EXHIBIT 13
Ameriana Bancorp and Subsidiaries
(Dollars in thousands, except per share data)
At December 31
Summary of Financial Condition 1998 1997 1996 1995 1994
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Cash $ 7,545 $ 5,066 $ 4,939 $ 4,474 $ 5,513
Interest-bearing deposits and investment
securities 93,074 45,537 54,749 27,669 11,303
Loans and mortgage-backed securities 286,212 324,386 321,142 311,007 307,496
Other assets 18,887 15,879 15,925 13,663 11,042
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Total assets $405,718 $390,868 $396,755 $356,813 $335,354
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Deposits $333,989 $322,217 $318,705 $290,785 $277,439
Other liabilities 26,380 24,216 34,105 18,913 12,325
Total liabilities 360,369 346,433 352,810 309,698 289,764
Shareholders' equity 45,349 44,435 43,945 47,115 45,590
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Total liabilities and shareholders' equity $405,718 $390,868 $396,755 $356,813 $335,354
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Year Ended December 31
Summary of Earnings 1998 1997 1996 1995 1994
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Interest income $ 28,301 $ 29,332 $ 28,567 $ 25,608 $ 21,877
Interest expense 15,993 17,345 16,705 14,368 10,647
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Net interest income 12,308 11,987 11,862 11,240 11,230
Provision for loan losses 159 242 66 117 181
Other income 3,429 2,864 2,433 2,214 2,589
Other expense 9,655 8,985 10,520 8,155 8,495
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5,923 5,624 3,709 5,182 5,143
Income taxes 2,085 1,992 1,305 1,945 1,881
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Income from continuing operations 3,838 3,632 2,404 3,237 3,262
Income from discontinued operations -- -- -- -- 1,450
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Net income $ 3,838 $ 3,632 $ 2,404 $ 3,237 $ 4,712
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Basic earnings per share (1):
Income from continuing operations $ 1.08 $ 1.02 $ .65 $ .84 $ .84
Income from discontinued operations -- -- -- -- .37
Basic earnings per share $ 1.08 $ 1.02 $ .65 $ .84 $ 1.21
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Diluted earnings per share (1):
Income from continuing operations $ 1.06 $ 1.01 $ .65 $ .83 $ .82
Income from discontinued operations -- -- -- -- .36
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Diluted earnings per share $ 1.06 $ 1.01 $ .65 $ .83 $ 1.18
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Dividends declared per share (1) $ .59 $ .56 $ .52 $ .44 $ .58
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Book value per share (1) $ 12.92 $ 12.49 $ 12.14 $ 12.13 $ 11.79
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Year Ended December 31
Other Selected Data 1998 1997 1996 1995 1994
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Return on average assets .98% .92% .62% .93% 1.43%
Return on average equity 8.48 8.28 5.39 7.00 10.59
Ratio of average equity to average assets 11.60 11.06 11.41 13.22 13.54
Dividend payout ratio (2) 56% 55% 80% 53% 50%
Number of full-service offices:
Ameriana Bank of Indiana, F.S.B. 8 7 6 6 6
Ameriana Bank of Ohio, F.S.B. 3 1 1 2 2
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(1) Restated to reflect four-for-three stock split declared in 1996 and the
eleven-for-ten stock split in 1998.
(2) Based on diluted earnings from continuing operations and excluding special
dividends.
Ameriana Bancorp and Subsidiaries
Management's Discussion and Analysis
General
Ameriana Bancorp (the "Company") was incorporated under Indiana law for the
purpose of becoming the holding company for Ameriana Bank of Indiana, F.S.B.
("ABI"). In 1990, the Company acquired all of ABI's common stock in connection
with ABI's reorganization into the holding company form of ownership. In 1992,
the Company acquired Ameriana Bank of Ohio, F.S.B. ("ABO"). Collectively, ABI
and ABO are referred to as the "Institutions" in this discussion and analysis.
In 1995, the Company purchased a minority interest in a limited partnership
organized to acquire and manage real estate investments which qualify for
federal tax credits.
The largest components of the Company's total revenue and total expense 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. Net income also is significantly affected by levels of other income
and operating expenses.
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. The Company's
portfolio of loans has decreased $31,035,680 in 1998 and the percentage of
fixed-rate to adjustable-rate mortgage loans and short-term balloon loans has
also increased during 1998. The mix of fixed-rate to adjustable-rate and short-
term balloon loans was 33% to 52% in 1998 compared with 1997 being 23% to 62%
and 1996 being 26% to 60%. This increase in fixed rate loans was caused by the
low interest rates and the customers being satisfied with the lower fixed rate
loans and the refinancing of existing variable rate loans. The Company's past
emphasis on adjustable-rate loans could not be maintained because of the low
interest rate cycle. The Company did retain some fifteen year fixed rate
mortgage loans but sold most fixed rate loans and had historical sales of loans
to the secondary market. Total loan volume for 1998 was $195,762,000 and was
composed of real estate secured loans totaling $165,856,000, $11,798,000 of
which were equity lines of credit, and $29,906,000 of other loans. The Company
sold $93,498,000 of fixed rate-loans in 1998 compared with $29,862,000 in 1997
and $18,359,000 in 1996. Loans at December 31, 1998 and 1997, respectively,
consisted of $244,095,000 and $259,101,000 that were real estate secured loans,
$29,016,000 and $38,623,000 that were installment loans and $2,212,000 and
$1,328,000 of other loans.
The Company's primary goal in the management of its liabilities is to maintain
the stability of deposit accounts. During the year deposits increased, and the
Company was able to eliminate its reliance on purchasing negotiated-rate
certificates primarily from local county governmental entities. ABI purchased
over $12 million of deposits in a branch purchase on February 27, 1998, and ABO
purchased over $21 million of deposits in a bank purchase on July 1, 1998. The
Company has been able to control its liability needs and deposits increased
$11,772,000 at December 31, 1998, over December 31, 1997, and borrowings from
the Federal Home Loan Bank increased $1,085,000 to $17,101,000 from $16,016,000
at December 31, 1997. These borrowings from the Federal Home Loan Bank are being
used for arbitrage transactions by ABO. The Company continues to experience
competitive forces on its deposits from other institutions in the marketplace,
but the Company was able to compete with these investing alternatives by
providing additional investment choices for its customers through its brokerage
and insurance products.
The Company has continued to increase the level of non-interest-sensitive fee
income producing assets. These activities include an equity interest in a life
insurance company, a full-service general lines property and casualty insurance
agency, a title insurance company and a brokerage service.
As noted above, loans sold increased during 1998 over 1997, and servicing of
sold loans as of December 31, 1998 and 1997, increased to $181,000,000 from
$117,000,000, respectively. No sales or purchases of loan servicing were done in
1998. ABI sold $53,692,000 of loan servicing rights for a gain of $96,410 during
November 1997 and purchased $25,941,000 of loan servicing rights in October
1997.
Interest Sensitivity
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1998.
This table assumes no prepayments of loans, no early redemption of securities at
call dates, no early withdrawals of certificates of deposit and no extension of
deposit account sensitivity relating to core deposit stability.
(Dollars in thousands)
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6 6 More
Months Months l to 3 3 to 5 5 to 10 l0 to 20 than
or Less to l Year Years Years Years Years 20 Years Total
Rate Sensitive Assets:
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Balloon and adjustable-
rate loans (1) $ 73,608 $ 33,753 $ 20,053 $ 15,620 $ 14,486 $ -- $ -- $157,520
Fixed-rate loans (1) 18,513 301 3,263 3,333 13,104 39,034 22,372 99,920
Other loans 18,021 642 7,878 14,538 917 286 -- 42,282
Other investments (2) 41,593 3,187 500 1,500 23,932 25,949 -- 96,661
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Total 151,735 37,883 31,694 34,991 52,439 65,269 22,372 396,383
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Rate Sensitive Liabilities:
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Deposits:
Certificate accounts 70,756 54,753 90,380 9,163 3,063 -- -- 228,115
Money market
deposit accounts 30,751 -- -- -- -- -- -- 30,751
Savings accounts 44,150 -- -- -- -- -- -- 44,150
NOW accounts 16,340 -- -- -- -- -- -- 16,340
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Total Deposits 161,997 54,753 90,380 9,163 3,063 -- -- 319,356
FHLB advances -- -- 621 16,480 -- -- 17,101
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Total 161,997 54,753 91,001 9,163 19,543 -- -- 336,457
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Asset/liability gap $(10,262) $(16,870) $(59,307) $ 25,828 $ 32,896 $65,269 $22,372 $ 59,926
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Additional Gap Information:
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Gap as a percentage
of total assets (2.53)% (4.16)% (14.62)% 6.37% 8.11% 16.09% 5.51%
Cumulative gap $(10,262) $(27,132) $(86,439) $ (60,611) $(27,715) $37,554 $59,926
Cumulative gap as
a percentage of
total assets (2.53)% (6.69)% (21.31)% (14.94)% (6.83)% 9.25% 14.77%
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(1) Includes mortgage loans and mortgage-backed securities. Amounts are stated
without reductions of $13.509 million for deferred fees, unearned income,
undisbursed loan proceeds and allowance for loan losses.
(2) Includes certificates of deposit, investment securities, interest-bearing
deposits and stock in Federal Home Loan Bank.
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.
Presented below, as of December 31, 1998, 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 400 basis points. At June 30, 1998, 2% of the present value of ABO's
assets was $1.535 million. Because the interest rate risk of a 200 basis point
decrease in market rates (which was greater than the interest rate risk of a 200
basis point increase) was $1.113 million at December 31, 1998, ABO would not
have been required to make a capital deduction.
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NPV as Percent of
Net Portfolio Value Present Value of Assets
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Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
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(Dollars in Thousands)
+400 bp* $ 9,781 $ -628 -6% 11.07% -8 bp
+300 bp 10,397 -12 0% 11.56% +41 bp
+200 bp 10,781 371 +4% 11.79% +64 bp
+100 bp 10,805 395 +4% 11.67% +52 bp
0 bp 10,409 11.15%
- -100 bp 9,793 -616 -6% 10.42% -73 bp
- -200 bp 9,296 -1,113 -11% 9.80% -135 bp
- -300 bp 9,080 -1,330 -13% 9.46% -169 bp
- -400 bp 8,813 -1,596 -15% 9.07% -208 bp
* basis points
Also presented below, as of December 31, 1998, 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 400 basis points. At June 30, 1998, 2% of the
present value of ABI's assets was $6.113 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 $7.620 million at December
31, 1998, ABI would have been required to make a $754,000 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 21.5% from
22.0%, which is still far in excess of the required risk-based capital ratio of
8.0%.
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NPV as Percent of
Net Portfolio Value Present Value of Assets
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Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
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(Dollars in Thousands)
+400 bp* $27,724 $-16,888 -38% 9.23% -447 bp
+300 bp 32,548 -12,063 -27% 10.59% -311 bp
+200 bp 36,992 -7,620 -17% 11.79% -191 bp
+100 bp 40,952 -3,659 -8% 12.80% -90 bp
0 bp 44,612 13.70%
- -100 bp 45,743 2,982 +7% 13.82% +92 bp
- -200 bp 53,040 8,429 +19% 15.67% +197 bp
- -300 bp 58,640 14,029 +31% 16.93% +323 bp
- -400 bp 64,241 19,629 +44% 18.12% +442 bp
* basis points
Presented below, as of December 31, 1997, 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 400 basis points. At December 31, 1997, 2% of the present value of
ABO's assets was approximately $1.5 million. Because interest 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 $1.9 million at December 31, 1997, ABO
would have been required to make a deduction of approximately $200 thousand from
its total capital available to calculate its risk based capital requirement if
it had been subject to the OTS's reporting requirements under this methodology.
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NPV as Percent of
Net Portfolio Value Present Value of Assets
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Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
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(Dollars in Thousands)
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+400 bp* $2,524 $-4,786 -65% 3.59% -591 bp
+300 bp 4,013 -3,298 -45% 5.55% -395 bp
+200 bp 5,392 -1,918 -26% 7.28% -222 bp
+100 bp 6,549 -762 -10% 8.65% -85 bp
0 bp 7,310 9.50%
- -100 bp 7,648 338 +5% 9.82% +33 bp
- -200 bp 7,658 348 +5% 9.76% +27 bp
- -300 bp 7,691 381 +5% 9.73% +23 bp
- -400 bp 7,986 676 +9% 9.99% +50 bp
* basis points
Also presented below, as of December 31, 1997, 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 400 basis points. At December 31, 1997, 2% of the
present value of ABI's assets was approximately $6.5 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 $5.6
million at December 31, 1997, ABI would not have been required to make a
deduction from its total capital available to calculate its risk based capital
requirement.
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NPV as Percent of
Net Portfolio Value Present Value of Assets
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Change Dollar Dollar Percent
in Rates Amount Change Change NPV Ratio Change
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(Dollars in Thousands)
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+400 bp* $28,061 $-14,699 -34% 9.28% -392 bp
+300 bp 32,907 -9,854 -23% 10.66% -254 bp
+200 bp 37,143 -5,617 -13% 11.80% -140 bp
+100 bp 40,513 -2,248 -5% 12.67% -53 bp
0 bp 42,761 13.20%
- -100 bp 44,258 1,497 +4% 13.52% +32 bp
- -200 bp 45,743 2,982 +7% 13.82% +63 bp
- -300 bp 47,740 4,980 +12% 14.25% +105 bp
- -400 bp 50,652 7,892 +18% 14.90% +170 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
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.
Yields Earned and Rates Paid
The following tables set forth the weighted average yields earned on the
Company's assets and the weighted average interest rates paid on the Company's
liabilities, together with the net yield on interest-earning assets.
Year Ended December 31
----------------------
Weighted Average Yield: 1998 1997 1996
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Loans and mortgage-backed securities 7.99% 7.86% 7.82%
Other interest-earning assets 6.08 6.90 6.61
All interest-earning assets 7.64 7.72 7.64
Weighted Average Cost:
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Deposits 4.88 5.09 4.89
Federal Home Loan Bank advances 5.88 6.22 5.86
All interest-bearing liabilities 4.91 5.15 4.96
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Interest Rate Spread (spread between weighted average
yield on all interest-earning assets and all
interest-bearing liabilities) 2.73 2.57 2.68
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Net Yield (net interest income as a percentage of
average interest-earning assets) 3.32 3.16 3.17
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At December 31
----------------------
Weighted Average Interest Rates: 1998 1997 1996
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Loans and mortgage-backed securities 7.88% 7.95% 7.92%
Other interest-earning assets 5.72 6.56 6.92
Total interest-earning assets 7.36 7.77 7.77
Deposits 4.71 4.93 4.93
Federal Home Loan Bank advances 5.34 6.04 5.83
Total interest-bearing liabilities 4.74 4.99 5.00
Interest rate spread 2.62 2.78 2.77
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Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income, interest expense and net interest income of the Company for the
periods indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to: (l)
changes in volume (changes in volume multiplied by old rate) and (2) changes in
rate (changes in rate multiplied by old volume). No material amounts of loan
fees or out-of-period interest is included in the table. Dollars are in
thousands.
Year Ended December 31
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l998 vs. l997 l997 vs. l996
Increase(Decrease) Increase(Decrease)
Due to Change in Due to Change in
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Net Net
Volume Rate Change Volume Rate Change
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Interest Income:
Loans and mortgage-backed securities $(1,790) $ 417 $(1,373) $ 458 $154 $ 612
Other interest-earning assets 820 (479) 341 (2) 155 153
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Total interest-earning assets $ (970) $ (62) $(1,032) $ 456 $309 $ 765
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Interest Expense:
Deposits $ (188) $(661) $ (849) $ 738 $193 $ 931
FHLB advances (439) (64) (503) (381) 90 (291)
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Total interest-bearing liabilities $ (627) $(725) $(1,352) $ 357 $283 $ 640
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Change in net interest income $ (343) $ 663 $ 320 $ 99 $ 26 $ 125
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Results of Operations
Net Interest Income: The Company's loan and mortgage-backed securities
portfolio decreased 12.59% to $283,315,000 at December 31, 1998, from
$324,130,000 at December 31, 1997. This portfolio had increased .82% at
December 31, 1997, from $321,499,000 at December 31, 1996. As previously noted,
loans decreased due to low fixed rate loans and the refinancing of existing
loans. The mortgage-backed securities were purchased in past years when
investable funds exceeded demand for mortgage loans in the Company's market
area. Mortgage-backed securities also continue to reduce in outstanding due to
refinancing into the low fixed rate loans.
Loan originations and purchases including equity lines of credit were up
55.79% to $195,762,000 in 1998 compared with $125,659,000 in 1997 and were up
3.86% in 1997 compared to $120,985,000 in 1996. Fixed-rate mortgage loans in the
amount of $93,498,000, $29,862,000 and $18,359,000 were originated and sold into
the secondary market during 1998, 1997 and 1996, respectively.
No purchases of mortgage-backed securities were made in 1998 or 1997 as rates
were not advantageous for long term investments. During 1996 the Company
purchased $2,532,000 of mortgage-backed securities. All purchases have been in
the form of 15-year fixed-rate government agency insured securities.
Average interest-earning assets decreased $9,558,000 or 2.52% to $370,185,000
in 1998 from $379,743,000 in 1997. The 1998 decrease was in average loans and
average mortgage-backed securities while other interest-earning assets
increased. Average interest-bearing assets increased $5,819,000 or 1.56% in
1997 over $373,924,000 in 1996. The 1997 increase was in average loans while
average mortgage-backed securities decreased and other interest-earning assets
remained the same. In 1998 ABO maintained borrowings from the Federal Home Loan
Bank and used the funds for leveraging assets and both institutions took
advantage of these borrowings and leveraged assets in 1997 and 1996. These
borrowed funds were used to acquire government backed bonds and/or insured bank
certificates of deposits at a spread to the cost of borrowed funds.
The average yield on the Company's total interest-earning assets was 7.64% in
1998 and 7.72% in 1997 and 7.64% in 1996. Total interest income was
$28,301,000, $29,333,000 and $28,567,000 for 1998, 1997 and 1996, respectively.
The $1,032,000 decrease in interest income in 1998 were reductions of $970,000
related to volume decreases and $62,000 related to rate decreases while the
$765,000 increase in interest income in 1997 was $456,000 related to volume
increases and $309,000 related to rate increases.
Average interest-bearing liabilities decreased $11,149,000 or 3.31% to
$325,420,000 in 1998 from $336,569,000 in 1997. The decrease was composed of
average interest bearing demand deposits increasing while average savings
deposits remained stable and both average certificates of deposit and average
borrowings from the Federal Home Loan Bank decreased. Average interest-bearing
liabilities increased only $5,000 in 1997 over $336,564,000 in 1996. Total
interest expense was $15,993,000, $17,345,000 and $16,705,000 for 1998, 1997 and
1996, respectively. The $1,352,000 reduction of interest expense in 1998 was
due to volume decreases of $627,000 and rate decreases of $725,000 while the
$640,000 increase in 1997 was due to volume increases of $357,000 and rate
increases of $283,000.
The net interest spread, which is the mathematical difference between the
yield on average interest-bearing assets and cost of average interest-bearing
liabilities was 2.73% in 1998, 2.57% in 1997 and 2.68% in 1996. The net yield,
which is interest income as percent of average earning assets, was 3.32% in
1998, 3.16% in 1997 and 3.17% in 1996.
Provision for Loan Losses: The provision for loan losses was $159,000 in 1998,
$242,000 in 1997 and $66,000 in 1996. The provision is the amount that is added
to the allowance for loan losses for future charge-offs. The allowance for loan
loss was .49% of loans at December 31, 1998, and .40% of net loans at December
31, 1997, and represents management's best estimate of expected charge-offs in
the loan portfolio. Net loan charge-offs have historically been less than the
annual provision for loan losses and were $138,000, $182,000 and $39,000 in
1998, 1997 and 1996, respectively. Non-performing assets (e.g. real estate
owned, non-accrual loans and loans 90 days or more past due) were $881,000,
$1,162,000 and $1,137,000 at December 31, 1998, 1997 and 1996, respectively.
The Company believes it has established an adequate allowance for loan losses in
accordance with generally accepted accounting principles. The variation in the
amount of provision charged against income is directly related to loan charge
offs, loan delinquencies, economic conditions in the Company's lending area and
loan growth or reduction during each year.
Other Income: Other income was $3,429,000, $2,864,000 and $2,433,000 for 1998,
1997 and 1996, respectively. The increase in 1998 over 1997 and 1997 over 1996
were due mainly to increased gains on sale of loans to the secondary market and
to a gain on the sale of servicing rights. These gains were $1,055,000,
$597,000 and $324,000 in 1998, 1997 and 1996, respectively. Other income also
increased in 1997 because of a gain on the sale of land. The land had been
purchased for a branch sight and the excess land was sold at a gain of $57,000.
Operating losses associated with the limited partnership amounted to $154,000 in
1998, $164,000 in 1997 and $152,000 in 1996.
Other Expense: Operating expenses were $9,655,000, $8,985,000 and $10,520,000
for 1998, 1997 and 1996, respectively. The increase in 1998 was due to an
increase of one branch by ABI and an increase of two branches by ABO, expenses
related to the name change of both institutions, three computer conversions and
to a lesser degree to the Year 2000 work while the decrease in 1997 was due to
the lack of the one time special Savings Association Insurance Fund ("SAIF")
assessment and to the lower federal insurance premiums instituted after the
special assessment which both totaled $2,335,000 less in 1997 compared to 1996.
Expense increased in 1997 due to the opening of a new branch by ABI. Expenses
increased in both 1998 and 1997 due to increases in new loan volume and
associated expenses.
Income Tax Expense: Income tax expense increased to $2,085,000 in 1998 from
$1,992,000 in 1997 and $1,305,000 for 1996. The effective federal tax rate has
remained consistent at 35.2%, 35.4% and 35.2% for 1998, 1997 and 1996,
respectively, The increase in the dollar amount of taxes is due to increased
pretax income each year.
Liquidity and Capital Resources
The Institutions are required by regulation to maintain liquidity ratios at
certain minimum levels. The regulations specify the types of assets that qualify
for liquidity, which generally include cash, federal funds sold, certificates of
deposit and qualifying types of United States Treasury and agency securities and
other investments not pledged as collateral. Such investments serve as a source
of funds upon which the Institutions may rely to meet deposit withdrawals and
other short-term needs. The required level of such liquidity is calculated on a
"liquidity base" consisting of net withdrawable accounts plus borrowings due
within one year or less. Presently, the Institutions are required to maintain
liquid assets as described above of at least 4% of their liquidity base.
Liquidity ratios at December 31, 1998, 1997, and l996 were 29.4%, 11.7% and
11.8%, respectively, for ABI and 17.65%, 6.6% and 4.7%, respectively, for ABO.
The Institutions have exceeded their monthly average liquidity requirement for
all periods presented.
Historically, funds provided by operations, loan principal repayments and new
deposits have been the Company's principal sources of liquid funds. In
addition, the Company has the ability to obtain funds through the sale of new
mortgage loans and through borrowings from the Federal Home Loan Bank system.
At December 31, 1998, the Company's commitments for loans in process totaled
$6,600,000. Management believes that the Company's liquidity and other sources
of funds will be sufficient to fund all outstanding commitments and other cash
needs. A good portion of these commitments are for fixed-rate mortgage loans
which will be sold immediately into the secondary market.
On November 23, 1998, the Board of Directors declared an eleven-for-ten stock
split effected in the form of a dividend on common stock outstanding at the
close of business on December 18, 1998. This stock split was payable on January
4, 1999, and all per share information in this report has been restated to
reflect this split.
On February 26, 1996, the Board of Directors declared a four-for-three stock
split of the common stock outstanding at the close of business on March 15,
1996. In addition, the Company adopted the 1996 Stock Option Plan, which
provides for the granting of incentive and non-qualified stock options. An
amendment of the 1996 Plan approved by the shareholders in April 1998 extended
the plan's term to ten years and increased the number of shares reserved under
the plan from 176,000 to 352,000 shares. Options for 29,768, 32,838 and 57,456
shares were exercised in 1998, 1997 and 1996, respectively. See note 11 to the
consolidated financial statements for option activity and the pro forma effect
on net income.
In July 1998, the Company's Board of Directors approved a one-year repurchase
program to acquire up to 10% of the Company's outstanding common stock,
approximately 330,000 shares, at a cumulative cost not to exceed $5,000,000.
The Company repurchased 201,388 shares in 1998 at an aggregate cost of
$3,358,061 through December 31, 1998. In 1997 and 1996, the Company repurchased
91,525 and 258,307 shares, respectively, under previous repurchase programs at a
cost of $1,311,214 and $3,964,198, respectively. In addition the Company
retired 173 shares at a cost of $3,189 for fractional shares created by the 1998
stock split.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this
report have been prepared in accordance with generally accepted accounting
principles. This requires the measurement of financial position and operating
results in terms of historical dollars without consideration of changes in the
relative purchasing power of money over time due to inflation.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or at
the same rate as changes in the prices of goods and services, which are directly
affected by inflation, although interest rates may fluctuate in response to
perceived changes in the rate of inflation.
Current Accounting Issues
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in 1998 and will
become effective for all fiscal years beginning after June 15, 1999. SFAS No.
133 was issued to require the recording of derivatives on the balance sheet at
their fair value. SFAS No. 133 also acknowledges that the method of recording a
gain or loss depends on the use of the derivative. If certain conditions are
met a derivative may be specifically designed as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability of an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign currency-denominated forecasted
transaction. This new Statement applies to all entities. If hedge accounting
is elected by the entity, the method of assessing the effectiveness of the
hedging derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge. The Company
does not currently nor does it expect to have derivative instruments or hedge
transactions. If these instruments or activities are undertaken in the future,
SFAS No. 133 would be implemented.
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
was issued in 1998 and will become effective for interim and annual financial
periods beginning after December 15, 1998. This statement amends SFAS No. 65
which was previously amended by SFAS nos. 115 and 125, and requires a mortgage
banking enterprise to classify a mortgage-backed security as a trading security
following the securitization of the mortgage loan held for sale. This statement
further amends SFAS No. 65 to require that after securitization of mortgage
loans held for sale, an entity engaged in mortgage banking activities must
classify the resulting mortgage-backed security or other retained interests
based on the entity's ability and intent to sell or hold those investments. The
Company is not currently securitizing mortgage loans. If securitization of
mortgage loans is initiated by the Company, any portion retained will accounted
for under SFAS No. 134.
Year 2000 Readiness Disclosure
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 is
in the process of testing all on-site hardware and software. In addition, the
Company will be testing the interfaces and communications with those third party
vendors with which it conducts business through automated or computerized
processes. The Company expects to complete all testing of all identified areas
during the second quarter of 1999.
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.
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Condition
- -------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------
Assets 1998 1997
- -------------------------------------------------------------------------------------------------------
Cash on hand and in other institutions $ 7,545,308 $ 5,066,177
Interest-bearing demand deposits 38,005,929 10,142,903
Interest-bearing time deposits 3,487,000 --
Investment securities held to maturity (fair value of $51,512,000 and
$35,300,000) 51,581,077 35,394,511
Mortgage-backed securities held to maturity (fair value of $20,437,000
and $30,164,000) 20,217,346 29,996,499
Mortgage loans held for sale 4,181,256 1,419,471
Loans, net of allowance for loan losses of $1,284,286 and $1,163,490 261,813,134 292,969,610
Real estate owned 96,408 159,994
Premises and equipment 6,091,944 5,909,205
Stock in Federal Home Loan Bank 3,587,700 3,412,100
Mortgage servicing rights 1,076,948 526,367
Investments in unconsolidated affiliates 1,424,455 1,578,365
Intangible assets 2,057,464 69,700
Other assets 4,552,194 4,222,600
- -------------------------------------------------------------------------------------------------------
Total assets $405,718,163 $390,867,502
=======================================================================================================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------
Liabilities
Deposits
Noninterest-bearing $ 14,633,031 $ 8,746,447
Interest-bearing 319,356,272 313,470,716
- -------------------------------------------------------------------------------------------------------
Total deposits 333,989,303 322,217,163
Advances from Federal Home Loan Bank 17,100,699 16,015,615
Drafts payable 4,353,792 4,225,472
Advances by borrowers for taxes and insurance 1,030,976 955,121
Other liabilities 3,894,245 3,019,261
- -------------------------------------------------------------------------------------------------------
Total liabilities 360,369,015 346,432,632
- -------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock (5,000,000 shares authorized; none issued)
Common stock ($1.00 par value; authorized 15,000,000 shares; issued
shares: 1998--3,510,686 and 1997--3,233,207) 3,510,686 3,233,207
Additional paid-in capital 6,775,114 7,571,955
Retained earnings--substantially restricted 35,063,348 33,629,708
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 45,349,148 44,434,870
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $405,718,163 $390,867,502
=======================================================================================================
See accompanying notes.
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Income
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Interest Income:
Interest on loans $22,517,412 $23,234,010 $22,060,098
Interest on mortgage-backed securities 1,662,731 2,318,561 2,880,392
Interest on investment securities 2,588,876 3,307,166 2,987,237
Other interest and dividend income 1,531,570 473,076 639,761
- -------------------------------------------------------------------------------------------------------------
Total interest income 28,300,589 29,332,813 28,567,488
- -------------------------------------------------------------------------------------------------------------
Interest Expense
Interest on deposits 15,265,293 16,114,262 15,183,543
Interest on Federal Home Loan Bank advances 727,546 1,231,172 1,521,693
- -------------------------------------------------------------------------------------------------------------
Total interest expense 15,992,839 17,345,434 16,705,236
- -------------------------------------------------------------------------------------------------------------
Net Interest Income 12,307,750 11,987,379 11,862,252
Provision for loan losses 159,000 242,000 66,000
- -------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 12,148,750 11,745,379 11,796,252
- -------------------------------------------------------------------------------------------------------------
Other Income
Net loan servicing fees 190,584 319,000 328,804
Other fees and service charges 911,384 702,046 657,042
Brokerage and insurance commissions 1,268,461 1,179,728 1,197,628
Loss on investments in unconsolidated affiliates (153,960) (130,351) (121,760)
Gains on sales of loans and servicing rights 1,055,424 597,226 324,265
Other 156,992 196,180 46,836
- -------------------------------------------------------------------------------------------------------------
Total other income 3,428,885 2,863,829 2,432,815
- -------------------------------------------------------------------------------------------------------------
Other Expense:
Salaries and employee benefits 5,248,336 5,090,073 4,752,664
Net occupancy expense 1,366,579 1,280,703 1,070,388
Federal insurance premium 193,833 204,634 660,608
Data processing expense 389,126 325,327 321,173
Printing and office supplies 339,381 302,043 289,109
Savings Association Insurance Fund assessment -- -- 1,878,897
Other 2,117,470 1,782,069 1,547,379
- -------------------------------------------------------------------------------------------------------------
Total other expense 9,654,725 8,984,849 10,520,218
- -------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 5,922,910 5,624,359 3,708,849
Income taxes 2,084,530 1,992,490 1,305,344
- -------------------------------------------------------------------------------------------------------------
Net Income $ 3,838,380 $ 3,631,869 $ 2,403,505
=============================================================================================================
Basic Earnings Per Share $1.08 $1.02 $.66
=============================================================================================================
Diluted Earnings Per Share $1.06 $1.01 $.65
=============================================================================================================
Dividends Declared Per Share $.59 $.56 $.52
=============================================================================================================
See accompanying notes.
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Shareholders' Equity
- ---------------------------------------------------------------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Earnings Total
- ---------------------------------------------------------------------------------------------------
Balance at January 1, 1996 $2,648,403 $12,981,032 $31,485,254 $47,114,689
Net income -- -- 2,403,505 2,403,505
Dividends declared -- -- (1,880,560) (1,880,560)
Four-for-three stock split 831,319 (831,319) -- --
Purchase of common stock (234,825) (3,730,719) -- (3,965,544)
Exercise of stock options 46,422 226,279 -- 272,701
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1996 3,291,319 8,645,273 32,008,199 43,944,791
Net income -- -- 3,631,869 3,631,869
Dividends declared -- -- (2,010,360) (2,010,360)
Purchase of common stock (83,205) (1,228,009) -- (1,311,214)
Exercise of stock options 25,093 154,691 -- 179,784
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,233,207 7,571,955 33,629,708 44,434,870
Net income -- -- 3,838,380 3,838,380
Dividends declared -- -- (2,082,555) (2,082,555)
Eleven-for-ten stock split 318,996 -- (318,996) --
Payment for fractional shares in connection
with eleven-for-ten stock split -- -- (3,189) (3,189)
Purchase of common stock (183,080) (3,174,981) -- (3,358,061)
Stock issued in purchase of subsidiary 114,955 2,026,082 -- 2,141,037
Exercise of stock options 26,608 352,058 -- 378,666
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $3,510,686 $ 6,775,114 $35,063,348 $45,349,148
===================================================================================================
See accompanying notes.
Ameriana Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
Operating Activities
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,838,380 $ 3,631,869 $ 2,403,505
Adjustments to reconcile net income to net cash provided by operating activities
Provision for losses on loans and real estate owned 191,000 242,000 66,000
Depreciation and amortization 695,678 631,108 575,387
Equity in loss of limited partnership 153,910 163,810 152,555
Mortgage servicing rights amortization 221,568 118,853 122,813
Goodwill amortization 148,588 28,320 28,320
Deferred income taxes 177,086 129,036 128,907
Gains on sales of real estate owned (28,350) (25,202) (12,241)
Mortgage loans originated for sale (96,259,078) (30,534,904) (19,105,599)
Proceeds from sale of mortgage loans 93,861,572 30,193,705 18,581,503
Gains on sale of loans and servicing rights (1,055,424) (597,226) (324,265)
Decrease (increase) in other assets (188,335) 39,495 (854,060)
Increase (decrease) in drafts payable 128,320 (332,206) 2,035,746
Increase (decrease) in other liabilities (62,266) 823,068 (561,808)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,822,649 4,511,726 3,236,763
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- ------------------------------------------------------------------------------------------------------------------------------
Purchase of interest-bearing time deposits (3,487,000) -- --
Purchase of investment securities held to maturity (82,193,490) (6,800,000) (30,944,003)
Proceeds from maturity of securities held to maturity 5,000,000 -- --
Proceeds from calls of securities held to maturity 60,985,198 22,150,000 2,800,000
Principal collected on mortgage-backed securities held to maturity 9,628,554 8,423,491 8,856,215
Purchases of mortgage-backed securities held to maturity -- -- (2,531,581)
Net change in loans 45,177,038 (11,664,366) (16,150,843)
Mortgage servicing rights purchased -- (247,442) (224,724)
Proceeds from sales of mortgage servicing rights -- 648,516 --
Proceeds from sales of real estate owned 244,608 156,400 226,277
Net purchases of premises and equipment (212,566) (780,025) (1,510,395)
Investment in unconsolidated affiliate -- 4,564 --
Cash received in acquisitions 19,607,676 -- --
Other investing activities (141,420) (52,900) (326,974)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 54,608,598 11,838,238 (39,806,028)
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities
- ------------------------------------------------------------------------------------------------------------------------------
Net change in demand and passbook deposits 17,892,349 (392,297) (1,225,470)
Net change in certificates of deposit (40,013,911) 3,958,584 29,180,452
Advances from Federal Home Loan Bank 9,000,000 72,100,000 86,000,000
Repayment of Federal Home Loan Bank advances (7,914,916) (82,632,988) (72,455,066)
Proceeds from exercise of stock options 378,666 179,784 272,701
Purchase of common stock (3,358,061) (1,311,214) (3,965,544)
Cash dividends paid (2,070,028) (1,986,793) (1,837,091)
Payment for fractional shares (3,189) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (26,089,090) (10,084,924) 35,969,982
- ------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 30,342,157 6,265,040 (599,283)
Cash and Cash Equivalents at Beginning of Year 15,209,080 8,944,040 9,543,323
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 45,551,237 $ 15,209,080 $ 8,944,040
==============================================================================================================================
See accompanying notes.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of Ameriana Bancorp (the "Company") and its wholly owned
subsidiaries: Ameriana Bank of Indiana, FSB ("ABI"), Ameriana Bank of Ohio, FSB
("ABO"), Ameriana Financial Services, Inc., Indiana Title Insurance Company and
Ameriana Insurance Agency, Inc. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of its thrift and other subsidiaries. The Company
provides various banking services and engages in loan servicing activities for
investors. The thrifts are subject to the regulation of the Office of Thrift
Supervision ("OTS"). The Company's gross revenues are substantially earned from
the various banking services provided by ABI and ABO. The Company also earns
brokerage and insurance commissions from the services provided by the other
subsidiaries.
ABI generates loans and receives deposits from customers located primarily
in east central Indiana. The economy of Ameriana's primary market, while not
dominated by any single employer, is significantly influenced by the agriculture
and automotive-related industries. ABO generates loans and receives deposits
from customers located primarily in southwestern Ohio. Loans are generally
secured by specific items of collateral including real property and consumer
assets. The Company has sold various loans to investors while retaining the
servicing rights.
Reclassifications: Certain reclassifications of 1997 and 1996 amounts have
been made to conform with 1998 presentation.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on
hand and in other institutions and interest-bearing demand deposits.
Investment Securities: Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Stock in Federal Home Loan Bank: Stock in the Federal Home Loan Bank
("FHLB") is stated at cost and the amount of stock the Company is required to
own is determined by regulation.
Mortgage-Backed Securities: Mortgage-backed securities represent
participating interests in pools of long-term first mortgage loans originated
and serviced by the issuers of the securities. Mortgage-backed securities are
acquired and held for investment purposes and, accordingly, are stated at cost
adjusted for amortization of premiums and accretion of discounts, both computed
by methods which produce a level yield. The Company has the intent and ability
to hold these securities to maturity considering all foreseeable events and
conditions.
Mortgage Loans Held for Sale: Mortgage loans held for sale are carried at
the lower of aggregate cost or market. Net unrealized losses are recognized
through a valuation allowance for charges to income.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Loans: Loans are carried at the principal amount outstanding. A loan is
impaired when, based on current information or events, it is probable that the
Company will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Payments with
insignificant delays not exceeding 90 days outstanding are not considered
impaired. Certain nonaccrual and substantially delinquent loans may be
considered to be impaired. The Company considers its investment in one-to-four
family residential loans and installment loans to be homogeneous and therefore
excluded from separate identification of evaluation of impairment. Interest
income is accrued on the principal balances of loans. The accrual of interest
on impaired and nonaccrual loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. When interest
accrual is discontinued, all unpaid accrued interest is reversed when considered
uncollectible. Interest income is subsequently recognized only to the extent
cash payments are received. Certain loan fees and direct costs are being
deferred and amortized as an adjustment of yield on the loans over the
contractual lives of the loans. When a loan is paid off or sold, any
unamortized loan origination fee balance is credited to income.
Real Estate Owned: Real estate owned arises from loan foreclosure or deed
in lieu of foreclosure and is carried at the lower of cost (the unpaid balance
at the date of acquisition plus foreclosure and other related costs) or fair
value. Subsequent to acquisition, an allowance is recorded for any excess of
carrying value over fair value minus estimated selling costs. Costs of
improvements made to facilitate sales are capitalized; costs of holding the
property are charged to expense.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level believed adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on an evaluation of the portfolio including consideration of past loan loss
experience, current economic conditions, volume, growth and composition of the
loan portfolio, the probability of collecting all amounts due, and other
relevant factors. Impaired loans are measured by the present value of expected
future cash flows, or the fair value of the collateral of the loan, if
collateral dependent. The allowance is increased by provisions for loan losses
charged against income.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1998, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the areas within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the related assets. Maintenance
and repairs are expensed as incurred while major additions and improvements are
capitalized.
Intangible assets: Intangible assets are being amortized on an accelerated
or straight-line basis not exceeding a period of up to 15 years. Such assets
are periodically evaluated as to the recoverability of their carrying value.
Earnings per Share: Earnings per share is computed by dividing net income
by the weighted average number of common and potential common shares outstanding
during each year.
Stock Splits: On November 23, 1998, the Board of Directors declared an
eleven-for-ten stock split effected in the form of a dividend under which every
ten shares of the Company's common stock outstanding on the close of business on
December 18, 1998, were converted into eleven shares of common stock. No
fractional shares were issued; cash in lieu of fractional shares was paid to
shareholders. On February 26, 1996, the Board of Directors declared a four-for-
three stock split under which every three shares of the Company's common stock
outstanding at the close of business on March 15, 1996, were converted into four
shares of common stock. No fractional shares were issued; cash in lieu of
fractional shares was paid to shareholders. Per share and shares outstanding
amounts and stock option plan data for all periods presented have been adjusted
to give effect to the splits.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Mortgage servicing rights: Mortgage servicing rights on originated loans
are capitalized by allocating the total cost of the mortgage loans between the
mortgage servicing rights and the loans based on their relative fair values.
Capitalized servicing rights, which include purchased servicing rights, are
amortized in proportion to and over the period of estimated servicing revenues.
Stock Options: Stock options are generally granted for a fixed number of
shares with an exercise price equal to the fair value of the shares at the date
of grant. The Company accounts for and will continue to account for these stock
option grants in accordance with Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants.
Income Taxes: Income tax in the consolidated statements of income includes
deferred income tax provisions or benefits for all significant temporary
differences in recognizing income and expenses for financial reporting and
income tax purposes. The Company and its subsidiaries file consolidated tax
returns. The parent company and subsidiaries are charged or given credit for
income taxes as though separate returns were filed.
2. Acquisitions
On July 1, 1998, the Company completed the purchase of Cardinal State Bank
("Cardinal"), Maineville, Ohio and merged its two locations into ABO. The
transaction was recorded under the purchase method of accounting. The Company
paid $1,121,534 in cash including expenses, and issued 126,451 shares of common
stock and $450,760 of promissory notes for a total purchase price of $3,713,331.
The Cardinal acquisition included $14,380,000 of loans, $9,384,000 of cash and
cash equivalents and $21,521,000 of deposits. The Company recorded intangible
assets totaling $1,351,000 related to the transaction.
On February 27, 1998, the Company completed the purchase of deposits and
branch facility in Morristown, Indiana from National City Bank of Indiana. The
transaction was recorded under the purchase method of accounting. The
Morristown acquisition included assets and liabilities of $12,394,000, including
cash of $11,346,000, and deposits of $12,388,000. Intangible assets of $684,000
were recorded.
The results of operations of the Cardinal locations and the Morristown
branch have been included since their acquisition date. Intangible assets are
being amortized over estimated useful lives.
3. Investment Securities
Investment securities held to maturity at December 31, 1998, included
federal agencies at an amortized cost of $51,581,000 with a fair value of
approximately $51,512,000 and gross unrealized gains and (losses) of $15,000 and
$(84,000), respectively. Investment securities at December 31, 1997, included
federal agencies at an amortized cost of $35,395,000 with a fair value of
approximately $35,300,000 and gross unrealized gains and (losses) of $4,000 and
$(99,000), respectively.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities held to maturity at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations without call or prepayment penalties.
- --------------------------------------------------------------------------------
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------
Maturity Distribution at December 31, 1998
Due in one through five years $ 1,700,000 $ 1,705,000
Due after five through ten years 15,922,000 15,874,000
Due after ten years 33,959,000 33,933,000
- --------------------------------------------------------------------------------
$51,581,000 $51,512,000
================================================================================
Investment securities with a total amortized cost of $15,000,000 and
$10,897,000 were pledged at December 31, 1998 and 1997, to secure FHLB advances.
4. Loans and Mortgage-Backed Securities
Loans receivable consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Residential mortgage loans $228,812,624 $254,171,680
Commercial mortgage loans 15,281,926 4,929,752
Installment loans 29,015,602 38,623,118
Commercial loans 861,579 19,383
Loans secured by deposits 1,350,858 1,308,257
- --------------------------------------------------------------------------------
275,322,589 299,052,190
- --------------------------------------------------------------------------------
Deduct
- --------------------------------------------------------------------------------
Undisbursed loan proceeds 12,123,253 4,875,813
Deferred loan fees, net 101,916 43,277
Allowance for loan losses 1,284,286 1,163,490
- --------------------------------------------------------------------------------
13,509,455 6,082,580
- --------------------------------------------------------------------------------
$261,813,134 $292,969,610
================================================================================
Loans being serviced for investors, primarily the Federal Home Loan
Mortgage Corporation and Federal National Mortgage Association, by the Company
totaled approximately $181,000,000, $117,000,000 and $145,000,000 as of December
31, 1998, 1997 and 1996, respectively. Such loans are not reflected in the
preceding table.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The aggregate fair value of capitalized mortgage servicing rights at
December 31, 1998 and 1997 is based on comparable market values and expected
cash flows, with impairment assessed based on portfolio characteristics
including product type, investor type and interest rates. No valuation
allowance was necessary at December 31, 1998 or 1997.
- -----------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Mortgage servicing rights
Balance at beginning of year $ 526,367 $ 780,770 $ 577,068
Servicing rights capitalized 691,145 416,555 326,515
Servicing rights acquired in acquisition 81,004
Servicing rights sold -- (552,105) --
Amortization of servicing rights (221,568) (118,853) (122,813)
- -----------------------------------------------------------------------------
Balance at end of year $1,076,948 $ 526,367 $ 780,770
=============================================================================
At December 31, 1998 and 1997, the Company had outstanding commitments to
originate loans of approximately $6,600,000 and $8,600,000, which were primarily
for adjustable-rate mortgage with rates that are determined just prior to
closing loans or fixed-rate mortgage loans with rates locked in at the time of
loan commitment. The majority of the fixed rate loans are sold at the time the
rates are locked. In addition, the Company had $19,335,000 and $13,509,000,
respectively, of conditional commitments for lines of credit and credit card
receivables. Exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The same
credit policies are used in making such commitments as are used for instruments
that are included in the consolidated balance sheet. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Each customer's credit worthiness is evaluated on a case-by-case
basis. The amount of collateral obtained, if deemed necessary upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, real estate, equipment, and income-
producing commercial properties.
The fair value of mortgage-backed securities at December 31, 1998 and 1997,
was $20,437,000 and $30,164,000, respectively. Gross unrealized gains and
(losses) on mortgage-backed securities at December 31, 1998 and 1997, were
$259,000 and $(39,000), and $315,000 and $(147,000), respectively. Mortgage-
backed securities with a total amortized cost of $4,861,000 and $8,847,000, were
pledged at December 31, 1998 and 1997, to secure FHLB advances.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
5. Allowance for Losses
Changes to the allowances for losses on loans and real estate owned are as
follows:
- -------------------------------------------------------------------------------
Year Ended December 31
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Loans
Balance at beginning of year $1,163,490 $1,103,513 $1,076,038
Provision for losses 159,000 242,000 66,000
Increase from acquisition 100,000 -- --
Net charge-offs
Charge-offs (165,616) (200,242) (51,970)
Recoveries 27,412 18,219 13,445
- -------------------------------------------------------------------------------
Net charge-offs (138,204) (182,023) (38,525)
- -------------------------------------------------------------------------------
Balance at end of year $1,284,286 $1,163,490 $1,103,513
===============================================================================
Real estate owned
Balance at beginning of year $ -- $ -- $ --
Provision for losses 32,000 -- --
Net charge-offs
Charge-offs -- -- --
Recoveries -- -- --
- -------------------------------------------------------------------------------
Net charge-offs -- -- --
- -------------------------------------------------------------------------------
Balance at end of year $ 32,000 $ -- $ --
===============================================================================
5. Premises and Equipment
Premises and equipment consists of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Land $ 1,288,595 $ 1,240,892
Land improvements 491,037 414,736
Office buildings 6,152,910 5,846,340
Furniture and equipment 3,621,326 3,424,872
Automobiles 121,914 66,688
- --------------------------------------------------------------------------------
11,675,782 10,993,528
Less accumulated depreciation 5,583,838 5,084,323
- --------------------------------------------------------------------------------
$ 6,091,944 $ 5,909,205
================================================================================
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
5. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates include an investment in a limited
partnership of $971,417 and $1,125,377 at December 31, 1998 and 1997. This
investment represents a 6.4 % equity in the partnership, which was organized to
acquire and manage real estate investments. Total cash contributed was
$1,458,849 in 1995. The Company recorded a net loss of $153,960, $163,810 and
$152,555 for 1998, 1997 and 1996 on its investment, and low income housing tax
credits of $212,316, $183,200 and $115,364. Available financial statements for
the partnership as of December 31, 1998 and 1997, reported total assets of
$19,574,555 and $24,085,704; total partners' equity of $15,337,026 and
$18,590,389 and for each of the three years in the period ended December 31,
1998, a net loss of $2,700,000, $2,785,509 and $1,732,056, with the losses
allocated based on the dates of partners' contributions and other factors.
In addition, the Company has invested $453,038 in a life insurance company.
Dividends from this affiliate for the years ended December 31, 1998, 1997 and
1996 were $50, $33,459 and $30,795, respectively. Commission income also
generated through this affiliate is included in Other Income.
6. Deposits
Deposits consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Demand $ 61,697,281 $ 29,995,452
Savings 44,177,406 44,714,378
Certificates of $100,000 or more 28,153,275 47,630,340
Other certificates 199,961,341 199,876,993
- --------------------------------------------------------------------------------
$333,989,303 $322,217,163
================================================================================
Certificates maturing in years ending after December 31, 1998:
- --------------------------------------------------------------------------------
1999 $123,036,396
2000 77,425,057
2001 15,428,359
2002 2,936,171
2003 6,227,083
Thereafter 3,061,550
- --------------------------------------------------------------------------------
$228,114,616
================================================================================
Interest paid on deposits approximated interest expense in 1998, 1997 and
1996.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
9. Borrowings
Borrowings consist of the following:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
- -------------------------------------------------------------------------------
Advances from FHLB:
Maturities in years ending
December 31:
1998 $ 7,600,000 5.88%
1999 1,000,000 5.98
2001 $ 621,106 6.30% 809,168 6.30
2004 25,772 8.15 38,633 8.15
2005 3,220,149 6.60 3,769,808 6.60
2006 2,359,127 5.65 2,798,006 5.66
2008 10,874,545 4.84
- --------------------------------------------------------------------------------
$17,100,699 5.34% $16,015,615 6.04%
================================================================================
Certain advances are secured by first-mortgage loans in an amount equal to
at least 150% of the advances. Other advances are secured by mortgage-backed
securities or investment securities. Advances are subject to restrictions or
penalties in the event of prepayment.
Interest paid on borrowings was $721,779, $1,245,589 and $1,495,037 for
1998, 1997 and 1996.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities are as follows:
- -------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
Deferred tax assets
Deferred compensation $ 14,000 $ 33,000
General loan loss reserves 514,000 466,000
Other 80,000 83,000
- -------------------------------------------------------------------------------
608,000 582,000
- -------------------------------------------------------------------------------
Deferred tax liabilities
FHLB stock dividends (321,000) (294,000)
Tax bad debt reserves (326,000) (391,000)
Purchase accounting adjustments (93,000) (96,000)
Deferred loan fees (61,000) (74,000)
Mortgage servicing rights (348,000) (95,000)
Other (50,000) (46,000)
- -------------------------------------------------------------------------------
(1,199,000) (996,000)
- -------------------------------------------------------------------------------
Net tax liabilities $ (591,000) $(414,000)
===============================================================================
The effective income tax rate on income from continuing operations is
reconciled to the statutory corporate tax rate as follows:
- -------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 4.7 4.5 4.8
Tax credits (3.6) (3.3) (3.1)
Other .1 .2 (.5)
- -------------------------------------------------------------------------------
Effective tax rate 35.2% 35.4% 35.2%
================================================================================
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The provision for income taxes consists of the following:
- ------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
Federal
Current $1,520,647 $1,497,023 $ 934,021
Deferred 142,810 112,679 102,062
- ------------------------------------------------------------------------------
1,663,457 1,609,702 1,036,083
- ------------------------------------------------------------------------------
State
Current 386,797 366,431 242,416
Deferred 34,276 16,357 26,845
- ------------------------------------------------------------------------------
421,073 382,788 269,261
- ------------------------------------------------------------------------------
$2,084,530 $1,992,490 $1,305,344
==============================================================================
The Company paid $1,722,000, $1,460,000 and $1,675,000 of state and
federal income taxes in 1998, 1997 and 1996, respectively.
11. Employee Benefits
The Company is a participating employer in a multi-employer defined
benefit pension plan sponsored by the Pentegra Group (formerly known as the
Financial Institutions Retirement Fund) and a 401(k) plan also administered by
the Pentegra Group. The plans cover substantially all full-time employees of the
Company. Since the defined benefit pension plan is a multi-employer plan, no
separate actuarial valuations are made with respect to each participating
employer. Contributions for ABI's defined benefit plan have not been required
since June 1987, because the plan reached the Internal Revenue Service's full
funding limitation. ABO's plan requires cash contributions. Pension expense for
the plans totaled $27,800, $18,400 and $41,000 in 1998, 1997 and 1996,
respectively.
Under the 1987 Stock Option Plan and the 1996 Stock Option and Incentive
Plan ("1996 Plan"), the Company has granted options to individuals to purchase
common stock at a price equal to the fair market value at the date of grant,
subject to the terms and conditions of the plans. Plan terms permit certain non
incentive stock options to be granted at less than market value at plan
committee discretion. Options vest and are fully exercisable when granted or
over an extended period subject to continuous employment or under other
conditions set forth in the plans. The period for exercising options shall not
exceed ten years from the date of grant. The plans also permit grants of stock
appreciation rights. An amendment of the 1996 Plan approved by the shareholders
in April 1998 extended the plan's term by five years and increased the number of
shares reserved under the plan from 176,000 to 352,000 shares.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The following is a summary of the status of the Company's stock option
plans and changes in those plans as of and for the years ended December 31,
1998, 1997 and 1996. The number of shares and prices have been restated to give
effect to the Company's 1998 and 1996 stock splits.
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 277,890 $13.87 137,390 $10.68 142,046 $ 7.55
Granted 8,800 15.50 185,130 14.99 52,800 12.53
Exercised (29,768) 12.18 (32,838) 6.64 (57,456) 4.55
Forfeited/expired (441) 13.02 (11,792) 14.32 -- --
--------- -------- ---------
Outstanding at end of year 256,481 14.18 277,890 13.87 137,390 10.68
========= ======== =========
Options exercisable at year end 196,552 13.68 199,130 14.02 137,390 10.68
Weighted-average fair value of
options granted during the year $ 3.24 $ 3.18 $ 2.15
As of December 31, 1998, other information in exercise price ranges for
options outstanding and exercisable is as follows:
Outstanding Exercisable
- -------------------------------------------------------------------------------------------------------
Weighted- Weighted-Average Weighted-
Exercise Price Number Average Remaining Contractual Number Average
Range of Shares Exercise Price Life of Shares Exercise Price
- -------------------------------------------------------------------------------------------------------
$5.57 3,300 $ 5.57 1 month 3,300 $ 5.57
9.43 - 12.53 81,690 12.42 6.9 years 81,690 12.42
14.32 - 18.30 171,491 15.18 8.3 years 111,562 14.85
During 1998, 1997 and 1996, shares totaling 499, 5,236 and 2,925 were
tendered as partial payment for shares exercised.
There were 162,382 shares under the 1996 Plan available for grant at
December 31, 1998.
SFAS No. 123, Stock-Based Compensation, was effective for the Company in
1996. This Statement established a fair value based method of accounting for
stock-based compensation plans. Although the Company has elected to follow APB
No. 25, SFAS No. 123 requires pro forma disclosures of net income and earnings
per share as if the Company had accounted for its employee stock options under
that Statement. The fair value of each option grant was estimated on the grant
date using an option-pricing model with the following assumptions:
1998 1997 1996
----------------------------------
Risk-free interest rates 5.6% 5.9-6.6% 6.0%
Dividend yields 3.3% 3.5% 4.1%
Expected volatility factors of market price of common stock 14.5% 15.0% 15.1%
Weighted-average expected life of the options 8 years 8 years 8 years
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
1998 1997 1996
----------------------------------------
Net income As reported $3,838,380 $3,631,869 $2,403,505
Pro forma 3,754,731 3,328,517 2,334,805
Basic earnings per share As reported 1.08 1.02 .66
Pro forma 1.05 .93 .64
Diluted earnings per share As reported 1.06 1.01 .65
Pro forma 1.04 .92 .63
12. Shareholders' Equity
In July 1998, the Company's Board of Directors approved a one-year stock
repurchase program to acquire up to 10% of the Company's outstanding common
stock, or approximately 330,000 shares, at a cumulative cost not to exceed
$5,000,000. The Company repurchased 201,388 shares under this program during
1998. The Company repurchased shares during 1997 and 1996 under previous
repurchase programs.
The payment of dividends by the Company depends substantially upon
receipt of dividends from ABI and ABO, which are subject to various regulatory
restrictions on the payment of dividends. Under regulations of the OTS, ABI and
ABO may not declare or pay a cash dividend or repurchase any of their capital
stock if the effect thereof would cause the net worth of those entities to be
reduced below regulatory capital requirements or the amount required for their
liquidation accounts. Prior notice of any dividend is required to be given to
the OTS.
OTS regulations provide additional limitations on the extent to which a
savings institution may pay cash dividends or repurchase stock. The extent to
which such cash distributions are limited will depend upon which of three
categories (categories based upon capital levels) is applicable for the savings
institution. ABI and ABO are currently "tier one institutions" and, therefore,
are able to make cash distributions to the Company during any calendar year up
to 100% of their net income during that calendar year plus the amount that would
reduce by one-half their surplus capital (capital in excess of ABI's and ABO's
regulatory capital requirements) at the beginning of the calendar year. Under
these regulations, the maximum permissible dividends at December 31, 1998, that
ABI and ABO could pay are $9.2 million and $1.3 million, respectively. Net worth
of ABI and ABO at December 31, 1998, was $33.2 million and $9.1 million,
respectively.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
13. Earnings Per Share
Earnings per share were computed as follows:
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Per Share Average Per Share Average Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Income available to common
shareholders $3,838,380 3,561,831 $1.08 $3,631,869 3,571,560 $1.02 $2,403,505 3,669,394 $.66
===================================================================================================
Effect Of Dilutive Stock Options -- 48,568 -- 38,973 -- 37,901
===================================================================================================
Diluted Earnings Per Share
Income available to common
shareholders and assumed
conversions $3,838,380 3,610,399 $1.06 $3,631,869 3,610,533 $1.01 $2,403,505 3,707,295 $.65
===================================================================================================
14. Regulatory Capital and Insurance Fund Assessment
ABI and ABO are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations. The ratios are intended to
measure capital relative to assets and credit risk associated with those assets
and off-balance sheet exposures. The capital category assigned can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging
from well capitalized to critically undercapitalized. Classification in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1998 and 1997,
ABI and ABO are categorized as well capitalized and met all subject capital
adequacy requirements. There are no conditions or events since December 31,
1998, that management believes have changed this classification.
Actual and required capital amounts and ratios are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ABI ABO
- ------------------------------------------------------------------------------------------------------------------------------------
Required For Adequate Required For Adequate
Capital/1/ Actual Capital Capital/1/ Actual Capital
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount Ratio Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital/1/ (to risk-weighted
assets) 8.0% $12,011,000 22.0% $33,052,000 8.0% $3,705,000 17.5% $8,100,000
Core capital/1/ (to adjusted tangible assets) 3.0 9,376,000 10.4 32,551,000 3.0 2,720,000 8.7 7,842,000
Core capital/1/ (to adjusted total assets) 3.0 9,376,000 10.4 32,551,000 3.0 2,720,000 8.7 7,842,000
/1/ As defined by regulatory agencies
Tangible capital at December 31, 1998, for ABI and ABO was $32,551,000
and $7,842,000, which amounts were 10.4% and 8.7% of tangible assets and
exceeded the required ratio of 1.5%.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
ABI ABO
- ----------------------------------------------------------------------------------------------------------------------------------
Required For Adequate Required For Adequate
Capital/1/ Actual Capital Capital/1/ Actual Capital
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount Ratio Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital/1/ (to risk-weighted
assets) 8.0% $14,318,000 18.8% $33,712,000 8.0% $3,086,000 14.4% $5,552,000
Core capital/1/ (to adjusted tangible assets) 3.0 9,450,000 10.6 33,263,000 3.0 2,255,000 7.1 5,349,000
Core capital/1/ (to adjusted total assets) 3.0 9,463,000 10.6 33,263,000 3.0 2,255,000 7.1 5,349,000
/1/ As defined by regulatory agencies
Tangible capital at December 31, 1997, for ABI and ABO was $33,263,000 and
$5,349,000, which amounts were 10.6% and 7.1% of tangible assets and exceeded
the required ratio of 1.5%.
The banking subsidiaries have qualified under provisions of the Internal
Revenue Code which permit them to deduct from taxable income a provision for bad
debts which differs from the provision for such losses charged against income.
Accordingly, their retained earnings at December 31, 1998, includes an
allocation of income to bad debt deductions of approximately $11,883,000 for
which no provision for federal income taxes has been made. If, in the future,
this portion of retained earnings is used for any purpose other than to absorb
bad debt losses, including redemption of bank stock or excess dividends, or loss
of "bank" status, federal income taxes may be imposed at the then applicable
rates. The unrecorded deferred income tax liability on the above amount was
approximately $4,000,000.
The deposits of the Company's thrift subsidiaries are presently insured by
the Savings Association Insurance Fund ("SAIF"). A recapitalization plan for
the SAIF was signed into law on September 30, 1996, which provided for a special
assessment on all SAIF-insured institutions to enable the SAIF to achieve its
required level of reserves. The assessment of .0657% was effected based on
deposits as of March 31, 1995. The Company's special assessment in 1996 totaled
approximately $1,879,000, before taxes, and was charged against 1996 income.
15. Year 2000
Like all entities, the Company and subsidiaries are exposed to risks
associated with the Year 2000 Issue, which affects computer software and
hardware; transactions with customers, vendors, and other entities; and
equipment dependent upon microchips. The Company has begun and is continuing
its extensive efforts to identify and remediate potential Year 2000 problems.
It is not possible for any entity to guarantee the results of its own
remediation efforts or to accurately predict the impact of the Year 2000 Issue
on third parties with which the Company and subsidiaries do business. If
remediation efforts of the Company or third parties with which the Company and
subsidiaries do business are not successful, the Year 2000 Issue could have
negative effects on the Company's financial condition and results of operations
in the near term.
16. Fair Value of Financial Instruments
Fair value disclosures of financial instruments are made to comply with the
requirements of SFAS No. 107, Disclosures About Fair Value of Financial
Instruments. The fair values are based on estimates using present value and
other valuation techniques in instances where quoted market prices are not
available. These techniques are significantly affected by the assumptions used,
including discount rates and estimates of future cash flows. As such, the
derived fair value estimates cannot be compared to independent markets and,
further, may not be realizable in an immediate settlement of the instruments.
Accordingly, the aggregate fair value amounts presented do not represent, and
should not be construed to represent, the underlying value of the Company.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the estimates of fair value of financial
instruments (in thousands):
- -------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 7,545 $ 7,545 $ 5,066 $ 5,066
Interest-bearing deposits 38,006 38,006 10,143 10,143
Interest-bearing time deposits 3,487 3,487 -- --
Investment securities held to maturity 51,581 51,512 35,395 35,300
Mortgage-backed securities held to maturity 20,217 20,437 29,996 30,164
Loans receivable, including loans held for sale, net 265,994 269,480 294,389 298,223
Interest receivable 2,731 2,731 2,723 2,723
Stock in FHLB 3,588 3,588 3,412 3,412
Liabilities
Deposits 333,989 335,990 322,217 322,051
FHLB advances 17,101 17,002 16,016 16,001
Interest payable 435 435 401 401
Drafts payable 4,354 4,354 4,225 4,225
Advances by borrowers for taxes and insurance 1,031 1,031 955 955
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash, Interest-Bearing Deposits and Stock in FHLB: The carrying amounts
reported in the consolidated statements of condition for cash on hand and in
other institutions, interest-bearing deposits and stock in FHLB approximate
those assets' fair values.
Investment and Mortgage-Backed Securities: Fair values are based on quoted
market prices.
Loans Receivable: The fair values for loans receivable are estimated using
a discounted cash flow calculation that applies interest rates used to price new
similar loans to a schedule of aggregated expected monthly maturities on loans.
Interest Receivable/Payable: The fair value of accrued interest
receivable/payable approximates carrying values.
Deposits: The fair values of interest-bearing demand and savings accounts
are equal to the amount payable on demand at the balance sheet date. Fair
values for certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on deposits to a
schedule of aggregated expected monthly maturities on deposits. SFAS No. 107
does not allow for inclusion of a core deposit intangible component in the fair
value estimate, and although it would be impractical from a cost-benefit
standpoint to estimate that value, the Company realizes that the dollar amount
could be significant.
FHLB Advances: The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current FHLB advance rates for
periods comparable to the remaining terms to maturity of these advances.
Drafts Payable and Advances by Borrowers for Taxes and Insurance: The fair
value approximates carrying value.
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Financial Information
The following are condensed financial statements for the parent company,
Ameriana Bancorp, only:
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
Statements of Condition 1998 1997
- --------------------------------------------------------------------------------
Assets
Cash $ 915 $ 100,850
Advances to subsidiaries 2,757,000 5,337,000
Investments in thrift subsidiaries 42,310,321 39,060,304
Investments in other subsidiaries and affiliates 1,858,863 1,356,345
Other assets 280,718 93,544
- --------------------------------------------------------------------------------
$47,207,817 $45,948,043
================================================================================
Liabilities and shareholders' equity
Note payable to subsidiaries, net of discount $ 1,300,149 $ 1,064,670
Miscellaneous liabilities 558,520 448,503
Shareholders' equity 45,349,148 44,434,870
- --------------------------------------------------------------------------------
$47,207,817 $45,948,043
================================================================================
- -----------------------------------------------------------------------------------------------------
Year Ended December 31
- -----------------------------------------------------------------------------------------------------
Statements of Income 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Dividends from thrift subsidiaries $4,620,114 $ 6,600,000 $3,300,000
Interest income 214,809 152,952 160,361
- -----------------------------------------------------------------------------------------------------
4,834,923 6,752,952 3,460,361
Operating expense 624,634 578,477 744,476
- -----------------------------------------------------------------------------------------------------
Income before income tax credit and equity in undistributed
income of subsidiaries 4,210,289 6,174,475 2,715,885
Income tax credit 433,130 412,785 409,528
- -----------------------------------------------------------------------------------------------------
4,643,419 6,587,260 3,125,413
Equity in undistributed income of subsidiaries and affiliates
(distributions in excess of equity in income) (805,039) (2,955,391) (721,908)
- -----------------------------------------------------------------------------------------------------
Net Income $3,838,380 $ 3,631,869 $2,403,505
=====================================================================================================
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------
Statements of Cash Flows 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 3,838,380 $ 3,631,869 $ 2,403,505
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in undistributed income of subsidiaries and affiliates 805,039 2,955,391 721,908
Noncash dividend (1,020,114) -- --
Interest expense 84,719 108,756 121,940
Increase in other assets (11,303) (39,974) (49,818)
Increase (decrease) in miscellaneous liabilities 97,490 2,150 (25,537)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,794,211 6,658,192 3,171,998
- ----------------------------------------------------------------------------------------------------------
Investing Activities
Advances to subsidiaries (3,140,000) --
Repayment of advances to subsidiaries 2,580,000 -- 2,658,000
Cash paid in acquisition (1,121,534) -- --
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Net cash provided (used) by investing activities 1,458,466 (3,140,000) 2,658,000
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Financing Activities
Repayment of note payable to subsidiary (300,000) (300,000) (300,000)
Cash dividends paid (2,073,217) (1,986,793) (1,837,091)
Purchase of common stock (3,358,061) (1,311,214) (3,965,544)
Proceeds from exercise of stock options 378,666 179,784 272,701
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Net cash used by financing activities (5,352,612) (3,418,223) (5,829,934)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (99,935) 99,969 64
Cash at beginning of year 100,850 881 817
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Cash at end of year $ 915 $ 100,850 $ 881
==========================================================================================================
Ameriana Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
18. Quarterly Data (unaudited)
Summarized quarterly financial data for 1998 and 1997 is as follows (Dollars in thousands, except for per share data):
- -----------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
1998
Total interest income $7,053 $6,950 $7,203 $7,095
Total interest expense 4,007 3,903 4,076 4,007
Net interest income 3,046 3,047 3,127 3,088
Provision for loan losses 36 36 36 51
Net income 1,029 915 932 962
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share* .29 .26 .26 .27
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share* .28 .25 .26 .27
- -----------------------------------------------------------------------------------------------------------------------------
Dividends declared per share* .145 .145 .145 .150
- -----------------------------------------------------------------------------------------------------------------------------
Stock price range*
High 19.32 20.00 18.07 19.00
Low 17.27 16.93 16.14 15.68
- -----------------------------------------------------------------------------------------------------------------------------
1997
Total interest income $7,297 $7,413 $7,330 $7,293
Total interest expense 4,291 4,385 4,343 4,327
Net interest income 3,006 3,028 2,987 2,966
Provision for loan losses 36 51 60 95
Net income 877 889 994 872
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share* .25 .24 .28 .25
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share* .25 .24 .27 .25
- -----------------------------------------------------------------------------------------------------------------------------
Dividends declared per share* .136 .136 .145 .145
- -----------------------------------------------------------------------------------------------------------------------------
Stock price range*
High 14.89 15.45 20.00 20.00
Low 14.09 13.86 14.77 17.05
- -----------------------------------------------------------------------------------------------------------------------------
*Adjusted for 11-for-10 stock split.
Report of Independent Auditors
To the Shareholders and
Board of Directors
Ameriana Bancorp
New Castle, Indiana
We have audited the accompanying consolidated statements of condition of
Ameriana Bancorp and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above
present fairly, in all material respects, the consolidated financial position of
Ameriana Bancorp and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Olive LLP
Indianapolis, Indiana
February 5, 1999
Corporate Information
Market Information
Ameriana Bancorp's common shares trade on the Nasdaq Stock Market under the
symbol ASBI. As of March 26, 1999, the Company had approximately 2,200
shareholders, including beneficial owners holding shares in nominee or "street"
name.
See Note 12 to Consolidated Financial Statements for restrictions on the payment
of cash dividends.