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, 1999 Commission File Number 0-18392
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Ameriana Bancorp
Indiana 35-1782688
- ------------------------------- --------------------------
(State or other jurisdiction of I.R.S. employer
of incorporation or organization) identification 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 8, 1999, there were issued and outstanding
3,322,897 shares of the registrant's common stock.
AMERIANA BANCORP AND SUBSIDIARIES
CONTENTS
PART I - FINANCIAL INFORMATION Page No.
-------
ITEM 1 Financial statements
Consolidated Statements of Condition
as of September 30, 1999, December 31,
1998 and September 30, 1998 . . . . . . . . . . 3
Consolidated Statements of Income for
the Three and Nine Months Ended September
30, 1999 and 1998. . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1999 and 1998 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated 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 . . . . . . . . . . . . . . . . . . . . . . . . . 15
EDGAR - Financial Data Schedule. . . . . . . . . . . . . . 16
2
PART I - FINANCIAL INFORMATION
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
September 30, December 31, September 30,
1999 1998 1998
------------ ----------- ------------
ASSETS
Cash on hand and in other institutions $ 9,819,487 $ 7,545,308 $ 6,379,663
Interest-bearing demand deposits 4,331,420 38,005,929 30,107,826
Investment-bearing time deposits 4,686,000 3,487,000 --
Investment securities held to maturity (fair
value of $83,771,000, $51,512,000 and
$40,820,000, respectively) 87,699,343 51,581,077 40,592,868
Mortgage-backed securities held to maturity
(fair value of $15,737,000, $20,437,000
and $22,874,000, respectively) 15,856,962 20,217,346 22,561,622
Mortgage loans held for sale 194,016 4,181,256 3,469,644
Loans receivable 304,066,951 263,097,420 278,743,677
Allowance for loan losses (1,339,109) (1,284,286) (1,248,605)
------------ ------------ ------------
Net loans receivable 302,727,842 261,813,134 277,495,072
Real estate owned 37,949 96,408 173,689
Premises and equipment 6,220,334 6,091,944 6,235,673
Stock in Federal Home Loan Bank 4,152,200 3,587,700 3,567,200
Mortgage servicing rights 927,837 1,076,948 911,819
Investments in unconsolidated subsidiaries 1,231,727 1,424,455 1,454,405
Intangible assets 1,900,085 2,057,464 2,029,975
Cash value of life insurance 15,938,571 210,738 206,694
Other assets 4,199,786 4,341,456 3,480,979
------------ ------------ ------------
Total assets $459,923,559 $405,718,163 $398,667,129
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 14,854,133 $ 14,633,031 $ 12,010,006
Interest-bearing 346,653,356 319,356,272 319,218,472
------------ ------------ ------------
Total deposits 361,507,489 333,989,303 331,228,478
Advances from Federal Home Loan Bank 45,314,666 17,100,699 12,530,203
Drafts payable 3,099,641 4,353,792 2,997,655
Advances by borrowers for taxes and insurance 949,244 1,030,976 1,177,664
Other liabilities 5,245,630 3,894,245 5,493,920
------------ ------------ ------------
Total liabilities 416,116,670 360,369,015 353,427,920
Shareholders' Equity:
Preferred stock (5,000,000 shares
authorized; none issued) -- -- --
Common stock ($1.00 par value; authorized
15,000,000 shares; issued shares:
1999 - 3,345,897; 1998 - 3,510,686) 3,345,897 3,510,686 3,527,777
Additional paid-in capital 4,199,667 6,775,114 6,761,653
Retained earnings - substantially restricted 36,261,325 35,063,348 34,949,779
------------ ------------ ------------
Total shareholders' equity 43,806,889 45,349,148 45,239,209
------------ ------------ ------------
Total liabilities and shareholders'
equity $459,923,559 $405,718,163 $398,667,129
============ ============ ============
See accompanying notes.
3
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- --------
Interest Income:
Interest on loans $5,446,383 $5,682,688 $15,690,115 $16,965,847
Interest on mortgage-backed
securities 255,256 373,456 841,037 1,320,865
Interest on investment securities 1,419,246 741,755 3,598,290 1,860,643
Other interest and dividend income 221,911 405,410 982,379 1,058,921
---------- ---------- ----------- -----------
Total interest income 7,342,796 7,203,309 21,111,821 21,206,276
Interest Expense:
Interest on deposits 3,832,101 3,891,691 10,973,583 11,441,724
Interest on Federal Home Loan
Bank advances 423,875 184,610 918,602 544,587
---------- ---------- ----------- -----------
Total interest expense 4,255,976 4,076,301 11,892,185 11,986,311
---------- ---------- ----------- -----------
Net interest income 3,086,820 3,127,008 9,219,636 9,219,965
Provision for Loan Losses 30,000 36,000 97,500 108,000
---------- ---------- ----------- -----------
Net interest income after provision
for loan losses 3,056,820 3,091,008 9,122,136 9,111,965
Other Income:
Net loan servicing fees 68,635 64,181 187,676 166,832
Other fees and service charges 267,813 272,819 725,970 672,751
Brokerage and insurance
commissions 298,328 293,462 958,008 960,939
Loss on investments in
unconsolidated subsidiaries (11,093) (33,960) (157,891) (123,960)
Gains on sales of loans and
servicing rights 47,046 164,074 363,740 645,664
Life insurance income 175,119 -- 254,764 --
Other 40,286 43,249 105,230 130,979
---------- ---------- ----------- -----------
Total other income 886,134 803,825 2,437,497 2,453,205
Other Expense:
Salaries and employee benefits 1,498,106 1,311,948 4,438,209 3,871,448
Net occupancy expense 354,646 354,336 1,057,616 1,009,519
Federal insurance premium 44,467 49,860 136,253 151,077
Data processing expense 57,843 78,432 201,054 297,067
Printing and office supplies 59,679 83,047 231,881 232,935
Goodwill 47,725 60,905 142,685 109,073
Other 358,186 493,998 1,357,226 1,412,227
---------- ---------- ----------- -----------
Total other expense 2,420,652 2,432,526 7,564,924 7,083,346
---------- ---------- ----------- -----------
Income before income taxes 1,522,302 1,462,307 3,994,709 4,481,824
Income taxes 449,599 529,774 1,263,750 1,605,801
---------- ---------- ----------- -----------
Net Income $1,072,703 $ 932,533 $ 2,730,959 $ 2,876,023
========== ========== =========== ===========
Basic Earnings Per Share $ 0.32 $ 0.26 $ 0.80 $ 0.81
========== ========== =========== ===========
Diluted Earnings Per Share $ 0.31 $ 0.26 $ 0.79 $ 0.79
========== ========== =========== ===========
Dividends Declared Per Share $ 0.150 $ 0.145 $ 0.450 $ $0.435
========== ========== =========== ===========
See accompanying notes.
4
AMERIANA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
------------------------------
1999 1998
------------ ---------------
OPERATING ACTIVITIES
Net income $ 2,730,959 $ 2,876,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Provisions for losses on loans and real
estate owned 119,100 108,000
Depreciation and amortization 438,504 497,661
Equity in loss of limited partnership 192,728 123,960
Mortgage servicing rights amortization 165,788 129,184
Goodwill amortization 157,379 109,073
Deferred income taxes (2,615) 62,709
Gains on sales of real estate owned (142) (18,859)
Mortgage loans originated for sale (22,114,492) (60,441,130)
Proceeds from sales of loans 26,382,533 58,524,985
Gains on sales of loans and servicing rights (297,478) (648,664)
Increase in cash value of life insurance (254,764) --
Increase in other assets 129,601 757,189
Decrease in drafts payable (1,254,151) (1,227,817)
Increase in other liabilities 1,299,110 1,866,507
------------ ------------
Net cash provided (used) by operating
activities 7,692,060 2,718,821
INVESTING ACTIVITIES
Purchase of interest-bearing time deposits (1,199,000) --
Purchase of investment securities held to
maturity (43,057,489) (54,389,345)
Proceeds from maturity of securities held
to maturity -- 5,000,000
Proceeds from calls of securities held to maturity 6,992,969 44,185,198
Principal collected on mortgage-backed
securities held to maturity 4,286,623 7,326,518
Net change in loans (41,109,306) 29,554,024
Premiums paid on life insurance (15,461,000) --
Proceeds from sale of real estate owned 93,951 192,327
Net purchases of premises and equipment (528,894) (206,806)
Cash received in acquisition -- 19,613,181
Other investing activities (542,337) (132,984)
------------ ------------
Net cash provided (used) by investing
activities (90,524,483) 51,142,113
FINANCING ACTIVITIES
Net change in demand and passbook deposits 4,961,936 13,617,103
Net change in certificates of deposit 22,556,250 (38,499,490)
Advances from Federal Home Loan Bank 37,400,000 4,000,000
Repayment of Federal Home Loan Bank advances (9,186,033) (7,485,412)
Proceeds from exercise of stock options 96,396 322,137
Purchase of common stock (2,836,632) (2,978,906)
Cash dividends paid (1,559,824) (1,557,957)
------------ ------------
Net cash used by financing activities 51,432,093 (32,582,525)
------------ ------------
Increase (decrease) in cash and cash equivalents (31,400,330) 21,278,409
Cash and cash equivalents at beginning of year 45,551,237 15,209,080
------------ ------------
Cash and cash equivalents at end of period $ 14,150,907 $ 36,487,489
============ ============
Supplemental information:
Interest paid $ 11,959,544 $ 10,218,913
Income taxes paid 1,440,000 1,472,400
See accompanying notes.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE A - - BASIS OF PRESENTATION
The unaudited interim consolidated 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 principals 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, 1999, and the results of operations and changes in cash
flows for the three-month and nine-month periods ended September
30, 1999 and 1998. 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, 1998.
NOTE B - - SHAREHOLDERS' EQUITY
On August 23, 1999, the Board of Directors declared a quarterly
cash dividend of $.15 per share. This dividend, totaling
$502,950, was accrued for payment to shareholders of record on
September 17, 1999, and was paid on October 8, 1999.
During the nine months ended September 30, 1999, 9,035 new
shares were issued from exercise of stock options and total
equity was increased by $96,396 due to cash proceeds and tax
benefits from these stock option exercises.
The Company repurchased 173,824 shares of its common stock on
the market during the first nine months of 1999 for a total of
$2,836,632. The price of stock repurchased ranged from $15.675
to $17.125 per share.
Earnings per share were computed as follows:
Three Months Ended September 30,
-------------------------------
1999 1998
- --------------------------------------------------------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to
Common shareholders $1,072,703 3,371,287 $.32 $932,533 3,589,765 $.26
Effect of dilutive stock
options -- 31,345 -- 41,388
- --------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Income available to
common shareholders and
assumed conversions $1,072,703 3,402,632 $.31 $932,533 3,631,153 $.26
- --------------------------------------------------------------------------------------
Nine Months Ended September 30,
---------------------------------
1999 1998
- ------------------------------------------------------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------
Basic Earnings per Share:
Income available to
Common shareholders $2,730,959 3,426,700 $.80 $2,876,023 3,578,247 $.81
Effect of dilutive stock
options -- 30,341 -- 51,421
Diluted Earnings Per Share:
- ------------------------------------------------------------------------------------
Income available to
common shareholders and
assumed conversions $2,730,959 3,457,041 $.79 $2,876,023 3,629,668 $.79
- ------------------------------------------------------------------------------------
NOTE C - - RECLASSIFICATIONS
Certain reclassifications of 1998 amounts have been made to
conform to the 1999 presentation.
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 an relative amounts of
interest-earning assets and interest-bearing liabilities.
RESULTS OF OPERATIONS
- ---------------------
During approximately the first one and one-half quarters of
1999, the Company was compelled by low fixed rate mortgage rates
to make fixed rate loans and sell them to the secondary market.
The past theory of emphasizing variable rate mortgage loans and
keeping them in the portfolio could not be continued because
consumers were satisfied with the low fixed rates. During the
latter part of the second quarter and the entire third quarter,
the interest rates on mortgage loans increased and the Company
has seen a return to a preference for variable rate loans by our
customers, and these loans are retained in portfolio. Also
retained in portfolio are the fifteen or less year fixed rate
mortgage loans and thirty year fixed rate jumbo loans. The
Company has also been successful in increasing the volume of new
commercial loans, almost entirely commercial real estate loans,
with the outstanding portfolio increasing to over $26 million at
September 30, 1999. Total loans outstanding increased
$40,969,531 and 15.57% to $304,066,951 during the nine months
from $263,097,420 at December 31, 1998. The mortgage loans held
for sale decreased to $194,016 at September 30, 1999, from
$4,181,256 at December 31, 1998, but these are loans that have
been committed to be sold to the secondary market but had not
been delivered as of the end of the period.
Sales of loans to the secondary market significantly decreased
to $26,382,533 during the first nine months of 1999 compared to
$58,524,985 during the same period in 1998. This
7
is only 45.08% of the 1998 volume of loans sold and had a
significant effect on other income by the reduction of the gain
on sale of loans. See comments on other income for detail of
gains on loans sold.
The net interest spread, difference between yield on
interest-earning assets and cost on interest-bearing
liabilities, has increased .01% during the third quarter of 1999
compared to the same period in 1998. This increase is due to
the interest yield reduction of .46% on interest-earning average
assets for the third quarter being more than offset by the .47%
reduction in cost on interest-bearing average liabilities for
the third quarter. This reduction of the cost of liabilities
has resulted from decreased rates on the Federal Home Loan Bank
borrowings and deposit costs during the third quarter of 1999
compared to third quarter 1998. This same explanation can be
made for the first nine months of 1999 compared to the first
nine months of 1998, when interest spread increased .02%. The
yield on average earning assets decreased .41% during the first
three quarters of 1999 while the yield on average interest
bearing liabilities decreased .43%.
The following table summarizes the Company's average net
interest-earning assets and interest-bearing liabilities with
the accompanying average rates for the third quarter and first
nine months of 1999 and 1998:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
-------- -------- -------- -------
(Dollars in Thousands)
---------------------
Interest-earning assets $398,316 $367,811 $386,451 $367,976
Interest-bearing liabilities 369,851 321,709 347,607 320,256
-------- -------- -------- --------
Net interest-earning assets $ 28,465 $ 46,102 $ 38,844 $ 47,720
-------- -------- -------- --------
Average yield on:
Interest-earning assets 7.31% 7.77% 7.30% 7.71%
Interest-bearing liabilities 4.56 5.03 4.57 5.00
-------- -------- -------- --------
Net interest spread 2.75% 2.74% 2.73% 2.71%
-------- -------- -------- --------
Net interest income for the third quarter 1999 was $3,086,820
and was $40,188 and 1.29% less than $3,127,008 during the third
quarter of 1998. Net interest income for the first nine months
of 1999 was $9,219,636 and was almost identical with a decrease
of $329 from $9,219,965 during the first nine months of 1998.
This slight decrease in net interest income for the nine months
is the result of lower interest income being almost matched by
lower interest expense. The $94,000 decrease in interest income
on earning assets is a combination of an increase of $664,000
because of the volume mix of average outstanding interest-
earing assets offset by a decrease of $758,000 due to rate
decreases on average interest-earning assets. The $94,000
decrease in interest expense is a combination of an increase of
$1,020,000 because of higher outstanding average interest-
earing liabilities offset by a $1,114,000 reduction in costs due
to lower rates on interest-bearing liabilities. The net
interest margin ratio, which is net interest income divided by
average earning assets, decreased to 3.07% for the third quarter
1999 compared to 3.37% for the third quarter of 1998. This same
ratio for the nine months ended September 30, 1999, decreased to
3.19% from 3.35% for the same period in 1998.
8
The provision for loan losses was $30,000 during the third
quarter of 1999 compared to $36,000 during the same period in
1998. The provision for loan losses for the nine months ended
September 30, 1999, was $97,500 compared to $108,000 for the
first nine months of 1998. Net charge-offs for the first nine
months of 1999 and 1998 were $42,677 and $22,885, respectively.
The following table summarizes the Company's non-performing
assets at:
September 30, December 31, September 30,
1999 1998 1998
---- ---- ----
(Dollars in Thousands)
Loans:
Non-accrual $ 953 $ 745 $ 780
Over 90 days delinquent 35 40 227
Trouble debt restructured 894 914 998
Real estate owned 38 96 174
------ ------ ------
Total $1,920 $1,795 $2,179
------ ------ ------
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
.44%, .49% and .45% at September 30, 1999, December 31, 1998 and
September 30, 1998, respectively. Through September 30, 1999,
$21,600 has also been charged directly to the reduction of real
estate owned in anticipation of sale of repossessed property
during the fourth quarter of 1999.
Total other income for the third quarter of 1999 increased
$82,309 and 10.24% to $886,134 from $803,825 in the same period
during 1998. Total other income for the nine months ended
September 30, 1999, was down $15,708 and .64% to $2,437,497 from
$2,453,205 during the first nine months of 1998. As noted
earlier, sales of loans to the secondary market reduced
dramatically in 1999 compared to 1998 and gains on sales of
loans and servicing rights during the third quarter of 1999
decreased $117,028 and 71.33% to $47,046 from $164,074 during
the same period in 1998. This gain in 1999 also included a gain
of $7,300 on the sale of $19,572,000 of loan servicing compared
to none in 1998. Actual gain on loan sales decreased $124,328
in the third quarter of 1999 compared to the third quarter of
1998. Gains on sales of loans and servicing rights decreased
$281,924 and 43.66% during the nine months ended September 30,
1999, to $363,740 from $645,664 during the same period in 1998.
The nine months of 1999 included $66,750 of gains related to the
servicing sale and actual gain on sales of loans decreased by
$348,674 in 1999 from 1998. For the nine months, brokerage and
insurance commissions decreased by $2,931 and .31% due to lower
loan demand and a loss from an unconsolidated investment
increased $33,931 and 27.37%. Gains for the nine months were
noted in net loan servicing increasing $20,844 and 12.49%, other
fees and servicing increasing $53,219 and 7.91% and life
insurance income, due to new investments in bank owned officer
life insurance (BOLI), showing income of $254,764 and none in
1998.
Total other expense decreased $11,874 and .49% during the third
quarter of 1999 to $2,420,652 from $2,432,526 during the same
period in 1998 and increased $481,578 and 6.80% to $7,564,924
during the first nine months of 1999 from $7,083,346 during the
first nine months of 1998. The salary and employee benefits
expense increased $186,158 and 14.19% during the third quarter
of 1999 to $1,498,106 from $1,311,948 during the same period in
1998. Salary expense for the first nine months of 1999
increased $566,761 and 14.64% to $4,438,209 from $3,871,448
during the same period in 1998. These increases are mostly due
to the addition of one new branch for two extra months in 1999
and two new branches for six extra months in 1999 compared to
1998 and to the addition of personnel to meet our initiative for
commercial loans and another title insurance branch location. A
new branch will also open during the fourth quarter of 1999 and
personnel have already been hired. The data processing expense
decreased $20,589 and 26.25% during the third quarter of 1999 to
$57,843 from $78,432 during the same period in 1998. Data
processing expense decreased $96,013 and 32.32% to $201,054 for
the nine months ended September 30,
9
1999, compared to $297,067 during the same period in 1998. The
data processing operations of our Ohio bank subsidiary were
converted from an outside service bureau to the same in-house
computer system already operated by our Indiana bank subsidiary,
effective September 1, 1998, and has provided for reduced
expenses during 1999. The increase in goodwill expense to
$142,685 during the first nine months of 1999 compared to
$109,073 during the same period in 1998 is due to increased
amortization related to the new branches purchased. Other
expense for the third quarter was reduced by insurance and other
net recoveries of $106,957 for expenses that had been charged in
prior periods of 1999 and 1998. The nine months reduction of
expense due to these net recoveries was $68,443. 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 63.67% during
the nine months of 1999 from 59.75% during the same period in
1998.
FINANCIAL CONDITION
- -------------------
The Company's principal sources of funds are cash generated from
operations, deposits, loan principal repayments and advances
from the Federal Home Loan Bank ("FHLB"). As of September 30,
1999, the Company's cash and interest-bearing demand deposits
totaled $14,150,907 and 3.08% of total assets. This compares
with $45,551,237 and 11.23% of total assets at December 31,
1998. The Company's banking subsidiaries, Ameriana Bank of
Indiana ("ABI") and Ameriana Bank of Ohio ("ABO") have
regulatory liquidity ratios at September 30, 1999, of 26.94% and
7.64%, respectively, which exceeds the 4.0% liquidity base set
by the Office of Thrift Supervision ("OTS").
Investments have increased $36,118,266 and 70.02% to $87,699,343
during 1999 due to loan volume being down and cash flows being
put into investments. Both banks also currently employ the
strategy to increase interest income through the purchase of
investments with the proceeds of advances from the FHLB and/or
from public deposits purchased from local municipalities. These
arbitrages are implemented when investment rates are sufficient
to provide an adequate spread to the borrowing costs.
The cash value of life insurance has also increased $15,727,833
during 1999 after the Company implemented the use of life
insurance products to fund retirement benefits for certain key
employees and directors and for investment in bank owned life
insurance (BOLI) on other employees. These BOLI policies are
being used to offset the future costs of providing these
employees with fringe benefits and all life insurance policies
earn tax free interest income.
The regulatory minimum net worth requirement for ABI and ABO
under the most stringent of the three capital regulations (total
risk-based capital to risk-weighted assets) at September 30,
1999, was $16,014,000 and $4,394,000, respectively. At
September 30, 1999, ABI had total risk-based capital of
$32,536,000 and ABO had $8,629,000.
At September 30, 1999, the Company's commitments for loans in
process totaled $49,732,000, with more than 95% 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, primarily deposits, 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 Office of Thrift Supervision ("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, with assets over $300 million, is required to file the
schedule. 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 which 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 schedule for ABO and the
subsequent information and schedule for ABI are required to be
presented. The current analysis for ABO and ABI performed by
the OTS as of September 30, 1999, has not been received from the
OTS and the following interest rate risk measurements for ABO
and the subsequent rate risk measurements for ABI are being
submitted with information from the OTS analysis as of June 30,
1999. Management believes there has been no significant change
in the interest rate risk measures since June 30, 1999, for
either ABO or ABI.
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
11
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%.
- ----------------------------------------------------------------------------------------
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 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
* basis points
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
basis points
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
12
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.
YEAR 2000 ISSUE
- ---------------
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
("Year 2000") approaches. The Year 2000 problem is pervasive
and complex as virtually every computer operation and any
equipment with computer chips may be affected in some way by the
rollover of the two-digit year value to 00. The issue is
whether computer systems and computer chips will properly
recognize date-sensitive information when the year changes to
2000. Computer chips that do not properly recognize such
information could generate erroneous data or cause a system to
fail. The Company has developed an extensive Year 2000
Compliance Plan. The Company has completed the assessment
process of all its business processes to make a determination of
areas that could be affected by the Year 2000 problem. The
review included all hardware, software and any interaction with
third party vendors. The Company has completed the testing of
all on-site hardware and software. In addition, the Company has
tested the interfaces and communications with third party
vendors with which it conducts business through automated or
computerized processes. All tests indicated readiness for the
Year 2000.
The Company believes that its assessment, remediation and
testing of all of its hardware, software and processes have
adequately addressed all Year 2000 issues. The Company has,
however, developed, and will continue to modify, a Business
Resumption Plan ("Plan"). The Plan attempts to anticipate all
scenarios of failure, either in our own systems or the failure
of an organization on which the Company is dependent for
services. The Plan creates alternate plans to conduct business
in the event of any system failure. The Company has committed a
great deal of management time in creating and implementing its
Year 2000 Compliance Plan. To date the Company has not incurred
a significant amount of external costs in the remediation and
replacement of existing systems and did not track internal
personnel costs associated with the Year 2000 work. Management
believes that expenses associated with the Year 2000 compliance
have not, nor are they expected to have, a material impact on
the Company's net income.
OTHER
- -----
The Securities and Exchange Commission ("SEC") maintains
reports, proxy information, statements and other information
regarding registrants that file electronically with the SEC,
including the Company. The address is (http://www.sec.gov).
13
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, 1998.
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
--------------------------------
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K: None
14
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 9, 1999 /s/ Harry J. Bailey
---------------- -------------------
Harry J. Bailey
President and
Chief Executive Officer
(Duly Authorized Representative)
DATE: November 9, 1999 /s/ Richard E. Welling
---------------- ----------------------
Richard E. Welling
Senior Vice President-
Treasurer
(Principal Financial Officer
and Accounting Officer)
15