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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-18392
AMERIANA BANCORP
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(Exact Name of Registrant as Specified in Its Charter)
INDIANA 35-1782688
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2118 BUNDY AVENUE, NEW CASTLE, INDIANA 47362-1048
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (765) 529-2230
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
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Indicate by check mark whether the registrant: (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sales price of the registrant's common stock as
quoted on the Nasdaq National Market(SM) on March 20, 2002 was $41,408,545 (for
purposes of this calculation, directors and executive officers are not treated
as "non-affiliates").
As of March 21, 2002, there were issued and outstanding 3,147,463 shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Proxy Statement for the 2002 Annual Meeting of Shareholders
("Proxy Statement") (Part III).
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PART I
ITEM 1. BUSINESS
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FORWARD-LOOKING STATEMENTS
When used in this Annual Report on Form 10-K (the "Annual Report"), the
words or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area, and
competition that could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company wishes to advise
readers that the factors listed above could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL
THE COMPANY. Ameriana Bancorp (the "Company") is a bank holding company
subject to regulation and supervision by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act
of 1956 ("BHCA"). The Company's principal subsidiary is Ameriana Bank and Trust,
SB, an Indiana chartered savings bank headquartered in New Castle, Indiana (the
"Bank"). The Company also holds a minority interest in a limited partnership
organized to acquire and manage real estate investments which qualify for
federal tax credits.
The Company became the holding company for the Bank in 1990. In 1992, the
Company acquired Deer Park Financial Corporation, the holding company for Deer
Park Federal Savings and Loan Association ("Deer Park"), a federal savings
association with its main office in Cincinnati, Ohio. After the acquisition, the
Company operated Deer Park as a separate subsidiary. In 1998, the Company
acquired Cardinal State Bank ("Cardinal"), an
1
Ohio-chartered commercial bank with its main office in Maineville, Ohio, through
a merger with Deer Park. Following the acquisition, Deer Park was renamed
Ameriana Bank of Ohio, F.S.B. ("Ameriana-Ohio") and continued to operate as a
separate subsidiary. In October 2000, the Company merged Ameriana-Ohio into the
Bank.
Effective June 29, 2001, the Bank converted to an Indiana savings bank and
adopted its present name, "Ameriana Bank and Trust, SB." As a result of the
conversion, the Bank become subject to regulation by the Indiana Department of
Financial Institutions and the Federal Deposit Insurance Corporation ("FDIC")
rather than by the Office of Thrift Supervision, and the Company became a bank
holding company. Since the lending and investment activities of Indiana savings
banks are similar to those of federal savings bank, the conversion is not
expected to have a material effect on the range of activities in which the Bank
may engage.
THE BANK. The Bank began operations in 1890. Since 1935, the Bank has been
a member of the FHLB ("FHLB") System. Its deposits are insured to applicable
limits by the Savings Association Insurance Fund ("SAIF"), administered by the
FDIC. The Bank's main office is located at 2118 Bundy Avenue, New Castle,
Indiana. The Bank also conducts business through eight Indiana branch offices
located in New Castle, Middletown, Knightstown, Morristown, Greenfield,
Anderson, Avon and New Palestine, Indiana and two Ohio branch offices located in
Cincinnati and Maineville, Ohio. The Bank, through a wholly owned subsidiary,
Ameriana Financial Services, Inc., has ownership interests in a life insurance
underwriting firm located in New Orleans, Louisiana and in an Indiana title
insurance agency, and offers a full line of investments and securities products
through its brokerage center located in New Castle, Indiana. The Bank maintains
a website at www.ameriana.com.
The business of the Bank consists primarily of attracting deposits from the
general public and originating mortgage loans on single-family residences, and
to a lesser extent on multi-family housing and commercial property. The Bank
also makes home improvement loans and consumer loans and through its subsidiary
engages in insurance and brokerage activities. In 1999, the Bank established a
Business Services Division to provide specialized lending and other banking
services for business customers. As a result of the Business Services Division,
commercial real estate loans have increased significantly during 2001, 2000 and
1999. Commercial mortgage and other commercial loans totaled $104.6 million,
$57.2 million and $31.9 million at December 31, 2001, 2000 and 1999,
respectively. The Bank also began operating a Trust Department during 1999 which
provides trust, investment and estate planning services. The principal sources
of funds for the Bank's lending activities include deposits received from the
general public, funds borrowed from the FHLB, principal amortization and
prepayment of loans. The Bank's
2
primary sources of income are interest and fees on loans and interest on
investments. The Bank has from time to time purchased loans and loan
participations in the secondary market. The Bank also invests in various federal
and government agency obligations and other investment securities permitted by
applicable laws and regulations, including mortgage-backed securities. The
Bank's principal expenses are interest paid on deposit accounts and borrowed
funds and operating expenses incurred in the operation of the Bank.
LENDING AND INVESTMENT ACTIVITIES
GENERAL. The principal lending activity of the Bank has been the
origination of conventional first mortgage loans secured by residential property
and to a lesser extent commercial real estate, equity lines of credit and
consumer loans. The residential mortgage loans have been predominantly secured
by single family homes and have included construction loans.
The Bank may originate or purchase whole loans or loan participations
secured by real estate located in any part of the United States. Notwithstanding
this nationwide lending authority, the majority of the Bank's mortgage loan
portfolio is secured by real estate located in Henry, Hancock, Hendricks,
Madison, Shelby, Delaware and Marion counties in the state of Indiana and in
Hamilton, Butler, Clermont and Warren counties in the state of Ohio.
3
The following table sets forth information concerning the Company's
aggregate loans by type of loan at the dates indicated. Residential mortgage
loans held for sale are included in this table, and mortgage-backed securities
are not included in this table.
AT DECEMBER 31,
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2001 2000 1999
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AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
Real estate mortgage loans:
Commercial............................. $ 61,678 17.04% $ 35,615 8.57% $ 22,411 6.53%
Residential loans....................... 208,683 57.66 295,573 71.17 249,704 72.72
Construction loans...................... 42,045 11.62 43,287 10.42 42,971 12.51
Commercial loans.......................... 18,536 5.12 8,764 2.11 1,209 0.35
Consumer loans:
Mobile home and auto loans.............. 15,941 4.41 20,767 5.00 16,373 4.77
Loans secured by deposits............... 1,348 0.37 1,598 0.38 1,392 0.40
Home improvement loans.................. 403 0.11 321 0.08 1,577 0.46
Other................................... 13,294 3.67 9,431 2.27 7,762 2.26
--------- ----- --------- ------ --------- -----
Total................................ 361,928 100.00% 415,356 100.00% 343,399 100.00%
--------- ====== --------- ====== --------- ======
Less:
Loans in process........................ 12,725 16,724 16,723
Deferred loan fees...................... 8 (143) (129)
Loan loss reserve....................... 1,730 1,489 1,534
--------- --------- ---------
Sub Total.............................. 14,463 18,070 18,128
--------- --------- ---------
Total................................ $ 347,465 $ 397,286 $ 325,271
========= ========= =========
AT DECEMBER 31,
----------------------------------------
1998 1997
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AMOUNT % AMOUNT %
------ ----- -------- -----
(DOLLARS IN THOUSANDS)
Real estate mortgage loans:
Commercial.............................. $ 15,282 5.55% $ 4,930 1.65%
Residential loans....................... 205,636 74.69 249,818 83.53
Construction loans...................... 23,176 8.42 4,354 1.46
Commercial loans.......................... 862 0.31 19 0.01
Consumer loans:
Mobile home and auto loans.............. 21,854 7.94 31,818 10.64
Loans secured by deposits............... 1,351 0.49 1,308 0.44
Home improvement loans.................. 2,774 1.01 5,629 1.88
Other................................... 4,387 1.59 1,177 0.39
-------- ----- -------- -----
Total................................ 275,322 100.00% 299,053 100.00%
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Less:
Loans in process........................ 12,123 4,876
Deferred loan fees...................... 102 44
Loan loss reserve....................... 1,284 1,163
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Sub Total.............................. 13,509 6,083
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Total................................ $261,813 $292,970
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4
The following table shows, at December 31, 2001, the Company's aggregate
loans based on their contractual terms to maturity (mortgage-backed securities
are not included). Demand loans, loans having no stated schedule of repayments
and no stated maturity, and overdrafts are reported as due in one year or less.
Contractual principal repayments of loans do not necessarily reflect the actual
term of the loan portfolio. The average life of mortgage loans is substantially
less than their contractual terms because of loan prepayments and because of
enforcement of due-on-sale clauses, which give the Bank the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase, however, when
current mortgage loan rates substantially exceed rates on existing mortgage
loans.
AMOUNTS OF LOANS WHICH MATURE IN
-------------------------------------------------------------------------------
2007 AND
2002 2003 - 2006 THEREAFTER TOTAL
-------- ----------- ------------ ----------
(IN THOUSANDS)
Type of Loan:
Real estate mortgage....... $ 33,798 $ 53,473 $ 225,135 $ 312,406
Other...................... 9,642 35,664 4,216 49,522
---------- ---------- --------- ----------
Total................... $ 43,440 $ 89,137 $ 229,351 $ 361,928
========== ========== ========= ==========
The following table sets forth the dollar amount of the Company's aggregate
loans due after one year from December 31, 2001 which have predetermined
interest rates and which have floating or adjustable interest rates
(mortgage-backed securities are not included).
FIXED ADJUSTABLE
RATE RATE TOTAL
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(IN THOUSANDS)
Real estate mortgage loans............. $ 93,399 $ 185,209 $ 278,608
Other loans............................ 39,880 -- 39,880
---------- --------- ---------
Total................................ $ 133,279 $ 185,209 $ 318,488
========== ========= =========
RESIDENTIAL REAL ESTATE LENDING. The Bank's primary lending activities are
the origination of loans on one-to-four family residential dwelling units. The
Bank currently offers fixed-rate, first and second mortgage loans. The
fixed-rate mortgage loans provide for a maturity of ten to thirty years, with
the thirty-year loan bearing a slightly higher rate of interest. The terms of
the first mortgage loans generally conform to the guidelines established by the
Federal Home Loan Mortgage Corporation ("FHLMC") and are, therefore, saleable in
the secondary mortgage market. The Bank's fixed-rate second mortgage loans
provide for a maturity of ten years and bear interest at a rate slightly higher
than that borne by the first mortgage loans. At the time the Bank makes a
fixed-rate
5
mortgage loan, it determines whether the loan will be held in portfolio or sold,
based primarily on the interest rate and term of the loan. Once placed in
portfolio, loans are not sold. Loans originated for sale are promptly sold in
the secondary market. Fixed-rate mortgage loans in the amount of $91.5 million
were originated for sale during 2001 and $86.8 million were sold at a gain of
$804,000. Mortgage loans held for sale are those loans that have been committed
to be sold, but have not closed as of the end of the year and were $5.3 million
at December 31, 2001.
The Bank emphasizes the origination of adjustable-rate mortgages ("ARMs")
for portfolio. The Bank currently offers several types of ARMs either as
first-lien mortgage loans or as second-lien mortgage loans which are adjustable
semi-annually, annually, or on three-year, five-year or seven-year intervals and
indexed to the yields on comparable United States Treasury securities.
The Bank limits the maximum loan-to-value ratio on one-to-four family
residential first mortgages to 95% of the appraised value with the requirement
that private mortgage insurance normally be obtained for loan-to-value ratios in
excess of 80%. The Bank limits the loan-to-value ratio to 89.9% on second
mortgages on one-to-four family dwellings.
The Bank's residential lending activities also include loans secured by
multi-family residential structures, which are structures consisting of over
four separate dwelling units. This has not constituted a significant portion of
the Bank's lending activities to date. Multi-family residential structures are
generally income producing properties. The Bank generally does not lend above
80% of the appraised values of multi-family residences on first mortgage loans.
CONSTRUCTION AND COMMERCIAL REAL ESTATE LENDING. The Bank originates loans
secured by existing commercial properties and construction loans on residential
real estate. The Bank's commercial real estate loans are secured by churches,
nursing homes, hotels/motels, multi-family properties and other income-producing
properties. The Bank's commercial real estate loans have increased significantly
due to the establishment of the new Business Services Division during 1999. This
operation makes direct commercial loans and, more importantly, purchases loan
participations from other financial institutions. These participations in
commercial real estate loans are reviewed and approved based upon the same
credit standards as direct commercial loans at the Bank. Loans secured by
commercial real estate properties are generally larger and involve a greater
degree of credit risk than one- to-four family residential mortgage loans.
Because payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be
6
subject to adverse conditions in the real estate market or by general economic
conditions. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. To minimize the risks involved in originating such loans, the Bank
considers, among other things, the credit worthiness of the borrower, the
location of the real estate, the condition and occupancy levels of the security
and the quality of the organization managing the property.
The Bank originates and/or purchases construction loans on single-family
residential properties in its primary market areas. The loans are secured by
real estate, and most of the homes to be constructed are already subject to a
sales contract at the time the construction loan is made. The Bank's
construction loans generally range in size between $100,000 and $500,000, and
the Bank's commercial real estate loans range from $100,000 to $3,000,000.
Substantially all of the commercial and construction loans originated and/or
purchased by the Bank have either adjustable interest rates with maturities of
30 years or less or are loans with fixed interest rates and maturities of ten
years or less.
Loans involving construction financing present a greater level of risk than
loans for the purchase of existing homes since collateral value and construction
costs can only be estimated at the time the loan is approved. The Bank has
sought to minimize this risk by limiting construction lending to qualified
borrowers in its market area and by limiting the number of construction loans
outstanding at any time to individual builders. In addition, most of the Bank's
construction loans are made on homes which are pre-sold, for which permanent
financing is already arranged.
The Bank's underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, the Bank considers evidence
of the availability of permanent financing or a takeout commitment to the
borrower; the reputation of the borrower and his or her financial condition; the
amount of the borrower's equity in the project; independent appraisal and review
of cost estimates; preconstruction sale and leasing information; and cash flow
projections of the borrower.
CONSUMER LOANS. The consumer loans granted by the Bank have included loans
on automobiles and other consumer goods, as well as education loans, loans
secured by savings accounts and secured and unsecured lines of credit. In 2001,
the Company continued to originate automobile loans. Such loans are originated
both directly with customers and indirectly through automobile dealers in the
Company's lending areas.
7
Management believes that the shorter terms and the normally higher interest
rates available on various types of consumer loans have been helpful in
maintaining profitable spreads between average loan yields and costs of funds.
Consumer loans do, however, pose additional risks of collectibility when
compared to traditional types of loans granted by thrift institutions such as
residential first mortgage loans. The Bank has sought to reduce this risk by
primarily granting secured consumer loans.
COMMERCIAL BUSINESS LENDING. Under applicable law, the Bank is permitted to
make secured and unsecured loans for commercial, corporate, business and
agricultural purposes, including issuing letters of credit and engaging in
inventory financing and commercial leasing activities. The Bank does not, as a
common practice, make unsecured commercial loans. The Company began making and
purchasing the collaterized commercial loans in 1998. The total lease and
commercial portfolio at December 31, 2001 was $104.6 million.
ORIGINATIONS, PURCHASES AND SALES. Historically, all residential and
commercial real estate loans have been originated directly by the Bank through
salaried loan officers. Residential loan originations have been attributable to
referrals from real estate brokers and builders, depositors and walk-in
customers, and commissioned loan agents. The Bank also obtains consumer and
commercial loans from paid brokers. The Bank obtained $49.5 million of loans
from brokers and other financial institutions through loan participations in
2001. Commercial real estate and construction loan originations have also been
obtained by direct solicitation. Consumer loan originations are attributable to
walk-in customers who have been made aware of the Bank's programs by advertising
as well as direct solicitation.
The Bank has previously sold whole loans to other financial institutions
and institutional investors. Sales of loans generate income (or loss) at the
time of sale, produce future servicing income and provide funds for additional
lending and other purposes. When the Bank retains the servicing of loans it
sells, the Bank retains responsibility for collecting and remitting loan
payments, inspecting the properties, making certain insurance and tax payments
on behalf of borrowers and otherwise servicing those loans. The Bank typically
receives a fee of between 0.25% and 0.375% per annum of the loan's principal
amount for performing this service. The right to service a loan has economic
value and the Company carries capitalized servicing rights on its books based on
comparable market values and expected cash flows. At December 31, 2001, the Bank
was servicing $162.0 million of loans for others. The aggregate fair value of
capitalized servicing rights at December 31, 2001 was $1.0 million.
8
Management believes that purchases of loans and loan participations are
generally desirable, primarily when area mortgage demand is less than the supply
of funds available for local mortgage origination or when loan terms are
available in areas outside the Bank's local lending areas which are more
favorable to their investment requirements. Additionally, purchases of loans may
be made in order to diversify the Bank's lending portfolio. The Bank's loan
purchasing activities fluctuate significantly. The servicing of purchased loans
is generally performed by the seller. In order to cover servicing costs, a
portion of the interest being paid by the borrower is retained by the servicer.
In addition to whole loan purchases, the Bank also purchases participation
interests in loans. Both whole loans and participations are purchased on a yield
basis.
For additional information, see "Management's Discussion and Analysis --
Results of Operations" included in Item 7 of this Annual Report.
LOAN UNDERWRITING. During the loan approval process, the Bank assesses both
the borrower's ability to repay the loan and the adequacy of the underlying
security. Potential residential borrowers complete an application which is
submitted to a salaried loan officer. As part of the loan application process,
the Bank obtains information concerning the income, financial condition,
employment and credit history of the applicant. In addition, qualified
appraisers inspect and appraise the property which is offered to secure the
loan.
The Bank's loan officers and/or loan committees analyze the loan
application and the property to be used as collateral and subsequently approves
or denies the loan request. Individual salaried employees are authorized to
approve loans up to their individual lending limits and loan parameters.
Residential loans of $500,000 or more and commercial loans of $350,000 or more
but less than $1,000,000 must be approved by a committee consisting of certain
members of senior management. The Board of Directors must approve all loans in
excess of $1,000,000. In connection with the origination of single-family,
residential ARMs, borrowers are qualified at a rate of interest equal to the
second year rate, assuming the maximum increase. It is the policy of management
to make loans to borrowers who not only qualify at the low initial rate of
interest, but who would also qualify following an upward interest rate
adjustment.
LOAN COMMITMENTS. Conventional loan commitments by the Bank are generally
granted for periods of up to 60 days. The total amount of the Bank's aggregate
outstanding commitments to originate real estate loans at December 31, 2001, was
approximately $5.2 million of residential mortgage commitments and approximately
$6.6 million of commercial commitments. It has been the Bank's experience that
few commitments expire unfunded.
9
LOAN FEE AND SERVICING INCOME. In addition to interest earned on loans, the
Bank receives income through servicing of loans and fees in connection with loan
originations, loan modifications, late payments and changes of property
ownership and for miscellaneous services related to the loan. Income from these
activities is volatile and varies from period to period with the volume and type
of loans made.
When possible, the Bank charges loan origination fees which are calculated
as a percentage of the amount borrowed and are charged to the borrower at the
time of origination of the loan. The fees received in connection with the
origination of commercial real estate loans generally range from none to 1.00
point (one point being equivalent to 1% of the principal amount of the loan).
The fees received in connection with the origination of conventional one-to-four
family mortgages typically range from none to 1.00 point. In accordance with
Statement of Financial Accounting Standards No. 91, loan origination and
commitment fees and certain direct loan origination costs are deferred and the
net amount amortized as an adjustment of yield over the contractual life of the
related loans.
For additional information, see Note 4 of the Consolidated Financial
Statements included under Item 8 of this Annual Report.
DELINQUENCIES. When a borrower defaults upon a required payment on a loan,
the Bank contacts the borrower and attempt to induce the borrower to cure the
default. A late payment notice is mailed to the borrower and a telephone contact
is made after a payment is 15 days past due. If the delinquency on a mortgage
loan exceeds 90 days and is not cured through the Bank's normal collection
procedures or an acceptable arrangement is not worked out with the borrower, the
Bank will institute measures to remedy the default, including commencing a
foreclosure action.
NON-PERFORMING ASSETS AND ASSET CLASSIFICATION. Loans are reviewed on a
regular basis and are placed on a non-accrual status when, in the opinion of
management, the collection of additional interest is doubtful. Residential
mortgage loans are placed on non-accrual status when either principal or
interest is 90 days or more past due unless they are adequately secured and
there is reasonable assurance of full collection of principal and interest.
Consumer loans generally are charged off when the loan becomes over 120 days
delinquent. Commercial business and real estate loans are placed on non-accrual
status when the loan is 90 days or more past due. Interest accrued and unpaid at
the time a loan is placed on non-accrual status is charged against interest
income. Subsequent
10
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until such time as it is
sold. When such property is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair value. Any subsequent
deterioration of the property is provided for in an allowance for loss on real
estate owned.
The following table sets forth information with respect to the Company's
aggregate non-performing assets at the dates indicated.
AT DECEMBER 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
----- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Loans accounted for on a non-accrual basis:
Real Estate:
Residential.................................... $ 818 $ 720 $ 703 $ 684 $ 847
Commercial..................................... 1,348 36 226 15 --
Construction................................... -- -- -- -- --
Commercial........................................ -- 8 11 -- 19
Consumer.......................................... 12 37 231 46 11
-------- -------- -------- -------- --------
Total........................................... 2,178 801 1,171 745 877
-------- -------- -------- -------- --------
Accruing loans contractually past due 90
days or more:
Real Estate:
Residential.................................... 268 576 16 37 61
Commercial..................................... -- -- -- -- 57
Construction................................... -- 158 -- -- --
Commercial........................................ -- -- -- -- --
Consumer.......................................... 127 13 9 3 7
-------- -------- -------- -------- --------
Total........................................... 395 747 25 40 124
-------- -------- -------- -------- --------
Total of non-accrual and
90 days past due loans....................... $ 2,573 $ 1,548 $ 1,196 $ 785 $ 1,002
======== ======== ======== ======== ========
Percentage of total loans (excluding
mortgage-backed securities)..................... 0.74% 0.39% 0.37% 0.30% 0.33%
======== ======== ======== ======== ========
Other non-performing assets (1)..................... $ 606 $ 125 $ -- $ 96 $ 160
======== ======== ======== ======== ========
__________
(1) Other non-performing assets represents property acquired through
foreclosure or repossession. This property is carried at the lower of its
fair market value or the principal balance of the related loan.
At December 31, 2001, the Company had $910,000 of other problem loans with
payments past due between 60 and 89 days for which the Company had some doubts
as to the ability of the borrowers to comply with the existing payment terms and
conditions. In addition, the Company has certain other loans outstanding where
management has some doubts as to the ability of such borrowers to comply with
the present loan repayment terms
11
and where such loans may be accounted for on a nonaccrual basis in the future.
Included in this category of potential problem loans are participations in two
pools of lease receivables, and a condominium project in Bloomington, Indiana.
In June and September 2001, the Company purchased two separate pools of
lease receivables totaling $12,003,000, consisting primarily of equipment
leases. Each lease within each pool includes a surety bond by one of two
insurers, which guarantees payment of all amounts due under the lease in event
of default by the lessee. Additionally, each pool of leases is covered by a
sales and service agreement with the insurer. The surety on one pool of leases
has been making lease payments, with reservation of rights, to the investors as
the lease payments become due under the surety agreement. The outstanding
balance due the Company at March 20, 2002 on this lease pool totaled $5,921,000.
The second lease pool is past due for January, February and March, 2002 payments
as of March 20, 2002. At March 20, 2002, the outstanding balance of this pool
totaled $5,762,000. Demand for payment has been made against the surety for the
second pool but no payments had been received as of March 20, 2002. The Company
believes the surety bonds on all of the leases provide adequate collateral in
the event individual leases default.
The Company has a construction loan with certain borrowers for the
development of a condominium project in Bloomington, Indiana. While the loan was
45 days delinquent at December 31, 2001, the Company has currently placed this
credit on its internal watch list. The loan totaled $2,233,000 at December 31,
2001 and is collateralized both by the subject real estate and personal
guarantees of the borrowers.
During 2001, the Company would have recorded gross interest income of
$174,000 on the loans set forth above as accounted for on a non-accrual basis,
if such loans had been current in accordance with their terms. Instead, the
Company included interest income of $65,000 on those loans in its net income for
the year. For additional information regarding the Company's problem assets and
loss provisions recorded thereon, see "Management's Discussion and Analysis" in
the Item 7 of this Annual Report.
RESERVES FOR LOSSES ON LOANS AND REAL ESTATE
In making loans, management recognizes the fact that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.
12
It is management's policy to maintain reserves for estimated losses on
loans and real estate acquired. General loan loss reserves are provided based
on, among other things, estimates of the historical loan loss experience,
evaluation of economic conditions in general and in various sectors of the
Bank's customer base, and periodic reviews of loan portfolio quality by the
Bank's personnel. Specific reserves will be provided for individual loans where
the ultimate collection is considered questionable by management after reviewing
the current status of loans which are contractually past due and considering the
net realizable value of the security of the loan or guarantees, if applicable.
It is management's policy to establish specific reserves for estimated losses on
delinquent loans and real estate owned when it determines that losses are
anticipated to be incurred on the underlying properties. At December 31, 2001,
the Bank's allowance for loan losses amounted to $1,730,000.
Future reserves may be necessary if economic conditions or other
circumstances differ substantially from the assumptions used in making the
initial determinations. There can be no assurance that regulators, in reviewing
the Bank's loan portfolio in the future, will not ask the Bank to increase its
allowance for loan losses, thereby negatively affecting its financial condition
and earnings.
13
The following table sets forth an analysis of the Company's aggregate
allowance for loan losses for the periods indicated.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Balance at Beginning of Period..................... $ 1,489 $ 1,534 $ 1,284 $ 1,163 $ 1,104
-------- -------- -------- -------- --------
Charge-Offs:
Real Estate:
Residential.................................... 29 30 -- 12 31
Commercial..................................... -- 206 -- -- --
Construction................................... -- -- -- -- --
Commercial business.............................. -- 252 -- -- --
Consumer......................................... 117 -- 98 153 170
-------- -------- -------- -------- --------
146 488 98 165 201
-------- -------- -------- -------- --------
Recoveries:
Real Estate:
Residential.................................... 12 -- -- -- --
Commercial..................................... -- -- -- -- --
Construction................................... -- -- -- -- --
Commercial business.............................. -- 3 4 -- --
Consumer......................................... 15 23 16 27 18
-------- -------- -------- -------- --------
27 26 20 27 18
-------- -------- -------- -------- --------
Net Charge-Offs.................................... (119) (462) (78) (138) (183)
Increase from Acquisition.......................... -- -- -- 100 --
Provision for Loan Losses.......................... 360 417 328 159 242
-------- -------- -------- -------- --------
Balance at End of Period............................ $ 1,730 $ 1,489 $ 1,534 $ 1,284 $ 1,163
======== ======== ======== ======== ========
Ratio of Net Charge-Offs to Average
Loans Outstanding During the Period.............. 0.03% 0.12% 0.03% 0.05% 0.06%
======== ======== ======== ======== ========
Ratio of Ending Allowance for
Loan Losses to Ending Loans...................... 0.50% 0.37% 0.47% 0.49% 0.40%
========= ======== ======== ======== ========
Net charge-offs for the year ended December 31, 2001 decreased principally
because there were no large charge-offs of commercial mortgage or other
commercial loans as in 2000. During fiscal year 2000, the Bank charged-off
$172,000 on a loan which was acquired in the acquisition of Cardinal State Bank
in 1998 and which had been fully reserved for in 1999. The second loan charged
off during 2000 was a real estate development loan on which the Bank charged off
$206,000.
14
The following table sets forth a breakdown of the Company's aggregate
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any category.
AT DECEMBER 31,
------------------------------------------------------------------------------
2001 2000 1999
-------------------------- ---------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
Loans:
Real Estate Mortgage:
Commercial............................ $ 617 17% $ 76 9% $ 58 7%
Residential........................... 417 58 635 71 649 73
Construction.......................... 90 12 93 10 112 12
Commercial.............................. 185 5 8 2 11 --
Consumer................................ 421 8 677 8 704 8
--------- --- --------- --- --------- ---
Total Allowance for Loan Losses....... $ 1,730 100% $ 1,489 100% $ 1,534 100%
========= === ========= === ========= ===
AT DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------- -----------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
Loans:
Real Estate Mortgage:
Commercial............................ $ 31 6% $ 9 1%
Residential........................... 429 75 459 84
Construction.......................... 47 8 8 1
Commercial.............................. 15 -- 19 --
Consumer................................ 762 11 668 14
--------- --- --------- ---
Total Allowance for Loan Losses....... $ 1,284 100% $ 1,163 100%
========= === ========= ===
INVESTMENT ACTIVITIES
Interest and dividends on investment securities, mortgage-backed
securities, collateralized mortgage obligations, FHLB stock and other
investments provide the second largest source of income for the Company (after
interest on loans), constituting 19.6% of the Company's total interest income
(and dividends) for fiscal 2001. The Bank maintains its liquid assets at levels
believed adequate to meet requirements of normal banking activities and
potential savings outflows.
15
As an Indiana savings bank, the Bank is authorized to invest without
limitation in direct or indirect obligations of the United States, direct
obligations of a United States territory, an insular possession and direct
obligations of the state or a municipal corporation or taxing district in
Indiana. The Bank is also permitted to invest in bonds or other securities of a
national mortgage association and the stock and obligations of a Federal Home
Loan Bank. Indiana savings banks may also invest in collateralized mortgage
obligations to the same extent as national banks. An Indiana savings bank may
also purchase for its own account other investment securities under such limits
as the Department of Financial Institutions prescribes by rule provided that the
savings bank may not invest more than 10% of its equity capital in the
investment securities of any one issuer. Any Indiana savings bank may not
investment in speculative bonds, notes or other indebtedness which are defined
as securities which are rated below the first four rating categories by a
generally recognized rating service or are in default. An Indiana savings bank
may purchase an unrated security if it obtains financial information adequate to
document the investment quality of the security.
The Company's investment portfolio consists primarily of callable
obligations issued by federal agencies such as FNMA, FHLMC and the FHLB System,
mortgage-backed securities issued by FNMA and FHLMC and collateralized mortgage
obligations issued by FHLMC, FNMA or by private issuers carrying AAA ratings.
The Company has also invested in trust preferred securities and maintains
interest-bearing deposits in other financial institutions (primarily the FHLBs).
As a member of the FHLB System, the Bank is also required to hold stock in the
FHLBs of Indianapolis and Cincinnati. At December 31, 2001, the Company did not
have investments in the securities of any single non-governmental issuer which
exceeded 10% of shareholders' equity other than its investments in
collateralized mortgage pools securitized by Credit Suisse First Boston ($20.1
million fair value) and Salomon Brothers Mortgage Securities ($9.4 million fair
value).
During 2001, the Company substantially increased its portfolio of mortgage
backed securities and collateralized mortgage obligations to offset declines in
the loan portfolio due to refinancings and calls of federal agencies securities
attributable in both cases to the radically declining interest rate environment.
As interest rates firmed at the end of 2001, the estimated lives of these
securities increased significantly, exposing the Bank to unacceptable levels of
interest rate risk. The Company accordingly reclassified these securities from
held-to-maturity to available-for-sale and marked them to fair value, recording
an accumulated other comprehensive loss of
16
$696,000. The Company has further determined to dispose of the mortgage-backed
securities and collateralized mortgage obligation portfolio during the first
quarter of 2002 at an estimated after-tax loss of $1.9 million.
The following table sets forth the carrying value of the Company's
investments in federal agency obligations and mortgage-backed securities,
collaterized mortgage obligations and other investments at the dates indicated.
AT DECEMBER 31,
------------------------------------------
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
Federal agencies.......................... $ 28,696 $ 87,901 $ 87,735
Mortgage-backed securities and
collateral mortgage obligations........ 110,393 11,806 14,970
Interest-bearing deposits (1)............. 4,283 4,422 6,795
FHLB stock................................ 7,365 7,265 4,341
Other investments......................... 1,540 -- --
--------- --------- ---------
Total investments..................... $ 152,277 $ 111,394 $ 113,841
========= ========= =========
_________
(1) Consist of overnight deposits and short-term non-negotiable
certificates of deposit.
The following table sets forth information regarding maturity distribution
and average yields for the Company's investment securities portfolio at December
31, 2001. The Company's federal agencies investment portfolio consists of
callable obligations issued by FNMA, FHLMC, and the FHLB System. Other
investments consists of trust preferred securities.
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS TOTAL
---------------- --------------- ---------------- ---------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Federal agencies........ $ -- -- % $ -- -- % $ -- -- % $ 28,696 6.9% $28,696 6.9%
Other investments....... -- -- -- -- -- -- 1,540 8.9 1,540 8.9
The Company's mortgage-backed securities and collateralized mortgage
obligations include both fixed- and adjustable-rate securities. See the
discussion of interest rate risk and the change, effective December 31, 2001, of
carrying investments from "Held to Maturity" to "Available for Sale" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A") under Item 7 of this Annual Report. Investments were marked
to fair market value as of December 31, 2001, and the Company recorded an
accumulated other comprehensive loss of $696,000 as of that date. At December
31, 2001, the Company's mortgage-backed securities consisted of the following:
17
CARRYING AVERAGE
AMOUNT RATE
-------- -------
(DOLLARS IN THOUSANDS)
Variable rate:
Repricing in one year or less........................... $ 4,986 6.59%
Repricing in one to five years.......................... 452 6.52
Fixed-rate:
Maturing in five years or less.......................... 51 8.11
Maturing in five to ten years........................... 2,347 7.29
Maturing in more than ten years......................... 102,557 6.66
-----------
Total................................................... $ 110,393 6.67%
===========
SOURCES OF FUNDS
GENERAL. Savings accounts and other types of deposits have traditionally
been an important source of the Bank's funds for use in lending and for other
general business purposes. In addition to deposit accounts, the Bank derives
funds from loan repayments, loan sales, borrowings and operations. The
availability of funds from loan sales is influenced by general interest rates
and other market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in deposits or deposit inflows at less than projected
levels and may be used on a longer term basis to support expanded lending
activities.
DEPOSITS. The Bank attracts both short-term and long-term deposits from the
general public by offering a wide assortment of deposit accounts and interest
rates. The Bank offers regular savings accounts, NOW accounts, money market
accounts, fixed-interest-rate certificates with varying maturities, and
negotiated-rate jumbo certificates with various maturities. The Bank also offers
tax-deferred individual retirement, Keogh retirement, and simplified employer
plan retirement accounts.
As of December 31, 2001, approximately 29.33%, or $121.0 million, of the
Bank's aggregate deposits consisted of various savings and demand deposit
accounts from which customers are permitted to withdraw funds at any time
without penalty.
Interest earned on passbook and statement accounts is paid from the date of
deposit to the date of withdrawal and compounded semi-annually for the Bank.
Interest earned on NOW and money market deposit accounts is paid from the date
of deposit to the date of withdrawal and compounded and credited monthly. The
interest rate on these accounts is established by management.
The Bank also makes available to its depositors a number of certificates of
deposit with various terms and interest rates to be competitive in its market
area. These certificates have minimum deposit requirements as well.
18
The following table sets forth the change in dollar amount of deposits in
the various types of deposit accounts offered by the Bank between the dates
indicated.
INCREASE INCREASE
BALANCE AT (DECREASE) BALANCE AT (DECREASE) BALANCE AT
DECEMBER 31, FROM PRIOR DECEMBER 31, FROM PRIOR DECEMBER 31,
2001 YEAR 2000 YEAR 1999
---------------- ---------- ----------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
Savings deposits.................... $ 32,647 7.92% $ (2,040) $ 34,687 9.44% $ (3,973) $ 38,660 10.87%
NOW accounts........................ 40,641 9.85 2,948 37,693 10.25 3,839 33,854 9.52
Money market deposit accounts....... 47,686 11.56 9,401 38,285 10.41 206 38,079 10.70
Certificate accounts:
Jumbo certificates................ 60,363 14.64 17,324 43,039 11.71 2,995 40,044 11.26
Fixed-rate certificates:
12 months or less.............. 61,538 14.92 6,200 55,338 15.05 (20,173) 75,511 21.22
13-24 months................... 97,033 23.53 8,949 88,084 23.96 43,936 44,148 12.41
25-36 months................... 7,785 1.89 (6,974) 14,759 4.02 (41,275) 56,034 15.75
37 months or greater........... 62,182 15.08 9,408 52,774 14.36 27,464 25,310 7.11
Variable-rate certificate:
18 months...................... 2,538 0.61 (398) 2,936 0.80 (1,183) 4,119 1.16
---------- ----- --------- -------- ----- --------- -------- ------
$ 412,413 100.00% $ 44,818 $367,595 100.00% $ 11,836 $355,759 100.00%
========== ====== ========= ======== ====== ========= ======= ======
19
The variety of deposit accounts offered by the Bank has permitted it to be
competitive in obtaining funds and has allowed it to respond with flexibility
to, but without eliminating the threat of, disintermediation (the flow of funds
away from depository institutions such as savings institutions into direct
investment vehicles such as government and corporate securities). In addition,
the Bank has become much more subject to short-term fluctuation in deposit
flows, as customers have become more interest rate conscious. The ability of the
Bank to attract and maintain deposits and its costs of funds have been, and will
continue to be, significantly affected by money market conditions. The Bank
currently offers a variety of deposit products as options to the customer. They
include non-interest-bearing and interest-bearing NOW accounts, savings
accounts, Money Market Deposit Accounts ("MMDA") and Certificates of Deposit
ranging in terms from three months to seven years. During the past year, the
Bank has experienced a significant increase in certificates and MMDAs which it
attributes to funds leaving the stock markets.
The following table sets forth the Company's average aggregate balances and
interest rates. Average balances are derived from balances which management does
not believe are materially different from daily balances (actual daily balances
cannot be obtained without undue effort and expense).
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE PAID BALANCE PAID BALANCE PAID
------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
Interest-bearing demand
deposits.................... $ 60,791 2.93% $ 58,598 3.49% $ 53,982 3.27%
Savings deposits............... 33,321 1.68 36,584 2.01 41,717 1.99
Time deposits.................. 276,924 5.89 250,343 5.82 235,867 5.34
---------- ---- ---------- ---- ---------- ----
Total interest-bearing
deposits............... 371,036 5.03% 345,525 5.02% 331,566 4.58%
==== ==== ====
Non-interest-bearing demand
and savings deposits........ 16,494 16,269 14,580
---------- ---------- ----------
Total deposits............ $ 387,530 $ 361,794 $ 346,146
========== ========== ==========
20
The following table sets forth the aggregate time deposits in the Company
classified by rates as of the dates indicated.
AT DECEMBER 31,
--------------------------------------------
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
Less than 4%.............................. $ 63,358 $ 478 $ 5,375
4% - 5.99%............................... 109,842 84,009 176,432
6% - 7.99%............................... 118,224 172,429 63,328
8% - 9.99%............................... 15 14 31
--------- --------- ---------
$ 291,439 $ 256,930 $ 245,166
========= ========= =========
The following table sets forth the amount and maturities of the Company's
time deposits at December 31, 2001.
AMOUNT DUE
----------------------------------------------------------------------
LESS THAN MORE THAN
RATE ONE YEAR 1-2 YEARS 2-3 YEARS 3 YEARS TOTAL
---- -------- --------- --------- --------- -----
(IN THOUSANDS)
Less than 4%.................... $ 54,159 $ 8,863 $ 252 $ 84 $ 63,358
4% - 5.99%...................... 81,897 12,982 7,294 7,669 109,842
6% - 7.99%...................... 62,114 54,689 1,147 274 118,224
8% - 9.99%...................... 15 -- -- -- 15
--------- ---------- ---------- ---------- ---------
$ 198,185 $ 76,534 $ 8,693 $ 8,027 $ 291,439
========= ========== ========== ========== =========
The following table indicates the amount of the Company's certificates of
deposit and other deposits of $100,000 or more by time remaining until maturity
at December 31, 2001.
SAVINGS, NOW
CERTIFICATES AND MMDA
MATURITY PERIOD OF DEPOSIT DEPOSITS
--------------- ------------ -------------
(IN THOUSANDS)
Three months or less......................... $ 21,213 $ 25,919
Over three through six months................ 13,791 --
Over six through twelve months............... 9,387 --
Over twelve months........................... 15,972 --
--------- ----------
Total................................. $ 60,363 $ 25,919
========= ==========
21
The following table sets forth the aggregate savings activities of the
Company for the periods indicated.
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------ ------ --------
(IN THOUSANDS)
Net increase (decrease) before interest credited.......... $ 26,488 $ (3,670) $ 6,780
Deposits sold............................................. -- (1,649) --
Interest credited......................................... 18,330 17,155 14,990
---------- ---------- ----------
Net increase in deposits.................................. $ 44,818 $ 11,836 $ 21,770
========== ========== ==========
BORROWINGS. Deposits are the primary sources of funds for the Bank's
lending and investment activities and for its general business purposes. The
Bank also uses advances (borrowings) from the FHLB of Indianapolis to supplement
its supply of lendable funds, to meet deposit withdrawal requirements and to
extend the terms of its liabilities. Advances from the FHLB of Indianapolis are
typically secured by the Bank's stock in the FHLB of Indianapolis and a portion
of its first mortgage loans. At December 31, 2001, the Bank had $71.2 million of
advances outstanding from the FHLB of Indianapolis and had $16.5 million in
long-term borrowings from the FHLB of Cincinnati, and are secured by the Bank's
stock in the FHLB of Cincinnati and a portion of the Bank's investment
securities.
The FHLBs function as central reserve banks providing credit for savings
institutions and certain other member financial institutions. As a member, the
Bank is required to own capital stock in its FHLB and is authorized to apply for
advances on the security of such stock and certain of its home mortgages and
other assets (principally, securities which are obligations of, or guaranteed
by, the United States) provided certain standards related to creditworthiness
have been met.
The Company had notes payable in the total amount of $930,000 at December
31, 2001. Included in this amount was a note payable to a third party financial
institution with a current balance of $750,000 and bearing interest at 6.25% at
December 31, 2001 the proceeds of which were used to finance stock repurchases
during 1999. The remainder of notes payable with balances of $180,000 and
$271,000 at December 31, 2001 and 2000, respectively, are 6.0% notes payable to
former stockholders of Cardinal State Bank.
22
The following table sets forth certain information regarding borrowings
from the FHLBs at the dates and for the periods indicated.
AT OR FOR THE YEAR
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------ ------ --------
(DOLLARS IN THOUSANDS)
Amounts outstanding at end of period:
FHLB advances........................................ $ 87,653 $ 138,751 $ 82,511
Weighted average rate paid on:
FHLB advances........................................ 5.58% 6.54% 5.49%
Maximum amount of borrowings outstanding
at any month end:
FHLB advances........................................ $ 128,497 $ 138,751 $ 82,511
Approximate average amounts outstanding:
FHLB advances........................................ $ 84,080 $ 106,657 $ 28,402
Approximate weighted average rate paid on:
FHLB advances........................................ 6.50% 6.73% 5.41%
23
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the
Company's aggregate average yield on assets and average cost of liabilities for
the periods indicated and average yields earned and rates paid at December 31,
2001. Such yields and costs are derived by dividing income or expenses by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from balances which management does not
believe are materially different from daily balances (actual daily balances
cannot be obtained without undue effort and expense).
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2001 2000
------------------------------- ------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loan portfolio (1).............. $376,157 $29,468 7.83% $ 371,349 $29,359 7.91%
Mortgage-backed securities...... 31,768 2,225 7.00 13,016 910 6.99
Short-term investments and other
interest-earning assets (2).... 74,186 4,940 6.66 98,410 6,750 6.85
-------- ------- ----- --------- ------- -----
Total interest-earning assets 482,111 36,633 7.60 482,775 37,019 7.67
Noninterest-earning assets....... 42,722 40,518
-------- ---------
Total assets................. $524,833 $ 523,293
======== =========
Interest-bearing liabilities:
Deposits....................... $371,036 18,663 5.03% $ 345,525 17,337 5.02
FHLB advances.................. 84,080 5,466 6.50 106,657 7,187 6.73
Notes payable.................. 1,562 114 7.30 2,456 204 8.30
-------- ------- ----- --------- ------- -----
Total interest-bearing
liabilities................ 456,678 24,243 5.31 454,638 24,728 5.44
Noninterest-bearing liabilities.. 25,549 ------- ----- 27,615 ------- -----
-------- ---------
Total liabilities............ 482,227 482,253
Shareholders' equity............. 42,606 41,040
-------- ---------
Total liabilities and
shareholders' equity....... $524,833 $ 523,293
======== =========
Net interest income.............. $12,390 $12,291
======= =======
Interest rate spread............. 2.29% 2.23%
===== ======
Net yield on interest-earning
assets........................ 2.57% 2.55%
===== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities.................... 105.57% 106.19%
====== ======
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1999
-----------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loan portfolio (1).............. $281,943 $ 21,703 7.70%
Mortgage-backed securities...... 17,280 1,080 6.25
Short-term investments and other
interest-earning assets (2).... 98,345 6,300 6.41
-------- -------- -----
Total interest-earning assets 397,568 29,083 7.32
Noninterest-earning assets....... 33,488
--------
Total assets................. $431,056
========
Interest-bearing liabilities:
Deposits....................... $331,566 15,194 4.58
FHLB advances.................. 28,402 1,537 5.41
Notes payable.................. 298 18 6.00
-------- -------- -----
Total interest-bearing
liabilities................ 360,266 16,749 4.65
Noninterest-bearing liabilities.. 26,958 -------- -----
--------
Total liabilities............ 387,224
Shareholders' equity............. 43,832
--------
Total liabilities and
shareholders' equity....... $431,056
========
Net interest income.............. $ 12,334
========
Interest rate spread............. 2.67%
======
Net yield on interest-earning
assets........................ 3.10%
======
Ratio of average interest-earning
assets to average interest-bearing
liabilities.................... 110.35%
======
_______________
(1) Excludes income earned on late charges and inspection fees. Average
balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions,
investment securities and FHLB stock.
TRUST ACTIVITIES
During 1999, the Bank began offering trust, investment and estate planning
services through its Ameriana Trust and Investment Management Services division.
Trust services consist of personal trusts, testamentary trusts,
24
investment agency accounts (discretionary and directed), guardianships, rollover
IRA's (discretionary and directed) and estates (personal representative). These
accounts are offered to customers within the Bank's service areas in Indiana and
Ohio. Trust account balances of $75,000 and more can profitably be managed by
the Bank. At December 31, 2001, the Bank had $14.6 million in trust assets under
management.
SUBSIDIARY ACTIVITIES
The Bank has three direct wholly-owned subsidiaries Ameriana Insurance
Agency ("AIA"), Ameriana Financial Services, Inc. ("AFS") and Deer Park Service
Corporation ("DPSC"). AIA provides insurance sales from offices in New Castle,
Greenfield and Avon, Indiana. AFS offers insurance products through its
ownership of an interest in Family Financial Life Insurance Company, New
Orleans, Louisiana which offers a full line of credit related insurance
products. In 2002, AFS acquired a 20.9% ownership interest in Indiana Title
Insurance Company, LLC through which it offers title insurance. AFS also
operates a brokerage facility in conjunction with Linsco/Private Ledger. DPSC,
which operated a brokerage facility in conjunction with Money Concepts/Pinnacle
Financial Advisors, Inc. ceased operations in 2000 and is currently an inactive
corporation.
At December 31, 2001, the Bank's investments in, and loans to, its
subsidiaries were approximately $4.1 million, respectively, consisting of direct
equity investments.
Indiana savings banks may acquire or establish subsidiaries that engage in
activities permitted to be performed by the savings bank itself or permitted to
operating subsidiaries of national banks. Under FDIC regulations, a subsidiary
of a state bank may not engage as principal in any activity that is not of a
type permissible for a subsidiary of a national bank unless the FDIC determines
that the activity does not impose a significant risk to the affected insurance
fund.
COMPETITION
The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition for savings deposits comes from other savings institutions,
commercial banks, and credit unions located in the Bank's market area.
Additional significant competition for savings deposits comes from money market
mutual funds and corporate and government debt securities.
The primary factors in competing for loans are interest rates and loan
origination fees and the range of services offered by the various financial
institutions. Competition for origination of real estate loans normally
25
comes from other thrift institutions, commercial banks, mortgage bankers,
mortgage brokers and insurance companies. The Bank has been able to compete
effectively in its market area.
The Bank has offices in Henry, Hancock, Hendricks, Shelby and Madison
Counties in Indiana and in Hamilton County, Ohio. In addition to the financial
institutions which have offices in these counties, the Bank competes with
several commercial banks and savings institutions in surrounding counties, many
of which have assets which are substantially larger than the Bank.
REGULATION AND SUPERVISION
REGULATION AND SUPERVISION OF THE COMPANY
GENERAL. The Company is a bank holding company subject to regulation by the
Federal Reserve Board under the BHCA. As a result, the activities of the Company
are subject to certain limitations, which are described below. In addition, as a
bank holding company, the Company is required to file annual and quarterly
reports with the Federal Reserve Board and to furnish such additional
information as the Federal Reserve Board may require pursuant to the BHCA. The
Company is also subject to regular examination by the Federal Reserve Board.
ACQUISITIONS. With certain exceptions, the BHCA prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve Board regulation or
order, have been identified as activities closely related to the business of
banking. The activities of the Company are subject to these legal and regulatory
limitations under the BHCA and the related Federal Reserve Board regulations.
Notwithstanding the Federal Reserve Board's prior approval of specific
nonbanking activities, the Federal Reserve Board has the power to order a
holding company or its subsidiaries to terminate any activity, or to terminate
its ownership or control of any subsidiary, when it has reasonable cause to
believe that the continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that holding company.
Under the BHCA, a bank holding company must obtain the prior approval of
the Federal Reserve Board before (1) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than
26
5% of such shares; (2) acquiring all or substantially all of the assets of
another bank or bank holding company; or (3) merging or consolidating with
another bank holding company. Satisfactory financial condition, particularly
with regard to capital adequacy, and satisfactory Community Reinvestment Act
("CRA") ratings generally are prerequisites to obtaining federal regulatory
approval to make acquisitions.
Under the BHCA, any company must obtain approval of the Federal Reserve
Board prior to acquiring control of the Company or the Bank. For purposes of the
BHCA, "control" is defined as ownership of more than 25% of any class of voting
securities of the Company or the Bank, the ability to control the election of a
majority of the directors, or the exercise of a controlling influence over
management or policies of the Company or the Bank. In addition, the Change in
Bank Control Act and the related regulations of the Federal Reserve Board
require any person or persons acting in concert (except for companies required
to make application under the BHCA), to file a written notice with the Federal
Reserve Board before such person or persons may acquire control of the Company
or the Bank. The Change in Bank Control Act defines "control" as the power,
directly or indirectly, to vote 25% or more of any voting securities or to
direct the management or policies of a bank holding company or an insured bank.
Under Indiana banking law, prior approval of the Department of Financial
Institutions is also required before any person may acquire control of an
Indiana stock savings bank, bank or bank holding company. The Department will
issue a notice approving the transaction if it determines that the persons
proposing to acquire the savings bank or bank holding company are qualified in
character, experience and financial responsibility, and the transaction does not
jeopardize the interests of the public.
CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted guidelines
regarding the capital adequacy of bank holding companies, which require bank
holding companies to maintain specified minimum ratios of capital to total
assets and capital to risk-weighted assets. See "-- Capital Requirements."
DIVIDENDS. The Federal Reserve Board has the power to prohibit dividends by
bank holding companies if their actions constitute unsafe or unsound practices.
The Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding company should pay cash dividends only to the extent
that the company's net income for the past year is sufficient to cover both the
cash dividends and a rate of earnings retention that is consistent with the
company's capital needs, asset quality, and overall financial condition. The
Federal Reserve Board also indicated that it would be inappropriate for a bank
holding company experiencing serious financial problems to borrow funds to pay
27
dividends. Under the prompt corrective action regulations adopted by the Federal
Reserve Board pursuant to FDICIA, the Federal Reserve Board may prohibit a bank
holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized." See "-- Prompt Corrective
Regulatory Action."
STOCK REPURCHASES. As a bank holding company, the Company is required to
give the Federal Reserve Board prior written notice of any purchase or
redemption of its outstanding equity securities if the gross consideration for
the purchase or redemption, when combined with the net consideration paid for
all such purchases or redemptions during the preceding 12 months, is equal to
10% or more of the Company's consolidated net worth. The Federal Reserve Board
may disapprove such a purchase or redemption if it determines that the proposal
would violate any law, regulation, Federal Reserve Board order, directive, or
any condition imposed by, or written agreement with, the Federal Reserve Board.
This requirement does not apply to bank holding companies that are
"well-capitalized," received one of the two highest examination ratings at their
last examination and are not the subject of any unresolved supervisory issues.
REGULATION AND SUPERVISION OF THE BANK
GENERAL. The Bank is subject to extensive regulation by the Department of
Financial Institutions and the FDIC. The lending activities and other
investments of the Bank must comply with various regulatory requirements. The
Department of Financial Institutions and FDIC periodically examine the Bank for
compliance with various regulatory requirements. The Bank must file reports with
the Department of Financial Institutions and the FDIC describing its activities
and financial condition. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board. This supervision and
regulation is intended primarily for the protection of depositors. Certain of
these regulatory requirements are referred to below or appear elsewhere herein.
CAPITAL REQUIREMENTS. Under FDIC regulations, state-chartered banks that
are not members of the Federal Reserve System are required to maintain a minimum
leverage capital requirement consisting of a ratio of Tier 1 capital to total
assets of 3% if the FDIC determines that the institution is not anticipating or
experiencing significant growth and has well-diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and in general a strong banking organization, rated composite 1 under
the Uniform Financial Institutions Rating System (the CAMELS rating system)
established by the Federal Financial Institutions Examination Council. For all
but the most highly rated institutions meeting the conditions set forth above,
the minimum leverage capital ratio is 3% plus an additional "cushion" amount of
at least 100 to 200 basis
28
points with a minimum leverage capital requirement of not less than 4%. Tier 1
capital is the sum of common stockholders' equity, noncumulative perpetual
preferred stock (including any related surplus) and minority interests in
consolidated subsidiaries, minus all intangible assets (other than certain
mortgage servicing assets, purchased credit card relationships, credit-enhancing
interest-only strips and certain deferred tax assets) minus identified losses,
investments in certain financial subsidiaries and nonfinancial equity
investments.
In addition to the leverage ratio (the ratio of Tier I capital to total
assets), state-chartered nonmember banks must maintain a minimum ratio of
qualifying total capital to risk-weighted assets of at least 8% of which at
least four percentage points must be Tier 1 capital. Qualifying total capital
consists of Tier 1 capital plus Tier 2 or supplementary capital items. Tier 2
capital items include allowances for loan losses in an amount of up to 1.25% of
risk-weighted assets, cumulative preferred stock and preferred stock with a
maturity of over 20 years, certain other capital instruments and up to 45% of
pretax net unrealized holding gains on equity securities. The includable amount
of Tier 2 capital cannot exceed the institution's Tier 1 capital. Qualifying
total capital is further reduced by the amount of the bank's investments in
banking and finance subsidiaries that are not consolidated for regulatory
capital purposes, reciprocal cross-holdings of capital securities issued by
other banks, most intangible assets and certain other deductions. Under the FDIC
risk-weighted system, all of a bank's balance sheet assets and the credit
equivalent amounts of certain off-balance sheet items are assigned to one of
four broad risk weight categories from 0% to 100%, based on the risks inherent
in the type of assets or item. The aggregate dollar amount of each category is
multiplied by risk weight assigned to that category. The sum of these weighted
values equals the bank's risk-weighted assets.
At December 31, 2001, the Bank's ratio of Tier 1 capital to total assets
was 7.5%, its ratio of Tier 1 capital to risk-weighted assets was 12.0% and its
ratio of total risk-based capital to risk-weighted assets was 12.5%.
DIVIDEND LIMITATIONS. The Bank may not pay dividends on its capital stock
if its regulatory capital would thereby be reduced below the amount then
required for the liquidation account established for the benefit of certain
depositors of the Bank at the time of its conversion to stock form.
Earnings of the Bank appropriated to bad debt reserves and deducted for
Federal income tax purposes are not available for payment of cash dividends or
other distributions to stockholders without payment of taxes at the then current
tax rate by the Bank on the amount of earnings removed from the reserves for
such distributions. See "Federal and State Taxation."
29
Under FDIC regulations, the Bank is prohibited from making any capital
distributions if after making the distribution, the Bank would have: (i) a total
risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital
ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.
DEPOSIT INSURANCE. The Bank is required to pay assessments to the FDIC for
insurance of its deposits by the SAIF based on a percentage of its insured
deposits. Under the FDIA, the FDIC is required to set semi-annual assessments
for SAIF-insured institutions at a rate determined by the FDIC to be necessary
to maintain the designated reserve ratio of the SAIF at 1.25% of estimated
insured deposits or at a higher percentage of insured deposits that the FDIC
determines to be justified for that year by circumstances raising a significant
risk of substantial future losses to the SAIF. In the event that the SAIF should
fail to meet its statutory reserve ratio, the FDIC would be required to set
semi-annual assessment rates for SAIF members that are sufficient to increase
the reserve ratio to 1.25% within one year or in accordance with such other
schedule that the FDIC adopts by regulation to restore the reserve ratio in not
more than 15 years.
The assessment rate for an insured depository institution is determined by
the assessment risk classification assigned to the institution by the FDIC based
on the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for date closest to the last day of the fourth month
preceding the semi-annual assessment period, institutions are assigned to one of
three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund.
The FDIC has adopted an assessment schedule for SAIF deposit insurance
pursuant to which the assessment rate for well-capitalized institutions with the
highest supervisory ratings have been reduced to zero and institutions in the
worst risk assessment classification will be assessed at the rate of 0.27% of
insured deposits. At December 31, 2001, the Bank is considered well capitalized.
In addition, FDIC-insured institutions are required to pay assessments to the
FDIC to help fund interest payments on certain bonds issued by the Financing
Corporation ("FICO"), an agency of the federal government established to finance
takeovers of insolvent thrifts.
30
PROMPT CORRECTIVE REGULATORY ACTION. Under FDICIA, the federal banking
regulators are required to take prompt corrective action if an insured
depository institution fails to satisfy certain minimum capital requirements,
including a leverage limit, a risk-based capital requirement, and any other
measure deemed appropriate by the federal banking regulators for measuring the
capital adequacy of an insured depository institution. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees if the institution would thereafter
fail to satisfy the minimum levels for any of its capital requirements. An
institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized institution") may be: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company that the
institution will comply with the plan until it has been adequately capitalized
on average for four consecutive quarters, under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan. A "significantly
undercapitalized" institution, as well as any undercapitalized institution that
does not submit an acceptable capital restoration plan, may be subject to
regulatory demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution may also be
required to divest the institution or the institution could be required to
divest subsidiaries. The senior executive officers of a significantly
undercapitalized institution may not receive bonuses or increases in
compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
provisions. If an institution's ratio of tangible capital to total assets falls
below the "critical capital level" established by the appropriate federal
banking regulator, the institution will be subject to conservatorship or
receivership within specified time periods.
31
Under the implementing regulations, the federal banking regulators
generally measure an institution's capital adequacy on the basis of its total
risk-based capital ratio (the ratio of its total capital to risk-weighted
assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
risk-weighted assets) and leverage ratio (the ratio of its core capital to
adjusted total assets). The following table shows the capital ratios required
for the various prompt corrective action categories.
ADEQUATELY SIGNIFICANTLY
WELL CAPITALIZED CAPITALIZED UNDERCAPITALIZED UNDERCAPITALIZED
---------------- ----------- ---------------- ----------------
Total risk-based
capital ratio 10.0% or more 8.0% or more Less than 8.0% Less than 6.0%
Tier 1 risk-based
capital ratio 6.0% or more 4.0% or more Less than 4.0% Less than 3.0%
Leverage ratio 5.0% or more 4.0% or more * Less than 4.0% * Less than 3.0%
- -----------
* 3.0% if institution has a composite 1 CAMELS rating.
A "critically undercapitalized" institution is defined as an institution that
has a ratio of "tangible equity" to total assets of less than 2.0%. Tangible
equity is defined as core capital plus cumulative perpetual preferred stock (and
related surplus) less all intangible assets other than qualifying supervisory
goodwill and certain purchased mortgage servicing rights. The FDIC may
reclassify a well capitalized depository institution as adequately capitalized
and may require an adequately capitalized or undercapitalized institution to
comply with the supervisory actions applicable to institutions in the next lower
capital category (but may not reclassify a significantly undercapitalized
institution as critically undercapitalized) if the FDIC determines, after notice
and an opportunity for a hearing, that the savings institution is in an unsafe
or unsound condition or that the institution has received and not corrected a
less-than-satisfactory rating for any CAMELS rating category.
SAFETY AND SOUNDNESS GUIDELINES. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each federal banking agency is required to establish safety and soundness
standards for institutions under its authority. In 1995, these agencies,
including the FDIC, released interagency guidelines establishing such standards
and adopted rules with respect to safety and soundness compliance plans. The
guidelines require depository institutions to maintain internal controls and
information systems and internal audit systems that are appropriate for the
size, nature and scope of the institution's business. The guidelines also
establish certain basic standards for loan documentation, credit underwriting,
interest rate risk exposure, and asset growth. The guidelines further provide
that depository institutions should maintain safeguards to prevent the payment
of compensation, fees and benefits that are excessive or that could lead to
material financial loss, and should take into account factors such as comparable
compensation practices at comparable institutions. If
32
the agency determines that a depository institution is not in compliance with
the safety and soundness guidelines, it may require the institution to submit an
acceptable plan to achieve compliance with the guidelines. A depository
institution must submit an acceptable compliance plan to the agency within 30
days of receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions.
Additionally under FDICIA, as amended by the CDRI Act, the federal banking
agencies established standards relating to asset quality and earnings. Under the
guidelines a depository institution should maintain systems, commensurate with
its size and the nature and scope of its operations, to identify problem assets
and prevent deterioration in those assets as well as to evaluate and monitor
earnings and ensure that earnings are sufficient to maintain adequate capital
and reserves. Management believes that the asset quality and earnings standards
will not have a material effect on the operations of the Bank.
UNIFORM LENDING STANDARDS. As required by FDICIA, the federal banking
agencies have adopted regulations that require banks to adopt and maintain
written policies establishing appropriate limits and standards for extensions of
credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards, prudent underwriting
standards, including loan-to-value limits, that are clear and measurable, loan
administration procedures and documentation, approval and reporting
requirements. A bank's real estate lending policy must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies (the "Real Estate
Lending Guidelines") that have been adopted by the banking agencies. The Real
Estate Lending Guidelines, among other things, call upon depository institutions
to establish internal loan-to-value limits for real estate loans that should not
exceed supervisory loan-to-value limits for the various types of real estate
loans. The Real Estate Lending Guidelines state, however, that it may be
appropriate in individual cases to originate or purchase loans with
loan-to-value ratios in excess of the supervisory loan-to-value limits. The Bank
does not believe that the Real Estate Lending Guidelines will materially affect
its lending activities.
RESERVE REQUIREMENTS. Under Federal Reserve Board regulations, the Bank
currently must maintain average daily reserves equal to 3% of net transaction
accounts up to $41.3 million plus 10% on the remainder. This percentage is
subject to adjustment by the Federal Reserve Board. Because required reserves
must be maintained in the form of vault cash or in a non-interest bearing
account at a Federal Reserve Bank, the effect of the reserve
33
requirement is to reduce the amount of the institution's interest-earning
assets. At December 31, 2001, the Bank met applicable Federal Reserve Board
reserve requirements.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the Federal Home
Loan Bank System which consists of 12 regional Federal Home Loan Banks governed
and regulated by the Federal Housing Finance Board ("FHFB"). As a member, the
Bank is required to purchase and hold stock in the FHLB of Indianapolis in an
amount equal to the greater of 1% of its aggregate unpaid home loan balances at
the beginning of the year or an amount equal to 5% of FHLB advances outstanding,
whichever is greater. As of December 31, 2001, the Bank held stock in the FHLB
of Indianapolis in the amount $5.82 million and was in compliance with the above
requirement.
The FHLB of Indianapolis serves as a reserve or central bank for the member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of FHLB System. It makes loans
(i.e., advances) to members in accordance with policies and procedures
established by the FHLB System and the Board of Directors of the FHLB of
Indianapolis.
The Bank is also a member of the FHLB of Cincinnati due to remaining
borrowings after the merger of Ameriana-Ohio and the Bank. As of December 31,
2001, the Bank held stock in the FHLB of Cincinnati in the amount of $1.545
million and was in compliance with requirements of membership.
LOANS TO EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS. Loans to
directors, executive officers and principal stockholders of a state non-member
bank like the Bank must be made on substantially the same terms as those
prevailing for comparable transactions with persons who are not executive
officers, directors, principal stockholders or employees of the Bank unless the
loan is made pursuant to a compensation or benefit plan that is widely available
to employees and does not favor insiders. Loans to any executive officer,
director and principal stockholder together with all other outstanding loans to
such person and affiliated interests generally may not exceed 15% of the bank's
unimpaired capital and surplus and all loans to such persons may not exceed the
institution's unimpaired capital and unimpaired surplus. Loans to directors,
executive officers and principal stockholders, and their respective affiliates,
in excess of the greater of $25,000 or 5% of capital and surplus (up to
$500,000) must be approved in advance by a majority of the board of directors of
the bank with any "interested" director not participating in the voting. State
non-member banks are prohibited from paying the overdrafts of any of their
executive officers or directors unless payment is made pursuant to a written,
pre-authorized interest-bearing extension of credit plan that specifies a method
of repayment or transfer of funds from another account at the bank.
34
Loans to executive officers may not be made on terms more favorable than those
afforded other borrowers and are restricted as to type, amount and terms of
credit. In addition, Section 106 of the BHCA prohibits extensions of credit to
executive officers, directors, and greater than 10% stockholders of a depository
institution by any other institution which has a correspondent banking
relationship with the institution, unless such extension of credit is on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons and does not involve more than the normal risk
of repayment or present other unfavorable features.
TRANSACTIONS WITH AFFILIATES. A state non-member bank or its subsidiaries
may not engage in "covered transactions" with any one affiliate in an amount
greater than 10% of such bank's capital stock and surplus, and for all such
transactions with all affiliates a state non-member bank is limited to an amount
equal to 20% of capital stock and surplus. All such transactions must also be on
terms substantially the same, or at least as favorable, to the bank or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. An affiliate of a state non-member bank is
any company or entity which controls or is under common control with the state
non-member bank and, for purposes of the aggregate limit on transactions with
affiliates, any subsidiary that would be deemed a financial subsidiary of a
national bank. In a holding company context, the parent holding company of a
state non-member bank (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the state non-member
bank. The BHCA further prohibits a depository institution from extending credit
to or offering any other services, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or certain of its affiliates or not
obtain services of a competitor of the institution, subject to certain limited
exceptions.
INDIANA BANKING LAW
BRANCHING. An Indiana savings bank is entitled to establish one or more
branches de novo or by acquisition in any location or locations in Indiana. The
savings bank is required to file an application with the Department of Financial
Institutions. Approval of the application is contingent upon the Department's
determination that after the establishment of the branch, the savings bank will
have adequate capital, sound management and adequate future earnings.
LENDING LIMITS. Indiana savings banks are not subject to percentage of
asset or capital limits on their commercial, consumer and non-residential
mortgage lending, and accordingly, have more flexibility in structuring
35
their portfolios than federally chartered savings banks. However, the Bank is
required to maintain at least 60% of its assets in investments that would
qualify it as a domestic building and loan association under the Internal
Revenue Code. At December 31, 2001, the Bank was in compliance with this
requirement.
OTHER ACTIVITIES. The Bank is authorized to engage in a variety of
agency and fiduciary activities including acting as executors of an estate,
transfer agent and in other fiduciary capacities. On approval from the Indiana
Department of Financial Institutions, the Bank would be permitted to exercise
any right granted to national banks.
FEDERAL AND STATE TAXATION
The Company and its subsidiaries file a consolidated federal income tax
return on a calendar year end. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur.
FEDERAL TAXATION. Thrift institutions are subject to the provisions of the
Internal Revenue Code of 1986 (the "Code") in the same general manner as other
corporations. However, institutions such as the Bank which met certain
definitional tests and other conditions prescribed by the Code benefited from
certain favorable provisions regarding their deductions from taxable income for
annual additions to their bad debt reserve. For purposes of the bad debt reserve
deduction, loans were separated into "qualifying real property loans," which
generally were loans secured by interests in certain real property, and
nonqualifying loans, which were all other loans. The bad debt reserve deduction
with respect to nonqualifying loans was based on actual loss experience. For tax
years beginning before January 1, 1996, the amount of the bad debt reserve
deduction with respect to qualifying real property loans was based upon actual
loss experience (the "experience method") or a percentage of taxable income
determined without regard to such deduction (the "percentage of taxable income
method"). The Bank historically used whichever method resulted in the highest
bad debt reserve deduction in any given year.
Legislation that was effective for tax years beginning after December 31,
1995 requires institutions to recapture into taxable income over a six taxable
year period the portion of the tax loan loss reserve that exceeds the pre-1988
tax loan loss reserve. The Bank will no longer be allowed to use the percentage
of taxable income method for tax loan loss provisions, but would be allowed to
use the experience method of accounting for bad debts. There will be no future
effect on net income from the recapture because the taxes on these bad debts
reserves has already been accrued as a deferred tax liability.
36
The legislation provides for a suspension of this recapture if the
institution meets the "residential loan requirement." This requirement is met if
the principal amount of residential loans that the institution originates during
its first taxable year after December 31, 1995, exceeds the average of the
principal amounts of residential loans made by the institution during the six
most recent taxable years beginning before January 1, 1996. If the requirement
is met, the recapture is suspended until a taxable year beginning after December
31, 1997. Recapture is mandatory no later than for tax years beginning after
December 31, 1997.
Earnings appropriated to an institution's bad debt reserve and claimed as a
tax deduction are not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless such amount is included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.
The Company's federal income tax returns have been audited through 1988.
STATE TAXATION. The State of Indiana imposes a franchise tax which is
assessed on qualifying financial institutions, such as the Bank. The tax is
based upon federal taxable income before net operating loss carryforward
deductions (adjusted for certain Indiana modifications) and is levied at a rate
of 8.5% of adjusted taxable income.
EMPLOYEES
As of December 31, 2001, the Company and subsidiaries had approximately 160
full-time and 10 part-time employees. The employees are not represented by a
collective bargaining agreement. Management believes the Company and its
subsidiaries enjoy good relations with their personnel.
EXECUTIVE OFFICERS
AGE AT
NAME DECEMBER 31, 2001 PRINCIPAL POSITION
- ---- ----------------- ------------------
Harry J. Bailey 59 President and Chief Executive Officer of the Bank and the
Company
Grover F. Archer 61 Senior Vice President - Retail Banking of the Bank
Deborah A. Bell 49 Senior Vice President - Information Technology of the Bank
Timothy G. Clark 51 Executive Vice President and Chief Operating Officer of
the Bank and the Company
Ronald M. Holloway 52 Senior Vice President - Lending Services of the Bank
Nancy A. Rogers 59 Senior Vice President - Marketing Services of
the Bank and Secretary of the Bank and the Company
37
Richard E. Welling 56 Senior Vice President - Treasurer of the Bank and the
Company
Jan F. Wright 58 Senior Vice President - Business Services of the Bank
Unless otherwise noted, all officers have held the position described below
for at least the past five years.
HARRY J. BAILEY has been President of the Company and the Bank since May
1990 and was appointed Chief Executive Officer in December 1990. Mr. Bailey had
been the Executive Vice President and Chief Operating Officer of the Company
since its formation in 1989 and of the Bank since February 1984. He has been a
director of the Bank since 1987 and a director of the Company since its
formation.
GROVER F. ARCHER joined the Bank as Senior Vice President - Retail Banking
in January 1999. Prior to joining the Bank he held the position of Area
President for one year, as Regional Administrative Manager for six years and
Senior Vice President and Director of Retail Banking for six years at National
City Bank of Indiana and its predecessor in Anderson, Indiana. Prior to that
time Mr. Archer was in senior management positions with Indiana Lawrence Bank in
North Manchester, Indiana for 16 years.
DEBORAH A. BELL was elected as Senior Vice President - Information
Technology in May 1998. She has been employed at the Bank since 1976 and most
recently served as Vice President and Director of Data Processing since 1991
after serving in that department since July 1985.
TIMOTHY G. CLARK joined the Bank as Executive Vice President and Chief
Operating Officer on September 2, 1997. He was elected Executive Vice President
and Chief Operating Officer of the Company on October 23, 2000. He previously
held the position of Regional Executive and Area President at National City Bank
of Indiana in Seymour, Indiana for 5 years and prior to that held senior
management positions with Central National Bank in Greencastle, Indiana for 5
years and Hancock Bank & Trust in Greenfield, Indiana for 13 years.
RONALD M. HOLLOWAY has been employed by the Bank since 1973 and was elected
Senior Vice President and Chief Lending Officer in December 1995. Mr. Holloway
previously was responsible for the Bank's loan servicing department.
NANCY A. ROGERS was elected as Senior Vice President - Marketing Services
in March 1995 and was also appointed Secretary of the Company and the Bank in
1998. She has been employed at the Bank since 1964 and most recently served as
Vice President and Director of Advertising and Public Relations.
RICHARD E. WELLING, a certified public accountant, joined the Bank as a
Senior Vice President on December 1, 1997, and was appointed Treasurer of the
Company and the Bank in 1998. Prior to joining the Bank,
38
he was employed as Secretary, Treasurer and Chief Financial Officer of AMBANC
Corp. in Vincennes, Indiana, where he had been employed for eleven years.
JAN F. WRIGHT was elected as Senior Vice President - Business Services at
the Bank in January 1998 and prior to that served as Senior Vice President -
Branch Operations since March 1995. He previously held the position of Vice
President and Director of Loan Origination and Processing and has been employed
by the Bank since 1972.
39
ITEM 2. PROPERTIES
- -------------------
The following table sets forth the location of the Company's office
facilities at December 31, 2001 and certain other information relating to these
properties at that date.
YEAR TOTAL NET OWNED/ SQUARE
ACQUIRED INVESTMENT BOOK VALUE LEASED FEET
-------- ---------- ---------- ------ ------
(DOLLAR AMOUNTS IN THOUSANDS)
MAIN OFFICE:
2118 Bundy Avenue
New Castle, Indiana.......... 1958 $ 3,765 $ 1,083 Owned 20,500
BRANCH OFFICES:
1311 Broad Street
New Castle, Indiana.......... 1890 1,402 374 Owned 18,000
956 North Beechwood Street
Middletown, Indiana.......... 1971 447 89 Owned 5,500
22 North Jefferson
Knightstown, Indiana......... 1979 591 197 Owned 3,400
1810 North State Street
Greenfield, Indiana.......... 1995 1,504 1,027 Owned 5,800
99 Dan Jones Road
Avon, Indiana................ 1995 1,841 1,384 Owned 12,600
1754 East 53rd Street
Anderson, Indiana............ 1993 659 483 Owned 1,500
488 W. Main Street
Morristown, Indiana.......... 1998 461 345 Owned 2,600
7435 W. U.S. 52
New Palestine, Indiana....... 1999 1,100 970 Owned 3,300
7200 Blue Ash Road
Cincinnati, Ohio............. 1992 1,470 526 Owned 9,100
2894 W. U.S. 22 & 3
Maineville, Ohio............. 1998 113 20 Leased 3,000
AMERIANA INSURANCE
AGENCY, INC. AND TRUST
DEPARTMENT OF THE BANK
1908 Bundy Avenue
New Castle, Indiana.......... 1999 592 421 Owned 5,000
--------- ----------
Total.................. $ 13,945 $ 6,919
========= ==========
40
The Bank uses on-line processing terminals. Most of the data processing is
done by an in-house data processing center. At December 31, 2001, the total net
book value of the Company's offices and equipment (including leasehold
improvements) was $6.919 million.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company and its subsidiaries are not a party to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- --------------------------------------------------------------------------------
The Company's common stock, par value $1.00 per share (the "Common Stock"),
is traded on the Nasdaq National MarketSM under the symbol "ASBI." As of March
15, 2002, the Company had 3,147,463 shares of Common Stock outstanding and had
659 stockholders of record and approximately 2,000 beneficial owners holding
shares in nominee or "street" name. The Company began paying quarterly dividends
during the 4th quarter of fiscal year 1987. The Company's ability to pay
dividends is dependent on dividends received from the Bank. See Note 11 to the
Consolidated Financial Statements included under Item 8 of this Annual Report
for a discussion of the restrictions on the payment of cash dividends by the
Company.
The following table sets forth the high, low and closing sales prices for
the Common Stock as reported on the Nasdaq National MarketSM and the cash
dividends declared on the Common Stock for each full quarterly period during the
last two fiscal years.
2001 2000
----------------------------------- -------------------------------------
DIVIDENDS DIVIDENDS
QUARTER ENDED: HIGH LOW CLOSE DECLARED HIGH LOW CLOSE DECLARED
- ------------- ---- --- ----- --------- ---- --- ----- --------
March 31 $13.00 $10.31 $11.06 $0.15 $14.50 $ 7.56 $ 8.50 $0.15
June 30 14.01 10.35 13.49 0.15 12.75 9.00 9.87 0.15
September 30 13.75 12.00 12.75 0.15 12.94 9.88 11.00 0.15
December 31 13.80 11.75 13.40 0.16 13.13 10.50 10.50 0.15
41
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
At December 31,
-----------------------------------------------------------------------
Summary of Financial Condition 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Cash $ 7,518 $ 14,609 $ 14,637 $ 7,545 $ 5,066
Investment securities 140,629 99,707 102,705 71,798 65,391
Loans and loans held for sale, net of
allowances for loan losses 352,755 397,489 325,478 265,995 294,389
Interest-bearing deposits, and stock
in Federal Home Loan Bank 11,648 11,687 11,136 45,081 13,555
Other assets 39,529 33,796 32,393 15,299 12,467
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 552,079 $ 557,288 $ 486,349 $ 405,718 $ 390,868
- -------------------------------------------------------------------------------------------------------------------
Deposits noninterest-bearing $ 24,257 $ 12,927 $ 16,308 $ 14,633 $ 8,746
Deposits interest-bearing 388,156 354,668 339,451 319,356 313,471
Borrowings 88,583 141,172 82,872 17,551 16,016
Other liabilities 8,188 6,810 7,689 8,829 8,200
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 509,184 515,577 446,320 360,369 346,433
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity 42,895 41,711 40,029 45,349 44,435
Total liabilities and shareholders' equity $ 552,079 $ 557,288 $ 486,349 $ 405,718 $ 390,868
===================================================================================================================
Year Ended December 31,
-------------------------------------------------------------------------------
Summary of Earnings 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Interest income $ 36,633 $ 37,019 $ 29,083 $ 28,301 $ 29,332
Interest expense 24,243 24,728 16,749 15,993 17,345
Net interest income 12,390 12,291 12,334 12,308 11,987
Provision for loan losses 360 417 328 159 242
Other income 4,513 3,766 3,302 3,429 2,864
Other expense 11,278 10,914 10,509 9,655 8,985
- -------------------------------------------------------------------------------------------------------------------
Income before taxes 5,265 4,726 4,799 5,923 5,624
Income taxes 1,465 1,164 1,467 2,085 1,992
- -------------------------------------------------------------------------------------------------------------------
Net income $ 3,800 $ 3,562 $ 3,332 $ 3,838 $ 3,632
===================================================================================================================
Basic earnings per share (1) $ 1.21 $ 1.13 $ 0.98 $ 1.08 $ 1.02
Diluted earnings per share (1) $ 1.21 $ 1.13 $ 0.98 $ 1.06 $ 1.01
- -------------------------------------------------------------------------------------------------------------------
Dividends declared per share (1) $ 0.61 $ 0.60 $ 0.60 $ 0.59 $ 0.56
- -------------------------------------------------------------------------------------------------------------------
Book value per share (1) $ 13.63 $ 13.26 $ 12.72 $ 12.92 $ 12.49
===================================================================================================================
Year Ended December 31,
-----------------------------------------------------------------------
Other Selected Data 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Return on average assets 0.72% 0.68% 0.77% 0.98% 0.92%
Return on average equity 8.92 8.68 7.60 8.48 8.28
Ratio of average equity to average assets 8.12 7.84 10.17 11.60 11.06
Dividend payout ratio (2) 50.41% 53.00% 61.22% 55.66% 55.45%
Number of full-service bank offices 11 11 12 11 8
- -------------------------------------------------------------------------------------------------------------------
(1) Restated to reflect the eleven-for-ten stock split in 1998.
(2) Based on total dividends per share declared and net income per share for the year.
42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
Ameriana Bancorp (the "Company") was incorporated under Indiana law for the
purpose of becoming the holding company for Ameriana Bank and Trust of Indiana.
In 1990, the Company acquired all of Ameriana Bank and Trust of Indiana common
stock in connection with its reorganization into the holding company form of
ownership. In 1992, the Company acquired Ameriana Bank of Ohio, F.S.B. ("ABO").
ABO was merged into Ameriana Bank and Trust of Indiana in October 2000. On June
29, 2001, Ameriana Bank and Trust of Indiana converted from a Federal Savings
Bank to an Indiana Chartered State Savings Bank and changed its name to Ameriana
Bank and Trust, SB ("ABT"). The conversion is not expected to have a material
effect on the Company's business but is expected to reduce the assessments paid
for examinations and supervision of ABT. At the same time, the Company
contributed Ameriana Insurance Agency, Inc. ("AIA") to ABT. AIA operates a
general insurance agency in three locations. ABT has a brokerage operation
through its wholly owned subsidiary Ameriana Financial Services, Inc., which
also owns a partial interest in a life insurance company. In 1995, the Company
purchased a minority interest in a limited partnership organized to acquire and
manage real estate investments, which qualify for federal tax credits.
The largest components of the Company's total revenue and total expense are
interest income and interest expense, respectively. Consequently, the Company's
earnings are primarily dependent on its net interest income, which is determined
by (i) the difference between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities ("interest rate spread"),
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. Levels of other income and operating expenses also significantly
affect net income.
The Company's investment securities increased $40,922,000 and 41.04% during
2001 and were changed to the classification of available for sale at December
31, 2001, from the classification of held to maturity at December 31, 2000. The
Company determined that because of its interest rate risk it would not be able
to continue to hold its investment securities to maturity and recorded an
accumulated other comprehensive loss of $696,000 as of December 31, 2001.
Federal agencies decreased $59,205,000 and 67.35% reflecting calls totaling
$77,805,000 and net purchases, amortization of discounts and accretions of
premiums totaling $18,470,000 and a net increase for presenting the security at
fair value of $130,000. The ending carrying value of federal agencies was
$28,696,000 and has an average yield of 6.87% at year-end 2001. The investment
securities also include trust preferred stock
43
investments purchased during 2001 for $1,540,000, including a $40,000 gain for
the fair value adjustment and had an average yield of 8.87%. Mortgage-backed
securities ("MBS") and collateralized mortgage obligations ("CMO") increased
$98,587,000 and 835% during 2001 composed of net purchases, amortization of
discounts and accretions of premiums totaling $111,362,000 reduced by
$11,445,000 of principal collections and a net decrease of $1,330,000 for
presenting the securities at fair value. These purchases were used to offset the
decrease in loans and calls of federal agencies. The MBS & CMO ending balance at
fair value is $110,393,000 and the portfolio has an average return of 6.67% at
year-end 2001. The Company has determined to dispose of its CMO portfolio during
the first quarter of 2002 at an estimated loss of $1.9 million. Proceeds from
the disposition will be used to pay down Federal Home Loan Bank ("FHLB")
advances.
The Company's portfolio of loans before deducting undisbursed loan proceeds
and deferred loan fees has decreased $53,428,000 and 12.86% in 2001 over 2000.
Residential mortgage loans decreased $94,463,000 and 28.94%, commercial mortgage
loans and commercial loans increased $47,438,000 and 83.00%, installment loans
decreased $6,153,000 and 20.38% and loans secured by deposits decreased $250,000
and 15.64%. Residential mortgages decreased as customers refinanced loans in
portfolio for fixed-rate loans which were then sold in the secondary market. As
rates decreased during 2001, the demand for fixed-rate mortgages increased to
the point that the majority of residential mortgages, other than jumbo loans,
were made at fixed rates. The substantial percentage increase in commercial
loans was due to increased purchases of commercial participation loans and
leases along with increases in direct commercial real estate loans. The mix of
fixed-rate to adjustable-rate and short-term balloon loans was 49% to 51% at
year-end 2001, compared to 40% to 60% at year-end 2000 and year-end 1999 being
43% to 57%. The increase in fixed-rate loans was caused by the preference of
borrowers to request fixed-rate loans in the lower interest rate environment
during 2001 as compared to the year 2000 when the customer's preference was for
variable-rate loans during the higher rate environment. The increase in the
fixed-rate loan demand and sales to the secondary market resulted in the gain on
sales of loans increasing to $804,000 in 2001 from $103,000 in 2000 and $381,000
in 1999. Total loan volume was $198,671,000 in 2001, $179,705,000 in 2000 and
$192,155,000 in 1999. The Company sold $91,515,000 of fixed-rate residential
mortgage loans in 2001 compared to $9,238,000 in 2000 and $23,303,000 in 1999.
Total deposits increased $44,818,000 and 12.19% to $412,413,000 at December
31, 2001, from $367,595,000 at December 31, 2000. All types of deposits, except
for savings, increased. Demand deposits
44
increased $12,349,000 and 16.25% to $88,327,000 at December 31, 2001 from
$75,978,000 at December 31, 2000, with the increase being in both NOW and money
market rate accounts. Total certificates of deposit increased $34,509,000 and
13.43% to $291,439,000 at December 31, 2001 from $256,930,000 at December 31,
2000, and were due to increases of $29,132,000 in regular certificates and
increases of $5,377,000 in negotiated-rate certificates primarily from local
county governmental entities. Savings deposits decreased $2,040,000 and 5.88% to
$32,647,000 at December 31, 2001, from $34,487,000 at December 31, 2000, due
mostly to movement to higher interest-bearing demand deposit rate products. On
December 15, 2000, ABT sold $1,649,000 of demand and savings deposits with the
Loveland Branch in Ohio, and a gain of $89,000 was recorded on the sale. The
balance sheet decreased $5,209,000 and 0.93% at December 31, 2001, compared to
December 31, 2000. The increase in total deposits and the funds from the
decrease in the balance sheet were used to reduce the FHLB advances, which
decreased $51,098,000 and 36.83% to $87,653,000 at December 31, 2001, from
$138,751,000 at December 31, 2000. The Company has a note payable of $750,000 at
6.25% as of December 31, 2001, and it had a balance of $2,100,000 at 8.0% at
December 31, 2000. These proceeds were used to repurchase the Company's stock in
1999. The Company also has notes payable with balances of $180,000 and $271,000
at December 31, 2001 and 2000, respectively, which are 6.0% and relate to the
Cardinal State Bank purchase. The Company continues to experience competitive
forces on its deposits from other institutions in the marketplace, but the
Company was able to compete with these investing alternatives by providing
additional investment choices for its customers through its brokerage and
insurance products.
The Company has continued to increase the level of non-interest-sensitive
fee income producing assets. These activities include an equity interest in a
life insurance company and ownership of a full-service general line property and
casualty insurance agency and brokerage services. In January 2002, the Bank
invested in a Limited Liability Company, with two other financial institutions
that will operate a title insurance company.
As noted above, loans sold increased in 2001 over 2000 after decreasing
during 2000 over 1999 and servicing of sold loans as of December 31, 2001
increased to $162,000,000 from $144,000,000 and $154,000,000 at December 31,
2000 and 1999, respectively. ABO sold $19,572,000 of loan servicing for a gain
of $67,000 in May 1999. No sales or purchases of loan servicing were done in
2001 or 2000.
45
INTEREST SENSITIVITY
The following table presents the Company's interest sensitivity gap between
interest-earning assets (at fair value) and interest-bearing liabilities at
December 31, 2001. This table assumes no prepayments of loans or MBS & CMO, no
early redemption of securities at call dates, no early withdrawals of
certificates of deposit and no extension of deposit account sensitivity relating
to core deposit stability.
==============================================================================================================================
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
6 6 More
Months Months 1 to 3 3 to 5 5 to 10 10 to 20 Than
Or Less To 1 Year Years Years Years Years 20 Years Total
Rate Sensitive Assets:
- ------------------------------------------------------------------------------------------------------------------------------
Balloon and
adjustable-
rate loans (1) $61,063 $18,901 $46,158 $46,109 $16,393 $ - $ - $188,624
Fixed-rate loans (1) 38,907 96 6,977 3,508 11,215 32,239 36,433 129,375
Other loans 9,034 403 9,932 24,146 2,641 3,062 - 49,219
MBS & CMO-
Variable-rate 3,503 1,493 452 - - - 5,438
Fixed-rate 1 29 21 2,347 1,695 100,862 - 104,955
Other investments(2) 11,648 - - - 28,696 1,540 - 41,884
- ------------------------------------------------------------------------------------------------------------------------------
Total 124,156 20,884 63,548 73,784 32,596 65,692 138,835 519,495
- ------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------
Deposits:
Certificate accounts 139,113 59,072 85,227 7,909 118 - - 291,439
Money market
deposit accounts 47,686 - - - - - - 47,686
Passbook accounts 36,620 - - - - - - 36,620
NOW accounts 16,411 - - - - - - 16,411
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 235,830 59,072 85,227 7,909 118 - - 388,156
Notes payable 840 90 - - - - 930
FHLB advances 35,890 28,363 18,185 5,017 198 - - 87,653
- ------------------------------------------------------------------------------------------------------------------------------
Total 272,560 87,525 103,412 12,926 316 - - 476,739
- ------------------------------------------------------------------------------------------------------------------------------
Asset/liability gap $(148,404) $ (66,641) $ (39,864) $ 60,858 $ 32,280 $ 65,692 $138,835 $ 42,756
- ------------------------------------------------------------------------------------------------------------------------------
Additional Gap Information:
- ------------------------------------------------------------------------------------------------------------------------------
Gap as a percentage
of total assets (26.82)% (12.05)% (7.21)% 11.00% 5.83% 11.87% 25.09% 7.73%
Cumulative gap $(148,404) $(215,045) $(254,909) $(194,051) $(161,771) $(96,079) $ 42,756
Cumulative gap as
a percentage of
total assets (26.82)% (38.87)% (46.08)% (35.08)% (29.24)% (17.37)% 7.73%
===============================================================================================================================
(1) Amounts are stated without reductions of $12.733 million for deferred fees,
unearned income and undisbursed loan proceeds. (2) Includes
interest-bearing demand deposits, investment securities, and FHLB stock.
46
INTEREST RATE RISK
ABT is subject to interest rate risk to the degree that its
interest-bearing liabilities, primarily deposits and borrowings from the FHLB,
mature or reprice at different rates than its interest-earning assets. Although
having liabilities that mature or reprice less frequently on average than assets
will be beneficial in times of rising interest rates, such an asset/liability
structure will result in lower net income during periods of declining interest
rates, unless offset by other factors.
The Asset/Liability Committee and the Board of Directors review ABT's
exposure to interest rate changes and market risk on a quarterly basis. This
review is accomplished by the use of a cash flow simulation model using detailed
securities, loan and deposit, and market information to estimate the potential
impact of interest rate increases and decreases on the earning assets and
liabilities. The model tests the impact on the net interest income under various
interest rate scenarios by estimating the interest rate sensitivity position at
each interest rate interval. The change in the net portfolio value ("NPV") is
also calculated at each interest rate interval. This tests the interest rate
risk exposure from movements in interest rates by using interest sensitivity
analysis to determine the change in the NPV of discounted cash flows from assets
and liabilities.
NPV represents the market value of portfolio equity and is equal to the
estimated market value of assets minus the estimated market value of
liabilities. The model uses a number of assumptions, including the relative
levels of market interest rates and prepayments or extension in maturity and
repayment in mortgage loans, MBS & CMO and certain types of callable
investments. These computations did not contemplate actions management undertook
to reposition the assets and liabilities as discussed below, and should not be
relied upon as indicative of actual results. In addition, certain shortcomings
are inherent in the model of computing NPV. Should interest rates remain or
decrease below present levels, the portion of adjustable rate loans could
decrease in future periods due to loan refinancing or payoff activity. In the
event of an interest rate change, pre-payment levels would likely be different
from those assumed in the model and the ability of borrowers to repay their
adjustable rate loans may decrease during rising interest rate environments.
47
The ABT information below provides an assessment of the risk of NPV in the
event of sudden and sustained 200 basis point increases and decreases in the
prevailing interest rates as of December 31, 2001.
- -------------------------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- -------------------------------------------------------------------------------------------------------
Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
+200 bp * $ 6,035 $-31,953 -84.11% 1.19% -5.70 bp
Base or 0% 37,988 6.89
- -200 bp 40,989 3,001 + 7.90 7.23 +0.34 bp
* basis points
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features, which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a change in interest rates, expected rates of prepayments on loans
and early withdrawals from certificates could likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.
Upon review of the above information and certain other interest rate risk
reports for the period ending December 31, 2001, management determined that a
significant deterioration had occurred in Company's portfolio holdings of CMO
resulting in a large increase in the Company's exposure to future increases in
interest rate risk. Upon further review, management determined that the increase
in the exposure was significant enough to call into question the prudence of
continuing to hold the securities to maturity. In order to take the necessary
action to reduce this exposure, management decided to move the entire securities
portfolio from the "Held to Maturity" accounting classification to the
"Available for Sale" classification as of December 31, 2001.
The Company has determined that most of its investments no longer fit its
risk profile given the unsettled, uncertain and volatile nature of the market
and the possibility that interest rates could move against the portfolio. The
decelerating speed of prepayments on these instruments during the first quarter
of 2002 has been remarkable; significantly extending the practical maturity of
the portfolio to a level that is now unacceptable. The alternatives to
48
taking immediate action to mitigate the potential losses, including long-term
funding strategies, hedging strategies and partial liquidations, were felt to be
inadequate in the circumstances. The Company decided to liquidate the majority
of the investment portfolio during the first quarter of 2002.
The proceeds from the liquidation of the Company's investments will be used
first to repay short-term borrowings from the FHLB. This will increase the
Company's flexibility to retain more of its self-originated loans in portfolio
and to purchase loan participations in the region, as they become available. The
balance of the proceeds will be used to purchase short-term liquid investments,
including limited maturity MBS, which present little in the way of interest rate
risk compared with the liquidated investments. The Company also will use some
proceeds to invest in intermediate-term MBS to provide a balance to its
portfolio between interest rate risk reduction and maintenance of higher net
interest income levels.
YIELDS EARNED AND RATES PAID
The following tables set forth the weighted average yields earned on the
Company's interest-earning assets and the weighted average interest rates paid
on the Company's interest-bearing liabilities, together with the net yield on
interest-earning assets.
Year Ended December 31,
----------------------------------
Weighted Average Yield: 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Loans 7.83% 7.91% 7.70%
MBS & CMO 7.00 6.99 6.25
Other interest-earning assets 6.66 6.85 6.41
All interest-earning assets 7.60 7.67 7.32
Weighted Average Cost:
- -------------------------------------------------------------------------------------------------------------------
Deposits 5.03 5.02 4.58
Federal Home Loan Bank advances 6.50 6.73 5.41
Notes payable 7.30 8.30 6.00
All interest-bearing liabilities 5.31 5.44 4.65
- -------------------------------------------------------------------------------------------------------------------
Interest Rate Spread (spread between weighted average yield on all
interest-earning assets and all interest-bearing liabilities) 2.29 2.23 2.67
- -------------------------------------------------------------------------------------------------------------------
Net Yield (net interest income as a percentage of average
interest-earning assets) 2.57 2.55 3.10
At December 31,
---------------
Weighted Average Interest Rates: 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Loans 7.74% 8.16% 7.70%
MBS & CMO 6.35 6.94 6.75
Total interest-earning assets 7.39 7.91 7.49
Deposits 4.40 5.25 4.71
Federal Home Loan Bank advances 5.58 6.54 5.49
Notes payable 6.20 8.67 6.00
Total interest-bearing liabilities 4.62 5.63 4.86
Interest rate spread 2.77 2.28 2.63
- -------------------------------------------------------------------------------------------------------------------
49
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income, interest expense and net interest income of the Company for the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to: (1) changes in volume (changes in volume multiplied by old rate) and (2)
changes in rate (changes in rate multiplied by old volume). No material amounts
of loan fees or out-of-period interest is included in the table. Dollars are in
thousands.
Year Ended December 31
2001 vs. 2000 2000 vs. 1999
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
- -------------------------------------------------------------------------------------------------------------------
Net Net
Volume Rate Change Volume Rate Change
- -------------------------------------------------------------------------------------------------------------------
Interest income:
Loans and MBS & CMO $ 1,835 $ (411) $ 1,424 $ 6,680 $ 806 $ 7,486
Other interest-earning assets (1,618) (192) (1,810) 4 446 450
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 217 $ (603) $ (386) $ 6,684 $ 1,252 $ 7,936
- -------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits $ 1,283 $ 43 $ 1,326 $ 658 $ 1,485 $ 2,143
FHLB advances and notes payable (1,538) (273) (1,811) 5,358 478 5,836
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ (255) $ (230) $ (485) $ 6,016 $ 1,963 $ 7,979
- -------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 472 $ (373) $ 99 $ 668 $ (711) $ (43)
- -------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
NET INCOME: The Company's net income increased $238,000 and 6.68% to
$3,800,000 ($1.21 basic and diluted earnings per share) for the year ended
December 31, 2001, compared to $3,562,000 ($1.13 basic and diluted earnings per
share) for the year ended December 31, 2000. The improvement in year 2001 income
was primarily due to increases in net interest income and other income due
mostly to gains on loans sold. Net income for the year ended December 31, 2000,
had increased $230,000 and 6.90%, from $3,332,000 ($0.98 basic and diluted
earnings per share) in the year 1999 due to an increase in other income and
lower tax expense both of which were attributable in large part to an increase
in the cash surrender value of the Company-owned life insurance policies.
NET INTEREST INCOME: Net interest income increased by $99,000 in 2001
compared to 2000 and was due to a greater decrease in interest costs, $485,000
and 1.96% compared to a decrease in interest income of $386,000 and 1.04%. The
average-interest earning assets decreased only 0.14% to $482,111,000 in 2001
from $482,775,000 in 2000 and the interest-bearing liabilities increased only
0.45% to $456,678,000 in 2001 from $454,638,000 in 2000. The total interest rate
on average earning assets decreased 6 basis points to 7.60% in 2001 from 7.67%
in 2000. The decrease in interest expense was due to increased volume and a
small increase in costs of deposits while
50
correspondingly reducing FHLB advances and notes payable. The total interest
rate on average interest-bearing liabilities decreased 13 basis points to 5.31%
in 2001 from 5.44% in 2000. The decrease in interest income was due to the
increase in loans and MBS & CMO at lower interest rates offset by calls on
agency investment securities. The Company's net interest spread increased 6
basis points to 2.29% in 2001 from 2.23% in 2000. Net interest income was
essentially even between 2000 and 1999, declining by $43,000. Although interest
income increased by $7,936,000 and 27.29%, interest expense increased by a
greater amount, $7,979,000 and 47.64%. The 2000 increase in interest income and
interest expense were driven primarily by growth in the volumes of
interest-earning assets and interest-bearing liabilities, respectively, as the
Company has sought to better leverage its balance sheet. Also contributing to
the greater increase in interest expense was the higher average cost of
interest-bearing liabilities, which jumped 79 basis points while the average
yield on interest-earning assets increased by only 35 basis points. As a result
of the greater increase in average costs, the Company's net interest spread
narrowed 44 basis points to 2.23% in 2000 from 2.67% for 1999.
The Company's average portfolio balance of loans increased 1.29% to
$376,157,000 for the year 2001, from $371,349,000 for the year 2000. This
average loan portfolio had increased 31.71% for the year 2000 over the
$281,943,000 average for the year 1999. The ending balance of loans was
$349,195,000, $398,775,000 and $326,804,000 for 2001, 2000 and 1999,
respectively. Loan originations and purchases were up 10.55% to $198,671,000 in
2001 compared to $179,705,000 in 2000. Sold loans, which are all fixed-rate
residential mortgage loans, were up 890% to $91,515,000 compared to $9,238,000
in 2000 and were down 60.36% in 2000 compared to $23,303,000 in 1999. The loan
portfolio decreased in 2001 because the volume of residential mortgage loans
were mostly fixed-rate loans, which are sold to the secondary market. The
commercial loans, both mortgage and other commercial loans, did increase
$47,438,000 and 83% in 2001. This is due to both purchases of loan
participations, lease purchases and an increase in the volume of direct
commercial loans. The installment loans decreased $6,153,000 and 20.38% due to
reduced loan volume as market competitive rates were below minimums established
by the Company. The loan portfolio had grown in 2000 because more of the loans
were commercial and variable-rate residential mortgage loans, which were
retained as compared to 1999. Purchased loans were $49,498,000 in 2001,
$47,884,000 in 2000 and $60,355,000 in 1999.
The Company's average portfolio balance of MBS & CMO increased 144.07% in
2001 to $31,768,000 and had decreased 24.68% to $13,016,000 for the year 2000
from $17,280,000 for the year 1999. The ending balance of
51
MBS & CMO was $110,393,000, $11,806,000 and $14,970,000 for 2001, 2000 and 1999,
respectively. Purchases were $111,505,000 in 2001 in an attempt to keep the
Company leveraged. Purchases were $611,000 in 2000 and were mortgage-backed
securities designed to meet requirements of the Community Reinvestment Act.
The average short-term investments and other interest-earning assets were
$74,186,000, $98,410,000 and 98,345,000 for 2001, 2000 and 1999, respectively.
The decrease in 2001 included purchases of $19,925,000 and calls of $77,805,000
of callable agency bonds held to maturity after these investments had remained
outstanding without calls or purchases in 2000.
Average interest-earning assets decreased $664,000 or 0.14% to $482,111,000
in 2001 from $482,775,000 in 2000. The increases were $4,808,000 and 1.29% in
average loans and $18,752,000 and 144.06% in MBS & CMO while other average
investments decreased $24,224,000 and 24.62%. Average interest-earning assets
increased $85,207,000 or 21.43% to $482,775,000 in 2000 from $397,568,000 in
1999. The 2000 increase was $89,406,000 and 31.71% in average loans while
average mortgage-back securities decreased $4,264,000 and 24.68% and other
interest-earning assets remained the same. Total interest income was
$36,633,000, $37,019,000 and $29,083,000 for 2001, 2000 and 1999, respectively.
The $386,000 decrease in interest income in 2001 over 2000 was an increase of
$217,000 due to net volume changes offset by a $603,000 decrease due to net rate
changes. The $7,936,000 increase in interest income in 2000 over 1999 was
increases of $6,684,000 related to volume increases and $1,252,000 related to
rate increases.
Average interest-bearing liabilities increased $2,040,000 or 0.45% to
$456,678,000 in 2001 from $454,638,000 in 2000. The increase was composed of
average interest-bearing deposits increasing $25,511,000 and 7.38%, offset by
average borrowings from the FHLB decreasing $22,577,000 and 21.17% and notes
payable decreasing $894,000 and 36.40%. Average interest-bearing liabilities
increased $94,372,000 or 26.20% to $454,638,000 in 2000 from $360,266,000 in
1999. The increase was composed of average interest-bearing deposits increasing
$13,959,000 and 4.21%, average borrowings from the FHLB increasing $78,255,000
and 275.53% and notes payable increasing $2,158,000. Total interest expense was
$24,243,000, $24,728,000 and $16,749,000 for 2001, 2000 and 1999, respectively.
The $485,000 decrease of interest expense in 2001 was due to volume net
decreases of $255,000 and rate net decreases of $230,000. The $7,979,000
increase of interest expense in 2000 was due to volume increases of $6,016,000
and rate increases of $1,963,000.
52
The net interest spread, which is the mathematical difference between the
yield on average interest-earning assets and cost of interest-bearing
liabilities, was 2.29% in 2001, 2.23% in 2000 and 2.67% in 1999. The net yield
on interest-earning assets, which is interest income as a percent of average
earning assets, was 2.57% in 2001, 2.55% in 2000 and 3.10% in 1999.
PROVISION FOR LOAN LOSSES: The provision for loan losses was $360,000 in
2001, $417,000 in 2000 and $328,000 in 1999. The provision is the amount that is
added to the allowance for loan losses for future loan charge-offs. The
allowance for loan losses as a percent of loans was 0.50% at December 31, 2001,
0.37% at December 31, 2000 and 0.47% at December 31, 1999, and represents
management's best estimate of expected charge-offs in the loan portfolio. Net
loan charge-offs have historically been less than the annual provision for loan
losses and were $119,000, $462,000 and $78,000 for the years 2001, 2000 and
1999, respectively. Non-performing assets (e.g., real estate owned, non-accrual
loans and loans 90 days or more past due) were $3,179,000, $1,673,000 and
$1,196,000 at December 31, 2001, 2000 and 1999, respectively. The 2001
non-performing assets include $606,000 of real estate repossessed by the Company
and carried on the books at their book value or fair market value less estimated
selling costs, whichever is lower. Comparable repossessed real estate was
$125,000 at December 31, 2000, and zero at December 31, 1999. The 2001
non-performing assets also include $1,348,000 for a loan on an apartment complex
that has an appraisal for 130% of its carrying value. The 1999 provision
includes $172,000 for a non-performing loan that was acquired in the Cardinal
State Bank purchase. This loan was written-off during the first quarter of 2000.
If this loan is deleted from the 2000 net charge-offs, the 2000 provision of
$417,000 exceeds the $290,000 of charged-offs by $127,000. The Company believes
it has established an adequate allowance for loan losses in accordance with
generally accepted accounting principles. The variation in the amount of
provision charged against income is directly related to changes in loan
charge-offs, non-performing loans, loan delinquencies, economic conditions in
the Company's lending area and loan growth or reduction during each year.
OTHER INCOME: Other income was $4,513,000, $3,766,000 and $3,302,000 for
2001, 2000 and 1999, respectively. The 2001 gains on sales of loans and
servicing rights of $804,000 were significantly higher than $103,000 in 2000 and
$381,000 in 1999. In 1999 a gain of $67,000 from the sale of servicing rights
was included and no servicing rights were sold in 2001 or 2000. These changes
reflect the change in demand for fixed-rate real estate loans. In 2001, rates
were decreasing all year and the consumer wanted a fixed-rate residential
mortgage loan which is sold in the secondary market, but in 2000 and 1999 the
average mortgage rates were higher and the
53
consumer preferred a variable-rate residential mortgage loan which is normally
retained in portfolio. The net loan servicing fees of $329,000, $293,000 and
$266,000 for the years 2001, 2000 and 1999, respectively, have increased and
reflect the retention and increase of average loans serviced. Operating losses
associated with the limited partnership amounted to $172,000 in 2001, $101,000
in 2000 and $192,000 in 1999. At the same time as these losses are reflected the
Company also reflected federal income tax credits of $210,000, $213,000 and
$210,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Brokerage and insurance commissions have decreased slightly each of the last
three years with $995,000 in 2001, $1,056,000 in 2000 and $1,199,000 in 1999.
The recession had a direct influence on this income during 2001 and the latter
part of 2000. ABT invested in life insurance on employees and directors, with a
balance or cash surrender value of $18,035,000 and $17,089,000 at December 31,
2001 and 2000, respectively. The majority of the policies were purchased during
1999, and accordingly the nontaxable increase in cash surrender value of life
insurance was $945,000 in 2001, $972,000 in 2000 and $447,000 in 1999. The 2000
income included a one-time adjustment of $197,000 related to the value of
insurance policies on two retired employees.
OTHER EXPENSE: Operating expenses were $11,278,000, $10,914,000 and
$10,509,000 for 2001, 2000 and 1999, respectively. These yearly increases were
due to normal increases and to additional expense of operating a new trust
department, commercial loan department and a new branch that ABT opened during
December 1999. The 1999 expenses also included additional costs related to the
Year 2000 compliance. The conversion of both banks to the same mainframe system
had provided for a reduction of data processing expense during 1999. This
reduction was offset in 2000 by improvements made in data processing and the
initial expense of implementing check imaging. Data processing expense and other
expenses in 2000 include some additional costs related to the merger of the two
banks during that year. The merger of the banks is expected to reduce expenses
in future years.
INCOME TAX EXPENSE: Income tax expense was $1,465,000 in 2001, $1,164,000
in 2000 and $1,467,000 in 1999. The effective tax rate was 27.8% in 2001, 24.6%
in 2000 and 30.6% in 1999. The increase in 2001 was due to lower non-taxable
insurance income and to higher state taxes and higher pretax income. The
decrease in tax expense in 2000 from 1999 is due to slightly lower pretax income
and to a lower effective tax rate due to the nontaxable insurance income and to
lower state income taxes due to change in state law. See note 9 to the
consolidated financial statements for detail of income taxes.
54
LIQUIDITY AND CAPITAL RESOURCES
Historically, funds provided by operations, loan principal repayments and
new deposits have been the Company's principal sources of liquid funds. In
addition, the Company has the ability to obtain funds through the sale of new
mortgage loans and through borrowings from the FHLB system. At December 31,
2001, the Company's commitments for loans in process totaled $11,756,000.
Management believes that the Company's liquidity and other sources of funds will
be sufficient to fund all outstanding commitments and other cash needs. A
portion of these commitments is for fixed-rate mortgage loans, which will be
sold immediately into the secondary market.
An amendment of the 1996 Stock Option Plan, which provides for the granting
of incentive and non-qualified stock options, was approved by the shareholders
in April 1998 and extended the plan's term to ten years and increased the number
of shares reserved under the plan from 176,000 to 352,000 shares. No options for
exercise of shares were done in 2001. Options for 825 shares in 2000 and 9,235
shares in 1999 were exercised. See note 10 to the consolidated financial
statements for option activity and the pro forma effect on net income.
In April 1999, the Company's Board of Directors approved an additional
one-year and $5,000,000 for a stock repurchase program. The stock repurchase
program, which began in July 1998, was a one-year repurchase program of
$5,000,000 to acquire up to 10% of the Company's outstanding common stock. The
Company repurchased 374,130 shares in 1999 and 201,388 shares in 1998 at an
aggregate cost of $6,747,000 and $3,358,000, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented in this
report have been prepared in accordance with generally accepted accounting
principles. This requires the measurement of financial position and operating
results in terms of historical dollars without consideration of changes in the
relative purchasing power of money over time due to inflation.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or at
the same rate as changes in the prices of goods and services, which are directly
affected by inflation, although interest rates may fluctuate in response to
perceived changes in the rate of inflation.
55
CURRENT ACCOUNTING ISSUES
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141 and 142. SFAS No. 141, "Business
Combinations" requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001, thereby eliminating the use
of the pooling of interests method. It also provides new criteria that determine
whether an acquisition involving acquired intangible assets should be recognized
separately from goodwill. This Statement does not presently affect the Company
but would be followed in any future acquisitions.
SFAS No. 142, "Goodwill and Other Intangible Assets" will be effective for
fiscal years beginning after December 15, 2001, and requires that upon adoption,
any goodwill recorded on an entity's balance sheet would no longer be amortized.
This would include existing goodwill recorded at the date of adoption and any
future goodwill. Goodwill will not be amortized but will be reviewed for
impairment at least once a year and adjusted by reduction of the carrying value
of goodwill if the asset is impaired. At December 31, 2001, the Company had
$1,511,000 of goodwill on its balance sheet that was amortized at a rate of
$159,000 in 2001. This goodwill is composed of $1,290,000 that will no longer be
amortized but will be tested for impairment of carrying value on an annual
basis. The $221,000 balance classified as core deposit intangibles, at the time
of the Cardinal State Bank acquisition, will continue to be amortized over 6.5
years at a rate of $35,000 in 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------------------------------------------------------------------
Reference is made to discussions captioned "Interest Sensitivity" and
"Interest Rate Risk" in Item 7 of this Annual Report.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors 58
Consolidated Balance Sheets at December 31, 2001 and 2000 59
Consolidated Statements of Income for Each of the Three
Years in the Period Ended December 31, 2001 60
Consolidated Statements of Shareholders' Equity for Each of
the Three Years in the Period Ended December 31, 2001 61
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 2001 62
Notes to Consolidated Financial Statements 63
57
[LETTERHEAD OF BKD, LLP]
Independent Accountants' Report
To the Shareholders and
Board of Directors
Ameriana Bancorp
New Castle, Indiana
We have audited the accompanying consolidated balance sheets of Ameriana Bancorp
as of December 31, 2001 and 2000, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Ameriana Bancorp as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
BKD, LLP
/s/ BKD, LLP
Indianapolis, Indiana
February 8, 2002
58
Ameriana Bancorp
Consolidated Balance Sheets
(in thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash on hand and in other institutions $ 7,518 $ 14,609
Interest-bearing demand deposits 4,283 4,422
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 11,801 19,031
Investment securities held to maturity (fair value of $97,863) -- 99,707
Investment securities available for sale 140,629 --
Loans, net of allowance for loan losses of $1,730 and $1,489 347,465 397,286
Premises and equipment 6,919 7,097
Stock in Federal Home Loan Bank 7,365 7,265
Intangible assets 1,511 1,670
Cash surrender value of life insurance 18,035 17,089
Other assets 18,354 8,143
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $552,079 $557,288
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 24,257 $ 12,927
Interest-bearing 388,156 354,668
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 412,413 367,595
Borrowings 88,583 141,172
Drafts payable 6,092 3,039
Other liabilities 2,096 3,771
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 509,184 515,577
- ----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Preferred stock - 5,000,000 shares authorized and unissued
Common stock, $1.00 par value
Authorized 15,000,000 shares
Issued and outstanding - 3,146,616 shares 3,147 3,147
Additional paid-in capital 499 499
Retained earnings 39,945 38,065
Accumulated other comprehensive loss (696) --
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 42,895 41,711
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $552,079 $557,288
=============================================================================================================================
See notes to consolidated financial statements.
59
Ameriana Bancorp
Consolidated Statements of Income
(in thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest on loans $29,468 $29,359 $21,703
Interest on mortgage-backed securities 2,225 910 1,080
Interest on investment securities 4,066 6,055 5,107
Other interest and dividend income 874 695 1,193
- ----------------------------------------------------------------------------------------------------------------
Total interest income 36,633 37,019 29,083
- ----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 18,663 17,337 15,194
Interest on borrowings 5,580 7,391 1,555
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 24,243 24,728 16,749
- ----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 12,390 12,291 12,334
Provision for loan losses 360 417 328
- ----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,030 11,874 12,006
- ----------------------------------------------------------------------------------------------------------------
OTHER INCOME
Net loan servicing fees 329 293 266
Other fees and service charges 1,301 1,194 1,067
Brokerage and insurance commissions 995 1,056 1,199
Gains on sales of loans and servicing rights 804 103 381
Increase in cash surrender value of life insurance 945 972 447
Other 139 148 (58)
- ----------------------------------------------------------------------------------------------------------------
Total other income 4,513 3,766 3,302
- ----------------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Salaries and employee benefits 6,935 6,613 6,052
Net occupancy expense 1,467 1,541 1,465
Federal insurance premium 71 74 182
Data processing expense 313 308 275
Printing and office supplies 330 290 346
Other 2,162 2,088 2,189
- ----------------------------------------------------------------------------------------------------------------
Total other expense 11,278 10,914 10,509
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,265 4,726 4,799
Income taxes 1,465 1,164 1,467
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,800 $ 3,562 $ 3,332
================================================================================================================
BASIC AND DILUTED EARNINGS PER SHARE $ 1.21 $ 1.13 $ .98
================================================================================================================
See notes to consolidated financial statements.
60
Ameriana Bancorp
Consolidated Statements of Shareholders' Equity
(in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1999 $3,511 $6,775 $35,063 $ -- $45,349
Net income -- -- 3,332 -- 3,332
Dividends declared ($.60 per share) -- -- (2,004) -- (2,004)
Purchase of common stock (374) (6,373) -- -- (6,747)
Exercise of stock options 9 90 -- -- 99
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 3,146 492 36,391 -- 40,029
Net income -- -- 3,562 -- 3,562
Dividends declared ($.60 per share) -- -- (1,888) -- (1,888)
Exercise of stock options 1 7 -- -- 8
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 3,147 499 38,065 -- 41,711
Net income -- -- 3,800 -- 3,800
Change in unrealized depreciation on
available-for-sale securities, net
of income tax benefit of $464 -- -- -- (696) (696)
-----------------------------------------------------------------------------------
Comprehensive income 3,104
Dividends declared ($.61 per share) -- -- (1,920) -- (1,920)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $3,147 $499 $39,945 $ (696) $42,895
===========================================================================================================================
See notes to consolidated financial statements.
61
Ameriana Bancorp
Consolidated Statements of Cash Flows
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,800 $ 3,562 $ 3,332
Items not requiring (providing) cash
Provision for losses on loans 360 417 328
Depreciation and amortization 804 677 574
Increase in cash surrender value (945) (972) (447)
Mortgage loans originated for sale (91,515) (9,238) (23,303)
Proceeds from sale of mortgage loans 86,814 9,298 27,411
Gains on sale of loans and servicing rights (804) (103) (381)
Increase in other assets (4,690) (714) (885)
Increase (decrease) in drafts payable 3,053 (862) (452)
Increase (decrease) in other liabilities (1,012) 61 (702)
Other adjustments 488 291 728
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (3,647) 2,417 6,203
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------
Net change in interest-bearing time deposits -- 1,499 1,988
Purchase of investment securities held to maturity (131,430) (606) (43,061)
Proceeds from maturities/calls of securities held to maturity 77,805 -- 6,993
Principal collected on mortgage-backed securities held to maturity 11,445 3,720 5,151
Net change in loans 48,628 (72,769) (63,884)
Net purchases of premises and equipment (425) (636) (1,587)
Premiums paid on life insurance -- -- (15,461)
Purchase of Federal Home Loan Bank stock (100) (2,924) (754)
Other investing activities 153 (1,509) 415
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 6,076 (73,225) (110,200)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------
Net change in demand and passbook deposits 10,309 1,722 4,718
Net change in certificates of deposit 34,509 11,764 17,052
Proceeds from borrowings 93,500 329,600 88,000
Repayment of borrowings (146,089) (271,300) (22,680)
Purchase of common stock -- -- (6,747)
Cash dividends paid (1,888) (1,888) (2,063)
Other financing activities -- 8 99
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (9,659) 69,906 78,379
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS (7,230) (902) (25,618)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,031 19,933 45,551
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $11,801 $19,031 $19,933
==============================================================================================================================
See notes to consolidated financial statements.
62
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Ameriana Bancorp (the "Company") and its wholly-owned subsidiary:
Ameriana Bank and Trust, SB ("ABT"), and ABT's wholly-owned subsidiaries
Ameriana Financial Services, Inc., Indiana Title Insurance Company ("ITIC") and
Ameriana Insurance Agency, Inc. A previously separate subsidiary, Ameriana Bank
of Ohio, FSB ("ABO"), was merged into ABT in October, 2000. ITIC ceased
operations at the close of business on December 31, 2000. All significant
intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of ABT and its subsidiaries. The Company provides
various banking services and engages in loan servicing activities for investors
and operates in a single significant business segment. ABT is subject to the
regulation of the Indiana Department of Financial Institutions and the Federal
Deposit Insurance Corporation. The Company's gross revenues are substantially
earned from the various banking services provided by ABT. The Company also earns
brokerage and insurance commissions from the services provided by the other
subsidiaries.
ABT generates loans and receives deposits from customers located primarily in
east central Indiana and southwestern Ohio. Loans are generally secured by
specific items of collateral including real property and consumer assets. The
Company has sold various loans to investors while retaining the servicing
rights.
Cash and cash equivalents consist of cash on hand and in other institutions and
interest-bearing demand deposits.
Investment Securities: Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately in accumulated other comprehensive income,
net of tax.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Stock in Federal Home Loan Bank ("FHLB") is stated at cost and the amount of
stock the Company is required to own is determined by regulation.
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Company will be
unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The Company
considers its investment in one-to-four family residential loans and installment
loans to be homogeneous and therefore excluded from separate identification of
evaluation of impairment. Interest income is accrued on the principal balances
of loans. The accrual of interest on impaired and nonaccrual loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans over the contractual lives of the loans. When a loan is paid
off or sold, any unamortized loan origination fee balance is credited to income.
63
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
Allowance for Loan Losses is maintained at a level believed adequate by
management to absorb inherent losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio including consideration of past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, the
probability of collecting all amounts due, and other relevant factors. Impaired
loans are measured by the present value of expected future cash flows, or the
fair value of the collateral of the loan, if collateral dependent. The allowance
is increased by provisions for loan losses charged against income.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 2001, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the areas within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and Equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the related assets. Maintenance and repairs are
expensed as incurred while major additions and improvements are capitalized.
Intangible Assets are being amortized on an accelerated or straight-line basis
not exceeding a period of up to 15 years. Such assets are periodically evaluated
as to the recoverability of their carrying value.
Earnings per Share is computed by dividing net income by the weighted-average
number of common and potential common shares outstanding during each year.
Mortgage Servicing Rights on originated loans are capitalized by estimating the
fair value of the streams of net servicing revenues that will occur over the
estimated life of the servicing arrangement. Capitalized servicing rights, which
include purchased servicing rights, are amortized in proportion to and over the
period of estimated servicing revenues.
Stock Options are generally granted for a fixed number of shares with an
exercise price equal to the fair value of the shares at the date of grant. The
Company accounts for and will continue to account for these stock option grants
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants.
Income Tax in the consolidated statements of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
and its subsidiaries file consolidated tax returns. The parent company and
subsidiaries are charged or given credit for income taxes as though separate
returns were filed.
2. RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 2001 was
$1,303,000.
64
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
3. INVESTMENT SECURITIES
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
Available for sale at December 31, 2001
Mortgage-backed securities and
collateralized mortgage obligations $111,723 $269 $(1,599) $110,393
Federal agencies 28,566 176 (46) 28,696
Other 1,500 40 -- 1,540
- -------------------------------------------------------------------------------------------------------
$141,789 $485 $(1,645) $140,629
=======================================================================================================
Held to maturity at December 31, 2000
Mortgage-backed securities and
collateralized mortgage obligations $ 11,806 $ 44 $ (139) $ 11,711
Federal agencies 87,901 9 (1,758) 86,152
- -------------------------------------------------------------------------------------------------------
$ 99,707 $ 53 $(1,897) $ 97,863
=======================================================================================================
Federal agency and other securities at December 31, 2001 had maturities of
greater than ten years.
Investment securities with a total amortized cost of $52,344,000 and $44,535,000
were pledged at December 31, 2001 and 2000 to secure FHLB advances.
In 2002, the Company determined that because of its interest rate risk, it would
not be able to continue to hold its investment securities to maturity.
Accordingly, the Company transferred its held-to-maturity investments to
available for sale as of December 31, 2001, and recorded an accumulated other
comprehensive loss of $696,000 as of that date.
4. LOANS
- ----------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------
Residential mortgage loans $231,940 $326,403
Commercial mortgage loans 78,435 48,393
Installment loans 24,045 30,198
Commercial loans 26,160 8,764
Loans secured by deposits 1,348 1,598
- ----------------------------------------------------------------------------
361,928 415,356
- -----------------------------------------------------------------------------
Deduct
- ----------------------------------------------------------------------------
Undisbursed loan proceeds 12,725 16,724
Deferred loan costs, net 8 (143)
Allowance for loan losses 1,730 1,489
- -----------------------------------------------------------------------------
14,463 18,070
- -----------------------------------------------------------------------------
$347,465 $397,286
============================================================================
65
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
Loans being serviced by the Company for investors, primarily the Federal Home
Loan Mortgage Corporation and Federal National Mortgage Association, totaled
approximately $162,017,000, $144,000,000 and $154,000,000 as of December 31,
2001, 2000 and 1999, respectively. Such loans are not included in the preceding
table.
The aggregate fair value of capitalized mortgage servicing rights at December
31, 2001 and 2000 is based on comparable market values and expected cash flows,
with impairment assessed based on portfolio characteristics including product
type, investor type and interest rates. No valuation allowance was necessary at
December 31, 2001 and 2000.
- ------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------
Mortgage servicing rights
Balance at beginning of year $ 847 $ 910 $1,076
Servicing rights capitalized 416 44 180
Servicing rights sold -- -- (155)
Amortization of servicing rights (251) (107) (191)
- ------------------------------------------------------------------------------
Balance at end of year $1,012 $ 847 $ 910
==============================================================================
At December 31, 2001 and 2000, the Company had outstanding commitments to
originate loans of approximately $11,756,000 and $5,379,000, which were
primarily for adjustable-rate mortgages with rates that are determined just
prior to closing or fixed-rate mortgage loans with rates locked in at the time
of loan commitment. In addition, the Company had $19,949,000 and $19,842,000 of
conditional commitments for lines of credit receivables at December 31, 2001 and
2000. Exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit is represented by
the contractual or notional amount of those instruments. The same credit
policies are used in making such commitments as are used for instruments that
are included in the consolidated balance sheets. Commitments to extend credit
are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Each customer's credit worthiness is evaluated on a case-by-case
basis. The amount of collateral obtained, if deemed necessary upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, real estate, equipment, and
income-producing commercial properties.
5. ALLOWANCE FOR LOSSES
- ------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------
Loans
Balance at beginning of year $1,489 $1,534 $1,284
Provision for losses 360 417 328
Net charge-offs
Charge-offs (146) (488) (98)
Recoveries 27 26 20
- ------------------------------------------------------------------------
Net charge-offs (119) (462) (78)
- ------------------------------------------------------------------------
Balance at end of year $1,730 $1,489 $1,534
========================================================================
66
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
6. PREMISES AND EQUIPMENT
- ----------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------
Land $ 1,396 $ 1,398
Land improvements 513 513
Office buildings 7,415 7,157
Furniture and equipment 4,551 4,384
Automobiles 70 70
- ----------------------------------------------------------------------------
13,945 13,522
Less accumulated depreciation 7,026 6,425
- ----------------------------------------------------------------------------
$ 6,919 $ 7,097
============================================================================
7. DEPOSITS
- -------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
Demand $ 88,327 $ 75,978
Savings 32,647 34,687
Certificates of $100,000 or more 60,363 43,039
Other certificates 231,076 213,891
- --------------------------------------------------------------------------------
$412,413 $367,595
===============================================================================
Certificates maturing in years ending after December 31, 2001:
- ---------------------------------------------------
2002 $196,822
2003 76,534
2004 10,056
2005 5,729
2006 2,298
- ---------------------------------------------------
$291,439
===================================================
Interest paid on deposits approximated interest expense in 2001, 2000 and 1999.
67
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
8. BORROWINGS
Borrowings at December 31, 2001 and 2000 include Federal Home Loan Bank advances
totaling $87,653,000 and $138,751,000 with a weighted-average rate of 5.51% and
6.54%, respectively. The advances are secured by a combination of first-mortgage
loans and investment securities. Some advances are subject to restrictions or
penalties in the event of prepayment.
Borrowings at December 31, 2001 and 2000, also include a note payable for
$750,000 and $2,150,000 respectively, to another financial institution with a
rate of 6.25% and 9%, respectively. The note is secured by the outstanding
common stock of ABT. The note was due at January 24, 2002 and was renewed at
that date to July 24, 2002 at a rate of 4.25%.
A promissory note of $180,000 and $271,000 is included in borrowings at December
31, 2001 and 2000. The interest rate on the note is 6.0%.
Interest paid on borrowings was $5,881,000, $7,064,000, and $1,361,000 for 2001,
2000 and 1999.
- ---------------------------------------------------------------------
Maturities in years ending December 31
2002 $65,093
2003 17,360
2004 915
2005 4,801
2006 216
Thereafter 198
- ---------------------------------------------------------------------
$88,583
=====================================================================
9. INCOME TAXES
- ------------------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------------------
Deferred tax assets
Deferred compensation $ 163 $ 92
General loan loss reserves 669 550
Net unrealized loss on securities available for sale 464 --
Other 186 155
- ------------------------------------------------------------------------------------------
1,482 797
- ------------------------------------------------------------------------------------------
Deferred tax liabilities
FHLB stock dividends (477) (443)
Tax bad debt reserves (146) (218)
Purchase accounting adjustments (153) (101)
Deferred loan fees (97) (225)
Mortgage servicing rights (358) (283)
Other (146) (115)
- ------------------------------------------------------------------------------------------
(1,377) (1,385)
- ------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 105 $ (588)
==========================================================================================
68
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
The effective income tax rate on income from continuing operations is reconciled
to the statutory corporate tax rate as follows:
- -------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 2.8 1.4 4.4
Tax credits (4.0) (4.5) (4.3)
Cash surrender value of life insurance (6.1) (7.0) (3.2)
Other 1.1 .7 (.3)
- --------------------------------------------------------------------------------------------------------
Effective tax rate 27.8% 24.6% 30.6%
=======================================================================================================
The provision for income taxes consists of the following:
- -------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------
Federal
Current $1,448 $1,172 $1,094
Deferred (205) (111) 55
- -------------------------------------------------------------------------
1,243 1,061 1,149
- -------------------------------------------------------------------------
State
Current 246 71 297
Deferred (24) 32 21
- -------------------------------------------------------------------------
222 103 318
- --------------------------------------------------------------------------
$1,465 $1,164 $1,467
=========================================================================
The Company paid $969,000, $1,624,000 and $1,749,000 of state and federal income
taxes in 2001, 2000 and 1999.
10. EMPLOYEE BENEFITS
The Company is a participating employer in a multi-employer defined-benefit
pension plan and a 401(k) plan. The plans cover substantially all full-time
employees of the Company. Since the defined-benefit pension plan is a
multi-employer plan, no separate actuarial valuations are made with respect to
each participating employer. Contributions are not required because the plan
reached the Internal Revenue Service's full funding limitation. Pension expense
for the plans totaled $5,000, $38,000 and $39,000 in 2001, 2000 and 1999,
respectively.
The Company has arrangements that provide retirement and death benefits to
certain officers and directors. The accrual of benefits totaled $420,000,
$235,000 and $47,000 for 2001, 2000 and 1999. In connection with these and other
benefits, life insurance has been purchased with the proceeds from the policies
to be utilized for the payment of benefits.
The Company has entered into employment agreements with certain officers that
provide for the continuation of salary and certain benefits for a specified
period of time under certain conditions. Under the terms of the agreements,
these payments could occur in the event of a change in control of the Company,
as defined, along with other specific conditions. The contingent liability under
these agreements is generally three times the annual salary of the officer.
69
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
Under the 1987 Stock Option Plan and the 1996 Stock Option and Incentive Plan
("1996 Plan"), the Company has granted options to individuals to purchase common
stock at a price equal to the fair market value at the date of grant, subject to
the terms and conditions of the plans. Plan terms permit certain nonincentive
stock options to be granted at less than market value at plan committee
discretion. Options vest and are fully exercisable when granted or over an
extended period subject to continuous employment or under other conditions set
forth in the plans. The period for exercising options shall not exceed ten years
from the date of grant. The plans also permit grants of stock appreciation
rights. An amendment of the 1996 Plan extended the plan's term by five years and
increased the number of shares reserved under the plan from 176,000 to 352,000
shares.
The following is a summary of the status of the Company's stock option plans and
changes in those plans as of and for the years ended December 31, 2001, 2000 and
1999.
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
OPTIONS SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 226,786 $14.31 255,505 $14.43 256,481 $14.18
Granted -- -- 1,000 10.63 9,800 16.78
Exercised -- -- (825) 9.43 (9,235) 10.11
Forfeited/expired (23,276) 13.81 (28,894) 14.01 (1,541) 14.32
----------- ----------- -----------
Outstanding at end of year 203,510 14.37 226,786 14.31 255,505 14.43
=========== =========== ===========
Options exercisable at year end 201,750 $14.35 215,082 $14.32 216,169 $14.16
Weighted-average fair value of
options granted during the year -- -- $2.35 $3.80
As of December 31, 2001, other information in exercise price ranges for options
outstanding and exercisable is as follows:
Outstanding Exercisable
- ----------------------------------------------------------------------------------- -------------------------------
Weighted- Weighted-Average Weighted-
Exercise Price Number Average Remaining Contractual Number Average
Range of Shares Exercise Price Life of Shares Exercise Price
- ----------------------------------------------------------------------------------- -------------------------------
$9.43 - 12.53 65,090 $12.46 4.1 years 65,090 $12.46
14.32 - 18.30 138,420 15.26 5.4 years 136,660 15.25
There were 171,326 shares under the 1996 Plan available for grant at December
31, 2001.
SFAS No. 123, Stock-Based Compensation, established a fair value based method of
accounting for stock-based compensation plans. Although the Company has elected
to follow APB No. 25, SFAS No. 123 requires pro forma disclosures of net income
and earnings per share as if the Company had accounted for its employee stock
options under that Statement. The fair value of each option grant was estimated
on the grant date using an option-pricing model with the following assumptions:
2000 1999
------------------------------
Risk-free interest rates 6.4% 5.0-6.0%
Dividend yields 5.3% 3.7%
Expected volatility factors of market price of common stock 27.9% 23.4%
Weighted-average expected life of the options 8 years 8 years
70
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
2001 2000 1999
-----------------------------------------------
Net income As reported $3,800 $3,562 $3,332
Pro forma 3,800 3,529 3,231
Basic and diluted earnings per share As reported 1.21 1.13 .98
Pro forma 1.21 1.12 .95
11. SHAREHOLDERS' EQUITY
The payment of dividends by the Company depends substantially upon receipt of
dividends from ABT, which is subject to various regulatory restrictions on the
payment of dividends. Under current regulations ABT may not declare or pay a
cash dividend or repurchase any of its capital stock if the effect thereof would
cause the net worth of this entity to be reduced below regulatory capital
requirements or the amount required for its liquidation accounts.
In addition, without prior approval, current regulations allow ABT to pay
dividends to the Company not exceeding retained net income for the applicable
calendar year to date, plus retained net income for the preceding two years.
Application is required by ABT to pay dividends in excess of this restriction.
At December 31, 2001, the shareholder's equity of ABT was $43,592,000 of which
$41,442,000 was restricted from dividend distribution to the Company.
12. EARNINGS PER SHARE
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE PER SHARE Average Per Share Average Per
INCOME SHARES AMOUNT Income Shares Amount Income Shares Share
Amount
- ------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Income available to common $3,800 3,146,616 $1.21 $3,562 3,146,451 $1.13 $3,332 3,386,444 $.98
shareholders ===== ===== ====
Effect Of Dilutive Stock Options -- 1,352 -- 110 -- 30,291
---------------- ------------------ -------------------
Diluted Earnings Per Share
Income available to common
shareholders and assumed $3,800 3,147,968 $1.21 $3,562 3,146,561 $1.13 $3,332 3,416,735 $.98
conversions ==========================================================================================
Options to purchase 138,420 shares of common stock at exercise prices of $14.32
to $18.30 per share were outstanding at December 31, 2001 but were not included
in the computation of diluted earnings per share because the options'
exercisable price was greater than the average market price of the common
shares.
13. REGULATORY CAPITAL
ABT is subject to various regulatory capital requirements administered by the
federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations. The ratios are intended to measure capital
relative to assets and credit risk associated with those assets and off-balance
sheet exposures. The capital category assigned can also be affected by
qualitative judgments made by regulatory agencies about the risk inherent in the
entity's activities that are not part of the calculated ratios.
71
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification in any of the
undercapitalized categories can result in actions by regulators that could have
a material effect on a bank's operations. At December 31, 2001 and 2000, ABT is
categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since December 31, 2001, that
management believes have changed this classification.
Actual and required capital amounts and ratios for ABT are as follows:
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001
- -------------------------------------------------------------------------------------------------------------------------------
REQUIRED FOR
ADEQUATE CAPITAL(1) ACTUAL CAPITAL
- ------------------------------------------------------------------------------------------------------------------------------
RATIO AMOUNT RATIO AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital (1) (to risk-weighted assets) 8.0% $27,521 12.5% $42,923
Tier 1 capital (to risk-weighted assets) 4.0 13,760 12.0 41,193
Core capital (1) (to adjusted total assets) 3.0 16,481 7.5 41,193
Core capital (1) (to adjusted tangible assets) 2.0 10,988 7.5 41,193
Tangible capital (to adjusted total assets) 1.0 8,241 7.5 41,193
(1) As defined by regulatory agencies
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000
- -------------------------------------------------------------------------------------------------------------------------------
REQUIRED FOR
ADEQUATE CAPITAL(1) ACTUAL CAPITAL
- ------------------------------------------------------------------------------------------------------------------------------
RATIO AMOUNT RATIO AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital (1) (to risk-weighted assets) 8.0% $25,258 13.1% $41,270
Tier 1 capital (to risk-weighted assets) 4.0 12,629 12.8 40,315
Core capital (1) (to adjusted total assets) 3.0 16,669 7.3 40,315
Core capital (1) (to adjusted tangible assets) 2.0 11,113 7.3 40,315
Tangible capital (to adjusted total assets) 1.5 8,335 7.3 40,315
(1) As defined by regulatory agencies
ABT has qualified under provisions of the Internal Revenue Code that permit it
to deduct from taxable income a provision for bad debts which differs from the
provision for such losses charged against income. Accordingly, retained earnings
at December 31, 2001, includes an allocation of income to bad debt deductions of
approximately $11,883,000 for which no provision for federal income taxes has
been made. If, in the future, this portion of retained earnings is used for any
purpose other than to absorb bad debt losses, including redemption of bank stock
or excess dividends, or loss of "bank" status, federal income taxes may be
imposed at the then applicable rates. The unrecorded deferred income tax
liability on the above amount was approximately $4,000,000.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are based on estimates using present value and other valuation
techniques in instances where quoted market prices are not available. These
techniques are significantly affected by the assumptions used, including
discount rates and estimates of future cash flows. As such, the derived fair
value estimates cannot be compared to independent markets and, further, may not
be realizable in an immediate settlement of the instruments. Accordingly, the
aggregate fair value amounts presented do not represent, and should not be
construed to represent, the underlying value of the Company.
72
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
The following table presents the estimates of fair value of financial
instruments:
- ----------------------------------------------------------------------------------------------------------
December 31
- ----------------------------------------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
- ----------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 11,801 $ 11,801 $ 19,031 $ 19,031
Investment securities 140,629 140,629 99,707 97,863
Loans 347,465 343,478 397,286 398,717
Interest receivable 3,263 3,263 4,496 4,496
Stock in FHLB 7,365 7,365 7,265 7,265
Cash surrender value of life insurance 18,035 18,035 17,089 17,089
Liabilities
Deposits 412,413 414,413 367,595 369,477
Borrowings 88,583 90,642 141,172 142,182
Notes payable 930 930 2,421 2,421
Interest payable 982 982 950 950
Drafts payable 6,092 6,092 3,039 3,039
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents, Stock in FHLB and Cash Surrender Value of Life
Insurance: The carrying amounts reported in the consolidated balance sheets
approximate those assets' fair values.
Investment Securities: Fair values are based on quoted market prices.
Loans: The fair values for loans are estimated using a discounted cash flow
calculation that applies interest rates used to price new similar loans to a
schedule of aggregated expected monthly maturities on loans.
Interest Receivable/Payable: The fair value of accrued interest
receivable/payable approximates carrying values.
Deposits: The fair values of interest-bearing demand and savings accounts are
equal to the amount payable on demand at the balance sheet date. Fair values for
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on deposits to a schedule of
aggregated expected monthly maturities on deposits. A core deposit intangible
component in the fair value estimate is not included, and although it would be
impractical from a cost-benefit standpoint to estimate that value, the Company
realizes that the dollar amount could be significant.
Borrowings: The fair value of borrowings is estimated using a discounted cash
flow calculation, based on borrowing rates for periods comparable to the
remaining terms to maturity of the borrowings.
Drafts Payable: The fair value approximates carrying value.
73
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
15. PARENT COMPANY FINANCIAL INFORMATION
The following are condensed financial statements for the parent company,
Ameriana Bancorp, only:
- ------------------------------------------------------------------------------------------------------------
December 31
- ------------------------------------------------------------------------------------------------------------
BALANCE SHEETS 2001 2000
- ------------------------------------------------------------------------------------------------------------
Assets
Cash $ 1 $ 2
Advances to subsidiaries 1,341 1,825
Investment in ABT 42,896 41,867
Investments in other subsidiaries and affiliates 371 1,230
Other assets 6 174
- -------------------------------------------------------------------------------------------------------------
$44,615 $45,098
============================================================================================================
Liabilities and shareholders' equity
Notes payable to subsidiaries $ 243 $ 465
Notes payable, other 930 2,421
Other liabilities 547 501
Shareholders' equity 42,895 41,711
- -------------------------------------------------------------------------------------------------------------
$44,615 $45,098
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
Dividends from subsidiaries $3,000 $2,888 $5,150
Interest income 47 30 84
- -------------------------------------------------------------------------------------------------------------
3,047 2,918 5,234
Operating expense 594 664 538
- ------------------------------------------------------------------------------------------------------------
Income before income tax benefit and equity
in undistributed income of subsidiaries 2,453 2,254 4,696
Income tax benefit 511 521 480
- -------------------------------------------------------------------------------------------------------------
2,964 2,775 5,176
Equity in undistributed income of subsidiaries
and affiliates (distributions in excess of
equity in income) 836 787 (1,844)
- -------------------------------------------------------------------------------------------------------------
Net Income $3,800 $3,562 $3,332
============================================================================================================
74
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $3,800 $3,562 $3,332
Items not requiring (providing) cash
Equity in undistributed income of subsidiaries
and affiliates (866) (787) 1,844
Amortization 28 49 67
Decrease in other assets 147 50 56
Increase (decrease) in other liabilities 35 42 (25)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,144 2,916 5,274
- ---------------------------------------------------------------------------------------------------------------
Investing Activities
Advance to subsidiaries 484 (722) --
Repayment of advances to subsidiaries -- -- 1,654
Purchase of premises and equipment -- -- (176)
Proceeds from sale of premises and equipment -- 176 --
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 484 (546) 1,478
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from note payable to subsidiary -- -- 2,300
Repayment of notes payable to subsidiaries (250) (2,550) (250)
Proceeds from other borrowings -- 2,500 --
Repayment of other borrowings (1,491) (440) (90)
Cash dividends paid (1,888) (1,888) (2,063)
Purchase of common stock -- -- (6,747)
Proceeds from exercise of stock options -- 8 99
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,629) (2,370) (6,751)
- ---------------------------------------------------------------------------------------------------------------
Change in cash (1) -- 1
Cash at beginning of year 2 2 1
- ---------------------------------------------------------------------------------------------------------------
Cash at end of year $ 1 $ 2 $ 2
===============================================================================================================
75
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
16. QUARTERLY DATA (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------
2001
TOTAL INTEREST INCOME $9,883 $9,113 $8,565 $9,072
TOTAL INTEREST EXPENSE 6,651 6,211 5,768 5,613
NET INTEREST INCOME 3,232 2,902 2,797 3,459
PROVISION FOR LOAN LOSSES 90 90 90 90
NET INCOME 1,053 780 751 1,216
- ------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE .33 .25 .24 .39
- ------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER SHARE .15 .15 .15 .16
- ------------------------------------------------------------------------------------------------------------
STOCK PRICE RANGE
HIGH 13.00 14.01 13.75 13.80
LOW 10.31 10.35 12.00 11.75
- ------------------------------------------------------------------------------------------------------------
2000
Total interest income $8,501 $9,152 $9,579 $9,787
Total interest expense 5,386 5,989 6,565 6,788
Net interest income 3,115 3,163 3,014 2,999
Provision for loan losses 70 109 119 119
Net income 1,065 876 863 758
- ------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share .34 .28 .27 .24
- ------------------------------------------------------------------------------------------------------------
Dividends declared per share .15 .15 .15 .15
- ------------------------------------------------------------------------------------------------------------
Stock price range
High 14.50 12.75 12.94 13.13
Low 7.56 9.00 9.88 10.50
- ------------------------------------------------------------------------------------------------------------
17. NEW ACCOUNTING PRONOUNCEMENT
The FASB recently adopted SFAS No. 142, Goodwill and Other Intangible Assets.
This Statement establishes new accounting and reporting standards for acquired
goodwill and other intangible assets. The Statement addresses how intangible
assets that are acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted for in financial
statements upon their acquisition. It also addresses how goodwill and other
intangible assets (including those acquired in a business combination) should be
accounted for after they have been initially recognized in the financial
statements. SFAS No. 142 is effective for the Company beginning January 1, 2002.
Upon adoption of SFAS No. 142, the Company will no longer amortize certain
goodwill it currently has recorded in the consolidated balance sheets. Goodwill
that is no longer amortized will be reviewed for impairment. Amortization of
goodwill for 2001 totaled $159,000.
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
For information concerning the directors of the Company, the information
contained under the section captioned "Proposal I -- Election of Directors" in
the Proxy Statement is incorporated herein by reference. For information
concerning the executive officers of the Company, see "Item 1. Business --
Executive Officers" under Part I of the Annual Report, which is incorporated
herein by reference.
For information concerning compliance with Section 16(a) of the Exchange
Act, see the section titled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Security Ownership" in
the Proxy Statement.
(b) SECURITY OWNERSHIP OF MANAGEMENT
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Security Ownership" in
the Proxy Statement.
(c) CHANGES IN CONTROL
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
77
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
----------------------------------------------
(1) Financial Statements. The following consolidated financial
statements are filed under Item 8 hereof:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Income for Each of the Three Years in
the Period Ended December 31, 2001
Consolidated Statements of Shareholders' Equity for Each of the
Three Years in the Period Ended December 31, 2001
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 2001
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. All schedules for which provision
is made in the applicable accounting regulations are either not required under
the related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits. The following is a list of exhibits as part of this
Report and is also the Exhibit Index.
NO. DESCRIPTION
--- -----------
3 Ameriana Bancorp Articles of Incorporation and Bylaws
-- incorporated herein by reference to the Company's
Registration Statement on Form S-4 filed with the SEC
on September 18, 1989
10.1* Ameriana Bancorp 1987 Stock Option Plan incorporated
herein by reference to the Company's Registration
Statement on Form S-8 filed with the SEC on March 30,
1990;
78
other option agreements with Charles M. Drackett,
Jr., Michael E. Kent and Ronald R. Pritzke
incorporated herein by reference to the Company's
Registration Statement on Form S-8 filed with the SEC
on May 17, 1996
10.2* Employment Agreement, dated February 26, 2001,
between Ameriana Bank & Trust and Harry J. Bailey --
incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the SEC on
March 29, 2001
10.3* Employment Agreement, dated February 26, 2001,
between Ameriana Bank & Trust and Timothy G. Clark --
incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the SEC on
March 29, 2001
10.4* Employment Agreement, dated February 26, 2001,
between Ameriana Bank & Trust and Richard E. Welling
-- incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the SEC on
March 29, 2001
10.6* Ameriana Bank of Indiana, F.S.B. Director
Supplemental Retirement Program Director Agreement
-- incorporated herein by reference to the
Company's Annual Report on Form 10-K filed with
the SEC on March 30, 2000
10.7* Ameriana Bank of Indiana, F.S.B. Director
Supplemental Retirement Program Director Agreement,
dated June 4, 1999, between Ameriana Bank of Indiana,
F.S.B. and Paul W. Prior -- incorporated herein by
reference to the Company's Annual Report on Form
10-K filed with the SEC on March 30, 2000
10.8* Executive Supplemental Retirement Plan Agreement,
dated May 6, 1999, between Ameriana Bank of Indiana,
F.S.B. and Harry J. Bailey -- incorporated herein by
reference to the Company's Annual Report on Form 10-K
filed with the SEC on March 30, 2000
10.9* Executive Supplemental Retirement Plan Agreement,
dated May 6, 1999, between Ameriana Bank of Indiana,
F.S.B. and Timothy G. Clark -- incorporated herein
by reference to the Company's Annual Report on Form
10-K filed with the SEC on March 29, 2001
10.10* Executive Supplemental Retirement Plan Agreement,
dated May 6, 1999, between Ameriana Bank of Indiana,
F.S.B. and Richard E. Welling -- incorporated
herein by reference to the Company's Annual Report
on Form 10-K filed with the SEC on March 29, 2001
79
10.11* Change-in-Control Severance Agreement, dated February
26, 2001, between Ameriana Bank and Trust and Nancy
A. Rogers -- incorporated herein by reference to the
Company's Annual Report on Form 10-K filed with the
SEC on March 29, 2001
10.12* Change-in-Control Severance Agreement, dated February
26, 2001, between Ameriana Bank and Trust and Jan F.
Wright -- incorporated herein by reference to the
Company's Annual Report on Form 10-K filed with the
SEC on March 29, 2001
10.13* Change-in-Control Severance Agreement, dated February
26, 2001, between Ameriana Bank and Trust and Deborah
Bell - incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001
10.14* Change-in-Control Severance Agreement, dated February
26, 2001, between Ameriana Bank and Trust and Ronald
M. Holloway -- incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001
21 Subsidiaries
23 Consent of BKD, LLP
-------
* Management contract or compensation plan or arrangement
(b) REPORTS ON FORM 8-K. The Company did not file any Current Reports
-------------------
on Form 8-K during the fourth quarter of the fiscal year covered by this Report.
(c) EXHIBITS. The exhibits required by Item 601 of Regulation S-K are
--------
either filed as part of this Report or incorporated by reference herein.
(d) FINANCIAL STATEMENTS AND SCHEDULES EXCLUDED FROM ANNUAL REPORT.
------------------------------------------------------------------
There are no other financial statements and financial statement schedules
required by Regulation S-X which are excluded from the Annual Report to
Stockholders pursuant to Rule 14a-3(b)(1) which are required to be included
herein.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERIANA BANCORP
Date: March 25, 2002 By:/s/ Harry J. Bailey
------------------------------------
Harry J. Bailey
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.
By: /s/ Harry J. Bailey March 25, 2002
-------------------------------------------------
Harry J. Bailey
President, Chief Executive Officer
and Director
(Principal Executive Officer)
By: /s/ Richard E. Welling March 25, 2002
-------------------------------------------------
Richard E. Welling
Senior Vice President - Treasurer
(Principal Financial and Accounting Officer)
By: /s/ Paul W. Prior March 25, 2002
-------------------------------------------------
Paul W. Prior
Chairman of the Board and Director
By: /s/ Donald C. Danielson March 27, 2002
-------------------------------------------------
Donald C. Danielson
Director
By:
-------------------------------------------------
Charles M. Drackett, Jr.
Director
By: /s/ R. Scott Hayes March 27, 2002
-------------------------------------------------
R. Scott Hayes
Director
By: /s/ Michael E. Kent March 27, 2002
-------------------------------------------------
Michael E. Kent
Director
By:
-------------------------------------------------
Ronald R. Pritzke
Director