FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 - For the fiscal year ended December 31, 1995.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-14227
THE SOMERSET GROUP, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1647888
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
135 N. Pennsylvania Street, #2800, Indianapolis, IN 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317/269-1285
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common stock without par value Over-the-Counter: NASDAQ National Mkt System
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was $31,333,290 as of March 4, 1996.
As of March 4, 1996, there were 2,047,927 outstanding shares of the
Capital Stock of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the year ended December 31,
1995 are incorporated by reference into Part III.
Portions of the Form 10-K of First Indiana Corporation for the year
ended December 31, 1995 are incorporated by reference into Part I.
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THE SOMERSET GROUP, INC.
INDEX
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . .. 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal Proceedings . . . . . . . . .. . . . . . . . 3
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 4
PART II
Item 5. Market for the Registrant's Common Equity
and Related Security Holder Matters . . . . . . . . . 4
Item 6. Selected Financial Data . . . . . .. . . . . . 4
Item 7. Management's discussion and Analysis of Results
of Operations and Financial Condition and Liquity . . . 4
Item 8. Financial Statements and Supplementary Data. . . . . 4
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . .. . . .. . . 4
PART III
Item 10. Directors and Executive Officers of the Registrant 4
Item 11. Executive Compensation . . . . . . . .. . . . . 5
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . 6
Item 13. Certain Relationships and Related Transactions. 6
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . 6
Signatures . . . . . . . . . . . . . . . . . . 7
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PART I
ITEM 1 - BUSINESS
General Description of Business
The Somerset Group, Inc. ("the Registrant" or "the Company"), is an
Indiana Corporation, with its principal executive offices located
at 135 North Pennsylvania Street, Suite 2800, Indianapolis, Indiana
46204.
During 1995 the Registrant conducted business in two industry
segments: construction products and services and banking. The
construction products and services businesses were sold during
1995. The proceeds from the sale of these businesses are planned
to be redeployed in businesses in the financial services industry;
however, such new businesses had not yet commenced prior to the
date of this report. The banking segment is conducted through
ownership by the Registrant of 1,811,979 shares (as of March 4,
1996) of the common stock of First Indiana Corporation ( First
Indiana ), a holding company which owns 100% of First Indiana Bank.
The 1,811,979 shares represented 21.9% of the issued and
outstanding First Indiana common shares.
Financial Information About Business Segments
Described below are the operations of the Company's segments.
Financial information about the segments is incorporated by
reference to Note 8 of the Company's consolidated financial
statements on page C-12 of this report.
Narrative Description of Business
I. Construction Products and Services Segment (All operations sold
during 1995)
The Registrant manufactured and installed precast/prestressed
concrete products primarily in the seven-state area of Illinois,
Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia.
Products were distributed from the Indianapolis, Indiana;
Westfield, Indiana; and Columbus, Ohio manufacturing sites via
commercial carrier, broker drivers or company-operated trucks to
the job site. The customers for these products were real estate
developers, general contractors and businesses which own and occupy
their own structures.
II. Banking Segment
Information on the Registrant's bank affiliate, First Indiana
Corporation, is incorporated into this Report by reference to Item
1 of the 1995 Report on Form 10-K for First Indiana Corporation for
the year ended December 31, 1995, filed separately under commission
file number 0-14354
ITEM 2 - PROPERTIES
The Registrant s property consists of office equipment and
furniture in leased office space. The leased office space consists
of 1,244 square feet located at Suite 2800, First Indiana Plaza,
Indianapolis, Indiana, and 800 square feet located at 1030 S.
Kitley Avenue, Indianapolis, Indiana.
ITEM 3 - LEGAL PROCEEDINGS
Information relative to this item is incorporated into this Report
by reference to Note 13 of the Notes to Consolidated Financial
Statements, on page C-15 of this report.
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
final quarter of the fiscal period covered by this report.
PART II
ITEM 5 - MARKET - REGISTRANT'S COMMON EQUITY & RELATED SECURITY
HOLDER MATTERS
This information is set forth under the caption "Market for the
Registrant's Common Stock" on page A-1 of this Report.
ITEM 6 - SELECTED FINANCIAL DATA
This information is set forth under the caption "Selected Financial
Data" on page A-1 of this Report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND
FINANCIAL CONDITION AND LIQUIDITY
This information is set forth under the caption "Management's
Discussion and Analysis of Results of Operations and Financial
Condition and Liquidity" on pages B-1 through B-5 of this Report.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is contained in the Consolidated Financial
Statements, Notes to Consolidated Financial Statements and
Independent Auditors' Report on pages C-1 through C-15 of this
Report. Information on the Registrant's bank affiliate, First
Indiana Corporation, is incorporated by reference to Item 8 of the
1995 Report on Form 10-K for First Indiana Corporation, filed
separately under commission file number 0-14354.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant had no changes in and no disagreements with its
accountants regarding accounting and financial disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Information regarding Directors of the Registrant is incorporated
into this Report by reference to the definitive proxy statement of
the Registrant for the Annual Meeting of Shareholders to be held
April 24, 1996, under the caption "Proposal No. 1: Election of
Directors", file separately under commission file number 0-14227.
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Executive Officers
Name Office Held Relationship Age
Robert H. McKinney Chairman Father of President 70
and Director and Vice President
Marni McKinney President, CEO Daughter of 39
and Director Chairman
Kevin K. McKinney Vice President Son of 38
and Director Chairman
Joseph M. Richter Executive V. P., CFO None 53
and Treasurer
Michael L. Smith President of Somerset None 47
Financial Services, a division,
and Director
Term of office for all officers of the Registrant continue until
the first meeting of the Board of Directors following the Annual
Meeting of Shareholders on April 24, 1996.
A brief account of the business experience of each Executive
Officer during the past five years is as follows:
Robert H. McKinney - Chairman of the Registrant; Chief Executive
Officer until January 1996; Chairman and Chief Executive Officer of
First Indiana Corporation, a savings bank holding company; Chairman
of First Indiana Bank; Chief Executive Officer until May 1992;
retired Partner of Bose McKinney & Evans, attorneys; a Director of
First Indiana Corporation and Lilly Industries, Inc.; Chairman,
Federal Home Loan Bank Board (1977-1979).
Marni McKinney - President, Chief Executive Officer, and a Director
of the Registrant; Vice Chairman and a Director of First Indiana
Corporation and First Indiana Bank; formerly Executive Vice
President (1987 - 1992), Chief Operating Officer of the Registrant
(1992-1995); formerly Vice President and Director of Strategic
Planning of First Indiana Bank.
Kevin K. McKinney - Vice President and a Director of the
Registrant; Publisher of NUVO Newsweekly and Chairman and President
of NUVO, Inc.; formerly President Mid America Media; formerly
Chairman, Indianapolis Extra, Ltd.
Joseph M. Richter - Executive Vice President, Chief Financial
Officer and Treasurer of the Registrant.
Michael L. Smith - President of Somerset Financial Services, a
division, and a Director. Previously President and Chief Executive
Officer, Mayflower Group, Inc.; a Director of First Indiana
Corporation and Acordia, Inc.
ITEM 11 - EXECUTIVE COMPENSATION
Information relative to this item is incorporated into this Report
by reference to the definitive proxy statement of the Registrant
for the Annual Meeting of Shareholders to be held April 24, 1996,
under the caption "Compensation of Directors and Executive
Compensation".
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information relative to this item is incorporated into this Report
by reference to the definitive proxy statement of the Registrant
for the Annual Meeting of Shareholders to be held April 24, 1996,
under the caption "Voting Securities and Principal Holders
Thereof".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relative to this item is incorporated into this Report
by reference to the definitive proxy statement of the Registrant
for the Annual Meeting of Shareholders to be held April 24, 1996,
under the caption "Certain Transactions".
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The financial statements listed in the
accompanying Index to Selected Financial Data,
Management's Discussion and Analysis of
Results of Operations and Financial Condition
and Liquidity, Financial Statements and
Financial Statement Schedules are filed as
part of this report.
2. The financial statement schedules listed in
the accompanying Index to Selected Financial
Data, Management's Discussion and Analysis of
Results of Operations and Financial Condition
and Liquidity, Financial Statements and
Financial Statement Schedules are filed as
part of this report.
3. Exhibits - The following exhibits are attached
to this Form 10-K.
Exhibit
Number Exhibit
3 Amended Articles of Incorporation and Amended
and Restated By-Laws thereto.
22 Subsidiaries of the Registrant.
23 Definitive Proxy Statement for Annual Meeting
of Shareholders to be held April 24, 1996.
24 Consent of Independent Certified Public
Accountants, of report dated March 20, 1996, for
incorporation into Form S-8registration statement.
99 First Indiana Corporation's Form 10-K for the
year ended December 31, 1995.
All other exhibits are not attached since they are not
applicable to the Registrant:
(b) Reports on Form 8-K. No information need be disclosed.
(c) Financial Statement Schedules.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE SOMERSET GROUP, INC.
By s/ Robert H. McKinney 3/15/96
Robert H. McKinney, Chairman
By s/ Marni McKinney 3/15/96
Marni McKinney, President and
Principal Executive Officer
By s/ Joseph M. Richter 3/15/96
Joseph M. Richter, Executive Vice
President and Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant in the capacities indicated and on the
date indicated.
Signatures Title Date
s/ Robert H. McKinney Director, Chairman 3/15/96
Robert H. McKinney
s/ Marni McKinney Director, President 3/15/96
Marni McKinney and Principal Executive Officer
s/ Kevin K. McKinney Director and Vice 3/15/96
Kevin K. McKinney President
s/ H. J. Baker Director 3/15/96
H. J. Baker
s/ William L. Elder Director 3/15/96
William L. Elder
s/ Douglas W. Huemme Director 3/15/96
Douglas W. Huemme
s/ William F. McConnell, Jr. Director 3/15/96
William F. McConnell, Jr.
s/ Michael L. Smith Director 3/15/96
Michael L. Smith
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THE SOMERSET GROUP, INC.
Form 10-K for the Year Ended December 31, 1995
Items 5, 6, 7, 8, 14(a) (1) and (2), and 14(c)
Index to Selected Financial Data,
Management's Discussion and Analysis of Results of
Operations and Financial Condition and Liquidity,
Financial Statements and Financial Statement Schedules
Selected Financial Data, Management's Discussion and Analysis
of Results of Operations and Financial Condition and Liquidity,
Financial Statements and Schedules of the Registrant and its
subsidiaries, required to be included in Items 5, 6, 7, 8, 14(a)
(1) and (2), and 14(c) are listed below:
Page
MARKET FOR THE REGISTRANT'S COMMON STOCK A-1
SELECTED FINANCIAL DATA A-1
MANAGEMENT'S DISCUSSION AND ANALYSIS B-1
FINANCIAL STATEMENTS:
- - Independent Auditors' Report C-1
- - Consolidated Statements of Income for the years ended December
31, 1995, 1994, and 1993 C-3
- - Consolidated Balance Sheets as of December 31, 1995 and 1994 C-4
- - Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1995, 1994, and 1993 C-6
- - Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994,and 1993 C-7
- - Notes to Consolidated Financial Statements C-8
- - Summarized Consolidated Statements of Subsidiary, Not
Consolidated with Registrant C-16
FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules have been omitted because the
required information is contained in the notes to the financial
statements or because such schedules are not required or are not
applicable.
The individual financial statements of the Registrant have been
omitted since the Registrant is primarily an operating company and
all subsidiaries included in the consolidated statements being
filed, in the aggregate, do not have minority equity interest
and/or indebtedness to any person other than the Registrant or its
consolidated subsidiaries in amounts which together exceed 25% of
consolidated net assets as shown by the most recent consolidated
balance sheet. All other schedules are omitted because they are
not applicable or the required information is shown in the
financial statements or the notes thereto.
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THE SOMERSET GROUP, INC.
MARKET FOR THE REGISTRANT'S COMMON STOCK
The Company s common stock trades on The NASDAQ National Market
System under the symbol SOMR. The quarterly range of prices for
the Company s common stock for the years ended December 31, 1995
and 1994 is presented below:
1995 1994
Quarter High Low High Low
First - ended March 31, $14.00 $12.75 $14.25 $9.75
Second - ended June 30, $14.50 $13.25 $12.50 $11.63
Third - ended September 30, $17.50 $13.50 $13.25 $11.13
Fourth - ended December 31, $18.25 $16.75 $13.50 $12.50
As of March 4, there were 225 shareholders of record and
approximately 658 beneficial owners.
SELECTED FINANCIAL DATA
(in thousands except per share amounts)
Years Ended December 31,
1995 1994 1993 1992 1991
Sales from construction operations $11,178 $23,467 $14,555 $15,875 $13,935
Equity income of First Indiana Corp. 3,938 2,616 3,614 3,080 2,516
Income from operations before income taxes (1)
5,548 4,132 3,614 2,744 1,486
Net income 3,358 2,617 2,219 44 120
Net income per share (2) 1.61 1.26 1.10 .02 .06
As of December 31,
1995 1994 1993 1992 1991
Working capital $9,104 $6,852 $4,885 $4,897 $5,806
Carrying value-investment in First Indiana Corp.
27,549 24,265 21,873 18,731 16,242
Market value-investment in First Indiana Corp.
38,882 23,782 24,890 19,221 12,041
Total assets 38,726 39,804 34,995 30,649 32,618
Long-term debt 2,500 5,500 5,500 5,587 7,013
Total liabilities 9,228 13,375 11,091 9,009 10,618
Shareholders equity 29,498 26,429 23,904 21,640 22,000
Cash dividends per share .20 .10 --- --- ---
Book value per share (2) 14.45 12.90 11.91 10.79 11.00
(1) These amounts primarily represent the results of the
construction operations and equity income from First Indiana
Corporation. The construction operations were sold in June
1995.
(2) Per share amounts have been adjusted for a five-for-four stock
split that was effective February 29, 1996.
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THE SOMERSET GROUP, INC.
MANAGEMENT S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company earned $3,358,000 in 1995, compared to $2,617,000 in
1994 and $2,219,000 in 1993. Earnings in 1995 represented a 28%
increase over 1994 and a 51% increase over 1993. A non-recurring
pretax gain of $1,293,000 on sale of assets is included in 1995
earnings. Excluding the non-recurring gain, net income for 1995
amounted to $2,576,000.
The most significant event affecting operating results during 1995
was the sale of assets. The assets sold were primarily used in the
Company s construction products and services business segment. At
the time of the sale of the assets, the company s operations in the
business segment ceased. The sales agreements were effective on
April 30, 1995 and June 30, 1995, and the financial results
contained in the 1995 Consolidated Statements of Income represent
operating activities from these assets from January 1, 1995 to
their dates of sale.
Cash received from the sales and the conversion to cash of working
capital employed by these operations is planned to be used for
acquisitions or new operations in the financial services industry.
During the second half of 1995, the Company did not complete an
acquisition in financial services and was temporarily investing the
cash proceeds in short-term investment securities.
Net income, after allocation of income taxes, during the three
years ended December 31, 1995 was provided as follows:
1995 1994 1993
Operating income - construction products and services
$616,000$1,752,000 $716,000
Equity in earnings First Indiana 2,382,000 1,583,000 2,186,000
Gain on sale of assets 782,000 46,000 ---
Investment income 335,000 43,000 57,000
4,115,000 3,424,000 2,959,000
Interest expense (173,000) (268,000) (309,000)
General corporate expenses (584,000) (539,000) (431,000)
Net income $3,358,000$2,617,000$2,219,000
Return on average equity 12.0% 10.4% 9.7%
Net operating income from construction products and services of
$616,000 represented a decrease of 65% from the $1,752,000 earned
in 1994, and a decrease of 14% from the $716,000 reported in 1993.
The decrease resulted from the cessation of operations in this
business segment during 1995. The Company operated in this
business segment approximately 40% of the year.
Equity in earnings of First Indiana Corporation of $2,382,000
increased 50% compared to the $1,583,000 in 1994, and were 9% above
the $2,186,000 equity earnings in 1993.
Investment income added net income of $335,000 during 1995,
compared to $43,000 in 1994 and $57,000 in 1993. The availability
of cash from the asset sale and the subsequent conversion of
construction industry working capital to cash, combined with a
strong bond market during the second half of 1995 caused this
significant increase.
General corporate expenses increased during 1995, as consulting
and legal expenses in connection with expansion in the financial
service industry increased.
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Net income excluding the non-recurring gain on sale of assets were
$2,576,000, which was 2% lower than the $2,617,000 earned in 1994,
primarily as a result of the change in business strategy to
withdraw from the construction industry in order to focus on
financial services. Net income from construction products and
services operations ceased during the last 60% of the year because
of the sale of these assets. The capital employed in these
operations was temporarily invested in U. S. Treasury obligations
and corporate bonds. On a comparative basis, the income from these
investments was less than the prior year earnings from construction
products and services, thus causing consolidated income results to
be lower. When compared to 1993 results, the 1995 comparable
earnings of $2,576,000 were 16% above the $2,219,000 earned in
1993. Earnings from the construction operations for the full year
of 1993 were only slightly above the partial year earnings in 1995.
Equity in Earnings of First Indiana Corporation
The Company s equity in earnings of First Indiana Corporation,
before income taxes, amounted to $3,938,000 for 1995, compared to
$2,616,000 for 1994, and $3,614,000 in 1993. The 1995 amount
represented a 51% increase over 1994 earnings and a 9% increase
over the 1993 amount.
First Indiana Corporation s earnings for 1995 were the highest ever
recorded by the Company. A strong economy in all of the Bank s
markets fueled growth. The Bank s renewed focus on real estate
finance created efficiencies and encouraged emphasis on carefully
targeted sales strategies.
Included in 1995 equity earnings were a first quarter gain from the
sale of deposits of a banking center and a gain from the sale of
fixed-rate home equity loans during the second quarter. During the
fourth quarter, the Bank also realized a gain from the sale of
foreclosed commercial real estate and increased its provision for
loan losses. These items added $360,000 to Somerset s equity
earnings.
First Indiana s net interest income rose to $58.0 million in 1995,
compared to $49.2 million in 1994 and $45.9 million in 1993. The
increase in 1995 was the result of significant growth in the Bank s
home equity, residential construction, and business loan
portfolios, that generally have higher yields than the Bank s
residential mortgage loan portfolio. Residential mortgage loan
originations amounted to $354 million, compared with $343 million
in 1994. Originations in home equity lending grew 61 percent to
$302 million, compared with $188 million in 1994.
The Bank continued building its franchise in construction lending,
with originations of $284 million, compared with $322 million last
year. Despite the slight downturn in this area, First Indiana
maintained its market share of the custom builder market in
metropolitan Indianapolis, with strong performance in the
production builder segments as well.
These areas form the cornerstone of the Bank s lending portfolio,
and all experienced substantial growth in outstanding balances
during 1995. At December 31, 1995, home equity and construction
loans outstanding were $485 million and $142 million, compared with
$329 million and $117 million one year earlier. Business lending
to selected segments within the Indianapolis market added to the
Bank s growth, rising to $72 million outstanding at year-end 1995,
compared with $42 million one year earlier.
First Indiana s net interest margin is a strong indicator of its
ability to generate core earnings. The margin rose to a record
4.12 percent for the year ended December 31, 1995, compared with
3.96 percent in 1994 and 3.64% in 1993.
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First Indiana s average interest-rate spread for the year ended
December 31, 1995 was 3.60 percent, compared with 3.57 percent in
1994 and 3.24 percent in 1993. The interest spread results from
the Bank s interest-earning assets repricing faster than the
repricing of funding liabilities during 1995.
The contribution of interest-free funds to First Indiana s net
interest margin varies depending on the level of capital and use of
interest-free liabilities. Average interest-free funds provided an
additional 52 basis points to the margin in 1995, compared with 39
and 40 basis points in 1994 and 1993.
As a method to control non-performing assets, First Indiana has
managed its loan portfolio to reduce concentration of loan types
and to diversify assets geographically. Non-performing assets,
which consist of non-accrual, impaired and restructured loans, real
estate owned ( REO ), and other repossessed assets, fell seven
percent during 1995 to $27.2 million at December 31 from $29.1
million one year earlier.
First Indiana s assets grew in 1995 to $1.52 billion at year end,
compared to $1.39 billion at December 31, 1994. The tangible and
core capital of the Bank was $12.7 million, or 8.26% of assets,
which exceeded regulatory minimums at year-end 1995.
Legislation pending in Congress proposes a one-time assessment on
all SAIF-insured deposits of First Indiana. This assessment is
intended to recapitalize the Savings Association Insurance Fund to
the required level of 1.25 percent of insured deposits. If the
assessment occurs, the effect on The Somerset Group, Inc. would be
a reduction of equity earnings from First Indiana of approximately
$1,170,000.
The Bank s management has identified several strategies for
improving earnings in 1996 and beyond. First Indiana s plan calls
for continued enhancements to its core real estate lending
business, including construction, home equity, and residential
mortgage lending. In addition, the Bank is continuing its efforts
to enhance efficiencies and streamline processes, particularly in
mortgage banking. The Bank further intends to expand its business
lending portfolio, specializing in loans to smaller, independently
owned companies with a demonstrated history of strong performance.
Finally, the Bank is looking toward the development and acquisition
of companies that will provide additional sources of non-interest
income.
Gain on Sale of Assets
The sale of assets of the construction products and services
operations commenced in 1994 and was completed in 1995. The sale
price of all assets was $6,959,000, of which $5,522,000 occurred in
1995, and $1,437,000 in 1994. After consideration of the carrying
value of the assets and expenses relating to the sales, the Company
recorded gains on sale before income taxes of $1,293,000 and
$76,000 in 1995 and 1994, respectively. There were no such gains
or losses on sale of assets during 1993. The assets sold in 1995
consisted of the Company s three precast concrete manufacturing
facilities, assets of its design engineering subsidiary, its
trucking subsidiary, and assets off its precast concrete
installation and erection operations. The operation sold in 1994
was a manufacturing facility for highway bridge products.
Selling and General and Administrative Expenses
Selling expenses relate solely to the sales of construction
products and services. During 1995 they amounted to $210,000, a
decrease of $358,000 from the $568,000 incurred in 1994, and a
decrease of $278,000 from the $488,000 of 1993. As a percentage of
sales, selling expenses were also lower at 1.9% of 1995 sales,
compared to 2.4% in 1994, and 3.4% in 1993. Both the lower expense
amount and percentage of sales resulted from the sale of the
construction products and services operations in the first half of
1995. Selling expenses prior to the sale were held to a minimum
during that period. The 1994 increase in expense compared to 1993
was caused by higher sales commission expense on the increase in
sales of 1994 compared to 1993.
-12-
General and administrative expenses amounted to $1,390,000 during
1995 and represented a decrease of $537,000 from the $1,927,000
incurred in 1994, and a decrease of $233,000 from the $1,623,000 of
1993. The major portion of the decrease in 1995 expense related to
reductions in employee costs relating to operations of the
construction products and services operations, and a downsizing of
corporate staff, resulting from the temporary downsizing of active
operations. The 1994 increase compared to 1993 was caused by an
increase in expenses directly related to the increased sales and
manufacturing volume of construction products during 1994 compared
to 1993 and incentive compensation of management personnel for
improved performance of the construction group.
Interest Expense
Interest expense decreased $152,000 in 1995 compared to 1994 and
$225,000 compared to 1993, and occurred because of early retirement
of $3 million of long-term debt and the repayment and cancellation
of short-term lines of credit. Proceeds from the sale of assets
and the conversion of working capital to cash of the construction
products and services operations provided the cash for retirement
of this debt.
Impact of Accounting Standards
In October 1995, the Financial Accounting Standards Board ( FASB )
issued SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 allows the recognition of expense based upon the
estimated fair value of all stock-based compensation. However, the
Statement also allows enterprises the option of retaining the
accounting treatment for stock-based compensation set forth in
Accounting Principle Board Opinion 25, Accounting for Stock Issued
to Employees ( APB 25") does not require expense recognition for
the type of stock options issued by The Somerset Group, Inc. The
Statement requires pro forma disclosures of net income and earnings
per share computed as if the fair value based method had been
applied in financial statements of companies that continue to
follow current accounting practice under APB 25. The Statement is
applied prospectively in fiscal years beginning after December 15,
1995. The Company intends to retain the APB 25 accounting
treatment of stock-based compensation. Consequently, adoption of
this Statement will not have any effect on the Company s
consolidated financial statements.
Other pronouncements of the FASB during 1995 and to the date of
this report are not applicable to the Company s consolidated
financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Management considers the financial condition and liquidity of the
Company to be very good at December 31, 1995. The Company was also
in a relatively sound position at the end of 1994. Because of the
sale of all construction industry operating assets and the
conversion of the related net current assets to cash, the Company s
balance sheet contains a large percentage of liquid assets and no
intangible assets. These liquid assets are being invested
temporarily and are intended for use in acquisitions of businesses
in the financial services industry.
At December 31, 1995, the Company had a very high ratio of current
assets to current liabilities, that stood at 12.4 to one, compared
to 3.0 to one at December 31, 1994. In addition, 90% of the
current assets consisted of cash, cash equivalents and short-term
investments.
-13-
The ratio of long-term debt to shareholders equity improved to .08
to one at December 31, 1995, compared to .21 to one at the end of
1994. A $3 million portion of long-term debt was retired during
1995. The remaining long-term debt of $2.5 million has been
maintained and not retired since a favorable fixed interest rate
has allowed for the investment of the funds at returns greater than
the interest cost.
Shareholders equity increased to $29.5 million at December 31,
1995 from $26.4 million at the end of 1994. Adjusted for the
February 29, 1996 5-for-4 stock split, the per share amounts were
$14.45 compared to $12.90.
The Company s investment in First Indiana Corporation is stated at
cost, plus the Company s share of undistributed earnings, as
required by the FASB s accounting standard for equity accounting.
This treatment does not give effect to the market value of this
investment within the consolidated financial statements. At
December 31, 1995, the market value of the Company s investment in
First Indiana Corporation, as determined from the closing price on
the NASDAQ National Market System, was $11.3 million greater than
the carrying value in the consolidated financial statements. At
December 31, 1994 such market value was $483 thousand less than
the carrying value.
Operating activities during 1995 provided $5.3 million of cash,
compared to cash used in 1994 of $155 thousand. The primary causes
of this change was a $4.7 million decrease in the amount of working
capital needed to support operations in 1995 versus a $2.7 million
increase in such working capital needs in 1994, and the increase in
net income in 1995 compared to 1994. The 1995 decrease in working
capital was a result of the discontinuance of the businesses that
required significant amounts of working capital.
In 1995 the Company canceled its $3 million line of credit that had
been established in prior years to fund significant changes in cash
flow that are typical in the construction industry. The line of
credit was no longer needed.
Proceeds from the sale of assets amounted to $5.2 million during
the year, and when combined with the cash provided from operations,
allowed management to retire early $3 million of long-term bank
debt, repurchase 25,000 shares of its common stock in the open
market, and temporarily invest $7.1 million in short-term
investments.
During 1995 the Company paid $327,000 in cash dividends to its
shareholders, $.20 per share annually. On February 14, 1996 the
Board of Directors declared a 5-for-4 stock split to be effective
February 29, 1996. In addition, the regular semi-annual dividend
of $.10 per share was declared on the post stock split shares. On
an annual basis, this results in a 25% increase in projected cash
dividends for 1996, compared to 1995.
The Company is seeking acquisitions in select financial services
industries, including fund management, leasing, annuity brokerage,
and technology based banking services. The Somerset Group, Inc. is
a registered savings bank holding company and subject to
regulations of permitted activities defined in the National Housing
Act and administered by the Office of Thrift Supervision.
-14-<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
Management of The Somerset Group, Inc. has prepared and is
responsible for the financial statements and for the integrity and
consistency of other related information contained in the Annual
Report. In the opinion of management, the financial statements,
which necessarily include amounts based on management s estimates
and judgments, have been prepared in conformity with generally
accepted accounting principles appropriate to the circumstances.
The Corporation maintains a system of internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with the
Corporation s authorizations and policies, and that transactions
are properly recorded so as to permit preparation of financial
statements that fairly present the financial position and results
of operations in conformity with generally accepted accounting
principles. Internal accounting controls are augmented by written
policies covering standards of personal and business conduct and an
organizational structure providing for division of responsibility
and authority.
Management believes the system of controls has prevented any
occurrences that could be material to the financial statements.
The Corporation engaged the firm of KPMG Peat Marwick,
independent certified public accountants, to render an opinion on
the financial statements. The accountants have advised management
that they were provided with access to all information and records
necessary to render their opinion.
The Board of Directors exercises its responsibility for the
financial statements and related information through the Audit
Committee, which is composed entirely of outside directors. The
Audit Committee meets regularly with management and KPMG Peat
Marwick to assess the scope of the annual audit plan, to review the
Annual Report and Form 10-K, including major changes in accounting
policies and reporting practices, and to approve non-audit services
rendered by the independent auditors.
KPMG Peat Marwick also meets with the Audit Committee, without
management present, to afford the Committee the opportunity to
express its opinion on the adequacy of compliance with established
corporate policies and procedures and the quality of financial
reporting.
February 14, 1996
Robert H. McKinney Marni McKinney Joseph M. Richter
Chairman President and Chief
Financial Officer Chief Executive Officer
-15-<PAGE>
KPMG Peat Marwick LLP
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204-24552
The Board of Directors and Shareholders
The Somerset Group, Inc:
We have audited the accompanying consolidated balance sheets of
The Somerset Group, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of The Somerset
Group, Inc. s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of The Somerset Group, Inc. and subsidiaries at December
31, 1995 and 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted
accounting principles.
January 31, 1996, except note 12 which
is as of February 14, 1996
-16-
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Year Ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Income:
Net sales $11,178,000 $23,467,000 $14,555,000
Cost of sales 9,529,000 19,164,000 12,011,000
Gross profit 1,649,000 4,303,000 2,544,000
Equity in earnings of First Indiana Corp. 3,938,000 2,616,000 3,614,000
Dividend and interest income 447,000 70,000 95,000
Realized investment income 107,000 --- ---
Gain on sale of assets 1,293,000 76,000 ---
Total income 7,434,000 7,065,000 6,253,000
Expenses:
Selling expenses 210,000 568,000 488,000
General and administrative expenses 1,390,000 1,927,000 1,623,000
Interest expense 286,000 438,000 511,000
Total expenses 1,886,000 2,933,000 2,622,000
Income before income taxes and minority inter 5,548,000 4,132,000 3,631,000
Income tax expense 2,190,000 1,608,000 1,437,000
3,358,000 2,524,000 2,194,000
Minority interest in loss of subsidiary --- 93,000 25,000
Net income $3,358,000 $2,617,000 $2,219,000
Income per share $1.61 $1.26 $1.10
Average shares outstanding 2,084,581 2,077,819 2,025,238
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-3
THE SOMERSET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS As of December 31
<S> <C> <C>
1995 1994
Current assets
Cash and cash equivalents $1,699,000 $2,006,000
Short-term investments, at market value 7,194,000 ---
Trade accounts, notes and other receivables
less allowance for doubtful accounts 1,005,000 6,070,000
Contracts in progress, unbilled --- 1,769,000
Inventories --- 390,000
Prepaid expenses 3,000 109,000
Total current assets 9,901,000 10,344,000
Investments
First Indiana Corporation (market values
of $38,882,000 and $23,782,000) 27,549,000 24,265,000
Property, plant and equipment, at cost
Land --- 393,000
Buildings --- 2,738,000
Production and delivery equipment --- 6,593,000
Office furniture and equipment 241,000 556,000
Construction in progress --- ---
241,000 10,280,000
Less accumulated depreciation 196,000 6,126,000
45,000 4,154,000
Other assets
Notes receivable 771,000 511,000
Other 460,000 530,000
1,231,000 1,041,000
Total Assets $38,726,000 $39,804,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-4
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
<TABLE>
<S> <C> <C>
1995 1994
Current liabilities
Trade accounts payable $221,000 $808,000
Accrued compensation 36,000 837,000
Taxes, other than income taxes 15,000 194,000
Billings in exccess of costs and
recognized profit 451,000
Deferred income taxes 22,000
Income taxes 191,000 437,000
Other accrued expenses 334,000 743,000
Total current liabilities 797,000 3,492,000
Long-term debt
Notes payable 2,500,000 5,500,000
Deferred income taxes 5,931,000 4,383,000
Shareholders' equity
Common stock, no par, at stated value,
4,000,000 shares, issued 2,286,760 1,829,000 1,829,000
Capital in excess of stated value 4,986,000 4,979,000
Unrealized gains on short-term
investments, net of deferred
income taxes 72,000
Retained earnings 24,230,000 20,999,000
31,117,000 27,807,000
Less 245,414 and 238,327 treasury
shares at cost 1,619,000 1,378,000
Total shareholders' equity 29,498,000 26,429,000
Total Liability and Shareholders'
Equity $38,726,000 $39,804,000
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
January 1, 1993 to December 31, 1995
<TABLE>
Capital in Unrealized
Common Excess of Gains on Retained Treasury
Stock Stated ValueInvestmen Earnings Shares Total
<S> <C> <C> <C> <C> <C>
Balance January 1, 1993 $1,829,000 $4,887,000 $ $16,494,000 ($1,570,000)$21,640,000
Net income --- --- --- 2,219,000 --- 2,219,000
Shares of common stock issued in
connection with 401(k) plan --- --- --- 3,000 7,000 10,000
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- --- 35,000 --- 35,000
_________ _________ _________ _________ _________ _________
Balance December 31, 1993 1,829,000 4,887,000 --- 18,751,000 (1,563,000) 23,904,000
Net income --- --- --- 2,617,000 --- 2,617,000
Shares of common stock issued in
connection with restricted grants,
401(k) plan & exercise of options --- 92,000 --- (176,000) 311,000 227,000
Purchase of Treasury shares --- --- --- --- (126,000) (126,000)
Cash dividends paid --- --- --- (164,000) --- (164,000)
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- --- (29,000) --- (29,000)
_________ _________ _________ _________ _________ _________
Balance, December 31, 1994 1,829,000 4,979,000 --- 20,999,000 (1,378,000) 26,429,000
Net Income --- --- --- 3,358,000 --- 3,358,000
Shares of common stock issued in
connection with restricted grants,
401(k) plan & exercise of options --- 7,000 84,000 176,000 267,000
Purchase of Treasury shares --- --- --- --- (417,000) (417,000)
Cash dividends paid --- --- --- (327,000) --- (327,000)
Unrealized gains on short-term
investments, net of deferrred
income taxes --- --- 72,000 --- --- 72,000
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- --- 116,000 --- 116,000
_________ _________ _________ _________ _________ _________
Balance, December 31, 1995 $1,829,000 $4,986,000 $72,000 $24,230,000 ($1,619,000)$29,498,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
Cash flows from operating activities: 1995 1994 1993
Net income $3,358,000 $2,617,000 $2,219,000
Add (deduct) items not affecting cash
Depreciation and amortization 252,000 685,000 541,000
Deferred income taxes 1,404,000 1,265,000 1,363,000
Gain on sale of assets (1,293,000) (76,000) ---
Equity in earnings of First Indiana Corp. (3,938,000) (2,616,000) (3,614,000)
Dividends received from First Indiana Corp. 846,000 782,000 531,000
Other, net (28,000) (70,000) (39,000)
Changes in operating assets and liabilities:
Trade accounts, notes, & other receivables 5,065,000 (3,955,000) 544,000
Contracts in progress, unbilled & inventory 2,159,000 (953,000) 303,000
Prepaid expenses 106,000 (18,000) (50,000)
Accounts payable and accrued expenses (2,427,000) 2,184,000 497,000
Accrued and refundable income taxes (246,000) --- 125,000
Net cash provided (used) by operating activities 5,258,000 (155,000) 2,420,000
Cash flows from investing activities:
Proceeds from sale of assets 5,222,000 1,437,000 7,000
Increase in investment in First Indiana Corp. --- (595,000) ---
Purchase of property, plant and equipment (44,000) (1,250,000) (1,222,000)
Decrease (increase) in other assets 70,000 (339,000) ---
Increase in long-term notes receivable (260,000) (13,000) (45,000)
Increase in short-term investments, at cost (7,076,000) --- ---
Net cash used by investing activities (2,088,000) (760,000) (1,260,000)
Cash flows from financing activities:
Proceeds from long-term borrowings --- --- 2,500,000
Principal payments on long-term borrowings (3,000,000) --- (2,614,000)
Proceeds from minority investment in subsidiary 525,000 539,000
Proceeds from reissue of treasury shares 267,000 227,000 ---
Purchase of treasury shares (417,000) (126,000) ---
Cash dividends paid (327,000) (164,000) ---
Net cash provided (used) by financing activities (3,477,000) 462,000 425,000
Increase (decrease) in cash and cash equivalents (307,000) (453,000) 1,585,000
Cash and cash equivalents at beginning of period 2,006,000 2,459,000 874,000
Cash and cash equivalents at end of period $1,699,000 $2,006,000 $2,459,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1699000
<SECURITIES> 7194000
<RECEIVABLES> 1110000
<ALLOWANCES> 105000
<INVENTORY> 00
<CURRENT-ASSETS> 9901000
<PP&E> 241000
<DEPRECIATION> 196000
<TOTAL-ASSETS> 38726000
<CURRENT-LIABILITIES> 797000
<BONDS> 00
00
00
<COMMON> 1829000
<OTHER-SE> 27669000
<TOTAL-LIABILITY-AND-EQUITY> 38726000
<SALES> 11178000
<TOTAL-REVENUES> 16963000
<CGS> 9529000
<TOTAL-COSTS> 11415000
<OTHER-EXPENSES> 00
<LOSS-PROVISION> 105000
<INTEREST-EXPENSE> 286000
<INCOME-PRETAX> 5548000
<INCOME-TAX> 2190000
<INCOME-CONTINUING> 3358000
<DISCONTINUED> 00
<EXTRAORDINARY> 00
<CHANGES> 00
<NET-INCOME> 3358000
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
THE SOMERSET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant
Accounting Policies
The Somerset Group, Inc. (The Company ) is a registered savings
bank holding company. It s major asset is a 21.9% ownership
interest in First Indiana Corporation, which owns 100% of First
Indiana Bank, a federally chartered stock savings bank. The
Company also operated in the construction industry during the three
years shown in the accompanying financial statements. During 1995
and 1994 the Company sold substantially all assets of its
construction industry operations for a combination of cash and
notes receivable. The Company recently formed a new financial
services division and is seeking acquisitions in select financial
service industries, including fund management, leasing, and
technology based banking services.
(a) Principles of Consolidation: The consolidated financial
statements include the accounts of The Somerset Group, Inc.
( the Company ) and its 100% owned subsidiaries for all
periods and a 51% owned subsidiary through its sale on October
31, 1994.
(b) Cash and Cash Equivalents: For purposes of reporting cash
flows, cash and cash equivalents include: cash on hand, cash
in banks, and money market funds immediately available.
(c) Short-Term Investments: The investments are valued at market
price on the statement date. They are available-for-sale and
proceeds are available on three days notice. Unrealized
holding gains and losses are excluded from earnings and are
reported net of deferred income taxes as a separate component
of shareholders equity until realized.
(d) Investment in First Indiana Corporation: First Indiana
Corporation is a bank holding company whose primary subsidiary
is a savings bank which operates in Indiana, North Carolina,
and Florida through its mortgage banking division. The
Company s investment in First Indiana Corporation is stated at
cost, adjusted for the Company s share of undistributed
earnings, and includes adjustments under the purchase method
of accounting. Capital changes of First Indiana Corporation
are reflected as a separate component of consolidated retained
earnings.
(e) Construction Contracts: The Company used the percentage-of-
completion method for reporting profits from construction
contracts for financial statement purposes during the periods
it conducted such business. The units-of-production method
was utilized in the computation. Contracts in progress,
unbilled, consists of costs incurred under contracts plus
gross profit for the units completed that, in accordance with
progress billing terms of the individual contracts, are not
yet billable to the customer.
At December 31, 1995, there were no such contracts in progress.
At December 31, 1994, the total value of work completed for such
contracts in progress was $8,820,000, of which $7,502,000 had
been billed.
(f) Inventories: Inventories are stated at the lower of cost or
replacement market. Cost is determined principally by the
first-in, first-out method. Inventory consists of raw
materials and supplies.
(g) Property, Plant and Equipment: Property, plant and equipment
are stated at historical cost for financial reporting
purposes, depreciation is determined using the straight-line
method based upon the estimated useful lives of the individual
assets. Both straight-line and accelerated methods are used
for income tax purposes.
(h) Employee Benefit Plans: The Company maintained a non-
contributory, trusteed, defined benefit Pension Plan and an
Employee Savings and Investment Plan which was qualified for
tax deferred employee contributions under section 401(k) of
the Internal Revenue Code. The Employee Savings and
Investment Plan was terminated on June 30, 1995, and the
Pension Plan was terminated on November 30, 1995.
-22-
Benefits of the Pension Plan were based on years of service and
the employee s compensation. The Company has provided for
contributions to the plan equal to the estimated value of all
participants benefits. The Employee Savings and Investment Plan
was a trusteed, defined contribution plan with the Company
matching a portion of the employee s contribution in the form of
shares of the Company s common stock. All Company matching
contributions have been made.
(i) Income Taxes: The Company uses the asset and liability method
to account for income taxes. The principal temporary
difference between the financial statement carrying amounts
and the tax bases of existing assets and liabilities that
results in deferred taxes is the investment in First Indiana
Corporation, accounted for under the equity method of
accounting.
(j) Income Per Share: Income per share is based on the average
number of common shares and common share equivalents (stock
options) outstanding during the year. The effect of
outstanding stock options on income per share on a fully
diluted basis is not material. All share and per share
amounts have been adjusted for a five-for-four stock split
that was effective February 29, 1996.
(k) Treasury Shares: Treasury shares issued to fund employee
benefit plans are valued at average cost of all treasury
shares at the date of issuance.
Note 2. Sale of Assets
The Company sold all assets of its construction products and
services operations during 1995 and 1994, and ceased doing business
in the construction industry. The results of these operations are
included in the consolidated financial statements through the dates
of sale. The total sale price of the assets was $5,522,000 and
$1,437,000 for 1995 and 1994, respectively. After consideration of
expenses relating to the sales, the Company recorded gains on sale
before income taxes of $1,293,000 and $76,000, respectively. These
assets represented all of the Company s operating activities, and
therefore the Company had no direct sales nor operating activities
following the sale.
<PAGE>
Note 3. Short-Term Investments
Short-term investments are valued at market price and are
available-for-sale. The Company is actively seeking new businesses
in the financial services industry and expects to utilize these
funds for that purpose.
The investments at December 31, 1995, consisted of bond mutual
funds as follows:
Unrealized Market
Cost Gains Value
MFS Limited Maturity Fund $3,022,000 $ 13,000 $3,035,000
Armada Fixed Income Fund 4,053,000 106,000 4,159,000
$7,075,000 $119,000 $7,194,000
-23-
Note 4. Trade Accounts, Notes and Other Receivables
Trade accounts, notes and other receivables are net of allowances
for doubtful accounts of $105,000 and $8,000 at December 31, 1995
and 1994. Activity concerning the allowances for doubtful accounts
for the three years ended December 31, 1995 was as follows:
1995 1994 1993
Balance at beginning of period $8,000 $25,000 $51,000
Additions charged to costs and expenses 105,000 --- ---
Uncollectible accounts written off,
net of recoveries (8,000) (17,000) (6,000)
Amount credited to costs and expenses --- --- (20,000)
Balance at end of period $105,000 $8,000 $25,000
Note 5. Investment in First Indiana Corporation
The Company s percentage ownership in First Indiana Corporation was
as follows:
(Shares have been adjusted for First Indiana Corporation s six-for-
five stock split effective February 21, 1996.)
First Indiana
Shares Shares Percentage
As of: Owned Outstanding Ownership
December 31, 1995 1,811,979 8,272,323 21.9%
December 31, 1994 1,811,979 8,649,902 20.9%
December 31, 1993 1,769,980 8,580,490 20.6%
The Company s equity in earnings of First Indiana was as follows:
Year Ended December 31,
1995 1994 1993
Equity in earnings of First Indiana based
on percentage of ownership $3,624,000 $2,169,000 $3,115,000
<PAGE>
Purchase price adjustments:
The Company s equity ownership
of First Indiana s net assets exceed
the actual cost of its shares. Under
the purchase accounting method,
these purchase price adjustments
are being amortized to income using
both the declining balance and straight
line methods and amortization periods
of 3 to 10 years 314,000 447,000 499,000
Total equity in earnings $3,938,000 $2,616,000 $3,614,000
At December 31, 1995, the unamortized balance of the purchase price
adjustments was $767,000.
The changes to retained earnings for equity in other capital
changes of First Indiana Corporation primarily represents dilution
of the Company s percentage share of First Indiana s net worth that
resulted from shares of common stock issued, treasury shares
acquired, and unrealized investment gains and losses of First
Indiana. Equity in undistributed earnings and capital changes of
First Indiana of $14,603,000 and $11,632,000 are included in
consolidated retained earnings at December 31, 1995 and 1994,
respectively.
-24-
First Indiana Corporation is not subject to any regulatory
restrictions on the payment of dividends to its stockholders.
However, the Office of Thrift Supervision has promulgated
regulations governing dividend payments, stock redemptions, and
other capital distributions, including up streaming of dividends by
a savings institution to a holding company. Under these
regulations, the Bank may make distributions to First Indiana
Corporation of up to 100 percent of the Bank s net earnings over
the most recent four-quarter period, less distributions made during
such four-quarter period. The Bank is required to give the Office
of Thrift Supervision 30 days advance notice before declaring a
dividend.
Note 6. Other Assets
Notes receivable consisted of the following: December 31,
1995 1994
Long-term note receivable in connection
with the sale of discontinued radio
broadcasting properties $471,000 $487,000
Long-term note receivable in connection with the
sale of investment in Mid-America Media, Inc. --- 24,000
Long-term note receivable in connection
with the sale of construction assets 300,000 ---
$771,000 $511,000
Other consisted of the following:
Investment in split-dollar life insurance contract
for a key officer of the Company, secured by
cash value and contractual guarantee of yield $460,000 $460,000
Other --- 70,000
$460,000 $530,000
Note 7. Long-Term Debt
Long-term debt consisted of the following: December 31,
1995 1994
Note payable to bank at 8.23%.
Retired on May 19,1995. $ --- $3,000,000
Note payable to bank at 6.85%, with final
due date of January 2, 1997, at option of
Company. 2,500,000 2,500,000
$2,500,000 $5,500,000
The Company paid interest of $286,000, $436,000, and $637,000
during the years ended December 31, 1995, 1994, and 1993,
respectively.
-25-<PAGE>
Note 8. Business Segment Year Ended December 31,
1995 1994 1993
Net sales of construction products and services*
$11,178,000 $23,467,000 $14,555,000
Operating profit of construction products & services
1,019,000 2,715,000 1,144,000
Add (deduct):
Equity in earnings of First Indiana Corp.
3,938,000 2,616,000 3,614,000
Gain on sale of assets 1,293,000 76,000 ---
Realized investment gains 107,000 --- ---
Dividend and interest income 447,000 70,000 95,000
Interest expense (286,000) (438,000) (511,000)
General corporate expense (970,000) (907,000) (711,000)
Income from operations before taxes $5,548,000 $4,132,000 $3,631,000
Identifiable assets
Construction products and services $ --- $11,834,000 $11,351,000
Investment in First Indiana Corp. 27,549,000 24,265,000 21,873,000
Corporate assets 11,177,000 3,705,000 1,771,000
Total assets $38,726,000 $39,804,000 $34,995,000
Depreciation and amortization
Construction products and services $237,000 $670,000 $526,000
Corporate assets 15,000 15,000 15,000
Total depreciation and amortization $252,000 $685,000 $541,000
Capital expenditures:
Construction products and services $44,000 $1,250,000 $1,222,000
* All assets of the construction products and services division
were sold during 1995. See Note 2.
Note 9. Income Taxes
Total income tax expense (benefit) for the three years ended
December 31, 1995 was allocated as follows:
Year Ended December 31,
1995 1994 1993
Income from operations $2,190,000 $1,608,000 $1,437,000
Retained earnings for:
Unrealized investment gains 46,000 --- ---
Equity in other capital changes of Firest Indiana
76,000 (9,000) 18,000
Total income tax expense $2,312,000 $1,599,000 $1,455,000
Income tax expense attributable to income from operations consisted
of:
Current:
Federal $637,000 $273,000 $ ---
State and local 149,000 70,000 ---
786,000 343,000 ---
Deferred:
Federal 1,138,000 997,000 1,135,000
State and local 266,000 268,000 302,000
1,404,000 1,265,000 1,437,000
Total:
Federal 1,775,000 1,270,000 1,135,000
State and local 415,000 338,000 302,000
Total income tax expense on income
from operations $2,190,000 $1,608,000 $1,437,000
-26-
<PAGE>
Income tax expense attributable to income from operations differed
from the amounts computed by applying the federal income tax rate
of 34% to pretax income from operations as a result of the
following:
Year Ended December 31,
1995 1994 1993
Federal income tax at statutory rate, 34% $1,886,000 $1,405,000 $1,235,000
Add (deduct) tax effect of:
State and local income taxes,
net of federal income tax benefit 304,000 204,000 199,000
Other --- (1,000) 3,000
$2,190,000 $1,608,000 $1,437,000
The Company made income tax payments of $1,168,000 during 1995 and
$24,000 during 1994, and received income tax refunds (net of
payments made) of $33,000 for the year ended December 31, 1993.
The tax effects of temporary differences that give rise to
significant portions of the net deferred tax liability at December
31, 1994 and 1993 are presented below:
December 31,
Deferred tax assets: 1995 1994
Compensated absences (principally vacation earned)
accrued for financial reporting purposes $7,000 $72,000
Pension benefits accrued for financial reporting purposes
42,000 104,000
Net operating loss carry forwards --- 234,000
Other 78,000 105,000
Less valuation allowance --- (234,000)
Total deferred assets $127,000 $281,000
Deferred tax liabilities:
Investment in First Indiana Corporation $6,000,000 $3,949,000
Unrealized investment gain 46,000 ---
Plant and equipment 12,000 640,000
Contracts in progress - unbilled --- 97,000
Total deferred liabilities 6,058,000 4,686,000
Net deferred tax liability $5,931,000 $4,405,000
Note 10. Stock Incentive Plans
Stock Options
All share and price per share amounts have been adjusted for a
five-for-four stock split that was effective February 29, 1996.
The Company s 1986 and 1991 Stock Incentive Plans provide for
granting of stock options to officers and other key employees at
the quoted market value of the Company s common stock on the date
of the grant. The terms and conditions of both the 1986 and 1991
Plans are identical. Options are exercisable during a period of
two to five years after the date of grant, and expire five years
from the date of grant. The 1986 Plan authorized 117,187 shares
for granting options, and the 1991 plan authorized 125,000 shares
for granting options, with or without stock appreciation rights.
The Company also maintains a 1991 Director Stock Option Plan, which
authorized 62,500 shares. The plan provides for the granting of
stock options to non-employee directors of the Company. Grants
issued are non-qualified stock options, which do not afford
favorable tax treatment to recipients and which normally result in
tax deductions to the Company.
-27-
Options are granted annually at the time of the annual meeting of
the shareholders, at the quoted market price on that date. The
plan allows no more than the grant of 12,500 shares annually.
Director options have a term of five years and are exercisable at
any time during that term.
The following summary reflects changes in the options outstanding
during the three years ended December 31, 1995.
Officers & Key
Employees Directors Price Range
Plans Plan Per Share
Balance at December 31, 1992 93,563 15,000 $5.00-$13.60
Options granted 28,250 6,250 $7.30-$7.40
Options expired (4,250) (2,500) $5.20-$7.50
Balance at December 31, 1993 117,563 18,750 $5.00-$13.60
Options granted 29,500 5,000 $9.50-$10.40
Options expired --- (3,750) $5.20-$7.40
Options exercised (28,625) --- $5.00-$5.30
Balance at December 31, 1994 118,438 20,000 $5.00-$13.60
Options granted 13,750 5,000 $10.60
Options expired (19,500) --- $5.20-$10.40
Options exercised (29,813) --- $5.00-$7.30
Balance at December 31, 1995 82,875 25,000 $5.00-$13.60
At December 31, 1995, all of the following options were exercisable
except for 5,000 shares at $10.40 per share and 5,000 shares at
$10.60 per share. Outstanding option shares at December 31, 1995,
by exercise price per share, were as follows:
Officers & Key
Price Per Employees Directors
Share Plans Plan
$5.00 3,750 ---
5.20 17,250 5,000
5.30 5,250 ---
5.83 8,125 ---
6.00 --- 5,000
7.30 13,750 ---
7.40 --- 5,000
7.50 3,500 ---
9.50 --- 5,000
10.40 13,750 ---
10.60 13,750 5,000
13.60 3,750 ---
82,875 25,000
Stock Grants
The Company s 1986 and 1991 Stock Incentive Plans also provide for
the issuance of stock grants to key individuals for achievement of
specific results over a three-year period. On April 1, 1994, the
Company awarded 12,500 shares of stock to each of two executive
officers. These shares are subject to recall by the Company in the
event that certain specific employment and performance objectives
are not met by March 31, 1997. The Company has charged expense for
$82,000 and $62,000 during 1995 and 1994, respectively, in
connection with these grants.
Reserved for future stock options and stock grants at December 31,
1995 are 75,875 shares under the Officers and Key Employees Plans
and 37,500 shares under the Directors Stock Option Plan.
-28-
<PAGE>
Note 11. Retirement Plans
The Company sponsored a 401(k) savings plan that was qualified for
tax-deferred employee contributions under the Internal Revenue
code. The 401(k) savings plan was terminated on April 30, 1995.
The Company also maintained a non-contributory, defined benefit
pension plan covering non-bargaining unit employees. The defined
benefit pension plan was terminated on November 30, 1995. Both
plan terminations occurred as a result of the sale of the assets of
the construction products and services divisions and the related
termination of employment of the divisions employees. These
employees constituted the major portion of all participants of the
plans.
The Company has accrued pension costs at December 31, 1995 of
$106,000 for changes in valuation of plan benefits and market value
of plan assets before such approvals are obtained. Net periodic
pension expense for the plan consisted of the following:
Year Ended December 31,
1995 1994 1993
Service cost benefits earned during the year
$150,000 $153,000 $143,000
Interest cost on projected benefit obligation
321,000 303,000 298,000
Return on plan assets (298,000) 40,000 (95,000)
Net amortization and deferral (22,000) (375,000) (254,000)
Gain on termination of plan (344,000) --- ---
Net pension expense (benefit) ($193,000) $121,000 $92,000
The actuarial estimated value of the accumulated benefit for all
vested plan participants and the value of all pension trust assets
on the date of plan termination were:
Vested accumulated benefit obligations $4,245,000
Fair value of plan assets 4,312,000
Plan assets in excess of benefit obligations $ 67,000
It is anticipated that the excess plan assets will be used to pay
expenses of the plan termination and liquidation. The plan
termination is pending approval of the Pension Benefit Guarantee
Corporation and the Internal Revenue Service. The vested
accumulated benefit obligations were determined using the published
discount rate of the Pension Benefit Guaranty Corporation of 4.5%.
The plan assets were valued at market value and consisted primarily
of U. S. Government agency obligations.
In addition, the amounts contributed to multi-employer pension
plans, under contracts with various construction trade unions, for
the three years ended December 31, 1995, 1994, and 1993 for
operations to the dates of sale were $136,000, $156,000, and
$129,000, respectively. All contracts with unionized employees
were assumed by the purchasers of the construction assets.
Note 12. Subsequent Event
On February 14, 1996, the Board of Directors declared a five-for-
four stock split to be issued March 11, 1996, to shareholders of
record on February 29, 1996. All per share amounts shown in the
financial statements have been adjusted accordingly.
<PAGE>
Note 13. Commitments and Contingencies
The Company, in the normal course of business, is involved in
various claims and contingencies. After taking into consideration
legal counsel s evaluation and the extent of insurance coverage,
management is of the opinion that the outcome of claims and
contingencies will not result in any ultimate liability material to
the consolidated financial statements.
-29-
FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents $57,000 $39,684
Investments 102,656 149,529
Mortgage-backed securities - net 49,498 69,597
Loans receivable - net 1,250,726 1,078,494
Premises and equipment 13,157 13,333
Accrued interest receivable 11,645 9,812
Real estate owned 1,877 5,796
Prepaid expenses and other assets 37,390 28,636
Total Assets $1,523,949 $1,394,881
Liability and Shareholders s Equity Liabilities
Deposits $1,119,086 $1,018,163
Federal Home Loan Bank Advances 214,781 201,155
Short-term borrowings 38,642 35,922
Accrued interest payable 2,715 1,696
Advances by borrowers for tax & Insurance 2,107 2,356
Other liabilities 10,688 7,296
Total Liabilities 1,388,019 1,266,588
Negative Goodwill 6,633 7,581
Shareholders s Equity 129,297 120,712
Total Liabilities & Shareholder Equity $1,523,949 $1,394,881
</TABLE>
Summarized financial information is presented above and on the
following two pages for First Indiana Corporation. This 21.9
percent owned subsidiary represents a significant part of The
Somerset Group, Inc. s income and financial strength. Summary
discussions of the operating and financial results for First
Indiana Corporation appear in the Management s Discussion and
Analysis section of the report. A complete 1995 annual report for
First Indiana Corporation is available upon request.
-30-<PAGE>
FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
(Dollars in Thousands)
<S> <C> <C> <C>
1995 1994 1993
Interest Income $109,871 $81,553 $78,660
Loans 4,396 5,473 10,178
Mortgaged-backed securities 9,181 9,784 7,568
Investments 613 762 678
Total Interest Income 124,061 97,572 97,084
Interest Expense
Deposits 50,533 39,342 43,431
Federal Home Loan Bank Advances12,891 6,952 2,039
Short-term borrowings 2,593 330 421
Mortgage-backed bonds --- 1,719 2,287
Floating rate notes --- --- 3,001
Total Interest Expense 66,017 48,343 51,179
Net Interest Income 58,044 49,229 45,905
Provision for Loan Losses 7,900 3,900 4,396
Net Interest Income After Provision for Loan Losses
50,144 45,329 41,509
Non-Interest Income
Sale of loans 2,749 (706) 2,803
Loan servicing income 2,645 2,861 1,427
Loan fees 2,206 2,378 2,408
Dividends on FHLB Stock 996 602 871
Other 7,655 5,190 6,328
Total Non-Interest Income 16,251 10,325 13,837
Non-Interest Expense
Salary and benefits 20,890 19,465 17,370
Net occupancy 3,069 2,989 2,771
Deposit insurance 2,298 2,318 1,864
Real estate owned ops - net (3,060) (26) (5)
Other 15,450 13,756 11,504
Total Non-Interest Expense 38,647 38,502 33,504
Earnings Before Income Taxes 27,748 17,152 21,842
Income Taxes 10,481 6,516 6,741
Net Earnings $17,267 $10,636 $15,101
</TABLE>
-31-<PAGE>
FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Cash Flows from Operating Activities
Net Earnings $17,267 $10,636 $15,101
Adjustments to Reconcile Net Earnings to Net
Cash Provided (Used) by Operating Activities
(Gain) Loss on sales of assets and deposits
(4,307) 1,051 (3,155)
Amortization 2,197 1,609 28
Depreciation 1,909 1,922 1,437
Proceeds from sale of mortgage-backed
securities held for sale --- --- 18,762
Provision for loan losses 7,900 3,900 4,396
Net proceeds from trading of investments
--- (335) 13,228
Net sale of loans held for resale (41,116) 62,766 5,125
Net change in all other assets and liabilities
(4,742) 1,222 (4,262)
Net Cash Provided (Used) by Operating Activities
(20,892) 82,771 50,660
Cash Flows from Investing Activities
Proceeds - sales of investments available for sale
72,057 --- ---
Proceeds-sales of investment securities
2,993 --- 1,777
Proceeds - maturities of investment securities
5,010 28,525 88,832
Purchase of investment securities (35,388) (66,381) (122,796)
Origination of loans and mortgage-backed
securities - net of collections (240,820)(135,640) (1,065)
Purchase of mortgage-backed securities
--- --- (20,092)
Proceeds from sale of loans 125,313 1,819 11,148
Purchase of premises and equipment (1,750) (1,615) (7,712)
Other - net 32 10 265
Net Cash Used by Investing Activities (70,745)(173,282) (49,643)
Cash Flows from Financing Activities
Proceeds from sale of deposits (25,462) --- ---
Net change in deposits 127,882 2,855 (26,731)
Net change in short-term borrowings 2,720 35,922 (2,469)
Net change in FHLB Advances 13,626 94,278 85,718
Purchase of treasury stock (6,203) --- ---
Maturity of other debt --- (50,000) (70,000)
Other - net (3,610) (3,298) (8,212)
Net Cash Provided (Used) by Financing Activities
108953 79,757 (21,694)
Increase (Decrease) in Cash and Cash Equivalents
$17,316 ($10,754) ($20,677)
</TABLE>
-32-<PAGE>
AMENDED AND RESTATED
BYLAWS OF THE SOMERSET GROUP, INC.
ARTICLE I
OFFICES
Section 1. Principal Office. The Somerset Group, Inc.
(hereinafter referred to as the "Corporation") shall at all times
maintain a principal office in the State of Indiana, which, except
as otherwise determined by the Board of Directors of the
Corporation (hereinafter referred to as the "Board"), shall be in
the city of Indianapolis, County of Marion.
Section 2. Other Offices. The Corporation may also have
offices at such other places within or without the State of Indiana
as the Board shall from time to time designate or the business of
the Corporation shall require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All annual and special
meetings of stockholders shall be held at such places within or
without the State of Indiana as may from time to time be designated
by the Board and specified in the notice of meeting.
Section 2. Annual Meeting. A meeting of the stockholders of
the corporation for the election of directors and for the
transaction of any other business of the Corporation shall be held
for calendar year 1987 at 10:00 a.m. on April 23, 1987, and such
meeting shall be held each year thereafter at 10:00 a.m. on the
first Thursday of May, if not a legal holiday, and if a legal
holiday, then on the next day following such day which is not a
legal holiday, or at such other date and time as the Board may
determine and specify in the notice of the meeting. Failure to
hold the annual meeting at the designated time shall not work any
forfeiture or dissolution of the Corporation.
Section 3. Special Meetings. A special meeting of the
stockholders may only be called (1) by the Chairman, (2) by the
President, (3) by a majority of the entire Board, or (4) by the
stockholders holding not less than twenty-five percent (25%) of all
shares outstanding and entitled by the Articles of Incorporation of
the Corporation to vote on the business proposed to be transacted
thereat, upon delivery to the Corporation's Secretary of one (1) or
more signed and dated written demands for the meeting describing
the purpose or purposes for which it is to be held. Business
transacted at any special meeting of the stockholders shall be
confined to the purpose of purposes stated in the notice of such
meeting.
-34-
Section 4. Conduct of Meetings. Annual and special meetings
of the stockholders shall be conducted in accordance with Indiana
law unless otherwise prescribed by these Bylaws. The Chairman, or
in the absence of the Chairman, the highest ranking officer of the
Corporation who is present, or such other person as the Board shall
have designated, shall call to order any meeting of the
stockholders and act as chairman of the meeting. The Secretary of
the Corporation, if present at the meeting, shall be the secretary
of the meeting. In the absence of the Secretary of the
Corporation, the secretary of the meeting shall be such person as
the chairman of the meeting shall appoint. The chairman of any
meeting of the stockholders, unless otherwise prescribed by law or
regulation or unless the Chairman has otherwise determined, shall
determine the order of business and the procedure at the meeting.
Section 5. Notice of Meetings. Written notice stating the
place, day and hour of the meeting and the purpose or purposes for
which the meeting of the stockholders is called shall be delivered
not less than ten (10) or more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the
direction of the Chairman, the Secretary or the directors
requesting the meeting, to each stockholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid,
addressed to the stockholder at his address as it appears on the
stock transfer hooks or records of the Corporation as of the record
date prescribed in Section 6 of this Article II. When any meeting
of the stockholders, either annual or special, is adjourned for
more than thirty (30) days or if, after adjournment, a new record
date as fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of
any other adjourned meeting of the stockholders, other than an
announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any
meeting of the stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper
purpose under Indiana law, the Board may fix, in advance, a date as
the record date for any such determination of stockholders. Such
date shall not be less than ten (10) days and not more than the
maximum number of days before the date of such meeting allowed by
law, nor more than the maximum number of days prior to any other
action allowed by law.
-35-<PAGE>
Section 7. The Secretary of the Corporation,
or other officer or agent of the Corporation having charge of the
stock transfer books for shares of the capital stock of the
Corporation, shall prepare and make, at least five (5) days before
each meeting of the stockholders, a complete list of the
stockholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and
the number of shares held by mach stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane
to the meeting, during ordinary business hours, for a period of at
least five (5) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or at the Corporation's
principal office. Such list shall also be produced and kept open
at the time and place of the meeting during the whole time thereof
and shall be subject to the inspection of any stockholder present
at the meeting. The stock transfer books shall not be the only
evidence as to who are the stockholders entitled to examine the
stock transfer books, or to vote in person or by proxy at any
meeting of stockholders.
Section 8. Quorum. A majority of the outstanding shares of
the Corporation entitled to vote at a meeting of the stockholders,
represented in person or by proxy, shall constitute a quorum at a
meeting. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented
may adjourn the meeting from time to time without further notice
except as otherwise provided in Section 5 of this Article II. At
such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally called. The stockholders
present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
Section 9. Proxies. At any meeting of the stockholders,
every stockholder having the right to vote shall be entitled to
vote in person, or by proxy appointed by an instrument in writing
and complying with the requirements of Indiana law.
Section 10. Voting by the Corporation. Neither treasury
shares of its own capital stock held by the Corporation, nor shares
of its own capital stock held by the Corporation, nor shares held
by another corporation, a majority of the shares of which entitled
to vote for the election of directors are held by the Corporation,
shall be entitled to vote or be counted for quorum purposes at any
meeting of the stockholders; provided, however, that the
Corporation may vote shares of its capital stock held by it, or by
any such other corporation, if such shares of capital stock are
held by the Corporation or such other corporation in a fiduciary
capacity.
-36-
Section 11. Nominating Committee. The Board shall act as a
nominating committee for selecting the management nominees for
election as directors. In accordance with the Articles of
Incorporation, no nominations for directors except those made by
the nominating committee shall be voted upon at the annual meeting
unless other nominations by stockholders are made in writing and
delivered to the Secretary of the Corporation at least sixty (60)
days prior to the date of the annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced
by more than thirty (30) days from that of the prior year's annual
meeting, such stockholder nominations must be so delivered no later
than the close of business on the tenth day following the day on
which such notice of the date of the meeting was mailed. Such
stockholder nominations shall set forth (a) as to each person whom
the stockholder proposes to nominate or election or re-election as
a director, (i) the name, age, business address and residence
address for such person, (ii) the principal occupation or
employment of such person, and (iii) such person's written consent
to serve as a director, if elected; and (h) as to the stockholder
giving the notice (i) the name and address of such stockholder and
(ii) the class and number of shares of the Corporation which are
owned of record by such stockholder. At the request of the Board,
any person nominated by the Board for election as a director shall
furnish to the Secretary of the Corporation, that information
required to be set forth in a stockholder's notice of nomination
which pertains to the nominee together with the required written
consent. Ballots bearing the names of all the persons duly
nominated by the nominating committee and by stockholders shall be
provided for use at the annual meeting.
Section 12. New Business. Any new business to be taken up at
the annual meeting of the stockholders shall be stated in writing
and filed with the Secretary of the Corporation at least sixty (60)
days before the date of the annual meeting; provided, however, that
in the event that the date of the annual meeting is advanced more
than thirty (30) days from that of the prior year's annual meeting
such stockholder proposals must be so stated and filed not later
than the close of business on the tenth day following the day on
which such notice of the date of the meeting was mailed. All
business so stated, proposed and filed shall be considered at the
annual meeting, but no other proposal shall be considered at the
annual meeting. This provision shall not prevent the consideration
and approval or disapproval at the annual meeting of the
stockholders of reports of officers, directors, and committees,
but, in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein
provided.
-37-
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the business and
affairs of the Corporation shall be managed under the direction of,
the Board except as may be otherwise provided by law or the
Articles of Incorporation. The Board shall annually elect from
among its members a Chairman, a President and may elect one (1) or
more Vice Chairmen of the Board. The Chairman shall preside at all
meeting of the Board.
Section 2. Number. The Board shall consist of eight (8)
members. (2/14/96)
Section 3. Election of Directors. Directors of the
Corporation elected at the annual meeting of the stockholders of
the Corporation shall hold office until the next annual meeting of
the stockholders of the Corporation and until their successors are
duly elected and qualified, except as otherwise provided below in
this Section 3.
Commencing at the annual meeting of the stockholders of the
Corporation held during calendar year 1987, and thereafter, when
the Board of Directors shall consist of nine (9) or more members,
there shall be three (3) classes of directors, each class to be as
nearly equal in number as possible. The directors of the first
class shall hold office for a term expiring at the annual meeting
in 1988; directors of the second class shall hold office for a term
expiring at the annual meeting in 1989; and directors of the third
class shall hold office for a term expiring at the annual meeting
in 1990.
At each annual election beginning at the annual meeting of
stockholders in 1988, the successors to the class of directors
whose term then expires shall be elected to hold office for a term
of three (3) years, to succeed those directors whose term expires,
so that the term of one class of directors shall expire each year,
unless, by reason of any intervening changes in the authorized
number of directors, the board shall have designated one (1) or
more directorships whose term then expires as directorships of
another class in order more nearly to achieve equality of number of
directors among the classes.
Notwithstanding the requirement that the three (3) classes
shall be as nearly equal in number of directors as possible, in the
event of any change in the authorized number of directors, each
director then continuing to serve as such shall nevertheless
continue as a director of the class of which he is a member until
the expiration of his current term, or his prior resignation,
disqualification, disability or removal. There shall be no
cumulative voting in the election of directors.
-38-
Section 4. Regular Meetings. A regular meeting of the Board
shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of the
stockholders or at such other time and place as may be designated
by the Board or the Chairman. Additional meetings shall be held at
such time as the Board shall fix at such places within or without
the State of Indiana as shall be fixed by the Board. No call shall
be required for regular meetings for which the time and place has
been fixed.
Section 5. Special Meetings. Special meetings of the Board
may be called by or at the request of the Chairman, or in his
absence or disability, the President, or in the absence of
disability of both of them, a majority of the remaining directors.
The persons authorized to call special meetings of the Board may
fix any place as the place for holding any special meeting of the
Board called by such persons.
Section 6. Participation in Meetings. Members of the Board
may participate in regular or special meetings by means of
conference telephone or similar communications equipment by which
all persons participating in the meeting can communicate with each
other.
Section 7. Notice. The persons authorized to call special
meetings of the Board shall cause the Secretary of the Corporation
to give written or oral notice of the meeting, specifying the time
and place of the meeting, to each director, either personally, by
mailing, or by telegram, at least twenty-four (24) hours in advance
of the meeting. Any director may waive notice of any meeting by a
writing filed with the Secretary. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting,
except in the event a director attends a meeting for the express
purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any meeting of the Board
need be specified in the notice or waiver of notice of such
meeting.
Section 8. Quorum. A majority of the number of directors
fixed pursuant to Section 2 of this Article III shall constitute a
quorum for the transaction of business at any meeting of the Board,
but if less than such majority is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time.
Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 7 of this Article III.
Section 9. Manner of Acting. Unless otherwise prescribed in
the Articles of Incorporation or these Bylaws, the act of the
majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board.
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Section 10. Action Without a Meeting. Any action required or
permitted to be taken by the Board at a meeting may be taken
without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the directors.
Section 11. Resignation. Any director may resign at any time
by sending a written notice of such resignation to the Corporation
addressed to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon receipt
thereof. More than three (3) consecutive absences from regular
meetings of the Board, unless excused by resolution of the Board,
shall automatically constitute a designation, effective when such
resignation is accepted by the Board.
Section 12. Vacancies. Any vacancy occurring in the Board
may be filled in accordance with the Articles of Incorporation.
Section 13. Compensation. By resolution of the Board, a
reasonable fixed sum, and reasonable expenses of attendance, if
any, for actual attendance at each regular or special meeting of
the Board may be paid to directors. Members of either standing or
special committees may be allowed such compensation for actual
attendance at committee meetings as the Board may determine.
Section 14. Presumption of Accept. A director of the
Corporation who is present at a meeting of the Board at which
action is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the
minutes of the meeting or unless he shall file a written dissent to
such action with the person acting as the Secretary of the meeting
before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation within five (5)
days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who
voted in favor of such action.
Section 15. Removal. A director may be removed only for
cause as determined by the affirmative vote of the holders of at
least a two-thirds (2/3) majority of the shares then entitled to
vote in an election of directors, which vote may only be taken at
a meeting of stockholders called expressly for that purpose, or by
a two-thirds (2/3) majority vote of the entire Board. Cause for
removal of a director shall be deemed to exist only if the director
whose removal is proposed has been convicted of a felony by a court
of competent jurisdiction to be liable for gross negligence or
misconduct in the performance of such director's duly to the
Corporation and such conviction or adjudication is no longer
subject to direct appeal.
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Section 16. Retirement. The normal age of retirement for a
director shall be the last regular meeting of the Board prior to
attainment of age seventy (70); however, such retirement may be
waived and an alternative date established upon recommendation of
the Chairman and approval of the Board; (11/9/88) provided further,
however, that this
provision shall not apply to those persons who were members of the
Board of Directors on November 9, 1988. (2/17/93)
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The Board, by resolution adopted by
a majority of the Board, may designate the Chairman, the President
and one (1) or more of the other directors to constitute an
Executive Committee. The designation of any committee pursuant to
this Article IV and the delegation of authority thereto shall not
operate to relieve the Board, or any director, of any
responsibility imposed by Law or regulation.
Section 2. Authority. The Executive Committee, when the
Board is not in session, shall have and may exercise all of the
authority of the Board except to the extent, if any, that such
authority shall be limited by the resolution appointing the
Executive Committee, or as otherwise expressly provided by law, the
Articles of Incorporation or these Bylaws.
Section 3. Tenure. Subject to the provisions of Section 8 of
this Article IV, each member of the Executive Committee shall hold
office until the next regular annual meeting of the Board following
his designation and until a successor is designated as a member of
the Executive Committee.
Section 4. Meetings. Regular meetings of the Executive
Committee may be held without notice at such times and places as
the Executive Committee may fix from time to time. Special
meetings of the Executive Committee may be called by the Chairman,
or in his absence or disability, by the President, or in the
absence or disability of both of them, by a majority of the
remaining members of the Executive Committee upon not less than one
(1) day's notice stating the place, date and hour of the meeting,
which notice may be written or oral. Any member of the Executive
Committee may waive notice of any meeting and no notice of any
meeting need be given to any member thereof who attends in person.
The notice of a meeting of the Executive Committee need not state
the business proposed to be transacted at the meeting.
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Regular or special meetings may be held by means of conference
telephone or similar communications equipment by which all persons
participating in the meeting can communicate with each other.
Section 5. Quorum. A majority of the members of the
Executive Committee shall constitute a quorum for the transaction
of business at any meeting thereof, and motion of the Executive
Committee must be authorized by the affirmative vote of a majority
of the members present at a meeting at which a quorum is present.
Section 6. Action Without a Meeting. Any action required or
permitted to be taken by the Executive Committee at a meeting may
be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the members of the
Executive Committee.
Section 7. Vacancies. Any vacancy in the Executive Committee
may be filled by a resolution adopted by a majority of the Board.
Section 8. Resignations and Removal. Any member of the
Executive Committee may be removed at any time with or without
cause by resolution adopted by a majority of the Board. Any member
of the Executive Committee may resign from the Executive Committee
at any time by giving written notice to the Chairman or the
President. Unless otherwise specified thereon, such resignation
shall take effect upon receipt. The acceptance of such resignation
shall not be necessary to make it effective.
Section 9. Procedure. The Chairman shall be presiding
officer of the executive Committee, or, in his absence or
disability, the President, or in the absence or disability of both
of them, such other person as may be elected by a majority of the
members present. The executive Committee may fix its own rules of
procedure which shall not be inconsistent with these Bylaws. It
shall keep regular minutes of its proceedings and report the same
to the Board for its information at the meeting thereof held next
after the proceedings shall have been taken.
Section 10. Other Committees. The Board may by resolution
establish an audit committee or other committees composed of
directors as they may determine to be necessary or appropriate for
the conduct of the business of the Corporation and may prescribe
the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the Corporation shall
be a Chairman, a President,
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one (1) or more Vice Presidents, a Secretary and a Treasurer, each
of whom shall be elected by
the Board. The Board shall designate the Chief Executive Officer
of the Corporation. (11/16/90 -12/13/95) The offices of the
Secretary and Treasurer may be held by the same person and a Vice
President may also be either the Secretary or the Treasurer. The
Board may designate one or more Vice Presidents as Executive Vice
President or Senior Vice President. The Board may also elect or
authorize the appointment of such other officers as the business of
the Corporation may require. The officers shall have such
authority and perform such duties as the Board may from time to
time authorize or determine. In the absence of action by the
Board, the officers shall have such powers and duties as generally
pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the
Corporation shall be elected annually at the first meeting of the
Board held after each annual meeting of the stockholders, or at
such other meeting of the Board as the Chairman shall determine.
Each officer shall hold office until his successor shall have been
duly elected and qualified or until his death, resignation, or
removal in the manner hereinafter provided. Election or
appointment of an officer, employee, or agent shall not by itself
create any contractual rights. The Board may authorize the
Corporation to enter into an employment contract with any officer,
but no contract shall impair the right of the Board to remove any
officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board
whenever in its judgment the best interest of the Corporation will
be served thereby.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be
filled by a majority vote of the Board for the unexpired portion of
the term.
Section 5. Remuneration. The remuneration of the officers
shall be fixed from time to time by Board.ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extend permitted by applicable
law, the Articles of Incorporation or these Bylaws, the Board may
authorize any officer, employee or agent of the Corporation to
enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation. Such authority may
be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the Corporation and no evidence of indebtedness shall be issued in
its name unless authorized by the Board. Such authority may be
general or confined to specific instances.
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Section 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the Corporation shall be signed
by one (1) or more officers, employees or agents of the Corporation
in such manner as shall from time to time be determined by the
Board.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in any duly authorized depositories as
the Board may select.
ARTICLE VII
INDEMNIFICATION
Each person now or in the future a director, officer, agent or
employee of the Corporation ( and such person's heirs, executors
and administrators) shall be indemnified by the Corporation against
expenses (including, but not limited to, attorneys' fees and
related disbursements), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by such person in
connection with any action, suit or proceeding to which such person
may be made a party by reason of being, or having been, a director,
officer, agent or employee of the Corporation (whether or not
continuing to be much at the time of incurring such expense) if
such person acted in good faith and in a manner reasonably
delivered to be in and not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe this conduct was
unlawful. This provision is intended to provide for directors,
officers, agents and employees of the Corporation such
indemnification as is permitted under the Indiana General
Corporation Act; it shall not operate to indemnify any director,
officer, agent or employee in any case in which such
indemnification is for any reason contrary to law.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates
representing shares of capital stock of the corporation shall be in
such form as shall be determined by the Board. Such certificates
shall be signed by the Chairman or any other officer of the
Corporation authorized by the Board, attested by the Secretary or
an Assistant Secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles if the certificate is manually signed
on behalf of a transfer agent or a registrar other than the
Corporation itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom
the share are issued, with the
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number of shares issued and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for
a like number of shares shall have been surrendered and cancelled,
except that in the case of a lost, stolen or destroyed certificate,
a new certificate may be issued therefore upon such terms and
indemnity to the Corporation as the Board may prescribe as
sufficient to indemnify the Corporation against any claim that may
be made against it on account of such loss, theft or destruction.
Section 2. Transfer of Shares. Transfer of shares of capital
stock of the Corporation shall be made only on its stock transfer
books. Authority for such transfer shall be given only by the
holder of record thereof or by his legal representative, who shall
furnish proper evidence of such authority, or by his attorney
thereunto dully authorized by power of attorney duly executed and
filed with the Corporation. Such transfer shall be made only on
surrender to cancellation of the certification for such shares.
The person in whose name shares of capital stock stand on the books
of the Corporation shall be deemed by the Corporation to be the
owned thereof for all purposes.
Section 3. Control Share Acquisitions. Chapter 42 of the
Indiana Business Corporation Law shall not apply to "control share
acquisitions" (as that term is defined in IC 23-1-42-2) of shares
of capital stock of the Corporation. (7/23/90)
ARTICLE IX
DIVIDENDS
Subject to applicable law, the Articles of Incorporation of
these Bylaws, the Board may, from time to time, declare, and the
Corporation may pay, dividends on the outstanding shares of capital
stock of the Corporation.
ARTICLE X
SECURITIES OF OTHER CORPORATIONS
Unless otherwise ordered by the Board, the Chairman shall have
full power and authority on behalf of the Corporation to purchase,
sell, transfer, encumber or vote any and all securities of any
other corporation owned by the Corporation, and may execute and
deliver such documents as may be necessary to effectuate such
purchase, sale, transfer, encumbrance or vote. The Board may, from
time to time, confer like powers upon any other person or persons.
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ARTICLE XI
FISCAL YEAR, ANNUAL AUDIT
This fiscal year of the Corporation shall be April 1 through
March 31 of each year; provided, however, that the fiscal year of
the Corporation commencing April 1, 1986, shall continue to and
including December 31, 1986. The fiscal year of the Corporation
shall thereafter be January 1 through December 31 of each year,
commencing January 1, 1987, until such time as changed by
resolution of the Board of Directors of the Corporation. The
Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and
responsible to the Board.
ARTICLE XII
CORPORATE SEAL
The corporate seal of the Corporation, if any, shall be in
such form as the Board shall prescribe.
ARTICLE XIII
AMENDMENTS
These Bylaws may be adopted, amended or repealed by a
resolution adopted by a two-thirds (2/3) majority of the directors
then in office.
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Exhibit 3
THE SOMERSET GROUP, INC.
FORM 10-K ANNUAL REPORT
Year Ended December 31, 1995
Amended Articles of Incorporation and Amended and Restated
Bylaws thereto
The amended articles of Incorporation are incorporated
by reference to Exhibit 3 of Form 10-K annual report of
the Registrant filed for year ended December 31, 1993,
under commission file number 0-14227. No changes
occurred in the years ended December 31, 1995 nor 1994.
The amended and restated Bylaws are attached hereto:
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Exhibit 22
THE SOMERSET GROUP, INC.
FORM 10-K ANNUAL REPORT
Year Ended December 31, 1995
Subsidiaries of the Registrant
The following corporations are subsidiaries of the Registrant:
Percent
Ownership Name
100% Concrete Carriers, Inc.
1030 S. Kitley Avenue
Indianapolis, IN 46203
100% Precast Concrete Systems, Inc.
1030 S. Kitley Avenue
Indianapolis, IN 46203
21.9% First Indiana Corporation
First Indiana Plaza
135 N. Pennsylvania Street
Indianapolis, IN 46204
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Exhibit 23
THE SOMERSET GROUP, INC.
FORM 10-K ANNUAL REPORT
Year Ended December 31, 1995
Definitive Proxy Statement for Annual Meeting of
Shareholders to be held April 14, 1996
The Registrant's Notice of Annual Meeting, Proxy
Statement and Form of Proxy are incorporated into this
Form 10-K by reference to file number 0-14227 for such
information filed with the commission.
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Exhibit 99
THE SOMERSET GROUP, INC.
FORM 10-K ANNUAL REPORT
Year Ended December 31, 1995
First Indiana Corporation Form 10-K annual report for the
year ended December 31, 1995
First Indiana Corporation's Form 10-K annual report for
the year ended December 31, 1995, is incorporated
herein by reference to the First Indiana Corporation's
Form 10-K annual report filed separately with the
commission under file number 0-14354.
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KPMG Peat Marwick LLP
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204-24552
The Board of Directors and Shareholders
The Somerset Group, Inc:
We consent to incorporation by reference in the registrations
statement on Form S-8 of the Somerset Group, Inc. of our report
dated January 31, 1996, except note 12 which is as of February
14, 1996, relating to the consolidated balance sheets of The
Somerset Group, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, which report appears
in the December 31, 1995 annual report on Form 10-K of The
Somerset Group, Inc.
March 20, 1996
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