THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months
<S> <C> <C>
Actual Actual
1996 1995
Income:
Net sales $ --- $6,359,000
Cost of sales --- 5,022,000
Gross profit --- 1,337,000
Equity in earnings of First Indiana Corp, 1,012,000 964,000
Investment income 163,000 55,000
--------- ---------
Total income 1,175,000 2,356,000
Expenses:
Selling expenses --- 126,000
General and administrative expenses 213,000 482,000
Interest expense 42,000 118,000
--------- ---------
Total expenses 255,000 726,000
Income before income taxes 920,000 1,630,000
Income tax expense 282,000 645,000
--------- ---------
Net income $638,000 $985,000
========= =========
Income per share $.30 $.47
Average shares outstanding 2,091,970 2,086,832
Cash dividend paid (adjusted for stock split) $.10 $.08
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1439000
<SECURITIES> 4670000
<RECEIVABLES> 754000
<ALLOWANCES> 105000
<INVENTORY> 0
<CURRENT-ASSETS> 6810000
<PP&E> 241000
<DEPRECIATION> 200000
<TOTAL-ASSETS> 36324000
<CURRENT-LIABILITIES> 345000
<BONDS> 0
0
0
<COMMON> 1829000
<OTHER-SE> 28025000
<TOTAL-LIABILITY-AND-EQUITY> 36324000
<SALES> 0
<TOTAL-REVENUES> 1175000
<CGS> 0
<TOTAL-COSTS> 255000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42000
<INCOME-PRETAX> 920000
<INCOME-TAX> 282000
<INCOME-CONTINUING> 638000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 638000
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
THE SOMERSET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS March 31 December 31 March 31
1996 1995 1995
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $1,439,000 $1,699,000 $3,649,000
Short-term investments, at market 4,670,000 7,194,000 ---
Trade accounts, notes & other receivables
less allowance for doubtful accts 649,000 1,005,000 4,391,000
Contracts in progress, unbilled 2,235,000
Inventories 302,000
Prepaid expenses 52,000 3,000 80,000
---------- ---------- ----------
Total current assets 6,810,000 9,901,000 10,657,000
Investments
First Indiana Corp. (market values of
$41,223,000, $38,882,000 and $25,670 28,238,000 27,549,000 25,018,000
Property, plant and equipment, at cost
Land 397,000
Buildings 2,738,000
Production and delivery equipment 6,586,000
Office furniture and equipment 241,000 241,000 558,000
Construction in progress 18,000
---------- ---------- ----------
241,000 241,000 10,297,000
Less accumulated depreciation 200,000 196,000 6,276,000
---------- ---------- ----------
41,000 45,000 4,021,000
Other assets
Notes receivable 775,000 771,000 565,000
Other 460,000 460,000 460,000
---------- ---------- ----------
1,235,000 1,231,000 1,025,000
Total Assets $36,324,000 $38,726,000 $40,721,000
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31 December 31 March 31
1996 1995 1995
Current liabilities
Trade accounts payable $5,000 $221,000 $784,000
Accrued compensation 8,000 36,000 561,000
Taxes, other than income taxes 4,000 15,000 246,000
Billing in excess of costs & profit 379,000
Deferred income taxes 25,000
Income taxes 2,000 191,000 956,000
Other accrued expenses 326,000 334,000 450,000
--------- --------- ---------
Total current liabilities 345,000 797,000 3,401,000
Long-term debt
Notes payable 2,500,000 5,500,000
Deferred income taxes 6,125,000 5,931,000 4,488,000
Shareholders' equity
Common stock, no par, at stated value, authorized
4,000,000 shares, issued 2,286,760 1,829,000 1,829,000 1,829,000
Capital in excess of stated value 5,020,000 4,986,000 4,980,000
Unrealized gains (losses) on short-term
investments, net of deferred income (15,000) 72,000
Retained earnings 24,609,000 24,230,000 21,844,000
31,443,000 31,117,000 28,653,000
Less 238,832, 245,414, and 225,231
treasury shares at cost 1,589,000 1,619,000 1,321,000
--------- --------- ---------
Total shareholders' equity 29,854,000 29,498,000 27,332,000
Total Liabilities & Shareholders' Equity$36,324,000 $38,726,000 $40,721,000
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-4-
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
January 1, 1995 to March 31, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital Unrealized
in Excess Gains
Common of Stated (Losses) Retained Treasury
Stock Value Invest. Earnings Shares Total
Balance January 1, 1995 $1,829,000 $4,979,000 $ $20,999,000 ($1,378,000)$26,429,000
Net income qtr. ended 3/31/95 --- --- --- 985,000 --- 985,000
Shares of common stock issued
in connection with 401(k)
plan & exercise of options --- 1,000 --- 24,000 96,000 121,000
Purchase of treasury shares --- --- --- --- (39,000) (39,000)
Cash dividends paid --- --- --- (164,000) --- (164,000)
_________ _________ _________ _________ _________ _________
Balance March 31, 1995 1,829,000 4,980,000 --- 21,844,000 (1,321,000) 27,332,000
Net income 4/1/95 to 12/31/95 --- --- --- 2,373,000 --- 2,373,000
Shares of common stock issued
in connection with grants,
401(k) plan and exercise
of stock options --- 6,000 --- 60,000 80,000 146,000
Purchase of Treasury shares --- --- --- --- (378,000) (378,000)
Cash dividends paid --- --- --- (163,000) --- (163,000)
Unrealized gains on short-
term investments, net of
deferred income taxes --- --- 72,000 --- --- 72,000
Equity in 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
Net income qtr. ended 3/31/96 --- --- --- 638,000 --- 638,000
Shares of common stock issued
in connection with restricted
grants, and exercise of
stock options --- 34,000 --- (12,000) 51,000 73,000
Purchase of Treasury shares --- --- --- --- (21,000) (21,000)
Cash dividends paid --- --- --- (205,000) --- (205,000)
Unrealized losses on short-term
investments, net of deferred
income taxes --- --- (87,000) --- --- (87,000)
Equity in other capital changes
of First Indiana Corp.,
net of deferred income taxes --- --- --- (42,000) --- (42,000)
_________ _________ _________ _________ _________ _________
Balance March 31, 1996 $1,829,000 $5,020,000 ($15,000)$24,609,000 ($1,589,000)$29,854,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-5-
THE SOMERSET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Three Months Ended Year Ended
March 31 December 31
Cash flows from operating activities: 1996 1995 1995
Net income $638,000 $985,000 $3,358,000
Add (deduct) items not affecting cash
Depreciation and amortization 4,000 150,000 252,000
Deferred income taxes 194,000 108,000 1,404,000
Gain on sale of assets (1,293,000)
Equity in earnings of First Indiana Corp (1,012,000) (964,000) (3,938,000)
Dividends from First Indiana Corp 254,000 211,000 846,000
Other, net (28,000)
Changes in operating assets & liabilities:
Trade accounts, notes, & receivables 356,000 1,679,000 5,065,000
Contracts in progress, and inventories (378,000) 2,159,000
Prepaid expenses (49,000) 29,000 106,000
Accounts payable and accrued expenses (263,000) (613,000) (2,427,000)
Accrued income taxes (189,000) 519,000 (246,000)
---------- ---------- ----------
Cash provided (used) by operating activities (67,000) 1,726,000 5,258,000
Cash flows from investing activities:
Proceeds from sale of assets 5,222,000
Purchase of property, plant equipment (17,000) (44,000)
Decrease (increase) in other assets 16,000 70,000
Increase in long-term notes receivable (4,000) (260,000)
Decrease (Increase) in short-term
investments, at cost 2,484,000 --- (7,076,000)
---------- ---------- ----------
Cash provided(used)by investing activities (4,000) (1,000) 4,988,000
Cash flows from financing activities:
Principal payments on long-term borrowing (2,500,000) (3,000,000)
Proceeds from reissue of treasury shares 53,000 121,000 267,000
Purchase of treasury shares (21,000) (39,000) (417,000)
Cash dividends paid (205,000) (164,000) (327,000)
---------- ---------- ----------
Cash provided(used)by finance activities (2,673,000) (82,000) (3,477,000)
Increase (decrease) in cash & equivalents (260,000) 1,643,000 (307,000)
Cash & equivalents at beginning of period 1,699,000 2,006,000 2,006,000
---------- ---------- ----------
Cash and equivalents at end of period $1,439,000 $3,649,000 $1,699,000
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-6-
THE SOMERSET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
Note 1. Nature of Operations and Summary of Significant
Accounting Policies
The Somerset Group, Inc. (The Company ) is a registered savings
bank holding company. Its 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 1995.
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 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.
(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) 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.
(f) 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.
(g) Treasury Shares: Treasury shares issued to fund employee
benefit plans are valued at average cost of all treasury
shares at the date of issuance.
-7-
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.
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.
Note 4. Investment in First Indiana Corporation
The Company s percentage of ownership of First Indiana Corporation
was 21.9% at March 31, 1996 and December 31, 1995, and 20.8% at
March 31, 1995. The Company s equity in earnings of First Indiana
Corporation shown in the Consolidated Statements of Income is
before income taxes. Federal and state income taxes applicable to
the equity earnings are contained as a component of total federal
and state income tax expense.
Note 5. Average Shares Outstanding
Average shares outstanding included the common share equivalents of
outstanding stock options. There were 46,847, 47,623, and 35,511
equivalent shares included in the average shares outstanding for
the periods ended March 31, 1996, December 31, 1995, and March 31,
1995. The Company had 90,875 shares, 113,375 shares, and 97,375
shares of its stock reserved for future stock grants as of March
31, 1996, December 31, 1995, and March 31, 1995.
Note 6. Financial Statement Preparation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-
Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included.
-8-
PART I
Item 1 - Financial Statements
The information required by Rule 10.01 of Regulation S-X is
presented on the previous pages.
Item 2 - Management s Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
During the second quarter of 1995, the Company sold substantially
all of its operating assets. These assets had been used to conduct
operations in the construction industry. Following the sale, the
Company formed a financial services division in order to redeploy
the proceeds from the asset sales, and has been actively pursuing
new business acquisitions in the financial services industry.
Net income for the first quarter of 1995 of $985,000, or $.47 per
share, included $473,000, or $.23 per share, from the Company s
former construction operations. Excluding the results of these
former operations, net income for 1995 amounted to $512,000, or
$.24 per share, compared to the $638,000, or $.30 per share earned
in 1996.
The Company had no sales nor gross profit during the first quarter
of 1996, compared to sales of $6,359,000 and gross profit on those
sales of $1,337,000 during the first quarter of 1995. The 1995
sales and gross profit were from the construction industry
operations.
Somerset's equity in earnings of First Indiana Corporation
increased 5% for the quarter, compared to last year; $1,012,000
compared to $964,000. First quarter earnings of First Indiana were
a record. Growth in business, construction, and consumer loans
throughout the quarter contributed to the record earnings. The low
interest rate environment and a stable economy in all of the bank s
markets gave it the opportunity to capitalize on favorable trends.
Net interest margin for the quarter of 4.40%, was also a record,
and compares to 3.99% for the first quarter of 1995.
For a more detailed discussion of the Results of Operations of
First Indiana Corporation for the first quarter of 1996, please
refer to the Form 10-Q of First Indiana Corporation, filed with the
Securities and Exchange Commission under File Number 0-14354.
Investment income rose 196% in 1996 compared to 1995, and amounted
to $163,000 compared to $55,000 last year. This increase was the
direct result of the temporary investment of cash provided by the
sale of the construction operations.
Operating expenses were significantly reduced for the quarter and
amounted to $255,000, compared to $726,000 in the 1995 quarter, a
reduction of $471,000, or 65%. The selling expense and general and
an administrative expense portion of the reduction resulted from
the sale of the construction products and services operation in
1995, that caused reductions in employee costs related to the
construction operations and a downsizing of corporate staff.
Interest expense was also reduced, as the Company completed the
early retirement of all outstanding long-term debt in the first
quarter of 1996, after retiring a portion of its long-term debt in
the later part of 1995.
-9-
CAPITAL RESOURCES AND LIQUIDITY
Management considers the capital resources and liquidity of the
Company to have been very good at both March 31, 1996 and December
31, 1995. While improved from March 31, 1995, the Company was also
in a relatively sound position at March 31, 1995.
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 March 31, 1996, the Company had a very high ratio of current
assets to current liabilities, that stood at 19.7 to one, compared
to 3.1 to one at March 31, 1995. In addition, 90% of the current
assets consisted of cash, cash equivalents and short-term
investments.
The Company had no long-term debt at March 31, 1996, compared to
$5.5 million at March 31, 1995. Three million of long-term debt
was retired during 1995, and the remaining long-term debt of $2.5
million was retired early in March 1996.
Shareholders equity increased to $29.9 million at March 31, 1996
from $27.3 million at March 31, 1995. Adjusted for the February
29, 1996 5-for-4 stock split, the per share amounts were $14.58
compared to $13.26.
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 March
31, 1996, 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 $13 million greater than the
carrying value in the consolidated financial statements. At March
31, 1995, such market value was $652 thousand greater than the
carrying value.
Operating activities during the first quarter of 1996 used $67
thousand of cash, compared to $1.7 million provided in the first
quarter of 1995. The major reason for the change is that the
Company had very little activity from operations during 1996 and
used cash to reduce accounts payable, accrued expenses, and income
taxes payable.
Short-term investments costing $2,484,000 were sold during the
quarter to fund the early retirement of long-term debt.
Cash dividends paid increased to $205,000 in the 1996 first
quarter, compared to $164,000 last year, or 25%. This increase
resulted from the 5-for-4 stock split of February 29, 1996, and the
payment of the regular semi-annual dividend of $.10 per share was
paid on the post stock split shares.
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.
-10-
The Company has not yet finalized an acquisition, but management is
currently negotiating on several possible new business combinations
and hope to make an announcement in the near future.
-11-
PART II
OTHER INFORMATION
Items 1 through 6
The information required by these items has been omitted as it is
not applicable.
Reports Filed on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and 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.
(Registrant)
By_Marni McKinney
Marni McKinney, President &
Chief Executive Officer
By_Joseph M. Richter
Joseph M. Richter,
Executive Vice President &
Chief Financial Officer
DATE: May 1, 1996
-12-
