FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 0-12422
INDIANA UNITED BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1562245
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 NORTH BROADWAY GREENSBURG, INDIANA 47240
(Address of principal executive offices) (Zip Code)
(812) 663-4711
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
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 X No
As of March 31, 1995 there were outstanding 1,250,897 shares,
without par value of the registrant.
INDIANA UNITED BANCORP
FORM 10-Q
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet............. 3
Consolidated Condensed Statement of Income....... 4
Consolidated Condensed Statement of Changes in
Shareholders' Equity............................. 5
Consolidated Condensed Statement of Cash Flows... 6
Notes to Consolidated Condensed Financial
Statements....................................... 7-10
Item 2. Managment's Discussion and Analysis of Financial
Condition and Results of Operations.............. 11-26
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................. 27
Signatures................................................ 28
INDIANA UNITED BANCORP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(Dollars in Thousands)
Mar. 31 Dec. 31
1995 1994
ASSETS
Cash and Due From Banks................. 7,843 8,549
Interest-bearing Demand Deposits........ 100 156
Federal Funds Sold...................... 0 2,875
Cash and Cash Equivalents............. 7,943 11,580
Interest-bearing Time Deposits.......... 47 147
Securities:
Available for sale.................... 84,822 83,839
Held to Maturity...................... 7,840 8,115
Total Securities.................... 92,662 91,954
Loans:
Loans................................. 194,736 194,736
Less: Allowance for Loan Losses...... 2,743 2,784
Net Loans........................... 191,993 191,952
Premises & Equipment.................... 5,640 5,460
Federal Home Loan Bank Stock............ 1,138 1,138
Core Deposit Intangibles................ 172 182
Accrued Interest Receivable............. 1,957 1,896
Other Real Estate....................... 0 100
Other Assets............................ 1,193 1,638
Total Assets........................ 302,745 306,047
LIABILITIES
Deposits:
Non-Interest Bearing.................. 22,701 28,360
Interest Bearing...................... 224,317 233,011
Total Deposits...................... 247,018 261,371
Short-Term Borrowings................... 19,272 10,801
Long-Term Debt.......................... 7,500 7,500
Accrued Interest Payable................ 916 864
Other Liabilities....................... 1,950 1,229
Total Liabilities................... 276,656 281,765
SHAREHOLDERS' EQUITY
Preferred Stock, No Par Value:
Authorized--400,000 Shares
Issued and Outstanding-22,000 and
24,000 Shares........................ 2,200 2,400
Common Stock $1 Stated Value:
Authorized--3,000,000 Shares
Issued and Outstanding--1,250,897
Shares............................... 1,251 1,251
Paid-In Surplus......................... 10,677 10,677
Valuation Adj-Securities AFS............ (950) (2,641)
Retained Earnings....................... 12,911 12,595
Total Shareholders' Equity.......... 26,089 24,282
Total Liabilities and
Shareholders' Equity.............. 302,745 306,047
See notes to consolidated condensed financial statements.
INDIANA UNITED BANCORP
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
1995 1994
Interest Income:
Loans, Including Fees 3,975 3,854
Securities:
Taxable 1,448 1,527
Tax-Exempt 59 65
Federal Funds Sold 2 23
Interest-Bearing Deposits 1 3
Total Interest Income 5,485 5,472
Interest Expense:
Deposits 2,322 2,530
Short-Term Borrowings 271 69
Long-Term Debt 165 141
Total Interest Expense 2,758 2,740
Net Interest Income 2,727 2,732
Provision for Loan Losses 3 43
Net Interest Income After Provision
for Loan Losses 2,724 2,689
Other Income:
Securities Gains 1 20
Other Operating Income 349 373
Total Non Interest Income 350 393
Total Non Interst Expenses 2,163 2,297
Income Before Income Tax 911 785
Less Income Tax Expense 357 304
Net Income 554 481
Per Common Share:
Net Income 0.41 0.35
Cash Dividends Declared 0.16 0.14
Average Common Shares
Outstanding 1,250,897 1,250,897
See notes to consolidated condensed financial statements.
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES TO SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands)
1995 1994
Balance, January 1............................. 24,282 25,203
Net Income..................................... 554 481
Redemption of Preferred Stock.................. (200) (300)
Valuation Adjustment - Securities AFS.......... 1,691 (240)
Cash Dividends:
Preferred Stock.............................. (38) (43)
Common Stock................................. (200) (158)
Balance, March 31.............................. 26,089 24,943
See notes to consolidated condensed financial statements.
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31
1995 1994
Cash Flows From Operating Activities:
Net Income................................... 554 481
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses.................. 3 43
Depreciation and amortization.............. 158 162
Premiums and discounts amortization
on investment securities................. 24 38
Accretion of loan and deposit fair
value adjustments........................ 29 34
Amortization of core deposit intangibles... 10 11
Securities gains......................... (1) (20)
Decrease in interest receivable............ (61) 131
Decrease in interest payable............... 52 52
Other adjustments.......................... 1,594 75
Net cash provided by operating activities 984 903
Cash Flows From Investing Activities:
Proceeds from interest-bearing time
deposit maturities......................... 100 (2)
Purchases of securities available for sale... (7,060) (1,995)
Proceeds from maturities of securities
available for sale......................... 1,557 10,805
Proceeds from sales of securities
available for sale......................... 4,770 2,739
Purchase of securities held to maturity...... 0 0
Proceeds from maturities of securities
held to maturity........................... 25 0
Proceeds from sales of securities
held to maturity........................... 0 0
Net change in loans.......................... 0 (611)
Purchase of premises and equipment........... (338) (83)
Proceeds from other real estate.............. 100 107
Other investment activities.................. 1,166 (960)
Net cash provided by
investing activities 1,697 10,000
Cash Flows From Financing Activities:
Net change in:
Non-interest bearing,NOW, money market and
savings deposits......................... (13,078) (7,364)
Certificates of deposit.................... (1,274) (8,598)
Short-term borrowings...................... 8,471 (338)
Payments on long-term debt................. 0 (500)
Redemption of preferred stock.............. (200) (300)
Cash dividends............................. (238) (201)
Net cash used by financing activities (6,319) (17,301)
Net decrease in Cash and
Cash Equivalents............................. (3,638) (6,398)
Cash and Cash Equivalents, Beginning of Period. 11,580 15,533
Cash and Cash Equivalents, End of Period....... 7,943 9,135
See notes to consolidated condensed financial statements.
INDIANA UNITED BANCORP
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1.
The significant accounting policies followed by Indiana United Bancorp (the
Company") and its subsidiaries, Union Bank and Trust Company of Indiana
("Union Bank"), and Regional Federal Savings Bank ("Regional Bank") for
interim financial reporting are consistent with the accounting policies
followed for annual financial reporting. Effective July 1, 1994 the Company
merged Union Bank and Trust Company of Greensburg and Peoples Bank, Portland
and named the combined institution Union Bank and Trust Company of Indiana.
All adjustments, consisting only of normal recurring adjustments, which in
the opinion of management are necessary for a fair presentation of the
results for the periods reported, have been included in the accompanying
consolidated financial statements. The results of operations for the three
months ended March 31, 1995 are not necessarily indicative of those expected
for the remainder of the year.
NOTE 2.
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Securities Available for Sale
at March 31, 1995
U.S. Treasury................... $ 3,120 $ 1 $ 66 $ 3,055
Federal Agencies................ 9,899 5 441 9,463
State and Municipal............. 1,773 8 9 1,772
Corporate and other securities.. 1,512 -- 82 1,430
Mortgage-backed securities...... 69,965 333 1,196 69,102
Totals..................... $ 86,269 $ 347 $ 1,794 $ 84,822
Securities Available for Sale
at December 31, 1994
U.S. Treasury................... $ 3,221 $ 138 $ 3,083
Federal Agencies................ 9,921 $ 6 629 9,298
State and Municipal............. 2,064 11 15 2,060
Corporate and other securities.. 2,590 2 89 2,503
Mortgage-backed securities...... 70,281 35 3,421 66,895
Totals..................... $ 88,077 $ 54 $ 4,292 $ 83,839
Beyond
Within 1-5 5-10 10
Maturity Distributions at 1 Year Years Years Years Totals
March 31, 1995
U.S. Treasury.................... $ 1,086 $ 1,969 $ 3,055
Federal Agencies................. 1,004 8,271 $ 188 9,463
State and Municipal.............. 1,182 483 107 1,772
Corporate and other securities... 862 $ 568 1,430
Mortgage-backed securities....... 4,753 7,828 56,521 69,102
Totals......................... $ 4,134 $15,476 $ 8,123 $57,089 $ 84,822
Weighted average yields.......... 6.13% 5.13% 7.73% 6.34% 6.29%
*Amounts in the tables above are based on scheduled maturity or call dates.
INDIANA UNITED BANCORP
FORM 10-Q
NOTE 3.
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Securities Held to Maturity
at March 31, 1995
U.S. Treasury.................. $ -- $ -- $ -- $ --
Federal Agencies............... 1,100 -- 33 1,067
State and Municipal............ 2,840 8 14 2,834
Corporate and other Securities. -- -- -- --
Mortgage-backed securities..... 3,900 6 132 3,774
Totals.................... $ 7,840 $ 14 $ 179 $ 7,675
Securities Held to Maturity
December 31, 1994
U.S. Treasury.................. $ -- $ -- $ -- $ --
Federal Agencies............... 1,100 -- 32 1,068
State and Municipal............ 3,012 -- 76 2,936
Corporate and other securities. -- -- -- --
Mortgage-backed securities..... 4,003 -- 307 3,696
Totals.................... $ 8,115 $ -- $ 415 $ 7,700
Beyond
Within 1-5 5-10 10
Maturity Distribution at 1 Year Years Years Years Totals
March 31, 1995
U.S. Treasury.................. $ -- $ -- $ -- $ -- $ --
Federal Agencies............... -- 1,100 -- -- 1,100
State and Municipal............ 258 837 1,745 -- 2,840
Corporate and other securities. -- -- -- -- --
Mortgage-backed securities..... -- 114 90 3,696 3,900
Totals....................... $ 258 $ 2,051 $ 1,835 $ 3,696 $ 7,840
Weighted average yields........ 6.71% 6.40% 7.16% 6.48% 6.61%
INDIANA UNITED BANCORP
FORM 10-Q
NOTE 4.
March 31 December 31
1995 1994
Loans:
Commercial.............................. $ 11,088 $ 7,595
Agricultural production financing
and other loans to farmers............ 8,759 7,859
Farm real estate........................ 28,102 28,358
Commercial real estate mortgage......... 24,077 25,619
Residential real estate mortgage........ 98,499 101,455
Construction and development............ 6,807 7,161
Consumer................................ 14,668 13,870
Government guaranteed loans purchased... 2,736 2,819
Total loans........................... $ 194,736 $ 194,736
Underperforming loans:
Nonaccruing loans $ 1,073 $ 1,030
Accruing loans contractually past
due 90 days or more as to principal
or interest payments 2 113
Restructured loans -- --
NOTE 5.
Deposits:
Noninterest bearing $ 22,701 $ 28,360
NOW accounts 30,518 35,085
Money market deposit accounts 35,570 39,550
Savings 24,762 23,857
Certificates of deposit $100,000 or more 14,490 16,420
Other certificates and time deposits 118,977 118,099
Total deposits $ 247,018 $ 261,371
NOTE 6.
Short-Term Borrowings:
Federal funds purchased $ 6,700
Securities sold under
repurchase agreements 8,013 $ 9,977
U.S. Treasury demand notes 369 824
Federal Home Loan Bank Advances 4,190 --
Total short-term borrowings $ 19,272 $ 10,801
INDIANA UNITED BANCORP
FORM 10-Q
NOTE 7.
Effective January 1, 1993, the Company adopted Financial Accounting Standars No.
109, Accounting for Income Taxes. Income tax expense in the consolidated
condensed statement of income includes deferred income tax provisions or
benefits for all significant temporary differences in recognizing income and
expenses for financial reporting and income tax purposes.
At January 1, 1995, a cumulative deferred tax asset of $957,000 was included
in other assets. The components of the asset were as follows:
Assets Liabilities Total
Differences in depreciation methods $ 130
Differences in accounting for loans $ 301
Differences in accounting for loan losses 497
Differences in accounting for fixed
assets 786
Difference in accounting for securities 62
Difference in accounting for securities
available for sale 1,712
Other 27
$ 2,236 $ 1,279 $957
No valuation allowance at January 1 was considered necessary.
INDIANA UNITED BANCORP
FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Indiana United Bancorp is headquartered in Greensburg, Indiana and is presently
engaged in conducting banking business through the eleven offices of its
subsidiaries. The Company and the subsidiary banks are subject to applicable
federal and state laws as well as regulations of the Federal Reserve Board,
the Federal Deposit Insurance Corporation, the Office of Thrift Supervision
and the Indiana Department of Financial Institutions.
Strategic Plan
In 1993, the Company formulated a strategic plan ("plan") designed to improve
the Company's financial performance, increase its competitive ability and
enhance long-term shareholder value. The plan is premised on the belief of
the Company's board of directors that the Company can best promote long-term
shareholder interests by continuing as an independently owned community
banking organization.
In connection with the plan, the Company initiated significant actions in
1994. At mid year, it consolidated the operation of its two commercial
banking subsidiaries to form Union Bank and Trust Company of Indiana ("Union
Bank"), while retaining Indiana state banking charter #1. This subsidiary
primarily serves customers located in, and contiguous to, Decatur and Jay
counties. In late October, the Company sold three unprofitable branches of
Regional Federal Savings Bank ("Regional Bank") which were not located in its
primary service area of Floyd and Clark counties. The Company believes each
of these actions will increase its operating efficiency and the latter will
improve its net interest margin. The plan also focused on improving net
interest margin by reducing the Company's dependence on expensive, non-core
deposits. As anticipated, these actions resulted in a substantial decline in
deposits based upon year end comparisons of 1994 and 1993.
A current objective of the plan is the rebuilding of a strong customer base from
within the primary markets now served by the Company through the establishment
of new branches by both Union Bank and Regional Bank. Entry into new markets
will be pursued through exploration of acquisition opportunities. A
continuing tenet of the plan is to establish more pro-active relationships
with market makers and financial analysts.
INDIANA UNITED BANCORP
FORM 10-Q
The plan was revised in 1994 to include the adoption during the first half of
1995 of a sales philosophy supported by a performance based employee
incentive program. The dynamics of the plan assure continually evolving
objectives, and the extent of the Company's success will depend upon how well
it anticipates and responds to competitve changes within its markets, the
interest rate environment and other external forces.
Results of Operations
Earnings for the first quarter of 1995 increased 15.0% to $554,000 as
compared to the same quarter in 1994. Gross gains and losses on the sale of
securities of $40,000 and $39,000 respectively, were realized in the first
quarter of 1995 as compared to gross gains of $20,000 in the prior year
period. Net interest income has been effected by management's decision in
1994 to eliminate approximately $25 million of expensive, rate sensitive,
non-core deposits. Non-interest income in the first quarter of 1995 has been
somewhat negatively impacted by the restructuring and relocation of the
Company's Jay County insurance operations. The reduction in non-interest
expense reflects a portion of the annual savings expected to be fully
realized in 1995 and beyond due to the merger of Union Bank and Peoples Bank
in mid 1994 and the sale of Regional Bank's branches in late 1994.
Net income per common share was $.41 in the first quarter of 1995 compared to
$.35 for the same period in 1994. The Company's first quarter return on
average total assets was .74% in 1995 and .50% in 1994. Return on average
shareholders' equity was 9.19% and 7.65% for the first quarter of 1995 and
1994 respectively.
Net Interest Income
Net interest income is influenced by the volume and net yield of earning assets
and the cost of interest-bearing liabilities. Net interest margin reflects
the mix of interest-bearing and non-interest bearing liabilities that fund
earning assets, as well as interest spreads between the rates earned on these
assets and the rates paid on interest-bearing liabilities. Net interest
income of $2,727,000 in the first quarter of 1995 decreased $5,000 from
$2,732,000 in the first quarter of 1994, a decline of less than two-tenths of
1%.
INDIANA UNITED BANCORP
FORM 10-Q
Although many of the Company's peer group competitors reported declines in net
interest margin in 1994, the Company increased in net interest margin by 5 basis
points for the year. In the first quarter of 1995, the Company's net interest
margin was 3.81% compared to 3.34% in the same 1994 period, reflecting an
increase of 47 basis points. Several changes in the investment portfolio
were made primarily in the first half of 1994. Although many of the changes
were to improve portfolio duration and reduce extension risk, yield
improvement began to impact earnings in the last half of 1994.
The Company has traditionally offered low-rate loans to attract high performance
borrowers. The Company has prospered under this philosophy and loan quality
measurements have consistently exceeded peer group averages. Conversely, the
Company's net interest margin has consistently not attained peer group average.
Provision for Loan Losses
The determination of the provision in any period is based on management's
continuing review and evaluation of loan loss experience, changes in the
composition of the loan portfolio, current economic conditions and the
amount of loans outstanding. Net charge-offs increased in the first quarter
of 1995 compared to the similar 1994 period. Net charge-offs of $44,000 were
realized compared to $13,000 in charge-offs for the same period in 1994.
Further analysis is provided in the following tables.
INDIANA UNITED BANCORP
FORM 10-Q
Summary of Allowance for Loan Losses
(Dollars in Thousands)
1995 Year Ended
thru December 31,
Mar. 31 1994
Balance at beginning of period $2,784 $2,682
Chargeoffs:
Commercial -- 6
Real-estate mortgage 38 65
Installment 8 21
Total chargeoffs 46 92
Recoveries:
Commercial -- 37
Real-estate mortgage -- 15
Installment 2 27
Total recoveries 2 79
Net Chargeoffs 44 13
Provision for loan losses 3 115
Balance at end of period $2,743 $2,784
Ratio of net chargeoffs to average
loans outstanding during the period .02% .01%
Ratio of provision for loan losses to average
loans outstanding during the period -- .06%
Ratio of allowance to total loans at
end of period 1.41% 1.43%
INDIANA UNITED BANCORP
FORM 10-Q
Allocation of the Allowance for Loan Losses
Mar. 31, 1995 December 31, 1994
Amount Percent Amount Percent
Real estate:
Residential $ 143 5% $ 146 5%
Agricultural 14 1 14 1
Commercial 659 24 702 25
Construction and development 75 3 52 2
Total real estate 891 33 914 33
Commercial:
Agribusiness 173 6 151 5
Other commercial 137 5 131 5
Total commercial 310 11 282 10
Consumer 72 3 66 2
Unallocated 1,470 53 1,522 55
Total $ 2,743 100% $ 2,784 100%
INDIANA UNITED BANCORP
FORM 10-Q
Noninterest Income
Noninterest income decreased $43,000 or 11% in the first three months of
1995 as compared to 1994, primarily due to gains on the sale of investment
securities and higher insurance commissions received in 1994. Insurance
income decreased $26,000 or 20% from the previous year first quarter. In mid
1994, Jay County insurance operations were completely restructured and
relocated to a remodeled full service branch office. As a result of these
disruptions, the volume of insurance commissions have declined. Trust fees
for the first quarter have remained stable as compared to the rpior year.
Estate administration represents a substantial portion of trust income and
the level of estate assets administered may cause total trust income to
flucuate significantly. Service charges on deposit accounts decreased $12,000
or 10% as compared to the same period last year due to higher earnings
credits in 1995 offsetting account charges on commercial accounts. Other
noninterest income increased 28% to $88,000.
Net gains on sales of investment securities were $1,000 for the first three
months of 1995 compared to a $20,000 gain in 1994. The sale of securities in
1995 for the first three months resulted in $40,000 in gross gains and
$39,000 in gross losses. In the same period for 1994, $20,000 in gross gains
had been recognized with no gross loss. Since the market value of the
investment portfolio has increased dramatically since year end 1994, any
additional sales will likely not result in any material gains or losses. The
Company and its subsidiaries do not speculate in the junk bond market.
(Dollars in Thousands) 1995 1994
1st Qtr. 1st Qtr.
Insurance commissions $ 102 $ 128
Trust fees 50 55
Service charges on deposit
accounts 109 121
Gains on sales of securities 1 20
Other income 88 69
$ 350 $ 393
INDIANA UNITED BANCORP
FORM 10-Q
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(Taxable Equivalent Basis)* Three Months Ended
March 31, 1995 March 31, 1994
Avg. Yield/ Avg. Yield/
Bal. Interest Rate Bal. Interest Rate
ASSETS
Interest-bearing deposits 147 1 2.76% 528 4 3.07%
Federal funds sold 122 2 6.65% 2,912 23 3.20%
Securities:
Taxable 92,932 1,448 6.23% 116,137 1,527 5.26%
Tax-exempt 4,701 89 7.57% 4,749 98 8.25%
Total securities 97,633 1,537 6.30% 120,886 1,625 5.38%
Loans:**
Commercial 63,305 1,438 9.21% 64,656 1,317 8.26%
Real estate mortgage 115,188 2,085 7.24% 123,420 2,125 6.89%
Installment 14,031 396 11.45% 14,095 367 10.42%
Government guaranteed
loans purchased 2,779 56 8.17% 3,241 44 5.51%
Total loans 195,303 3,975 8.17% 205,412 3,853 7.55%
Total earning assets 293,205 5,515 7.61% 329,738 5,505 6.70%
Allowance for loan losses (2,766) (2,701)
Unrealized losses on
securities (3,100) 1,005
Cash and due from banks 7,231 7,533
Premises and equipment 5,552 6,575
Other assets 3,900 4,967
Total assets 304,022 347,117
LIABILITIES
Interest bearing deposits:
NOW and Super NOW
accounts 32,003 212 2.69% 36,568 204 2.26%
Money market investment
accounts 37,649 321 3.46% 46,125 299 2.63%
Savings 23,617 173 2.97% 28,751 182 2.57%
Certificates of deposit
and other time
deposits 133,267 1,616 4.92% 164,318 1,845 4.55%
Total interest bearing
deposits 226,536 2,322 4.16% 275,762 2,530 3.72%
Short-term borrowings 18,445 271 5.96% 9,006 69 3.11%
Long-term debt 7,500 165 8.92% 9,369 141 6.10%
Total interest bearing
liabilities 252,481 2,758 4.43% 294,137 2,740 3.78%
Noninterest bearing demand
deposits 23,487 23,066
Other liabilities 2,894 3,946
Total liabilities 278,862 321,149
Shareholders' equity 25,160 25,968
Total liabilities and ***
shareholders' equity 304,022 2,758 3.81% 347,117 2,740 3.37%
Net interest income 2,757 3.81% 2,765 3.34%
Adjustment to convert tax exempt
securities and loans to a fully
taxable equivalent basis using
a marginal rate of 34% 30 33
* Adjusted to reflect income related to securities and loans exempt from
Federal income taxes reduced by nondeductible portion on interest expenses.
** Nonaccruing loans have deen included in the average balances.
*** Total interest expense divided by total earning assets.
INDIANA UNITED BANCORP
FORM 10-Q
Noninterest Expenses
Personnel expenses have remained stable in the first quarter of
1995 and 1994. Personnel expense reductions experienced in the last
half of 1994 with the merging of Union Bank and Peoples Bank and
the sale of Regional Bank's branches have been negated by
additional staffing needed in the new branches by both
organizations. The Company and its subsidiaries have determined
they have no postretirement or postemployment benefit funding
liability.
Professional fees decreased $15,000 in 1995 compared to the prior
year first three months due to the inclusion of amounts paid to the
investment advisor retained by the Company in 1994. Deposit
insurance was $30,000 less in 1995 than the same three month
period last year due to a lower volume of deposits on which the
insurance premium is calculated. All subsidiaries are currently in
the lowest risk category and are assessed at the lowest rate.
Other operating expenses decreased $77,000 in the first three
months of 1995 primarily as a result of reductions in various other
expense categories as the efficiencies of the merger and effects of
the branch sales are realized.
(Dollars in Thousands) 1995 1994
1st Qtr 1st Qtr
Salaries and employee $1,129 $1,123
benefits
Premises and equipment 381 380
expenses
Professional fees 63 78
Amortization of core deposit
intangibles 10 11
Deposit insurance/supervisory 161 191
assessment
Stationary, printing, supplies 72 83
Insurance 35 35
Postage 50 57
Other operating expenses 262 339
$2,163 $2,297
INDIANA UNITED BANCORP
FORM 10-Q
Income Taxes
Income tax expense for the first qaurter of 1995 was $357,000
compared to $304,000 for the same period in 1994, and the effective
tax rates are approximately 39% for both years.
The Company and its subsidiaries will file a consolidated federal
income tax return in 1995. The increase in tax expense in 1995
compared to 1994 is primarily attributable to the increase in
taxable income.
Effects of Changing Prices
Changing prices of goods, services, and capital affect the
financial position of every business enterprise. The level of
market interest rates and the price of funds loaned or borrowed
fluctuate due to changes in the rate of inflation and various other
factors, including government monetary policies. Fluctuating
interest rates affect the Company's net interest income and loan
volume.
Financial Condition
Total assets and average assets and the components of these assets
reflect decreases attributable to the sale of Regional Bank's
branches in late October, 1994. In connection with the sale, total
assets were reduced by approximately $24,000,000 consisting
primarily of loans of $13,350,000, fixed assets of $1,150,000 and
securities of $9,500,000 sold to fund the sale. Total deposits
were affected by a comparable aggregate amount.
First quarter 1995 assets decreased to $302,745,000 from
$338,757,000 at March 31, 1994. Assets averaged $304,022,000, a
decrease of $43,095,000 from the first quarter of 1994. Assets
declined at both subsidiaries because the Company chose not to
acquire deposits at interest rates offering unacceptable margins to
fund investment activities. Consequently, new deposit pricing
strategies resulted in reduced deposit and investment totals.
Average earning assets represented 95% of average total assets for
both periods.
INDIANA UNITED BANCORP
FORM 10-Q
Average interest-bearing deposits decreased $49,226,000 or 18% in
the first quarter of 1995 compared to 1994, as a result of revised
deposit pricing strategies and the sale of branches. Time deposits
obtained within the local markets provide the primary source of
funding for earning assets. Noninterest-bearing demand deposits
have remained stable for both 1995 and 1994 periods. Long-term
debt of $7,500,000 is the Company's loan for the purchase of
Regional Bank and Union Bank and is secured by the capital stock of
the Company's subsidiaries. Interest is variable with the lender's
prime rate. The Company believes it has complied with all terms
and covenants of the loan agreement.
Shareholders' equity at March 31, 1995 is greatly impacted by the
Company's decision to categorize a large portion of its securities
portfolio as "available for sale" under accounting rules adopted
January 1, 1994. Securities in this category are carried at market
value, and shareholders' equity is adjusted to reflect unrealized
gains and losses.
Shareholders' equity was $26,089,000 on March 31, 1995, compared to
$24,282,000 in 1994. Book value per common share decreased to
$19.10 or 2% from $19.55 at quarter end 1994. The unrealized loss
on securities available for sale after tax effect totaled $950,000
or $.76 per share on March 31, 1995. Excluding the net unrealized
loss on securities available for sale, book value per share was
$19.86 or an increase of 9.1% over the book value at quarter end
1994. A 10% common stock dividend was issued to shareholders of
record in December 1994. The Company redeemed $200,000 of its
preferred stock in 1995 and $300,000 in 1994. The Company may
redeem additional preferred stock in 1995.
Loans and Credit Risk Management
Loans remain the Company's largest concentration of assets and
continue to represent the greatest risk. The Company's commercial
banking subsidiaries have observed conservative loan underwriting
standards for several years, historically resulting in high levels
of loan quality and nominal net chargoffs as measured against peer
group averages. Total loans at March 31, 1995 were $194,736,000
the same compared to March 31, 1994.
INDIANA UNITED BANCORP
FORM 10-Q
Underperforming assets, including $1,073,000 in nonaccrual,
restructured and certain other loans, and zero in other real estate
owned, totaled $1,073,000 at March 31, 1995, compared to $298,000
and $1,569,000 at March 31, 1994. Underperforming loans of the
Company as of March 31, 1995 were .6% of total loans, approaching
its pre-acquisition loan quality standards.
The loan underwriting standards observed by each of the Company's
subsidiaries are viewed by management as a deterrent to the
reemergence of an abnormal level of problem loans and a subsequent
increase in net chargeoffs. In 1995, the Company intends to expand
its consumer loan portfolio, emphasizing automobile financing.
This strategy is intended to provide greater diversification within
the portfolio and should generate higher yields than residential
real estate loans.
The Company regards its ability to identify and correct loan
quality problems as one of its greatest strengths. Loans are
placed in a nonaccruing status when in management's judgement the
collateral value and/or the borrower's financial condition do not
justify accruing interest. As a general rule, a loan is
reclassified to nonaccruing status when it becomes 90 days past
due, if not earlier. Interest previously recorded but not deemed
collectible is reversed and charged against current income.
Interest income on these loans is then recognized when collected.
Net chargeoffs for the last several years for the commercial bank
subsidiaries have been significantly below peer group averages.
Regional Bank's credit losses were substantially greater than its
preaquisition experience, when its policies did not encourage early
detection and elimination of problem loans. Management believes
the present loans at Regional Bank contain a substantially reduced
level of credit risk and that total chargeoff activity in 1995 will
be substantially less than in prior years.
The ability to absorb loan losses promptly when problems are
identified is invaluable to a banking organization. Most often,
losses incurred as a result of quick action are much lower than
losses incurred after prolonged legal preceedings.
The adequacy of the allowance for loan losses in each subsidiary is
reviewed at least monthly. This review specifically considers past
credit loss history, present levels of delinquency and other
nonperformance measurements, current economic conditions, adequacy
of collateral positions, borrower repayment capacity and regulatory
examination findings.
INDIANA UNITED BANCORP
FORM 10-Q
A management watch list of loans warranting either the assignment
of a specific reserve amount or other special administrative
attention is also reviewed monthly, as are all classified loans,
nonaccrual loans and loans delinquent 30 days or more. The
allowance for loan losses as of March 31, 1995 is considered
adequate by management.
Securities
Securities are the primary means by which the Company manages
interest-rate risk, provides liquidity and responds to changing
maturity characteristics of assets and liabilities. The Company's
investment policy prohibits establishing a trading account and does
not allow investment in high risk derivative products or junk
bonds.
Effective January 1, 1994, the Company adopted new accounting rules
for investment securities. The new rules require that each
security must be individually designated as a trading security,
hold to maturity (HTM) security, or available for sale (AFS)
security.
"Trading" securities are bought and held primarily for sale in the
near term and are carried at fair vale, with unrealized gains and
losses included in earnings.
As of March 31, 1995 the Company has designated $7,840,000 in HTM
securities, confirming its interest and ability to hold to
maturity. HTM securities are carried at amortized cost.
At the end of the first quarter of 1995, the Company classified
$84,822,000 or 92% of total securities as AFS. In the same quarter
last year, 100% of the $114,300,000 in securities were designated
as AFS. AFS securities are carried at fair value with unrealized
gains and losses excluded from earnings and reported as a separate
component of shareholders' equity.
INDIANA UNITED BANCORP
FORM 10-Q
The Company's decision to categorize a much larger portion of its
securities portfolio as AFS than its peer group was influenced by
its desire to reflect as accurately and fairly as possible the true
value of its assets. In addition, AFS securities provide far
greater management flexibility in responding to changes within
financial markets. Although the designation of a large portion of
securities as AFS by the Company creates capital volatility, the
Company's strong capital and liquidity positions suggest that such
volatility will not impair the Company's ability to achieve
financial objectives.
Source of Funds
No recommendations by regulatory authorities exist which would
materially affect liquidity , capital resources or operations.
Earning assets are funded by deposits, securities sold under
repurchase agreements, long-term debt and shareholders' equity.
The major source of funding for earning assets comes from
interest-bearing deposits generated within local markets. Total
interest-bearing deposits averaged 91% and 92% of total deposits as
of March 31, 1995 and 1994 respectively. Noninterest-bearing
deposits provided a secondary funding source.
Securities sold under repurchase agreements ("repos") are not
subject to FDIC assessment and generally involve less cost than
large certificates of deposit. Repos are high denomination
investments utilized by public intities and commercial customers as
an important element of their cash management responsibilities.
The Company intends to increase repos and ither short-term
borrowings throughtout 1995. Repurchase agreements averaged
$8,493,000 for the first three months of 1995, and $5,995,000 in
the same period of 1994.
Long-term debt decreased to $7,500,000 at the end of March 31, 1995
as compared to the same period last year. The Company incurred
additional debt to consummate the aquisition of Regional Bank in
1991. The Company prepaid $500,000 on long-term debt in the first
quarter of 1994.
INDIANA UNITED BANCORP
FORM 10-Q
Capital Resources
The Company's total shareholders' equity was $26,089,000 at March
31, 1995, and includes $2,200,000 of preferred stock. The Company
redeemed $200,000 of the preferred stock in the first quarter of
1995 and $300,000 in 1994.
The Federal Reserve Bank has adopted risk-based capital quidelines
which assign risk weightings to assets and off-balance sheet items.
Core capital (Tier 1) consists principally of shareholders' equity
less goodwill, while total capital consists of core capital,
certain debt instruments and a portion of the allowance for credit
losses. At March 31, 1995, Tier 1 capital to total assets was 8.8%
and total capital to total assets was 9.5%. Total capital to
risk-adjusted assets was 17.0%, substantially exceeding the
requirements of 8%.
The Company declared and paid first quarter common dividends of
$.16 per share in 1995 and $.14 in 1994. Book value per common
share decreased 2% to $19.10 from $19.55 on March 31, 1994 based on
common equity, net of unrealized losses of $950,000 on AFS
securities. The net adjustment for AFS securities reduced book
value by $.76 at quarter end 1995. Depending on market conditions,
the adjustments for AFS securities can cause significant
fluctuations in equity and make meaningful comparisons between
periods difficult. The dividend payment rate or preferred stock
was 6.34% during the past two years. A 10% stock dividend was
issued prior to year end to recordholders on December 20, 1994.
Liquidity
The primary obligation of the Company's asset/liability management
is maximizing earnings by safely and profitably managing net
interest income through responsible development of deposit accounts
and deployment of funds. This objective is accomplished by
responding to frequent fluctuations in market rates of interest due
to changes in economic conditions and consumer demands.
As of March 31, 1995, management met cash outflows for financing
activities primarily with cash equivalents and cash provided from
operations and investing activities.
INDIANA UNITED BANCORP
FORM 10-Q
The objective of the Company's liquidity management is to provide
adequate levels of funding to meet unexpected deposit withdrawals
and changes in loan demand. This goal is accomplished by
maintaining a source of liquidity consisting of payments received
from amortizing and maturing assets and the capacity to raise funds
through deposits and borrowed funds.
On March 31, 1995, the Company had approximately $197,078,000 in
one year interest-sensitive assets, comprised of securities, loans,
and time deposits. The Company's main source of funding earning
assets came from core deposits. Average core deposits funded
approximately 77% of total earning assets at March 31, 1995.
The Company's interest rate sensitivity analysis for the period
ended March 31, 1995, appears in the following table. Effective
asset and liability management requires the maintenance of a proper
ratio between maturing or repriceable interest-earning assets and
interest-bearing liabilities. It is the policy of the Company that
rate-sensitive assets less rate-sensitive liabilities to total
assets be kept within a range of 80% to 130%. The Company desires
to maintain a slightly negative gap when rates are declining and a
slightly positive gap when rates are increasing.
The Company is currently pursuing a strategy to attain a neutral to
a slightly negative gap position in the belief that the current
interest rate cycle is near its peak. In any event, the Company
does not anticipate that its earnings will be materially impacted
in 1995 regardless of the direction interest rates may trend.
Rate Sensitivity Analysis at March 31, 1995
Maturing or Repricing
Over 3-
3 Months 1 Year 3 Years 5 Years
Rate-sensitive assets $ 85,598 $111,480 $ 41,348 $ 20,360
Rate-sensitive liabilities 81,301 78,126 61,525 27,802
Rate sensitivity gap (assets less $ 4,297 $ 33,354 $(20,177) $( 7,442)
liabilities)
Rate sensitivity gap (cum.) $ 4,297 $ 37,651 $ 17,474 $ 10,032
Percent of total assets (cum.) 1.4% 12.4% 5.8% 3.3%
Rate-sensitive assets/liabilities (cum.) 105.3% 123.6% 107.9% 104.0%
*Interest-bearing transaction and savings accounts are not presented as
immediately repriceable in the above table.
INDIANA UNITED BANCORP
FORM 10-Q
Future Accounting Changes
The Company has determined that it and its subsidiaries have no
postretirement or postemployment benefit funding liabilities under
SFAS No. 106, Employers Accounting For Postretirement Benefits
Other Than Pensions, or SFAS No. 112, Employers Accounting for
Postemployment Benefits.
SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and
SFAS No. 118, Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures, eliminates inconsistencies in
the accounting among different types of creditors for loans with
similar collection problems by requiring a single method for
measuring impaired loans. The Company adopted this standard on
January 1, 1995 with no material effect on the Company's financial
postion or results of operation.
SFAS No. 116, Accounting for Contributions Received and
Contributions Made, is effective for the Company in 1995. This
statement did not have any significant impact upon the Company's
financial position or results of operations when adopted.
INDIANA UNITED BANCORP
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K.
20: The Financial Report dated March 31, 1995 and furnished to
Registrant's shareholders is attached to this Form 10-Q.
(b) No report on Form 8-K was filed during the quarter for which this
Quarterly Report is filed.
No other information is required to be filed under Part II of this form.
INDIANA UNTIED BANCORP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDIANA UNITED BANCORP
May 12, 1995 By:/s/Robert E. Hoptry
Robert E. Hoptry
Chairman and President
May 12, 1995 By:/s/Jay B. Fager
Jay B. Fager
Chief Financial Officer,
Treasurer and Principal
Accounting Officer
INDIANA UNITED BANCORP
FORM 10-Q
EXHIBIT INDEX
Page
20 The Financial Report dated March 31, 1995 and 30-34
furnished to Registrant's shareholders is attached