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:
- ---------------------
September 30, 2000 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
--------------
Securities registered pursuant to Section 12(g) of Act:
Common Stock, par value $1.00 per share
- ---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES XX NO
-- ---
As of November 6, 2000, there were issued and outstanding 3,146,616 shares of
the registrant's common stock.
1 of 18 Pages
AMERIANA BANCORP AND SUBSIDIARIES
CONTENTS
PART I - FINANCIAL INFORMATION Page No.
-------
ITEM 1 - Financial statements
Consolidated Condensed Statements of Condition
as of September 30, 2000, December 31, 1999 and
September 30, 1999 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statements of Income for
the Three Months and Nine Months Ended
September 30, 2000 and 1999. . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 . . . 5
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3 - Quantitative and Qualitative Disclosure
About Interest Rate Risk. . . . . . . . . . . .11
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . .14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
EDGAR - Financial Data Schedule. . . . . . . . . . . . . . . . . . . . .17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION - Unaudited
September 30, 2000 December 31, 1999 September 30, 1999
------------------ ----------------- ------------------
Assets
Cash on hand and in other institutions $ 8,610,098 $ 14,636,884 $ 9,819,487
Interest-bearing demand deposits 4,144,464 5,295,715 4,331,420
Interest-bearing time deposits -- 1,499,000 4,686,000
Investment securities held to maturity (fair
value of $83,011,000, $81,481,000
and $83,771,000, respectively) 87,858,848 87,735,008 87,699,343
Mortgage-backed securities held to maturity (fair
value of $11,847,000, $14,787,000
and $15,737,000, respectively) 11,991,349 14,970,002 15,856,962
Mortgage loans held for sale 590,520 207,400 194,016
Loans receivable 385,581,303 326,804,739 304,066,951
Allowance for loan losses (1,399,989) (1,534,278) (1,339,109)
------------ ------------ ------------
Net loans receivable 384,181,314 325,270,461 302,727,842
Real estate owned 26,967 100 37,949
Premises and equipment 7,340,178 7,117,271 6,220,334
Stock in Federal Home Loan Bank 6,052,700 4,341,300 4,152,200
Mortgage servicing rights 852,065 910,273 927,837
Investments in unconsolidated affiliates 1,065,469 1,179,244 1,231,727
Intangible assets 1,715,259 1,852,360 1,900,085
Cash surrender value of life insurance 16,902,479 16,117,534 15,938,571
Other assets 4,683,478 5,216,868 4,199,786
------------ ------------ ------------
Total assets $ 536,015,188 $ 486,349,420 $ 459,923,559
============ ============ ============
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 17,056,929 $ 16,308,154 $ 14,854,133
Interest-bearing 353,895,138 339,450,706 346,653,356
------------ ------------ ------------
Total deposits 370,952,067 355,758,860 361,507,489
Advances from Federal Home Loan Bank 111,717,222 82,510,982 45,314,666
Notes payable 2,420,456 -- --
Drafts payable 3,407,188 3,901,316 3,099,641
Advances by borrowers for taxes and insurance 1,174,481 823,111 949,244
Other liabilities 4,918,902 3,326,611 5,245,630
------------ ------------ ------------
Total liabilities 494,590,316 446,320,880 416,116,670
Shareholders' equity:
Preferred stock (5,000,000 shares authorized;
none issued) -- -- --
Common stock ($1.OO par value; authorized
15,000,000 shares; issued shares:
3,146,616; 3,145,791 and 3,389,876, respectively) 3,146,616 3,145,791 3,345,897
Additional paid-in capital 499,532 492,227 4,199,667
Retained earnings-substantially restricted 37,778,724 36,390,522 36,261,325
------------ ------------ ------------
Total shareholders' equity 41,424,872 40,028,540 43,806,889
------------ ------------ ------------
Total liabilities and shareholders' equity $ 536,015,188 $ 486,349,420 $ 459,923,559
============ ============ ============
See accompanying notes.
3
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ----------- ------------
Interest Income:
Interest on loans $ 7,664,593 $ 5,446,383 $ 21,512,658 $ 15,690,115
Interest on mortgage-backed securities 222,977 255,256 691,239 841,037
Interest on investment securities 1,514,351 1,419,246 4,540,068 3,598,290
Other interest and dividend income 176,804 221,911 488,661 982,379
------------ ------------ ------------ ------------
Total interest income 9,578,725 7,342,796 27,232,626 21,111,821
Interest Expense:
Interest on deposits 4,551,443 3,832,101 12,835,130 10,973,583
Interest on FHLB advances and other loans 2,013,859 423,875 5,105,271 918,602
------------ ------------ ------------ ------------
Total interest expense 6,565,302 4,255,976 17,940,401 11,892,185
------------ ------------ ------------ ------------
Net interest income 3,013,423 3,086,820 9,292,225 9,219,636
Provision for Loan Losses 119,001 30,000 298,001 97,500
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,894,422 3,056,820 8,994,224 9,122,136
Other Income:
Net loan servicing fees 66,485 68,635 223,073 187,676
Other fees and service charges 317,820 267,813 892,522 725,970
Brokerage and insurance commissions 254,478 298,328 843,887 958,008
Net loss on investments in unconsolidated affiliates (39,955) (11,093) (113,775) (157,891)
Gains on sales of loans and servicing rights 27,714 47,046 61,939 363,740
Increase in cash surrender value of life insurance 186,942 175,119 784,945 254,764
Other 44,003 40,286 119,554 105,230
------------ ------------ ------------ ------------
Total other income 857,487 886,134 2,812,145 2,437,497
Other Expense:
Salaries and employee benefits 1,614,628 1,500,248 4,950,416 4,440,351
Net occupancy expense 393,384 352,846 1,123,756 1,055,816
Federal insurance premium 18,282 44,467 55,930 136,253
Data processing expense 65,282 57,843 207,920 201,054
Printing and office supplies 64,309 60,048 226,693 232,250
Amortization of intangible assets 45,700 47,725 137,101 142,685
Other 453,010 357,475 1,390,375 1,356,515
------------ ------------ ------------ ------------
Total other expense 2,654,595 2,420,652 8,092,191 7,564,924
------------ ------------ ------------ ------------
Income before income taxes 1,097,314 1,522,302 3,714,178 3,994,709
Income taxes 233,956 449,599 909,999 1,263,750
------------ ------------ ------------ ------------
Net Income $ 863,358 $ 1,072,703 $ 2,804,179 $ 2,730,959
============ ============ ============ ============
Basic Earnings Per Share $ 0.27 $ 0.32 $ 0.89 $ 0.80
============ ============ ============ ============
Diluted Earnings Per Share $ 0.27 $ 0.32 $ 0.89 $ 0.79
============ ============ ============ ============
Dividends Declared Per Share $ 0.15 $ 0.15 $ 0.45 $ 0.45
============ ============ ============ ============
See accompanying notes.
4
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Unaudited
Nine Months Ended September 30,
-------------------------------
2000 1999
------------ -------------
OPERATING ACTIVITIES
Net income $ 2,804,179 $ 2,730,959
Adjustments to reconcile net income to net
cash provided by operating activities:
Provisions for losses on loans and real estate owned 298,001 119,100
Depreciation and amortization 371,131 438,505
Equity in loss of limited partnership 113,775 192,728
Mortgage servicing rights amortization 81,341 165,788
Goodwill amortization 137,101 157,379
Deferred income taxes -- (2,615)
Losses (gains) on sales of real estate owned 12,805 (143)
Increase in cash surrender value of life insurance (784,945) (254,764)
Mortgage loans originated for sale (6,348,654) (22,114,492)
Proceeds from sales of Mortgage loans 6,004,340 26,382,533
Gains on sales of loans and servicing rights (61,939) (297,478)
Decrease in other assets 533,390 129,601
Decrease in drafts payable (494,128) (1,254,151)
Increase in other liabilities 1,943,507 1,299,110
------------- ------------
Net cash provided by operating activities 4,609,904 7,692,060
INVESTING ACTIVITIES
Net change in interest-bearing time deposits 1,499,000 (1,199,000)
Purchase of investment securities held to maturity -- (43,057,489)
Proceeds from calls of securities held to maturity -- 6,992,969
Principal collected on mortgage-backed securities held to maturity 2,941,319 4,286,624
Net change in loans (59,240,589) (41,109,307)
Proceeds from sale of real estate owned 156,380 93,951
Net purchases of premises and equipment (679,537) (528,894)
Premiums paid on life insurance -- (15,461,000)
Other investing activities (1,876,724) (542,337)
------------- ------------
Net cash used by investing activities (57,200,151) (90,524,483)
FINANCING ACTIVITIES
Net change in demand and passbook deposits (153,729) 4,961,936
Net change in certificates of deposit 15,346,936 22,556,250
Advances from Federal Home Loan Bank 219,400,000 37,400,000
Repayment of Federal Home Loan Bank advances (190,193,760) (9,186,033)
Increase in notes payable 2,420,456 --
Proceeds from exercise of stock options 8,131 96,396
Purchase of common stock -- (2,836,632)
Cash dividends paid (1,415,824) (1,559,824)
------------- ------------
Net cash provided by financing activities 45,412,210 51,432,093
------------- ------------
Decrease in cash and cash equivalents (7,178,037) (31,400,330)
Cash and cash equivalents at beginning of period 19,932,599 45,551,237
------------- ------------
Cash and cash equivalents at end of period $ 12,754,562 $ 14,150,907
============= ============
Supplemental information:
Interest paid $ 15,778,125 $ 11,959,544
Income taxes paid 841,000 1,440,000
See accompanying notes.
5
AMERIANA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- ----------------------------------------------------
NOTE A - - BASIS OF PRESENTATION
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 as of September 30, 2000 and December 31, 1999, and
the results of operations for the three month and nine month periods ended
September 30, 2000 and 1999 and changes in cash flows for the nine months ended
September 30, 2000 and 1999. 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, 1999.
NOTE B - - SHAREHOLDERS' EQUITY
On August 28, 2000, the Board of Directors declared a quarterly cash dividend of
$.15 per share. This dividend, totaling $471,992, was accrued for payment to
shareholders of record on September 15, 2000, and was paid on October 6, 2000.
During the quarter ended March 31, 2000, 825 new shares were issued from
exercise of stock options and total equity increased $8,131 due to cash proceeds
and tax benefits of the stock option exercises. No exercises of stock options
were completed in the second or third quarters of 2000.
Earnings per share were computed as follows:
Three Months Ended September 30,
-------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to
Common shareholders $863,358 3,146,616 $.27 $1,072,703 3,371,287 $ .32
Effect of dilutive stock options -- 55 -- 31,345
- -------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Income available to
common shareholders and
assumed conversions $863,358 3,146,671 $.27 $1,072,703 3,402,632 $ .32
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to
Common shareholders $2,804,179 3,146,396 $.89 $2,730,959 3,426,700 $ .80
Effect of dilutive stock options -- 108 -- 30,341
- -------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Income available to
common shareholders and
assumed conversions $2,804,179 3,146,504 $.89 $2,730,959 3,457,041 $ .79
- -------------------------------------------------------------------------------------------------------------------
6
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 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.
RESULTS OF OPERATIONS
- ---------------------
During the first nine months of 2000, the loan volume consisted of variable rate
consumer mortgages, consumer loans and commercial real estate loans. Fixed rate
consumer mortgages, most of which are sold to the secondary market with
servicing retained, started to increase in the latter portion of September 2000
as the rates decreased below 8% for fifteen year loans and 8.25% for 30 year
loans. The loans outstanding increased $58,776,564 and 17.98% to $385,581,303
during the nine months from $326,804,739 at December 31, 1999. The mortgage
loans held for sale increased to $590,520 at September 30, 2000, from $207,400
at December 31, 1999, and consists of loans that had been committed to be sold
to the secondary market and had not been delivered as of the end of the period.
Sales of loans to the secondary market significantly decreased to $6,004,340
during the first nine months of 2000 compared to $26,382,533 during the same
period in 1999. This had a significant effect on the gain on sale of loans in
2000. See comments on other income for detail of gains on loans sold. This
reduction is due to consumer mortgages being made as variable rate loans and
being retained in portfolio verses in 1999 more of these loans were made as
fixed rate loans and sold to the secondary market.
7
The net interest spread, difference between yield on interest-earning assets and
cost on interest-bearing liabilities, has decreased .69% during the third
quarter of 2000 compared to the same period in 1999 and has decreased .46%
during the first nine months of 2000 compared to 1999. Rates in general have
increased and using the Prime rate as an indicator, it averaged 7.87% during the
first nine months of 1999 and increased four times during the last twelve month
period ended September 30, 2000. Prime averaged 9.50% during the third quarter
of 2000 and 9.15% during the first nine months of 2000. The net yield decrease
is due to the interest yield increase of .41% on interest-earning average assets
for the third quarter being more than offset by the 1.10% rate increase in cost
on interest-bearing average liabilities for the third quarter. The fact that
yields on average assets did not increase as fast as costs of liabilities during
2000 is the result of making variable rate consumer mortgages, at lower rates
than fixed rate consumer mortgages during 1999 and retaining them in portfolio.
The larger increase of the cost of liabilities has resulted from increased rates
on the Federal Home Loan Bank ("FHLB") borrowings and deposit costs during 2000.
The FHLB borrowings and certificates of deposits were extended to longer-term
borrowings to more closely match asset maturities in order to lower the interest
rate risk and resulted in increased costs during 2000 and the third quarter of
2000. The yield on average earning assets increased .35% during the first nine
months of 2000 while the yield on average interest bearing liabilities increased
.81%.
The following table summarizes the Company's average interest-earning assets,
average interest-bearing liabilities and net interest-earning assets with the
accompanying average rates for the third quarter and first nine months of 2000
and 1999:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in Thousands)
Average interest-earning assets $493,805 $398,316 $475,423 $386,451
Average interest-bearing liabilities 461,803 369,851 445,077 347,607
------- ------- ------- -------
Net interest-earning assets $ 32,002 $ 28,465 $ 30,346 $ 38,844
------- ------- ------- -------
Average yield on:
Average interest-earning assets 7.72% 7.31% 7.65% 7.30%
Average interest-bearing liabilities 5.66 4.56 5.38 4.57
---- ---- ---- ----
Net interest spread 2.06% 2.75% 2.27% 2.73%
---- ---- ---- ----
Net interest income for the third quarter 2000 was $3,013,423 and was $73,397
and 2.38% less than $3,086,820 during the third quarter of 1999. This decrease
is due to higher interest expense more than offsetting higher interest income.
The $2,236,000 increase in interest income on average interest-earning assets is
a combination of an increase of $1,884,000 because of the increase in the volume
mix of average outstanding interest-bearing assets plus $352,000 because of
increased rates on average interest-earning assets. The increase of $2,309,000
in cost of interest-bearing liabilities is a combination of an increase of
$1,510,000 from higher average balances and $799,000 from higher rates on
average interest-bearing liabilities. The net interest margin ratio, which is
net interest income divided by average earning assets, decreased to 2.43% for
the third quarter 2000 compared to 2.75% for the third quarter of 1999.
Net interest income for the first nine months of 2000 was $9,292,225 and was
$72,589 and .79% more than $9,219,636 during the first nine months of 1999. This
increase is due to higher interest expense being more than offset by higher
interest income. The $6,121,000 increase in interest income on average
interest-earning assets is a combination of an increase of $5,221,000 because of
the increase in the volume mix of average outstanding interest-bearing assets
plus $900,000 because of increased rates on average interest-earning assets. The
increase of $6,048,000 in cost of interest-bearing liabilities is a combination
of an increase of $4,540,000 from higher average balances and $1,508,000 from
higher rates on average interest-bearing liabilities. The net interest margin
ratio, which is net interest income divided by average earning assets, decreased
to 2.61% for the first nine months of 2000 compared to 3.19% for the first nine
months of 1999.
8
The following table sets forth the details of the rate and volume change for the
third quarter and first nine months of 2000 compared to the third quarter and
first nine months of 1999, respectively:
Three Months Ended September 30, Nine Months Ended September 30,
2000 vs. 1999 2000 vs. 1999
------------- -------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
---------------- ----------------
(Dollars in Thousands)
---------------------
Volume Rate Net Change Volume Rate Net Change
------ ---- ---------- ------ ---- ----------
Interest Income:
Loans and mortgage-backed securities $1,849 $ 337 $2,186 $5,225 $ 448 $5,673
Other interest-earning assets 35 15 50 (4) 452 448
----- ---- ----- ------ ----- -----
Total interest-earning assets 1,884 352 2,236 5,221 900 6,121
----- ---- ----- ------ ----- -----
Interest Expense:
Deposits 161 558 719 742 1,119 1,861
FHLB advance and other loans 1,349 241 1,590 3,798 389 4,187
----- ---- ----- ----- ----- -----
Total interest-bearing liabilities 1,510 799 2,309 4,540 1,508 6,048
----- ---- ----- ----- ----- -----
Change in net interest income $ 374 $(447) $ (73) $ 681 $ (608) $ 73
----- ---- ------ ----- ----- -----
The provision for loan losses was $119,001 during the third quarter of 2000
compared to $30,000 during the same period in 1999. The provision for loan
losses for the nine months ended September 30, 2000, was $298,001 compared to
$97,500 for the first nine months of 1999. Net charge-offs were $432,000 and
$43,000 for 2000 and 1999 first nine months, respectively. A large portion of
the net charge-offs during 2000 included a loan for $172,000 charged-off during
the first quarter and it had been identified and provided for during the last
quarter of 1999. Another large portion of the 2000 charge-offs included a loan
charged-off during the second quarter for $205,000, which may be at least
partially recovered, but the recovery may take years to complete. The following
table summarizes the Company's non-performing assets at:
September 30, December 31, September 30,
2000 1999 1999
---- ---- -----
(Dollars in Thousands)
Loans:
Non-accrual $ 597 $1,171 $ 953
Over 90 days delinquent 37 25 35
Trouble debt restructured 198 751 894
Real estate owned (at market value) 27 0 38
---- ----- -----
Total $ 859 $1,947 $1,920
----- ----- -----
Management believes the allowance for loan losses is adequate and that
sufficient provision has been provided to absorb any losses, which may
ultimately be incurred on non-performing loans and the remainder of the
portfolio. The allowance for loan losses as a percentage of loans at the end of
the period was .36%, .47% and .44% at September 30, 2000, December 31, 1999 and
September 30, 1999, respectively.
Total other income for the third quarter of 2000 decreased $28,647 and 3.23% to
$857,487 from $886,134 in the same period during 1999. Total other income for
the nine months ended September 30, 2000, was up $374,648 and 15.37% to
$2,812,145 from $2,437,497 during the first nine months of 1999. As noted
earlier, sales of loans to the secondary market reduced dramatically in 2000
compared to 1999 and gains on sales of loans and servicing rights during the
third quarter of 2000 decreased $19,332 and 41.09% to $27,714 from $47,046
during the same period in 1999. Gains on sales of loans and servicing rights
decreased $301,801 and 82.97% during the nine months ended September 30, 2000,
to $61,939 from $363,740 during the same period in 1999. Brokerage and insurance
commissions decreased $114,121 and 11.91% for the nine months due to lower loan
demand. Gains for the nine months were noted in net loan servicing fees
increasing $35,397 and 18.86%, other fees and servicing increasing $166,552 and
22.94% and net loss on investment in unconsolidated affiliate increasing because
of the loss being lower by $44,116 and 27.94%. Cash surrender value of life
insurance had a significant increase to $784,945 in 2000 versus only $254,764 in
1999 for an increase of $530,181. The banks invested in life insurance products
during the third quarter of 1999 and this investment partially
9
accounted for the large increase in insurance income. This category also
included one-time adjustments to certain cash surrender values on life insurance
policies carried on retired executives in the amount of approximately $197,000
that was booked in first quarter 2000.
Total other expense increased $233,943 and 9.66% during the third quarter of
2000 to $2,654,595 from $2,420,652 during the same period in 1999 and increased
$527,267 and 6.97% to $8,092,191 during the first nine months of 2000 from
$7,564,924 during the first nine months of 1999. The majority of these expense
increases are due to operating one more branch in 2000 than in 1999 and
operating a trust department in 2000 and not in 1999. The efficiency ratio,
which is other expense (not including amortization of goodwill) divided by net
interest income before the provision for loan losses plus other income,
decreased to 67.40% for the third quarter of 2000 compared to 59.73% for the
third quarter of 1999 and decreased to 65.72% for the first nine months of 2000
compared to 63.67% for the first nine months of 1999.
The tax rate during the third quarter of 2000 was 21.32% and was 24.50% for the
first nine months of 2000 compared to 29.53% and 31.64% for the same periods in
1999. These tax rate decreases are mostly due to the nontaxable income from the
life insurance policies in 2000 compared to 1999. The 2000 taxes also include a
reduction of state taxes due to a ruling of non-taxability on out-of-state
income which was quantified with the completion of the 1999 tax returns.
FINANCIAL CONDITION
- -------------------
The Company's principal sources of funds are cash generated from operations,
deposits, loan principal repayments and advances from the FHLB. As of September
30, 2000, the Company's cash and interest-bearing demand deposits totaled
$12,754,562 and 2.38% of total assets. This compares with $19,932,599 and 4.10%
of total assets at December 31, 1999. The Company's banking subsidiaries,
Ameriana Bank and Trust of Indiana ("ABI") and Ameriana Bank of Ohio ("ABO")
have regulatory liquidity ratios of 21.45% and 7.69%, respectively, which
exceeds the 4.0% liquidity base set by the Office of Thrift Supervision ("OTS").
The regulatory minimum net worth requirement of 8% for ABI and ABO under the
most stringent of the three capital regulations (total risk-based capital to
risk-weighted assets) at September 30, 2000, was $19,123,000 and $5,040,000,
respectively. At September 30, 2000, ABI had total risk-based capital of
$33,162,000 and a 13.87% ratio and ABO had risk-based capital of $8,765,000 and
a 13.91% ratio.
At September 30, 2000, the Company's commitments for loans in process totaled
$19,974,000, with 96% being for real estate secured loans. Management believes
the Company's liquidity and other sources of funds will be sufficient to fund
all outstanding commitments and other cash needs.
10
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT INTEREST RATE RISK
Interest Rate Risk
ABI and ABO are subject to interest rate risk to the degree that their
interest-bearing liabilities, deposits and FHLB borrowings, mature or reprice at
different rates than their interest-earning assets. Although having liabilities
that mature or reprice less frequently on average than assets will be beneficial
in times of rising interest rates, such an asset/liability structure will result
in lower net income during periods of declining interest rates, unless offset by
other factors.
It is important to ABI and ABO to manage the relationship between interest rates
and the effect on their net portfolio value ("NPV"). This approach calculates
the difference between the present value of expected cash flows from assets and
the present value of expected cash flows from liabilities, as well as cash flows
from off-balance sheet contracts. Assets and liabilities are managed within the
context of the marketplace, regulatory limitations and within its limits on the
amount of change in NPV, which is acceptable given certain interest rate
changes.
The OTS issued a regulation, which uses a net market value methodology to
measure the interest rate risk exposure of savings associations. Under this OTS
regulation an institution's "normal" level of interest rate risk in the event of
an assumed change in interest rates is a decrease in the institution's NPV in an
amount not exceeding 2% of the present value of its assets. Savings associations
with over $300 million in assets or less than a 12% risk-based capital ratio are
required to file OTS Schedule CMR. Data from Schedule CMR is used by the OTS to
calculate changes in NPV (and the related "normal" level of interest rate risk)
based upon certain interest rate changes (discussed below). Associations, which
do not meet either of the filing requirements, are not required to file OTS
Schedule CMR, but may do so voluntarily. ABI and ABO both file Schedule CMR. As
ABO does not meet either of these requirements, it is not required to file
Schedule CMR, although it does so voluntarily. Under the regulation,
associations that must file are required to take a deduction (the interest rate
risk capital component) from their total capital available to calculate their
risk-based capital requirement if their interest rate exposure is greater than
"normal." The amount of that deduction is one-half of the difference between (a)
the institution's actual calculated exposure to a 200 basis point interest rate
increase or decrease (whichever results in the greater pro forma decrease in
NPV) and (b) its "normal" level of exposure which is 2% of the present value of
its assets on the Thrift Financial Report filed two quarters earlier.
The following information and schedules for ABO and ABI are required
information. The current analysis for ABO and ABI performed by the OTS as of
September 30, 2000, has not been received from the OTS and the following
interest rate risk measurements for ABO and ABI are being submitted with
information from the OTS analysis as of June 30, 2000. Management believes there
has been no significant increase in the interest rate risk measures since June
30, 2000, for either ABO or ABI. Both banks have instituted measures to reduce
their interest rate risk results by extending maturities of deposits and FHLB
advances and by retaining more variable verses fixed rate loans.
Presented below, as of June 30, 2000, is an analysis performed by the OTS of
ABO's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 300 basis points. At December 31, 1999, 2% of the present value of
ABO's assets was $2.330 million. Because the interest rate risk of a 200 basis
point increase in market rates (which was greater than the interest rate risk of
a 200 basis point decrease) was $5.620 million at June 30, 2000, ABO would have
been required to make a $1.645 million deduction from its total capital
available to calculate its risk-based capital requirement. This reduction in
capital would reduce ABO's risk-based capital ratio to 10.87% from 13.44%, which
is still in excess of the required risk-based capital ratio of 8.0%.
11
- ------------------------------------------------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- ------------------------------------------------------------------------------------------------------------------------------
Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
+300 bp* $ -1,326 $ -8,505 -118% -1.17% -691 bp
+200 bp 1,559 -5,620 -78 1.33 -441 bp
+100 bp 4,443 -2,736 -38 3.66 -208 bp
0 bp 7,179 5.74
-100 bp 9,397 2,217 +31 7.32 +158 bp
-200 bp 10,102 2,923 +41 7.75 +202 bp
-300 bp 10,655 3,476 +48 8.07 +233 bp
<FN>
* basis points
</FN>
Also presented below, as of June 30, 2000, is an analysis, performed by the OTS,
of ABI's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 300 basis points. At December 31, 1999, 2% of the present value of
ABI's assets was $7.313 million. Because the interest rate risk of a 200 basis
point increase in market rates (which was greater than the interest rate risk of
a 200 basis point decrease) was $12.558 million at June 30, 2000, ABI would have
been required to make a $2.623 million deduction from its total capital
available to calculate its risk-based capital requirement. This reduction in
capital would reduce ABI's risk-based capital ratio to 13.28% from 14.41%, which
is still in excess of the required risk-based capital ratio of 8.0%.
- ------------------------------------------------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- ------------------------------------------------------------------------------------------------------------------------------
Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
+300 bp* $ 15,529 $-19,032 -55% 4.15% -449 bp
+200 bp 22,003 -12,558 -36 5.75 -290 bp
+100 bp 28,479 -6,082 -18 7.28 -137 bp
0 bp 34,561 8.65
- -100 bp 39,713 5,153 +15 9.75 +110 bp
- -200 bp 38,760 4,199 +12 9.48 +83 bp
- -300 bp 38,220 3,659 +11 9.30 +65 bp
<FN>
* basis points`
</FN>
Presented below, as of June 30, 1999, is an analysis performed by the OTS of
ABO's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 300 basis points. At December 31, 1998, 2% of the present value of
ABO's assets was $1.867 million. Because the interest rate risk of a 200 basis
point increase in market rates (which was greater than the interest rate risk of
a 200 basis point decrease) was $2.190 million at June 30, 1999, ABO would have
been required to make a $.162 million deduction from its total capital available
to calculate its risk-based capital requirement. This reduction in capital would
reduce ABO's risk-based capital ratio to 18.39% from 18.75%, which is still far
in excess of the required risk-based capital ratio of 8%.
12
- -------------------------------------------------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- -------------------------------------------------------------------------------------------------------------------------------
Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
- -------------------------------------------------------------------------------------------------------------------------------
+300 bp* $ 8,035 $ -3,619 -31% 9.48% -329 bp *
+200 bp 9,464 -2,190 -19% 10.87% -190 bp
+100 bp 10,726 -929 -8% 12.01% -76 bp
0 bp 11,654 12.77%
-100 bp 11,593 -62 -1% 12.54% -22 bp
-200 bp 10,914 -740 -6% 11.73% -104 bp
-300 bp 10,288 -1,366 -12% 10.96% -180 bp
<FN>
* basis points
</FN>
Also presented below, as of June 30, 1999, is an analysis, performed by the OTS,
of ABI's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 300 basis points. At December 31, 1998, 2% of the present value of
ABI's assets was $6.493 million. Because the interest rate risk of a 200 basis
point increase in market rates (which was greater than the interest rate risk of
a 200 basis point decrease) was $9.386 million at June 30, 1999, ABI would have
been required to make a $1.447 million deduction from its total capital
available to calculate its risk-based capital requirement. This reduction in
capital would reduce ABI's risk-based capital ratio to 17.22% from 18.05%, which
is still far in excess of the required risk-based capital ratio of 8.0%.
- -------------------------------------------------------------------------------------------------------------------------------
NPV as Percent of
Net Portfolio Value Present Value of Assets
- -------------------------------------------------------------------------------------------------------------------------------
Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
+300 bp* $ 20,562 $-14,945 -42% 6.74% -422 bp *
+200 bp 26,122 -9,386 -26% 8.38% -258 bp
+100 bp 31,392 -4,116 -12% 9.86% -110 bp
0 bp 35,508 10.96%
- -100 bp 37,679 2,171 +6% 11.50% +54 bp
- -200 bp 37,040 1,533 +4% 11.27% +31 bp
- -300 bp 36,772 1,264 +4% 11.14% +17 bp
<FN>
* basis points
</FN>
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features, which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a change in interest rates, expected rates of prepayments on loans
and early withdrawals from certificates could likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.
The Company considers all of these factors in monitoring its exposure to
interest rate risk.
13
OTHER
- -----
ABI and ABO were merged into one bank under the ABI charter effective with the
close of business on October 4, 2000.
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).
14
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
-----------------
No changes have taken place in regard to the legal proceedings
disclosed in the registrant's report on Form 10-K for the year ended
December 31, 1999.
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
--------------------------------
Not Applicable
15
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: November 6, 2000 /s/ Harry J. Bailey
---------------- -------------------
Harry J. Bailey
President and
Chief Executive Officer
(Duly Authorized Representative)
DATE: November 6, 2000 /s/ Richard E. Welling
---------------- ----------------------
Richard E. Welling
Senior Vice President-Treasurer
(Principal Financial Officer
and Accounting Officer)
16