U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 [Fee Required] for the fiscal year ended December 31, 1997
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] for the transition period from ________ to ________.
COMMISSION FILE NUMBER 0-22449
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PTC Bancorp
- ------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Indiana 35-1606016
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9014 State Road 101, P.O. Box 7, Brookville, IN 47012
- ----------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (765) 647-8591
----------------------------------------------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock
- ------------------------------------------------------------------------------
(Title of class)
- ------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this Form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
State issuer's revenues for its most recent fiscal year $26,118,000.00. State
the aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within the past 60 days.
The aggregate market value of the 674,465 shres of common stock held by
persons other than directors of the Registrant on March 11, 1998 was
$26,641,367.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares
outstanding of each of the issuer's classes of common equity, as of the latest
practicable date. 1,026,401 shares of common stock was outstanding on March
11, 1998.
DOCUMENTS INCORPORATED BY REFERENCE: None.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORM (CHECK ONE): Yes ___ No X
<PAGE>
PART I
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.
PENDING MERGER. The Company has entered into an Agreement and Plan of
Merger with Indiana United Bancorp ("IUB") whereby the Company will be merged
with and into IUB and each of the 1,057,132 shares of Common Stock and Common
Stock equivalents of the Company will be converted into the right to receive
1.075 shares of IUB Common Stock. The merger has received regulatory
approvals but is subject to various conditions including approval by the
shareholders of each IUB and the Company at meetings scheduled to be held
April 28, 1998. Assuming shareholder approval, it is contemplated that the
merger will be completed on April 30, 1998.
Upon consummation of the merger, the IUB Board will be increased to
ten members, five of whom shall be designated by the Company.
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.
2
<PAGE>
LENDING ACTIVITIES
- ------------------
TYPES OF LOANS. The loan portfolio, by collateral type and purpose,
at the dates indicated is presented below:
<TABLE>
<CAPTION>
December 31
1997 1996
(in thousands)
----------------------------
<S> <C> <C>
Commercial and industrial loans $ 19,561 $ 22,986
Real estate loans (includes $11,150 and $8,302 secured by farm land) 99,507 88,110
Construction loans 10,510 13,650
Real estate - non farm, nonresidential 54,011 34,810
Agricultural production financing and other loans to farmers 5,440 4,895
Individuals' loans for household and other purposes 22,090 24,543
Tax-exempt loans 11,251 8,107
Other loans 3,177 207
Less: Deferred loan fees, net (374) (345)
----------- -----------
Total loans $ 225,173 $ 196,963
=========== ===========
</TABLE>
LOAN AND LEASE MATURITY ANALYSIS. The contractual maturity of loans
outstanding as of December 31, 1997, by major type, is as follows:
<TABLE>
<CAPTION>
Due
Due Within After One Due
One Year But Within After
(Dollars in Thousands) or Less Five Years Five Years Total
- ---------------------- ------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial $ 75,351 $ 23,979 $ 11,609 $ 110,939
Mortgage 65,171 15,596 8,016 88,783
Consumer and other 9,155 15,760 536 25,451
---------- ---------- ---------- ---------
Total loans $ 149,677 $ 55,335 $ 20,161 $ 225,173
========== ========== ========== =========
</TABLE>
The amount of loans due after one year which have floating or
adjustable interest rates was $26,356 at December 31, 1997, and the amount
which had pre-determined interest rates was $49,140 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, 1997, 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 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.
3
<PAGE>
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------
1997 1996
(in thousands, except ratios)
<S> <C> <C>
Allowance for loan losses:
Balance at January 1 $ 2,000 $ 1,722
Charge-offs:
Commercial 669 297
Real estate mortgage 5 10
Installment loans 255 419
-------- --------
Total charge-offs 929 726
Recoveries:
Commercial 26 14
Real estate mortgage 0 16
Installment 118 146
-------- --------
Total recoveries 144 176
-------- --------
Net charge-offs 785 550
Provision for loan losses 1,506 828
-------- --------
Balance at end of period $ 2,721 $ 2,000
======== ========
Ratios:
Net charge-offs during the
period to average loans and leases
outstanding during the period 0.37% 0.30%
</TABLE>
The following table shows an allocation of the allowance for loan
losses and percent of loans in each category to total loans at the dates
indicated.
<TABLE>
<CAPTION>
December 31
-----------------------------------
1997 1997 1996 1996
(in thousands, except percents)
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Commercial $ 374 49.6% $ 674 50.0%
Real estate - mortgage 47 40.4 45 37.8
Installment and other 238 10.0 328 12.2
Unallocated 2,062 953
------ ------ ------ ------
$2,721 100.0% $2,000 100.0%
====== ====== ====== ======
</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.
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.
4
<PAGE>
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 at the dates
indicated:
<TABLE>
<CAPTION>
December 31
--------------------
1997 1996
(in thousands)
<S> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 500 $ 1,794
Restructured loans 0 0
Accruing loans 90 days or more past due 367 34
------- -------
Total nonperforming loans 867 1,828
Other real estate owned 74 24
------- -------
Total nonperforming assets $ 941 $ 1,852
======= =======
Allowance for possible loan and lease losses $ 2,721 $ 2,000
Allowance as a percentage of nonperforming loans 313.8% 109.4%
Allowance as a percentage of total loans 1.21 1.02
Nonperforming loans and other real estate owned
as a percentage of total loans and other real estate owned 0.42 0.94
Nonperforming loans as a percentage of total loans 0.39 0.93
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 $2,618 at December 31, 1997 and $3,013 at December 31, 1996,
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, 1997, 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:
5
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale
December 31
-----------------------
1997 1996
(in thousands)
<S> <C> <C>
U.S. Treasury and government agencies $ 21,975 $ 30,066
State and political subdivisions 3,407 1,971
Mortgage backed securities 3,596 2,583
Other debt securities 1,500 1,906
Equity securities 1,634 1,521
-------- --------
Total $ 32,112 $ 38,047
======== ========
</TABLE>
The following table shows the amortized cost of securities held to
maturity at the dates indicated:
<TABLE>
<CAPTION>
Securities Held to Maturity
December 31
-----------------------
1997 1996
(in thousands)
<S> <C> <C>
State and political subdivisions $ 22,741 $ 24,188
Other debt securities 1,441 1,031
-------- --------
Total $ 24,182 $ 25,219
======== ========
</TABLE>
The amortized cost of debt securities at December 31, 1997, 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. Mortgage backed
securities are also 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, 1997
U.S. Treasury and
government
agencies $ 4,000 5.80% $ 16,975 6.50% $ 1,000 7.73% $ 0 0%
Mortgage-backed
securities 45 7.25 538 6.57 405 8.23 2,608 6.97
State and political
subdivision* 0 0 3,203 7.57 154 8.48 50 9.22
Other debt
securities 1,500 5.99 0 0 0 0 0 0
-------- -------- -------- --------
Totals $ 5,545 5.87 $ 20,716 6.66 $ 1,559 7.93 $ 2,658 7.01
======== ======== ======== ========
</TABLE>
* Yields on state and municipal securities are presented on a fully taxable
equivalent basis using a 34% tax rate.
6
<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>
State and political
subdivision* $ 5,433 6.74% $ 16,160 6.93% $ 1,109 7.76% $ 39 11.99%
Other debt
securities 500 5.18 495 6.86 0 0.00 446 6.13
-------- -------- -------- --------
Totals $ 5,933 6.60 $ 16,655 6.93 $ 1,109 7.76 $ 485 6.60
======== ======== ======== ========
</TABLE>
* Yields on state and municipal securities are presented on a fully taxable
equivalent basis using a 34% tax rate.
As of December 31, 1997, 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.
TIME DEPOSITS OVER $100,000. As of December 31, 1997, time deposits
of $100,000 or more mature as follows:
(Dollars in thousands)
----------------------
3 months or less $16,820
Over 3 months through 6 months 3,360
Over 6 months through 12 months 6,227
Over 12 months 8,558
-------
Total $34,965
=======
EMPLOYEES. At December 31, 1997, the Bank employed approximately 154
full-time and 13 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 OF THE COMPANY AND THE BANK. 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 and 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 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.
7
<PAGE>
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 was in compliance with all regulatory capital requirements
at December 31, 1997. Regulatory capital ratios for the Company of December
31, 1997 are shown below:
Tier 1 Capital to Risk-Weighted Assets 10.6%
Total Risk Based Capital to Risk-Weighted Assets 11.9%
Tier 1 Leverage Ratio 7.0%
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."
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
8
<PAGE>
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 its members. At December 31, 1997, the
Bank's investment in the stock of the FHLB of Indianapolis was $886,000.
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 investment or 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 stockholder's equity, certain non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority
interest in stockholder's 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, perpetual
preferred stock, mandatory convertible debt securities, certain hybrid capital
instruments, perpetual debt, 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 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.
The Bank was in compliance with all regulatory capital requirements at
December 31, 1997. Regulatory capital ratios for the Bank at December 31,
1997 were:
Tier 1 Capital to Risk-Weighted Assets 10.1%
Total Risk Based Capital to Risk-Weighted Assets 11.4%
Tier 1 Leverage Ratio 6.7%
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
9
<PAGE>
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,
1997 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 unimpaired capital and
unimpaired surplus. An additional amount up to 10% of the bank's unimpaired
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 July 1, 1997 to
establish branches outside the State of Indiana. A bank may also 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
10
<PAGE>
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 a higher percentage of estimated insured deposits
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
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.
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.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The Bank's principal office is located in Brookville, Indiana and
fourteen (14) of its locations are owned in fee simple by the Bank. The
Bank's branches at the Marsh Supermarket in Rushville, the Connersville Office
located in the Grandview Shopping Center, the Jay C Supermarket Branch in
Greensburg, Indiana, and the newly
11
<PAGE>
established downtown Madison, Indiana branch are leased from third parties.
These leases expire on January 31, 2015, March 1, 2012, February 28, 2020 and
April 1, 2027, respectively.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matters were submitted during the fourth quarter of 1997 to a vote
of security holders.
12
<PAGE>
PART II
ITEM 5. 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
December 31, 1997, approximately 1,026,401 shares of common stock were
outstanding held of record by approximately 572 persons, and there were
outstanding options which were exercisable on that date for approximately
30,731 shares of common stock. 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
1997 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- -------
<S> <C> <C> <C>
High $31 $31 $31 $39
Low 31 31 31 31
Last Sale 31 31 31 39
1996
High $25.50 $30 $30 $31
Low 25.50 25.50 30 30
Last Sale 25.50 30 30 31
</TABLE>
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 1996)
13
<PAGE>
Cash Dividends
Calendar Quarter Per Common Share
---------------- ----------------
1997:
First Quarter $ .185
Second Quarter .205
Third Quarter .205
Fourth Quarter .225
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 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
- -------------
YEAR ENDED DECEMBER 31, 1996 AND 1997.
- --------------------------------------
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 31, 1996 and 1997. The discussion should be
read in conjunction with the financial information contained in "Description
of Business" and the consolidated financial statements and notes thereto. All
dollar amounts shown herein are in thousands except per share amounts.
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.
The Bank operates 18 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. In addition, in September, 1997, the bank opened its 18th
office in Downtown Madison.
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.
EARNINGS
- --------
Net income for the year ended December 31, 1997 was $3,430 compared to
$3,276 for 1996, which represented a $154 or 4.7% increase. Earnings per
share also increased from $3.17 for 1996 to $3.35 for 1997. Earnings per share
on a completely diluted basis increased from $3.13 to $3.30 per share. Higher
net interest income
14
<PAGE>
and lower tax expense, partially offset by a higher provision for loan losses
and increased non-interest expense, accounted for most of the increase.
Net interest income increased from $10,422 for the twelve months ended
December 31, 1996 to $11,672 for the same period in 1997, for a $1,250 or 12%
increase. Substantially all of this increase was related to higher volumes
(average balances) of interest earning assets and interest bearing
liabilities. In addition, the company was able to move the net interest
spread from 3.84% in 1996 to 3.90% in 1997 and the interest margin from 4.39%
to 4.46% for the same time periods. Average loans were $28.4 million higher
for the twelve months ended December 31, 1997, compared to the same period in
1996. Average interest bearing deposits were approximately $22.6 million
higher.
The provision for loan losses increased from $828 to $1,506, an
increase of $678. This increase was incurred because the Company has
experienced tremendous loan growth over the past several years - 15.4% in
1997, and 13.7% in 1996. In addition, a comparative review of the PTC
allowance for loan loss to its peer group, which consists of financial
institutions between $150,000 and $300,000 in assets, was completed. Through
this analysis, it was determined that PTC's allowance to total loans
percentage relationship was significantly less than its peer group. Management
increased the provision during 1997 to bring PTC closer to its peer group and
to recognize the tremendous growth experienced during the past two years.
Non-interest income increased slightly from $2,349 to $2,535 for the
twelve months ended December 31, 1996 and 1997, respectively. There was no
travel commission income in 1997 compare to $66 in 1996. The travel company,
a subsidiary of the Bank, was sold in the second quarter of 1996. The
increase in non-interest income came primarily from mortgage banking income
which increased from $795 for 1996 to $1,116 for 1997.
Non-interest expense increased from $7,103 to $7,829 for the twelve
month period ended December 31, 1996 and 1997, respectively. $361 of the $726
increase was due to higher salary and benefit costs related to the newly
acquired Hanover branch in February, 1997 and the establishment of a new
downtown Madison office which opened in September, 1997. Occupancy and
equipment expenses increased $250 primarily due to the new locations, as well
as ongoing upgrades in computer technologies.
The provision for income taxes was slightly less in 1997 than 1996
primarily due to increased balances in non-taxable securities and non-taxable
loans. The effective tax rate in 1997 was 30%, compared to 32% in 1996.
FINANCIAL CONDITION
- -------------------
Total assets increased from $296,576 at the end of 1996 to $321,993 by
the end of 1997. This $25,417 growth in assets represents more than an 8.6%
increase. Gross loans increased by $28,640 over the same time period and
total deposits grew $22,715, an increase of 14.6% and 8.4%, respectively.
Gross loans increased by $28,640 from December 31, 1996 to December
31, 1997. Most of this growth occurred in the residential and commercial real
estate loan categories.
The allowance for loan losses increased from $2,000 at December 31,
1996 to $2,721 at December 31, 1997. The remaining charge off resulting from
the Bennett Funding loan relationship was taken during the fourth quarter of
1997, reducing its carrying amount to less than $100 which is expected to
continue to pay down throughout 1998.
Total deposits increased by $22,715 from December 31, 1996 to December
31, 1997. The primary area of growth came in interest-bearing deposits. In
addition, 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 as an intangible asset. The
branch facility is located in Hanover, Indiana.
Shareholder's equity increased $2,576 from December 31, 1996 to
December 31, 1997. The primary growth was due to retained earnings less cash
dividends incurred throughout the 1997 year.
15
<PAGE>
The following table sets forth average balances and average
yields/costs of interest earning assets and interest bearing liabilities for
1997 and 1996.
<TABLE>
<CAPTION>
YIELD/RATE ANALYSIS
(Dollars in thousands)
1997 1996
---------------------------------- ---------------------------------
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 $ 1,615 $ 90 5.57% $ 2,274 $ 130 5.72%
Federal Funds Sold 8,452 510 6.03 7,317 433 5.92
Securities:
Taxable 33,717 2,156 6.39 38,224 2,440 6.38
Non-taxable(1) 26,289 1,909 7.26 24,749 1,805 7.29
Loans and Leases: (2)
Taxable (3) 202,755 19,006 9.37 176,529 16,658 9.44
Non-taxable(1) 10,128 852 8.41 7,918 708 8.94
--------- --------- -------- ---------
Total Earning Assets 282,956 24,523 8.67 257,011 22,174 8.63
--------- ----- --------- -----
Cash and Due from Banks 8,363 6,992
Premises and equipment, net 3,810 3,246
Intangible assets 1,664 1,678
Accrued interest receivable
and other assets 4,209 3,384
Less: Allowance for Loan Loss (2,028) (1,976)
--------- ---------
TOTAL ASSETS $ 298,974 $ 270,335
========= =========
LIABILITIES AND EQUITY
- ----------------------
Savings and Interest-bearing
Demand Deposits $ 84,415 2,409 2.85 $ 78,529 2,247 2.86
Time Deposits 164,801 9,474 5.75 148,079 8,590 5.80
Notes Payable 324 28 8.64 782 60 7.67
--------- --------- -------- ---------
Total Interest-bearing
Liabilities 249,540 11,911 4.77 227,390 10,897 4.79
--------- ----- --------- -----
Demand Deposit Accounts 23,386 20,136
Other Liabilities 3,057 2,396
--------- ---------
TOTAL LIABILITIES 275,983 249,922
Shareholders' Equity 22,991 20,413
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 298,974 $ 270,335
========= =========
Net Interest/Spread $ 12,612 3.90% $ 11,277 3.84%
========= ===== ========= =====
Margin 4.46% 4.39%
===== =====
</TABLE>
(1) Tax exempt interest income for loans and securities was restated to its
tax equivalent amount using a 34% tax rate.
(2) Interest income on loans included fees of $416 and $437 for 1997 and
1996.
(3) Non accrual loans are included in the average balance.
16
<PAGE>
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.
<TABLE>
<CAPTION>
(Dollars in thousands)
1997-1996
Change
Total Due To Due To
Change Volume Rate
------ ------ ----
<S> <C> <C> <C>
ASSETS
Short-term Investments
Interest-bearing balances
with Banks $ (40) $ (37) $ (3)
Federal Funds Sold 77 - 77
Securities:
Taxable (284) (288) 4
Non-taxable 104 112 (8)
Loans and Leases:
Taxable 2,348 2,459 (111)
Non-taxable 144 188 (44)
------- ------- -------
Total Earning Assets 2,349 2,434 (85)
------- ------- -------
INTEREST BEARING LIABILITIES
Savings and Interest-Bearing
Demand Deposits 162 168 (6)
Time Deposits 884 962 (78)
Notes Payable (32) (39) 7
------- ------- -------
Total Interest-bearing
Liabilities 1,014 1,091 (77)
------- ------- -------
Net Interest/Spread $1,335 $1,343 $ (8)
======= ======= =======
</TABLE>
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 rates may have on net interest income.
As of December 31, 1997, 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 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.
17
<PAGE>
<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 $ 7,723 $ - $ - $ - $ 2,073 $ 9,796
Fed Funds Sold 19,400 - - - - 19,400
Interest bearing balances - - - - - -
with financial institutions 499 - 500 - - 999
Securities 6,995 5,995 38,269 5,285 - 56,544
Loans 71,095 91,220 52,052 11,765 621 226,753
Allowance for Loan Loss - - - - (2,721) (2,721)
Other assets - - - - 11,222 11,222
--------- --------- --------- --------- --------- ---------
Total Assets $ 105,712 $ 97,215 $ 90,821 $ 17,050 $ 11,195 $ 321,993
========= ========= ========= ========= ========= =========
Rate-sensitive Liabilities:
Non-interest bearing deposits $ - $ - - $ 26,297 $ 26,297 -
Passbook Savings - 30,468 - - - 30,468
Interest bearing deposits 51,206 6,907 - - - 58,113
CD's Greater Than 100M 16,819 9,479 8,136 - - 34,434
CD's Greater Than 100M 35,067 52,497 43,850 5 - 131,419
IRA's 3,464 4,688 4,959 - - 13,111
Note Payable - - - - - -
Other liabilities - - - - 3,922 3,922
Capital - - - - 24,229 24,229
--------- --------- --------- --------- --------- ---------
Total liabilities $ 106,556 $ 104,039 $ 56,945 $ 5 $ 54,448 $ 321,993
========= ========= ========= ========= ========= =========
Periodic Gap $ (844) $ (6,824) $ 33,876 $ 17,045 $ 43,253
Cumulative Gap $ (844) $ (7,668) $ 26,208 $ 43,253 $
</TABLE>
A significant assumption is that most 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 1997, the
Company's loan portfolio increased to 225 million dollars at December 31, 1997
from 197 million dollars at December 1996, an increase of 28 million dollars
or 14.6%. Increases in deposits provided the primary source of funding for
loan growth in 1997. Average deposits increased 22.6 million dollars, (10%)
between 1996 and 1997. Additional funding for loan growth was provided
through the 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 was 76.9% in 1997, and 72.6% in 1996.
Increasing this ratio was an important goal for the Company's management
during 1997, and significantly added to the Company's profitability.
18
<PAGE>
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, 1997 and 1996, such commitments totaled 28
million dollars and 29 million dollars, 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, 1997 and 1996, non-performing
loans totaled $867 and $1,828, respectively. As a percent of total loans,
non-performing loans were .39% at December 31, 1997 and .93% at December 31,
1996. The primary difference between the two years relates to the Bennett
Funding relationship which accounted for $1,300 of the total non-performing
loans at December 31, 1996 and less than $100 at December 31, 1997.
The provision for loan losses is a charge to earnings to provide for
potential loan losses. The provision for loan losses was $1,506 in 1997 and
$828 in 1996. 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, peer comparisons, and present and forecasted economic
conditions affecting borrowers. At December 31, the allowance for loan losses
was $2,721 for 1997 and $2,000 for 1996. As a percent of total loans, the
allowance for loan losses was 1.21% and 1.02% at those points in time. The
primary reason for the increase in the allowance for loan loss is because the
Company has sustained a tremendous growth over the last two years in the loan
portfolio and upon management's review of a peer comparison, it was
determined that the Company's allowance was significantly less than peer.
Management's analysis indicates that the allowance for loan losses at December
31, 1997, was adequate to cover potential losses on identified loans with
credit problems and on the remaining portfolio. Management's analysis also
indicates that the allowance for loan loss at December 31, 1997 was adequate
when compared to peer, historical loss percentages, and various economic
conditions in the general area served by the Company.
Gross loan charge-offs in 1997 and 1996 were $929 and $726,
respectively. As a percentage of average loans, net loan charge-offs were
.37% and .30% for those periods.
Loans are considered impaired if full principal or interest payment
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 1997 was $976 as
compared to $844 during 1996. At December 31, 1997, $238 of loans were deemed
to be impaired and $0 of the allowance for loan losses was allocated to these
loans. 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. The large
decrease in impaired loans was related to loans associated with the Bennett
Funding relationship.
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 per share 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 per share when adjusted for a subsequent stock dividend).
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 compliance with all regulatory
capital requirements at December 31, 1997. The following table indicates the
Company's actual capital levels at the dates indicated.
19
<PAGE>
<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 $ 24,299 11.9% $ 16,961 8.0% $ 21,202 10.0%
Bank $ 22,934 11.4% $ 17,097 8.0% $ 21,371 10.0%
Tier I Capital (to Risk
Weighted Assets
Company $ 22,499 10.6% $ 8,481 4.0% $ 12,721 6.0%
Bank $ 21,547 10.1% $ 8,548 4.0% $ 12,823 6.0%
Tier I Capital (to
Average Assets)
Company $ 22,449 7.0% $ 12,813 4.0% $ 16,016 5.0%
Bank $ 21,547 6.7% $ 12,766 4.0% $ 15,958 5.0%
</TABLE>
The Company and Bank at year-end 1997 were categorized as well
capitalized.
SELECTED FINANCIAL RATIOS
- -------------------------
The following table indicated certain key financial ratios for the
Company for the years indicated:
1997 1996
---- ----
Return on Assets 1.15% 1.21%
Return on Equity 14.92% 16.05%
Dividend Payout Ratio 25% 21%
Equity to Assets Ratio 7.53% 7.30%
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
FAS No. 130 "REPORTING COMPREHENSIVE INCOME"is effective for both
interim and year-end financial statements for fiscal years beginning after
December 15, 1997 and establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Comprehensive income
is defined as all changes in equity other than those resulting from
investments by owners or distributions to owners. Net income is, therefore, a
component of comprehensive income. The most common items of other
comprehensive income include unrealized gains or losses on securities
available for sale, gains and losses on certain foreign currency transactions,
and minimum pension liability adjustments. While full disclosure for each
reported period is required in year-end financial statements, interim
financial statements need only disclose total comprehensive income for each
reported period.
The Standard does not mandate a specific format for reporting
comprehensive income, but it does require that all items that are required to
be recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Implementation of this Standard will require additional
disclosures in future financial reports but will not otherwise affect the
Company.
FAS No. 131 "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION" is effective for reported periods included in year-end financial
statements for fiscal years beginning after December 15, 1997 and for all
reported periods in interim financial statements for reporting periods
20
<PAGE>
following the first required full fiscal year disclosure. FAS No. 131
establishes new guidance for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about reportable
operating segments in interim financial reports issued to shareholders. FAS
No. 131 supersedes the industry approach to segment disclosures previously
required by FAS No. 14, Financial Reporting for Segments of a Business
Enterprise, replacing it with a method of segment reporting which is based on
the structure of an enterprise's internal organization reporting. The
Statement also establishes standards for related disclosures about products
and services, geographic areas and major customers.
Management does not believe that implementation of this Standard will
result in the identification of other reportable business segments at this
time.
YEAR 2000 COMPLIANCE
- --------------------
On May 5, 1997, the Federal Financial Institutions Examination Council
issued a statement providing guidance on the scope of the activities necessary
for insured financial institutions to make all information - processing
systems capable of recognizing dates accurately in the year 2000 and beyond.
P.T.C. Bancorp recognized the practicality of their approach and has adopted a
five step process of awareness, assessment, renovation, validation/testing,
and implementation.
The Year 2000 problem will present a number of difficult and complex
challenges for all financial institutions. P.T.C. Bancorp intends to be "Year
2000 Compliant" well in advance in order to make as smooth transition into the
next millennium and the following outlines the Company's plan to address this
issue.
P.T.C. Bancorp has adopted a five step plan. Phase I of the plan
which included the forming of the Year 2000 Project Team, educating and
obtaining support from the Company's Board of Directors and Senior Management,
and developing staff awareness of possible effects the Year 2000 may have on
credit risk and customer confidence has been completed by December 31, 1997.
Phase II of the plan will be implemented in the first and second quarters of
1998. This step includes an inventory of all hardware and software, not only
computer related items, but all equipment which contain computer chips to
determine resources required, vendor support, and budget allocations. Phase
III will be conducted in the third quarter of 1998. This step includes the
modification of internally developed software, replacement schedule of
non-compliant hardware, and certification of all vendor supplied software.
Phase IV is scheduled for the fourth quarter of 1998. This phase includes the
testing and validation of all applications and systems and all incremental
upgrades or revisions. And finally, Phase V which will take place during the
first quarter of 1999, will allow for modification to program or applications
that failed the fourth quarter 1998 testing phase.
The Company anticipates all systems, software and applications to be
Year 2000 Compliant by the end of the second quarter, 1999.
21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ----------------------------
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, 1997 and 1996, 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, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
January 22, 1998
22
<PAGE>
P.T.C. BANCORP
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(dollar references in thousands except share data)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 29,196 $ 26,185
Interest bearing balances with financial institutions 999 1,897
Securities available for sale, at fair value 32,362 38,376
Securities held to maturity 24,182 25,219
Loans held-for-sale 1,580 430
Loans 225,173 196,533
Allowance for loan losses (2,721) (2,000)
--------- ---------
Net loans 222,452 194,533
Premises and equipment, net 3,982 3,512
Intangible assets 1,629 1,619
Accrued interest receivable and other assets 5,611 4,805
--------- ---------
$ 321,993 $ 296,576
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 26,297 $ 32,350
Interest bearing deposits 267,545 238,777
--------- ---------
Total deposits 293,842 271,127
Notes payable - 500
Accrued interest payable and other liabilities 3,922 3,296
--------- ---------
Total liabilities 297,764 274,923
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, 1,026,401 and 1,024,276 shares outstanding 1,026 1,024
Additional paid-in capital 10,445 10,413
Retained earnings 12,607 10,018
Unrealized gain on securities available for sale 151 198
--------- ---------
Total shareholders' equity 24,229 21,653
--------- ---------
$ 321,993 $ 296,576
========= =========
</TABLE>
See accompanying notes.
23
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997 and 1996
(dollar references in thousands except per share data)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 19,567 $ 17,125
Interest on investment securities
Taxable securities 2,156 2,440
Non-taxable securities 1,260 1,191
Balances with financial institutions 90 130
Federal funds sold 510 433
--------- ---------
Total interest income 23,583 21,319
Interest expense
Deposits 11,883 10,837
Notes payable 28 60
--------- ---------
Total interest expense 11,911 10,897
--------- ---------
Net interest income 11,672 10,422
Provision for loan losses 1,506 828
--------- ---------
Net interest income after provision for loan losses 10,166 9,594
Non-interest income
Service charges on deposit accounts 1,221 1,199
Mortgage banking income 1,116 795
Securities gains 3 104
Travel commission income - 66
Other income 195 185
--------- ---------
Total non-interest income 2,535 2,349
Non-interest expenses
Salaries and employee benefits 4,498 4,137
Occupancy and equipment expense 1,082 832
Data processing expense 373 372
FDIC assessment 26 2
Other operating expenses 1,850 1,760
--------- ---------
Total non-interest expense 7,829 7,103
--------- ---------
Income before income taxes 4,872 4,840
Provision for income taxes 1,442 1,564
--------- ---------
Net income $ 3,430 $ 3,276
========= =========
Earnings per share $ 3.35 $ 3.17
========= =========
Earnings per share, assuming dilution $ 3.30 $ 3.13
========= =========
</TABLE>
See accompanying notes.
24
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1996
(dollar references in thousands except per share data)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,430 $ 3,276
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 367 282
Provision for loan losses 1,506 828
Gain on sale of securities (3) (104)
Change in loans held-for-sale (1,150) 1,687
Amortization of intangible assets 231 219
Change in accrued interest receivable and other assets (577) (1,257)
Net amortization/(accretion) on securities 103 115
Change in accrued interest payable and other liabilities 626 537
--------- ---------
Net cash from operating activities 4,533 5,583
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (837) (727)
Loans made to customers and principal collections thereon (29,425) (26,021)
Proceeds from sales of securities available for sale 5,501 3,737
Proceeds from maturities and principal paydowns
of securities available for sale 7,675 13,921
Proceeds from maturities and principal paydowns
of securities held to maturity 4,997 7,121
Purchases of securities available for sale (7,419) (17,615)
Purchases of securities held to maturity (4,021) (12,807)
Net change in deposits with other financial institutions 898 489
--------- ---------
Net cash from investing activities (22,631) (31,902)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts 22,416 29,392
Payments on note payable (500) (500)
Dividends paid (841) (679)
Redemption of common stock - (690)
Proceeds from issuance of stock 34 507
--------- ---------
Net cash from financing activities 21,109 28,030
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,011 1,711
Cash and cash equivalents at beginning of year 26,185 24,474
--------- ---------
Cash and cash equivalents at end of year $ 29,196 $ 26,185
========= =========
Cash paid during the period for:
Interest $ 11,435 $ 10,879
Income taxes 1,420 1,722
</TABLE>
See accompanying notes
25
<PAGE>
P.T.C. BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
(dollar references in thousands except per share data)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain/(loss)
Additional on Securities Total
Common Paid-in Retained Available Shareholders'
Stock Capital Earnings for Sale Equity
----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996 $ 924 $ 7,909 $ 10,208 $ 177 $ 19,218
Net income 3,276 3,276
Cash dividends ($.66 per share) (679) (679)
10% stock dividend 93 2,694 (2,787) -
Redemption of shares (22,634 shares) (23) (667) (690)
Exercise of stock options (1,469 shares) 1 20 21
Issuance of shares to existing
shareholders (28,449 shares) 29 457 486
Change in unrealized gain/(loss) 21 21
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 1,024 10,413 10,018 198 21,653
Net income 3,430 3,430
Cash dividend ($.82 per share) (841) (841)
Exercise of stock options (2,125 shares) 2 32 34
Change in unrealized gain/(loss) (47) (47)
-------- -------- -------- -------- --------
Balance at December 31, 1997 $ 1,026 $ 10,445 $ 12,607 $ 151 $ 24,229
======== ======== ======== ======== ========
</TABLE>
See accompanying notes
26
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
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. More than 90% of its revenues are derived from banking
activities.
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 financial instruments.
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.
27
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
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: 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.
28
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Options: No expense for stock options is recorded, as the grant price
equals the market price of the stock at grant date. Pro forma disclosure of
net income and earnings per share are not presented because the fair value of
options granted during 1997 and 1996 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.
Dividend Restriction: Banking regulations require the maintenance of certain
capital levels and may limit the amount of dividends which may be paid by the
bank to the holding company or by the holding company to shareholders.
Earnings Per Share: Basic earnings per share is based on weighted-average
common shares outstanding. Diluted earnings per share further assumes issue
of any dilutive potential common shares. The accounting standard for
computing earnings per share was revised for 1997, and all earnings per share
previously reported are restated to follow the new standard. Earnings per
share are restated for all subsequent stock dividends and splits.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Future Accounting Changes: New accounting standards have been issued which
will require future reporting of comprehensive income (net income plus changes
in holding gains and losses on available for sale securities) and may require
redetermination of industry segment financial information.
29
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and fair values of securities available for sale are as
follows at December 31:
<TABLE>
<CAPTION>
1997
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 21,975 $ 159 $ (11) $ 22,123
State and political subdivisions 3,407 69 - 3,476
Mortgage-backed and other
asset-backed securities 3,596 68 (33) 3,631
Corporate debt securities 1,500 - (2) 1,498
Equity securities 1,634 - - 1,634
-------- -------- -------- --------
Totals $ 32,112 $ 296 $ (46) $ 32,362
======== ======== ======== ========
</TABLE>
<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 $ 255 $ (43) $ 30,278
State and political subdivisions 1,971 64 - 2,035
Mortgage-backed and other
asset-backed securities 2,583 46 (7) 2,622
Corporate debt securities 1,906 38 (24) 1,920
Equity securities 1,521 - - 1,521
-------- -------- -------- --------
Totals $ 38,047 $ 403 $ (74) $ 38,376
======== ======== ======== ========
</TABLE>
The amortized cost and fair values of securities held to maturity are as
follows at December 31:
<TABLE>
<CAPTION>
1997
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
State and political subdivisions $ 22,741 $ 272 $ (1) $ 23,012
Other securities 1,441 122 - 1,563
-------- -------- -------- --------
Totals $ 24,182 $ 394 $ (1) $ 24,575
======== ======== ======== ========
</TABLE>
30
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
1996
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
State and political subdivisions $ 24,188 $ 228 $ (51) $ 24,365
Other securities 1,031 68 (3) 1,096
-------- -------- -------- --------
Totals $ 25,219 $ 296 $ (54) $ 25,461
======== ======== ======== ========
</TABLE>
The amortized cost and fair value of securities at December 31, 1997, 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>
<CAPTION>
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 $ 5,550 $ 5,525 $ 5,933 $ 5,951
Due after one year through
five years 20,323 20,498 16,655 16,896
Due after five years through
ten years 1,154 1,194 1,109 1,131
Due after ten years 50 50 485 597
-------- -------- -------- --------
Total fixed maturity debt
securities 27,077 27,267 24,182 24,575
Mortgage-backed securities 3,401 3,461 - -
Equity securities 1,634 1,634 - -
-------- -------- -------- --------
$ 32,112 $ 32,362 $ 24,182 $ 24,575
======== ======== ======== ========
</TABLE>
Gross gains of $15 and gross losses of $12 were realized on the sale of
available for sale securities in 1997. Gross gains of $122 and gross losses of
$18 were realized on the sale of available for sale securities in 1996.
At December 31, 1997 and 1996, securities carried at $1,631 and $2,264 were
pledged to secure public deposits and for other purposes.
31
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 3 - LOANS
Loans are comprised of the following classifications:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate-residential $ 88,619 $ 74,003
Real estate-commercial 67,903 43,370
Real estate construction 10,510 13,650
Commercial 36,115 41,655
Consumer 19,607 21,325
Other 2,793 2,875
Deferred loan fees (374) (345)
--------- ---------
$ 225,173 $ 196,533
========= =========
</TABLE>
Mortgage loans serviced for others are not reported as assets. These loans
totaled $109,268 and $86,495 at year-end 1997 and 1996. At year-end 1997 and
1996, mortgage servicing rights were $529 and $225. Activity during 1997
included $469 of additions and amortization expense of $165. There was no
mortgage servicing rights valuation allowance at year-end 1997 or 1996.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Beginning balance $ 2,000 $ 1,722
Provision for loan losses 1,506 828
Losses charged to the allowance (929) (726)
Recoveries credited to the allowance 144 176
--------- ---------
Ending balance $ 2,721 $ 2,000
========= =========
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Year-end loans with no allowance for loan losses allocated $ 238 $ -
Year-end loans with allowance for loan losses allocated - 1,300
Amount of the allowance allocated - 475
Average of impaired loans during the year 976 844
Interest income recognized during impairment 63 28
Cash-basis interest income recognized 63 28
</TABLE>
32
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 552 $ 352
Buildings and improvements 3,888 3,738
Equipment and furniture 2,954 2,482
-------- --------
Total 7,394 6,572
Less accumulated depreciation 3,412 3,060
-------- --------
Total premises and equipment, net $ 3,982 $ 3,512
======== ========
</TABLE>
NOTE 6 - DEPOSITS
Certificates of deposits in denominations of $100 or more as of December 31,
1997 and 1996 were $34,965 and $28,949.
At year-end 1997, stated maturities of time deposits were:
1998 $ 126,960
1999 40,584
2000 7,604
2001 2,940
2002 1,054
Thereafter 5
33
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 7 - 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 $183 and $158 in 1997 and 1996.
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 no options granted during
1997, and 5,060 during 1996. At year-end 1997, 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 1996 or 1997 under the director's plan. All remaining
shares outstanding under the director's plan were exercised during 1997.
34
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 8 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
EARNINGS PER SHARE
Net income available to common shareholders $ 3,430 $ 3,276
=========== ===========
Weighted average common shares outstanding 1,025,072 1,031,922
=========== ===========
EARNINGS PER SHARE $ 3.35 $ 3.17
=========== ===========
EARNINGS PER SHARE ASSUMING DILUTION
Net income available to common
shareholders $ 3,430 $ 3,276
=========== ===========
Weighted average common shares
outstanding 1,025,072 1,031,922
Add: dilutive effect of assumed
exercise of stock options 15,161 14,466
----------- -----------
Weighted average common and dilutive
potential common shares outstanding 1,040,233 1,046,388
=========== ===========
EARNINGS PER SHARE ASSUMING DILUTION $ 3.30 $ 3.13
=========== ===========
</TABLE>
35
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
An analysis of the components of income taxes follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current income taxes $ 1,712 $ 1,552
Deferred income taxes (270) 12
-------- --------
Total income taxes $ 1,442 $ 1,564
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed expected provision $ 1,656 $ 1,645
Tax effect of:
Tax-exempt interest income (602) (545)
Non-deductible interest expense 103 94
State income tax, net 280 279
Other items 5 91
-------- --------
Applicable income tax $ 1,442 $ 1,564
======== ========
</TABLE>
The net deferred tax asset is comprised of the following components:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 835 $ 550
Deferred compensation 77 56
Core deposit intangibles 81 67
Other - 5
-------- --------
993 678
Deferred tax liabilities:
Unrealized gain on securities available for sale (99) (130)
Depreciation (78) (33)
Accretion on securities (19) (20)
Other (2) -
-------- --------
(198) (183)
Valuation allowance - -
-------- --------
Net deferred tax asset $ 795 $ 495
======== ========
</TABLE>
36
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
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.
The contractual amount of these financial instruments are summarized as follows:
1997 1996
---- ----
Commitments to extend credit $ 27,591 $ 26,634
Standby letters of credit 374 2,349
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, 1997 and 1996, the Company was required by the Federal Reserve
to have $4,144 and $3,542 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 $1,252 and $2,139 at December 31, 1997 and 1996.
Related party deposits totaled $1,739 and $1,337 at year-end 1997 and 1996.
37
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying amount for all items except
those described below. Estimated fair value for securities is based on quoted
market values for their individual securities or for equivalent securities.
Estimated fair value for loans is based on the rates charged at year end for
new loans with similar maturities, applied until the loan is assumed to
reprice or be paid. Estimated fair value for IRA's, time CDs, and agreements
to repurchase is based on the rates paid at year end for new deposits or
borrowings, applied until maturity. Estimated fair value for other financial
instruments and off-balance-sheet loan commitments are considered nominal.
The estimated fair values of financial instruments at December 31 are as
follows:
--------- 1 9 9 7 ----------
Carrying Value Fair Value
-------------- ----------
Financial assets:
Cash and short-term investments $ 30,195 $ 30,195
Securities available for sale 32,362 32,362
Securities held to maturity 24,182 24,575
Loans 225,173 225,429
Financial liabilities:
Deposits (293,842) (294,790)
--------- 1 9 9 6 ----------
Carrying Value Fair Value
-------------- ----------
Financial assets:
Cash and short-term investments $ 28,082 $ 28,082
Securities available for sale 38,376 38,376
Securities held to maturity 25,219 25,461
Loans 196,533 196,816
Financial liabilities:
Deposits (271,127) (271,807)
Notes payable (500) (500)
38
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
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%
The actual capital levels and minimum required levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
1997 Amount Ratio Amount Ratio Amount Ratio
- ---- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets)
Consolidated $ 25,099 11.8% $ 16,961 8.0% $ 21,202 10.0%
Bank $ 24,219 11.3% $ 17,097 8.0% $ 21,371 10.0%
Tier I Capital (to Risk
Weighted Assets)
Consolidated $ 22,449 10.6% $ 8,481 4.0% $ 12,721 6.0%
Bank $ 21,547 10.1% $ 8,548 4.0% $ 12,823 6.0%
Tier 1 Capital (to
Average Assets)
Consolidated $ 22,449 7.0% $ 12,813 4.0% $ 16,016 5.0%
Bank $ 21,547 6.7% $ 12,766 4.0% $ 15,958 5.0%
</TABLE>
39
<PAGE>
P.T.C. BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(dollar references in thousands)
- ------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
1997 Amount Ratio Amount Ratio Amount Ratio
- ---- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets)
Consolidated $ 21,836 11.6% $ 15,055 8.0% $ 18,819 10.0%
Bank $ 21,487 11.5% $ 14,995 8.0% $ 18,744 10.0%
Tier I Capital (to Risk
Weighted Assets)
Consolidated $ 19,836 10.5% $ 7,528 4.0% $ 11,291 6.0%
Bank $ 19,487 10.4% $ 7,498 4.0% $ 11,246 6.0%
Tier 1 Capital (to
Average Assets)
Consolidated $ 19,836 6.7% $ 11,795 4.0% $ 14,744 5.0%
Bank $ 19,487 6.6% $ 11,753 4.0% $ 14,692 5.0%
</TABLE>
The Company and Bank at year-end 1997 were categorized as well capitalized.
NOTE 14 - PENDING BUSINESS COMBINATION
On October 8, 1997, the Company agreed to merge with Indiana United Bancorp
(IUB). IUB is a 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
approval by regulatory authorities and shareholders of both companies. The
proposed transaction is expected to be consummated by April 1998. It is
expected to be accounted for as a pooling-of-interest.
40
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
The directors and executive officers of the Company and the Bank,
their respective ages at December 31, 1997 and their respective positions with
the Company and Bank are listed below:
Name Age Position
Robert S. Dunevant 77 Chairman of the Board of the
Company
James L. Saner, Sr. 46 President, Chief Executive
Officer and Director of the
Company; CEO and Director of
the Bank
Dale E. Smith 64 Secretary and Director of the
Company, and Director of the
Bank
John E. Back 68 Director of the Company and the
Bank
Dale J. Deffner 65 Director of the Company and
Chairman of the Board of the
Bank
Dieter K.H. Johnsen 63 Director of the Bank
Larry A. Johnson 48 Director of the Bank
Norman L. Winkler 60 Director of the Bank
Lynn T. Gordon 48 President and Director of the
Bank
Mark W. Dunevant 42 Senior Vice President of the
Bank
Elaine M. Cook 56 Senior Vice President of the
Bank
John C. Parker 45 Senior Vice President of the
Bank
Lloyd L. Estep III 38 Senior Vice President of the
Bank
41
<PAGE>
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 since 1989. He was also President, CEO and a Director
of the bank from 1989 until October, 1997 when Lynn Gordon was appointed
President of the Bank. He lives in Batesville, Indiana.
Dale E. Smith has been Secretary and a director of the Company, and a
director of 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 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 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 of the Bank on
January 1, 1997. In October, 1997, he was promoted to President and was
appointed to the Bank's Board. 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.
Lloyd L. Estep III was named Senior Vice President of the Bank in
December, 1997. He has been with the Bank since 1994, serving as a commercial
lender and Vice President.
42
<PAGE>
Directors are elected annually by the shareholders. Officers are
elected annually by, and serve at the pleasure of, the Board.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the remuneration of James L. Saner,
Sr., the only person who served as the Company's Chief Executive Officer and
the only executive officer whose total compensation exceeded $100,000 for the
year ended December 31, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
--------------------------------- ------------------------- -------
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Name and Salary Bonus sation Award(s) Options Payouts Compen-
Principal Position Year ($) ($) ($) ($) (#) ($) sation ($)
- ------------------ ---- ------ ----- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James L. Saner, Sr.
CEO 1997 132,500 35,000 - -0- -0- -0- -0-
1996 127,000 30,000 - -0- 550 -0- -0-
1995 120,000 25,000 - -0- 1,650 -0- -0-
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
None granted
43
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of
Securities
Underlying Value of
Unexercised Unexercised In-the-
Options at Money Options at
FY-End (#) FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ---- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
13,385/ 316,772/
James L. Saner, Sr. -0- -0- 1,238 19,018
</TABLE>
DIRECTORS' FEES. The Bank pays directors who are not otherwise
employed by the Bank $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 December 31, 1997, options for all 10,648 shares under the
Nonqualified Plan had been issued and exercised.
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.
44
<PAGE>
As of December 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 23,306 shares are fully vested and options
for the remaining 7,425 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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth information as of March 12, 1998,
regarding ownership of the 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 executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF
BENEFICIAL OWNER SHARES PERCENT
- ---------------- ------ -------
<S> <C> <C>
Robert S. Dunevant............................... 216,935(1).............................. 21.14%
3402 N. Dearborn Road
West Harrison
In 47060
James L. Saner, Sr............................... 20,789(2).............................. 2.03%
105 S. Mulberry
Batesville
IN 47006
Dale J. Deffner................................... 65,566(3).............................. 6.38%
11013 Lakeside Terrace
Brookville
IN 47012
Dale E. Smith.................................... 32,436(4).............................. 3.16%
13103 N SR 1
Brookville
IN 47012
45
<PAGE>
John E. Back..................................... 30,833(5).............................. 3.01%
1072 Fairfield
Brookville
IN 47012
All executive officers and
directors of the Company as a group
(5 people)(6).................................. 366,559 .............................. 35.7%
</TABLE>
1. Includes 95,482 shares owned by Helen Dunevant, his wife.
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 options to purchase 14,623 shares which are currently
exercisable or exercisable within sixty (60) days.
3. Includes 32,281 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 15,500 shares owned by Mr. Smith's wife and 9,617 shares held
in trust for Mr. Smith's children and grandchildren for which he is
trustee.
5. Includes 23,377 shares owned by Mr. Back's wife.
6. Includes options to purchase 14,623 shares of common stock which are
currently exercisable or exercisable within sixty (60) days.
ITEM 12. 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, 1997, such loans and extensions of credit totaled, in the
aggregate, $1,321,934 compared to $2,139,417 at December 31, 1996. 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, a director and the Secretary of the Company and a
director of 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 $37,753 in
1996 and $55,660 in 1997.
46
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit No. Document
- --------------- --------
2.1 Agreement and Plan of Merger dated as of October 8, 1997 by
and between Registrant and Indiana United Bancorp
(Incorporated by reference to exhibit filed with Current
Report on Form 8-K on October 20, 1998)
3.1 Articles of Incorporation of P.T.C. Bancorp*
3.2 By-Laws of P.T.C. Bancorp*
10.1 Nonstatutory Stock Option Plan, as amended June 30, 1997*
10.2 Form of Nonstatutory Stock Option Agreement *
10.3 Incentive Stock Option Plan, as amended June 30, 1997*
10.4 Form of Incentive Stock Option Agreement *
10.5 Commercial Installment Note May, 1994. Payable to National
City Bank, Indiana.*
10.6 Loan Agreement dated May, 1994 with National City Bank,
Indiana*
10.7 Stock Pledge Agreement dated May, 1994 with National City
Bank, Indiana*
10.8 Advances, Pledge and Security Agreement dated February 13,
1995 with Federal Home Loan Bank.*
21.1 Subsidiaries of the Registrant - Peoples Trust Company,
Indiana*
27.1 Financial Data Schedule
* Incorporated by reference to the Registration Statement of
Registrant filed on Form 10-SB and declared effective by the
Commission on July 14, 1997.
(b) Reports on Form 8-K
- -----------------------
The Registrant filed a report on Form 8-K on October 20, 1997
reporting, in item 5, that it had entered into an Agreement and Plan of Merger
with Indiana United Bancorp.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
P.T.C. BANCORP
Dated: March 31, 1998 By: /s/ James L. Saner, Sr.
-------------------------------------
James L. Saner, Sr.
President and Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed by the following persons on the date and in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ Robert S. Dunevant Chairman of the Board March 31, 1998
- ------------------------
Robert S. Dunevant
/s/ James L. Saner, Sr. President, Chief Executive March 31, 1998
- ------------------------ Officer and Director
James L. Saner, Sr.
/s/ (Principal Executive Officer) March 31, 1998
- ------------------------ (Principal Financial Officer)
/s/ Dale E. Smith Secretary and Director March 31, 1998
- ------------------------
Dale E. Smith
/s/ John E. Back Director March 31, 1998
- ------------------------
John E. Back
/s/ Dale J. Deffner Director March 31, 1998
- ------------------------
Dale J. Deffner
[Need principal financial officer and principal accounting officer]
48
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,796
<INT-BEARING-DEPOSITS> 999
<FED-FUNDS-SOLD> 19,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,362
<INVESTMENTS-CARRYING> 24,182
<INVESTMENTS-MARKET> 24,575
<LOANS> 226,753
<ALLOWANCE> 2,721
<TOTAL-ASSETS> 321,993
<DEPOSITS> 293,842
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,922
<LONG-TERM> 0
0
0
<COMMON> 1,026
<OTHER-SE> 23,203
<TOTAL-LIABILITIES-AND-EQUITY> 321,993
<INTEREST-LOAN> 19,567
<INTEREST-INVEST> 3,416
<INTEREST-OTHER> 600
<INTEREST-TOTAL> 23,583
<INTEREST-DEPOSIT> 11,883
<INTEREST-EXPENSE> 11,911
<INTEREST-INCOME-NET> 11,672
<LOAN-LOSSES> 1,506
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 7,829
<INCOME-PRETAX> 4,872
<INCOME-PRE-EXTRAORDINARY> 4,872
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,430
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.30
<YIELD-ACTUAL> 4.77
<LOANS-NON> 500
<LOANS-PAST> 367
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,618
<ALLOWANCE-OPEN> 2,000
<CHARGE-OFFS> 929
<RECOVERIES> 144
<ALLOWANCE-CLOSE> 2,721
<ALLOWANCE-DOMESTIC> 2,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,062
</TABLE>
