SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Quarter Ended: June 30, 2002 Commission File Number: 0-18392
- ---------------------
Ameriana Bancorp
Indiana 35-1782688
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
2118 Bundy Avenue, New Castle, Indiana 47362-1048
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code (765) 529-2230
--------------
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) 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 XX NO
-- --
As of August 14, 2002, there were issued and outstanding 3,147,463 shares of the
registrant's common stock.
AMERIANA BANCORP AND SUBSIDIARIES
CONTENTS
PART I - FINANCIAL INFORMATION Page No.
--------
ITEM 1 - Financial statements
Consolidated Condensed Balance Sheets
as of June 30, 2002 and December 31, 2001 . .. . . . . . . 3
Consolidated Condensed Statements of Operations for
the Three and Six Months Ended
June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Shareholders'
Equity for the six months ended June 30, 2002 . . . . . . 5
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 2002 and 2001. . . . . . 6
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3 - Quantitative and Qualitative Disclosure
About Interest Rate Risk . . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2
PART I - FINANCIAL INFORMATION
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2002 2001
(Unaudited)
------------ -----------
Assets
Cash on hand and in other institutions $ 7,733 $ 7,540
Interest-bearing demand deposits 10,791 4,283
--------- ---------
Cash and cash equivalents 18,524 11,823
Investment securities held for sale 111,593 140,629
Mortgage loans held for sale 598 5,290
Loans receivable 342,688 352,113
Allowance for loan losses (3,062) (1,730)
--------- ---------
Net loans receivable 339,626 350,383
Real estate owned 138 586
Premises and equipment 7,438 6,919
Stock in Federal Home Loan Bank 7,400 7,365
Mortgage servicing rights 1,121 1,012
Investments in unconsolidated affiliates 1,349 825
Goodwill 1,494 1,511
Cash surrender value of life insurance 18,449 18,035
Other assets 3,801 7,697
--------- ---------
Total assets $ 511,531 $ 552,075
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 21,328 $ 24,257
Interest-bearing 386,903 388,156
--------- ---------
Total deposits 408,231 412,413
Advances from Federal Home Loan Bank 54,763 87,653
Notes payable 840 930
Drafts payable 3,349 6,092
Advances by borrowers for taxes and insurance 275 662
Other liabilities 2,677 1,430
--------- ---------
Total liabilities 470,135 509,180
Commitments and Contingent Liabilities
Shareholders' equity:
Preferred stock (5,000,000 shares authorized;
none issued) -- --
Common stock ($1.00 par value; authorized
15,000,000 shares; issued shares:
3,147,463 and 3,146,616, respectively) 3,147 3,147
Additional paid-in capital 499 499
Retained earnings 37,489 39,945
Accumulated other comprehensive income 261 (696)
--------- ---------
Total shareholders' equity 41,396 42,895
--------- ---------
Total liabilities and shareholders' equity $ 511,531 $ 552,075
========= =========
See accompanying notes to consolidated condensed financial statements.
3
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Interest Income:
Interest and fees on loans $ 6,250 $ 7,526 $ 12,505 $ 15,543
Interest on mortgage-backed securities 529 189 2,273 407
Interest on investment securities 299 1,330 702 2,826
Other interest and dividend income 398 192 588 388
-------- -------- -------- --------
Total interest income 7,476 9,237 16,068 19,164
Interest Expense:
Interest on deposits 3,805 4,885 7,911 9,576
Interest on FHLB advances and other borrowings 970 1,358 2,108 3,286
-------- -------- -------- --------
Total interest expense 4,775 6,243 10,019 12,862
-------- -------- -------- --------
Net interest income 2,701 2,994 6,049 6,302
Provision for Loan Losses 150 90 1,400 180
-------- -------- -------- --------
Net interest income after provision for loan losses 2,551 2,904 4,649 6,122
Other Income:
Net loan servicing fees 39 52 85 109
Other fees and service charges 218 223 413 429
Brokerage and insurance commissions 265 248 533 508
Net gain (loss) on investments in unconsolidated affiliates 48 (52) (2) (88)
Gains on sales of loans and servicing rights 217 153 451 228
Loss on sale of investments -- -- (3,212) --
Increase in cash surrender value of life insurance 234 202 414 497
Other 166 44 228 88
-------- -------- -------- --------
Total other income 1,187 870 (1,090) 1,771
Other Expense:
Salaries and employee benefits 1,753 1,608 3,862 3,177
Net occupancy and equipment expense 410 347 798 707
Federal insurance premium 18 17 36 35
Data processing expense 96 67 216 136
Printing and office supplies 66 76 141 164
Amortization of intangible assets 9 44 17 88
Other 704 553 1,209 1,055
-------- -------- -------- --------
Total other expense 3,056 2,712 6,279 5,362
-------- -------- -------- --------
Income (loss) before income taxes 682 1,062 (2,720) 2,531
Income taxes 82 282 (1,270) 697
-------- -------- -------- --------
Net Income (Loss) $ 600 $ 780 $ (1,450) $ 1,834
======== ======== ======== ========
Basic Earnings (Loss) Per Share $ 0.19 $ 0.25 $ (0.46) $ 0.58
======== ======== ======== ========
Diluted Earnings (Loss) Per Share $ 0.19 $ 0.25 $ (0.46) $ 0.58
======== ======== ======== ========
Dividends Declared Per Share $ 0.16 $ 0.15 $ 0.32 $ 0.30
======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
4
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
2002
--------
Balances, January 1 $ 42,895
Net loss
(1,450)
Other comprehensive income 958
---------
Comprehensive loss
(492)
Dividends declared
(1,007)
---------
Balances, June 30 $ 41,396
=========
5
See accompanying notes to consolidated condensed financial statements.
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net income (loss) $ (1,450) $ 1,833
Items not requiring cash:
Provisions for losses on loans 1,400 180
Depreciation 304 304
Accretion/Amortization of securities (net) 34 163
Equity in (income) loss of unconsolidated subsidiaries (2) 89
Mortgage servicing rights amortization 85 87
Goodwill amortization 17 88
Losses (gains) on sales of real estate owned (48) 1
Loss on sale of investments 3,212 --
Increase in cash surrender value of life insurance (414) (497)
Mortgage loans originated for sale (30,659) (27,679)
Proceeds from sales of mortgage loans 35,608 26,189
Gains on sales of loans and servicing rights (451) (228)
Change in: -- --
Other assets 3,719 580
Drafts payable (2,743) (19)
Other liabilities 232 (494)
--------- ---------
Net cash provided by operating activities 8,844 597
INVESTING ACTIVITIES
Proceeds from calls of securities held to maturity -- 21,155
Principal collected on mortgage-backed securities held to maturity -- 1,562
Purchase of investment securities available for sale (130,901) --
Sale of investment securities available for sale 133,429 --
Proceeds from maturity of securities available for sale 6,350 --
Principal collected on securities available for sale 18,497 --
Net change in loans 9,425 24,338
Proceeds from sale of real estate owned 605 147
Net purchases of premises and equipment (823) (93)
Purchase of Federal Home Loan Bank stock (35) (52)
Other investing activities (522) (4)
--------- ---------
Net cash provided by investing activities 36,025 47,053
FINANCING ACTIVITIES
Net change in demand and passbook deposits (2,929) (3,864)
Net change in certificates of deposit (1,253) 18,937
Advances from Federal Home Loan Bank 20,812 17,500
Repayment of Federal Home Loan Bank advances (53,702) (82,398)
Repayment of notes payable (90) (690)
Cash dividends paid (1,006) (944)
--------- ---------
Net cash used by financing activities (38,168) (51,459)
--------- ---------
Change in cash and cash equivalents 6,701 (3,809)
Cash and cash equivalents at beginning of period 11,823 19,031
--------- ---------
Cash and cash equivalents at end of period $ 18,524 $ 15,222
========= =========
Supplemental information:
Interest paid $ 7,988 $ 12,884
Income taxes paid 290 100
See accompanying notes to consolidated condensed financial statements.
6
AMERIANA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- ----------------------------------------------------
(Table dollar amounts in thousands, except share data)
NOTE A - - BASIS OF PRESENTATION
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"). 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 and a title insurance company. The title insurance
company, Indiana Title Insurance Company, LLC, was acquired in the first quarter
of 2002. 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 unaudited interim consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments (comprised only of
normal recurring adjustments and accruals) necessary to present fairly the
Company's financial position and results of operations and cash flows. The
results of operations for the period are not necessarily indicative of the
results to be expected in the full year. A summary of the Company's significant
accounting policies is set forth in Note 1 of Notes to Consolidated Financial
Statements in the Company's annual report on Form 10-K for the year ended
December 31, 2001.
The consolidated condensed balance sheet of the Company as of December 31, 2001
has been derived from the audited consolidated balance sheet of the Company as
of that date. Reclassifications of certain amounts in 2001 consolidated
financial statements have been made to conform to the 2002 presentations.
7
NOTE B - - SHAREHOLDERS' EQUITY
On May 23, 2002, the Board of Directors declared a quarterly cash dividend of
$.16 per share. This dividend, totaling $503,594, was accrued for payment to
shareholders of record on June 14, 2002, and was paid on July 5, 2002. Total
year-to-date dividends declared are $1,007,188. Payment was made to 3,147,463
shareholders, the same as at March 31, 2002. Stock options totaling 9,713 shares
were exercised during the first quarter of 2002 with 8,866 shares retired as
part of the same transaction.
The Company's net income decreased $180,000 or 23.08%, to $600,000 ($0.19 basic
and diluted earnings per share) for the quarter ended June 30, 2002, compared to
net income of $780,000 ($0.25 basic and diluted earnings per share) for the same
period in 2001. The year-to-date net income decreased $3,284,000 or 179.06%, for
a loss of $1,450,000 ($0.46 loss per basic and diluted earnings per share) for
the six months ended June 30, 2002, compared to net income of $1,834,000 ($0.58
basic and diluted earnings per share) for the same period in 2001.
Earnings per share were computed as follows:
(In thousands, except share data)
Three Months Ended June 30,
---------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Income Weighted Average Per Share Income Weighted Average Per Share
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to
Common shareholders $600 3,147,463 $0.19 $780 3,146,616 $0.25
Effect of dilutive stock options -- 7,930 -- 264
- -----------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Income available to
common shareholders and
assumed conversions $600 3,155,393 $0.19 $780 3,146,880 $0.25
- -----------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
-------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) Weighted Average Per Share Income Weighted Average Per Share
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) per Share:
Income available to
Common shareholders ($1,450) 3,146,616 ($0.46) $1,834 3,146,616 $0.58
Effect of dilutive stock options -- 6,585 -- 210
- -----------------------------------------------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share:
Income available to
common shareholders and
assumed conversions ($1,450) 3,153,201 ($0.46) $1,834 3,146,826 $0.58
- -----------------------------------------------------------------------------------------------------------------------
At June 30, 2002 there were options on 207,537 shares that could dilute earnings
per share in the future which were not included in the above computations
because they were antidilutive.
8
AMERIANA BANCORP AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
This Quarterly Report on Form 10-Q ("Form 10-Q") may contain statements, which
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company primarily with respect to
future events and future financial performance. Readers of this Form 10-Q are
cautioned that any such forward looking statements are not guarantees of future
events or performance and involve risks and uncertainties, and that actual
results may differ materially from those in the forward looking statements as a
result of various factors. The accompanying information contained in this Form
10-Q identifies important factors that could cause such differences. These
factors include changes in interest rates; loss of deposits and loan demand to
other financial institutions; substantial changes in financial markets; changes
in real estate values and the real estate market or regulatory changes.
The largest components of the Company's total revenue and total expenses are
interest income and interest expense, respectively. Consequently, the Company's
earnings are primarily dependent on its net interest income, which is determined
by (i) the difference between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities ("interest rate spread"),
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. Levels of other income and operating expenses also significantly
affect net income.
Management believes that interest rate risk, i. e., the sensitivity of income
and net asset values to changes in interest rates, is one of the most
significant determinants of the Company's ability to generate future earnings.
Accordingly, the Company has implemented a long-range plan intended to minimize
the effect of changes in interest rates on operations. The asset and liability
management policies of the Company are designed to stabilize long-term net
interest income by managing the repricing terms, rates and relative amounts of
interest-earning assets and interest-bearing liabilities.
On March 19, 2002, the Company announced that it had changed the accounting
classification for its investment portfolio from "Held to Maturity" to
"Available for Sale", effective as of December 31, 2001. The change in
accounting stems from the Company's review of its investment portfolio and the
determination that recent deterioration in the markets has fundamentally changed
the interest rate risk characteristics of these investments and increased the
Company's exposure to volatility in future interest income.
The Company's investment portfolio totaled approximately $142 million as of
December 31, 2001. Since the change in classification for these investments as
"Available for Sale" was effective as of December 31, 2001, the Company reduced
shareholders' equity by the difference between fair value and book value on its
investment portfolio as of that date, net of tax. The amount of this charge to
shareholders' equity was approximately $700,000, or a $0.22 reduction in
year-end book value per share. The Company's total shareholders' equity as of
December 31, 2001, adjusted for this unrealized depreciation of its "Available
for Sale" investment portfolio at that date, was approximately $42.9 million,
representing a book value of $13.63 per share. Total assets at year-end 2001
stood at $552 million, including almost $350 million in traditional residential
mortgages and consumer or commercial loans.
9
Critical Accounting Policies
- ----------------------------
The notes to the consolidated financial statements contain a summary of the
Company's significant accounting policies presented in the annual report for
fiscal year 2001. Certain of these policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Management believes that it's critical accounting
policies include determining the allowance for loan losses ("ALL"), and the
valuation of mortgage servicing rights, ("MSR's").
Allowance for Loan Losses
- -------------------------
The ALL is a significant estimate that can and does change based on Management's
assumptions about specific borrowers and applicable economic and environmental
conditions, among other factors. Management reviews the adequacy of the ALL on
at least a quarterly basis. This review is based on four components: specific
identified risks or anticipated losses in individual loans, a percentage factor
based on the type of loan and the risk rating assigned to the credit, growth or
shrinkage in the overall portfolio and managements' analysis of overall economic
conditions such as employment, bankruptcy trends, property value changes and
change in delinquency levels.
Credits are evaluated individually based on degree of delinquency and/or
identified risk ratings of special mention or worse. Credits with delinquency
levels of less than 60 days and risk ratings of satisfactory or better are
reviewed in the aggregate. Percentage factors applied to individual credits are
based on risk rating, the type of credit and estimated potential losses in the
event liquidation becomes necessary. Percentage factors applied to loans
reviewed in the aggregate are based solely on the type of credit. Anticipated
losses on other real estate owned are recognized immediately upon recording the
asset.
The ALL may also include a component based on management's assumptions of
changes in risk in non-qualified areas such as market conditions, property
values, employment conditions and perceived changes in overall portfolio quality
due to changes in concentration, underwriting changes and both national and
regional trends.
External factors such as increases in unemployment, regional softness in
property values, increasing national numbers in bankruptcy, unsecured
delinquency and charge-offs and internal factors such as the continuing increase
in the commercial real estate loan portfolio may result in larger losses in
current economic conditions.
Changes in concentration, delinquency and portfolio are addressed through the
variation in percentages used in calculating the reserve for various types of
credit as well as individual review of "high risk" credits and large loans.
Valuation of Mortgage Servicing Rights
- --------------------------------------
The Company recognizes the rights to service mortgage loans as a separate asset.
MSR's 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 agreement. MSR's are subsequently carried at the lower of the initial
carrying value, adjusted for amortization, or fair value. MSR's are evaluated
for impairment based on the fair value of those rights. Capitalized servicing
rights, which include purchased servicing rights, are amortized over the
estimated period of net servicing revenue. It is unlikely that the economic
factors will change over the life of the MSR's, resulting in different
valuations of the MSR's. The differing valuations would affect the carrying
value of the MSR's on the balance sheet as well as the income recorded from loan
servicing in the income statement. As of June 30, 2002 and December 31, 2001,
MSR's had carrying values of $1,121,000 and $1,012,000 respectively.
10
RESULTS OF OPERATIONS
- ---------------------
For the first six months of 2002, the Company incurred a net loss totaling
$1,450,000 or $0.46 per diluted share compared with net income of $1,834,000 or
$0.58 per diluted share in the year-earlier period. This loss largely reflected
charges in the first quarter of the year related to the liquidation of its
investment portfolio and the increase in reserves for loan losses. Net interest
income for the first six months was $6,049,000 versus $6,302,000 in the
comparable period last year, while the provision for loan losses amounted to
$1,400,000 compared with $180,000 in the year-earlier period.
The Company restructured its investments before the end of the first quarter of
2002. The loss on disposition of these securities was approximately $3,212,000,
or approximately $1,900,000 after tax or $0.61 per diluted share. However,
consistent with accounting principles for "Available for Sale" securities, the
Company will record the after-tax difference between fair value and book value
on its remaining investment portfolio as a charge or credit to shareholders'
equity each quarter. Because of the liquidation of most of its investments
during the first quarter of 2002 and the current market value of its remaining
investment portfolio, the reduction in equity recorded at December 31, 2001, was
largely reversed in the first quarter of 2002. The funds from the investments
liquidation were subsequently reinvested in instruments that are thought to be
less interest-rate sensitive, or were used to pay down a portion of funds
borrowed from the Federal Home Loan Bank.
During the first six months of 2002, loan production increased $11,997,000 or
15.61% compared to the first six months of 2001 for a total year-to-date loan
production of $88,868,000. Mortgage loan production, which accounted for
$6,669,000 of the increase in loan production, consisted of fixed rate loans
that are normally sold to the secondary market. Loans sold during the first six
months of 2002 were $35,351,000 compared to $26,064,000 sold in the first six
months of the prior year. The total outstanding loans decreased $9,425,000 or
2.68% during the first six months to $342,688,000 at June 30, 2002, from
$352,113,000 at December 31, 2001. The mortgage loans held for sale decreased to
$598,000 at June 30, 2002, from $5,290,000 at December 31, 2001. See comments in
other income section for detail of gains on loans sold.
The net interest spread (difference between yield on interest-earning assets and
cost on interest-bearing liabilities) decreased 25 basis points during the
second quarter 2002 compared to the second quarter 2001. The change is due to a
decrease in yield of 1.58% on average interest-earning assets offset by a 1.33%
reduction in the cost of interest-bearing average liabilities. The Company's
decrease in the net interest spread for the second quarter was due primarily to
lower interest income from investments following the liquidation of its
investment portfolio and the delay involved in reinvesting those proceeds into
less interest-rate sensitive investments. The redeployment of those proceeds was
delayed due to the Company's desire to invest cautiously so as to avoid any
unnecessary exposure to rising interest rates, and to minimize the volatility in
future interest income. The net interest spread decreased 8 basis points during
the first six months of 2002 compared to the same period in 2001. Overall, the
change in yields and cost of funds for 2002 is the result of general reductions
in interest rates during 2001.
11
The following table summarizes the Company's average net interest-earning assets
and average interest-bearing liabilities with the accompanying average rates for
the second quarter and first six months of 2002 and 2001:
(Dollars in Thousands)
----------------------
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------
2002 2001 2002 2001
Interest-earning assets $490,277 $481,182 $ 497,958 $492,634
Interest-bearing liabilities 457,273 453,230 $ 464,784 $463,179
---------------------------------- -----------------------------
Net interest-earning assets $ 33,004 $ 27,952 $33,174 $ 29,455
================================== =============================
Average yield on/cost of:
Interest-earning assets 6.12% 7.70% 6.51% 7.84%
Interest-bearing liabilities 4.19% 5.52% 4.35% 5.60%
================================== =============================
Net interest spread 1.93% 2.18% 2.16% 2.24%
================================== =============================
Net interest income for the second quarter of 2002 was $2,701,000 for a decrease
of $293,000 or 9.79% compared to $2,994,000 recorded during the first quarter of
2001. This decrease is due to lower interest income partially offset by lower
interest expense. The $1,760,000 decrease in interest income on average
interest-earning assets is a combination of an increase of $2,382,000 because of
the increase in higher average balances less $4,142,000 due to lower rates. The
decrease of $1,467,000 in cost of interest-bearing liabilities is a combination
of an increase of $1,357,000 from higher average balances less $2,824,000 from
lower rates. The net interest margin ratio, which is net interest income divided
by average earning assets, decreased to 2.21% for the second quarter 2002
compared to 2.50% for the second quarter of 2001.
Net interest income for the first six months of 2002 was $6,049,000 for a
decrease of $253,000 or 4.01% compared to $6,302,000 recorded during the same
period in 2001. This decrease is due to lower interest income partially offset
by lower interest expense. The $3,097,000 decrease in interest income on average
interest-earning assets is a combination of an increase of $1,134,000 because of
the increase in higher average balances less $4,231,000 due to lower rates. The
decrease of $2,844,000 in cost of interest-bearing liabilities is a combination
of an increase of $1,077,000 from higher average balances less $3,921,000 from
lower rates. The net interest margin ratio, which is net interest income divided
by average earning assets, decreased to 2.45% for the first six months of 2002
compared to 2.58% for the same period in 2001.
The following table sets forth the details of the rate and volume change for the
three and six months ended June 30 2002 compared to the same period in 2001.
(Dollars in Thousands)
----------------------
Three Months Ended June 30, Six Months Ended June 30,
2002 vs 2001 2002 vs 2001
-------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
-------------------------------- --------------------------------
Volume Rate Net Change Volume Rate Net Change
------- ------- ---------- ------- ------- ----------
Interest Income:
Loans $ (689) $ (587) $(1,276) $(1,593) $(1,445) $(3,038)
Other interest-earning assets 3,071 (3,555) (484) 2,727 (2,786) (59)
------- ------- ------- ------- ------- -------
Total interest-earning assets 2,382 (4,142) (1,760) 1,134 (4,231) (3,097)
------- ------- ------- ------- ------- -------
Interest Expense:
Deposits 1,659 (2,739) (1,080) 2,080 (3,745) (1,665)
FHLB advance and other loans (302) (85) (387) (1,003) (176) (1,179)
------- ------- ------- ------- ------- -------
Total interest-bearing 1,357 (2,824) (1,467) 1,077 (3,921) (2,844)
liabilities
Change in net interest income $ 1,025 $(1,318) $ (293) $ 57 $ (310) $ (253)
======= ======= ======= ======= ======= =======
12
The following table summarizes the Company's non-performing assets at:
June 30, December 31,
2002 2001
-------- ------------
Loans:
Non-accrual $ 10,236 $ 2,178
Restructured Loans - -
Over 90 days delinquent 760 395
Real estate owned 138 125
-------- -------
Total $ 11,134 $ 2,698
======== =======
The Company's non-performing assets decreased $29,000 in the second quarter
2002, and increased $8,436,000 year to date. Because of this, and as a
precautionary move reflecting recent weakness in the general economy, the
Company strengthened its reserve for loan losses by $1,250,000 during the first
quarter 2002 and an overall increase of $1,400,000 year-to-date. The Company
took this action even though none of the underlying loans or leases related to
the additional charge have been written off.
The increase in non-performing loans as of June 30, 2002 is primarily due to one
commercial real estate loan with an outstanding balance of $2,233,000 and one
lease receivables pool with an outstanding balance of $5,598,482.
The commercial loan is for a condominium project in Bloomington, Indiana and is
collateralized both by the subject real estate and personal guarantees of the
borrowers.
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 or 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 June 30, 2002 on this lease pool totaled $ 5,389,839. The second
lease pool is past due since January 20, 2002. At June 30, 2002, the outstanding
balance of this pool totaled $5,598,482. The Company believes the surety bonds
on all of the leases provided adequate collateral in the event individual leases
default. However, the Company has filed suit against the surety bond company
responsible for the past due lease receivable. Subsequent to filing its suit,
the Bank was served in a declaratory judgment action filed by the surety company
in a California federal court seeking a declaration that the surety is not
liable on the lease bonds due to fraud committed by the leasing company. The
Bank's suit has been removed to federal court and transferred to California. The
federal multi-district litigation panel has now assumed control of the
litigation. The Bank has been advised that the surety on the other pool has also
filed for a declaration that it is not liable on its lease bonds. The Bank,
however, has not been served in this suit.
The total provision for loan losses was $150,000 during the second quarter of
2002 compared to $90,000 during the same period in 2001. First quarter 2002 had
net charge-offs (charge-offs less recoveries) of $47,000 compared to net
charge-offs of $11,000 for the second quarter 2001.
The total provision for loan losses was $1,400,000 during the first six months
of 2002 compared to $180,000 during the same period in 2001. The first six
months of 2002 had net charge-offs of $68,000 compared to net charge-offs of
$6,000 for the same period in 2001.
13
Management believes the allowance for loan losses is adequate and that
sufficient provision has been provided to absorb any losses which may ultimately
be incurred on non-performing loans and the remainder of the portfolio. The
allowance for loan losses as a percentage of loans was 0.89% and 0.49% at June
30, 2002 and December 31, 2001, respectively.
Total other income increased $317,000 to $1,187,000 for the second quarter 2002
from $870,000 in the same period during 2001. Total other income decreased
$2,861,000 for a loss of $1,090,000 for the first six months of 2002 from
$1,771,000 in the same period during 2001. The main reason for the year-to-date
decrease is the loss on the sale of investment securities in the first quarter
2002 of $3,212,000. Sales of loans to the secondary market increased and the
$217,000 gain on these sales and servicing rights in the second quarter 2002 was
up from $153,000 in 2001. Increase in the cash surrender value of life insurance
was up $32,000 for the second quarter 2002 compared to the prior period. The
adjustments are necessary to reflect the cash surrender values for policies. Net
gain (loss) on investments in unconsolidated affiliates increased $100,000 to
$48,000 in the second quarter compared to the prior period. The main cause of
the increase was $40,000 in pre-tax income earned from the Company's share of
ITIC, LLC's net income. ITIC, LLC was acquired in the first quarter 2002.
Total other expense increased $344,000, or 12.68%, in the second quarter 2002 to
$3,056,000 from $2,712,000 for the same period in 2001. Total other expense
increased $917,000, or 17.10%, for the first six months of 2002 to $6,279,000
from $5,362,000 for the same period in 2001. Salary and benefits expense is the
main reason for the increases. Salary and benefits expense for the second
quarter 2002 was up $145,000, or 9.02%, to $1,753,000 from $1,608,000 in the
same period during 2001. Salary and benefits expense for the first six months of
2002 was up $685,000, or 21.56%, to $3,862,000 from $3,177,000 in the same
period during 2001. Severance pay of $289,350 in the first quarter 2002,
increased staffing, merit pay adjustments, and pension costs are the main
reasons for the increases. Other factors that caused the increase in expense in
the second quarter were annual meeting expenses, and higher audit and legal
expenses in the second quarter than the prior periods.
FINANCIAL CONDITION
- -------------------
The Company's principal sources of funds are cash generated from operations,
deposits, loan principal repayments and advances from the Federal Home Loan Bank
("FHLB"). As of June 30, 2002, the Company's cash and interest-bearing time
deposits totaled $18,524,000, or 3.62%, of total assets. The Company's cash and
interest-bearing time deposits increased 6,701,000 from December 31, 2001.
The regulatory minimum net worth requirement of 8% for ABT under the most
stringent of the three capital regulations (total risk-based capital to
risk-weighted assets) at June 30, 2002, was $26,077,000. At June 30, 2002,
Ameriana had total risk-based capital of $42,680,000 and a 13.09% ratio. The
Company's tier 1 capital ratio was 7.50% at June 30, 2002, which exceeded the
regulatory minimum required tier 1 capital ratio of 4.00%.
At June 30, 2002, the Company's commitments for loans in process totaled
$25,611,000, with the majority being for real estate secured loans. Management
believes the Company's liquidity and other sources of funds will be sufficient
to fund all outstanding commitments and other cash needs.
14
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT INTEREST RATE RISK
The Asset/Liability Committee and the Board of Directors reviews the Company'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 in mortgage loans and certain
types of callable investments. These computations do not contemplate any actions
management may undertake to reposition the assets and liabilities in response to
changes in the interest rate, 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.
The model used to prepare the interest rate risk assessment as of June 30, 2002
was a different model from the one used as of June 30, 2001. Both models
provided very similar results and used similar methodologies. The contract for
the model used as of June 30, 2001 expired on June 1, 2002. Management opted not
to renew the contract in favor of using another model it already owned.
Presented below is the assessment of the risk of NPV in the event of sudden and
sustained 200 basis point increases and decreases in prevailing interest rates
as of June 30, 2002 using the new model.
- -----------------------------------------------------------------------------------------------------
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* $31,936 $ -11,331 -26.19% 6.49% -198 bp*
Base or 0% 43,267 8.47
- -200 bp* 42,711 -556 -1.29% 8.23 -24 bp*
- -----------------------------------------------------------------------------------------------------
* basis points
15
Presented below is the assessment of the risk of NPV in the event of sudden and
sustained 200 basis point increases and decreases in prevailing interest rates
as of June 30, 2001 using the previous model.
- -----------------------------------------------------------------------------------------------------
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* $31,839 $ -10,518 -24.83% 6.59% -178 bp*
Base or 0% 42,357 8.37
- -200 bp* 38,965 -3,392 -8.01% 7.55 -82 bp*
- -----------------------------------------------------------------------------------------------------
* basis points
16
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
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" is effective for the
Company in 2002, 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.
OTHER
- -----
The Securities and Exchange Commission ("SEC") maintains reports, proxy
information, statements and other information regarding registrants that file
electronically with the SEC, including the Company. The address is
(http://www.sec.gov).
17
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
-----------------
Not Applicable
ITEM 2 - Changes in Securities
---------------------
Not Applicable
ITEM 3 - Defaults in Senior Securities
-----------------------------
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On May 23, 2002, the Company held its 2002 annual meeting of
shareholders. A total of 2,659,543 shares, representing 84.5% of the
total outstanding shares, were present in person or by proxy at the
meeting, constituting a quorum.
Three Directors were nominated by the Company's Board of Directors to
serve new three-year terms. The nominees and the voting results for
each are listed below:
For Withheld
--------- --------
Harry J. Bailey 2,613,416 98.30% 46,127 1.7%
Charles M. Drackett, Jr. 2,637,570 99.20% 21,973 0.8%
Ronald R. Pritzke 2,637,570 99.20% 21,973 0.8%
The following Directors, whose three-year terms of service have not
expired, continue as Directors of the Company:
Paul W. Prior, Donald C. Danielson, R. Scott Hayes, and Michael E.
Kent.
The Shareholders ratified the appointment of BKD, LLP as auditors for
the Company for the fiscal year ended December 31, 2002. A total of
2,646,557 votes (99.5%) in favor, 9,840 votes (0.4%) against, and
3,146 (0.1%) abstained from voting on the proposal.
ITEM 5 - Other Information
-----------------
Regulatory Actions
------------------
During the second quarter of 2002, Ameriana Bank and Trust, SB (the
"Bank") entered into a memorandum of understanding (the "MOU") with
the Federal Deposit Insurance Corporation (the "FDIC") and the Indiana
Department of Financial Institutions (the "DFI"). Among other things,
the MOU contemplates that the Bank will adopt written action plans
with respect to each classified asset in excess of $100,000, revise
its lending policies in accordance with examiner recommendations,
require greater financial
18
information from borrowers, establish a loan review program, document
Board review of the adequacy of loan losses, formulate a plan for
improving the Bank's profitability, review staffing needs with
particular emphasis on loan administration, strengthen certain
internal controls and audit coverage and address other regulatory
compliance issues raised in the most recent examination report by the
FDIC and DFI. While the MOU is in effect, the Bank must maintain Tier
1 Capital at or above 7% of assets. In the event Tier 1 Capital falls
below 7% as of June 30 or December 31 of any calendar year, the Bank
must present a plan for augmenting capital to the FDIC and DFI within
30 days thereafter. The bank must submit progress reports to the FDIC
and DFI within 30 days after the end of each calendar quarter.
The Federal Reserve has advised that it intends to request that the
Company's Board of Directors adopt resolutions providing that the
Company will not cause the Bank to pay dividends if its Tier 1 Capital
would be less than 7% thereafter, that the company will not incur
additional debt without prior Federal Reserve approval, and that the
Company will not purchase any treasury stock. The resolutions would
remain in effect until the MOU is lifted.
The Company believes that the Company and the Bank have taken all
actions specified in The MOU and Board resolutions within the
timeframes and are in compliance therewith. The Company does not
believe the MOU or Board resolutions will materially affect the
operations of the Company or Bank. A failure to comply with either the
MOU or resolutions could lead to the initiation of formal enforcement
action by the FDIC, DFI and the Federal Reserve.
ITEM 6 - Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits.
The following exhibits are filed with this report:
No. Description
-- -----------
99.1 Certification Under Section 906 of Sarbanes-Oxley Act of
2002
99.2 Certification Under Section 906 of Sarbanes-Oxley Act of
2002
b. Current Reports on Form 8-K
---------------------------
On April 22,2002, the Company filed a Current Report on Form 8-K
reporting under Item 5 that Bradley L. Smith had been named the
Company's Senior Vice President - Treasurer replacing Richard
Welling who had resigned to pursue other interests. No financial
statements were filed with this report.
19
SIGNATURES
AMERIANA BANCORP AND SUBSIDIARIES
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: August 14, 2002 /s/ Harry J. Bailey
--------------- ---------------------------------
Harry J. Bailey
President and
Chief Executive Officer
(Duly Authorized Representative)
DATE: August 14, 2002 /s/ Bradley L. Smith
--------------- ---------------------------------
Bradley L. Smith
Senior Vice President-Treasurer
(Principal Financial Officer
and Accounting Officer)
20