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: March 31, 2003 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
-- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 15, 2003, there were issued and outstanding 3,148,288 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 March 31, 2003 and December 31, 2002. . . . . . . . . . 3
Consolidated Condensed Statements of Operations for
the three months ended March 31, 2003 and 2002 . . . . . . . . 4
Consolidated Condensed Statement of Shareholders' Equity
for the three months ended March 31, 2003. . . . . . . . . . . 5
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 2003 and 2002 . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements . . . . . 7
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3 - Quantitative and Qualitative Disclosure
About Market Risk . . . . . . . . . . . . . . . . . . . 17
ITEM 4 - Controls and Procedures . . . . . . . . . . . . . . . . . . . 18
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES AND CERTFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . 20
2
PART I - FINANCIAL INFORMATION
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
March 31 December 31,
2003 2002
(Unaudited)
----------- ----------
Assets
Cash on hand and in other institutions $ 8,683 $ 7,481
Interest-bearing demand deposits 21,519 38,215
--------- ---------
Cash and cash equivalents 30,202 45,696
Investment securities available for sale 105,852 58,155
Mortgage loans available for sale 1,918 3,825
Loans receivable 297,970 313,252
Allowance for loan losses (8,631) (8,666)
--------- ---------
Net loans receivable 289,339 304,586
Real estate owned 582 489
Premises and equipment 7,831 7,901
Stock in Federal Home Loan Bank 6,768 6,759
Mortgage servicing rights 1,266 1,197
Investments in unconsolidated affiliates 1,510 1,583
Goodwill 1,291 1,291
Cash surrender value of life insurance 19,146 18,932
Deferred Taxes 2,556 2,611
Other assets 3,731 3,782
--------- ---------
Total assets $ 471,992 $ 456,807
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 21,398 $ 19,124
Interest-bearing 395,282 383,063
--------- ---------
Total deposits 416,680 402,187
Advances from Federal Home Loan Bank 5,289 5,592
Notes payable 750 840
Drafts payable 4,739 5,099
Advances by borrowers for taxes and insurance 562 380
Other liabilities 4,476 3,669
--------- ---------
Total liabilities 432,496 417,767
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock (5,000,000 shares authorized;
none issued) -- --
Common stock ($1.OO par value; authorized
15,000,000 shares; issued shares:
3,148,288 and 3,147,463, respectively) 3,148 3,147
Additional paid-in capital 506 499
Retained earnings 35,107 34,856
Accumulated other comprehensive income 735 538
--------- ---------
Total shareholders' equity 39,496 39,040
--------- ---------
Total liabilities and shareholders' equity $ 471,992 $ 456,807
========= =========
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 March 31,
----------------------------
2003 2002
------- -------
Interest Income:
Interest and fees on loans $ 5,470 $ 6,255
Interest on mortgage-backed securities 244 1,744
Interest on investment securities 212 403
Other interest and dividend income 262 190
------- -------
Total interest income 6,188 8,592
Interest Expense:
Interest on deposits 2,958 4,106
Interest on FHLB advances and other borrowings 102 1,137
------- -------
Total interest expense 3,060 5,243
------- -------
Net interest income 3,128 3,349
Provision for Loan Losses 150 1,250
------- -------
Net interest income after provision for loan losses 2,978 2,099
Other Income:
Net loan servicing fees (29) 46
Other fees and service charges 282 195
Brokerage and insurance commissions 250 268
Net loss on investments in unconsolidated affiliates (49) (50)
Gains on sales of loans and servicing rights 483 234
Gain (loss) on sale of investments 40 (3,212)
Increase in cash surrender value of life insurance 214 180
Other 5 61
------- -------
Total other income 1,196 (2,278)
Other Expense:
Salaries and employee benefits 2,006 2,109
Net occupancy and equipment expense 397 387
Federal insurance premium 49 18
Data processing expense 69 120
Printing and office supplies 53 75
Amortization of intangible assets 8 8
Other 639 506
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Total other expense 3,221 3,223
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Income (loss) before income taxes 953 (3,402)
Income taxes 198 (1,352)
------- -------
Net Income (Loss) $ 755 $(2,050)
======= =======
Basic Earnings (Loss) Per Share $ 0.24 $ (0.65)
======= =======
Diluted Earnings (Loss) Per Share $ 0.24 $ (0.65)
======= =======
Dividends Declared Per Share $ 0.16 $ 0.16
======= =======
See accompanying notes to consolidated condensed financial statements.
4
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
2003
--------
Balances, January 1 $ 39,040
Net income 755
Other comprehensive income 197
--------
Comprehensive income 952
Exercise of stock options 8
Dividends declared (504)
--------
Balances, March 31 $ 39,496
========
See accompanying notes to consolidated condensed financial statements.
5
AMERIANA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended Mar 31,
--------------------------
2003 2002
--------- ---------
Operating Activities
Net income (loss) $ 755 $ (2,050)
Items not requiring (providing) cash
Provision for losses on loans 150 1,250
Depreciation and amortization 362 89
Increase in cash surrender value (214) (180)
Mortgage loans originated for sale (34,266) (24,633)
Proceeds from sale of mortgage loans 36,441 26,964
Gains on sale of loans and servicing rights (483) (234)
Loss (Gain) on sale of investments (40) 3,212
Increase (decrease) in drafts payable (360) (2,929)
Other adjustments 1,259 6,479
--------- ---------
Net cash provided by operating activities 3,604 7,968
Investing Activities
Purchase of investment securities available for sale (72,015) (69,453)
Proceeds from sale of investment securities available for sale 20,604 138,428
Principal collected on mortgage-backed securities available for sale 3,809 17,631
Net change in loans 14,946 9,019
Net purchases of premises and equipment (95) (312)
Purchase of Federal Home Loan Bank stock (9) (17)
Other investing activities 58 (337)
--------- ---------
Net cash provided by (used in) investing activities (32,702) 94,959
Financing Activities
Net change in demand and passbook deposits 3,146 (2,659)
Net change in certificates of deposit 11,347 16,221
Proceeds from borrowings -- 17,500
Repayment of borrowings (393) (47,846)
Purchase of common stock -- (137)
Exercise of stock options 8 137
Cash dividends paid (504) (504)
--------- ---------
Net cash provided by (used in) financing activities 13,604 (17,288)
--------- ---------
Change in Cash and Cash Equivalents (15,494) 85,639
Cash and Cash Equivalents at Beginning of Year 45,696 11,823
--------- ---------
Cash and Cash Equivalents at End of Year $ 30,202 $ 97,462
========= =========
Supplemental information:
Interest paid $ 1,542 $ 2,331
Income taxes paid 750 123
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 (the "Bank"). At the same time, the Company contributed
Ameriana Insurance Agency, Inc. ("AIA") to the Bank. AIA operates a general
insurance agency in three locations. The Bank has a brokerage operation through
its wholly owned subsidiary Ameriana Financial Services, Inc. ("AFS"). AFS also
owns a partial interest in a life insurance company and a title 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. In 2003, the Company formed Ameriana Investment
Management, Inc ("AIMI"), a wholly owned subsidiary of the Bank, which holds and
manages investments for the Bank.
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, 2002.
The consolidated condensed balance sheet of the Company as of December 31,
2002 has been derived from the audited consolidated balance sheet of the Company
as of that date.
7
NOTE B - - SHAREHOLDERS' EQUITY
On February 24, 2003, the Board of Directors declared a quarterly cash
dividend of $.16 per share. This dividend, totaling $504,000, was accrued for
payment to shareholders of record on March 14, 2003, and was paid on April 4,
2003. Payment was made for 3,148,288 shares compared to 3,147,463 in the
previous quarter. Stock options totaling 825 shares were exercised during the
first quarter of 2003.
The Company's net income increased $2,805,000 to $755,000 ($0.24 basic and
diluted earnings per share) for the quarter ended March 31, 2003, compared to a
loss of $2,050,000 ($0.65 loss per basic and diluted share) for the same period
in 2002.
Earnings per share were computed as follows:
(In thousands, except share data)
Three Months Ended March 31,
- -----------------------------------------------------------------------------------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Income Average Per Share Income Average Per Share
(Loss) Shares Amount (Loss) Shares Amount
- ----------------------------------------------------------------------- ------------------------------------
Basic Earnings (Loss) per Share:
Income available to Common shareholders $755 3,147,784 $0.24 $(2,050) 3,147,463 $(0.65)
===== ======
Effect of dilutive stock options -- 200 -- 5,239
--------------------- -----------------------
Diluted Earnings (Loss) Per Share: Income
available to common shareholders and
assumed conversions $755 3,147,984 $0.24 $(2,050) 3,152,702 $(0.65)
====================================================================
At March 31, 2003, options to purchase 197,197 shares were excluded from the
computation of diluted earnings per share because the options' exercise price
was greater than or equal to the average market price of common shares.
8
NOTE C - - Effect of Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") adopted Statement of
Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. This Statement amends FASB Statement
No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require more
prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation.
Under the provisions of SFAS No. 123, companies that adopted the fair value
based method were required to apply that method prospectively for new stock
option awards. This contributed to a "ramp-up" effect on stock-based
compensation expense in the first few years following adoption, which caused
concern for companies and investors because of the lack of consistency in
reported results. To address that concern, SFAS No. 148 provides two additional
methods of transition that reflect an entity's full complement of stock-based
compensation expense immediately upon adoption, thereby eliminating the ramp-up
effect.
SFAS No. 148 also improves the clarity and prominence of disclosures about
the proforma effects of using the fair value based method of accounting for
stock-based compensation for all companies - regardless of the accounting method
used - by requiring that the data be presented more prominently and in a more
user-friendly format in the footnotes to the financial statements. In addition,
SFAS No. 148 improves the timeliness of those disclosures by requiring that this
information be included in interim as well as annual financial statements. In
the past, companies were required to make proforma disclosures only in annual
financial statements.
The transition guidance and annual disclosure provisions of SFAS No. 148
are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002.
No options were issued in the first quarter of 2003 or the first quarter of
2002. Generally options vest upon grant.
The FASB has stated it intends to issue a new statement on accounting for
stock-based compensation and will require companies to expense stock options
using a fair value based method at date of grant. The implementation for this
proposed statement is not known.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 will change current
practice in the accounting for and disclosure of guarantees. Guarantees meeting
the characteristics described in FIN 45 are required to be initially recorded at
fair value, which is different from the general current practice of recording a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also
requires a guarantor to make new disclosures for virtually all guarantees even
if the likelihood of the guarantor's having to make payments under the guarantee
is remote.
In general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying asset, liability, or an equity security of the
guaranteed party such as financial standby letters of credit.
Disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 31, 2002. The initial
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The guarantor's previous accounting for guarantees
issued prior to the date of FIN 45 initial applications should not be revised or
restated to reflect the provisions of FIN 45.
The Company adopted FIN 45 on January 1, 2003. The adoption of FIN 45 does
not currently have a material impact on the Company's consolidated financial
statements.
9
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.
Agreement to Sell Ohio Branches
- -------------------------------
On April 7, 2003, the Company announced that it has agreed to sell its two
Cincinnati-area branches to Peoples Community Bancorp, Inc. (NASDAQ/NM: PCBI) of
West Chester, Ohio for an expected after-tax gain of $2.7 million or $0.86 per
diluted share. The two branches are located in Deer Park and Landen, Ohio.
In the sale Ameriana will convey all consumer and commercial loans of
approximately $31,000,000 but will retain in the Company's portfolio and
continue to service single-family residential loans of approximately
$29,000,000. Ameriana will also convey approximately $63 million in savings
deposits as part of the transaction. The Company expects to complete the
transaction during the third quarter of 2003, subject to regulatory review and
approval.
10
Critical Accounting Policies
- ----------------------------
The notes to the consolidated financial statements included in the
Company's 2002 annual report contain a summary of the Company's significant
accounting policies. 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 its critical accounting
policies include determining the allowance for loan losses ("ALL"), and the
valuation of mortgage servicing rights, ("MSR's"), and the way the Company
accounts for goodwill and other intangibles.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses provides coverage for probable losses
inherent in the Company's loan portfolio. Management evaluates the adequacy of
the allowance for credit losses each quarter based on changes, if any, in
underwriting activities, the loan portfolio composition (including product mix
and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This evaluation is
inherently subjective, as it requires the use of significant management
estimates. Many factors can affect management's estimates of specific and
expected losses, including volatility of default probabilities, rating
migrations, loss severity and economic and political conditions. The allowance
is increased through provisions charged to operating earnings and reduced by net
charge-offs.
The Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial
loans is based on reviews of individual credit relationships and an analysis of
the migration of commercial loans and actual loss experience. The allowance
recorded for homogeneous consumer loans is based on an analysis of loan mix,
risk characteristics of the portfolio, fraud loss and bankruptcy experiences,
and historical losses, adjusted for current trends, for each homogeneous
category or group of loans. The allowance for credit losses relating to impaired
loans is based on the loan's observable market price, the collateral for certain
collateral-dependent loans, or the discounted cash flows using the loan's
effective interest rate.
Regardless of the extent of the Company's analysis of customer performance,
portfolio trends or risk management processes, certain inherent but undetected
losses are probable within the loan portfolio. This is due to several factors
including inherent delays in obtaining information regarding a customer's
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or customer-specific
conditions affecting the identification and estimation of losses for larger
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogenous groups of loans are among other factors. The Company
estimates a range of inherent losses related to the existence of these
exposures. The estimates are based upon the Company's evaluation of imprecision
risk associated with the commercial and consumer allowance levels and the
estimated impact of the current economic environment.
Valuation of Mortgage Servicing Rights
- --------------------------------------
MSR's associated with loans originated and sold, where servicing is
retained, are capitalized and included in other intangible assets in the
consolidated balance sheet. The value of the capitalized servicing rights
represents the present value of the future servicing fees arising from the right
to service loans in the portfolio. Critical accounting policies for MSRs relate
to the initial valuation and subsequent impairment tests. The methodology used
to determine the valuation of MSRs requires the development and use of a number
of estimates, including anticipated principal amortization and prepayments of
that principal balance. Events that may significantly affect the estimates used
are changes in interest rates, mortgage loan prepayment speeds and the payment
performance of the underlying loans. The carrying value of the MSRs is
periodically reviewed for impairment based on a determination of fair value.
Impairment, if any, is recognized through a valuation allowance and is recorded
as amortization of intangible assets.
11
Goodwill and Other Intangibles
- ------------------------------
The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill and other intangibles, at fair value as
required by SFAS 141. Goodwill is subject, at a minimum, to annual tests for
impairment. Other intangible assets are amortized over their estimated useful
lives using straight-line and accelerated methods, and are subject to impairment
if events or circumstances indicate a possible inability to realize the carrying
amount. The initial goodwill and other intangibles recorded and subsequent
impairment analysis requires management to make subjective judgments concerning
estimates of how the acquired asset will perform in the future. Events and
factors that may significantly affect the estimates include, among others,
customer attrition, changes in revenue growth trends, specific industry
conditions and changes in competition.
FINANCIAL CONDITION
- -------------------
Total assets increased $15,185,000 to $471,992,000 at March 31 2003 from
$456,807,000 at December 31, 2002. The main reason for the increase was due to
an increase in deposits.
Cash and cash equivalents decreased $15,494,000 or 33.91% during the first
quarter of 2003 to $30,202,000. The main reason for the decrease was due to the
purchase of investment securities.
Investment securities available for sale increased $47,697,000 or 82.02%
during the first quarter of 2003 to $105,852,000. The funding for the increase
came from loan payoffs, deposits, and cash and cash equivalents.
Total outstanding loans decreased $15,282,000 or 4.88% during the first
quarter of 2003 to $297,970,000. The decline was mainly due to mortgage loan
refinancing and the subsequent sale of those loans.
Deposits increased $14,493,000 or 3.60% during the first quarter of 2003 to
$416,680,000. The main cause of the increase was due to the introduction of a
new interest-bearing checking account.
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 March 31, 2003, the Company's cash and
interest-bearing time deposits totaled $30,002,000, or 6.4%, of total assets.
The regulatory minimum net worth requirement is 8% for the Bank under the
most stringent of the three capital regulations (total risk-based capital to
risk-weighted assets). At March 31, 2003, Ameriana had total risk-based capital
of $41,275,000 and a 13.07% ratio. The Company's tier 1 capital ratio was 8.05%
at March 31, 2003, which exceeded the regulatory minimum required tier 1 capital
ratio of 4.00%.
At March 31, 2003 and December 31, 2002, the Company had outstanding
commitments to originate loans of approximately $27,601,000 and $8,379,000,
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 $23,225,000 and
$22,231,000 of conditional commitments for lines of credit receivables at March
31, 2003 and December 31, 2002.
12
RESULTS OF OPERATIONS
- ---------------------
Net income for the quarter ended March 31, 2003 increased to $755,000, or
$0.24 per diluted share compared to a loss of $2,050,000 or $0.65 per diluted
share reported in the first quarter of 2002. The loss in the first quarter of
2002 was mainly due to disposition of investments for a loss, additional reserve
for loan losses due to an increase in non-performing loans, and higher
compensation and benefits costs. These factors are discussed in further detail.
The Bank's interest rate position at year-ended 2001 exceeded the Bank's
risk parameters, primarily due to volatile collateralized mortgage obligations.
The Company disposed of most of its investments during 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. The funds from
the investments liquidation were subsequently reinvested in the first and second
quarter of 2002 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.
The Company adjusted the balance sheet through the sale of an additional
$44,601,000 of investments in the third quarter of 2002 with the proceeds from
this latest investment sale were used to prepay higher-rate Federal Home Loan
Bank advances. As discussed below, these transactions improved the Company's net
interest margin through the reduction of higher rate debt using proceeds from
the sale of lower earning investments.
The net interest spread (difference between yield on interest-earning
assets and cost on interest-bearing liabilities) increased 31 basis points
during the first quarter of 2003 compared to the first quarter of 2002. The
change is due to a decrease in yield of 106 basis points on average
interest-earning assets offset by a 137 basis point reduction in the cost of
interest-bearing average liabilities. The Company's increase in the net interest
spread was due primarily to the balance sheet deleverage in the third quarter of
2002. Overall, the change in yields and cost of funds for 2003 is the result of
general reductions in interest rates during 2002.
The following table summarizes the Company's average net interest-earning
assets and average interest-bearing liabilities with the accompanying average
rates for the first quarter of 2003 and 2002:
Three Months Ended Mar 31,
--------------------------
2003 2002
(Dollars in Thousands)
--------------------------
Average interest-earning assets $ 430,246 $ 505,724
Average interest-bearing liabilities 396,633 472,378
----------- -----------
Net interest-earning assets $ 33,613 $ 33,346
=========== ===========
Average yield on/cost of:
Interest-earning assets 5.83% 6.89%
Interest-bearing liabilities 3.13% 4.50%
----------- -----------
Net interest spread 2.70% 2.39%
=========== ===========
13
Net interest income for the first quarter of 2003 was $3,128,000 for a
decrease of $221,000 or 6.60% compared to $3,349,000 recorded during the first
quarter of 2002. The Company's lower net interest income for the first quarter
of 2003 reflected primarily the impact of lower average earning assets for the
period resulting primarily from the deleverage transaction in the third quarter
2002. The $2,404,000 decrease in interest income on average interest-earning
assets is a combination of a decrease of $1,282,000 because of lower average
balances and $1,122,000 due to lower rates. The decrease of $2,183,000 in cost
of interest-bearing liabilities is a combination of a decrease of $841,000 from
lower average balances and $1,342,000 from lower rates. The net interest margin
ratio, which is net interest income divided by average earning assets, increased
to 2.95% for the first quarter of 2003 compared to 2.68% for the first quarter
of 2002.
The following table sets forth the details of the rate and volume change
for the three months ended March 31, 2003 compared to the same period in 2002.
(Dollars in Thousands)
----------------------
Three Months Ended Mar 31,
2003 vs 2002
--------------------------------
Increase (Decrease)
Due to Change in
--------------------------------
Volume Rate Net Change
------- ------- ----------
Interest-earning assets $(1,282) $(1,122) $(2,404)
Interest-earning assets (841) (1,342) (2,183)
------- ------- -------
Change in net interest income $ (441) $ 220 $ (221)
======= ======= =======
The following table summarizes the Company's non-performing assets at March 31,
2003 and December 31, 2002:
In Thousands
March 31, December 31,
2003 2002
---------- ----------
Loans:
Non-accrual $ 17,483 $ 18,307
Restructured Loans 481 485
Over 90 days delinquent and still accruing 86 135
Real estate owned 582 489
---------- ---------
Total $ 18,632 $ 19,416
========== =========
The Company's non-performing assets decreased $784,000 in the first quarter
of 2003.
Non-performing assets grew substantially in 2002. The main causes for the
increase are related loans to a builder/developer and two lease pools.
The Bank has a number of real estate development/lot loans and single
family residential loans on existing properties with a builder/developer group,
and its related parties, that are currently in default and bankruptcy. The Bank
is working closely with the workout specialist hired by the bankruptcy trustee
on liquidation of the properties involved in the bankruptcy and we are
negotiating with the borrower and their counsel for resolution of the remaining
properties. The total outstanding balance of the various loans totaled $3.6
million as of March 31, 2003 and December 31, 2002.
The Bank is involved in a variety of litigation relating to its interests
in two pools of equipment leases originated by the Commercial Money Center, Inc.
("CMC"), a California based equipment-leasing company that is now in bankruptcy.
14
In June and September 2001, the Bank purchased two separate pools of lease
receivables totaling $12,003,000, consisting primarily of equipment leases. Each
lease within each pool is supported by a surety bond issued by one of two
insurance companies rated at least "A" by Moody's. The bonds guarantee payment
of all amounts due under the leases in the event of default by the lessee. Each
pool was sold by the terms of a Sales and Servicing Agreement which provides
that the insurers will service the leases. In each case the insurers have
assigned their servicing rights and responsibilities to Commercial Service
Center, a company, which has now filed bankruptcy.
When the lease pools went into default, notice was given to each insurer.
One them made payments for a few months under a reservation of rights; the other
paid nothing. Both insurers claim they were defrauded by Commercial Money Center
(CMC), the company which sold the lease pools. Both are now denying
responsibility for payment. CMC has also filed for bankruptcy protection.
Many other financial institutions have purchased lease pools from CMC. All
of the lease pools are in default and in litigation. The Panel on Multidistrict
Litigation has taken control of the many actions and assigned them to the U.S.
District Court for the Northern District of Ohio, Eastern Division. A status
conference was held on April 28, 2003. As a result of that conference, the judge
will issue appropriate discovery orders in the near future.
The Bank has also been named as a defendant in a suit filed by a group of
lessees in California state court against CMC, CSC, the banks that invested in
the CMC pools and the insurers that issued the surety bonds on the CMC pools.
The California suit alleges that the leases are usurious and un-collectable
under California law. None of the plaintiffs in the California suit is a lessee
in either of the lease pools purchased by the Bank.
The Company believes the surety bonds are enforceable against the insurers.
The current unpaid balance for the pools is $10,900,000. It is highly unlikely
that the litigation will be resolved in 2003.
The total provision for loan losses was $150,000 during the first quarter
of 2003 compared to $1,250,000 during the same period in 2002. The high
provision expense in the first quarter of 2002 was mainly due to the two lease
pools and a commercial property in Bloomington, Indiana. During the first
quarter of 2003, net charge-offs (charge-offs less recoveries) were $185,000
compared to net charge-offs of $21,000 for the first quarter of 2002.
Management believes the allowance for loan losses is adequate and that
sufficient provision has been made to absorb any losses that may ultimately be
incurred on non-performing loans and the remainder of the portfolio based on
information at March 31, 2003. The allowance for loan losses as a percentage of
loans was 2.90% and 2.77% at March 31, 2003 and December 31, 2002, respectively.
The Company regularly monitors the developments related to the two lease
pools and other non-performing loans and has discussions with its federal and
state bank regulators so that it can determine whether its loss reserves are
adequate. Based upon further developments, as well as further discussions with
its federal and state bank regulators, it is possible that the Company may in
the future determine to increase its loss reserves against the lease pools and
other non-performing loans.
Total other income increased $3,474,000 to $1,196,000 for the first quarter
2003 from a loss of $2,278,000 in the same period during 2002. Management sold
investments for a net loss of $3,212,000 in the first quarter of 2002, which was
the cause for the loss in other income. Sales of loans to the secondary market
increased and the $483,000 gain on these sales and servicing rights in the first
quarter 2003 was up from $234,000 for the same period in 2002.
Total other expense in the first quarter 2003 was $3,221,000 compared to
$3,223,000 for the same period in 2002. Salary and benefits expense for the
first quarter of 2003 was $2,006,000 compared to $2,109,000 in the same period
during 2002. Severance pay of $289,000 was incurred in the first quarter 2002.
Merit pay adjustments, pension costs, and higher health care costs in the first
quarter of 2003, as well as increased staffing in the last half of 2002,
resulted in higher salary and benefit expense from the same period in 2002.
15
Income tax expense was $198,000 in the first quarter of 2003 compared to a
tax benefit of $1,352,000 for the same period in 2002. The effective tax rate
was 20.8% in the first quarter of 2003, and (39.7)% for the same period in 2002.
The primary difference between the effective tax rates and the statutory tax
rates in the first quarter of 2003 relate to tax credits, cash value of life
insurance, and a reduction in state tax expense. The primary difference between
the effective tax rates and the statutory tax rates in the first quarter of 2002
relates to tax credits and cash value of life insurance.
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).
16
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET 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.
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 March 31, 2003.
NPV as Percent of
Net Portfolio Value Present Value of Assets
- -----------------------------------------------------------------------------------------------------------------
Change in Rates Dollar Amount Dollar Change Percent Change NPV Ratio Change
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------
+200 bp* $ 46,089 $ (2,837) (5.80%) 9.78% (36) bp*
Base or 0% 48,926 -- -- 10.14 -
- -200 bp* 46,680 (2,246) (4.59) 9.55 (59) bp*
- -----------------------------------------------------------------------------------------------------------------
* basis points
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 December 31, 2002.
NPV as Percent of
Net Portfolio Value Present Value of Assets
- -----------------------------------------------------------------------------------------------------------------
Change in Rates Dollar Amount Dollar Change Percent Change NPV Ratio Change
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------
+200 bp* $ 36,812 $ (5,999) (14.01%) 8.61% (147) bp*
Base or 0% 42,811 -- -- 10.08 --
- -200 bp* 39,952 (2,859) (6.68) 9.65 (43) bp*
- -----------------------------------------------------------------------------------------------------------------
* basis points
17
ITEM 4 - CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the Company's disclosure controls and procedures (as such term is defined in
Rule 13a-14(c) under the Exchange Act) as of a date within 90 days of the date
of filing of this Form 10-Q. Based upon such evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective to ensure that the information required to be
disclosed by the Company in the reports it files under the Exchange Act is
gathered, analyzed and disclosed with adequate timeliness.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the evaluation described above.
18
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
---------------------------------------------------
Not Applicable
ITEM 5 - Other Information
-----------------
Not Applicable
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
---------------------------
None filed in the first quarter of 2003
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: May 15, 2003 /s/ Harry J. Bailey
------------ ---------------------------------------
Harry J. Bailey
President and
Chief Executive Officer
(Duly Authorized Representative)
DATE: May 15, 2003 /s/ Bradley L. Smith
------------ ---------------------------------------
Bradley L. Smith
Senior Vice President-Treasurer
(Principal Financial Officer
and Accounting Officer)
CERTIFICATION
I, Harry J. Bailey, President and Chief Executive Officer of Ameriana Bancorp,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ameriana Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board or directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Harry J. Bailey
-----------------------------------
Harry J. Bailey
President and Chief Executive
Officer
CERTIFICATION
I, Bradley L. Smith, Senior Vice President-Treasurer and Chief Financial Officer
of Ameriana Bancorp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ameriana Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board or directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Bradley L. Smith
--------------------------------------
Bradley L. Smith
Senior Vice President-Treasurer and
Chief Financial Officer