanding anything in the Plan to the contrary, no Option shall be
exercised if the issuance of the Common Shares upon such exercise would
constitute a violation of any applicable Federal or state securities laws or
other laws or regulations.
(iii) DEATH OF OPTIONEE. If an Optionee dies while in the employ of the
Company or any Parent or Subsidiary of the Company, an Option granted to such
deceased Optionee may be exercised (to the extent vested) by the personal
representative, executor, or administrator of such deceased Optionee's estate,
or by the person or persons to whom the Option has been transferred under the
Optionee's last will and testament or the applicable laws of descent and
distribution, for a period of twelve (12) months after the Optionee's death
provided, however, such right of exercise shall not effect the earlier
expiration of such Option as provided in the Plan or the applicable Option
Agreement. Options granted to an Optionee shall automatically expire twelve
(12) months after such Optionee's death. The Company shall be under no
obligation to honor any notice of exercise or to deliver certificates
representing the Common Shares purchased pursuant to any exercise until the
Company is satisfied as to the authority of the person or persons exercising the
Option.
(iv) DISABILITY OF OPTIONEE. Notwithstanding other terms and provisions
of this Plan, in the event an Optionee ceases to be employed with the Company as
a result of such Optionee's total and permanent disability (as defined in
Section 22(e)(3) of the Code), such Optionee may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Board, with such determination being made at the time of grant of the
Option and reflected in the Option Agreement) from the date of such termination
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent such
Optionee was entitled to exercise it at the date of such termination. To the
extent such Optionee was not entitled to exercise the Option at the date of
termination, or if such Optionee does not exercise such Option which such
Optionee was entitled to exercise within the time specified herein, the Option
shall terminate.
(v) TERMINATION OF STATUS AS AN EMPLOYEE. In the event an Optionee ceases
to be continuously employed as an Employee, the Option granted to such Employee
shall immediately terminate unless otherwise determined by the Board of
Directors.
9. NON-TRANSFERABILITY OF OPTIONS. The Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of the Optionee only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND DISSOLUTION OR
LIQUIDATION. Subject to any required action by the shareholders of the Company,
the number of Common Shares covered by each outstanding Option and the number of
Common Shares which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an
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Option, as well as the Option Price of Common Shares covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Common Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Shares of the Company or the payment of a stock dividend with respect to
the Common Shares or any other increase or decrease in the number of issued
Common Shares effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Common
Shares subject to an Option.
In the event of the dissolution or complete liquidation of the Company,
any Option shall terminate as of a date to be fixed by the Board of Directors;
provided, however, that not less than thirty (30) days' written notice of the
date so fixed shall be given to each Optionee and each such Optionee shall
have the right during such period to exercise his or her Option as to all or
any part of the Common Shares covered thereby to the extent vested.
11. TIME OF GRANT. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee to whom an
Option is so granted within a reasonable time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that the following revisions or amendments shall require approval of
the shareholders of the Company:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 10 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) if the Company has a class of equity securities registered
under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") at
the time of such revision or amendment, any material increase in the benefits
accruing to participants under the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 12(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 16 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
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13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. The Company, during the terms of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
15. OPTION AGREEMENTS. Options shall be evidenced by Option Agreements in
such form as the Board shall approve.
16. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
17. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
Date of Adoption by the Board - July 6, 1993
Date of Amendment by the Board - June 30, 1997
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