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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ------- ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________
Commission File Number 000-21671
-----------------
The National Bank of Indianapolis Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1887991
- ------------------------ --------------------------
(State of incorporation) I.R.S. Employer
Identification Number
107 N. Pennsylvania Street, Suite 700, Indianapolis, Indiana 46204
------------------------------------------------------------------
(Address of principal executive offices and zip code)
(317) 261-9000
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of July 19, 2002, there were 2,439,324 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
Table of Contents
The National Bank of Indianapolis Corporation
Report on Form 10-Q
for Quarter Ended
June 30, 2002
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2002
and December 31, 2001..............................................1
Consolidated Statements of Income -Three Months
ended June 30, 2002 and 2001.......................................2
Consolidated Statements of Income - Six Months
ended June 30, 2002 and 2001.......................................3
Consolidated Statements of Cash Flows - Six Months
ended June 30, 2002 and 2001 ......................................4
Consolidated Statements of Shareholders' Equity - Six Months
ended June 30, 2002 and 2001.......................................5
Notes to Consolidated Financial Statements.....................6 - 7
Item 2. Management's Discussion and Analysis..........................8 - 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk........13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................14
Item 2. Changes in Securities.............................................14
Item 3. Default Upon Senior Securities....................................14
Item 4. Submission of Matters to a Vote of Security Holders...............14
Item 5. Other Information ................................................15
Item 6. Exhibits and Reports on Form 8-K..................................15
Signatures ..................................................................16
The National Bank of Indianapolis Corporation
Consolidated Balance Sheets
June 30, December 31,
2002 2001
(Unaudited) (Note)
------------------------------
Assets
Cash and due from banks $ 55,513,433 $ 34,844,360
Reverse repurchase agreements 5,000,000 120,000,000
Federal funds sold 42,956,916 14,254,204
Investment securities
Available-for-sale securities 75,494,221 27,256,474
Held-to-maturity securities 31,183,973 8,390,651
------------------------------
Total investment securities 106,678,194 35,647,125
Loans 481,953,685 452,060,303
Less: Allowance for loan losses (6,826,321) (5,986,965)
------------------------------
Net loans 475,127,364 446,073,338
Premises and equipment 8,984,155 9,257,236
Accrued interest 3,995,027 2,826,831
Stock in federal banks 3,401,500 3,401,500
Other assets 6,226,164 4,392,496
------------------------------
Total assets $ 707,882,753 $ 670,697,090
==============================
Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand deposits $ 127,832,297 $ 94,874,420
Money market and savings deposits 301,782,666 303,375,408
Time deposits over $100,000 39,017,442 36,886,744
Other time deposits 68,159,385 70,988,791
------------------------------
Total deposits 536,791,790 506,125,363
Security repurchase agreements 66,301,357 68,351,632
FHLB advances 50,000,000 50,000,000
Company obligated mandatorily redeemable preferred capital
securities of subsidiary trust holding solely the junior
subordinated debentures of the parent company 13,500,000 13,500,000
Other liabilities 3,132,444 4,250,093
------------------------------
Total liabilities 669,725,591 642,227,088
Shareholders' equity:
Common stock, no par value:
Authorized shares - 3,000,000
Issued and outstanding shares; 2002 - 2,436,463;
2001 - 1,965,944 26,753,159 20,883,428
Unearned compensation (1,412,269) (439,790)
Additional paid in capital 2,551,107 --
Retained earnings 9,993,349 7,963,066
Accumulated other comprehensive income 271,816 63,298
------------------------------
Total shareholders' equity 38,157,162 28,470,002
------------------------------
Total liabilities and shareholders' equity $ 707,882,753 $ 670,697,090
==============================
Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed consolidated financial statements.
1
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
Three months ended
June 30
2002 2001
-------------------------
Interest income:
Interest and fees on loans $ 7,563,667 $ 7,794,817
Interest on investment securities 954,125 1,911,725
Interest on federal funds sold 186,201 299,903
Interest on reverse repurchase agreements 57,132 81,822
-------------------------
Total interest income 8,761,125 10,088,267
Interest expense:
Interest on deposits 2,360,412 3,714,872
Interest on repurchase agreements 189,297 946,781
Interest on FHLB advances 722,794 598,533
Interest on long term debt 360,910 360,910
-------------------------
Total interest expense 3,633,413 5,621,096
-------------------------
Net interest income 5,127,712 4,467,171
Provision for loan losses 450,000 360,000
-------------------------
Net interest income after provision for loan losses 4,677,712 4,107,171
Other operating income:
Trust fees and commissions 600,588 501,068
Building rental income 117,093 123,889
Service charges and fees on deposit accounts 525,746 378,359
Net gain on sale of mortgage loans 292,524 37,686
Interchange income 132,087 117,071
Other income 309,159 207,969
-------------------------
Total operating income 1,977,197 1,366,042
Other operating expenses:
Salaries, wages and employee benefits 2,651,202 2,266,108
Occupancy expense 367,611 379,867
Furniture and equipment expense 214,506 226,457
Professional services 174,314 206,200
Data processing 326,438 282,451
Business development 192,051 194,666
Other expenses 616,938 503,988
-------------------------
Total other operating expenses 4,543,060 4,059,737
-------------------------
Net income before tax 2,111,849 1,413,476
Federal and state income tax 837,032 554,708
-------------------------
Net income after tax $ 1,274,817 $ 858,768
=========================
Basic earnings per share $ 0.54 $ 0.45
=========================
Diluted earnings per share $ 0.51 $ 0.40
=========================
See notes to condensed consolidated financial statements.
2
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
Six months ended
June 30
2002 2001
-------------------------
Interest income:
Interest and fees on loans $14,996,679 $15,621,485
Interest on investment securities 1,667,682 3,850,838
Interest on federal funds sold 319,636 639,731
Interest on reverse repurchase agreements 209,965 81,822
-------------------------
Total interest income
17,193,962 20,193,876
Interest expense:
Interest on deposits 4,917,432 7,658,783
Interest on repurchase agreements 381,971 1,966,246
Interest on FHLB advances 1,437,648 1,010,753
Interest on long term debt 721,785 721,247
-------------------------
Total interest expense
7,458,836 11,357,029
-------------------------
Net interest income 9,735,126 8,836,847
Provision for loan losses 900,000 720,000
-------------------------
Net interest income after provision for
loan losses 8,835,126 8,116,847
Other operating income:
Trust fees and commissions 1,171,925 990,348
Building rental income 235,096 249,347
Service charges and fees on deposit accounts 1,043,863 736,833
Net gain on sale of mortgage loans 407,143 173,340
Interchange income 260,112 224,548
Other 525,830 395,879
-------------------------
Total operating income 3,643,969 2,770,295
Other operating expenses:
Salaries, wages and employee benefits 5,247,616 4,437,247
Occupancy expense 731,993 736,330
Furniture and equipment expense 450,923 424,537
Professional services 380,975 432,311
Data processing 648,670 572,409
Business development 402,826 394,403
Other expenses 1,239,293 1,107,873
-------------------------
Total other operating expenses 9,102,296 8,105,110
-------------------------
Net income before tax 3,376,799 2,782,032
Federal and state income tax 1,346,516 1,082,971
-------------------------
Net income after tax $ 2,030,283 $ 1,699,061
=========================
Basic earnings per share $ 0.92 $ 0.89
=========================
Diluted earnings per share $ 0.86 $ 0.79
=========================
See notes to condensed consolidated financial statements.
3
The National Bank of Indianapolis Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30
2002 2001
------------------------------
Operating Activities
Net Income $ 2,030,283 $ 1,699,061
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 900,000 720,000
Depreciation and amortization 534,595 531,572
Income tax benefit from exercise of warrants & options 2,551,107 --
Net accretion of investments 293,945 (1,324,139)
Unearned compensation amortization 88,971 100,235
(Increase) decrease in:
Accrued interest receivable (1,168,196) 498,018
Other assets (1,970,434) (352,278)
Decrease in other liabilities (1,117,649) (64,819)
------------------------------
Net cash provided by operating activities 2,142,622 1,807,650
------------------------------
Investing Activities
Net change in federal funds sold (28,702,712) (9,340,825)
Net change in reverse repurchase agreements 115,000,000 (35,000,000)
Proceeds from maturities of investment securities held
to maturity 938,628 1,875,264
Proceeds from maturities of investment securities available
for sale 34,850,337 91,488,072
Proceeds from sales of investment securities available
for sale 9,998,502 --
Purchases of investment securities held to maturity (23,771,563) (1,012,300)
Purchases of investment securities available for sale (92,995,634) (89,197,949)
Net increase in loans (29,954,026) (47,227,300)
Purchases of bank premises and equipment (261,514) (886,855)
------------------------------
Net cash used by investing activities (14,897,982) (89,301,893)
------------------------------
Financing Activities
Net increase in deposits 30,666,427 12,682,807
Increase in security repurchase agreements (2,050,275) 49,771,409
Increase in FHLB borrowings -- 20,000,000
Proceeds from issuance of stock 4,808,281 105,396
Repurchase of stock -- (44,550)
------------------------------
Net cash provided by financing activities 33,424,433 82,515,062
------------------------------
Increase (decrease) in cash and cash equivalents 20,669,073 (4,979,181)
Cash and cash equivalents at beginning of year 34,844,360 56,636,478
------------------------------
Cash and cash equivalents at end of period $ 55,513,433 $ 51,657,297
==============================
Interest paid $ 7,321,534 $ 11,215,214
==============================
Income taxes paid $ 155,328 $ 1,355,572
==============================
See notes to condensed consolidated financial statements.
4
The National Bank of Indianapolis Corporation
Consolidated Statement of Shareholders' Equity
(Unaudited)
Accumulated
Additional and Other
Common Unearned Paid In Retained Comprehensive
Stock Compensation Capital Earnings Income TOTAL
--------------------------------------------------------------------------------
Balance at December 31, 2000 $20,665,160 $(598,711) $ - 4,593,023 $ 334 24,659,806
Comprehensive income:
Net income 1,699,061 1,699,061
Other comprehensive income
Net unrealized gain on investments,
net of tax of $136,657 208,016 208,016
-----------
Total comprehensive income 1,907,077
Issuance of stock (6,382 shares) 152,818 (47,422) 105,396
Repurchase of stock (1,800 shares) (44,550) (44,550)
Compensation earned 100,235 100,235
--------------------------------------------------------------------------------
Balance at June 30, 2001 $20,773,428 (545,898) $ - 6,292,084 $ 208,350 $26,727,964
================================================================================
Balance at December 31, 2001 $20,883,428 (439,790) $ - 7,963,066 $ 63,298 $28,470,002
Comprehensive income:
Net income 2,030,283 2,030,283
Other comprehensive income
Net unrealized gain on investments,
net of tax of $178,285 208,518 208,518
-----------
Total comprehensive income 2,238,801
Income tax benefit from exercise of
warrants & options 2,551,107 2,551,107
Issuance of stock (470,518 shares) 5,869,731 (1,061,450) 4,808,281
Compensation earned 88,971 88,971
--------------------------------------------------------------------------------
Balance at June 30, 2002 $26,753,159 $(1,412,269) $2,551,107 $9,993,349 $ 271,816 $38,157,162
================================================================================
See notes to condensed consolidated financial statements.
5
The National Bank of Indianapolis
Corporation
Notes to Consolidated Financial Statements
June 30, 2002
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
the accounts of The National Bank of Indianapolis Corporation ("Corporation")
and its wholly-owned subsidiaries The National Bank of Indianapolis ("Bank"),
and NBIN Statutory Trust I ("the Trust"). All intercompany transactions between
the Corporation and its subsidiaries have been properly eliminated. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Corporation's Form 10-K for the year ended December 31, 2001.
Note 2: Trust Preferred Securities
In September 2000, NBIN Statutory Trust I ("the Trust"), a Connecticut statutory
business trust owned by the Corporation, issued $13,500,000 of company obligated
mandatorily redeemable capital securities. The proceeds from the issuance of the
capital securities and common securities of $418,000 were used by the Trust to
purchase from the Corporation $13,918,000 Fixed Rate Junior Subordinated
Debentures.
The subordinated debentures are the sole assets of the trust and the Corporation
owns all of the common securities of the trust. Interest payments made on the
capital securities are reported as a component of interest expense on long-term
debt. The capital securities bear interest and mature as follows:
Fixed Interest
Rate Maturity Date
---- -------------
NBIN Statutory Trust I 10.60% September 7, 2030
The net proceeds received by the Corporation from the sale of the capital
securities were used for general corporate purposes.
6
Note 3: Exercise of Warrants and Options
During the first quarter of 2002, three directors of the Corporation exercised
their warrants/options to purchase 412,375 common shares. The exercise price
ranged from $10.00 to $22.50 with a weighted average exercise price of $10.66
and the fair market value of the stock was $26.00.
During the second quarter of 2002, one director and two officers of the
Corporation exercised their options to purchase 6,800 common shares. The
exercise price ranged from $10.00 to $19.00 with a weighted average exercise
price of $11.06 and the weighted average fair market value of the stock was
$27.64.
Due to the exercise of these warrants and options in the first and second
quarters of 2002, the Corporation will receive a deduction for tax purposes for
the difference between the fair value of the stock at the date of exercise and
the exercise price. In accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock-Based Compensation," the Corporation has recorded the
income tax benefit of $2,551,107 as additional paid in capital as of June 30,
2002.
Note 4: Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three month and six month periods ended June 30, 2002 and 2001.
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
----------------------- -----------------------
Basic average shares outstanding 2,342,131 1,913,981 2,218,394 1,913,371
========== ========== ========== ==========
Net income $1,274,817 $ 858,768 $2,030,283 $1,699,061
========== ========== ========== ==========
Basic net income per common share $ 0.54 $ 0.45 $ 0.92 $ 0.89
========== ========== ========== ==========
Diluted
Average shares outstanding 2,342,131 1,913,981 2,218,394 1,913,371
Nonvested restricted stock 48,300 27,600 48,300 27,600
Common stock equivalents
Net effect of the assumed exercise of stock options 77,575 76,730 77,575 76,730
Net effect of the assumed exercise of warrants 14,584 146,372 14,584 146,372
---------- ---------- ---------- ----------
Diluted average shares 2,482,590 2,164,683 2,358,853 2,164,073
========== ========== ========== ==========
Net income $1,274,817 $ 858,768 $2,030,283 $1,699,061
========== ========== ========== ==========
Diluted net income per common share $ 0.51 $ 0.40 $ 0.86 $ 0.79
========== ========== ========== ==========
7
Management's Discussion and Analysis
of Financial Condition and Results of Operation
Results of Operations
Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001:
The Corporation's results of operations depend primarily on the level of its net
interest income, its non-interest income and its operating expenses. Net
interest income depends on the volume of and rates associated with interest
earning assets and interest bearing liabilities which results in the net
interest spread. The Corporation had net income of $2,030,283 for the six months
ended June 30, 2002 compared to a net income of $1,699,061 for the six months
ended June 30, 2001. This change is primarily due to the growth of the Bank
allowing for more interest earning assets and net interest income compared to
the same period during 2001, thereby offsetting more of the operating expenses.
Net Interest Income
- -------------------
Net interest income increased $898,279 or 10.2% to $9,735,126 for the six months
ended June 30, 2002 from $8,836,847 for the six months ended June 30, 2001.
Total interest income decreased $2,999,914 for the six months ended June 30,
2002 to $17,193,962 from $20,193,876 for the six months ended June 30, 2001. The
decrease in interest income is due to significant interest rate decreases by the
Federal Reserve in 2001. Prime rate decreased 475 basis points during 2001. At
June 30, 2001, prime rate was 6.75% compared to 4.75% at June 30, 2002. These
decreases had a significant impact on interest income and interest expense.
Increases in the earning assets help to offset the negative impact of lower
interest rates. Average total loans for the six months ended June 30, 2002 was
approximately $466,000,000 compared to average total loans of approximately
$386,000,000 for the six months ended June 30, 2001. The increased loan growth
is the result of new clients and the addition of experienced lenders to the
staff. The loan portfolio produces the highest yield of all earning assets.
Investment portfolio income decreased $2,183,156 or 56.7% to $1,667,682 for the
six months ended June 30, 2002, as compared to $3,850,838 for the six months
ended June 30, 2001. Interest on investment securities decreased due to a
decrease in the average investment securities portfolio from approximately
$136,000,000 for the six months ended June 30, 2001, to approximately
$126,000,000 for the six months ended June 30, 2002 and due to a lower interest
rate environment in 2002 compared to the same period the previous year. Interest
on federal funds sold decreased $320,095 or 50.0% from $639,731 for the six
months ended June 30, 2001 to $319,636 for the six months ended June 30, 2002.
The decrease is due to lower interest rates for the six months ended June 30,
2002 as compared to the six months ended June 30, 2001. The average of federal
funds sold for the six months ended June 30, 2002 was approximately $38,000,000
compared to an average of approximately $26,000,000 for the six months ended
June 30, 2001. Interest on reverse repurchase agreements increased $128,143 or
156.6% from $81,822 for the six months ended June 30, 2001 to $209,965 for the
six months ended June 30, 2002. The increase was the result of an increase in
the average of reverse repurchase agreements of approximately $22,000,000 from
$4,000,000 for the six months ended June 30, 2001 to $26,000,000 for the six
months ended June 30, 2002.
Total interest expense decreased $3,898,193 or 34.3% to $7,458,836 for the six
months ended June 30, 2002, from $11,357,029 for the six months ended June 30,
2001. This decrease is due to significant decreases in interest rates during
2001. Total interest bearing liabilities averaged approximately $547,000,000 for
the six months ended June 30, 2002 as compared to approximately
8
$475,000,000 for the six months ended June 30, 2001. The average cost of
interest bearing liabilities was approximately 2.7% at June 30, 2002 compared to
5.1% at June 30, 2001. This is the result of a significant decrease in prime
rate in 2001.
Provision for Loan Losses
- -------------------------
The amount charged to the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses inherent in the loan portfolio. The
level of this allowance is dependent upon the total amount of past due and
non-performing loans, general economic conditions and management's assessment of
potential losses based upon internal credit evaluations of loan portfolios and
particular loans. Loans are principally to borrowers in central Indiana.
Six months ended
June 30,
2002 2001
---------- ----------
Beginning of Period $5,986,965 $4,700,672
Provision for loan losses 900,000 720,000
Losses charged to the reserve
Commercial -- 9,748
Real Estate 21,800 18,772
Installment 2,052 10,766
Credit Cards 41,589 7,295
---------- ----------
65,441 46,581
Recoveries
Commercial -- 23,868
Installment 150 237
Credit Cards 4,647 283
---------- ----------
4,797 24,388
---------- ----------
End of Period $6,826,321 $5,398,479
========== ==========
Allowance as a % of Loans 1.42% 1.32%
Loans past due over 30 days totaled $617,000 or 0.13% of total loans at June 30,
2002 compared to $552,000 or 0.14% of total loans at June 30, 2001.
9
Other Operating Income
- ----------------------
Other operating income for the six months ended June 30, 2002, increased
$873,674 or 31.5% to $3,643,969 from $2,770,295 for the six months ended June
30, 2001. The increase is primarily due to an increase in service charges and
fees on deposit accounts of $307,030 or 41.7% from $736,833 for the six months
ended June 30, 2001 to $1,043,863 for the six months ended June 30, 2002. This
increase is attributable to the increase in average demand deposit accounts of
$111,000,000 from approximately $308,000,000 at June 30, 2001 to approximately
$419,000,000 at June 30, 2002. The increase in other operating income is also
attributable to an increase in trust fees and commissions of $181,577 or 18.3%
from $990,348 for the six months ended June 30, 2001 to $1,171,925 for the six
months ended June 30, 2002. The increase in trust income is attributable to a
general increase in the average trust fee charged. The net gain on the sale of
mortgage loans increased $233,803 or 134.9% from $173,340 for the six months
ended June 30, 2001 to $407,143 for the six months ended June 30, 2002. This is
due to the ability to sell a bulk of mortgages that were generated during 2001
as a result of lower interest rates. Rental income from the other tenants in the
Corporation's main office building caused a decrease of $14,251 in operating
income. For the six months ended June 30, 2002, building rental income was
$235,096 compared to $249,347 for the six months ended June 30, 2001. The
decrease is the result of the Bank occupying more space in the building in 2002
over the same period the previous year. Interchange income from debit and credit
cards increased $35,564 or 15.8% from $224,548 for the six months ended June 30,
2001 to $260,112 the six months ended June 30, 2002.
Other Operating Expenses
- ------------------------
Other operating expenses for the six months ended June 30, 2002 increased
$997,186 or 12.3% to $9,102,296 from $8,105,110 for the six months ended June
30, 2001. Salaries, wages and employee benefits increased $810,369 or 18.3% to
$5,247,616 for the six months ended June 30, 2002 from $4,437,247 for the six
months ended June 30, 2001. This increase is primarily due to the increase in
the number of employees from 143 full time equivalents at June 30, 2001 to 156
full time equivalents at June 30, 2002. Occupancy expense decreased $4,337 or
0.6% to $731,993 for the six months ended June 30, 2002 from $736,330 for the
six months ended June 30, 2001. Professional services expense decreased $51,336
or 11.9% from $432,311 for the six months ended June 30, 2001 to $380,975 for
the six months ended June 30, 2002. The decrease is due to lower courier service
costs. Data processing expenses increased $76,261 or 13.3% for the six months
ended June 30, 2002 over the same period the previous year primarily due to
increased service bureau fees relating to increased transaction activity by the
Bank and trust department.
10
Liquidity and Interest Rate Sensitivity
The Corporation must maintain an adequate liquidity position in order to respond
to the short-term demand for funds caused by withdrawals from deposit accounts,
extensions of credit and for the payment of operating expenses. Maintaining this
position of adequate liquidity is accomplished through the management of a
combination of liquid assets - those which can be converted into cash -and
access to additional sources of funds. Primary liquid assets of the Corporation
are cash and due from banks, federal funds sold, investments held as available
for sale, and maturing loans. Federal funds sold and reverse repurchase
agreements represented the Corporation's primary source of immediate liquidity
and were maintained at a level adequate to meet immediate needs. Federal funds
sold and reverse repurchase agreements averaged approximately $64,000,000 and
$30,000,000 for the six months ended June 30, 2002 and 2001, respectively.
Maturities in the Corporation's loan and investment portfolios are monitored
regularly to manage the maturity dates of deposits to coincide with long-term
loans and investments. Other assets and liabilities are also monitored to
provide the proper balance between liquidity, safety, and profitability. This
monitoring process must be continuous due to the constant flow of cash which is
inherent in a financial institution.
The Corporation actively manages its interest rate sensitive assets and
liabilities to reduce the impact of interest rate fluctuations. At June 30,
2002, the Corporation's rate sensitive liabilities exceeded rate sensitive
assets due within one year by $33,023,879.
As part of managing liquidity, the Corporation monitors its loan to deposit
ratio on a daily basis. At June 30, 2002 the ratio was 89.8 percent. This is
within the acceptable policy limit.
The Corporation experienced an increase in cash and cash equivalents, its
primary source of liquidity, of $20,669,073 during the first six months of 2002.
The primary financing activity of deposit growth provided net cash of
$30,667,427. Lending used $29,954,026, investments used $70,979,730 and
decreasing federal funds sold and reverse repurchase agreements provided
$86,297,288. The Corporation's management believes its liquidity sources are
adequate to meet its operating needs and does not know of any trends, events or
uncertainties that may result in a significant adverse effect on the
Corporation' liquidity position.
Capital Resources
The Corporation's only sources of capital since commencing operations have been
from issuance of common stock, results of operations, issuance of long term debt
to a non-affiliated third party, and the issuance of company obligated
mandatorily redeemable preferred capital securities.
The Corporation maintains a Revolving Credit Agreement with Harris Trust and
Savings Bank in the amount of $5,000,000 that will mature September 28, 2002.
11
In September 2000, the Trust, which is wholly owned by the Corporation, issued
$13,500,000 of company obligated mandatorily redeemable capital securities. The
proceeds from the issuance of the capital securities and common securities of
$418,000 were used by the Trust to purchase from the Corporation $13,918,000
Fixed Rate Junior Subordinated Debentures. The capital securities mature
September 7, 2030, and have a fixed interest rate of 10.60%. The net proceeds
received by the Corporation from the sale of capital securities were used for
general corporate purposes.
The Bank has incurred indebtedness pursuant to FHLB advances as follows:
Amount Rate Maturity
------ ---- --------
$10,000,000 7.03% 07/17/2002
6,000,000 5.66% 09/04/2003
5,000,000 5.39% 02/26/2004
5,000,000 5.15% 04/23/2004
5,000,000 5.14% 08/01/2005
3,000,000 5.39% 10/03/2005
5,000,000 5.43% 03/16/2006
5,000,000 5.32% 05/08/2006
3,000,000 5.57% 08/13/2007
3,000,000 5.55% 10/02/2008
-------------
$50,000,000
=============
The Bank may add indebtedness of this nature in the future if determined to be
in the best interest of the Bank.
Capital for the Bank is above well capitalized regulatory requirements at June
30, 2002. Pertinent capital ratios for the Bank as of June 30, 2002 are as
follows:
Well Adequately
Actual Capitalized Capitalized
------ ----------- -----------
Tier 1 risk-based capital ratio 9.08% 6.0% 4.0%
Total risk-based capital ratio 10.33% 10.0% 8.0%
Leverage ratio 6.51% 5.0% 4.0%
Dividends from the Bank to the Corporation may not exceed the undivided profits
of the Bank (included in consolidated retained earnings) without prior approval
of a federal regulatory agency. In addition, Federal banking laws limit the
amount of loans the Bank may make to the Corporation, subject to certain
collateral requirements. No dividends were declared, or loans made, during 2002
or 2001 by the Bank to the Corporation.
12
Quantitative and Qualitative Disclosures about Market Risk
The Corporation's exposure to market risk is primarily related to changes in
interest rates. Quantitative and qualitative disclosures about the Corporation's
market risk resulting from changes in interest rates are included in Item 7A. in
the Corporation's 2001 Annual Report on Form 10-K. There have been no material
changes in such risks or in the Corporation's asset/liability management program
during the quarter ended June 30, 2002. Liquidity and interest rate sensitivity
disclosures for the quarter ended June 30, 2002 are found on page 11 of this
report.
13
Other Information
Item 1. Legal Proceedings
Neither The National Bank of Indianapolis Corporation nor its
subsidiaries are involved in any pending legal proceedings at this
time, other than routine litigation incidental to its business.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
(c) On May 24, 2002, the Corporation sold a total of 3,000 shares of
common stock for an aggregate amount of $30,000 to one of the
directors of the Corporation pursuant to the exercise of stock
options by this director. On June 10, 2002, the Corporation sold
a total of 3,000 shares of common stock for an aggregate amount
of $30,000 to one of the officers of the Corporation pursuant to
the exercise of stock options by this officer. On June 25, 2002,
the Corporation sold a total of 800 shares of common stock for an
aggregate amount of $15,200 to one of the officers of the
Corporation pursuant to the exercise of stock options by this
officer. All of these shares were sold in a private placement
pursuant to Section 4(2) of the Securities Act of 1933.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 2002 at 3:00 p.m. at the Corporation's offices at 107 North
Pennsylvania Street, Indianapolis, Indiana the annual meeting of
shareholders was held. Five items were presented for consideration of
the shareholders.
The first matter was the election of Andre B. Lacy, Morris L. Maurer,
and Todd H. Stuart to the Board of Directors to serve for a term of
three years and until their successors are duly elected and qualified.
The vote tabulation for the election of Mr. Lacy was 1,725,208 "for"
and 2,175 shares against; Mr. Maurer was 1,725,939 "for" and 1,444
shares against; and, Mr. Stuart was 1,724,633 "for" and 2,750 shares
against. The following directors terms continued after the meeting:
Kathryn G. Betley; James M. Cornelius; David R. Frick; Andre B. Lacy;
G. Benjamin Lantz, Jr.; William J. Loveday; Michael S. Maurer; Morris
L. Maurer; Philip R. Roby; and Todd H. Stuart.
The second item before the shareholders was an amendment to the 1993
Employee's Stock Option Plan to increase the number of shares
authorized for issuance by 120,000 shares to an aggregate of 340,000
shares. This matter was approved by a vote of 1,618,546 shares "for",
84,275 shares against, and 24,562 shares abstained.
The third item before the shareholders was an amendment to the 1993
Employee's Stock Option Plan to extend the term of the Plan from May
31, 2003 to May 31,
14
2008. This matter was approved by a vote of 1,623,246 shares "for",
81,775 shares against, and 22,362 shares abstained.
The fourth item before the shareholders was an amendment to the 1993
Restricted Stock Plan to increase the number of shares authorized for
issuance by 55,000 shares to an aggregate of 165,000 shares. This
matter was approved by a vote of 1,615,062 shares "for", 86,275 shares
against, and 26,046 shares abstained.
The fifth item before the shareholders was an amendment to the 1993
Restricted Stock Plan to extend the term of the Plan from May 31, 2003
to May 31, 2008. This matter was approved by a vote of 1,627,562
shares "for", 73,775 shares against, and 26,046 shares abstained.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(i) Articles of Incorporation of the Corporation, filed as
Exhibit 3(i) to the Corporation's Form 10-QSB filed November
4, 1995, and Articles of Amendment filed as Exhibit 3(i) to
the Corporation's Form 10-K as of December 31, 2001 are
incorporated by reference.
3(ii) Bylaws of the Corporation, filed as Exhibit 3(ii) to the
Corporation's Form 10-QSB filed November 4, 1996 are
incorporated by reference.
10(a) 1993 Key Employees' Stock Option Plan of the Corporation ,
as amended, filed as Exhibit 10(a) to the Corporation's
Form 10-Q as of June 30, 2002.
10(b) 1993 Directors' Stock Option Plan of the Corporation, as
amended, filed as Exhibit 10(b) to the Corporation's Form
10-Q as of June 30, 2001.
10(c) 1993 Restricted Stock Plan of the Corporation, as amended,
filed as Exhibit 10(c) to the Corporation's Form 10-Q as of
June 30, 2002.
99.1 Chief Executive Officer Certification pursuant to 18 U.S.C.
Section 1350
99.2 Chief Financial Officer Certification pursuant to 18 U.S.C.
Section 1350
(b) No reports on Form 8-K were filed during the last quarter of the
fiscal year.
15
EXHIBIT INDEX
- -------------
3(i) Articles of Incorporation of The National Bank of Indianapolis Corporation
and Articles of Amendment*
3(ii) By-laws of The National Bank of Indianapolis Corporation*
10(a) 1993 Key Employee's Stock Option Plan
10(b) 1993 Directors' Stock Option Plan*
10(c) 1993 Restricted Stock Plan
99.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350
99.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350
*previously filed
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 5, 2002
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
/s/ Debra L. Ross
-------------------------------------------------
Chief Financial Officer
16