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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 SEPTEMBER 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 November 1, 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
September 30, 2002
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2002
and December 31, 2001...............................................1
Consolidated Statements of Income -Three Months
ended September 30, 2002 and 2001...................................2
Consolidated Statements of Income - Nine Months
ended September 30, 2002 and 2001...................................3
Consolidated Statements of Cash Flows - Nine Months
ended September 30, 2002 and 2001 ..................................4
Consolidated Statements of Shareholders' Equity - Nine Months
ended September 30, 2002 and 2001...................................5
Notes to Consolidated Financial Statements......................6 - 8
Item 2. Management's Discussion and Analysis...........................9 - 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........14
Item 4. Controls and Procedures............................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................15
Item 2. Changes in Securities..............................................15
Item 3. Default Upon Senior Securities.....................................15
Item 4. Submission of Matters to a Vote of Security Holders................15
Item 5. Other Information .................................................15
Item 6. Exhibits and Reports on Form 8-K...................................15
Signatures ...........................................................16
Certifications ......................................................17 - 18
The National Bank of Indianapolis Corporation
Consolidated Balance Sheets
September 30, December 31,
2002 2001
(Unaudited) (Note)
----------------------------------
Assets
Cash and due from banks $ 56,781,161 $ 34,844,360
Reverse repurchase agreements 5,000,000 120,000,000
Federal funds sold 22,073,548 14,254,204
Investment securities
Available-for-sale securities 84,351,703 27,256,474
Held-to-maturity securities 30,678,028 8,390,651
----------------------------------
Total investment securities 115,029,731 35,647,125
Loans 501,983,544 452,060,303
Less: Allowance for loan losses (7,050,166) (5,986,965)
----------------------------------
Net loans 494,933,378 446,073,338
Premises and equipment 8,980,946 9,257,236
Accrued interest 4,203,241 2,826,831
Stock in federal banks 3,401,500 3,401,500
Other assets 5,115,575 4,392,496
----------------------------------
Total assets $ 715,519,080 $ 670,697,090
==================================
Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand deposits $ 125,096,513 $ 94,874,420
Money market and savings deposits 304,237,517 303,375,408
Time deposits over $100,000 36,515,033 36,886,744
Other time deposits 66,113,140 70,988,791
----------------------------------
Total deposits 531,962,203 506,125,363
Security repurchase agreements 78,156,848 68,351,632
FHLB advances 48,000,000 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 4,098,435 4,250,093
----------------------------------
Total liabilities 675,717,486 642,227,088
Shareholders' equity:
Common stock, no par value:
Authorized shares - 3,000,000
Issued and outstanding shares; 2002 - 2,439,324;
2001 - 1,965,944 26,832,277 20,883,428
Unearned compensation (1,315,513) (439,790)
Additional paid in capital 2,551,107 --
Retained earnings 11,270,312 7,963,066
Accumulated other comprehensive income 463,411 63,298
----------------------------------
Total shareholders' equity 39,801,594 28,470,002
----------------------------------
Total liabilities and shareholders' equity $ 715,519,080 $ 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 consolidated financial statements.
1
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
Three months ended
September 30
2002 2001
---------------------------
Interest income:
Interest and fees on loans $7,810,435 $7,779,829
Interest on investment securities 1,060,513 1,263,145
Interest on federal funds sold 140,734 245,215
Interest on reverse repurchase agreements 19,250 494,204
---------------------------
Total interest income 9,030,932 9,782,393
Interest expense:
Interest on deposits 2,223,055 3,286,496
Interest on repurchase agreements 202,031 852,722
Interest on FHLB advances 646,572 692,532
Interest on long term debt 360,944 360,944
---------------------------
Total interest expense 3,432,602 5,192,694
---------------------------
Net interest income 5,598,330 4,589,699
Provision for loan losses 300,000 360,000
---------------------------
Net interest income after provision for loan losses 5,298,330 4,229,699
Other operating income:
Trust fees and commissions 600,945 534,678
Building rental income 122,260 112,470
Service charges and fees on deposit accounts 582,255 427,247
Net gain on sale of mortgage loans 132,448 188,721
Interchange income 129,796 119,126
Other income 304,558 207,884
---------------------------
Total operating income 1,872,262 1,590,126
Other operating expenses:
Salaries, wages and employee benefits 2,856,382 2,481,940
Occupancy expense 352,810 328,068
Furniture and equipment expense 217,028 223,843
Professional services 168,092 210,538
Data processing 312,663 291,803
Business development 185,123 153,798
Other expenses 963,483 699,308
---------------------------
Total other operating expenses 5,055,581 4,389,298
---------------------------
Net income before tax 2,115,011 1,430,527
Federal and state income tax 838,048 552,362
---------------------------
Net income after tax $1,276,963 $ 878,165
===========================
Basic earnings per share $ 0.54 $ 0.46
===========================
Diluted earnings per share $ 0.51 $ 0.40
===========================
See notes to consolidated financial statements.
2
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
Nine months ended
September 30
2002 2001
-----------------------------
Interest income:
Interest and fees on loans $22,807,114 $23,401,314
Interest on investment securities 2,728,195 5,113,983
Interest on federal funds sold 460,370 884,946
Interest on reverse repurchase agreements 229,215 576,026
-----------------------------
Total interest income 26,224,894 29,976,269
Interest expense:
Interest on deposits 7,140,487 10,945,279
Interest on repurchase agreements 584,002 2,818,968
Interest on FHLB advances 2,084,220 1,703,285
Interest on long term debt 1,082,729 1,082,191
-----------------------------
Total interest expense 10,891,438 16,549,723
-----------------------------
Net interest income 15,333,456 13,426,546
Provision for loan losses 1,200,000 1,080,000
-----------------------------
Net interest income after provision for loan losses 14,133,456 12,346,546
Other operating income:
Trust fees and commissions 1,772,870 1,525,026
Building rental income 357,356 361,817
Service charges and fees on deposit accounts 1,626,118 1,164,080
Net gain on sale of mortgage loans 539,591 362,061
Interchange income 389,908 343,674
Other 830,388 603,763
-----------------------------
Total operating income 5,516,231 4,360,421
Other operating expenses:
Salaries, wages and employee benefits 8,103,998 6,919,187
Occupancy expense 1,084,803 1,064,398
Furniture and equipment expense 667,951 648,380
Professional services 549,067 642,849
Data processing 961,333 864,212
Business development 587,949 548,201
Other expenses 2,202,776 1,807,181
-----------------------------
Total other operating expenses 14,157,877 12,494,408
-----------------------------
Net income before tax 5,491,810 4,212,559
Federal and state income tax 2,184,564 1,635,333
-----------------------------
Net income after tax $ 3,307,246 $ 2,577,226
=============================
Basic earnings per share $ 1.46 $ 1.35
=============================
Diluted earnings per share $ 1.37 $ 1.19
=============================
See notes to consolidated financial statements.
3
The National Bank of Indianapolis Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30
2002 2001
--------------------------------
Operating Activities
Net Income $ 3,307,246 $ 2,577,226
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 1,200,000 1,080,000
Depreciation and amortization 795,707 796,540
Income tax benefit from exercise of warrants & options 2,551,107 --
Stock compensation 109,918 110,000
Net accretion of investments 699,886 (1,677,688)
Unearned compensation amortization 185,727 153,284
(Increase) decrease in:
Accrued interest receivable (1,376,410) 135,438
Other assets (985,514) (741,845)
(Decrease) Increase in other liabilities (151,658) 122,486
--------------------------------
Net cash provided by operating activities 6,336,009 2,555,441
--------------------------------
Investing Activities
Net change in federal funds sold (7,819,344) (16,907,128)
Net change in reverse repurchase agreements 115,000,000 (75,000,000)
Proceeds from maturities of investment securities held
to maturity 1,345,718 3,092,550
Proceeds from maturities of investment securities available
for sale 62,212,745 139,127,257
Proceeds from sales of investment securities available for sale 9,998,502 --
Purchases of investment securities held to maturity (23,771,563) (1,312,300)
Purchases of investment securities available for sale (129,205,346) (99,046,393)
Net increase in loans (50,060,040) (49,439,698)
Purchases of bank premises and equipment (519,417) (1,156,168)
--------------------------------
Net cash used by investing activities (22,818,745) (100,641,880)
--------------------------------
Financing Activities
Net increase in deposits 25,836,840 35,440,526
Increase in security repurchase agreements 9,805,216 52,746,311
Net change in FHLB borrowings (2,000,000) 26,000,000
Proceeds from issuance of stock 4,808,281 105,397
Repurchase of stock (30,800) (44,550)
--------------------------------
Net cash provided by financing activities 38,419,537 114,247,684
--------------------------------
Increase in cash and cash equivalents 21,936,801 16,161,245
Cash and cash equivalents at beginning of year 34,844,360 56,636,478
--------------------------------
Cash and cash equivalents at end of period $ 56,781,161 $ 72,797,723
================================
Interest paid $ 11,262,803 $ 16,950,895
================================
Income taxes paid $ 155,328 $ 2,070,813
================================
See notes to 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 2,577,226 2,577,226
Other comprehensive income
Net unrealized gain on investments,
net of tax of $80,510 122,413 122,413
-----------
Total comprehensive income 2,699,639
Issuance of stock (10,782 shares) 262,819 (47,422) 215,397
Repurchase of stock (1,800 shares) (44,550) (44,550)
Compensation earned 153,284 153,284
----------------------------------------------------------------------------------
Balance at September 30, 2001 $20,883,429 $ (492,849) $ -- $ 7,170,249 $ 122,747 $27,683,576
==================================================================================
Balance at December 31, 2001 $20,883,428 $ (439,790) $ -- $ 7,963,066 $ 63,298 $28,470,002
Comprehensive income:
Net income 3,307,246 3,307,246
Other comprehensive income
Net unrealized gain on investments,
net of tax of $303,953 400,113 400,113
-----------
Total comprehensive income 3,707,359
Income tax benefit from exercise of
warrants & options 2,551,107 2,551,107
Issuance of stock (474,479 shares) 5,979,649 (1,061,450) 4,918,199
Repurchase of stock (1,100 shares) (30,800) (30,800)
Compensation earned 185,727 185,727
----------------------------------------------------------------------------------
Balance at September 30, 2002 $26,832,277 $ (1,315,513) $ 2,551,107 $11,270,312 $ 463,411 $39,801,594
==================================================================================
See notes to consolidated financial statements.
5
The National Bank of Indianapolis
Corporation
Notes to Consolidated Financial Statements
September 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 nine month period
ended September 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 the proceeds from the issuance of the 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 September
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 nine month periods ended September 30, 2002 and
2001.
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Basic average shares outstanding 2,358,956 1,919,945 2,265,248 1,915,563
========== ========== ========== ==========
Net income $1,276,963 $ 878,165 $3,307,246 $2,577,226
========== ========== ========== ==========
Basic net income per common share $ 0.54 $ 0.46 $ 1.46 $ 1.35
========== ========== ========== ==========
Diluted
Average shares outstanding 2,358,956 1,919,945 2,265,248 1,915,563
Nonvested restricted stock 48,300 27,600 48,300 27,600
Common stock equivalents
Net effect of the assumed exercise of stock options 81,763 77,855 81,763 77,855
Net effect of the assumed exercise of warrants 14,800 147,443 14,800 147,443
---------- ---------- ---------- ----------
Diluted average shares 2,503,819 2,172,843 2,410,111 2,168,461
========== ========== ========== ==========
Net income $1,276,963 $ 878,165 $3,307,246 $2,577,226
========== ========== ========== ==========
Diluted net income per common share $ 0.51 $ 0.40 $ 1.37 $ 1.19
========== ========== ========== ==========
7
Note 5: Comprehensive Income
The following table sets forth the computation of comprehensive income for the
three month and nine month periods ended September 30, 2002 and 2001.
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income $1,276,963 $ 878,165 $3,307,246 $2,577,226
Unrealized gains (losses) on securities, net of tax 191,595 (85,603) 400,113 122,413
---------- ---------- ---------- ----------
Comprehensive income $1,468,558 $ 792,562 $3,707,359 $2,699,639
========== ========== ========== ==========
8
Management's Discussion and Analysis
of Financial Condition and Results of Operation
Results of Operations
Nine months ended September 30, 2002 Compared to the Nine months ended September
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 $3,307,246 for the nine
months ended September 30, 2002 compared to a net income of $2,577,226 for the
nine months ended September 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 $1,906,910 or 14.2% to $15,333,456 for the nine
months ended September 30, 2002 from $13,426,546 for the nine months ended
September 30, 2001. Total interest income decreased $3,751,375 for the nine
months ended September 30, 2002 to $26,224,894 from $29,976,269 for the nine
months ended September 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 September 30, 2001, prime rate was
6.00% compared to 4.75% at September 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 nine months ended September 30, 2002 was approximately $475,000,000
compared to average total loans of approximately $395,000,000 for the nine
months ended September 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 $2,385,788 or 46.7% to $2,728,195 for the nine months ended September
30, 2002, as compared to $5,113,983 for the nine months ended September 30,
2001. Interest on investment securities decreased due to a lower interest rate
environment in 2002 compared to the same period the previous year. The average
investment securities portfolio averaged $130,000,000 for the nine months ended
September 30, 2002 and 2001. Interest on federal funds sold decreased $424,576
or 48.0% from $884,946 for the nine months ended September 30, 2001 to $460,370
for the nine months ended September 30, 2002. The decrease is due to lower
interest rates for the nine months ended September 30, 2002 as compared to the
nine months ended September 30, 2001. The average of federal funds sold for the
nine months ended September 30, 2002 was approximately $36,000,000 compared to
an average of approximately $27,000,000 for the nine months ended September 30,
2001. Interest on reverse repurchase agreements decreased $346,811 or 60.2% from
$576,026 for the nine months ended September 30, 2001 to $229,215 for the nine
months ended September 30, 2002. The decrease was the result of a decrease in
the average
9
of reverse repurchase agreements of approximately $4,000,000 from $23,000,000
for the nine months ended September 30, 2001 to $19,000,000 for the nine months
ended September 30, 2002. The decrease is also due to lower interest rates for
the nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001.
Total interest expense decreased $5,658,285 or 34.2% to $10,891,438 for the nine
months ended September 30, 2002, from $16,549,723 for the nine months ended
September 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 nine months ended September 30, 2002 as compared to
approximately $491,000,000 for the nine months ended September 30, 2001. The
average cost of interest bearing liabilities was approximately 2.7% at September
30, 2002 compared to 4.5% at September 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.
Nine months ended
September 30,
2002 2001
---------- ----------
Beginning of Period $5,986,965 $4,700,672
Provision for loan losses 1,200,000 1,080,000
Losses charged to the reserve
Commercial 93,664 9,748
Real Estate 21,800 18,772
Installment 2,052 10,766
Credit Cards 42,158 46,468
---------- ----------
159,674 85,754
Recoveries
Commercial 16,324 23,868
Installment 237 437
Credit Cards 6,314 283
---------- ----------
22,875 24,588
---------- ----------
End of Period $7,050,166 $5,719,506
========== ==========
Allowance as a % of Loans 1.41% 1.39%
Loans past due over 30 days totaled $179,000 or 0.04% of total loans at
September 30, 2002 compared to $592,000 or 0.14% of total loans at September 30,
2001.
10
Other Operating Income
- ----------------------
Other operating income for the nine months ended September 30, 2002, increased
$1,155,810 or 26.5% to $5,516,231 from $4,360,421 for the nine months ended
September 30, 2001. The increase is primarily due to an increase in service
charges and fees on deposit accounts of $462,038 or 39.7% from $1,164,080 for
the nine months ended September 30, 2001 to $1,626,118 for the nine months ended
September 30, 2002. This increase is attributable to the increase in average
demand deposit accounts of $108,000,000 from approximately $314,000,000 at
September 30, 2001 to approximately $422,000,000 at September 30, 2002. The
increase in other operating income is also attributable to an increase in trust
fees and commissions of $247,844 or 16.3% from $1,525,026 for the nine months
ended September 30, 2001 to $1,772,870 for the nine months ended September 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
$177,530 or 49.0% from $362,061 for the nine months ended September 30, 2001 to
$539,591 for the nine months ended September 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 $4,461 in operating
income. For the nine months ended September 30, 2002, building rental income was
$357,356 compared to $361,817 for the nine months ended September 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 $46,234 or 13.5% from $343,674 for the nine months ended
September 30, 2001 to $389,908 the nine months ended September 30, 2002.
Other Operating Expenses
- ------------------------
Other operating expenses for the nine months ended September 30, 2002 increased
$1,663,469 or 13.3% to $14,157,877 from $12,494,408 for the nine months ended
September 30, 2001. Salaries, wages and employee benefits increased $1,184,811
or 17.1% to $8,103,998 for the nine months ended September 30, 2002 from
$6,919,187 for the nine months ended September 30, 2001. This increase is
primarily due to the increase in the number of employees from 149 full time
equivalents at September 30, 2001 to 159 full time equivalents at September 30,
2002. Occupancy expense increased $20,405 or 1.9% to $1,084,803 for the nine
months ended September 30, 2002 from $1,064,398 for the nine months ended
September 30, 2001. Professional services expense decreased $93,872 or 14.6%
from $642,849 for the nine months ended September 30, 2001 to $549,067 for the
nine months ended September 30, 2002. The decrease is due to lower courier
service costs. Data processing expenses increased $97,121 or 11.2% for the nine
months ended September 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.
11
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, reverse repurchase agreements,
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 $55,000,000 and $50,000,000 for the nine months ended September
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 September 30,
2002, the Corporation's rate sensitive liabilities exceeded rate sensitive
assets due within one year by $57,321,814.
As part of managing liquidity, the Corporation monitors its loan to deposit
ratio on a daily basis. At September 30, 2002 the ratio was 94.4 percent. The
level of loans to deposits is below the Corporation's internal limit for this
ratio.
The Corporation experienced an increase in cash and cash equivalents, its
primary source of liquidity, of $21,936,801 during the first nine months of
2002. The primary financing activity of deposit growth provided net cash of
$25,836,840. Lending used $50,060,040, investments used $79,419,944 and
decreasing federal funds sold and reverse repurchase agreements provided
$107,180,656. 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, 2003.
12
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 the proceeds from the
issuance of the 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
------ ---- --------
$ 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
8,000,000 4.19% 07/24/2007
3,000,000 5.57% 08/13/2007
3,000,000 5.55% 10/02/2008
------------
$48,000,000
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
September 30, 2002. Pertinent capital ratios for the Bank as of September 30,
2002 are as follows:
Well Adequately
Actual Capitalized Capitalized
------ ----------- -----------
Tier 1 risk-based capital ratio 9.0% 6.0% 4.0%
Total risk-based capital ratio 10.3% 10.0% 8.0%
Leverage ratio 6.6% 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 loans were made during 2002 by the Bank to the
Corporation, but a dividend of $325,000 was declared and made during the third
quarter of 2002. No dividends were declared, or loans made, during 2001 by the
Bank to the Corporation.
13
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 September 30, 2002. Liquidity and interest rate
sensitivity disclosures for the quarter ended September 30, 2002 are found on
page 12 of this report.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The
Corporation's principal executive officer and principal financial
officer have concluded that the Corporation's disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934, as amended), based on their evaluation of
these controls and procedures as of a date within ninety (90)
days prior to the filing date of this Form 10-Q, are effective.
(b) Changes in Internal Controls. There have been no significant
changes in the Corporation's internal controls or in other
factors that could significantly affect these controls subsequent
to the date of the evaluation thereof, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
14
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) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders -Not applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(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 quarter of the
fiscal year for which this report is filed.
15
CERTIFICATIONS
I, Debra L. Ross, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The National Bank of
Indianapolis Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002
/s/ Debra L. Ross
--------------------------------------
Debra L. Ross, Chief Financial Officer
16
I, Morris L. Maurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The National Bank of
Indianapolis Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002
/s/ Morris L. Maurer
--------------------------------------
Morris L. Maurer, President
and Chief Executive Officer
17
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: November 1, 2002
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
/s/ Debra L. Ross
---------------------------------------------
Debra L. Ross
Chief Financial Officer
18