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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 MARCH 31, 2003
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
------- --------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule b-2 of the Exchange).
Yes No X
------- ---------
As of May 1, 2003, there were 2,439,755 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
March 31, 2003
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2003
and December 31, 2002...............................................1
Consolidated Statements of Income -Three Months
ended March 31, 2003 and 2002.......................................2
Consolidated Statements of Cash Flows - Three Months
ended March 31, 2003 and 2002 ......................................3
Consolidated Statements of Shareholders' Equity - Three Months
ended March 31, 2003 and 2002.......................................4
Notes to Consolidated Financial Statements......................5 - 8
Item 2. Management's Discussion and Analysis...........................9 - 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........16
Item 4. Controls and Procedures.......................................16 - 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................18
Item 2. Changes in Securities..............................................18
Item 3. Default Upon Senior Securities.....................................18
Item 4. Submission of Matters to a Vote of Security Holders................18
Item 5. Other Information .................................................18
Item 6. Exhibits and Reports on Form 8-K...................................19
Signatures ...........................................................19
Certifications ........................................................20-21
The National Bank of Indianapolis Corporation
Consolidated Balance Sheets
March 31, December 31,
2003 2002
(Unaudited) (Note)
------------------------------
Assets
Cash and due from banks $ 45,740,803 $ 45,889,548
Reverse repurchase agreements 15,000,000 5,000,000
Federal funds sold 28,578,690 18,177,463
Investment securities
Available-for-sale securities 83,072,864 83,990,335
Held-to-maturity securities 20,685,994 30,092,736
------------------------------
Total investment securities 103,758,858 114,083,071
Loans 552,007,745 528,911,217
Less: Allowance for loan losses (7,243,569) (7,227,000)
------------------------------
Net loans 544,764,176 521,684,217
Premises and equipment 9,241,707 9,248,290
Accrued interest 4,078,346 3,974,258
Stock in federal banks 3,461,500 3,401,500
Other assets 4,922,824 5,056,126
------------------------------
Total assets $ 759,546,904 $ 726,514,473
==============================
Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand deposits $ 138,703,934 $ 137,575,932
Money market and savings deposits 335,177,233 305,605,133
Time deposits over $100,000 38,274,508 36,811,165
Other time deposits 61,566,428 64,350,290
------------------------------
Total deposits 573,722,103 544,342,520
Security repurchase agreements 77,688,070 74,273,774
FHLB advances 48,000,000 48,000,000
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 4,040,889 5,151,028
------------------------------
Total liabilities 716,951,062 685,267,322
Shareholders' equity:
Common stock, no par value:
Authorized shares - 3,000,000
Issued and outstanding shares; 2003 - 2,447,022;
2002 - 2,442,324 26,922,867 26,862,276
Unearned compensation (1,170,331) (1,218,746)
Additional paid in capital 2,604,580 2,562,990
Retained earnings 13,816,728 12,519,902
Accumulated other comprehensive income 421,998 520,729
------------------------------
Total shareholders' equity 42,595,842 41,247,151
------------------------------
Total liabilities and shareholders' equity $ 759,546,904 $ 726,514,473
==============================
Note: The balance sheet at December 31, 2002 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
March 31
2003 2002
-----------------------
Interest income:
Interest and fees on loans $7,628,973 $7,433,012
Interest on investment securities 839,153 713,557
Interest on federal funds sold 88,733 133,435
Interest on reverse repurchase agreements 13,797 152,833
-----------------------
Total interest income 8,570,656 8,432,837
Interest expense:
Interest on deposits 1,883,867 2,557,020
Interest on repurchase agreements 122,157 192,674
Interest on FHLB advances 622,901 714,854
Interest on long term debt 360,875 360,875
-----------------------
Total interest expense 2,989,800 3,825,423
-----------------------
Net interest income 5,580,856 4,607,414
Provision for loan losses 300,000 450,000
-----------------------
Net interest income after provision for loan losses 5,280,856 4,157,414
Other operating income:
Trust fees and commissions 565,093 571,337
Building rental income 138,124 118,003
Service charges and fees on deposit accounts 624,119 518,117
Net gain on sale of mortgage loans 362,856 114,619
Interchange income 133,035 128,025
Other income 276,815 216,671
-----------------------
Total operating income 2,100,042 1,666,772
Other operating expenses:
Salaries, wages and employee benefits 3,023,236 2,596,414
Occupancy expense 371,273 364,382
Furniture and equipment expense 214,212 236,417
Professional services 223,969 206,661
Data processing 329,527 322,232
Business development 243,553 210,775
Valuation of allowance for mortgage servicing rights 126,389 --
Other expenses 706,015 622,355
-----------------------
Total other operating expenses 5,238,174 4,559,236
-----------------------
Net income before tax 2,142,724 1,264,950
Federal and state income tax 845,898 509,484
-----------------------
Net income after tax $1,296,826 $ 755,466
=======================
Basic earnings per share $ 0.55 $ 0.36
=======================
Diluted earnings per share $ 0.52 $ 0.34
=======================
See notes to consolidated financial statements.
2
The National Bank of Indianapolis Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31
2003 2002
----------------------------
Operating Activities
Net Income $ 1,296,826 $ 755,466
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 300,000 450,000
Depreciation and amortization 267,864 270,113
Valuation of allowance for mortgage servicing rights 126,389 --
Income tax benefit from exercise of warrants & options 41,590 2,506,446
Net accretion of investments 455,783 26,967
Unearned compensation amortization 98,565 41,451
(Increase) decrease in:
Accrued interest receivable (104,088) (300,900)
Other assets 71,670 (2,189,657)
Decrease in other liabilities (1,110,139) (1,351,981)
----------------------------
Net cash provided by operating activities 1,444,460 207,905
----------------------------
Investing Activities
Net change in federal funds sold (10,401,227) (25,128,330)
Net change in reverse repurchase agreements (10,000,000) 85,000,000
Proceeds from maturities of investment securities held
to maturity 9,251,892 529,939
Proceeds from maturities of investment securities available
for sale 1,463,675 4,691,168
Purchases of investment securities held to maturity (60,000) --
Purchases of investment securities available for sale (1,010,625) (46,503,165)
Net increase in loans (23,379,959) (20,082,458)
Purchases of bank premises and equipment (261,281) (182,422)
----------------------------
Net cash used by investing activities (34,397,525) (1,675,268)
----------------------------
Financing Activities
Net increase in deposits 29,379,583 30,565,400
Net increase in security repurchase agreements 3,414,296 4,598,326
Proceeds from issuance of stock 40,001 4,393,938
Repurchase of stock (29,560) --
----------------------------
Net cash provided by financing activities 32,804,320 39,557,664
----------------------------
Increase (decrease) in cash and cash equivalents (148,745) 38,090,301
Cash and cash equivalents at beginning of year 45,889,548 34,844,360
----------------------------
Cash and cash equivalents at end of period $ 45,740,803 $ 72,934,661
============================
Interest paid $ 3,508,567 $ 4,238,790
============================
Income taxes paid $ 808,724 $ 155,328
============================
See notes to consolidated financial statements.
3
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, 2001 $ 20,883,428 $ (439,790) $ -- $ 7,963,066 $ 63,298 $ 28,470,002
Comprehensive income:
Net income 755,466 755,466
Other comprehensive income
Net unrealized loss on investments,
net of tax of $35,957 (54,820) (54,820)
--------------
Total comprehensive income 700,646
Income tax benefit from exercise of warrants &
options 2,506,446 2,506,446
Issuance of stock (412,375 shares) 4,393,938 4,393,938
Compensation earned 41,451 41,451
------------------------------------------------------------------------------------
Balance at March 31, 2002 $ 25,277,366 $ (398,339) $ 2,506,446 $ 8,718,532 $ 8,478 $ 36,112,483
====================================================================================
Balance at December 31, 2002 $ 26,862,276 $ (1,218,746) $ 2,562,990 $ 12,519,902 $ 520,729 $ 41,247,151
Comprehensive income:
Net income 1,296,826 1,296,826
Other comprehensive income
Net unrealized loss on investments,
net of tax of $64,758 (98,731) (98,731)
--------------
Total comprehensive income 1,198,095
Income tax benefit from exercise of warrants &
options 41,590 41,590
Issuance of stock (5,700 shares) 90,151 (50,150) 40,001
Repurchase of stock (1,002 shares) (29,560) (29,560)
Compensation earned 98,565 98,565
------------------------------------------------------------------------------------
Balance at March 31, 2003 $ 26,922,867 $ (1,170,331) $ 2,604,580 $ 13,816,728 $ 421,998 $ 42,595,842
====================================================================================
See notes to consolidated financial statements.
4
The National Bank of Indianapolis
Corporation
Notes to Consolidated Financial Statements
March 31, 2003
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 accounting 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 three month
period ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2003. 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, 2002.
Note 2: New Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others (the Interpretation).
The Interpretation requires an issuer of a guarantee to recognize an initial
liability for the fair value of the obligations covered by the guarantee. The
adoption of this Interpretation did not have a material impact on the
Corporation's consolidated financial position or results of operations.
5
Note 3: 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.
Note 4: Exercise of Warrants and Options
During the first quarter of 2003, one director of the Corporation exercised
options to purchase 4,000 common shares. The exercise price was $10.00 and the
fair market value of the stock was $29.50.
Due to the exercise of these options in the first quarter of 2003, 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 $41,590 as additional paid in capital as of March 31, 2003.
6
Note 5: Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three month period ended March 31, 2003 and 2002.
Three months ended
March 31,
2003 2002
---------- ----------
Basic average shares outstanding 2,361,346 2,094,657
========== ==========
Net income $1,296,826 $ 755,466
========== ==========
Basic net income per common share $ 0.55 $ 0.36
========== ==========
Diluted
Average shares outstanding 2,361,346 2,094,657
Nonvested restricted stock 49,200 25,320
Common stock equivalents
Net effect of the assumed exercise of stock options 84,263 73,603
Net effect of the assumed exercise of warrants 15,071 14,031
---------- ----------
Diluted average shares 2,509,880 2,207,611
========== ==========
Net income $1,296,826 $ 755,466
========== ==========
Diluted net income per common share $ 0.52 $ 0.34
========== ==========
7
Note 6: Comprehensive Income
The following table sets forth the computation of comprehensive income for the
three month period ended March 31, 2003 and 2002.
Three months ended
March 31,
2003 2002
----------- -----------
Net income $ 1,296,826 $ 755,466
Unrealized (losses) on securities, net of tax (98,731) (54,820)
----------- -----------
Comprehensive income $ 1,198,095 $ 700,646
=========== ===========
Note 7: Stock Based Compensation
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over their vesting periods. The following table
illustrates the effect on net income and earnings per share if we had applied
the fair value recognition provisions of Statement No. 123 to stock-based
compensation.
Three months ended
March 31,
2003 2002
----------- -----------
Net income, as reported $ 1,296,826 $ 755,466
Add: stock-based compensation expense, net of 59,523 25,032
related taxes
Less: total stock-based compensation expense (114,190) (53,175)
determined under fair-value based method, net
of taxes
----------- -----------
Pro forma net income $ 1,242,159 $ 727,323
=========== ===========
Earnings per share:
Basic, as reported $ 0.55 $ 0.36
Basic, pro forma $ 0.53 $ 0.35
Diluted, as reported $ 0.52 $ 0.34
Diluted, pro forma $ 0.49 $ 0.33
8
Management's Discussion and Analysis
of Financial Condition and Results of Operation
Results of Operations
Three months ended March 31, 2003 Compared to the Three months ended March 31,
2002:
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 $1,296,826 for the three
months ended March 31, 2003 compared to a net income of $755,466 for the three
months ended March 31, 2002. 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 2002, thereby offsetting more of the operating
expenses.
Net Interest Income
- -------------------
Net interest income increased $973,442 or 21.1% to $5,580,856 for the three
months ended March 31, 2003 from $4,607,414 for the three months ended March 31,
2002. Total interest income increased $137,819 for the three months ended March
31, 2003 to $8,570,656 from $8,432,837 for the three months ended March 31,
2002. The increase in interest income is primarily a result of average total
loans for the three months ended March 31, 2003 being approximately $533,000,000
compared to average total loans of approximately $459,000,000 for the three
months ended March 31, 2002. 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
increased $125,596 or 17.6% to $839,153 for the three months ended March 31,
2003, as compared to $713,557 for the three months ended March 31, 2002.
Interest on investment securities increased due to a higher investment yield in
2003 compared to the same period the previous year. The average investment
securities portfolio averaged $124,000,000 for the three months ended March 31,
2003 and averaged $127,000,000 for the three months ended March 31,
9
2002. Interest on federal funds sold decreased $44,702 or 33.5% from $133,435
for the three months ended March 31, 2002 to $88,733 for the three months ended
March 31, 2003. The decrease is due to lower interest rates for the three months
ended March 31, 2003 as compared to the three months ended March 31, 2002 and a
lower average balance in 2003 compared to the same period the previous year. The
average of federal funds sold for the three months ended March 31, 2003 was
approximately $29,000,000 compared to an average of approximately $32,000,000
for the three months ended March 31, 2002. Interest on reverse repurchase
agreements decreased $139,036 or 91.0% from $152,833 for the three months ended
March 31, 2002 to $13,797 for the three months ended March 31, 2003. The
decrease was the result of a decrease in the average of reverse repurchase
agreements of approximately $33,000,000 from $38,000,000 for the three months
ended March 31, 2002 to $5,000,000 for the three months ended March 31, 2003.
The decrease is also due to lower interest rates for the three months ended
March 31, 2003 as compared to the three months ended March 31, 2002.
Total interest expense decreased $835,623 or 21.8% to $2,989,800 for the three
months ended March 31, 2003, from $3,825,423 for the three months ended March
31, 2002. This decrease is due to an overall rate decrease in the market and due
to the run off of higher priced deposits being replaced by lower priced
deposits. Total interest bearing liabilities averaged approximately $562,000,000
for the three months ended March 31, 2003 as compared to approximately
$550,000,000 for the three months ended March 31, 2002. The average cost of
interest bearing liabilities was approximately 2.1% at March 31, 2003 compared
to 2.8% at March 31, 2002.
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.
10
Three months ended
March 31,
2003 2002
---------- ----------
Beginning of Period $7,227,000 $5,986,965
Provision for loan losses 300,000 450,000
Losses charged to the reserve
Commercial 285,000 --
Real Estate -- 21,800
Installment 2,185 2,052
Credit Cards -- 12,250
---------- ----------
287,185 36,102
Recoveries
Commercial 1,385 --
Real Estate 2,350 --
Installment 19 56
Credit Cards -- 2,333
----------
3,754 2,389
---------- ----------
End of Period $7,243,569 $6,403,252
========== ==========
Allowance as a % of Loans 1.31% 1.36%
Loans past due over 30 days totaled $4,049,916 or 0.73% of total loans at March
31, 2003 compared to $4,684,764 or 0.99% of total loans at March 31, 2002.
Other Operating Income
- ----------------------
Other operating income for the three months ended March 31, 2003, increased
$433,270 or 26.0% to $2,100,042 from $1,666,772 for the three months ended March
31, 2002. The increase is primarily due to an increase in the net gain on the
sale of mortgage loans of $248,237 or 216.6% from $114,619 for the three months
ended March 31, 2002 to $362,856 for the three months ended March 31, 2003. This
is due to the ability to sell a bulk of mortgages that were generated during
2002 as a result of lower interest rates. Also contributing to the increase in
other operating income was service charges and fees on deposit accounts of
$106,002 or 20.5% from $518,117 for the three months
11
ended March 31, 2002 to $624,119 for the three months ended March 31, 2003. This
increase is attributable to the increase in average demand deposit accounts of
$40,000,000 from approximately $417,000,000 at March 31, 2002 to approximately
$457,000,000 at March 31, 2003. Rental income from the other tenants in the
Corporation's main office building increased $20,121 or 17.1% to $138,124 for
the three months ended March 31, 2003 from $118,003 for the three months ended
March 31, 2002. This is due to new tenants in the building in 2003 compared to
the same period the previous year. Interchange income from debit and credit
cards increased $5,010 or 3.9% from $128,025 for the three months ended March
31, 2002 to $133,035 the three months ended March 31, 2003. Trust fees and
commissions decreased $6,244 or 1.1% from $571,337 for the three months ended
March 31, 2002 to $565,093 for the three months ended March 31, 2003. The
decrease in trust income is attributable to the overall decline in the stock and
treasury markets.
Other Operating Expenses
- ------------------------
Other operating expenses for the three months ended March 31, 2003 increased
$678,938 or 14.9% to $5,238,174 from $4,559,236 for the three months ended March
31, 2002. Salaries, wages and employee benefits increased $426,822 or 16.4% to
$3,023,236 for the three months ended March 31, 2003 from $2,596,414 for the
three months ended March 31, 2002. This increase is primarily due to the
increase in the number of employees from 138 full time equivalents at March 31,
2002 to 167 full time equivalents at March 31, 2003. Occupancy expense increased
$6,891 or 1.9% to $371,273 for the three months ended March 31, 2003 from
$364,382 for the three months ended March 31, 2002. Furniture and equipment
expense decreased $22,205 or 9.4% to $214,212 for the three months ended March
31, 2003 from $236,417 for the three months ended March 31, 2002. This is due to
lower depreciation costs related to fully depreciated assets at the older
banking centers and main office. Professional services expense increased $17,308
or 8.4% from $206,661 for the three months ended March 31, 2002 to $223,969 for
the three months ended March 31, 2003 due to increased accounting fees and
courier service costs. Data processing expenses increased $7,295 or 2.3% for the
three months ended March 31, 2003 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. Business development increased
$32,778 or 15.6% to $243,553 for the three months ended March 31, 2003 from
$210,775 for the three months ended March 31, 2002. This is due to
12
customer entertaining and public relations. Due to the overall lower interest
rates in 2002, there were many refinances and the Corporation had increased
mortgage sales. During the third quarter of 2002, a valuation reserve was
established for the mortgage servicing rights asset. For the three months ended
March 31, 2003, an additional $126,389 was added to the valuation.
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 represented the Corporation's
primary source of immediate liquidity and were maintained at a level adequate to
meet immediate needs. Federal funds sold averaged approximately $29,000,000 and
$32,000,000 for the three months ended March 31, 2003 and 2002, respectively.
Reverse repurchase agreements may serve as a source of liquidity, but are
primarily used as collateral for customer balances in overnight repurchase
agreements. 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 March 31,
2003, the Corporation's rate sensitive assets exceeded rate sensitive
liabilities due within one year by $26,230,728.
As part of managing liquidity, the Corporation monitors its loan to deposit
ratio on a daily basis. At March 31, 2003 the ratio was 96.2 percent. The level
of loans to deposits is below the Corporation's internal limit for this ratio.
13
The Corporation experienced a decrease in cash and cash equivalents, its primary
source of liquidity, of $148,745 during the first three months of 2003. The
primary financing activity of deposit growth provided net cash of $29,379,583.
Lending used $23,379,959, investments provided $9,644,943 and increasing federal
funds sold and reverse repurchase agreements used $20,401,227. 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.
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.
14
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 at or above the well-capitalized regulatory requirements
at March 31, 2003. Pertinent capital ratios for the Bank as of March 31, 2003
are as follows:
Well Adequately
Actual Capitalized Capitalized
------ ----------- -----------
Tier 1 risk-based capital ratio 8.7% 6.0% 4.0%
Total risk-based capital ratio 10.0% 10.0% 8.0%
Leverage ratio 6.7% 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 the
first quarter of 2003 or the first quarter of 2002 by the Bank to the
Corporation.
15
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 2002 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 March 31, 2003. Liquidity and interest rate sensitivity
disclosures for the quarter ended March 31, 2003 are found on page 13 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.
(c) Limitations on the Effectiveness of Controls. The Corporation's management,
including its principal executive officer and principal financial officer,
does not expect that the Corporation's disclosure controls and procedures
and other internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of
16
the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of
fraud, if any, within the company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of
the control.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under
all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
(d) CEO and CFO Certifications. Appearing immediately following the Signatures
section of this report there are Certifications of the Corporation's
principal executive officer and principal financial officer. The
Certifications are required in accord with Section 302 of the
Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). This Item of
this report which you are currently reading is the information concerning
the Evaluation referred to in the Section 302 Certifications and this
information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.
17
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 March 26, 2003, the Corporation sold a total of 4,000 shares
of common stock for an aggregate amount of $40,000 to one
director of the Corporation pursuant to the exercise of stock
options by this director. 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 -Not applicable
Item 5. Other Information - Not applicable
18
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 as of
September 30, 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-Q as of September 30, 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 are incorporated by reference.
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 are incorporated by reference.
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 are incorporated by reference.
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.
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: May 7, 2003
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
/s/ Debra L. Ross
---------------------------------------------
Debra L. Ross
Chief Financial Officer
19
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: May 7, 2003
/s/ Debra L. Ross
--------------------------------------
Debra L. Ross, Chief Financial Officer
20
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: May 7, 2003
/s/ Morris L. Maurer
------------------------------
Morris L. Maurer, President
and Chief Executive Officer
21
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
22