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 SEPTEMBER 30, 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 September 30, 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....................................... 7-9
Item 2. Managment's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10-25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................. 26
Signatures................................................ 27
INDIANA UNITED BANCORP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(Dollars in Thousands)
Sep. 30 Dec. 31
1995 1994
ASSETS
Cash and Due From Banks................. 8,247 8,549
Interest-bearing Demand Deposits........ 100 156
Federal Funds Sold...................... 3,457 2,875
Cash and Cash Equivalents............. 11,822 11,580
Interest-bearing Time Deposits.......... 0 147
Securities:
Available for Sale.................... 74,850 83,839
Held to Maturity...................... 7,868 8,115
Total Securities.................... 82,718 91,954
Loans:
Loans................................. 204,574 194,736
Less: Allowance for Loan Losses...... 2,720 2,784
Net Loans........................... 201,854 191,952
Premises & Equipment.................... 5,937 5,460
Federal Home Loan Bank Stock............ 1,138 1,138
Core Deposit Intangibles................ 152 182
Accrued Interest Receivable............. 1,966 1,896
Other Real Estate....................... 0 100
Other Assets............................ 680 1,638
Total Assets........................ 306,267 306,047
LIABILITIES
Deposits:
Non-Interest Bearing.................. 22,978 28,360
Interest Bearing...................... 233,128 233,011
Total Deposits...................... 256,106 261,371
Short-Term Borrowings................... 13,294 10,801
Long-Term Debt.......................... 6,500 7,500
Accrued Interest Payable................ 1,314 864
Other Liabilities....................... 1,661 1,229
Total Liabilities................... 278,875 281,765
SHAREHOLDERS' EQUITY
Preferred Stock, No Par Value:
Authorized--400,000 Shares
Issued and Outstanding-20,000 and
24,000 Shares........................ 2,000 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............ (195) (2,641)
Retained Earnings....................... 13,659 12,595
Total Shareholders' Equity.......... 27,392 24,282
Total Liabilities and
Shareholders' Equity.............. 306,267 306,047
See notes to consolidated condensed financial statements.
INDIANA UNITED BANCORP
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
Interest Income:
Loans, Including Fees 4,362 4,070 12,510 11,915
Securities:
Taxable 1,286 1,506 4,094 4,503
Tax-Exempt 50 69 166 191
Federal Funds Sold 84 11 152 76
Interest-Bearing Deposits 2 4 5 13
Total Interest Income 5,784 5,660 16,927 16,698
Interest Expense:
Deposits 2,713 2,455 7,595 7,438
Short-Term Borrowings 205 151 735 313
Long-Term Debt 142 162 474 459
Total Interest Expense 3,060 2,768 8,804 8,210
Net Interest Income 2,724 2,892 8,123 8,488
Provision for Loan Losses 9 30 18 115
Net Interest Income After
Provision for Loan Losses 2,715 2,862 8,105 8,373
Noninterest Income:
Securities Gains (Losses) 5 0 16 (152)
Other Operating Income 329 369 1,098 1,146
Total Noninterest Income 334 369 1,114 994
Noninterest Expense 2,003 2,304 6,269 6,965
Income Before Income Tax 1,046 927 2,950 2,402
Less Income Tax Expense 417 358 1,166 934
Net Income 629 569 1,784 1,468
Per Common Share:
Net Income 0.47 0.42 1.34 1.08
Cash Dividends Declared 0.17 0.15 0.49 0.44
Average Common Shares
Outstanding 1,250,897 1,250,897 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..................................... 1,784 1,468
Net change in unrealized loss on securities
available for sale........................... 2,446 (1,635)
Redemption of preferred stock.................. (400) (300)
Cash Dividends:
Preferred stock.............................. (108) (119)
Common stock................................. (612) (500)
Balance, September 30.......................... 27,392 24,117
See notes to consolidated condensed financial statements.
INDIANA UNITED BANCORP
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30
1995 1994
Cash Flows From Operating Activities:
Net income................................... 1,784 1,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses.................. 18 115
Depreciation and amortization.............. 475 494
Premiums and discounts amortization
on investment securities................. 56 94
Accretion of loan and deposit fair
value adjustments........................ 139 103
Amortization of core deposit intangibles... 30 34
Securities gains......................... (16) 152
Decrease in interest receivable............ (70) (27)
Decrease in interest payable............... 450 (44)
Other adjustments.......................... 775 618
Net cash provided by operating activities 3,641 3,007
Cash Flows From Investing Activities:
Proceeds from interest-bearing time deposits
maturities................................. 147 93
Purchases of securities available for sale... (6,064) (22,198)
Proceeds from maturities of securities
available for sale......................... 5,274 23,444
Proceeds from sales of securities available
for sale................................... 9,779 17,796
Purchase of securities held to maturity...... (324) 0
Proceeds from maturities of securities held
to maturity................................ 571 0
Net change in loans.......................... (9,838) (7,247)
Purchases of premises and equipment.......... (952) (274)
Proceeds from other real estate.............. 100 1,576
Other investment activities.................. 2,800 (1,397)
Net cash provided by
investing activities 1,493 11,793
Cash Flows From Financing Activities:
Net change in:
Non-interest bearing,NOW, money market and
savings deposits......................... (10,396) (14,646)
Certificates of deposit.................... 5,131 (14,483)
Short-term borrowings...................... 2,493 9,092
Payments on long-term debt................. (1,000) (925)
Redemption of preferred stock.............. (400) (300)
Cash dividends............................. (720) (619)
Net cash used by financing
activities........................... (4,892) (21,881)
Net increase (decrease) in Cash and
Cash Equivalents............................. 242 (7,081)
Cash and Cash Equivalents, Beginning of Period. 11,580 15,533
Cash and Cash Equivalents, End of Period....... 11,822 8,452
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
("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 Turst 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 nine
months ended September 30, 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 September 30, 1995
U.S. Treasury................... $ 3,018 $ 6 $ 23 $ 3,001
Federal Agencies................ 8,808 2 194 8,616
State and Municipal............. 910 7 2 915
Corporate and other securities.. 532 -- 67 465
Mortgage-backed securities...... 61,775 599 521 61,853
Totals..................... $ 75,043 $ 614 $ 807 $ 74,850
Gross Gross Approximate
Amortized Unrelaized Unrealized Market
Cost Gains Losses Value
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
1 Year Years Years Years Totals
Maturity Distributions at
September 30, 1995
U.S. Treasury.................... $ 997 $ 2,004 $ 3,001
Federal Agencies................. 2 8,449 $ 165 8,616
State and Municipal.............. 560 229 56 915
Corporate and other securities... $ 465 465
Mortgage-backed securities....... 115 6,046 4,000 51,692 61,853
Totals......................... $ 1,674 $16,798 $ 4,221 $52,157 $ 74,850
Weighted average yields.......... 6.48% 5.16% 7.97% 6.50% 6.34%
*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 September 30, 1995
U.S. Treasury.................. $ -- $ -- $ -- $ --
Federal Agencies............... 1,100 -- 34 1,066
State and Municipal............ 3,161 62 -- 3,223
Corporate and other Securities. -- -- -- --
Mortgage-backed securities..... 3,607 87 74 3,620
Totals.................... $ 7,868 $ 149 $ 108 $ 7,909
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
1 Year Years Years Years Totals
Maturity Distribution at
September 30, 1995
U.S. Treasury.................. $ -- $ -- $ -- $ -- $ --
Federal Agencies............... -- 1,100 -- -- 1,100
State and Municipal............ 322 906 1,933 -- 3,161
Corporate and other securities. -- -- -- -- --
Mortgage-backed securities..... -- 74 -- 3,533 3,607
Totals....................... $ 322 $ 2,080 $ 1,933 $ 3,533 $ 7,868
Weighted average yields........ 6.55% 6.05% 7.33% 6.52% 6.60%
INDIANA UNITED BANCORP
FORM 10-Q
NOTE 4.
Sep. 30 December 31
1995 1994
Loans:
Commercial.............................. $ 11,354 $ 7,595
Agricultural production financing
and other loans to farmers............ 10,637 7,859
Farm real estate........................ 29,033 28,358
Commercial real estate mortgage......... 25,141 25,619
Residential real estate mortgage........ 100,847 101,455
Construction and development............ 7,596 7,161
Consumer................................ 17,832 13,870
Government guaranteed loans purchased... 2,134 2,819
Total loans........................... $ 204,574 $ 194,736
Underperforming loans:
Nonaccruing loans $ 1,385 $ 1,030
Accruing loans contractually past
due 90 days or more as to principal
or interest payments 33 113
Restructured loans -- --
NOTE 5.
Deposits:
Noninterest bearing $ 22,978 $ 28,360
NOW accounts 29,936 35,085
Money market deposit accounts 34,779 39,550
Savings 28,540 23,857
Certificates of deposit $100,000 or more 20,796 16,420
Other certificates and time deposits 119,077 118,099
Total deposits $ 256,106 $ 261,371
NOTE 6.
Short-Term Borrowings:
Federal funds purchased $ -- $ --
Securities sold under
repurchase agreements 9,346 9,977
U.S. Treasury demand notes 1,948 824
Federal Home Loan Bank Advances 2,000 --
Total short-term borrowings $ 13,294 $ 10,801
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
twelve 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 late 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.
The plan was revised in mid-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
competitive changes within its markets, the interest rate
environment and other external forces.
INDIANA UNITED BANCORP
FORM 10-Q
Results of Operations
Third quarter 1995 income increased 10.5% to $629,000 as compared
to the same quarter last year. Earnings for the first nine months
of 1995 increased 21.5% to $1,784,000 as compared to the same
period in 1994. Non-interest income in the first nine months 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 reduced FDIC assessments
due to a lower assessment rate and 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 $.47 in the third quarter of 1995
compared to $.42 for the same period in 1994. Per share earnings
for the first nine months of 1995 and 1994 were $1.34 and $1.08
respectively. The Company's third quarter return on average total
assets was .81% in 1995 and .67% in 1994. Year-to-date return on
average total assets was .78% and .57% for 1995 and 1994. Return
on average shareholders' equity was 9.39% and 9.67% for the third
quarter of 1995 and 1994 respectively. Year-to-date return on
average shareholders' equity was 9.28% and 8.05% respectively for
1995 and 1994.
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
$8,123,000 in the first nine months of 1995 decreased $365,000 from
$8,488,000 in the first nine months of 1994, a decline of 4.3%.
In the first nine months of 1995, the Company's net interest margin
was 3.75% compared to 3.53% in the same 1994 period, reflecting an
increase of 22 basis points. Several changes in the investment
portfolio were made primarily in the first half of 1994 to improve
portfolio duration and reduce extension risk. Yield improvement
began to impact earnings in the last half of 1994 and has continued
somewhat in 1995.
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.
INDIANA UNITED BANCORP
FORM 10-Q
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 nine months of 1995 compared
to the similar 1994 period. Net charge-offs of $82,000 were
realized compared to $3,000 in net recoveries for the same period
in 1994. Further analysis is provided in the following tables.
Summary of Allowance for Loan Losses
(Dollars in Thousands)
1995 Year Ended
thru December 31,
Sep. 30 1994
Balance at beginning of period $2,784 $2,682
Chargeoffs:
Commercial 53 6
Real-estate mortgage 38 65
Installment 26 21
Total chargeoffs 117 92
Recoveries:
Commercial 1 37
Real-estate mortgage 27 15
Installment 7 27
Total recoveries 35 79
Net Chargeoffs 82 13
Provision for loan losses 18 115
Balance at end of period $2,720 $2,784
Ratio of net chargeoffs to average
loans outstanding during the period .04% .01%
Ratio of provision for loan losses to average
loans outstanding during the period .01% .06%
Ratio of allowance to total loans at
end of period 1.33% 1.43%
INDIANA UNITED BANCORP
FORM 10-Q
Allocation of the Allowance for Loan Losses
(Dollars in Thousands)
Sep. 30, 1995 December 31, 1994
Amount Percent Amount Percent
Real estate:
Residential $ 142 5% $ 146 5%
Agricultural 15 1 14 1
Commercial 633 23 702 25
Construction and development 82 3 52 2
Total real estate 872 32 914 33
Commercial:
Agribusiness 159 6 151 5
Other commercial 395 14 131 5
Total commercial 554 20 282 10
Consumer 124 5 66 2
Unallocated 1,170 43 1,522 55
Total $ 2,720 100% $ 2,784 100%
INDIANA UNITED BANCORP
FORM 10-Q
Noninterest Income
Noninterest income increased $120,000 or 12% in the first nine
months of 1995 as compared to 1994, primarily due to gains on the
sale of investment securities as compared to net losses in 1994.
Insurance income decreased $48,000 or 12% from the previous year
first nine months. 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 nine months have decreased 12% as compared to the prior 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 $25,000 or 7% 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
20% to $266,000.
Net gains on sales of investment securities were $16,000 for the
first nine months of 1995 compared to a $152,000 loss in 1994. The
sale of securities in 1995 for the first nine months resulted in
$161,000 in gross gains and $145,000 in gross losses. In the same
period for 1994, $24,000 in gross gains had been recognized and
$176,000 in gross losses. 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
Nine Nine
3rd Qtr. Months 3rd Qtr. Months
Insurance commissions $ 92 $ 349 $ 120 $ 397
Trust fees 44 144 53 163
Service charges on deposit
accounts 116 339 118 364
Gains (losses) on sales of
securities 5 16 -- (152)
Other income 77 266 78 222
$ 334 $1,114 $ 369 $ 994
INDIANA UNITED BANCORP
FORM 10-Q
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(Taxable Equivalent Basis)*
Nine Months Ended
September 30, 1995 September 30, 1994
Avg. Yield/ Avg. Yield/
Bal. Interest Rate Bal. Interest Rate
ASSETS
Interest-bearing deposits 100 5 6.68% 528 13 3.29%
Federal funds sold 3,432 152 5.92% 2,682 76 3.79%
Securities:
Taxable 87,580 4,094 6.23% 110,118 4,503 5.45%
Tax-exempt 4,427 252 7.59% 4,804 289 8.02%
Total securities 92,007 4,346 6.30% 114,922 4,792 5.56%
Loans:**
Commercial 64,682 4,546 9.40% 66,067 4,223 8.55%
Real estate mortgage 115,881 6,501 7.48% 124,972 6,420 6.85%
Installment 15,171 1,308 11.53% 14,187 1,133 10.65%
Government guaranteed
loans purchased 2,476 155 8.37% 3,119 139 5.96%
Total loans 198,210 12,510 8.43% 208,345 11,915 7.63%
Total earning assets 293,749 17,013 7.76% 326,477 16,796 6.90%
Allowance for loan losses (2,729) (2,749)
Unrealized losses on
securities (1,392) (741)
Cash and due from banks 7,489 7,676
Premises and equipment 5,753 6,494
Other assets 3,209 4,514
Total assets 306,079 341,671
LIABILITIES
Interest bearing deposits:
NOW and Super NOW
accounts 30,984 627 2.71% 36,331 625 2.30%
Money market investment
accounts 35,608 968 3.63% 44,514 905 2.72%
Savings 25,888 632 3.26% 29,095 564 2.59%
Certificates of deposit
and other time
deposits 136,519 5,368 5.26% 159,976 5,344 4.47%
Total interest bearing
deposits 228,999 7,595 4.43% 269,916 7.438 3.68%
Short-term borrowings 16,677 735 5.89% 11,160 313 3.75%
Long-term debt 7,104 474 8.92% 8,908 459 6.89%
Total interest bearing
liabilities 252,780 8,804 4.66% 289,984 8,210 3.79%
Noninterest bearing demand
deposits 23,797 23,514
Other liabilities 3,081 3,272
Total liabilities 279,658 316,770
Shareholders' equity 26,421 24,901
Total liabilities and
shareholders' equity 306,079 8,804 4.01%*** 341,671 8,210 3.37%***
Net interest income 8,209 3.75% 8,586 3.53%
Adjustment to convert tax exempt
securities and loans to a fully
taxable equivalent basis using
a marginal rate of 34% 86 98
* 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 decreased $146,000 or approximately 4% in
the first nine months of 1995 as compared to the same period in
1994. Included in personnel expense is $42,000 attributable to the
performance based employee incentive program which was initiated by
the Company at the beginning of 1995. Personnel expense reductions
experienced with the merging of Union Bank and Peoples Bank and the
sale of Regional Bank's branches have been partially 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 $170,000 in 1995 compared to the prior
year first nine months due to a reduction in amounts paid to the
investment advisor retained by the Company in 1994 as well as a
reduction in legal fees due to nonrecurring litigation. Deposit
insurance was $190,000 less in 1995 than the same nine month
period last year due to a lower rate and 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. The FDIC has recently reduced premiums by 82.6% for
deposit insurance paid for by commercial banks. This decrease
translates into an annual savings of approximately $300,000. The
FDIC has also decided to retain the current premium rates paid by
thrift institutions, and is currently evaluating several proposals
for the recapitalization of the Savings Association Insurance Fund
(SAIF). It now appears Congress will pass legislation to merge the
bank and thrift components of the FDIC insurance fund and will
mandate the conversion of thrifts to commercial bank charters.
Such legislation is likely to result in a one-time assessment of
all thrift institutions of up to $.90 per $100 in deposits,
creating a nonrecurring pre-tax change of as much as $800,000 for
Regional Bank. Subject to resolving contentious ancillary issues,
the Company strongly endorses passage of this legislation this year
and believes immediate enactment would greatly enhance Regional
Bank's long-term performance. All other noninterest expenses
decreased $190,000 in the first nine months of 1995 as compared to
the prior year period, 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.
INDIANA UNITED BANCORP
FORM 10-Q
(Dollars in Thousands) 1995 1994
Nine Nine
3rd Qtr Months 3rd Qtr Months
Salaries and employee $1,140 $3,382 $1,160 $3,528
benefits
Premises and equipment 361 1,112 401 1,171
expenses
Professional fees 43 159 104 329
Amortization of core deposit
intangibles 10 30 11 34
Deposit insurance/supervisory 50 372 180 562
assessment
Stationary, printing, supplies 66 217 104 276
Insurance 29 97 39 108
Postage 42 140 44 154
Other operating expenses 262 760 261 803
$2,003 $6,269 $2,304 $6,965
Income Taxes
Income tax expense for the first nine months of 1995 was $1,166,000
compared to $934,000 for the same period in 1994, and the effective
tax rates are approximately 39% for both years. The increase in
tax expense in 1995 compared to 1994 is primarily attributable to
the increase in taxable income.
The Company and its subsidiaries will file a consolidated federal
income tax return in 1995.
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.
INDIANA UNITED BANCORP
FORM 10-Q
Financial Condition
Total assets and average assets for 1995 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.
In the first nine months of 1995 assets decreased to $306,267,000
from $332,676,000 at September 30, 1994. Assets averaged
$306,079,000, a decrease of $35,592,000 from the first nine months
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.
Average interest-bearing deposits decreased $40,917,000 or 15% in
the first nine months 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 $6,500,000 is the remaining balance of 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. The
Company prepaid $625,000 of the long-term debt in June 1995.
Interest is variable with the lender's prime rate less 25 basis
points. The rate was recently renegotiated with the lender and the
new rate became effective July 1, 1995. The Company believes it
has complied with all terms and covenants of the loan agreement.
Shareholders' equity may be 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.
INDIANA UNITED BANCORP
FORM 10-Q
Shareholders' equity was $27,392,000 on September 30, 1995,
compared to $24,117,000 in 1994. Book value per common share
increased to $20.30 or 17% from $17.36 at September 30, 1994. The
unrealized loss on securities available for sale after tax effect
totaled $195,000 or $.16 per share on September 30, 1995.
Excluding the net unrealized loss on securities available for sale,
book value per share was $20.46 or an increase of 9.6% over the
comparable book value at September 30, 1994. A 10% common stock
dividend was issued to shareholders of record in December 1994.
The Company redeemed $400,000 of its preferred stock in 1995 and
$300,000 in 1994.
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 September 30, 1995 were
$204,574,000, a decrease of $8,181,000 or 3.8% as compared to
September 30, 1994.
Underperforming assets, including $1,418,000 in nonaccrual,
restructured and certain other loans, and zero in other real estate
owned, totaled $1,418,000 at September 30, 1995, compared to
$1,072,000 and $100,000 at September 30, 1994. Underperforming
loans of the Company as of September 30, 1995 were .7% 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 has expanded 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.
INDIANA UNITED BANCORP
FORM 10-Q
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 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.
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.
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 September 30, 1995 is considered
adequate by management.
INDIANA UNITED BANCORP
FORM 10-Q
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 value, with unrealized gains and
losses included in earnings.
As of September 30, 1995 the Company has designated $7,868,000 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 nine months of 1995, the Company classified
$74,850,000 or 91% of total securities as AFS. In the same period
last year, $96,313,000 in securities were designated as AFS
representing approximately 92% of total securities. AFS securities
are carried at fair value with unrealized gains and losses excluded
from earnings and reported as a separate component of shareholders'
equity.
The Company's decision to categorize a much larger portion of its
securities portfolio as AFS than its peer group provides far
greater management flexibility in responding to changes within
financial markets.
INDIANA UNITED BANCORP
FORM 10-Q
In recent weeks, the Financial Accounting Standards Board has
announced that a one-time opportunity may be taken in the fourth
quarter of 1995, to realign securities from the hold to maturity
classification to available for sale without "tainting the
portfolio". At this time, it appears the Company will maintain its
current portfolio designations, possibly with only minor changes.
Source of Funds
No recommendations by regulatory authorities exist which would
materially affect liquidity, capital resources or operations.
Earning assets are funded by deposits, short-term borrowings,
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 September 30, 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 entities and commercial customers as
an important element of their cash management responsibilities.
Repurchase agreements averaged $9,911,000 for the first nine months
of 1995, and $8,336,000 in the same period of 1994.
Long-term debt decreased to $6,500,000 at the end of September 30,
1995, a $1,950,000 decrease as compared to the same period last
year. The Company prepaid $625,000 on long-term debt in the first
nine months of 1995 and $500,000 in the first nine months of 1994.
Capital Resources
The Company's total shareholders' equity was $27,392,000 at
September 30, 1995, and includes $2,000,000 of preferred stock.
The Company redeemed $400,000 of the preferred stock in the first
nine months of 1995 and $300,000 during the same period in 1994.
INDIANA UNITED BANCORP
FORM 10-Q
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 September 30, 1995, Tier 1 capital to total assets was
8.6% and total capital to total assets was 8.9%. Total capital to
risk-adjusted assets was 16.6%, substantially exceeding the
requirements of 8%.
The Company declared and paid third quarter common dividends of
$.17 per share in 1995 and $.15 in 1994. Book value per common
share increased 17% to $20.30 from $17.36 on September 30, 1994
based on common equity, net of unrealized losses of $195,000 on AFS
securities. The net adjustment for AFS securities reduced book
value by $.16 at September 30, 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 on 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.
Cash inflows from operating and investing activites were utilized
to meet cash outflows for financing activities.
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.
INDIANA UNITED BANCORP
FORM 10-Q
On September 30, 1995, the Company had approximately $198,589,000
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 81% of total earning assets at September 30,
1995.
The Company's interest rate sensitivity analysis for the period
ended September 30, 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
the remainder of 1995 regardless of the direction interest rates
may trend.
Rate Sensitivity Analysis at September 30, 1995
Maturing or Repricing
Over 3-
3 Months 1 Year 3 Years 5 Years
Rate-sensitive assets $ 93,917 $104,672 $ 35,988 $ 23,940
Rate-sensitive liabilities* 76,093 86,688 60,828 28,218
Rate sensitivity gap (assets less $ 17,824 $ 17,984 $(24,840) $( 4,278)
liabilities)
Rate sensitivity gap (cum.) $ 17,824 $ 35,808 $ 10,968 $ 6,690
Percent of total assets (cum.) 5.8% 11.7% 3.6% 2.2%
Rate-sensitive assets/liabilities (cum.) 123.4% 122.0% 104.9% 102.7%
*Interest-bearing transaction and savings accounts are not presented as
immediately repriceable in the above table.
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.
INIANA 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 September 30, 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 UNITED BANCORP
FORM 10-Q
SIGNATURES
Pursuant to the requrements 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
November 13, 1995 By:
Robert E. Hoptry
Chairman and President
November 13, 1995 By:
Jay B. Fager
Chief Financial Officer,
Treasurer and Principal
Accounting Officer
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
November 13, 1995 By:/s/Robert E. Hoptry
Robert E. Hoptry
Chairman and President
November 13, 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 September 30, 1995 and 29-36
furnished to Registrant's shareholders is attached