U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q-SB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
--- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________
TO ___________
Commission File Number 000-21671
------------
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its charter)
INDIANA 35-1887991
------------------------ ---------------------
(State of incorporation) I.R.S. Employer
Identification Number
107 N. PENNSYLVANIA STREET, SUITE 700, INDIANAPOLIS, INDIANA 46204
------------------------------------------------------------------
(Address of principal executive offices and zip code)
(317) 261-9000
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of June 30, 1998, there were 1,908,279 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
<PAGE>
TABLE OF CONTENTS
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
Report on Form 10Q-SB
for Quarter Ended
June 30, 1998
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997.................................. 1
Consolidated Statements of Operations - Three months
ended June 30, 1998 and 1997........................... 2
Consolidated Statements of Operations - Six months
ended June 30, 1998 and 1997........................... 3
Consolidated Statements of Cash Flows - Six months
ended June 30, 1998 and 1997........................... 4
Notes to Consolidated Financial Statements................. 5
Item 2. Management's Discussion and Analysis....................... 6-9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 10
Item 2. Changes in Securities...................................... 10
Item 3. Default Upon Senior Securities............................. 10
Item 4. Submission of Matters to a Vote of Security Holders........ 10
Item 5. Other Information ......................................... 10
Item 6. Exhibits and Reports on Form 8-K........................... 11
Signatures ........................................................... 11
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
(UNAUDITED) (NOTE)
ASSETS --------------------------------
<S> <C> <C>
Cash and due from banks $ 17,517,774 $ 11,446,150
Federal funds sold 26,550,000 15,425,000
Investment securities:
Available-for-sale securities 52,600,269 40,846,522
Held-to-maturity securities 12,118,909 13,466,686
--------------------------------
Total investment securities 64,719,178 54,313,208
Loans 194,673,479 157,905,008
Less: Allowance for loan losses (2,251,609) (1,963,040)
--------------------------------
Net loans 192,421,870 155,941,968
Premises and equipment 3,987,953 3,707,907
Accrued interest 1,733,619 1,685,761
Other assets 1,352,392 546,714
--------------------------------
Total assets $ 308,282,786 $ 243,066,708
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 38,454,212 $ 33,601,383
Money market and savings deposits 117,362,733 82,651,421
Time deposits over $100,000 34,974,281 33,384,744
Other time deposits 66,235,791 53,596,091
--------------------------------
Total deposits 257,027,017 203,233,639
Security repurchase agreements 29,623,518 19,341,555
FHLB advances 2,000,000 2,000,000
Other liabilities 1,312,199 1,097,267
--------------------------------
Total liabilities 289,962,734 225,672,461
Shareholders' equity:
Common stock, no par value:
Authorized shares - 1998 and 1997 - 3,000,000
Issued and outstanding shares; 1998 - 1,908,279;
1997 - 1,901,433 19,747,320 19,661,133
Unearned compensation (587,036) (699,942)
Retained earnings-deficit (869,511) (1,567,392)
Accumulated comprehensive income 29,279 448
--------------------------------
Total shareholders' equity 18,320,052 17,394,247
--------------------------------
Total liabilities and shareholders' equity $ 308,282,786 $ 243,066,708
================================
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed consolidated financial statements.
1
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED
JUNE 30
1998 1997
Interest income: --------------------------
Interest and fees on loans $ 3,661,418 $ 2,767,712
Interest on investment securities 1,080,714 812,571
Interest on federal funds sold 378,471 214,234
--------------------------
Total interest income 5,120,603 3,794,517
Interest expense:
Interest on deposits 2,666,814 2,021,745
Interest on repurchase agreements 328,361 142,333
Interest on FHLB advances 32,356 32,356
--------------------------
Total interest expense 3,027,531 2,196,434
--------------------------
Net interest income 2,093,072 1,598,083
Provision for loan losses 156,000 156,000
--------------------------
Net interest income after provision for loan losses 1,937,072 1,442,083
Other operating income:
Trust fees and commissions 224,974 150,259
Service charges and fees on deposit accounts 78,103 54,295
Net gain on sale of mortgage loans 51,781 6,876
Other 120,067 66,701
--------------------------
Total other operating income 474,925 278,131
Other operating expenses:
Salaries, wages and employee benefits 1,110,151 837,189
Net occupancy expense 164,627 128,155
Furniture and equipment expense 125,733 107,161
Professional services 105,822 66,022
Data processing 111,605 89,433
Other expenses 429,730 262,060
--------------------------
Total other operating expenses 2,047,668 1,490,020
--------------------------
Net income $ 364,329 $ 230,194
==========================
Basic earnings per share $ 0.20 $ 0.13
==========================
Diluted earnings per share $ 0.18 $ 0.12
==========================
2
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
SIX MONTHS ENDED
JUNE 30
1998 1997
Interest income: --------------------------
Interest and fees on loans $ 6,994,738 $ 5,315,029
Interest on investment securities 1,923,004 1,475,203
Interest on federal funds sold 812,813 419,791
--------------------------
Total interest income 9,730,555 7,210,023
Interest expense:
Interest on deposits 5,011,955 3,806,598
Interest on repurchase agreements 610,901 259,390
Interest on FHLB advances 64,356 64,356
--------------------------
Total interest expense 5,687,212 4,130,344
--------------------------
Net interest income 4,043,343 3,079,679
Provision for loan losses 312,000 312,000
--------------------------
Net interest income after provision for loan losses 3,731,343 2,767,679
Other operating income:
Trust fees and commissions 435,638 308,445
Service charges and fees on deposit accounts 148,756 110,158
Net gain (loss) on sale of mortgage loans 71,756 (6,632)
Other 217,616 112,285
--------------------------
Total other operating income 873,766 534,256
Other operating expenses:
Salaries, wages and employee benefits 2,153,289 1,598,108
Net occupancy expense 299,655 252,635
Furniture and equipment expense 237,486 212,108
Professional services 228,723 172,871
Data processing 216,366 172,676
Other expenses 771,709 481,115
--------------------------
Total other operating expenses 3,907,228 2,889,513
--------------------------
Net income (loss) $ 697,881 $ 412,422
==========================
Basic earnings per share $ 0.37 $ 0.23
==========================
Diluted earnings per share $ 0.35 $ 0.21
==========================
3
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1998 1997
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 697,881 $ 412,422
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses 312,000 312,000
Depreciation and amortization 272,152 249,671
Net accretion of investments (560,985) (257,349)
Increase in:
Interest receivable (47,858) (239,149)
Other assets (827,319) (248,726)
Increase (decrease) in:
Other liabilities 214,932 (116,848)
-------------------------------
Net cash provided by operating activities 60,803 112,021
INVESTING ACTIVITIES
Net change in federal funds sold (11,125,000) 3,375,000
Proceeds from maturities of investment securities held to
maturity 1,524,307 3,105,840
Proceeds from maturities of investment securities
available for sale 40,441,602 29,872,104
Purchases of investment securities held to maturity (146,600) (5,431,425)
Purchases of investment securities available for sale (51,613,822) (38,678,490)
Net increase in loans (36,791,902) (17,859,713)
Purchases of premises and equipment (552,198) (84,845)
-------------------------------
Net cash used by investing activities (58,263,613) (25,701,529)
FINANCING ACTIVITIES
Net increase in deposits 53,793,378 18,596,278
Increase (decrease) in security repurchase agreements 10,281,963 (1,062,265)
Proceeds from issuance of stock 199,093 182,189
-------------------------------
Net cash provided by financing activities 64,274,434 17,716,202
-------------------------------
Increase (decrease) in cash and cash equivalents 6,071,624 (7,873,306)
Cash and cash equivalents at beginning of year 11,446,150 14,776,994
-------------------------------
Cash and cash equivalents at end of period $ 17,517,774 $ 6,903,688
===============================
Interest paid $ 5,622,835 $ 3,994,017
===============================
</TABLE>
4
<PAGE>
THE NATIONAL BANK OF INDIANAPOLIS
CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 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. Operating results for the six month
period ended June 30, 1998 is not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included
in The National Bank of Indianapolis Corporation's ("Corporation") Form 10-KSB
for the year ended December 31, 1997.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Corporation adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Corporation's net income or
shareholders' equity. Statement 130 requires unrealized gains or losses on the
Corporation's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of Statement 130.
For the three months ended June 30, 1998 and 1997, total comprehensive income
amounted to $313,958 and $274,496. For the six months ended June 30, 1998 and
1997, total comprehensive income amounted to $726,712 and $452,140.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
Six months Ended June 30, 1998 Compared to the Six months Ended June 30, 1997:
The Corporation's results of operations depends primarily on the level of its
net interest income, its non-interest income and its operating expenses. Net
interest income depends on the volume of and rates associated with interest
earning assets and interest bearing liabilities which results in the net
interest spread. The Corporation had net income of $697,881 for the six months
ended June 30, 1998, compared to net income of $412,422 for the six months
ended June 30, 1997. This change is primarily due to the growth of The
National Bank of Indianapolis ("Bank") allowing for more interest earning
assets and net interest income compared to the same period during 1997,
thereby offsetting more of the operating expenses.
Net Interest Income
- -------------------
Net interest income increased $963,664 or 31.3% to $4,043,343 for the six
months ended June 30, 1998, from $3,079,679 for the six months ended June 30,
1997. Total interest income increased $2,520,532 for the six months ended June
30, 1998, to $9,730,555 from $7,210,023 for the six months ended June 30,
1997. This increase is primarily a result of average total loans for the six
months ended June 30, 1998, being approximately $172,000,000 compared to
average total loans of approximately $131,000,000 for the six months ended
June 30, 1997. Of the total $41,000,000 increase, commercial loans increased
approximately $25,000,000 and residential mortgages increased approximately
$13,000,000. The loan portfolio produces the highest yield of all earning
assets.
Investment portfolio income increased $447,801 or 30.4% to $1,923,004 for the
six months ended June 30, 1998, as compared to $1,475,203 or the six months
ended June 30, 1997. This increase is primarily a result of the increase in
the average investment securities portfolio from approximately $48,000,000 for
the six months ended June 30, 1997, to approximately $65,000,000 for the six
months ended June 30, 1998. Interest on federal funds sold increased due to an
increase in average federal funds sold of approximately $14,000,000 for the
six months ended June 30, 1998, over the same period the previous year.
Total interest expense increased $1,556,868 or 37.7% to $5,687,212 for the six
months ended June 30, 1998, from $4,130,344 for the six months ended June 30,
1997. This increase is due to an increase in interest bearing deposits. Total
interest bearing liabilities averaged approximately $227,000,000 for the six
months ended June 30, 1998, as compared to approximately $165,000,000 for the
six months ended June 30, 1997. The weighted average cost of interest bearing
liabilities at June 30, 1998 and June 30, 1997 was approximately 5.0%.
6
<PAGE>
Provision for Loan Losses
- -------------------------
The amount charged to the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses inherent in the loan portfolio. The
level of this allowance is dependent upon the total amount of past due and
non-performing loans, general economic conditions and management's assessment
of potential losses based upon internal credit evaluations of loan portfolios
and particular loans. Loans are entirely to borrowers in central Indiana.
During the six months ended June 30, 1998 and June 30, 1997, $312,000 was
charged to the provision for loan losses. At June 30, 1998, the allowance was
$2,251,609 or 1.16% of total loans. This compares to an allowance of
$1,667,800 or 1.19% as of June 30, 1997.
Other Operating Income
- ----------------------
Other operating income for the six months ended June 30, 1998, increased
$339,510 or 63.5% to $873,766 from $534,256 for the six months ended June 30,
1997. The primary increase is attributable to an increase in trust fees and
commissions of $127,193 or 41.2% from $308,445 for the six months ended June
30, 1997, to $435,638 for the six months ended June 30, 1998. The increase in
trust income is attributable to the increase in total assets under trust
management of approximately $71,800,000 from approximately $240,000,000 at
June 30, 1997, to approximately $311,800,000 at June 30, 1998. The increase in
other operating income is also due to an increase in service charges and fees
on deposit accounts of $38,598 or 35.0% from $110,158 for the six months ended
June 30, 1997, to $148,756 for the six months ended June 30, 1998. This
increase is attributable to the increase in average demand deposit accounts of
$8,000,000 from approximately $25,000,000 at June 30, 1997, to approximately
$33,000,000 at June 30, 1998. Another contributing factor to increased other
operating income is a gain on the sale of mortgage loans of $71,756 for the
six months ended June 30, 1998 versus a loss of $6,632 for the six months
ended June 30, 1997.
Other Operating Expenses
- ------------------------
Other operating expenses for the six months ended June 30, 1998, increased
$1,017,715 or 35.2% to $3,907,228 from $2,889,513 for the six months ended
June 30, 1997. Salaries, wages and employee benefits increased $555,181 or
34.7% to $2,153,289 for the six months ended June 30, 1998, from $1,598,108
for the six months ended June 30, 1997. This increase is primarily due to the
increase in the number of employees from 65 full time equivalents at June 30,
1997, to 81 full time equivalents at June 30, 1998. Net occupancy expense
increased $47,020 for the six months ended June 30, 1998. Furniture and
equipment expense increased $25,378 for the six months ended June 30, 1998,
over the same period the previous year. Professional services expense
increased $56,852 or 32.3% from $172,871 for the six months ended June 30,
1997, to $228,723 for the six months ended June 30, 1998. Data processing
expenses increased $43,690 for the six months ended June 30, 1998, over the
same period the previous year primarily due to increased service bureau fees
relating to increased transaction activity by the Bank and trust department.
7
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation must maintain an adequate liquidity position in order to
respond to the short-term demand for funds caused by withdrawals from deposit
accounts, extensions of credit and for the payment of operating expenses.
Maintaining this position of adequate liquidity is accomplished through the
management of a combination of liquid assets - those which can be converted
into cash - and access to additional sources of funds. Primary liquid assets
of the Corporation are cash and due from banks, federal funds sold,
investments held as "available for sale" and maturing loans. Federal funds
sold represent the Corporation's primary source of immediate liquidity and
were maintained at a level adequate to meet immediate needs. Federal funds
averaged approximately $30,000,000 and $16,000,000 for the six months ended
June 30, 1998 and 1997, respectively. Maturities in the Corporation's loan and
investment portfolios are monitored regularly to avoid matching short-term
deposits with long-term loans and investments. Other assets and liabilities
are also monitored to provide the proper balance between liquidity, safety,
and profitability. This monitoring process must be continuous due to the
constant flow of cash which is inherent in a financial institution.
The Corporation actively manages its interest rate sensitive assets and
liabilities to reduce the impact of interest rate fluctuations. At June 30,
1998, the Corporation's rate sensitive liabilities exceeded rate sensitive
assets due within one year by $23,741,443.
As part of managing liquidity, the Corporation monitors its loan to deposit
ratio (including repurchase agreements) on a daily basis. At June 30, 1998,
the ratio was 67.9 percent which is within the Corporation's acceptable range.
The Corporation experienced an increase in cash and cash equivalents, its
primary source of liquidity, of $6,071,624 during the first six months of
1998. The primary financing activity of deposit growth provided net cash of
$53,793,378. Lending used $36,791,902, investments used $9,794,513, and
increasing federal funds sold used $11,125,000. The Corporation's management
believes its liquidity sources are adequate to meet its operating needs and
does not know of any trends, events or uncertainties that may result in a
significant adverse effect on the Corporation's liquidity position.
8
<PAGE>
CAPITAL RESOURCES
The Corporation's only source of capital since commencing operations has been
from issuance of common stock and results of operations. It has not issued
long term debt nor does it have any long term debt facility arrangements. The
Bank has incurred indebtedness pursuant to a FHLB advance at a rate of 6.40%
maturing August 1, 2001. The Bank may add indebtedness of this nature in the
future if determined to be in the best interest of the Bank. Capital for the
Corporation is above regulatory requirements at June 30, 1998. Pertinent
capital ratios for the Corporation as of June 30, 1998 are as follows:
Minimum
Actual Requirements
------ ------------
Tier 1 risk-based capital ratio 9.2% 4.0%
Total risk-based capital ratio 10.3% 8.0%
Leverage ratio 6.1% 4.0%
Dividends from the Bank to the Corporation may not exceed the undivided
profits of the Bank (included in consolidated retained earnings) without prior
approval of a federal regulatory agency. In addition, Federal banking laws
limit the amount of loans the Bank may make to the Corporation, subject to
certain collateral requirements. No dividends were declared, or loans made,
during 1998 or 1997 by the Bank to the Corporation.
9
<PAGE>
OTHER INFORMATION
Item 1. Legal Proceedings
Neither The National Bank of Indianapolis Corporation nor
its subsidiary is a party to any pending legal proceedings.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the
Corporation was held on May 21, 1998. The only
matter presented at the meeting was the election of
4 directors for a term of 3 years.
(b) At the annual meeting of shareholders, James M.
Cornelius, G. Benjamin Lantz, Jr., William R.
Loveday, and Michael S. Maurer were each re-elected
directors for a term of 3 years. The terms of the
other directors of the Corporation, namely Kathryn
G. Betley, David R. Frick, Andre B. Lacy, Morris L.
Maurer, Philip B. Roby, and Todd H. Stuart,
continued after the meeting.
(c) No other matter was presented for a vote at the
meeting. Present in person or by proxy at the
annual meeting were 1,402,417 shares of common
stock. Mr. Cornelius received 1,402,417 votes; Dr.
Lantz received 1,402,417 votes; Mr. Loveday
received 1,373,792 votes; and, Mr. Maurer received
1,402,417 votes.
(d) Not applicable.
Item 5. Other Information - Not applicable
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1998
-------------------------------------
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
/s/ Debra L. Ross
-------------------------------------------
Debra L. Ross
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,517,774
<INT-BEARING-DEPOSITS> 6,000,000
<FED-FUNDS-SOLD> 26,550,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,600,269
<INVESTMENTS-CARRYING> 12,118,909
<INVESTMENTS-MARKET> 12,258,770
<LOANS> 194,673,479
<ALLOWANCE> (2,251,609)
<TOTAL-ASSETS> 308,282,786
<DEPOSITS> 257,027,017
<SHORT-TERM> 29,623,518
<LIABILITIES-OTHER> 1,312,199
<LONG-TERM> 2,000,000
0
0
<COMMON> 19,160,284
<OTHER-SE> (840,232)
<TOTAL-LIABILITIES-AND-EQUITY> 308,282,786
<INTEREST-LOAN> 6,994,738
<INTEREST-INVEST> 1,923,004
<INTEREST-OTHER> 812,813
<INTEREST-TOTAL> 9,730,555
<INTEREST-DEPOSIT> 5,011,955
<INTEREST-EXPENSE> 5,687,212
<INTEREST-INCOME-NET> 4,043,343
<LOAN-LOSSES> 312,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,907,228
<INCOME-PRETAX> 697,881
<INCOME-PRE-EXTRAORDINARY> 697,881
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 697,881
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 7.39
<LOANS-NON> 28,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,963,040
<CHARGE-OFFS> 28,931
<RECOVERIES> 5,500
<ALLOWANCE-CLOSE> 2,251,609
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,251,609
</TABLE>
