UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-21671
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
(Exact name of Registrant as Specified in its Charter)
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Indiana
(State or Other Jurisdiction of
Incorporation or Organization)
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35-1887991
(I.R.S. Employer Identification No.) |
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107 North Pennsylvania Street
Indianapolis, Indiana
(Address of Principal Executive Offices)
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46204
(Zip Code) |
(317) 261-9000
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered Pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes o No o
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 the registrants
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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the common stock held by non-affiliates of the registrant as of June
30, 2009, was approximately $59,882,284. The number of shares of the registrants Common Stock
outstanding March 12, 2010 was 2,307,327.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report on Form 10-K, to the extent not set forth
herein, is incorporated herein by reference to the Registrants definitive proxy statement to be
filed in connection with the annual meeting of shareholders to be held on June 17, 2010.
Form 10-K Cross Reference Index
PART I
Item 1. Business
The Corporation. The National Bank of Indianapolis Corporation (the Corporation) was
formed as an Indiana corporation on January 29, 1993, for the purpose of forming a banking
institution in the Indianapolis, Indiana metropolitan area and holding all of the shares of common
stock of such banking institution. The Corporation formed a national banking association named The
National Bank of Indianapolis (the Bank) as a wholly-owned subsidiary.
The Bank opened for business to the public on December 20, 1993. The Banks deposits are
insured by the FDIC. The Bank currently conducts its business through twelve offices, including
its downtown headquarters located at 107 North Pennsylvania Street in Indianapolis, and its
neighborhood bank offices located at:
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8451 Ditch Road in northwestern Marion County; |
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6807 East 82nd Street in northeastern Marion County; |
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Chamber of Commerce Building on North Meridian Street; |
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One America Office Complex in downtown Indianapolis; |
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4930 North Pennsylvania Street in northern Marion County; |
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650 East Carmel Drive in Hamilton County; |
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10590 North Michigan Road in Hamilton County; |
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1689 West Smith Valley Road in Johnson County; |
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2714 East 146th Street in Hamilton County; |
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2410 Harleston Street in Hamilton County; and |
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11701 Olio Road in Hamilton County. |
The Bank provides a full range of deposit, credit, and money management services to its
targeted market, which is small to medium size businesses, affluent executive and professional
individuals, and not-for-profit organizations. The Bank has full trust powers.
Management initially sought to position the Bank to capitalize on the customer disruption,
dissatisfaction, and turn-over which it believed had resulted from the acquisition of the three
largest commercial banks located in Indianapolis by out-of-state holding companies. Management is
now focused on serving the local markets with an organization which is not owned by an out-of-state
company and whose decisions are made locally. On December 31, 2009, the Corporation had
consolidated total assets of $1.2 billion and total deposits of $1.1 billion.
Management believes that the key ingredients in the growth of the Bank have been a
well-executed business plan, an experienced Board of Directors and management team and a seasoned
group of bank employees. The basic strategy of the Bank continues to emphasize the delivery of
highly personalized services to the target client base with an emphasis on quick response and
financial expertise.
1
Business Plan Overview. The business plan of the Bank is based on being a strong,
locally owned bank providing superior service to a defined group of customers, which are primarily
corporations with annual sales under $100 million, executives, professionals, and not-for-profit
organizations. The Bank provides highly personalized banking services with an emphasis on knowledge
of the particular financial needs and objectives of its clients and quick response to customer
requests. Because the management of the Bank is located in Indianapolis, all credit and related
decisions are made locally, thereby facilitating prompt response. The Bank emphasizes both highly
personalized service at the customers convenience and non-traditional delivery services that do
not require customers to frequent the Bank. This personal contact has become a trademark of the
Bank and a key means of differentiating the Bank from other financial service providers.
The Bank offers a broad range of deposit services typically available from most banks and
savings associations, including interest and non-interest bearing checking accounts, savings and
other kinds of deposits of various types (ranging from daily money market accounts to longer term
certificates of deposit). The Bank has emphasized paying competitive interest rates on deposit
products.
The Bank also offers a full range of credit services, including commercial loans (such as
lines of credit, term loans, refinancings, etc.), personal lines of credit, direct installment
consumer loans, credit card loans, residential mortgage loans, construction loans, and letters of
credit. Lending strategies focus primarily on commercial loans to small and medium size businesses
as well as personal loans to executives and professionals.
The residential mortgage lending area of the Bank offers conforming, jumbo, portfolio, and
Community Reinvestment Act mortgage products. The Bank utilizes secondary market channels it has
developed for sale of those mortgage products described above. Secondary market channels include
FNMA, as well as private investors identified through wholesale entities. Consumer lending is
directed to executive and professional clients through residential mortgages, credit cards, and
personal lines of credit to include home equity loans.
The Bank has a full-service Wealth Management division, which offers trust, estate, retirement
and money management services.
The Market. The Bank derives a substantial proportion of its business from the
Indianapolis, Indiana Metropolitan Statistical Area (Indianapolis MSA).
Competition. The Banks service area is highly competitive. There are numerous
financial institutions operating in the Indianapolis MSA marketplace, which provide strong
competition to the Bank. In addition to the challenge of attracting and retaining customers for
traditional banking services offered by commercial bank competitors, significant competition also
comes from savings and loans associations, credit unions, finance companies, insurance companies,
mortgage companies, securities and brokerage firms, money market mutual funds, loan production
offices, and other providers of financial services in the area. These competitors, with focused
products targeted at highly profitable customer segments, compete across geographic boundaries and
provide customers increasing access to meaningful alternatives to banking services in nearly all
significant products. The increasingly competitive environment is a result primarily of changes in
regulations, changes in technology, product delivery systems and the accelerating pace of
consolidation among financial service providers. These competitive trends are likely to continue.
The Banks ability to maintain its historical levels of financial performance will depend in part
on the Banks ability over time to expand its scope of available financial services as needed to
meet the needs and demands of its customers. The Bank competes in this marketplace primarily on the
basis of highly personalized service, responsive decision making, and competitive pricing.
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Employees. The Corporation and the Bank have 270 employees, of which 261 are full-time
equivalent employees. The Bank has employed persons with substantial experience in the Indianapolis
MSA banking market. The average banking experience level for all Bank employees is in excess of 15
years.
Lending Activity. The Banks lending strategy emphasizes a high quality,
well-diversified loan portfolio. The Banks principal lending categories are commercial, commercial
mortgage, residential mortgage, private banking/personal, and home equity. Commercial loans include
loans for working capital, machinery and equipment purchases, premises and equipment acquisitions
and other corporate needs. Residential mortgage lending includes loans on first mortgage
residential properties. Private banking loans include secured and unsecured personal lines of
credit as well as home equity loans.
Commercial loans typically entail a thorough analysis of the borrower and its management,
occasional review of its industry, current and projected financial condition and other factors.
Credit analysis involves cash flow analysis, collateral, the type of loan, loan maturity, terms and
conditions, and various loan-to-value ratios as they relate to loan policy. The Bank typically
requires commercial borrowers to have annual financial statements prepared by independent
accountants and may require such financial statements to be audited or reviewed by accountants. The
Bank generally requires appraisals or evaluations in connection with loans secured by real estate.
Such appraisals or evaluations are usually obtained prior to the time funds are advanced. The Bank
also often requires personal guarantees from principals involved with closely-held corporate
borrowers.
Generally, the Bank requires loan applications or personal financial statements from its
personal borrowers on loans that the Bank originates. Loan officers or credit analysts complete a
debt to income analysis, an analysis of the borrowers liquidity, and an analysis of collateral, if
appropriate, that should meet established standards of lending policy.
The Bank maintains a comprehensive loan policy that establishes guidelines with respect to all
categories of lending. In addition, loan policy sets forth lending authority for each loan officer.
The Loan Committee of the Bank reviews all loans in excess of $500 thousand. Any loan in excess of
a lending officers lending authority, up to $2 million, must receive the approval of the
Chief Executive Officer (CEO), Chief Lending Officer (CLO), Chief Credit Officer, Commercial
Lending Manager, or Chief Client Officer. Loans in excess of $2 million but less than $6 million
must be approved by the Loan Committee prior to the Bank making such loan. The Board of Directors
Loan Policy Committee is not usually required to approve loans unless they are above $6 million.
Commercial loans are assigned a numerical rating based on creditworthiness and are monitored for
improvement or deterioration. Consumer loans are monitored by delinquency trends. The consumer
portfolios are assigned an average weighted risk grade based on specific risk characteristics.
Loans are made primarily in the Banks designated market area.
REGULATION AND SUPERVISION
Both the Corporation and the Bank operate in highly regulated environments and are subject to
supervision and regulation by several governmental regulatory agencies, including the Board of
Governors of the Federal Reserve System (the Federal Reserve), the Office of the Comptroller of
the Currency (OCC), and the Federal Deposit Insurance Corporation (the FDIC). The laws and
regulations established by these agencies are generally intended to protect depositors, not
shareholders. Changes in applicable laws, regulations, governmental policies, income tax laws and
accounting principles may have a material effect on our business and prospects. The following
summary is qualified by reference to the statutory and regulatory provisions discussed.
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THE CORPORATION
The Bank Holding Company Act. Because the Corporation owns all of the outstanding
capital stock of the Bank, it is registered as a bank holding company under the federal Bank
Holding Company Act of 1956 and is subject to periodic examination by the Federal Reserve and
required to file periodic reports of its operations and any additional information that the Federal
Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the Bank Holding
Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve
before acquiring another bank holding company or acquiring more than five percent of the voting
shares of a bank (unless it already owns or controls the majority of such shares).
Bank holding companies are prohibited, with certain limited exceptions, from engaging in
activities other than those of banking or of managing or controlling banks. They are also
prohibited from acquiring or retaining direct or indirect ownership or control of voting shares or
assets of any company which is not a bank or bank holding company, other than subsidiary companies
furnishing services to or performing services for their subsidiaries, and other subsidiaries
engaged in activities which the Federal Reserve Board determines to be so closely related to
banking or managing or controlling banks as to be incidental to these operations. The Bank Holding
Company Act does not place territorial restrictions on the activities of such nonbanking-related
activities.
Bank holding companies which meet certain management, capital, and CRA standards may elect to
become a financial holding company, which would allow them to engage in a substantially broader
range of nonbanking activities than is permitted for a bank holding company, including insurance
underwriting and making merchant banking investments in commercial and financial companies.
The Corporation does not currently plan to engage in any activity other than owning the stock
of the Bank.
Capital Adequacy Guidelines for Bank Holding Companies. The Federal Reserve, as the
regulatory authority for bank holding companies, has adopted capital adequacy guidelines for bank
holding companies. Bank holding companies with assets in excess of $500 million must comply with
the Federal Reserves risk-based capital guidelines which require a minimum ratio of total capital
to risk-weighted assets (including certain off-balance sheet activities such as standby letters of
credit) of 8%. At least half of the total required capital must be Tier 1 capital, consisting
principally of common stockholders equity, noncumulative perpetual preferred stock, a limited
amount of cumulative perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term preferred stock, certain
hybrid capital instruments and other debt securities, cumulative perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio under which the bank
holding company must maintain a minimum level of Tier 1 capital to average total consolidated
assets of 3% in the case of bank holding companies which have the highest regulatory examination
ratings and are not contemplating significant growth or expansion. All other bank holding companies
are expected to maintain a ratio of at least 1% to 2% above the stated minimum.
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Certain regulatory capital ratios for the Corporation as of December 31, 2009, are shown
below:
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Tier 1 Capital to Risk-Weighted Assets |
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9.3 |
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Total Risk Based Capital to Risk-Weighted Assets |
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11.1 |
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Tier 1 Leverage Ratio |
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6.8 |
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Dividends. The Federal Reserves policy is that a bank holding company experiencing
earnings weakness should not pay cash dividends exceeding its net income or which could only be
funded in ways that weaken the bank holding companys financial health, such as by borrowing.
Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and
their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices
or violations of applicable statutes and regulations. Among these powers is the ability to
proscribe the payment of dividends by banks and bank holding companies.
Source of Strength. In accordance with Federal Reserve policy, the Corporation is
expected to act as a source of financial strength to the Bank and to commit resources to support
the Bank in circumstances in which the Corporation might not otherwise do so.
THE BANK
General Regulatory Supervision. The Bank is a national bank organized under the laws
of the United States of America and is subject to the supervision of the OCC, whose examiners
conduct periodic examinations of national banks. The Bank must undergo regular on-site examinations
by the OCC and must submit quarterly and annual reports to the OCC concerning its activities and
financial condition.
The deposits of the Bank are insured by the Deposit Insurance Fund (DIF) administered by the
FDIC and are subject to the FDICs rules and regulations respecting the insurance of deposits. See
Deposit Insurance.
Lending Limits. Under federal law, the total loans and extensions of credit by a
national bank to a borrower outstanding at one time and not fully secured may not exceed 15 percent
of the banks capital and unimpaired surplus. In addition, the total amount of outstanding loans
and extensions of credit to any borrower outstanding at one time and fully secured by readily
marketable collateral may not exceed 10 percent of the unimpaired capital and unimpaired surplus of
the bank (this limitation is separate from and in addition to the above limitation). If a loan is
secured by United States obligations, such as treasury bills, it is not subject to the banks legal
lending limit.
Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment
system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their
risk classification. An institutions risk classification is assigned based on its capital levels
and the level of supervisory concern the institution poses to the regulators. Under the
regulations of the FDIC, as presently in effect, insurance assessments range from 0.07% to 0.78%,
depending on an institutions risk classification, as well as its unsecured debt, secured liability
and brokered deposits.
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Deposits in the Bank are insured by the FDIC up to a maximum amount, which is generally $250
thousand (in effect until December 31, 2013) per depositor subject to aggregation rules. The Bank
is also subject to assessment for the Financial Corporation (FICO) to service the interest on its
bond obligations. The amount assessed on individual institutions, including the Bank, by FICO is in
addition to the amount paid for deposit insurance according to the risk-related assessment rate
schedule. Increases in deposit insurance premiums or changes in risk classification will increase
the Banks cost of funds, and it may not be able to pass these costs on to its customers. On
December 30, 2009, the Bank paid, along with the regular quarterly risk-based deposit insurance for
the third quarter of 2009, a prepaid assessment for the fourth quarter of 2009, and for the three
years beginning in 2010 and ending in 2012 in the amount of $6 million.
Transactions with Affiliates and Insiders. The Bank is subject to limitations on the
amount of loans or extensions of credit to, or investments in, or certain other transactions with,
affiliates and insiders on the amount of advances to third parties collateralized by the securities
or obligations of affiliates. Furthermore, within the foregoing limitations as to amount, each
covered transaction must meet specified collateral requirements. Compliance is also required with
certain provisions designed to avoid the taking of low quality assets. The Bank is also prohibited
from engaging in certain transactions with certain affiliates and insiders unless the transactions
are on terms substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated
companies.
Extensions of credit by the Bank to its executive officers, directors, certain principal
shareholders, and their related interests must:
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be made on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with third parties; and |
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not involve more than the normal risk of repayment or present other unfavorable
features. |
Dividends. Under federal law, the Bank may pay dividends from its undivided profits in
an amount declared by its Board of Directors, subject to prior approval of the OCC if the proposed
dividend, when added to all prior dividends declared during the current calendar year, would be
greater than the current years net income and retained earnings for the previous two calendar
years.
Federal law generally prohibits the Bank from paying a dividend to the Corporation if the
depository institution would thereafter be undercapitalized. The FDIC may prevent an insured bank
from paying dividends if the Bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable federal regulatory
authority if such payment is determined, by reason of the financial condition of such bank, to be
an unsafe and unsound banking practice. In addition, the Bank is subject to certain restrictions
imposed by the Federal Reserve on extensions of credit to the Corporation, on investments in the
stock or other securities of the Corporation, and in taking such stock or securities as collateral
for loans.
Branching and Acquisitions. Under federal and Indiana law, the Bank may establish an
additional banking location anywhere in Indiana. Federal law also allows bank holding companies to
acquire banks anywhere in the United States subject to certain state restrictions, and permits an
insured bank to merge with an insured bank in another state without regard to whether such merger
is prohibited by state law. Additionally, an out-of-state bank may acquire the branches of an
insured bank in another state without acquiring the entire bank if the law of the state where the
branch is located permits such an acquisition. Bank holding companies may merge existing bank
subsidiaries located in different states into one bank.
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Community Reinvestment Act. The Community Reinvestment Act requires that the OCC
evaluate the records of the Bank in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility. Failure to adequately meet these
criteria could result in the imposition of additional requirements and limitations on the Bank.
Capital Regulations. The OCC has adopted risk-based capital ratio guidelines to which
the Bank is subject. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles among banking
organizations. Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet commitments to four risk weighted categories, with higher levels of capital being
required for the categories perceived as representing greater risk.
These guidelines divide a banks capital into two tiers. The first tier (Tier 1) includes
common equity, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary (Tier 2) capital includes, among other items,
cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities,
certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease
losses, subject to certain limitations, less required deductions. Banks are required to maintain a
total risk-based capital ratio of 8%, of which 4% must be Tier 1 capital. The OCC may, however, set
higher capital requirements when a banks
particular circumstances warrant. Banks experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions, well above the minimum
levels.
In addition, the OCC established guidelines prescribing a minimum Tier 1 leverage ratio (Tier
1 capital to adjusted total assets as specified in the guidelines). These guidelines provide for a
minimum Tier 1 leverage ratio of 3% for banks that meet certain specified criteria, including that
they have the highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier 1 leverage ratio of 3% plus an additional
cushion of at least 1% to 2% basis points.
Certain actual regulatory capital ratios under the OCCs risk-based capital guidelines for the
Bank at December 31, 2009, are shown below:
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Tier 1 Capital to Risk-Weighted Assets |
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9.2 |
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Total Risk-Based Capital to Risk-Weighted Assets |
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10.9 |
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Tier 1 Leverage Ratio |
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6.7 |
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The federal bank regulators, including the OCC, also have issued a joint policy statement to
provide guidance on sound practices for managing interest rate risk. The statement sets forth the
factors the federal regulatory examiners will use to determine the adequacy of a banks capital for
interest rate risk. These qualitative factors include the adequacy and effectiveness of the banks
internal interest rate risk management process and the level of interest rate exposure. Other
qualitative factors that will be considered include the size of the bank, the nature and complexity
of its activities, the adequacy of its capital and earnings in relation to the banks overall risk
profile, and its earning exposure to interest rate movements. The interagency supervisory policy
statement describes the responsibilities of a banks board of directors in implementing a risk
management process and the requirements of the banks senior management in ensuring the effective
management of interest rate risk. Further, the statement specifies the elements that a risk
management process must contain.
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The OCC has also issued final regulations further revising its risk-based capital standards to
include a supervisory framework for measuring market risk. The effect of these regulations is that
any bank holding company or bank which has significant exposure to market risk must measure such
risk using its own internal model, subject to the requirements contained in the regulations, and
must maintain adequate capital to support that exposure. These regulations apply to any bank
holding company or bank whose trading activity equals 10% or more of its total assets, or whose
trading activity equals $1 billion or more. Examiners may require a bank holding company or bank
that does not meet the applicability criteria to comply with the capital requirements if necessary
for safety and soundness purposes. These regulations contain supplemental rules to determine
qualifying and excess capital, calculate risk-weighted assets, calculate market
risk-equivalent assets and calculate risk-based capital ratios adjusted for market risk.
The Bank is also subject to the prompt corrective action regulations, which implement a
capital-based regulatory scheme designed to promote early intervention for troubled banks. This
framework contains five categories of compliance with regulatory capital requirements, including
well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized,
and critically undercapitalized. As of December 31, 2009, the Bank was qualified as well
capitalized. It should be noted that a banks capital category is determined solely for the
purpose of applying the prompt corrective action regulations and that the capital category may
not constitute an accurate representation of the banks overall financial condition or prospects.
The degree of regulatory scrutiny of a financial institution increases, and the permissible
activities of the institution decrease, as it moves downward through the capital categories. Bank
holding companies controlling financial institutions can be required to boost the institutions
capital and to partially guarantee the institutions performance.
USA Patriot Act. The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (the USA Patriot Act) is intended to
strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts.
The potential impact of the USA Patriot Act on financial institutions is significant and
wide-ranging. The USA Patriot Act contains sweeping anti-money laundering and financial
transparency laws and requires financial institutions to implement additional policies and
procedures with respect to, or additional measures designed to address, any or all of the following
matters, among others: money laundering and currency crimes, customer identification verification,
cooperation among financial institutions, suspicious activities and currency transaction reporting.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act)
represents a comprehensive revision of laws affecting corporate governance, accounting obligations
and corporate reporting. Among other requirements, the Sarbanes-Oxley Act established: (i) new
requirements for audit committees of public companies, including independence, expertise, and
responsibilities; (ii) additional responsibilities regarding financial statements for the chief
executive officers and chief financial officers of reporting companies; (iii) new
standards for auditors and regulation of audits; (iv) increased disclosure and reporting
obligations for reporting companies regarding various matters relating to corporate governance, and
(v) new and increased civil and criminal penalties for violation of the securities laws.
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Recent Legislative and Regulatory Initiatives to Address Financial and Economic
Crises. Congress, the United States Department of the Treasury (Treasury) and the federal
banking regulators, including the FDIC, have taken broad action since early September 2008 to
address volatility in the U.S. banking system and financial markets.
In October 2008, the Emergency Economic Stabilization Act of 2008 (EESA) was enacted. The
EESA authorizes Treasury to purchase from financial institutions and their holding companies up to
$700 billion in mortgage loans, mortgage-related securities and certain other financial
instruments, including debt and equity securities issued by financial institutions and their
holding companies in a troubled asset relief program (TARP). The purpose of TARP is to restore
confidence and stability to the U.S. banking system and to encourage financial institutions to
increase their lending to customers and to each other. As part of TARP, Treasury has allocated
$250 billion towards the Capital Purchase Program. Under the Capital Purchase Program, Treasury
will purchase debt or equity securities from participating institutions. Participants in the
Capital Purchase Program are subject to executive compensation limits and are encouraged to expand
their lending and mortgage loan modifications. The Corporation elected not to participate in this
program. EESA also increased FDIC deposit insurance on most accounts from $100 thousand to $250
thousand. This increase is in place until the end of 2013.
Following a systemic risk determination, on October 14, 2008, the FDIC established a Temporary
Liquidity Guarantee Program (TLGP). The TLGP includes the Transaction Account Guarantee Program
(TAGP), which provides unlimited deposit insurance coverage, for noninterest-bearing transaction
accounts (typically business checking accounts) and certain funds swept into noninterest-bearing
savings accounts. As originally enacted, the TAGP expired on December 31, 2009, and banks
participating in the TAGP paid a 10 basis points fee (annualized) on the balance of each covered
account in excess of $250 thousand.
On October 1, 2009, the FDIC extended the TAGP for six months until June 30, 2010. Any insured
depository institution that was participating in the TAGP program as of October 1, 2009, was
permitted to continue in the TAGP during the extension period. The annual assessment rate that
applies to participating institutions during the extension period is either 15 basis points, 20
basis points or 25 basis points, depending on the Risk Category assigned to the institution under
the FDICs risk-based premium system. Any institution participating in the TAGP program as of
October 1, 2009, that desired to opt out of the TAGP extension was required to submit its opt-out
election to the FDIC on or before November 2, 2009. The Corporation elected to participate in the
TAGP through June 30, 2010.
The TLGP also includes the Debt Guarantee Program (DGP), under which the FDIC guaranteed
certain senior unsecured debt of FDIC-insured institutions and their holding companies issued on or
after October 14, 2008, and not later than June 30, 2009. The guarantee is effective through the
earlier of the maturity date or June 30, 2012. The DGP coverage limit is generally 125% of the
entitys eligible debt outstanding on September 30, 2008, and scheduled to mature on or before
June 30, 2009, or, for certain insured institutions, 2% of their total liabilities as of
September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges
from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity
or June 30, 2012. The DGP is in effect for all eligible entities, unless the entity opted out on or
before December 5, 2008. The Corporation did not opt out of the DGP, although it does not have any
eligible debt and therefore will not pay any premium associated with the DGP.
9
On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act
of 2009 (ARRA), more commonly known as the economic stimulus or economic recovery package. ARRA
includes a wide variety of programs intended to stimulate the economy and provide for extensive
infrastructure, energy, health and education needs. In addition, ARRA imposes new executive
compensation and corporate governance limits on current and future participants in the Treasurys
Capital Purchase Program (CPP), which are in addition to those previously announced by Treasury.
The new limits remain in place until the participant has redeemed the preferred stock sold to
Treasury, which is now permitted under ARRA without penalty and without the need to raise new
capital, subject to Treasurys consultation with the recipients appropriate federal regulator. On
June 10, 2009, Treasury released an interim final rule, effective June 15, 2009, that provided
guidance on the compensation and governance standards for participants in the CPP, and promulgated
regulations to implement the restrictions and standards set forth in ARRA. Among other things,
Treasurys final rule and ARRA significantly expanded the executive compensation restrictions
previously imposed by EESA.
On May 20, 2009, the Helping Families Save Their Homes Act of 2009, which extended the
temporary increase in the standard maximum deposit insurance amount provided by the FDIC to $250
thousand per depositor through December 31, 2013, was signed into law. This extension of the
temporary $250 thousand coverage limit
(pursuant to EESA) became effective immediately upon the Presidents signature. The
legislation provides that the standard maximum deposit insurance amount provided by the FDIC will
return to $100 thousand on January 1, 2014.
On October 22, 2009, the Federal Reserve issued a comprehensive proposal on incentive
compensation policies (the Incentive Compensation Proposal) intended to ensure that the incentive
compensation policies of banking organizations do not undermine the safety and soundness of such
organizations by encouraging excessive risk-taking. This guidance sets expectations for banking
organizations concerning their incentive compensation arrangements and related risk-management,
control and governance processes. The Incentive Compensation Proposal, which covers all employees
that have the ability to materially affect the risk profile of an organization, either individually
or as part of a group, is based upon three primary principles: (i) balanced risk-taking incentives,
(ii) compatibility with effective controls and risk management, and (iii) strong corporate
governance. Any deficiencies in compensation practices that are identified may be incorporated
into the organizations supervisory ratings, which can affect its ability to make acquisitions or
perform other actions. In addition, under the Incentive Compensation Proposal, the Federal Reserve
in appropriate circumstances may take enforcement action against a banking organization.
On January 14, 2010, the current administration announced a proposal to impose a fee (the
Financial Crisis Responsibility Fee) on those financial institutions that benefited from recent
actions taken by the U.S. government to stabilize the financial system. If implemented as initially
proposed, the Financial Crisis Responsibility Fee will be applied to firms with over $50 billion in
consolidated assets, and, therefore, by its terms would not apply to the Corporation. The
Financial Crisis Responsibility Fee would be collected by the Internal Revenue Service and would be
approximately fifteen basis points, or 0.15%, of an amount calculated by subtracting a covered
institutions Tier 1 capital and FDIC-assessed deposits (and/or an adjustment for insurance
liabilities covered by state guarantee funds) from such institutions total assets. The Financial
Crisis Responsibility Fee, if implemented as proposed by the current administration, would go into
effect on June 30, 2010, and remain in place for at least ten years. The U.S. Treasury would be
asked to report after five years on the effectiveness of the Financial Crisis Responsibility Fee as
well as its progress in repaying projected losses to the U.S. government as a result of TARP. If
losses to the U.S. government as a result of TARP have not been recouped after ten years, the
Financial Crisis Responsibility Fee would remain in place until such losses have been recovered.
10
Other Regulations
Federal law extensively regulates other various aspects of the banking business such as
reserve requirements. Current federal law also requires banks, among other things to make deposited
funds available within specified time periods. In addition, with certain exceptions, a bank and a
subsidiary may not extend credit, lease or sell property or furnish any services or fix or vary the
consideration for the foregoing on the condition that (i) the customer must obtain or
provide some additional credit, property or services from, or to, any of them, or (ii) the
customer may not obtain some other credit, property or service from a competitor, except to the
extent reasonable conditions are imposed to assure the soundness of credit extended.
Interest and other charges collected or contracted by the Bank are subject to state usury laws
and federal laws concerning interest rates. The Banks loan operations are also subject to federal
and state laws applicable to credit transactions, such as the:
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Truth-In-Lending Act and state consumer protection laws governing disclosures of
credit terms and prohibiting certain practices with regard to consumer borrowers; |
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Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide
information to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves; |
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Equal Credit Opportunity Act and other fair lending laws, prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit; |
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Fair Credit Reporting Act of 1978 and Fair and Accurate Credit Transactions Act of
2003, governing the use and provision of information to credit reporting agencies; |
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Fair Debt Collection Practices Act, governing the manner in which consumer debts may
be collected by collection agencies; and rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. |
The deposit operations of the Bank also are subject to the:
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Customer Information Security Guidelines. The federal bank regulatory agencies have
adopted final guidelines (the Guidelines) for safeguarding confidential customer
information. The Guidelines require each financial institution, under the supervision
and ongoing oversight of its Board of
Directors, to create a comprehensive written information security program designed to
ensure the security and confidentiality of customer information, protect against any
anticipated threats or hazards to the security or integrity of such information; protect
against unauthorized access to or use of such information that could result in
substantial harm or inconvenience to any customer; and implement response programs for
security breaches. |
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Electronic Funds Transfer Act and Regulation E. The Electronic Funds Transfer Act,
which is implemented by Regulation E, governs automatic deposits to and withdrawals
from deposit accounts and customers rights and liabilities arising from the use of
automated teller machines and other electronic banking service. |
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Gramm-Leach-Bliley Act, Fair and Accurate Credit Transactions Act. The
Gramm-Leach-Bliley Act, the Fair and Accurate Credit Transactions Act, and the
implementing regulations govern consumer financial privacy, provide disclosure
requirements and restrict the sharing of certain consumer financial information with
other parties. |
11
The federal banking agencies have established guidelines which prescribe standards for
depository institutions relating to internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality,
earnings, compensation fees and benefits, and management compensation. The agencies may require an
institution which fails to meet the standards set forth in the guidelines to submit a compliance
plan. Failure to submit an acceptable plan or adhere to an accepted plan may be grounds for further
enforcement action.
Enforcement Powers. Federal regulatory agencies may assess civil and criminal
penalties against depository institutions and certain institution-affiliated parties, including
management, employees, and agents of a financial institution, as well as independent contractors
and consultants such as attorneys and accountants and others who participate in the conduct of the
financial institutions affairs.
In addition, regulators may commence enforcement actions against institutions and
institution-affiliated parties. Possible enforcement actions include the termination of deposit
insurance. Furthermore, regulators may issue cease-and-desist orders to, among other things,
require affirmative action to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnifications or guarantees against loss. A financial institution
may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or
contracts, or take other actions as determined by the regulator to be appropriate.
Effect of Governmental Monetary Policies. The Corporations earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Banks monetary policies have had, and are likely to continue
to have, an important impact on the operating results of commercial banks through its power to
implement national monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank
loans, investments and deposits through its open market operations in United States government
securities and through its regulation of the discount rate on borrowings of member banks and the
reserve requirements against member bank deposits. It is not possible to predict the nature or
impact of future changes in monetary and fiscal policies.
Available Information
The Corporation files annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy
statements and other information with the Securities and Exchange Commission. Such reports, proxy
statements and other information can be read and copied at the public reference facilities
maintained by the Securities and Exchange Commission at the Public Reference Room, 100 F Street,
NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room may be
obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy
statements, and other information. The Corporations filings are also accessible at no cost on the
Corporations website at www.nbofi.com.
12
Item 1A. Risk Factors
Difficult conditions in the capital markets and the economy generally may materially adversely
affect our business and results of operations
Our results of operations are materially affected by conditions in the capital markets and the
economy generally. The capital and credit markets have been experiencing extreme volatility and
disruption for more than twelve months at unprecedented levels. In many cases, these markets have
produced downward pressure on stock prices of, and credit availability to, certain companies
without regard to those companies underlying financial strength.
Recently, concerns over inflation, energy costs, geopolitical issues, the availability and
cost of credit, the U.S. mortgage market and a declining U.S. real estate market have contributed
to increased volatility and diminished expectations for the economy and the capital and credit
markets going forward. These factors, combined with volatile oil prices, declining business and
consumer confidence and increased unemployment, have precipitated an economic slowdown and national
recession. In addition, the fixed-income markets are experiencing a period of extreme volatility
which has negatively impacted market liquidity conditions. Initially, the concerns on the part of
market participants were focused on the subprime segment of the mortgage-backed securities market.
However, these concerns have since expanded to include a broad range of mortgage-and asset-backed
and other fixed income securities, including those rated investment grade, the U.S. and
international credit and interbank money markets generally, and a wide range of financial
institutions and markets, asset classes and sectors.
Factors such as consumer spending, business investment, government spending, the volatility
and strength of the capital markets, and inflation all affect the business and economic environment
and, ultimately, the amount and profitability of our business. In an economic downturn
characterized by higher unemployment, lower family income, lower corporate earnings, lower business
investment and lower consumer spending, the demand for our financial products could be adversely
affected. Adverse changes in the economy could affect earnings negatively and could have a material
adverse effect on our business, results of operations and financial condition. The current mortgage
crisis and economic slowdown has also raised the possibility of future legislative and regulatory
actions in addition to the recent enactment of EESA that could further impact our business. We
cannot predict whether or when such actions may occur, or what impact, if any, such actions could
have on our business, results of operations and financial condition.
There can be no assurance that actions of the U.S. government, Federal Reserve and other
governmental and regulatory bodies for the purpose of stabilizing the financial markets will
achieve the intended effect
In response to the financial crises affecting the banking system and financial markets and
going concern threats to investment banks and other financial institutions, on October 3, 2008,
President Bush signed EESA into law. Pursuant to EESA, the Treasury has the authority to utilize up
to $700 billion to purchase distressed assets from financial institutions or infuse capital into
financial institutions for the purpose of stabilizing the financial markets. The Treasury announced
the Capital Purchase Program under EESA pursuant to which it has purchased and will continue to
purchase senior preferred stock in participating financial institutions such as the Corporation.
There can be no assurance, however, as to the actual impact that EESA, including the Capital
Purchase Program and the Treasurys Troubled Asset Repurchase Program, will have on the financial
markets or on us. The failure of these programs to help stabilize the financial markets and a
continuation or worsening of current financial market conditions could materially and adversely
affect our business, financial condition, results of operations, access to credit or the trading
price of our common stock.
13
The federal government, Federal Reserve and other governmental and regulatory bodies have
taken or are considering taking other actions to address the financial crisis. There can be no
assurance as to what impact such actions will have on the financial markets, including the extreme
levels of volatility currently being experienced. Such continued volatility could materially and
adversely affect our business, financial condition and results of operations, or the trading price
of our common stock.
We may be required to pay significantly higher Federal Deposit Insurance Corporation (FDIC)
premiums in the future
Recent insured institution failures, as well as deterioration in banking and economic
conditions, have significantly increased FDIC loss provisions, resulting in a decline in the
designated reserve ratio to historical lows. The FDIC expects a higher rate of insured institution
failures in the next few years compared to recent years; thus,
the reserve ratio may continue to decline. In addition, EESA temporarily increased the limit
on FDIC coverage to $250 thousand through December 31, 2013.
Additionally, the FDIC adopted a final rule requiring insured depository institutions to
prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all
of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30,
2009, along with the regular quarterly risk-based deposit insurance assessment for the third
quarter of 2009. This prepayment does not preclude the FDIC from changing assessment rates or from
further revising the risk-based assessment system during the prepayment period or thereafter. As a
result, we may also be required to pay significantly higher FDIC insurance assessments premiums in
the future.
Recent negative developments in the financial industry and the credit markets may subject us to
additional regulation
As a result of the recent global financial crisis, the potential exists for new federal or
state laws and regulations regarding lending and funding practices and liquidity standards to be
promulgated, and bank regulatory agencies are expected to be active in responding to concerns and
trends identified in examinations, including the expected issuance of many formal enforcement
orders. Negative developments in the financial industry and the domestic and international credit
markets, and the impact of new legislation in response to those developments, may negatively impact
our operations by restricting our business operations, including our ability to originate or sell
loans, and may adversely impact our financial performance.
14
The Corporation is subject to interest rate risk
Our earnings and cash flows are largely dependent upon our net interest income. Net interest
income is the difference between interest income earned on interest earning assets such as loans
and securities and interest expense paid on interest bearing liabilities such as deposits and
borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control,
including general economic conditions and policies of various governmental and regulatory agencies.
Changes in monetary policy, including changes in interest rates, could influence not only the
interest we receive on loans and securities and the interest we pay on deposits and borrowings, but
such changes could also affect (i) our ability to originate loans and obtain deposits and (ii) the
fair value of our financial assets and liabilities. Currently, we are in a liability-sensitive
position. Therefore, if interest rates increase, the rates paid on deposits and other borrowings
will increase at a faster rate than the interest rates received on loans and other investments,
resulting in a decline in our net interest margin. If this happens, earnings could be adversely
affected. In addition, due to the current low interest rate environment, if interest rates
further decrease, our liabilities will reprice downward more quickly than our assets. Because
deposit pricing cannot become significantly lower than current levels, our net interest margin
could decline in that case as well and earnings could be adversely affected.
The Corporation is subject to lending risk
There are inherent risks associated with the Corporations lending activities. These risks
include, among other things, the impact of changes in interest rates and changes in the economic
conditions in the markets where the Corporation operates as well as those across Indiana and the
United States. Increases in interest rates and/or weakening economic conditions could adversely
impact the ability of borrowers to repay outstanding loans or the value of the collateral securing
these loans. The Corporation is also subject to various laws and regulations that affect its
lending activities. Failure to comply with applicable laws and regulations could subject the
Corporation to regulatory enforcement action that could result in the assessment of significant
civil money penalties against the Corporation.
The Corporations allowance for loan losses may be insufficient
The Corporation maintains an allowance for loan losses, which is a reserve established through
a provision for loan losses charged to expense, that represents managements best estimate of
probable incurred losses that are inherent within the existing portfolio of loans. The level of the
allowance reflects managements continuing evaluation of industry concentrations; specific credit
risks; loan loss experience; current loan portfolio quality; present economic, political and
regulatory conditions and unidentified losses inherent in the current loan portfolio. The
determination of the appropriate level of the allowance for loan losses inherently involves a high
degree of
subjectivity and requires the Corporation to make significant estimates of current credit risks and
future trends, all of which may undergo material changes. Changes in economic conditions affecting
borrowers, new information regarding existing loans, identification of additional problem loans and
other factors, both within and outside of the Corporations control, may require an increase in the
allowance for loan losses. In addition, bank regulatory agencies periodically review the
Corporations allowance for loan losses and may require an increase in the provision for loan
losses or the recognition of further loan charge-offs, based on judgments different than those of
management. In addition, if charge-offs in future periods exceed the allowance for loan losses, the
Corporation will need additional provisions to increase the allowance for loan losses. Any
increases in the allowance for loan losses will result in a decrease in net income and, possibly,
capital, and may have a material adverse effect on the Corporations financial condition and
results of operations.
15
The Corporation operates in a highly competitive industry and market area
The Corporation faces substantial competition in all areas of its operations from a variety of
different competitors, many of which are larger and may have more financial resources. Such
competitors include banks and many other types of financial institutions, including, without
limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance
companies, factoring companies and other financial intermediaries. The financial services industry
could become even more competitive as a result of legislative, regulatory and technological changes
and continued consolidation. Banks, securities firms and insurance companies can merge under the
umbrella of a financial holding company, which can offer virtually any type of financial service,
including banking, securities underwriting, insurance (both agency and underwriting) and merchant
banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks, such as automatic transfer and automatic
payment systems. Many of the Corporations competitors have fewer regulatory constraints and may
have lower cost structures. Additionally, due to their size, many competitors may be able to
achieve economies of scale and, as a result, may offer a broader range of products and services as
well as better pricing for those products and services than the Corporation can.
The Corporations ability to compete successfully depends on a number of factors, including,
among other things:
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The ability to develop, maintain and build upon long-term customer relationships
based on top quality service, and safe, sound assets; |
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The ability to expand the Corporations market position; |
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The scope, relevance and pricing of products and services offered to meet customer
needs and demands; |
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The rate at which the Corporation introduces new products and services relative to
its competitors; |
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Customer satisfaction with the Corporations level of service; and |
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Industry and general economic trends. |
Failure to perform in any of these areas could significantly weaken the Corporations competitive
position, which could adversely affect the Corporations growth and profitability, which, in turn,
could have a material adverse effect on the Corporations financial condition and results of
operations.
The Corporation is subject to extensive government regulation and supervision
The Corporation, primarily through the Bank, is subject to extensive federal regulation and
supervision. Banking regulations are primarily intended to protect depositors funds, federal
deposit insurance funds and the banking system as a whole, not shareholders. These regulations
affect the Corporations lending practices, capital structure, investment practices, and growth,
among other things. Congress and federal regulatory agencies continually review banking laws,
regulations and policies for possible changes. Changes to statutes, regulations or regulatory
policies, including changes in interpretation or implementation of statutes, regulations or
policies, could affect the Corporation in substantial and unpredictable ways. Such changes could
subject the Corporation to additional costs, limit the types of financial services and products the
Corporation may offer and/or increase the ability of non-banks to offer competing financial
services and products, among other things. Failure to comply with laws, regulations or policies
could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage,
which could have a material adverse effect on the Corporations business, financial condition and
results of operations. While the Corporation has policies and procedures designed to prevent any
such violations, there can be no assurance that such violations will not occur.
16
The Corporations controls and procedures may fail or be circumvented
Management regularly reviews and updates the Corporations internal controls, disclosure
controls and procedures, and corporate governance policies and procedures. Any system of controls,
however well designed and operated, is based in part on certain assumptions and can provide only
reasonable, not absolute, assurances that the objectives of the system are met. Any failure or
circumvention of the Corporations controls and procedures or failure to comply with regulations
related to controls and procedures could have a material adverse effect on the Corporations
business, results of operations and financial condition.
The Corporation is dependent on certain key management and staff
The Corporation relies on key personnel to manage and operate its business. The loss of key
staff may adversely affect our ability to maintain and manage these portfolios effectively, which
could negatively affect our revenues. In addition, loss of key personnel could result in increased
recruiting and hiring expenses, which could cause a decrease in the Corporations net income.
The Corporations information systems may experience an interruption or breach in security
The Corporation relies heavily on communications and information systems to conduct its
business. Any failure, interruption or breach in security of these systems could result in failures
or disruptions in the Corporations customer relationship management, general ledger, deposit, loan
and other systems. While the Corporation has policies and procedures designed to prevent or limit
the effect of the failure, interruption or security breach of its information systems, there can be
no assurance that any such failures, interruptions or security breaches will not occur or, if they
do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or
security breaches of the Corporations information systems could damage the Corporations
reputation, result in a loss of customer business, subject the Corporation to additional regulatory
scrutiny, or expose the Corporation to civil litigation and possible financial liability, any of
which could have a material adverse effect on the Corporations financial condition and results of
operations.
17
The Corporation has opened new offices
The Corporation has placed a strategic emphasis on expanding the Banks banking office
network. Executing this strategy carries risks of slower than anticipated growth in the new
offices, which require a significant investment of both financial and personnel resources. Lower
than expected loan and deposit growth in new offices can decrease anticipated revenues and net
income generated by those offices, and opening new offices could result in more additional expenses
than anticipated and divert resources from current core operations.
The geographic concentration of our markets makes our business highly susceptible to local
economic conditions
Unlike larger banking organizations that are more geographically diversified, our operations
are currently concentrated in three counties located in central Indiana. As a result of this
geographic concentration, our financial results depend largely upon economic conditions in these
market areas. Deterioration in economic conditions in our market could result in one or more of the
following:
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an increase in loan delinquencies; |
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an increase in problem assets and foreclosures; |
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a decrease in the demand for our products and services; and |
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a decrease in the value of collateral for loans, especially real estate, in
turn reducing customers borrowing power, the value of assets associated with problem
loans and collateral coverage. |
Future growth or operating results may require the Corporation to raise additional capital but
that capital may not be available or it may be dilutive
The Corporation is required by federal and state regulatory authorities to maintain adequate
levels of capital to support its operations. To the extent the Corporations future operating
results erode capital or the Corporation elects to expand through loan growth or acquisition it may
be required to raise capital. The Corporations ability to raise capital will depend on conditions
in the capital markets, which are outside of its control, and on the Corporations financial
performance. Accordingly, the Corporation cannot be assured of its ability to raise capital when
needed or on favorable terms. If the Corporation cannot raise additional capital when needed, it
will be subject to increased regulatory supervision and the imposition of restrictions on its
growth and business. These could negatively impact the Corporations ability to operate or further
expand its operations through acquisitions or the establishment of additional branches and may
result in increases in operating expenses and reductions in revenues that could have a material
adverse effect on its financial condition and results of operations.
The Corporation continually encounters technological change
The financial services industry is continually undergoing rapid technological change with
frequent introductions of new technology-driven products and services. The effective use of
technology increases efficiency and enables financial institutions to better serve customers and to
reduce costs. The Corporations future success depends, in part, upon its ability to address the
needs of its customers by using technology to provide products and services that will satisfy
customer demands, as well as to create additional efficiencies in the Corporations operations.
Failure to successfully keep pace with technological change affecting the financial services
industry could have a material adverse impact on the Corporations business and, in turn, the
Corporations financial condition and results of operations.
18
Item 1B. Unresolved Staff Comments
None.
Item 2. Property
The Bank owns the downtown office building which houses its main office as well as the
Corporations main office at 107 North Pennsylvania Street, Indianapolis, Indiana. The Bank and the
Corporation utilize eight floors of this ten-story building and lease the remainder to other
business enterprises.
The Bank opened its first neighborhood bank office in February 1995 at 84th and
Ditch Road. The Bank also opened a neighborhood bank office at 82nd and Bash Road on the
northeast side of Indianapolis in December 1995. The Bank owns the land and the premises for both
of these offices. In March 1996, the Bank opened an office in the Chamber of Commerce building at
320 N. Meridian Street in the downtown Indianapolis area. The Bank leases the premises at this
banking office. In March 1998, the Bank opened an office at 4930 North Pennsylvania
Street and leased the premises at this banking office until January 2, 2007, when the Bank
purchased the property. In June 1999, the Bank opened an office in the One America Office Complex
located at One American Square in the downtown Indianapolis area. The Bank leases the premises at
this banking office. In September 2000, the Bank opened an office at 650 East Carmel Drive in
Carmel. This office is located in Hamilton County, which is north of Indianapolis. The Bank
leases the premises at this banking office. In October 2001, the Bank opened an office at 1675 West
Smith Valley Road in Greenwood, which was leased. During 2005, the Bank upgraded the Greenwood
Bank Office to a full-size, freestanding building located at 1689 West Smith Valley Road. The Bank
owns the land and the premises for this office. In January 2005, the Bank opened an office located
at 106th and Michigan Road. The Bank owns the premises for this office and leased the land on
which the building is constructed. In March 2007, the Bank purchased the property at this
location. In January 2008, the Bank opened an office at 2714 East
146th Street in Cool Creek Village, which is located in Hamilton County. The Bank owns
the premises for this office and leased the land until it was purchased in March 2008. In June
2007, the Bank purchased land in the Villages of West Clay, located in Hamilton County and opened
this location in November 2008. The Bank owns the premises for this office. In June 2008, the
Bank purchased land at 116th and Olio Road, located in Hamilton County and opened this
location in December 2009. The Bank owns the premises for this office. The Bank has installed
four remote ATMs at the following locations: Indianapolis City Market, Parkwood Crossing, Meridian
Mark II Office Complex, and Angies List. These remote ATMs provide additional banking convenience
for the customers of the Bank and generate an additional source of fee income for the Bank.
The Corporations properties are in good physical condition and are considered by the
Corporation to be adequate to meet the needs of the Corporation and the Bank and the banking needs
of the customers in the communities served.
19
Item 3. Legal Proceedings
Neither the Corporation nor the Bank are involved in any material pending legal proceedings at
this time, other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Shares of the common stock of the Corporation are not traded on any national or regional
exchange or in the over-the-counter market. Accordingly, there is no established market for the
common stock. There are occasional trades as a result of private negotiations which do not always
involve a broker or a dealer. The table below lists the high and low prices per share, of which
management is aware, during 2009 and 2008.
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Price per Share |
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High |
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Low |
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Quarter |
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2009 |
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2008 |
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2009 |
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2008 |
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First Quarter |
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$ |
50.00 |
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$ |
53.93 |
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$ |
35.65 |
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$ |
52.22 |
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Second Quarter |
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$ |
39.67 |
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$ |
51.80 |
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$ |
35.97 |
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$ |
50.92 |
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Third Quarter |
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$ |
39.90 |
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$ |
52.29 |
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$ |
38.97 |
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$ |
51.12 |
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Fourth Quarter |
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$ |
40.00 |
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$ |
52.36 |
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$ |
36.74 |
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$ |
38.18 |
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There may have been other trades at other prices of which management is not aware. Management
does not have knowledge of the price paid in all transactions and has not verified the accuracy of
those prices that have been reported to it. Because of the lack of an established market for the
common shares of the Corporation, these prices would not necessarily reflect the prices at which
the shares would trade in an active market.
The Corporation had 675 shareholders on record as of March 12, 2010.
The Corporation has not declared or paid any cash dividends on its shares of common stock
since its organization in 1993. The Corporation and the Bank anticipate that earnings will be
retained to finance the Banks growth in the immediate future. Future dividend payments by the
Corporation, if any, will be dependent upon dividends paid by the Bank, which are subject to
regulatory limitations, earnings, general economic conditions, financial condition, capital
requirements, and other factors as may be appropriate in determining dividend policy.
20
During the fourth quarter of 2009, the Corporation sold common stock pursuant to the exercise
of stock options to employees in the aggregate of 3,400 shares for $88 thousand. As previously
reported in the Corporations prior filings with the Securities and Exchange Commission, the
Corporation sold no shares pursuant to the exercise by employees and directors of stock options
during the third quarter of 2009, an aggregate of 30,100 shares for $586 thousand during the
second quarter of 2009, and an aggregate of 24,600 shares for $471 thousand during the first
quarter of 2009. All of these shares were sold in private placements pursuant to Section 4(2) of
the Securities Act of 1933.
On November 20, 2008, the Board of Directors adopted a new three-year stock repurchase program
for directors and employees. Under the new stock repurchase program, the Corporation may repurchase
shares in individually negotiated transactions from time to time as such shares become available
and spend up to $8 million to repurchase such shares over the three-year term. Subject to the $8
million limitation, the Corporation intends to purchase shares recently acquired by the selling
shareholder pursuant to the exercise of stock options or the vesting of restricted stock, and limit
its acquisition of shares which were not recently acquired by the selling shareholder pursuant to
the exercise of stock options or the vesting of shares of restricted stock to no more than 10,000
shares per year. Under the new repurchase plan, the Corporation purchased 5,514 shares during 2009
and as of December 31, 2009, approximately $5.9 million is still available under the new repurchase
plan. The stock repurchase program does not require the Corporation to acquire any specific number
of shares and may be modified, suspended, extended or terminated by the Corporation at any time
without prior notice. The repurchase program will terminate on December 31, 2011, unless earlier
suspended or discontinued by the Corporation.
During 2009, the Corporation repurchased in the aggregate, 49,074 shares for an aggregate cost
of approximately $2 million. The following table sets forth the issuer repurchases of equity
securities that are registered by the Corporation pursuant to Section 12 of the Securities Exchange
Act of 1934 during the fourth quarter of 2009 under new repurchase program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(or Approximate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Shares that May Yet |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Be Purchased Under |
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
the Plans or |
|
|
|
Total Number of |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Programs (dollars in |
|
Period |
|
Shares Purchased |
|
|
per Share |
|
|
Programs** |
|
|
thousands) |
|
10/01/09 10/31/09 |
|
|
2,000 |
|
|
$ |
39.66 |
|
|
|
2,000 |
|
|
$ |
5,977 |
|
11/01/09
11/30/09 |
|
|
1,400 |
|
|
$ |
39.02 |
|
|
|
1,400 |
|
|
$ |
5,923 |
|
12/01/09
12/31/09 |
|
|
490 |
|
|
$ |
36.74 |
|
|
|
490 |
|
|
$ |
5,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,890 |
|
|
|
* |
|
|
|
3,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The weighted average price per share under the new repurchase program for the period October
2009 through December 2009 was $39.06. |
|
** |
|
All shares repurchased by the Corporation during the fourth quarter 2009 were completed
pursuant to the new repurchase program. |
21
Item 6. Selected Financial Data
The following table sets forth certain consolidated information concerning the Corporation for
the periods and dates indicated and should be read in connection with, and is qualified in its
entirety by, the detailed information and consolidated financial statements and related notes set
forth in the Corporations audited financial statements included elsewhere herein for the years
ended December 31, ($ in 000s), except per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Consolidated Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
47,531 |
|
|
$ |
56,377 |
|
|
$ |
68,880 |
|
|
$ |
61,375 |
|
|
$ |
50,847 |
|
Interest expense |
|
|
11,313 |
|
|
|
20,449 |
|
|
|
35,263 |
|
|
|
29,565 |
|
|
|
20,906 |
|
Net interest income |
|
|
36,218 |
|
|
|
35,928 |
|
|
|
33,617 |
|
|
|
31,811 |
|
|
|
29,941 |
|
Provision for loan losses |
|
|
11,905 |
|
|
|
7,400 |
|
|
|
904 |
|
|
|
1,086 |
|
|
|
2,085 |
|
Net interest income after provision for loan losses |
|
|
24,313 |
|
|
|
28,528 |
|
|
|
32,713 |
|
|
|
30,725 |
|
|
|
27,856 |
|
Other operating income |
|
|
12,903 |
|
|
|
11,204 |
|
|
|
9,834 |
|
|
|
8,356 |
|
|
|
7,461 |
|
Other operating expenses |
|
|
38,354 |
|
|
|
34,706 |
|
|
|
30,800 |
|
|
|
28,595 |
|
|
|
25,176 |
|
Income (loss) before taxes |
|
|
(1,138 |
) |
|
|
5,026 |
|
|
|
11,747 |
|
|
|
10,486 |
|
|
|
10,141 |
|
Federal and state income tax (benefit) |
|
|
(1,250 |
) |
|
|
1,242 |
|
|
|
3,856 |
|
|
|
3,501 |
|
|
|
3,911 |
|
Net income |
|
|
112 |
|
|
|
3,784 |
|
|
|
7,891 |
|
|
|
6,985 |
|
|
|
6,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,233,630 |
|
|
$ |
1,117,784 |
|
|
$ |
1,163,109 |
|
|
$ |
1,034,432 |
|
|
$ |
928,462 |
|
Total investment securities (including stock in Federal Banks) |
|
|
165,368 |
|
|
|
143,694 |
|
|
|
137,174 |
|
|
|
150,137 |
|
|
|
157,471 |
|
Total loans |
|
|
864,722 |
|
|
|
904,207 |
|
|
|
830,328 |
|
|
|
744,538 |
|
|
|
684,488 |
|
Allowance for loan losses |
|
|
(13,716 |
) |
|
|
(12,847 |
) |
|
|
(9,453 |
) |
|
|
(8,513 |
) |
|
|
(8,346 |
) |
Deposits |
|
|
1,052,065 |
|
|
|
965,966 |
|
|
|
1,004,762 |
|
|
|
875,084 |
|
|
|
774,316 |
|
Shareholders equity |
|
|
73,031 |
|
|
|
72,212 |
|
|
|
68,938 |
|
|
|
59,785 |
|
|
|
51,583 |
|
Weighted basic average shares outstanding |
|
|
2,302 |
|
|
|
2,311 |
|
|
|
2,328 |
|
|
|
2,302 |
|
|
|
2,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share (1) |
|
$ |
0.05 |
|
|
$ |
1.58 |
|
|
$ |
3.27 |
|
|
$ |
2.90 |
|
|
$ |
2.61 |
|
Cash dividends declared |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Book value (2) |
|
|
31.65 |
|
|
|
31.48 |
|
|
|
29.63 |
|
|
|
25.88 |
|
|
|
22.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Statistics and Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.0 |
% |
|
|
0.3 |
% |
|
|
0.7 |
% |
|
|
0.7 |
% |
|
|
0.7 |
% |
Return on average equity |
|
|
0.2 |
% |
|
|
5.3 |
% |
|
|
12.3 |
% |
|
|
12.7 |
% |
|
|
12.8 |
% |
Net interest margin (3) |
|
|
3.2 |
% |
|
|
3.4 |
% |
|
|
3.3 |
% |
|
|
3.4 |
% |
|
|
3.3 |
% |
Average loans to average deposits |
|
|
85.5 |
% |
|
|
88.5 |
% |
|
|
82.3 |
% |
|
|
85.9 |
% |
|
|
85.5 |
% |
Allowance for loan losses to loans at end of period |
|
|
1.6 |
% |
|
|
1.4 |
% |
|
|
1.1 |
% |
|
|
1.1 |
% |
|
|
1.2 |
% |
Allowance for loan losses to non-performing loans |
|
|
90.8 |
% |
|
|
146.4 |
% |
|
|
164.1 |
% |
|
|
119.0 |
% |
|
|
228.8 |
% |
Non-performing loans to loans at end of period |
|
|
1.7 |
% |
|
|
1.0 |
% |
|
|
0.7 |
% |
|
|
1.0 |
% |
|
|
0.5 |
% |
Net charge-offs to average loans |
|
|
1.2 |
% |
|
|
0.5 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.2 |
% |
Number of offices |
|
|
12 |
|
|
|
11 |
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Number of full and part-time employees |
|
|
270 |
|
|
|
252 |
|
|
|
228 |
|
|
|
221 |
|
|
|
211 |
|
Number of Shareholders of Record |
|
|
679 |
|
|
|
681 |
|
|
|
676 |
|
|
|
639 |
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders equity to average assets |
|
|
6.1 |
% |
|
|
6.3 |
% |
|
|
5.9 |
% |
|
|
5.7 |
% |
|
|
5.2 |
% |
Equity to assets |
|
|
5.9 |
% |
|
|
6.5 |
% |
|
|
5.9 |
% |
|
|
5.8 |
% |
|
|
5.6 |
% |
Total risk-based capital ratio (Bank only) |
|
|
10.9 |
% |
|
|
10.5 |
% |
|
|
10.6 |
% |
|
|
10.7 |
% |
|
|
10.9 |
% |
|
|
|
(1) |
|
Based upon weighted average shares outstanding during the period. |
|
(2) |
|
Based on Common Stock outstanding at the end of the period. |
|
(3) |
|
Net interest income as a percentage of average interest-earning assets. |
22
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Corporation relates to the years ended December 31,
2009, 2008, and 2007 and should be read in conjunction with the Corporations Consolidated
Financial Statements and Notes thereto included elsewhere herein.
Overview
The primary source of the Banks revenue is net interest income from loans and deposits and
fees from financial services provided to customers. Overall economic factors including market
interest rates, business spending, and consumer confidence, as well as competitive conditions
within the marketplace tend to influence business volumes.
The Corporation monitors the impact of changes in interest rates on its net interest income
through its Asset/Liability Committee (ALCO) Policy. One of the primary goals of asset/liability
management is to maximize net interest income and the net value of future cash flows within
authorized risk limits. At December 31, 2009, the interest rate risk position of the Corporation
was liability sensitive. Maintaining a liability sensitive interest rate risk position means that
net income should decrease as rates rise and increase as rates fall.
In addition to net interest income, net income is affected by other non-interest income, other
non-interest expense and the provision for loan losses. Other non-interest income increased for the
year ended
December 31, 2009, as compared to year ended December 31, 2008. The increase is primarily due to
mortgage banking income. The increase in mortgage banking income was the result of an increase in
gains recorded on mortgage loan sales for the year ended December 31, 2009, as compared to the year
ended December 31, 2008. In addition to the increase in mortgage banking income, service charges
and fees on deposit accounts increased for the year ended December 31, 2009, as compared to the
year ended December 31, 2008. The increase is attributable to an increase in service charges
collected for DDA business and non profit accounts due to a lower earnings credit rate for the year
ended December 31, 2009, as compared to the year ended December 31, 2008. Other non-interest
expense increased for the year ended December 31, 2009, as compared to the year ended December 31,
2008. The increase is due to an increase in FDIC insurance premiums paid during 2009 as compared
to 2008 and non-performing asset expense for the year ended December 31, 2009, as compared to the
year ended December 31, 2008. The increase is partially offset by a decrease in other expense for
the year ended December 31, 2009, as compared to December 31, 2008. The decrease in other expense
is due to non-recurring charges relating to certain deposit accounts during 2008. The provision
for loan losses increased for the year ended December 31, 2009, as compared to December 31, 2008.
The increase is due to an increase in charge offs and a high level of special mention and
classified loans due to the overall decline in the economy and the decline in real estate values.
Management performs an evaluation as to the amounts required to maintain an allowance adequate to
provide for probable incurred 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 managements assessment of probable incurred losses based upon internal credit evaluations of
loan portfolios and particular loans. Typically, improved economic strength generally will
translate into better credit quality in the banking industry. Management believes that the
allowance for loan losses is adequate to absorb credit losses inherent in the loan portfolio as
of December 31, 2009.
23
The risks and challenges that management believes will be important during 2010 are price
competition for loans and deposits by competitors, marketplace credit effects, continued spread
compression, a continued slowdown in the local economy that could adversely impact the ability of
borrowers to repay outstanding loans or the value of the collateral securing these loans, and the
lingering effects from the financial crisis in the U.S. market and foreign markets.
Results of Operations
Year ended December 31, 2009, Compared to the Year Ended December 31, 2008, and the Year Ended
December 31, 2008, Compared to the Year Ended December 31, 2007.
The Corporations results of operations depend primarily on the level of its net interest
income, its provision for loan losses, 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.
2009 compared with 2008
The Corporation had net income of $112 thousand for 2009 compared to net income of $3.8
million for 2008. The decrease in net income is due to an increase in: the provision for loan
losses, non performing asset expense, FDIC insurance expense, and salary, wages, and employee
benefits. These increases in expenses were partially offset by a decrease in other operating
expense and an increase in mortgage banking income .
The Bank experienced an increase in total assets in 2009 compared with 2008. Total assets
increased $116 million or 10% to $1,234 million in 2009 from $1,118 million in 2008. The
increase is primarily due to: an increase in cash and cash equivalents of $121 million or 390% to
$152 million in 2009 from $31 million in 2008, an increase in investments of $21 million or 15% to
$162 million in 2009 from $141 million in 2008, and an increase in other real estate owned and
repossessions of $5 million or 167% to $8 million in 2009 from $3 million in 2008. The increase is
partially offset by a decrease in loans of $39 million or 4% to $865 million in 2009 from $904
million in 2008.
2008 compared with 2007
The Corporation had net income of $3.8 million for 2008 compared to net income of $7.9 million
for 2007. The decrease in net income is due to a non-recurring charge in the first quarter of 2008
related to certain deposit accounts and increases in: the provision for loan losses, FDIC
insurance expense, occupancy, and furniture, fixtures, and equipment expense related to the opening
of a new lockbox/disaster site and new banking center at 2714 East 146th
Street in January 2008. These increases in expenses were partially offset by an increase in net
interest income period over period and an increase in other operating income.
The Bank experienced a decrease in total assets in 2008 compared with 2007. Total assets
decreased $45 million or 4% to $1,118 million in 2008 from $1,163 million in 2007. The
decrease is primarily due to: a decrease in cash and cash equivalents of $131 million or 81% to
$31 million in 2008 from $162 million in 2007, an increase in loans of $74 million or 9% to $904
million in 2008 from $830 million in 2007, an increase in investments of $7 million or 5% to $141
million in 2008 from $134 million in 2007, and an increase in other real estate owned and
repossessions of $3 million or 826% to $3.4 million in 2008 from $363 thousand in 2007.
24
Net Interest Income
The following table details the components of net interest income for the years ended
December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
42,217 |
|
|
$ |
48,988 |
|
|
$ |
(6,771 |
) |
|
|
-13.8 |
% |
|
$ |
48,988 |
|
|
$ |
57,383 |
|
|
$ |
(8,395 |
) |
|
|
-14.6 |
% |
Interest on investment securities taxable |
|
|
3,242 |
|
|
|
4,489 |
|
|
|
(1,247 |
) |
|
|
-27.8 |
% |
|
|
4,489 |
|
|
|
6,777 |
|
|
|
(2,288 |
) |
|
|
-33.8 |
% |
Interest on investment securities nontaxable |
|
|
2,068 |
|
|
|
2,047 |
|
|
|
21 |
|
|
|
1.0 |
% |
|
|
2,047 |
|
|
|
1,817 |
|
|
|
230 |
|
|
|
12.7 |
% |
Interest on federal funds sold |
|
|
4 |
|
|
|
705 |
|
|
|
(701 |
) |
|
|
-99.4 |
% |
|
|
705 |
|
|
|
2,492 |
|
|
|
(1,787 |
) |
|
|
-71.7 |
% |
Interest on reverse repurchase agreements |
|
|
|
|
|
|
148 |
|
|
|
(148 |
) |
|
|
-100.0 |
% |
|
|
148 |
|
|
|
411 |
|
|
|
(263 |
) |
|
|
-64.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
47,531 |
|
|
$ |
56,377 |
|
|
$ |
(8,846 |
) |
|
|
-15.7 |
% |
|
$ |
56,377 |
|
|
$ |
68,880 |
|
|
$ |
(12,503 |
) |
|
|
-18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
$ |
9,427 |
|
|
$ |
17,979 |
|
|
$ |
(8,552 |
) |
|
|
-47.6 |
% |
|
$ |
17,979 |
|
|
$ |
30,847 |
|
|
$ |
(12,868 |
) |
|
|
-41.7 |
% |
Interest on other short term borrowings |
|
|
182 |
|
|
|
544 |
|
|
|
(362 |
) |
|
|
-66.5 |
% |
|
|
544 |
|
|
|
2,078 |
|
|
|
(1,534 |
) |
|
|
-73.8 |
% |
Interest on
FHLB advances and overnight borrowings |
|
|
|
|
|
|
193 |
|
|
|
(193 |
) |
|
|
-100.0 |
% |
|
|
193 |
|
|
|
463 |
|
|
|
(270 |
) |
|
|
-58.3 |
% |
Interest on short-term debt |
|
|
121 |
|
|
|
16 |
|
|
|
105 |
|
|
|
656.3 |
% |
|
|
16 |
|
|
|
|
|
|
|
16 |
|
|
|
100.0 |
% |
Interest on long-term debt |
|
|
1,583 |
|
|
|
1,717 |
|
|
|
(134 |
) |
|
|
-7.8 |
% |
|
|
1,717 |
|
|
|
1,875 |
|
|
|
(158 |
) |
|
|
-8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
11,313 |
|
|
$ |
20,449 |
|
|
$ |
(9,136 |
) |
|
|
-44.7 |
% |
|
$ |
20,449 |
|
|
$ |
35,263 |
|
|
$ |
(14,814 |
) |
|
|
-42.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
36,218 |
|
|
$ |
35,928 |
|
|
$ |
290 |
|
|
|
0.8 |
% |
|
$ |
35,928 |
|
|
$ |
33,617 |
|
|
$ |
2,311 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 compared with 2008
Total average earning assets increased for 2009 as compared to 2008. The increase is
primarily attributable to an increase in the average balance in interest bearing due from banks and
an increase in average loans. Interest income decreased for 2009 as compared to 2008. The
decrease is due to an overall lower interest rate environment in 2009 as compared to 2008 as a
result of significant interest rate decreases by the Federal Reserve in 2008. Over the course of
2008, the prime interest rate decreased by 400 basis points to 3.25% from 7.25%.
Total average interest bearing liabilities increased for 2009 as compared to 2008. The
increase is due primarily to an increase in average interest bearing demand deposits and average
certificates of deposits. Interest expense decreased due to lower interest rates paid on interest
bearing liabilities.
The increase in net interest income was a result of an increase in the net interest spread
during 2009 as compared to 2008. The increase in the net interest spread was the result of a
larger decline in the cost of interest bearing liabilities than the decline in the yield on earning
assets during 2009 compared to 2008. The decrease in the contribution of non-interest bearing
funds to 0.20% from 0.40% for the year ended December 31, 2009, as compared to December 31, 2008,
caused an overall decrease in the net interest margin FTE to 3.32% from 3.47% for the year ended
December 31, 2009, as compared to December 31, 2008.
25
2008 compared with 2007
Total average earning assets increased for 2008 as compared to 2007. The increase is
primarily attributable to an increase in average loan growth. Interest income decreased for 2008
as compared to 2007. The decrease is due to an overall lower interest rate environment in 2008 as
compared to 2007 as a result of significant interest rate decreases by the Federal Reserve in 2008.
Over the course of 2008, the prime interest rate decreased by 400 basis points to 3.25% from 7.25%
in 2007.
Total interest bearing liabilities increased for 2008 compared to 2007. The increase is due
primarily to an increase in interest bearing demand deposits and savings/money market deposits.
Interest expense decreased due to lower interest rates paid on interest bearing liabilities.
The increase in net interest income was a result of an increase in the net interest spread
during 2008 as compared to 2007. The increase in the net interest spread was the result of a
better mix of earning assets during 2008 compared to 2007.
26
The following table details average balances, interest income / expense and average rates /
yields for the Banks earning assets and interest bearing liabilities for the years ended December
31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
Average |
|
|
Income/ |
|
|
Rate/ |
|
|
Average |
|
|
Income/ |
|
|
Rate/ |
|
|
Average |
|
|
Income/ |
|
|
Rate/ |
|
|
|
Balance |
|
|
Expense |
|
|
Yield |
|
|
Balance |
|
|
Expense |
|
|
Yield |
|
|
Balance |
|
|
Expense |
|
|
Yield |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing due from banks |
|
$ |
91,295 |
|
|
$ |
231 |
|
|
|
0.25 |
% |
|
$ |
20,645 |
|
|
$ |
509 |
|
|
|
2.47 |
% |
|
$ |
61,200 |
|
|
$ |
2,999 |
|
|
|
4.90 |
% |
Reverse repurchase agreements |
|
|
1,000 |
|
|
|
|
|
|
|
0.01 |
% |
|
|
4,197 |
|
|
|
148 |
|
|
|
3.53 |
% |
|
|
8,701 |
|
|
|
411 |
|
|
|
4.72 |
% |
Federal funds |
|
|
2,646 |
|
|
|
4 |
|
|
|
0.15 |
% |
|
|
31,530 |
|
|
|
705 |
|
|
|
2.24 |
% |
|
|
52,466 |
|
|
|
2,492 |
|
|
|
4.75 |
% |
Non taxable investment securities FTE |
|
|
56,070 |
|
|
|
3,140 |
|
|
|
5.60 |
% |
|
|
55,178 |
|
|
|
3,046 |
|
|
|
5.52 |
% |
|
|
46,252 |
|
|
|
2,640 |
|
|
|
5.71 |
% |
Taxable investments securities |
|
|
88,855 |
|
|
|
3,011 |
|
|
|
3.39 |
% |
|
|
98,585 |
|
|
|
3,980 |
|
|
|
4.04 |
% |
|
|
93,757 |
|
|
|
3,778 |
|
|
|
4.03 |
% |
Loans (gross) |
|
|
883,721 |
|
|
|
42,217 |
|
|
|
4.78 |
% |
|
|
855,313 |
|
|
|
48,988 |
|
|
|
5.73 |
% |
|
|
768,271 |
|
|
|
57,383 |
|
|
|
7.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets FTE |
|
$ |
1,123,587 |
|
|
$ |
48,603 |
|
|
|
4.33 |
% |
|
$ |
1,065,448 |
|
|
$ |
57,376 |
|
|
|
5.39 |
% |
|
$ |
1,030,647 |
|
|
$ |
69,703 |
|
|
|
6.76 |
% |
Non-earning assets |
|
|
83,573 |
|
|
|
|
|
|
|
|
|
|
|
63,335 |
|
|
|
|
|
|
|
|
|
|
|
57,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,207,160 |
|
|
|
|
|
|
|
|
|
|
$ |
1,128,783 |
|
|
|
|
|
|
|
|
|
|
$ |
1,087,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing DDA |
|
$ |
160,233 |
|
|
$ |
600 |
|
|
|
0.37 |
% |
|
$ |
116,999 |
|
|
$ |
1,206 |
|
|
|
1.03 |
% |
|
$ |
97,908 |
|
|
$ |
1,632 |
|
|
|
1.67 |
% |
Savings |
|
|
472,181 |
|
|
|
3,448 |
|
|
|
0.73 |
% |
|
|
495,956 |
|
|
|
9,698 |
|
|
|
1.96 |
% |
|
|
481,295 |
|
|
|
19,589 |
|
|
|
4.07 |
% |
CDs under $100 |
|
|
63,609 |
|
|
|
1,665 |
|
|
|
2.62 |
% |
|
|
66,256 |
|
|
|
2,547 |
|
|
|
3.84 |
% |
|
|
71,087 |
|
|
|
3,378 |
|
|
|
4.75 |
% |
CDs over $100 |
|
|
129,325 |
|
|
|
3,160 |
|
|
|
2.44 |
% |
|
|
101,008 |
|
|
|
3,806 |
|
|
|
3.77 |
% |
|
|
107,030 |
|
|
|
5,415 |
|
|
|
5.06 |
% |
Individual retirement accounts |
|
|
19,980 |
|
|
|
554 |
|
|
|
2.77 |
% |
|
|
18,737 |
|
|
|
722 |
|
|
|
3.85 |
% |
|
|
17,618 |
|
|
|
833 |
|
|
|
4.73 |
% |
Repurchase agreements and other
secured short term borrowings |
|
|
68,742 |
|
|
|
182 |
|
|
|
0.26 |
% |
|
|
57,125 |
|
|
|
544 |
|
|
|
0.95 |
% |
|
|
54,326 |
|
|
|
2,078 |
|
|
|
3.83 |
% |
FHLB advances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,336 |
|
|
|
193 |
|
|
|
2.63 |
% |
|
|
9,318 |
|
|
|
463 |
|
|
|
4.97 |
% |
Short-term debt |
|
|
4,200 |
|
|
|
121 |
|
|
|
2.88 |
% |
|
|
586 |
|
|
|
16 |
|
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt |
|
|
5,000 |
|
|
|
108 |
|
|
|
2.16 |
% |
|
|
5,000 |
|
|
|
242 |
|
|
|
4.84 |
% |
|
|
5,000 |
|
|
|
393 |
|
|
|
7.86 |
% |
Long term debt |
|
|
13,918 |
|
|
|
1,475 |
|
|
|
10.60 |
% |
|
|
13,918 |
|
|
|
1,475 |
|
|
|
10.60 |
% |
|
|
13,918 |
|
|
|
1,482 |
|
|
|
10.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
937,188 |
|
|
$ |
11,313 |
|
|
|
1.21 |
% |
|
$ |
882,921 |
|
|
$ |
20,449 |
|
|
|
2.32 |
% |
|
$ |
857,500 |
|
|
$ |
35,263 |
|
|
|
4.11 |
% |
Non-interest bearing liabilities |
|
|
188,594 |
|
|
|
|
|
|
|
|
|
|
|
167,121 |
|
|
|
|
|
|
|
|
|
|
|
158,882 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
8,034 |
|
|
|
|
|
|
|
|
|
|
|
7,921 |
|
|
|
|
|
|
|
|
|
|
|
7,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,133,816 |
|
|
|
|
|
|
|
|
|
|
$ |
1,057,963 |
|
|
|
|
|
|
|
|
|
|
$ |
1,023,523 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
73,344 |
|
|
|
|
|
|
|
|
|
|
|
70,820 |
|
|
|
|
|
|
|
|
|
|
|
64,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity |
|
$ |
1,207,160 |
|
|
|
|
|
|
|
|
|
|
$ |
1,128,783 |
|
|
|
|
|
|
|
|
|
|
$ |
1,087,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recap: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income FTE |
|
|
|
|
|
$ |
48,603 |
|
|
|
4.33 |
% |
|
|
|
|
|
$ |
57,376 |
|
|
|
5.39 |
% |
|
|
|
|
|
$ |
69,703 |
|
|
|
6.76 |
% |
Interest expense |
|
|
|
|
|
|
11,313 |
|
|
|
1.21 |
% |
|
|
|
|
|
|
20,449 |
|
|
|
2.32 |
% |
|
|
|
|
|
|
35,263 |
|
|
|
4.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/spread FTE |
|
|
|
|
|
$ |
37,290 |
|
|
|
3.12 |
% |
|
|
|
|
|
$ |
36,927 |
|
|
|
3.07 |
% |
|
|
|
|
|
$ |
34,440 |
|
|
|
2.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of non-interest bearing funds |
|
|
|
|
|
|
|
|
|
|
0.20 |
% |
|
|
|
|
|
|
|
|
|
|
0.40 |
% |
|
|
|
|
|
|
|
|
|
|
0.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin FTE |
|
|
|
|
|
|
|
|
|
|
3.32 |
% |
|
|
|
|
|
|
|
|
|
|
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Notes to the average balance and interest rate tables:
|
|
|
Average balances are computed using daily actual balances. |
|
|
|
The average loan balance includes non-accrual loans and the interest recognized prior to
becoming non-accrual is reflected in the interest income for loans. |
|
|
|
Interest income on loans includes loan fees net of loan costs, of $(645) thousand,
$(714) thousand, and $153 thousand, for the years ended December 31, 2009, 2008, and 2007,
respectively. |
|
|
|
Net interest income on a fully taxable equivalent basis, the most significant component
of the Corporations earnings, is total interest income on a fully taxable equivalent basis
less total interest expense. The level of net interest income on a fully taxable
equivalent basis is determined by the mix and volume of interest earning assets, interest
bearing deposits and borrowed funds, and changes in interest rates. |
|
|
|
Net interest spread is the difference between the fully taxable equivalent rate earned
on interest earning assets less the rate expensed on interest bearing liabilities. |
|
|
|
Net interest margin represents net interest income on a fully taxable equivalent basis
as a percentage of average interest earning assets. Net interest margin is affected by
both the interest rate spread and the level of non-interest bearing sources of funds,
primarily consisting of demand deposits and shareholders equity. |
|
|
|
Interest income on a fully taxable equivalent basis includes the additional amount of
interest income that would have been earned if investments in certain tax-exempt interest
earning assets had been made in assets subject to federal taxes yielding the same after-tax
income. Interest income on municipal securities has been calculated on a fully taxable
equivalent basis using a federal and state income tax blended rate of 40%. The appropriate
tax equivalent adjustments to interest income were $1.1 million, $999 thousand, and $823
thousand, for the years ended December 31, 2009, 2008, and 2007, respectively. |
|
|
|
Management believes the disclosure of the fully taxable equivalent net interest income
information improves the clarity of financial analysis, and is particularly useful to
investors in understanding and evaluating the changes and trends in the Corporations
results of operations. This adjustment is considered helpful in the comparison of one
financial institutions net interest income to that of another institution, as each will
have a different proportion of tax-exempt interest from their earning asset portfolios. |
28
The following table sets forth an analysis of volume and rate changes in interest income and
interest expense of the Corporations average earning assets and average interest-bearing
liabilities. The table distinguishes between the changes related to average outstanding balances of
assets and liabilities (changes in volume holding the initial average interest rate constant) and
the changes related to average interest rates (changes in average rate holding the initial average
outstanding balance constant). The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
Net Interest Income Changes Due to Volume and Rates ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Changes from 2008 |
|
|
2008 Changes from 2007 |
|
|
|
Net |
|
|
Due to |
|
|
Due to |
|
|
Net |
|
|
Due to |
|
|
Due to |
|
|
|
Change |
|
|
Rate |
|
|
Volume |
|
|
Change |
|
|
Rate |
|
|
Volume |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing due from banks |
|
$ |
(278 |
) |
|
$ |
(781 |
) |
|
$ |
503 |
|
|
$ |
(2,490 |
) |
|
$ |
(1,067 |
) |
|
$ |
(1,423 |
) |
Reverse repurchase agreements |
|
$ |
(148 |
) |
|
$ |
|
|
|
$ |
(148 |
) |
|
$ |
(263 |
) |
|
$ |
(86 |
) |
|
$ |
(177 |
) |
Federal funds |
|
$ |
(701 |
) |
|
$ |
(354 |
) |
|
$ |
(347 |
) |
|
$ |
(1,787 |
) |
|
$ |
(1,019 |
) |
|
$ |
(768 |
) |
Non taxable investment securities FTE |
|
$ |
94 |
|
|
$ |
44 |
|
|
$ |
50 |
|
|
$ |
406 |
|
|
$ |
(89 |
) |
|
$ |
495 |
|
Taxable investment securities |
|
$ |
(969 |
) |
|
$ |
(600 |
) |
|
$ |
(369 |
) |
|
$ |
202 |
|
|
$ |
7 |
|
|
$ |
195 |
|
Loans (gross) |
|
$ |
(6,771 |
) |
|
$ |
(8,353 |
) |
|
$ |
1,582 |
|
|
$ |
(8,395 |
) |
|
$ |
(14,401 |
) |
|
$ |
6,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
(8,773 |
) |
|
|
(10,044 |
) |
|
|
1,271 |
|
|
|
(12,327 |
) |
|
|
(16,655 |
) |
|
|
4,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing DDA |
|
$ |
(606 |
) |
|
$ |
(947 |
) |
|
$ |
341 |
|
|
$ |
(426 |
) |
|
$ |
(703 |
) |
|
$ |
277 |
|
Savings deposits |
|
$ |
(6,250 |
) |
|
$ |
(5,806 |
) |
|
$ |
(444 |
) |
|
$ |
(9,891 |
) |
|
$ |
(10,471 |
) |
|
$ |
580 |
|
CDs under $100 |
|
$ |
(882 |
) |
|
$ |
(784 |
) |
|
$ |
(98 |
) |
|
$ |
(831 |
) |
|
$ |
(613 |
) |
|
$ |
(218 |
) |
CDs over $100 |
|
$ |
(646 |
) |
|
$ |
(1,547 |
) |
|
$ |
901 |
|
|
$ |
(1,609 |
) |
|
$ |
(1,318 |
) |
|
$ |
(291 |
) |
Individual retirement accounts |
|
$ |
(168 |
) |
|
$ |
(213 |
) |
|
$ |
45 |
|
|
$ |
(111 |
) |
|
$ |
(161 |
) |
|
$ |
50 |
|
Repurchase agreements and other short-term
secured borrowings |
|
$ |
(362 |
) |
|
$ |
(455 |
) |
|
$ |
93 |
|
|
$ |
(1,534 |
) |
|
$ |
(1,636 |
) |
|
$ |
102 |
|
FHLB advances |
|
$ |
(193 |
) |
|
$ |
|
|
|
$ |
(193 |
) |
|
$ |
(270 |
) |
|
$ |
(186 |
) |
|
$ |
(84 |
) |
Short-term debt |
|
$ |
105 |
|
|
$ |
1 |
|
|
$ |
104 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
16 |
|
Subordinated debt |
|
$ |
(134 |
) |
|
$ |
(134 |
) |
|
$ |
|
|
|
$ |
(151 |
) |
|
$ |
(151 |
) |
|
$ |
|
|
Long term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(7 |
) |
|
$ |
(7 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
(9,136 |
) |
|
$ |
(9,885 |
) |
|
$ |
749 |
|
|
$ |
(14,814 |
) |
|
$ |
(15,246 |
) |
|
$ |
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income |
|
$ |
363 |
|
|
$ |
(159 |
) |
|
$ |
522 |
|
|
$ |
2,487 |
|
|
$ |
(1,409 |
) |
|
$ |
3,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Provision for Loan Losses
The amount charged to the provision for loan losses by the Bank is based on managements
evaluation as to the amounts required to maintain an allowance adequate to provide for probable
incurred 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 managements
assessment of probable incurred losses based upon internal credit evaluations of loan portfolios
and particular loans. Loans are principally to borrowers in central Indiana. The following table
details the components of loan loss reserve as of December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Beginning of Period |
|
$ |
12,847 |
|
|
$ |
9,453 |
|
|
$ |
8,513 |
|
|
$ |
8,346 |
|
|
$ |
7,796 |
|
Provision for loan losses |
|
|
11,905 |
|
|
|
7,400 |
|
|
|
904 |
|
|
|
1,086 |
|
|
|
2,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeoffs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
2,603 |
|
|
|
1,697 |
|
|
|
228 |
|
|
|
1,094 |
|
|
|
1,318 |
|
Commercial Real Estate |
|
|
6,150 |
|
|
|
1,126 |
|
|
|
|
|
|
|
191 |
|
|
|
|
|
Residential Mortgage |
|
|
864 |
|
|
|
1,360 |
|
|
|
600 |
|
|
|
121 |
|
|
|
447 |
|
Consumer |
|
|
21 |
|
|
|
64 |
|
|
|
50 |
|
|
|
51 |
|
|
|
5 |
|
Credit Cards |
|
|
84 |
|
|
|
97 |
|
|
|
4 |
|
|
|
28 |
|
|
|
50 |
|
Construction |
|
|
1,710 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,432 |
|
|
|
4,393 |
|
|
|
882 |
|
|
|
1,485 |
|
|
|
1,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
343 |
|
|
|
187 |
|
|
|
814 |
|
|
|
412 |
|
|
|
259 |
|
Residential Mortgage |
|
|
20 |
|
|
|
174 |
|
|
|
67 |
|
|
|
154 |
|
|
|
26 |
|
Consumer |
|
|
|
|
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
Credit Cards |
|
|
33 |
|
|
|
25 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396 |
|
|
|
387 |
|
|
|
918 |
|
|
|
566 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period |
|
$ |
13,716 |
|
|
$ |
12,847 |
|
|
$ |
9,453 |
|
|
$ |
8,513 |
|
|
$ |
8,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as a % of Loans |
|
|
1.59 |
% |
|
|
1.42 |
% |
|
|
1.14 |
% |
|
|
1.14 |
% |
|
|
1.22 |
% |
2009 compared with 2008
The provision for loan losses was $11.9 million for 2009 compared to $7.4 million for 2008.
The increase in the provision for loan losses for 2009 as compared to 2008 is due to increased
charge offs and a higher level of special mention and classified loans as compared to the same
period in 2008 due to the overall decline in the economy and the sharp decline in real estate
values. These chargeoffs relate to specific commercial loans, commercial real estate loans, and
construction loans. Management does not believe that these chargeoffs are indicative of systematic
problems with the loan portfolio. Based on managements risk assessment and evaluation of the
probable incurred losses of the loan portfolio, management believes that the current allowance for
loan losses is adequate to provide for probable incurred losses in the loan portfolio.
2008 compared with 2007
The provision for loan losses was $7.4 million for 2008 compared to $904 thousand for 2007.
The increase in the provision for loan losses for 2008 as compared to 2007 is due to loan growth,
increased charge offs, and a higher level of special mention and classified loans as compared to
the same period in 2007 due to the overall decline in the economy and the sharp decline in real
estate values. These chargeoffs relate to specific commercial loans, commercial real estate loans,
and residential mortgage loans. Management does not believe that these chargeoffs are indicative
of systematic problems with the loan portfolio. Based on managements risk assessment and
evaluation of the probable incurred losses of the loan portfolio, management believes that the
current allowance for loan losses is adequate to provide for probable incurred losses in the loan
portfolio.
30
Other Operating Income
The following table details the components of other operating income for the years ended
December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Wealth management fees |
|
$ |
4,917 |
|
|
$ |
5,048 |
|
|
$ |
(131 |
) |
|
|
-2.6 |
% |
|
$ |
5,048 |
|
|
$ |
4,547 |
|
|
$ |
501 |
|
|
|
11.0 |
% |
Service charges and fees on deposit accounts |
|
|
3,113 |
|
|
|
2,484 |
|
|
|
629 |
|
|
|
25.3 |
% |
|
|
2,484 |
|
|
|
1,818 |
|
|
$ |
666 |
|
|
|
36.6 |
% |
Rental income |
|
|
321 |
|
|
|
575 |
|
|
|
(254 |
) |
|
|
-44.2 |
% |
|
|
575 |
|
|
|
597 |
|
|
$ |
(22 |
) |
|
|
-3.7 |
% |
Mortgage banking income |
|
|
1,576 |
|
|
|
62 |
|
|
|
1,514 |
|
|
|
2,441.9 |
% |
|
|
62 |
|
|
|
329 |
|
|
$ |
(267 |
) |
|
|
-81.2 |
% |
Interchange income |
|
|
1,007 |
|
|
|
877 |
|
|
|
130 |
|
|
|
14.8 |
% |
|
|
877 |
|
|
|
678 |
|
|
$ |
199 |
|
|
|
29.4 |
% |
Other income |
|
|
1,969 |
|
|
|
2,158 |
|
|
|
(189 |
) |
|
|
-8.8 |
% |
|
|
2,158 |
|
|
|
1,865 |
|
|
$ |
293 |
|
|
|
15.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
$ |
12,903 |
|
|
$ |
11,204 |
|
|
$ |
1,699 |
|
|
|
15.2 |
% |
|
$ |
11,204 |
|
|
$ |
9,834 |
|
|
$ |
1,370 |
|
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 compared with 2008
Other operating income increased for 2009 compared to 2008. There are several factors that
contribute to the overall increase.
Wealth Management fees decreased for 2009 compared to 2008. The decrease is attributable to
the overall decline in the stock market. Partially offsetting the decrease is an increase in
estate administration fees and fees collected for tax return preparation.
Service charges and fees on deposit accounts increased for 2009 compared to 2008. The
increase is primarily attributable to an increase in service charges collected for DDA business and
non-profit accounts due to a lower earnings credit rate in 2009 compared to 2008. The increase is
partially offset by a decrease in overdraft and NSF fees.
Building rental income decreased for 2009 compared to 2008. This was due to the bank
occupying more space at the 4930 North Pennsylvania Street and 107 North Pennsylvania Street
locations thus reducing the space available for tenants.
A net gain on mortgage loan sales of $1.6 million was recorded in 2009 as compared to a net
gain of $499 thousand in 2008. Mortgage loan originations were in excess of $96.0 million with
sales in excess of $70.9 million to the secondary market in 2009. Additionally, the write
down of the fair value of mortgage servicing rights (MSRs) decreased for 2009 as compared to
2008. The Corporation recorded a write down of $334 thousand for 2009 as compared to a write down
of $715 thousand for 2008.
When a mortgage loan is sold and the MSRs are retained, the MSRs are recorded as an asset on
the balance sheet. The value of the MSRs is sensitive to changes in interest rates. In a
declining interest rate environment, mortgage loan refinancings generally increase, causing actual
and expected loan prepayments to increase, which decreases the value of existing MSRs.
Conversely, as interest rates rise, mortgage loan refinancings generally decline, causing actual
and expected loan prepayments to decrease, which increases the value of the MSRs.
31
Interchange income increased for 2009 compared to 2008. The increase is attributable to
higher transaction volumes for debit cards and credit cards in 2009 compared to 2008.
Other income decreased for 2009 compared to 2008. The decrease is primarily due to a decrease
in prepayment penalties collected, bank owned life insurance income, documentation fees, and
Dreyfus money market funds sweep fees. The decrease is partially offset by an increase for income
collected for a participation fee.
2008 compared with 2007
Other operating income increased for 2008 compared to 2007. There are several factors that
contribute to the overall increase.
Wealth Management fees increased for 2008 compared to 2007. The net increase in wealth
management fees is attributable to the overall fee increase for many of the accounts with assets
under management and increased fees collected for tax return preparation. In addition, as a result
of the financial crisis in the U.S. markets as well as foreign markets, wealth management clients
transferred assets into Dreyfus money market funds, thus increasing the fees collected on those
types of assets.
Service charges and fees on deposit accounts increased for 2008 compared to 2007. The
increase is primarily attributable to an increase in service charges collected for DDA business and
non-profit accounts due to a lower earnings credit rate in 2008 compared to 2007.
Building rental income decreased for 2008 compared to 2007. This was due to a decline in
tenants at the 4930 North Pennsylvania Street location due to the Bank occupying more
space.
Mortgage banking income decreased for 2008 compared to 2007. The decrease is due to a write
down of the fair value of MSRs of $715 thousand in 2008 compared to $145 thousand in 2007.
Offsetting this decrease was an increase in the net gain on the sale of mortgage loans. A net gain
of $499 thousand was recorded in 2008 as
compared to a net gain of $205 thousand in 2007. Mortgage originations were in excess of $56.0
million with sales in excess of $40.6 million to the secondary market in 2008 as compared to
mortgage originations in excess of $29.0 million with sales in excess of $15.2 million to the
secondary market in 2007. When a mortgage loan is sold and the MSRs are retained, the MSR is
recorded as an asset on the balance sheet. The value of MSRs is sensitive to changes in interest
rates. In a declining interest rate environment, mortgage loan refinancings generally increase,
causing actual and expected loan prepayments to increase, which decreases the value of existing
MSRs. Conversely, as interest rates rise, mortgage loan refinancings generally decline, causing
actual and expected loan prepayments to decrease, which increases the values of the MSRs.
Interchange income increased for 2008 compared to 2007. The increase is attributable to
higher transaction volumes for debit and credit cards in 2008 as compared to 2007 and a reduction
in cash back rewards expense for 2008 as compared to 2007.
Other income increased for 2008 compared to 2007. The increase is primarily due to an
increase in letter of credit fees, application fees, credit card merchant fees, sweep fees for
Dreyfus money market funds, as well as prepayment penalties and late fees collected. The increase
is offset by a decrease in documentation fees, other miscellaneous income, and Bank Owned Life
Insurance (BOLI) income.
32
Other Operating Expenses
The following table details the components of other operating expenses for the years ended
December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Salaries, wages and employee benefits |
|
$ |
21,332 |
|
|
$ |
19,172 |
|
|
$ |
2,160 |
|
|
|
11.3 |
% |
|
$ |
19,172 |
|
|
$ |
19,098 |
|
|
$ |
74 |
|
|
|
0.4 |
% |
Occupancy |
|
|
2,441 |
|
|
|
2,081 |
|
|
|
360 |
|
|
|
17.3 |
% |
|
|
2,081 |
|
|
|
1,791 |
|
|
$ |
290 |
|
|
|
16.2 |
% |
Furniture and equipment |
|
|
1,359 |
|
|
|
1,428 |
|
|
|
(69 |
) |
|
|
-4.8 |
% |
|
|
1,428 |
|
|
|
1,241 |
|
|
$ |
187 |
|
|
|
15.1 |
% |
Professional services |
|
|
1,873 |
|
|
|
1,971 |
|
|
|
(98 |
) |
|
|
-5.0 |
% |
|
|
1,971 |
|
|
|
1,800 |
|
|
$ |
171 |
|
|
|
9.5 |
% |
Data processing |
|
|
2,752 |
|
|
|
2,514 |
|
|
|
238 |
|
|
|
9.5 |
% |
|
|
2,514 |
|
|
|
2,200 |
|
|
$ |
314 |
|
|
|
14.3 |
% |
Business development |
|
|
1,531 |
|
|
|
1,526 |
|
|
|
5 |
|
|
|
0.3 |
% |
|
|
1,526 |
|
|
|
1,292 |
|
|
$ |
234 |
|
|
|
18.1 |
% |
FDIC insurance |
|
|
2,142 |
|
|
|
918 |
|
|
|
1,224 |
|
|
|
133.3 |
% |
|
|
918 |
|
|
|
99 |
|
|
$ |
819 |
|
|
|
827.3 |
% |
Non performing assets |
|
|
1,383 |
|
|
|
149 |
|
|
|
1,234 |
|
|
|
828.2 |
% |
|
|
149 |
|
|
|
109 |
|
|
$ |
40 |
|
|
|
36.7 |
% |
Other |
|
|
3,541 |
|
|
|
4,947 |
|
|
|
(1,406 |
) |
|
|
-28.4 |
% |
|
|
4,947 |
|
|
|
3,170 |
|
|
$ |
1,777 |
|
|
|
56.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
$ |
38,354 |
|
|
$ |
34,706 |
|
|
$ |
3,648 |
|
|
|
10.5 |
% |
|
$ |
34,706 |
|
|
$ |
30,800 |
|
|
$ |
3,906 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 compared with 2008
Other operating expenses increased for 2009 compared to 2008. There are several factors that
contribute to the overall increase.
Salaries, wages and employee benefits increased for 2009 compared to 2008. The increase is
the result of increased salary expense and group medical and dental benefits. Salary expense,
which includes restricted stock expense, increased due to an increase in full-time equivalent
employees of 20 from 241 in 2008 to 261 in 2009. Also contributing to the increase was additional
restricted stock expense due to grants to officers of the Bank during the second quarter of 2009.
Group medical and dental benefits increased due to the increase in employees as well as due to
higher costs in 2009.
Occupancy expense increased for 2009 compared to 2008. The increase is due to an increase in
building rental expense for the lockbox processing center/disaster site, building and improvements
depreciation expense due to the opening of the banking center located at 2410 Harleston Street in
November 2008, real estate tax expense, lawn maintenance, janitorial and trash expense, and
utilities.
Furniture and equipment expense decreased for 2009 compared to 2008. This decrease is due to
a decrease in furniture, fixture, and equipment purchased and expensed for $500 and depreciation
for furniture, fixture, and equipment due to older assets being fully depreciated. This decrease
is partially offset by an increase in depreciation expense associated with computer equipment for
the new banking center at 2410 Harleston Street.
Professional services expense decreased for 2009 compared to 2008. The decrease is due to a
decrease in courier service, accounting fees, advertising agency fees, and consulting fees. The
decrease is partially offset by an increase in design services.
Data processing expenses increased for 2009 compared to 2008. The increase is due to an
increase in bill payment services, ATM/debit cards, credit cards, remote deposit capture fees, and
increased service bureau fees related to increased transaction activity by the Bank. The increase
is partially offset by a decrease in fiduciary income tax preparation for wealth management
accounts and mutual fund expense due to an overall decline in market values.
33
Business development expenses increased for 2009 compared to 2008. The increase is due to an
increase in advertising, customer entertainment, sales and product literature, public relations,
and direct mail campaign. The increase is partially offset by a decrease in customer relations,
customer promotion and premium items, and grand opening expense.
FDIC insurance increased for 2009 compared to 2008. The increase is due to an overall
increase in the assessment by the FDIC effective January 1, 2009, as well as a special assessment
of $557 thousand paid by the Corporation during 2009. Effective April 1, 2009, insurance
assessments range from 0.07% to 0.78%, depending on the institutions risk classifications, as well
as its unsecured debt, secured liability and brokered deposits.
Non performing assets expenses increased for 2009 compared to 2008. This is due to an
increase in expense related to other real estate owned by the Corporation, such as real estate
taxes, lawn maintenance, and appraisal fees as well as the write down of the carrying value of real
estate owned.
Other expenses decreased for 2009 compared to 2008. During 2008, a non-recurring charge of
$1.4 million related to certain deposit accounts and a charge of $94 thousand related to certain
wealth management accounts was recorded. Also contributing to the decrease is lower expense
related to conferences and conventions, personal property taxes, and charitable contributions. The
overall decrease is partially offset by a loss of $40 thousand as a result of the Heartland Payment
Systems credit card software compromise and a charge of $50 thousand related to certain deposit
accounts.
2008 compared with 2007
Other operating expenses increased for 2008 compared to 2007. There are several factors that
contribute to the overall increase.
Salaries, wages and employee benefits increased for 2008 compared to 2007. The increase is
the result of annual merit increases for many employees, increased costs relating to group medical
benefits, and 401(k) contributions, as well as, additional salary expense and
benefits associated with the increase in full-time equivalent employees to 241 in 2008 from 217 in
2007. This increase is partially offset by the effect of accounting for direct loan origination
costs and a decrease in expense relating to the performance bonus and the associated employer FICA
tax on the performance bonus for 2008 compared to 2007 because no performance bonus was earned in
2008.
Occupancy expense increased for 2008 compared to 2007. The increase is due to increased real
estate taxes and the purchase of land located at the 2410 Harleston Street in June 2007 and the
purchase of the land at 2714 East 146th Street in March 2008. In addition,
leasehold improvements expense and building rental expense increased due to the opening of a new
lockbox processing center/disaster site in January 2008. Snow removal costs, electrical expense,
janitorial and trash service, and building utilities were higher in 2008 compared to 2007. The
increase is partially offset by a decrease in other miscellaneous expense and property repairs and
maintenance in 2008.
Furniture and equipment expense increased for 2008 compared to 2007. The increase is due to
an increase in depreciation expense for furniture, fixtures, and equipment, computer equipment, and
maintenance contracts as a result of the January 2008 opening of the new banking center located at
2714 East 146th Street, the November 2008 opening of the new banking center located at
2410 Harleston Street, as well as the opening of the new lockbox processing center/disaster site in
January 2008.
34
Professional services expense increased for 2008 compared to 2007. The increase is due to an
increase in courier service, advertising agency fees, attorney fees, and design services. The
increase is partially offset by a decrease in accounting fees and consulting fees.
Data processing expenses increased for 2008 compared to 2007. The increase is due to an
increase in bill payment services, ATM/debit cards, credit cards, remote deposit capture, increased
service bureau fees related to increased transaction activity by the Bank, and assistance with the
fiduciary income tax preparation for wealth management accounts.
Business development expenses increased for 2008 compared to 2007. The increase is due to an
increase in advertising, customer relations and entertainment, public relations, and grand opening
expense. The increase is offset by a decrease in sales and product literature and direct mail
campaign.
FDIC insurance increased for 2008 compared to 2007. During 2007, the FDIC began collecting
deposit insurance premiums in arrears. In addition, the Corporation had only paid FICO insurance
because it had received a one time credit from the FDIC in early 2007 and did not have to pay FDIC
insurance premiums. The Corporation had only a small amount of the credit available for offset
against the first quarter 2008 insurance premium.
Non performing assets expenses increased for 2008 compared to 2007. This is due to an
increase in expense related to other real estate owned by the Corporation, such as real estate
taxes, lawn maintenance, and appraisal fees. The increase is partially offset by a gain on sale of
repossessions.
Other expenses increased for 2008 compared to 2007 due to an increase in telephone expense,
postage, ATM surcharges refunded, and correspondent bank charges. Also contributing to the
increase was a non-recurring charge in the first quarter of $1.4 million related to certain deposit
accounts and a non-recurring charge in the
second quarter of $94 thousand related to certain wealth management accounts. The increase is
partially offset by a decrease in office supplies, other miscellaneous expense and credit card
losses.
Tax (Benefit)/Expense
The Corporation applies a federal income tax rate of 34% and a state tax rate of 8.5% in the
computation of tax expense. The provision for income taxes consisted of the following for the years
ended December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax (benefit) expense |
|
$ |
(405 |
) |
|
$ |
3,155 |
|
|
$ |
4,181 |
|
Deferred tax (benefit) expense |
|
|
(845 |
) |
|
|
1,913 |
|
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,250 |
) |
|
$ |
1,242 |
|
|
$ |
3,856 |
|
|
|
|
|
|
|
|
|
|
|
35
The statutory tax rate reconciliation is as follows for the years ended December 31, ($ in
000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income tax |
|
$ |
(1,138 |
) |
|
$ |
5,026 |
|
|
$ |
11,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) at federal
statutory rate |
|
$ |
(387 |
) |
|
$ |
1,709 |
|
|
$ |
3,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes |
|
|
(92 |
) |
|
|
203 |
|
|
|
603 |
|
Tax-exempt interest |
|
|
(716 |
) |
|
|
(685 |
) |
|
|
(558 |
) |
Other |
|
|
(55 |
) |
|
|
15 |
|
|
|
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,250 |
) |
|
$ |
1,242 |
|
|
$ |
3,856 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense is the total of the current year income tax due or refundable and the
change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
years in which those temporary differences are expected to be recovered or settled. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
The components of the Corporations net deferred tax assets in the consolidated balance sheet
as of December 31, are as follows ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
5,364 |
|
|
$ |
5,025 |
|
Equity based compensation |
|
|
1,841 |
|
|
|
1,193 |
|
Accrued contingencies |
|
|
391 |
|
|
|
391 |
|
Other |
|
|
693 |
|
|
|
508 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
8,289 |
|
|
|
7,117 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
(570 |
) |
|
|
(418 |
) |
Net unrealized gain on securities |
|
|
|
|
|
|
(537 |
) |
Other |
|
|
(586 |
) |
|
|
(413 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,156 |
) |
|
|
(1,368 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
7,133 |
|
|
$ |
5,749 |
|
|
|
|
|
|
|
|
Effects of Inflation
Inflation can have a significant effect on the operating results of all industries. This is
especially true in industries with a high proportion of fixed assets and inventory. However,
management believes that these factors are not as critical in the banking industry. Inflation does,
however, have an impact on the growth of total assets and the need to maintain a proper level of
equity capital.
Interest rates are significantly affected by inflation, but it is difficult to assess the
impact since neither the timing nor the magnitude of the changes in the various inflation indices
coincides with changes in interest rates. There is, of course, an impact on longer-term earning
assets; however, this effect continues to diminish as investment maturities are shortened and
interest-earning assets and interest-bearing liabilities shift from fixed rate, long-term to
rate-sensitive, short-term.
36
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 an adequate liquidity position is accomplished
through the management of the liquid assets those which can be converted into cash and access
to additional sources of funds. The Corporation must monitor its liquidity ratios as established by
ALCO. In addition, the Corporation has established a contingency funding plan to address liquidity
needs in the event of depressed economic conditions. The liquidity position is continually
monitored and reviewed by ALCO.
The Corporation has many sources of funds available, they include: cash and due from Federal
Reserve, overnight federal funds sold, investments available for sale, maturity of investments held
for sale, deposits, Federal
Home Loan Bank (FHLB) advances, and issuance of debt. During 2009, deposits were the most
significant source of funds while purchases of investment securities were the most significant use
of funds. During 2008, issuance of short-term debt provided the most significant funding source
while loans were the most significant use of funds. During 2007, deposits were the most
significant source of funding while loans were the most significant use of funds.
On June 29, 2007, the Corporation entered into a $5 million loan agreement with U.S. Bank,
which matured on June 27, 2009, and was renewed and matured on August 31, 2009. The loan agreement
was used to provide additional liquidity support to the Corporation, if needed. On September 5,
2008, and December 11, 2008, the Corporation drew $1.3 million and $2.9 million, respectively, on
the revolving loan agreement with U.S. Bank.
On August 31, 2009, U.S. Bank renewed the revolving loan agreement which will mature on
August 31, 2010. As part of the renewal of the revolving loan agreement, U.S. Bank reduced
the revolving loan amount from $5 million to $2 million. Of the $4.1 million outstanding, $3
million was moved to a separate one-year term facility with principal payments of $62 thousand and
interest payments due quarterly. Under the terms of the one-year facility, the Corporation pays
prime plus 1.25% which equated to 4.50% at December 31, 2009.
Under the terms of the revolving loan agreement, the Corporation paid prime minus 1.25% which
equated to 2.00% through August 31, 2009, and interest payments were due quarterly. Beginning
September 1, 2009, the Corporation pays prime plus 1.25% which equated to 4.50% at December 31,
2009, and interest payments are due quarterly. In addition, beginning October 1, 2009, U.S. Bank
assessed a 0.25% fee on the unused portion of the revolving line of credit.
The loan agreements contain various financial and non-financial covenants. The Bank was in
violation of the following covenants as of December 31, 2009.
|
|
|
|
|
|
|
|
|
Covenants |
|
U.S. Bank Policy |
|
|
Actual |
|
Non-performing assets to total loans |
|
< 2.65 |
% |
|
|
2.70 |
% |
Return on assets |
|
not < 0.30 |
% |
|
|
0.19 |
% |
Loan loss reserve to non-performing loans |
|
not £ 100 |
% |
|
|
90.80 |
% |
37
At this time, U.S. Bank has not indicated an intention to exercise any of its remedies
available under the credit facility as a result of the Corporations covenant violation. The
remedies available to U.S. Bank are: make the note immediately due and payable; termination of the
obligation to extend further credit; and/or invoke default interest of 3.0% over current interest
rate. Management does not believe the impact of any of these remedies would have a material impact
on the Corporations results of operation or financial position and is currently discussing a
waiver for these covenant violations with U.S. Bank.
Primary liquid assets of the Corporation are cash and due from banks, federal funds sold,
investments held as available for sale, and maturing loans. Due from the Federal Reserve
represented the Corporations primary source of immediate liquidity and averaged approximately $91
million for the year ended December 31, 2009. During the years ended December 31, 2008 and 2007,
respectively, federal funds sold represented the Corporations primary source of immediate
liquidity and averaged approximately $31.5 million and $52.4 million. The Corporation believes
these balances are maintained at a level adequate to meet immediate needs. Reverse repurchase
agreements may serve as a source of liquidity, but are primarily used as collateral for customer
balances in overnight repurchase agreements. Maturities in the Corporations 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 Corporations 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 Corporations liquidity position.
The Corporation actively manages its interest rate sensitive assets and liabilities to reduce
the impact of interest rate fluctuations. At December 31, 2009, the Corporations rate sensitive
liabilities exceeded rate sensitive assets due within one year by $60.8 million. At December 31,
2008, the Corporations rate sensitive liabilities exceeded rate sensitive assets due within one
year by $103.7 million.
The purpose of the Banks Investment Committee is to manage and balance interest rate risk of
the investment portfolio, to provide a readily available source of liquidity to cover deposit
runoff and loan growth, and to provide a portfolio of safe, secure assets of high quality that
generate a supplemental source of income in concert with the overall asset/liability policies and
strategies of the Bank.
The Bank holds securities of the U.S. Government and its agencies along with mortgage-backed
securities, collateralized mortgage obligations, municipals, and Federal Home Loan Bank and Federal
Reserve Bank stock. In order to properly manage market risk, credit risk and interest rate risk,
the Bank has guidelines it must follow when purchasing investments for the portfolio and adherence
to these policy guidelines are reported monthly to the board of directors.
A portion of the Banks investment securities consist of mortgage-backed securities and
collateralized mortgage obligations. The Bank limits the level of these securities that can be held
in the portfolio to a specified percentage of total average assets.
All mortgage-related securities must pass the FFIEC stress test. This stress test determines
if price volatility under a 200 basis point interest rate shock for each security exceeds a
benchmark 30 year mortgage-backed security. If the security fails the test, it is considered high
risk and the Bank will not purchase it. All mortgage-related securities purchased and included in
the investment portfolio will be subject to the FFIEC test as of December 31 each year to determine
if they have become high risk holdings. If a mortgage-related security becomes high risk, it will
be evaluated by the Banks Investment Committee to determine if the security should be liquidated.
At December 31, 2009, and 2008, the Bank did not hold any high risk mortgage-related securities.
38
The Banks investment portfolio also consists of bank-qualified municipal securities.
Municipal securities purchased are limited to the first four (4) investment grades of the rating
agencies. The grade is reviewed each December 31 to verify that the grade has not deteriorated
below the first four (4) investment grades. The Bank may purchase non-rated general obligation
municipals, but the credit strength of the municipality must be evaluated by the Banks Credit
Department. Generally, municipal securities from each issuer will be limited to $2 million, never
to exceed 10% of the Banks tier 1 capital and will not have a stated final maturity date of
greater than fifteen (15) years.
The fully taxable equivalent (FTE) average yield on the Banks investment portfolio is as
follows for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
U.S. Treasuries |
|
|
1.09 |
% |
|
|
3.59 |
% |
|
|
4.81 |
% |
U.S. Government agencies |
|
|
3.42 |
% |
|
|
4.32 |
% |
|
|
4.25 |
% |
Collateralized mortgage obligations |
|
|
3.28 |
% |
|
|
3.46 |
% |
|
|
3.50 |
% |
Municipals |
|
|
5.60 |
% |
|
|
5.52 |
% |
|
|
5.71 |
% |
Other securities |
|
|
0.39 |
% |
|
|
2.78 |
% |
|
|
4.91 |
% |
With the exception of securities of the U.S. Government and U.S. Government agencies and
corporations, the Corporation had no other securities with a book or market value greater than 10%
of shareholders equity as of December 31, 2009, 2008, and 2007.
39
The following is a summary of available-for-sale securities and held-to-maturity securities as
of December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
506 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
506 |
|
U.S. Government agencies |
|
|
66,795 |
|
|
|
97 |
|
|
|
102 |
|
|
|
66,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,301 |
|
|
$ |
97 |
|
|
$ |
102 |
|
|
$ |
67,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
494 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
499 |
|
U.S. Government agencies |
|
|
55,109 |
|
|
|
1,369 |
|
|
|
|
|
|
|
56,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,603 |
|
|
$ |
1,374 |
|
|
|
|
|
|
$ |
56,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,504 |
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
1,514 |
|
U.S. Government agencies |
|
|
60,000 |
|
|
|
889 |
|
|
|
138 |
|
|
|
60,751 |
|
Collateralized mortgage obligations |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,507 |
|
|
$ |
899 |
|
|
$ |
138 |
|
|
$ |
62,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals |
|
$ |
54,913 |
|
|
$ |
1,805 |
|
|
$ |
47 |
|
|
$ |
56,671 |
|
Collateralized mortgage obligations, residential |
|
|
30,124 |
|
|
|
29 |
|
|
|
232 |
|
|
|
29,921 |
|
Mortgage backed securities, residential |
|
|
9,735 |
|
|
|
111 |
|
|
|
|
|
|
|
9,846 |
|
Other securities |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
94,922 |
|
|
$ |
1,945 |
|
|
$ |
279 |
|
|
$ |
96,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals |
|
$ |
56,874 |
|
|
$ |
213 |
|
|
$ |
800 |
|
|
$ |
56,287 |
|
Collateralized mortgage obligations, residential |
|
|
8,825 |
|
|
|
12 |
|
|
|
|
|
|
|
8,837 |
|
Mortgage backed securities, residential |
|
|
17,693 |
|
|
|
45 |
|
|
|
66 |
|
|
|
17,672 |
|
Other securities |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83,567 |
|
|
$ |
270 |
|
|
$ |
866 |
|
|
$ |
82,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals |
|
$ |
46,257 |
|
|
$ |
554 |
|
|
$ |
12 |
|
|
$ |
46,799 |
|
Collateralized mortgage obligations, residential |
|
|
20,535 |
|
|
|
|
|
|
|
209 |
|
|
|
20,326 |
|
Mortgage backed securities, residential |
|
|
4,764 |
|
|
|
|
|
|
|
53 |
|
|
|
4,711 |
|
Other securities |
|
|
200 |
|
|
|
|
|
|
|
1 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
71,756 |
|
|
$ |
554 |
|
|
$ |
275 |
|
|
$ |
72,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation held 21 investment securities as of December 31, 2009, of which the amortized
cost was greater than fair value. Management does not believe any individual unrealized loss as of
December 31, 2009, represents an other than temporary impairment. The Corporation does not intend
to sell these securities and it is not more likely than not that the Corporation will be required to
sell these securities prior to their anticipated recovery to amortized cost.
40
The unrealized losses for investments classified as available-for-sale are attributable to
changes in interest rates and individually are 0.87% or less of the respective amortized costs.
The largest unrealized loss relates to one
security issued by the Federal Home Loan Bank (FHLB). Given this investment is backed by
the U.S. Government and its agencies, there is no credit risk.
The unrealized losses for investments classified as held-to-maturity are attributable to
changes in interest rates and/or economic environment and individually were 5.0% or less of their
respective amortized costs. The unrealized losses relate primarily to residential collateralized
mortgage obligations and securities issued by various municipalities. The residential
collateralized mortgage obligations were purchased in September 2009. Prepayments increased due to
a decline in long-term interest rates from the time of the investment purchases and
December 31, 2009, which affects the fair value of residential collateralized mortgage obligations.
All residential collateralized mortgage obligations are backed by the U.S. Government and its
agencies and represent no credit risk. The majority of securities issued by various municipalities
that have an unrealized loss were purchased during 2005 and first quarter of 2006 when rates were
lower. The largest unrealized loss relates to one municipal that was purchased February 2006. The
credit rating of the individual municipalities is assessed monthly. As of December 31, 2009, all
but five of the municipal debt securities were rated BBB or better (as a result of insurance of the
underlying rating on the bond). These five municipal debt securities have no underlying rating.
Credit reviews of the municipalities have been conducted. As a result, we have determined that all
of our non-rated debt securities would be a rated a pass asset and thus classified as an
investment grade security. All interest payments are current for all municipal securities and
management expects all to be collected in accordance with contractual terms.
The following table ($ in 000s) shows the carrying value and weighted-average yield of
investment securities at December 31, 2009, by contractual maturity. Expected maturities will
differ from contractual maturities because the issuers of the securities may have the right to call
and/or prepay obligations prior to maturity. Collateralized mortgage obligations and mortgage
backed securities are allocated based on the average life at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Within |
|
|
1 to 5 |
|
|
5 to 15 |
|
|
|
|
|
|
Average |
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
506 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
506 |
|
|
|
0.38 |
% |
U.S. Government agencies |
|
|
28,868 |
|
|
|
37,922 |
|
|
|
|
|
|
|
66,790 |
|
|
|
1.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
29,374 |
|
|
$ |
37,922 |
|
|
$ |
|
|
|
$ |
67,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average yield |
|
|
1.64 |
% |
|
|
1.59 |
% |
|
|
|
|
|
|
1.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Within |
|
|
1 to 5 |
|
|
5 to 15 |
|
|
|
|
|
|
Average |
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muncipals FTE |
|
$ |
9,675 |
|
|
$ |
12,891 |
|
|
$ |
32,347 |
|
|
$ |
54,913 |
|
|
|
5.72 |
% |
Collateralized mortgage obligations, residential |
|
|
6,697 |
|
|
|
17,656 |
|
|
|
5,771 |
|
|
|
30,124 |
|
|
|
3.89 |
% |
Mortgage backed securities, residential |
|
|
7,801 |
|
|
|
1,934 |
|
|
|
|
|
|
|
9,735 |
|
|
|
3.71 |
% |
Other securities |
|
|
25 |
|
|
|
125 |
|
|
|
|
|
|
|
150 |
|
|
|
4.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
24,198 |
|
|
$ |
32,606 |
|
|
$ |
38,118 |
|
|
$ |
94,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average yield FTE |
|
|
4.51 |
% |
|
|
4.53 |
% |
|
|
5.54 |
% |
|
|
4.93 |
% |
|
|
|
|
41
Investment securities with a carrying value of approximately $83 million and $51 million at
December 31, 2009, and 2008, respectively, were pledged as collateral for Wealth Management
accounts and securities sold under agreements to repurchase.
As part of managing liquidity, the Corporation monitors its loan to deposit ratio on a daily
basis. At December 31, 2009, the ratio was 82.2 percent and as of December 31, 2008, the ratio was
93.6 percent, which is within the Corporations acceptable range.
The following table shows the composition of the Banks loan portfolio as of December 31, ($
in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
TYPES OF LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
273,117 |
|
|
|
31.6 |
% |
|
$ |
307,409 |
|
|
|
34.0 |
% |
|
$ |
279,109 |
|
|
|
33.6 |
% |
|
$ |
253,745 |
|
|
|
33.9 |
% |
|
$ |
234,216 |
|
|
|
34.3 |
% |
Construction |
|
|
75,615 |
|
|
|
8.7 |
% |
|
|
83,822 |
|
|
|
9.3 |
% |
|
|
82,581 |
|
|
|
9.9 |
% |
|
|
57,083 |
|
|
|
7.7 |
% |
|
|
50,173 |
|
|
|
7.3 |
% |
Commercial Mortgage |
|
|
232,841 |
|
|
|
26.9 |
% |
|
|
217,445 |
|
|
|
24.0 |
% |
|
|
175,027 |
|
|
|
21.1 |
% |
|
|
164,256 |
|
|
|
22.1 |
% |
|
|
156,108 |
|
|
|
22.8 |
% |
Residential Mortgage |
|
|
254,722 |
|
|
|
29.5 |
% |
|
|
260,354 |
|
|
|
28.8 |
% |
|
|
243,015 |
|
|
|
29.3 |
% |
|
|
217,170 |
|
|
|
29.2 |
% |
|
|
196,045 |
|
|
|
28.6 |
% |
Consumer |
|
|
24,488 |
|
|
|
2.8 |
% |
|
|
31,833 |
|
|
|
3.5 |
% |
|
|
47,550 |
|
|
|
5.7 |
% |
|
|
49,575 |
|
|
|
6.7 |
% |
|
|
45,188 |
|
|
|
6.6 |
% |
Credit Cards |
|
|
3,939 |
|
|
|
0.5 |
% |
|
|
3,344 |
|
|
|
0.4 |
% |
|
|
3,046 |
|
|
|
0.4 |
% |
|
|
2,709 |
|
|
|
0.4 |
% |
|
|
2,737 |
|
|
|
0.4 |
% |
|
|
|
|
|
Other |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
20 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross |
|
$ |
864,722 |
|
|
|
100.0 |
% |
|
$ |
904,207 |
|
|
|
100.0 |
% |
|
$ |
830,328 |
|
|
|
100.0 |
% |
|
$ |
744,538 |
|
|
|
100.0 |
% |
|
$ |
684,487 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance |
|
|
(13,716 |
) |
|
|
|
|
|
|
(12,847 |
) |
|
|
|
|
|
|
(9,453 |
) |
|
|
|
|
|
|
(8,513 |
) |
|
|
|
|
|
|
(8,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
$ |
851,006 |
|
|
|
|
|
|
$ |
891,360 |
|
|
|
|
|
|
$ |
820,875 |
|
|
|
|
|
|
$ |
736,025 |
|
|
|
|
|
|
$ |
676,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the composition of the commercial loan category by industry type as
of December 31, ($ in $000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Type |
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
|
|
|
|
Agriculture, Foresty & Fishing |
|
$ |
355 |
|
|
|
0.1 |
% |
|
$ |
369 |
|
|
|
0.1 |
% |
|
$ |
307 |
|
|
|
0.1 |
% |
|
$ |
355 |
|
|
|
0.1 |
% |
|
$ |
1,136 |
|
|
|
0.5 |
% |
Mining |
|
|
5,162 |
|
|
|
1.9 |
% |
|
|
6,947 |
|
|
|
2.3 |
% |
|
|
5,136 |
|
|
|
1.8 |
% |
|
|
5,123 |
|
|
|
2.0 |
% |
|
|
2,574 |
|
|
|
1.1 |
% |
Utilities |
|
|
27 |
|
|
|
0.0 |
% |
|
|
31 |
|
|
|
0.0 |
% |
|
|
28 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
Construction |
|
|
7,593 |
|
|
|
2.8 |
% |
|
|
14,417 |
|
|
|
4.7 |
% |
|
|
10,885 |
|
|
|
3.9 |
% |
|
|
9,367 |
|
|
|
3.7 |
% |
|
|
9,527 |
|
|
|
4.1 |
% |
Manufacturing |
|
|
41,814 |
|
|
|
15.3 |
% |
|
|
38,979 |
|
|
|
12.7 |
% |
|
|
43,067 |
|
|
|
15.4 |
% |
|
|
46,982 |
|
|
|
18.5 |
% |
|
|
37,988 |
|
|
|
16.2 |
% |
Wholesale Trade |
|
|
38,428 |
|
|
|
14.1 |
% |
|
|
37,627 |
|
|
|
12.2 |
% |
|
|
40,889 |
|
|
|
14.6 |
% |
|
|
30,421 |
|
|
|
12.0 |
% |
|
|
30,850 |
|
|
|
13.2 |
% |
Retail Trade |
|
|
6,391 |
|
|
|
2.3 |
% |
|
|
6,025 |
|
|
|
2.0 |
% |
|
|
7,257 |
|
|
|
2.6 |
% |
|
|
7,090 |
|
|
|
2.8 |
% |
|
|
4,330 |
|
|
|
1.9 |
% |
Transportation |
|
|
17,479 |
|
|
|
6.4 |
% |
|
|
18,045 |
|
|
|
5.9 |
% |
|
|
16,635 |
|
|
|
6.0 |
% |
|
|
9,617 |
|
|
|
3.8 |
% |
|
|
7,793 |
|
|
|
3.3 |
% |
Information |
|
|
737 |
|
|
|
0.3 |
% |
|
|
123 |
|
|
|
0.0 |
% |
|
|
140 |
|
|
|
0.0 |
% |
|
|
606 |
|
|
|
0.2 |
% |
|
|
945 |
|
|
|
0.4 |
% |
Finance & Insurance |
|
|
10,952 |
|
|
|
4.0 |
% |
|
|
10,667 |
|
|
|
3.5 |
% |
|
|
6,866 |
|
|
|
2.5 |
% |
|
|
5,050 |
|
|
|
2.0 |
% |
|
|
3,845 |
|
|
|
1.6 |
% |
Real Estate and Rental & Leasing |
|
|
50,336 |
|
|
|
18.5 |
% |
|
|
58,624 |
|
|
|
18.9 |
% |
|
|
44,657 |
|
|
|
16.0 |
% |
|
|
52,833 |
|
|
|
20.8 |
% |
|
|
47,627 |
|
|
|
20.2 |
% |
Professional, Scientific & Technical Services |
|
|
31,217 |
|
|
|
11.4 |
% |
|
|
39,809 |
|
|
|
13.0 |
% |
|
|
37,345 |
|
|
|
13.4 |
% |
|
|
30,146 |
|
|
|
11.9 |
% |
|
|
31,565 |
|
|
|
13.5 |
% |
Management of Companies & Enterprises |
|
|
1,803 |
|
|
|
0.7 |
% |
|
|
2,521 |
|
|
|
0.8 |
% |
|
|
2,652 |
|
|
|
1.0 |
% |
|
|
3,928 |
|
|
|
1.6 |
% |
|
|
1,576 |
|
|
|
0.7 |
% |
Administrative and Support, Waste Management &
Remediation Services |
|
|
1,857 |
|
|
|
0.7 |
% |
|
|
2,367 |
|
|
|
0.8 |
% |
|
|
2,428 |
|
|
|
0.9 |
% |
|
|
2,453 |
|
|
|
1.0 |
% |
|
|
1,476 |
|
|
|
0.6 |
% |
Educational Services |
|
|
3,359 |
|
|
|
1.2 |
% |
|
|
4,919 |
|
|
|
1.6 |
% |
|
|
4,270 |
|
|
|
1.5 |
% |
|
|
5,160 |
|
|
|
2.0 |
% |
|
|
4,384 |
|
|
|
1.9 |
% |
Health Care & Social Assistance |
|
|
29,278 |
|
|
|
10.7 |
% |
|
|
32,063 |
|
|
|
10.4 |
% |
|
|
26,264 |
|
|
|
9.4 |
% |
|
|
25,160 |
|
|
|
9.9 |
% |
|
|
19,494 |
|
|
|
8.3 |
% |
Arts, Entertainment & Recreation |
|
|
2,704 |
|
|
|
1.0 |
% |
|
|
3,013 |
|
|
|
1.0 |
% |
|
|
2,093 |
|
|
|
0.8 |
% |
|
|
1,678 |
|
|
|
0.7 |
% |
|
|
1,759 |
|
|
|
0.8 |
% |
Accommodation & Food Services |
|
|
3,059 |
|
|
|
1.1 |
% |
|
|
3,627 |
|
|
|
1.2 |
% |
|
|
3,908 |
|
|
|
1.4 |
% |
|
|
6,777 |
|
|
|
2.7 |
% |
|
|
6,842 |
|
|
|
2.9 |
% |
Other Services |
|
|
20,566 |
|
|
|
7.5 |
% |
|
|
27,236 |
|
|
|
8.9 |
% |
|
|
24,282 |
|
|
|
8.7 |
% |
|
|
10,999 |
|
|
|
4.3 |
% |
|
|
20,505 |
|
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
273,117 |
|
|
|
100.0 |
% |
|
$ |
307,409 |
|
|
|
100.0 |
% |
|
$ |
279,109 |
|
|
|
100.0 |
% |
|
$ |
253,745 |
|
|
|
100.0 |
% |
|
$ |
234,216 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The following table shows the composition of the Banks deposit portfolio as of December 31,
($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
TYPES OF DEPOSITS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand |
|
$ |
192,705 |
|
|
|
22.86 |
% |
|
$ |
178,656 |
|
|
|
23.75 |
% |
|
$ |
180,590 |
|
|
|
22.30 |
% |
MMDA/Savings |
|
|
650,353 |
|
|
|
77.14 |
% |
|
|
573,679 |
|
|
|
76.25 |
% |
|
|
629,342 |
|
|
|
77.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Demand Deposits |
|
|
843,058 |
|
|
|
100.00 |
% |
|
|
752,335 |
|
|
|
100.00 |
% |
|
|
809,932 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDs < $100,000 |
|
|
62,769 |
|
|
|
30.03 |
% |
|
|
63,590 |
|
|
|
29.77 |
% |
|
|
71,503 |
|
|
|
36.70 |
% |
CDs > $100,000 |
|
|
124,085 |
|
|
|
59.37 |
% |
|
|
131,426 |
|
|
|
61.52 |
% |
|
|
104,238 |
|
|
|
53.50 |
% |
Individual Retirement Accounts |
|
|
22,153 |
|
|
|
10.60 |
% |
|
|
18,615 |
|
|
|
8.71 |
% |
|
|
19,089 |
|
|
|
9.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Certificates of Deposit |
|
|
209,007 |
|
|
|
100.00 |
% |
|
|
213,631 |
|
|
|
100.00 |
% |
|
|
194,830 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
$ |
1,052,065 |
|
|
|
|
|
|
$ |
965,966 |
|
|
|
|
|
|
$ |
1,004,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
The following table ($ in 000s) illustrates the projected maturities and the repricing
mechanisms of the major asset/liabilities categories of the Corporation as of December 31, 2009,
based on certain assumptions. Prepayment rate assumptions have been made for the residential loans
secured by real estate portfolio. Maturity and repricing dates for investments have been projected
by applying the assumptions set forth below to contractual maturity and repricing dates. A 12% run
off assumption is used for Demand Deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 180 |
|
|
181 365 |
|
|
1 2 |
|
|
2 3 |
|
|
3 5 |
|
|
5 + |
|
|
Non-interest |
|
|
|
|
|
|
days |
|
|
days |
|
|
years |
|
|
years |
|
|
years |
|
|
years |
|
|
Earning |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
149,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
149,375 |
|
Reverse repurchase agreements |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
Federal funds sold |
|
|
1,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,242 |
|
Investments |
|
|
19,360 |
|
|
|
34,212 |
|
|
|
23,052 |
|
|
|
32,695 |
|
|
|
14,781 |
|
|
|
38,118 |
|
|
|
|
|
|
|
162,218 |
|
Federal reserve and FHLB stock |
|
|
2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
962 |
|
|
|
|
|
|
|
3,150 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
16,952 |
|
|
|
5,562 |
|
|
|
16,167 |
|
|
|
9,648 |
|
|
|
10,703 |
|
|
|
4,858 |
|
|
|
734 |
|
|
|
64,624 |
|
Variable |
|
|
204,488 |
|
|
|
212 |
|
|
|
489 |
|
|
|
336 |
|
|
|
25 |
|
|
|
|
|
|
|
2,943 |
|
|
|
208,493 |
|
Construction |
|
|
53,769 |
|
|
|
4 |
|
|
|
154 |
|
|
|
|
|
|
|
775 |
|
|
|
|
|
|
|
2,305 |
|
|
|
57,007 |
|
Commercial Loans Secured by Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
7,840 |
|
|
|
15,205 |
|
|
|
19,571 |
|
|
|
16,689 |
|
|
|
27,293 |
|
|
|
17,343 |
|
|
|
716 |
|
|
|
104,657 |
|
Variable |
|
|
108,148 |
|
|
|
4,529 |
|
|
|
5,303 |
|
|
|
787 |
|
|
|
2,093 |
|
|
|
|
|
|
|
7,324 |
|
|
|
128,184 |
|
Residential Loans Secured by Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
54,315 |
|
|
|
21,248 |
|
|
|
19,014 |
|
|
|
6,158 |
|
|
|
2,725 |
|
|
|
411 |
|
|
|
500 |
|
|
|
104,371 |
|
Variable |
|
|
137,670 |
|
|
|
9,524 |
|
|
|
7,738 |
|
|
|
5,467 |
|
|
|
6,830 |
|
|
|
1,153 |
|
|
|
577 |
|
|
|
168,959 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
1,325 |
|
|
|
760 |
|
|
|
1,414 |
|
|
|
1,099 |
|
|
|
1,981 |
|
|
|
|
|
|
|
|
|
|
|
6,579 |
|
Variable |
|
|
21,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Earning Assets |
|
$ |
779,520 |
|
|
$ |
91,256 |
|
|
$ |
92,902 |
|
|
$ |
72,879 |
|
|
$ |
67,206 |
|
|
$ |
62,845 |
|
|
$ |
15,099 |
|
|
$ |
1,181,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,923 |
|
|
|
51,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
779,520 |
|
|
$ |
91,256 |
|
|
$ |
92,902 |
|
|
$ |
72,879 |
|
|
$ |
67,206 |
|
|
$ |
62,845 |
|
|
$ |
67,022 |
|
|
$ |
1,233,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
$ |
11,234 |
|
|
$ |
10,704 |
|
|
$ |
19,566 |
|
|
$ |
17,343 |
|
|
$ |
28,998 |
|
|
$ |
104,860 |
|
|
$ |
|
|
|
$ |
192,705 |
|
Interest Bearing Demand |
|
|
200,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,831 |
|
Savings Deposits |
|
|
21,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,667 |
|
Money Market Accounts |
|
|
427,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427,855 |
|
Certificate of Deposits |
|
|
35,359 |
|
|
|
24,182 |
|
|
|
7,490 |
|
|
|
3,046 |
|
|
|
5,298 |
|
|
|
1,694 |
|
|
|
|
|
|
|
77,069 |
|
Jumbo CDs |
|
|
67,050 |
|
|
|
46,258 |
|
|
|
11,907 |
|
|
|
2,519 |
|
|
|
3,182 |
|
|
|
1,022 |
|
|
|
|
|
|
|
131,938 |
|
Repurchase agreements and other short-term
secured borrowings |
|
|
75,643 |
|
|
|
1,650 |
|
|
|
4,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,314 |
|
Short-term debt |
|
|
126 |
|
|
|
4,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,138 |
|
Subordinated Debt |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Company obligated mandatorily redeemable
preferred capital securities of subsidiary
trust holding solely the junior subordinated
debentures of the parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,918 |
|
|
|
|
|
|
|
13,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities |
|
$ |
844,765 |
|
|
$ |
86,806 |
|
|
$ |
42,984 |
|
|
$ |
22,908 |
|
|
$ |
37,478 |
|
|
$ |
121,494 |
|
|
$ |
|
|
|
$ |
1,156,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,164 |
|
|
|
4,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,031 |
|
|
|
73,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Shareholders Equity |
|
$ |
844,765 |
|
|
$ |
86,806 |
|
|
$ |
42,984 |
|
|
$ |
22,908 |
|
|
$ |
37,478 |
|
|
$ |
121,494 |
|
|
$ |
77,195 |
|
|
$ |
1,233,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivy Gap per Period |
|
$ |
(65,245 |
) |
|
$ |
4,450 |
|
|
$ |
49,918 |
|
|
$ |
49,971 |
|
|
$ |
29,728 |
|
|
$ |
(58,649 |
) |
|
$ |
(10,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Interest Sensitivity Gap |
|
$ |
(65,245 |
) |
|
$ |
(60,795 |
) |
|
$ |
(10,877 |
) |
|
$ |
39,094 |
|
|
$ |
68,822 |
|
|
$ |
10,173 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivity Gap as a Percentage
of Earning Assets |
|
|
-5.59 |
% |
|
|
0.38 |
% |
|
|
4.28 |
% |
|
|
4.28 |
% |
|
|
2.55 |
% |
|
|
-5.03 |
% |
|
|
-0.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Sensitivity Gap as a
Percentage of Earning Assets |
|
|
-5.59 |
% |
|
|
-5.21 |
% |
|
|
-0.93 |
% |
|
|
3.35 |
% |
|
|
5.90 |
% |
|
|
0.87 |
% |
|
|
0.00 |
% |
|
|
|
|
Of the $67.1 million Jumbo CDs maturing in 0 180 days, $41.7 million will mature in three months
or less.
44
Contractual Obligations
The following table ($ in 000s) presents, as of December 31, 2009, significant fixed and
determinable contractual obligations to third parties by payment date. Further discussion of the
nature of each obligation is included in the referenced notes to the Consolidated Financial
Statements under Item 8 of this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In |
|
|
|
Note |
|
|
Less than One |
|
|
One to Two |
|
|
Three to Five |
|
|
Over Five |
|
|
|
|
|
|
Reference |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
Deposits without a stated maturity(a) |
|
|
|
|
|
$ |
843,058 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
843,058 |
|
Consumer certificates of deposits(a) |
|
|
9 |
|
|
|
172,849 |
|
|
|
24,962 |
|
|
|
8,480 |
|
|
|
2,716 |
|
|
|
209,007 |
|
Revolving line of credit(a) |
|
|
10 |
|
|
|
4,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200 |
|
Security repurchase agreements and other secured short-term borrowings(a) |
|
|
10 |
|
|
|
77,293 |
|
|
|
4,021 |
|
|
|
|
|
|
|
|
|
|
|
81,314 |
|
Long-term debt(a) |
|
|
5,10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,918 |
|
|
|
18,918 |
|
Operating leases |
|
|
7 |
|
|
|
398 |
|
|
|
702 |
|
|
|
678 |
|
|
|
1,001 |
|
|
|
2,779 |
|
The Corporations operating lease obligations represent rental payments for banking center
offices.
Critical Accounting Policies
The Corporations consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States and follow general practices within the
industries in which it operates. Application of these principles requires management to make
estimates, assumptions, and judgments that affect the amounts reported in the financial statements
and accompanying notes. These estimates, assumptions, and judgments are based on information
available as of the date of the financial statements; accordingly, as this information changes, the
financial statements could reflect different estimates, assumptions, and judgments. Certain
policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and
as such have a greater possibility of producing results that could be materially different than
originally reported. Estimates, assumptions, and judgments are necessary when assets and
liabilities are required to be recorded at fair value, when a decline in the value of an asset not
carried on the financial statements at fair value warrants an impairment write-down or valuation
reserve to be established, or when an asset or liability needs to be recorded contingent upon a
future event. Carrying assets and liabilities at fair value inherently results in more financial
statement volatility. The fair values and the information used to record valuation adjustments for
certain assets are based either on quoted market prices or are provided by other third-party
sources, when available. When third-party information is not available, valuation adjustments are
estimated in good faith by management primarily through the use of internal cash flow modeling
techniques.
Based on the valuation techniques used and the sensitivity of financial statement amounts to
the methods, assumptions, and estimates underlying those amounts, management has identified the
valuation of the mortgage servicing asset, the valuation of investment securities, and the
determination of the allowance for loan losses to be the accounting areas that require the most
subjective or complex judgments, and as such could be most subject to revision as new information
becomes available.
45
Mortgage Servicing Assets
Mortgage servicing rights are recognized separately when they are acquired through sales of
loans. Capitalized mortgage servicing rights are reported in other assets. When mortgage loans
are sold, servicing rights are initially recorded at fair value with the income statement effect
recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the
present value of estimated future net servicing income. The valuation model incorporates
assumptions that market participants would use in estimating future net servicing income, such as
the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses. The Corporation obtains fair value
estimates from an independent third party and compares significant valuation model inputs to
published industry data in order to validate the model assumptions and results.
Under the fair value measurement method, the Corporation measures servicing rights at fair
value at each reporting date and reports changes in fair value of servicing assets in earnings in
the period in which the changes occur, and these changes are included in mortgage banking income on
the income statement. The fair values of servicing rights are subject to significant fluctuations
as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Investment Securities Valuation
When the Corporation classifies debt securities as held-to-maturity, it has the positive
intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at
amortized cost. Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses, net of tax, reported as a component of other
comprehensive income. Interest income includes amortization of purchase premium or discount.
Premiums and discounts on securities are amortized on the level-yield method without anticipating
prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and
losses on sales are recorded on the trade date and determined using the specific identification
method.
The Corporation obtains fair values from a third party on a monthly basis in order to adjust
the available-for-sale securities to fair value. Equity securities that do not have readily
determinable fair values are carried at cost. When other-than-temporary-impairment (OTTI)
occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell
the security or it is more likely than not it will be required to sell the security before recovery
of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or
it is more likely than not it will be required to sell the security before recovery of its
amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings
equal to the entire difference between the investments amortized cost basis and its fair value at
the balance sheet date. If an entity does not intend to sell the security and it is not more
likely than not that the entity will be required to sell the security before recovery of its
amortized cost basis less any current-period loss, the OTTI shall be separated into the amount
representing the credit loss and the amount related to all other factors. The amount of the total
OTTI related to the credit loss is determined based on the present value of cash flows expected to
be collected and is recognized in earnings. The amount of the total OTTI related to other factors
is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost
basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
In determining whether a market value decline is other-than-temporary, management considers the
reason for the decline, the extent of the decline and the duration of the decline. Management
evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or
market conditions warrant such an evaluation.
46
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses.
The allowance for loan losses is established through provisions for loan losses charged against
income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and
subsequent recoveries, if any, are credited to the allowance for loan losses.
Management estimates the allowance balance required using past loan loss experience, the
nature and volume of the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the allowance may be
made for specific loans, but the entire allowance is available for any loan that, in managements
judgment, should be charged off.
Within the allowance, there are specific and general loss components. The specific loss
component is assessed for non-homogeneous loans that management believes to be impaired. Loans are
considered to be impaired when it is determined that the obligor will not pay all contractual
principal and interest due. For loans determined to be impaired, the loans carrying value is
compared to its fair value using one of the following fair value measurement techniques: present
value of expected future cash flows, observable market price, or fair value of the associated
collateral less costs to sell. An allowance is established when the fair value is lower than the
carrying value of that loan. The general component covers non-classified loans and is based on
historical loss experience adjusted for current factors. These loans are segregated by major
product type and/or risk grade with an estimated loss ratio applied against each product type
and/or risk grade. The loss ratio is generally based upon historic loss experience for each loan
type as adjusted for certain environmental factors management believes to be relevant.
It is the policy of the Corporation to promptly charge off any commercial loan, or portion
thereof, which is deemed to be uncollectible. This includes, but is not limited to, any loan rated
Loss by the regulatory authorities. Impaired commercial credits are considered on a case-by-case
basis. An assessment of the adequacy of the allowance is performed on a quarterly basis.
Management believes the allowance for loan losses is maintained at a level that is adequate to
absorb probable incurred losses inherent in the loan portfolio.
47
The following table shows the dollar amount of the allowance for loan losses using
managements estimate by loan category as of December 31, ($ in $000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Commercial |
|
$ |
4,155 |
|
|
$ |
5,113 |
|
|
$ |
3,422 |
|
|
$ |
3,870 |
|
|
$ |
4,204 |
|
Construction |
|
|
2,443 |
|
|
|
1,650 |
|
|
|
1,381 |
|
|
|
448 |
|
|
|
404 |
|
Commercial Mortgage |
|
|
3,836 |
|
|
|
2,378 |
|
|
|
1,724 |
|
|
|
1,529 |
|
|
|
1,319 |
|
Residential Mortgage |
|
|
3,003 |
|
|
|
3,332 |
|
|
|
2,445 |
|
|
|
2,165 |
|
|
|
1,758 |
|
Consumer |
|
|
53 |
|
|
|
262 |
|
|
|
400 |
|
|
|
410 |
|
|
|
586 |
|
Credit Card |
|
|
189 |
|
|
|
61 |
|
|
|
74 |
|
|
|
73 |
|
|
|
74 |
|
Other |
|
|
37 |
|
|
|
51 |
|
|
|
7 |
|
|
|
18 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,716 |
|
|
$ |
12,847 |
|
|
$ |
9,453 |
|
|
$ |
8,513 |
|
|
$ |
8,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Management considers the present allowance to be appropriate and adequate to cover losses
inherent in the loan portfolio based on the current economic environment. However, future economic
changes cannot be predicted. Deterioration in economic conditions could result in an increase in
the risk characteristics of the loan portfolio and an increase in the provision for loan losses.
Loans are placed on non-accrual status when significant doubt exists as to the collectibility
of principal and interest. Interest continues to legally accrue on these nonaccrual loans, but no
income is recognized for financial statement purposes. Both principal and interest payments
received on non-accrual loans are applied to the outstanding principal balance until the remaining
balance is considered collectible, at which time interest income may be recognized when received.
The following table presents a summary of non-performing loans as of December 31, ($ in
000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
3,422 |
|
|
|
22.7 |
% |
|
$ |
3,429 |
|
|
|
39.1 |
% |
|
$ |
316 |
|
|
|
5.5 |
% |
|
$ |
4,754 |
|
|
|
66.5 |
% |
|
$ |
1,055 |
|
|
|
28.9 |
% |
Construction |
|
|
2,305 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
1,466 |
|
|
|
25.4 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
Commercial Mortgage |
|
|
8,040 |
|
|
|
53.2 |
% |
|
|
3,085 |
|
|
|
35.2 |
% |
|
|
2,025 |
|
|
|
35.2 |
% |
|
|
1,220 |
|
|
|
17.1 |
% |
|
|
629 |
|
|
|
17.2 |
% |
Residential Mortgage |
|
|
1,332 |
|
|
|
8.8 |
% |
|
|
2,243 |
|
|
|
25.5 |
% |
|
|
1,851 |
|
|
|
32.1 |
% |
|
|
1,039 |
|
|
|
14.5 |
% |
|
|
1,777 |
|
|
|
48.8 |
% |
Consumer |
|
|
|
|
|
|
0.0 |
% |
|
|
17 |
|
|
|
0.2 |
% |
|
|
104 |
|
|
|
1.8 |
% |
|
|
139 |
|
|
|
1.9 |
% |
|
|
187 |
|
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,099 |
|
|
|
100.0 |
% |
|
$ |
8,774 |
|
|
|
100.0 |
% |
|
$ |
5,762 |
|
|
|
100.0 |
% |
|
$ |
7,152 |
|
|
|
100.0 |
% |
|
$ |
3,648 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans 90 Days Past Due
Still Accruing |
|
$ |
7 |
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
$ |
27 |
|
|
|
|
|
|
$ |
33 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured due to troubled
conditions of the borrower |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
The primary reasons for the increase in the allowance for loan losses from December 31, 2008, to
December 31, 2009, were:
|
|
|
an increase of $962 thousand in the allocation for classified loans not impaired due
mainly to commercial mortgages and construction loan portfolios; |
|
|
|
an increase of $1,683 thousand in the general allocation related largely to credit
deterioration in commercial, commercial mortgages, and construction portfolios; |
|
|
|
an increase of $35 thousand in the specific loan allocation; |
|
|
|
a decrease of $1,379 thousand in the allocation of qualitative factors considered for
the entire loan portfolio; |
|
|
|
a decrease of $432 thousand for the allocation for special mention loans. |
49
The following table presents a summary of non-performing loans as of December 31, ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Loan Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of loans |
|
|
11 |
|
|
|
25 |
|
|
|
4 |
|
|
|
9 |
|
|
|
12 |
|
Interest income recognized |
|
$ |
37 |
|
|
$ |
140 |
|
|
$ |
34 |
|
|
$ |
188 |
|
|
$ |
57 |
|
Additional interest income if loan had been accruing |
|
$ |
180 |
|
|
$ |
148 |
|
|
$ |
62 |
|
|
$ |
138 |
|
|
$ |
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of loans |
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Interest income recognized |
|
$ |
178 |
|
|
$ |
|
|
|
$ |
105 |
|
|
$ |
|
|
|
$ |
|
|
Additional interest income if loan had been accruing |
|
$ |
13 |
|
|
$ |
|
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of loans |
|
|
8 |
|
|
|
5 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
Interest income recognized |
|
$ |
354 |
|
|
$ |
110 |
|
|
$ |
51 |
|
|
$ |
18 |
|
|
$ |
|
|
Additional interest income if loan had been accruing |
|
$ |
146 |
|
|
$ |
122 |
|
|
$ |
127 |
|
|
$ |
10 |
|
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of loans |
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
|
|
2 |
|
|
|
3 |
|
Interest income recognized |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
Additional interest income if loan had been accruing |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
20 |
|
|
$ |
21 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of loans |
|
|
27 |
|
|
|
17 |
|
|
|
15 |
|
|
|
23 |
|
|
|
20 |
|
Interest income recognized |
|
$ |
48 |
|
|
$ |
73 |
|
|
$ |
47 |
|
|
$ |
12 |
|
|
$ |
52 |
|
Additional interest income if loan had been accruing |
|
$ |
65 |
|
|
$ |
72 |
|
|
$ |
72 |
|
|
$ |
80 |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of loans |
|
|
2 |
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
Interest income recognized |
|
$ |
|
|
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
|
|
Additional interest income if loan had been accruing |
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
50
Capital Resources
The Corporation has a $2 million revolving line of credit and a $3 million one-year term loan
with U.S. Bank. See Liquidity and Interest Rate Sensitivity section on page 37 for
further discussion.
The Bank entered into a $5 million subordinated term loan agreement with Harris Trust and
Savings Bank dated June 6, 2003. The first advance was made in the amount of $2 million on June 6,
2003. The second advance was made in the amount of $3 million on May 3, 2004. The final maturity
date of the loan was June 6, 2012. The outstanding principal balance was due at maturity,
prepayment of the principal balance was permitted prior to maturity with prior consent from the
Federal Reserve. On June 29, 2007, the Bank entered into a Subordinated Debenture Purchase
Agreement with U.S. Bank in the amount of $5 million, which will mature on June 28, 2017.
The
proceeds from the Subordinated Debenture Purchase Agreement with U.S. Bank were used to pay in full
the Subordinated Term Loan Agreement with Harris Trust and Savings Bank in the amount of $5
million. Under the terms of the Subordinated Purchase Agreement, the Bank pays three-month LIBOR
plus 1.20% which equated to 1.51% on December 31, 2009. Interest payments are due quarterly.
In September 2000, the Trust, which is wholly owned by the Corporation, issued $13,500
thousand of company obligated mandatorily redeemable capital securities. The proceeds from the
issuance of the capital securities and the proceeds from the issuance of the common securities of
$418 thousand were used by the Trust to purchase from the Corporation $13,918 thousand Fixed Rate
Junior Subordinated Debentures. The capital securities mature September 7, 2030, or upon earlier
redemption as provided by the Indenture. The Corporation has the right to redeem the capital
securities, in whole or in part, but in all cases in a principal amount with integral multiples of
$1 thousand on any March 7 or September 7 on or after September 7, 2010, at a premium, declining
ratably to par on September 7, 2020. The capital securities and the debentures have a fixed
interest rate of 10.60% and are guaranteed by the Bank. The net proceeds received by the
Corporation from the sale of capital securities were used for general corporate purposes.
There were no FHLB advances outstanding as of December 31, 2009, and 2008. A schedule of the
FHLB advances as of December 31, 2007, is as follows ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Rate |
|
|
Maturity |
|
$ |
3,000 |
|
|
5.55% |
|
|
10/02/2008 |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank may add indebtedness of this nature in the future if determined to be in the best
interest of the Bank.
Repurchase agreements and other secured short-term borrowings consist of security repurchase
agreements and a non deposit product secured with the Corporations municipal portfolio. The
majority of the non deposit product generally matures within a year. Security repurchase
agreements generally mature within one to three days from the transaction date. At December 31,
2009, and 2008, the weighted average interest rate on these borrowings was 0.25% and 0.88%,
respectively. During 2009, the maximum amount outstanding at any month-end during the year was
$85.2 million. Due to the fact that security repurchase agreements are a sweep product used by our
corporate clients, there is not a large volatility in the average balances, because of the core
deposit base. Balances in excess of this core deposit base are generally invested in overnight
Federal Funds sold or at the Federal Reserve. Thus, liquidity is not materially affected.
51
Capital for the Bank is above well-capitalized regulatory requirements at December 31, 2009.
Pertinent capital ratios for the Bank as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
|
Adequately |
|
|
|
Actual |
|
|
Capitalized |
|
|
Capitalized |
|
Tier 1 risk-based capital ratio |
|
|
9.2 |
% |
|
|
6.0 |
% |
|
|
4.0 |
% |
Total risk-based capital ratio |
|
|
10.9 |
% |
|
|
10.0 |
% |
|
|
8.0 |
% |
Leverage ratio |
|
|
6.7 |
% |
|
|
5.0 |
% |
|
|
4.0 |
% |
Dividends from the Bank to the Corporation may not exceed the net undivided profits of the
Bank (included in consolidated retained earnings) for the current calendar year and the two
previous calendar years without prior approval of the OCC. In addition, Federal banking laws limit
the amount of loans the Bank may make to the Corporation, subject to certain collateral
requirements. No loans were made during 2009 or 2008 by the Bank to the Corporation. A dividend of
$1.4 million and $1.3 million was declared and made by the Bank to the Corporation during 2009 and
2008, respectively.
On November 20, 2008, the Board of Directors adopted a new three-year stock repurchase program
for directors and employees. Under the new stock repurchase program, the Corporation may repurchase
shares in individually negotiated transactions from time to time as such shares become available
and spend up to $8 million to repurchase such shares over the three-year term. Subject to the $8
million limitation, the Corporation intends to purchase shares recently acquired by the selling
shareholder pursuant to the exercise of stock options or the vesting of restricted stock, and limit
its acquisition of shares which were not recently acquired by the selling shareholder pursuant to
the exercise of stock options or the vesting of shares of restricted stock to no more than 10,000
shares per year. Under the new repurchase plan, the Corporation purchased 5,514 shares during 2009
and as of December 31, 2009, approximately $5.9 million is still available under the new repurchase
plan. The stock repurchase program does not require the Corporation to acquire any specific number
of shares and may be modified, suspended, extended or terminated by the Corporation at any time
without prior notice. The repurchase program will terminate on December 31, 2011, unless earlier
suspended or discontinued by the Corporation.
The amount and timing of shares repurchased under the repurchase program, as well as the
specific price, will be determined by management after considering market conditions, company
performance and other factors.
Recent Accounting Pronouncements and Developments
Note 2 to the Consolidated Financial Statements under Item 8 discusses new accounting policies
adopted by the Corporation during 2009 and the expected impact of accounting policies. Note 2 also
discusses recently issued or proposed new accounting policies but not yet required to be adopted
and the impact of the accounting policies if known. To the extent the adoption of new accounting
standards materially affects financial conditions; results of operations, or liquidity, the impacts
if known are discussed in the applicable section(s) of notes to consolidated financial statements.
52
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This discussion contains certain forward-looking statements that are subject to risks and
uncertainties and includes information about possible or assumed future results of operations. Many
possible events or factors could affect our future financial results and performance. This could
cause results or performance to differ materially from those expressed in our forward-looking
statements. Words such as expects, anticipates, believes, estimates, variations of such
words and other similar expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions which are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in, or implied by, such forward-looking statements.
Readers should not rely solely on the forward-looking statements and should consider all
uncertainties and risks discussed throughout this discussion. These statements are representative
only on the date hereof.
The possible events or factors include, but are not limited to, the following matters. Loan
growth is dependent on economic conditions, as well as various discretionary factors, such as
decisions to sell or purchase certain loans or loan portfolios; participations of loans; retention
of residential mortgage loans; the management of a borrower; industry, product and geographic
concentrations and the mix of the loan portfolio. The rate of charge-offs and provision expense can
be affected by local, regional and international economic and market conditions, concentrations of
borrowers, industries, products and geographic locations, the mix of the loan portfolio and
managements judgments regarding the collectibility of loans. Liquidity requirements may change as
a result of fluctuations in assets and liabilities and off-balance sheet exposures, which will
impact our capital and debt financing needs and the mix of funding sources. Decisions to purchase,
hold or sell securities are also dependent on liquidity requirements and market volatility, as well
as on- and off-balance sheet positions. Factors that may impact interest rate risk include local,
regional and international economic conditions, levels, mix, maturities, yields or rates of assets
and liabilities, and the wholesale and retail funding sources of the Bank. There is exposure to the
potential of losses arising from adverse changes in market rates and prices which can adversely
impact the value of financial products, including securities, loans, deposits, debt and derivative
financial instruments, such as futures, forwards, swaps, options and other financial instruments
with similar characteristics.
In addition, the banking industry in general is subject to various monetary and fiscal
policies and regulations, which include those determined by the Federal Reserve Board, the OCC, and
the Federal Deposit Insurance Corporation (FDIC), whose policies and regulations could affect our
results. Other factors that may cause actual results to differ from the forward-looking statements
include the following: competition with other local, regional and international banks, thrifts,
credit unions and other non-bank financial institutions, such as investment banking firms,
investment advisory firms, brokerage firms, investment companies and insurance companies, as well
as other entities which offer financial services, located both within and outside the United States
and through alternative delivery channels such as the World Wide Web; interest rate, market and
monetary fluctuations; inflation; market volatility; general economic conditions and economic
conditions in the geographic regions and industries in which we operate; introduction and
acceptance of new banking-related products, services and enhancements; fee pricing strategies,
mergers and acquisitions and our ability to manage these and other risks.
53
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss due to adverse changes in market prices and rates. The
Corporations market risk arises primarily from interest rate risk inherent in its lending and
deposit taking activities. Management actively monitors and manages its interest rate exposure and
makes monthly reports to ALCO. The ALCO is responsible for reviewing the interest rate sensitivity
position and establishing policies to monitor and limit exposure to interest rate risk. The
guidelines established by ALCO are reviewed by the ALCO/Investment Committee of the Corporations
Board of Directors.
The Corporations profitability is affected by fluctuations in interest rates. A sudden and
substantial increase in interest rates may adversely impact the Corporations earnings to the
extent that the interest rates earned by assets and paid on liabilities do not change at the same
speed, to the same extent, or on the same basis. The Corporation monitors the impact of changes in
interest rates on its net interest income. The Corporation attempts to maintain a relatively
neutral gap between earning assets and liabilities at various time intervals to minimize the
effects of interest rate risk.
One of the primary goals of asset/liability management is to maximize net interest income and
the net value of future cash flows within authorized risk limits. Net interest income is affected
by changes in the absolute level of interest rates. Net interest income is also subject to changes
in the shape of the yield curve. In general, a flattening of the yield curve would result in a
decline in earnings due to the compression of earning asset yields and funding rates, while a
steepening would result in increased earnings as investment margins widen. Earnings are also
affected by changes in spread relationships between certain rate indices, such as prime rate.
Interest rate risk is monitored through earnings simulation modeling. The earnings simulation
model projects changes in net interest income caused by the effect of changes in interest rates.
The model requires management to make assumptions about how the balance sheet is likely to behave
through time in different interest rate environments. Loan and deposit balances remain static and
maturities reprice at the current market rate. The investment portfolio maturities and prepayments
are assumed to be reinvested in similar instruments. Mortgage loan prepayment assumptions are
developed from industry median estimates of prepayment speeds. Non-maturity deposit pricing is
modeled on historical patterns. The Corporation performs a 200 basis point upward and downward
interest rate shock to determine whether there would be an adverse impact on its annual net income
and that it is within the established policy limits. At December 31, 2009 and 2008, a downward
interest rate shock scenario was not performed due to the low level of current interest rates. The
earnings simulation model as of December 31, 2009, projects an approximate decrease of 34.5% in net
income in a 200 basis point upward interest rate shock. The Corporation was in violation of its
policy limits established by the ALCO policy. Management believes there is a 0.00% probability
that interest rates would rise 200 basis points immediately. Management performs additional
interest rate scenarios that have higher probabilities of occurrence. In these rate scenarios, the
change to net income is well within established limits. As of December 31, 2008, the earnings
simulation model projected an approximate increase of 4.0% in net income in a 200 basis point
upward interest rate shock. The upward interest rate shock is well within the policy limits
established by the ALCO policy. Further discussion on interest rate sensitivity can be found on
page 37.
54
Item 8. Financial Statements and Supplementary Data
Managements Report on Internal Control over Financial Reporting
Management of The National Bank of Indianapolis Corporation is responsible for the
preparation, integrity, and fair presentation of the financial statements included in this annual
report. The financial statements and notes have been prepared in conformity with United States
generally accepted accounting principles and necessarily include some amounts that are based on
managements best estimates and judgments.
As management of The National Bank of Indianapolis Corporation, we are responsible for
establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that is
designed to produce reliable financial statements in conformity with United States generally
accepted accounting principles. The system of internal control over financial reporting as it
relates to the financial statements is evaluated for effectiveness by management and tested for
reliability through a program of internal audits. Actions are taken to correct potential
deficiencies as they are identified. Any system of internal control, no matter how well designed,
has inherent limitations, including the possibility that a control can be circumvented or
overridden and misstatements due to error or fraud may occur and not be detected. Also, because of
changes in conditions, internal control effectiveness may vary over time. Accordingly, even an
effective system of internal control will provide only reasonable assurance with respect to
financial statement preparation.
Management assessed the system of internal control over financial reporting as of December 31,
2009, in relation to criteria for adequate internal control over financial reporting as described
in Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management concludes that, as of December 31,
2009, its system of internal control over financial reporting is effective and meets the criteria
of the Internal Control Integrated Framework. Crowe Horwath LLP, independent registered public
accounting firm, has issued an attestation report on the effectiveness of internal control over
financial reporting.
|
|
|
|
|
/s/ Morris L. Maurer
|
|
/s/ Debra L. Ross |
|
|
|
|
Debra L. Ross
|
|
|
President and Chief Executive Officer
|
|
Senior Vice President and Chief Financial Officer |
|
|
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The National Bank of Indianapolis Corporation
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheets of The National Bank of Indianapolis
Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income,
shareholders equity, and cash flows for the years then ended. We also have audited The National
Bank of Indianapolis Corporations internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The National Bank of
Indianapolis Corporations management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on these financial statements and an opinion on the companys internal control over
financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The National Bank of Indianapolis Corporation as of
December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion The National Bank of Indianapolis Corporation maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated Framework issued by the COSO.
/s/ Crowe Horwath LLP
Indianapolis, Indiana
March 12, 2010
56
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
The National Bank of Indianapolis Corporation
We have audited the accompanying consolidated statements of income, shareholders equity, and cash
flows of The National Bank of Indianapolis Corporation (the Corporation) for the year ended
December 31, 2007. These financial statements are the responsibility of the Corporations
management. Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements of The National Bank of Indianapolis Corporation referred
to above present fairly, in all material respects, the consolidated results of its operations and
its cash flows for the year ended December 31, 2007 in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
March 7, 2008
57
THE
NATIONAL BANK OF INDIANAPOLIS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
149,375 |
|
|
$ |
29,819 |
|
Reverse repurchase agreements |
|
|
1,000 |
|
|
|
1,000 |
|
Federal funds sold |
|
|
1,242 |
|
|
|
601 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
151,617 |
|
|
|
31,420 |
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
67,296 |
|
|
|
56,977 |
|
Held-to-maturity securities (fair value of $96,588 and
$82,971 at December 31, 2009, and 2008) |
|
|
94,922 |
|
|
|
83,567 |
|
|
|
|
|
|
|
|
Total investment securities |
|
|
162,218 |
|
|
|
140,544 |
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
864,722 |
|
|
|
904,207 |
|
Less allowance for loan losses |
|
|
(13,716 |
) |
|
|
(12,847 |
) |
|
|
|
|
|
|
|
Net loans |
|
|
851,006 |
|
|
|
891,360 |
|
Premises and equipment |
|
|
24,532 |
|
|
|
22,818 |
|
Deferred tax asset |
|
|
7,133 |
|
|
|
5,749 |
|
Accrued interest |
|
|
4,199 |
|
|
|
4,855 |
|
Federal Reserve and FHLB stock |
|
|
3,150 |
|
|
|
3,150 |
|
Other real estate owned and repossessions |
|
|
8,432 |
|
|
|
3,418 |
|
Other assets |
|
|
21,343 |
|
|
|
14,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,233,630 |
|
|
$ |
1,117,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest-bearing demand deposits |
|
$ |
192,705 |
|
|
$ |
178,656 |
|
Money market and savings deposits |
|
|
650,353 |
|
|
|
573,679 |
|
Time deposits over $100 |
|
|
131,938 |
|
|
|
136,814 |
|
Other time deposits |
|
|
77,069 |
|
|
|
76,817 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
1,052,065 |
|
|
|
965,966 |
|
Repurchase agreements and other secured short-term
borrowings |
|
|
81,314 |
|
|
|
51,146 |
|
Short-term debt |
|
|
4,138 |
|
|
|
4,200 |
|
Subordinated debt |
|
|
5,000 |
|
|
|
5,000 |
|
Junior subordinated debentures owed to unconsolidated
subsidiary trust |
|
|
13,918 |
|
|
|
13,918 |
|
Other liabilities |
|
|
4,164 |
|
|
|
5,342 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,160,599 |
|
|
|
1,045,572 |
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value authorized 5,000,000 shares |
|
$ |
|
|
|
$ |
|
|
Common stock, no par value authorized 15,000,000 shares
issued 2,840,382 shares at December 31, 2009,
and 2,778,311 shares at December 31, 2008 |
|
|
34,440 |
|
|
|
33,136 |
|
Treasury stock, at cost; 533,204 shares at December 31, 2009,
and 484,130 shares at December 31, 2008 |
|
|
(20,346 |
) |
|
|
(18,481 |
) |
Additional paid-in capital |
|
|
10,873 |
|
|
|
8,766 |
|
Retained earnings |
|
|
48,067 |
|
|
|
47,955 |
|
Accumulated other comprehensive income (loss) |
|
|
(3 |
) |
|
|
836 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
73,031 |
|
|
|
72,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,233,630 |
|
|
$ |
1,117,784 |
|
|
|
|
|
|
|
|
See accompanying notes.
58
THE
NATIONAL BANK OF INDIANAPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
42,217 |
|
|
$ |
48,988 |
|
|
$ |
57,383 |
|
Interest on investment securities taxable |
|
|
3,242 |
|
|
|
4,489 |
|
|
|
6,777 |
|
Interest on investment securities nontaxable |
|
|
2,068 |
|
|
|
2,047 |
|
|
|
1,817 |
|
Interest on federal funds sold |
|
|
4 |
|
|
|
705 |
|
|
|
2,492 |
|
Interest on reverse repurchase agreements |
|
|
|
|
|
|
148 |
|
|
|
411 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
47,531 |
|
|
|
56,377 |
|
|
|
68,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
9,427 |
|
|
|
17,979 |
|
|
|
30,847 |
|
Interest on other short term borrowings |
|
|
182 |
|
|
|
544 |
|
|
|
2,078 |
|
Interest on FHLB advances and overnight
borrowings |
|
|
|
|
|
|
193 |
|
|
|
463 |
|
Interest on short-term debt |
|
|
121 |
|
|
|
16 |
|
|
|
|
|
Interest on long-term debt |
|
|
1,583 |
|
|
|
1,717 |
|
|
|
1,875 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
11,313 |
|
|
|
20,449 |
|
|
|
35,263 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
36,218 |
|
|
|
35,928 |
|
|
|
33,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
11,905 |
|
|
|
7,400 |
|
|
|
904 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
24,313 |
|
|
|
28,528 |
|
|
|
32,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management fees |
|
|
4,917 |
|
|
|
5,048 |
|
|
|
4,547 |
|
Service charges and fees on deposit accounts |
|
|
3,113 |
|
|
|
2,484 |
|
|
|
1,818 |
|
Rental income |
|
|
321 |
|
|
|
575 |
|
|
|
597 |
|
Mortgage banking income |
|
|
1,576 |
|
|
|
62 |
|
|
|
329 |
|
Interchange income |
|
|
1,007 |
|
|
|
877 |
|
|
|
678 |
|
Other income |
|
|
1,969 |
|
|
|
2,158 |
|
|
|
1,865 |
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
|
12,903 |
|
|
|
11,204 |
|
|
|
9,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
|
21,332 |
|
|
|
19,172 |
|
|
|
19,098 |
|
Occupancy |
|
|
2,441 |
|
|
|
2,081 |
|
|
|
1,791 |
|
Furniture and equipment |
|
|
1,359 |
|
|
|
1,428 |
|
|
|
1,241 |
|
Professional services |
|
|
1,873 |
|
|
|
1,971 |
|
|
|
1,800 |
|
Data processing |
|
|
2,752 |
|
|
|
2,514 |
|
|
|
2,200 |
|
Business development |
|
|
1,531 |
|
|
|
1,526 |
|
|
|
1,292 |
|
FDIC insurance |
|
|
2,142 |
|
|
|
918 |
|
|
|
99 |
|
Non performing assets |
|
|
1,383 |
|
|
|
149 |
|
|
|
109 |
|
Other |
|
|
3,541 |
|
|
|
4,947 |
|
|
|
3,170 |
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
38,354 |
|
|
|
34,706 |
|
|
|
30,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax |
|
|
(1,138 |
) |
|
|
5,026 |
|
|
|
11,747 |
|
Federal and state income tax (benefit) |
|
|
(1,250 |
) |
|
|
1,242 |
|
|
|
3,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
112 |
|
|
$ |
3,784 |
|
|
$ |
7,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.05 |
|
|
$ |
1.64 |
|
|
$ |
3.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.05 |
|
|
$ |
1.58 |
|
|
$ |
3.27 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
59
THE
NATIONAL BANK OF INDIANAPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
30,386 |
|
|
$ |
(12,585 |
) |
|
$ |
6,236 |
|
|
$ |
36,280 |
|
|
$ |
(533 |
) |
|
$ |
59,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,891 |
|
|
|
|
|
|
|
7,891 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on investments, net of tax of $588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
896 |
|
|
|
896 |
|
Net unrealized gain on swap, net of tax of $64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from deferred stock compensation |
|
|
|
|
|
|
|
|
|
|
552 |
|
|
|
|
|
|
|
|
|
|
|
552 |
|
Issuance of 63,567 shares of common stock under stock-based
compensation plans |
|
|
1,719 |
|
|
|
|
|
|
|
(816 |
) |
|
|
|
|
|
|
|
|
|
|
904 |
|
Repurchase of 47,718 shares of common stock |
|
|
|
|
|
|
(2,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,394 |
) |
Stock based compensation earned |
|
|
|
|
|
|
|
|
|
|
1,209 |
|
|
|
|
|
|
|
|
|
|
|
1,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
32,105 |
|
|
|
(14,979 |
) |
|
|
7,181 |
|
|
|
44,171 |
|
|
|
460 |
|
|
|
68,938 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,784 |
|
|
|
|
|
|
|
3,784 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on investments, net of tax of $236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,160 |
|
(Continued)
60
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from deferred stock compensation |
|
$ |
|
|
|
$ |
|
|
|
$ |
321 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
321 |
|
Issuance of 36,873 shares of common stock under stock-based
compensation plans |
|
|
1,031 |
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
933 |
|
Repurchase of stock 69,027 shares of common stock |
|
|
|
|
|
|
(3,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,502 |
) |
Stock based compensation earned |
|
|
|
|
|
|
|
|
|
|
1,362 |
|
|
|
|
|
|
|
|
|
|
|
1,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
33,136 |
|
|
|
(18,481 |
) |
|
|
8,766 |
|
|
|
47,955 |
|
|
|
836 |
|
|
|
72,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
112 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on investments, net of tax of $540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(839 |
) |
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(727 |
) |
|
|
|
|
|
Income tax benefit from deferred stock compensation |
|
|
|
|
|
|
|
|
|
|
414 |
|
|
|
|
|
|
|
|
|
|
|
414 |
|
Issuance of 62,071 shares of common stock under stock-based
compensation plans |
|
|
1,304 |
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
1,244 |
|
Repurchase of 49,074 shares of common stock |
|
|
|
|
|
|
(1,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,865 |
) |
Stock based compensation earned |
|
|
|
|
|
|
|
|
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
34,440 |
|
|
$ |
(20,346 |
) |
|
$ |
10,873 |
|
|
$ |
48,067 |
|
|
$ |
(3 |
) |
|
$ |
73,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
61
THE
NATIONAL BANK OF INDIANAPOLIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
112 |
|
|
$ |
3,784 |
|
|
$ |
7,891 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
11,905 |
|
|
|
7,400 |
|
|
|
904 |
|
Proceeds from sale of loans |
|
|
70,930 |
|
|
|
40,594 |
|
|
|
15,188 |
|
Origination of loans held for sale |
|
|
(69,691 |
) |
|
|
(38,524 |
) |
|
|
(15,003 |
) |
Depreciation and amortization |
|
|
1,533 |
|
|
|
1,545 |
|
|
|
1,408 |
|
Fair value adjustment on mortgage servicing rights |
|
|
334 |
|
|
|
715 |
|
|
|
145 |
|
Gain on sale of loans |
|
|
(1,561 |
) |
|
|
(499 |
) |
|
|
(205 |
) |
Gain on disposal of premises and equipment |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Increase in deferred income taxes |
|
|
(845 |
) |
|
|
(1,913 |
) |
|
|
(325 |
) |
Increase in bank owned life insurance |
|
|
(410 |
) |
|
|
(450 |
) |
|
|
(476 |
) |
Excess tax benefit from deferred stock compensation |
|
|
(414 |
) |
|
|
(321 |
) |
|
|
(552 |
) |
Stock compensation |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Net accretion of discounts and amortization of
premiums on investments |
|
|
480 |
|
|
|
309 |
|
|
|
175 |
|
Compensation expense related to restricted stock
and options |
|
|
1,753 |
|
|
|
1,362 |
|
|
|
1,209 |
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
656 |
|
|
|
610 |
|
|
|
12 |
|
Other real estate owned and repossessions |
|
|
(5,013 |
) |
|
|
(3,055 |
) |
|
|
75 |
|
Other assets |
|
|
(6,797 |
) |
|
|
686 |
|
|
|
(917 |
) |
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
(764 |
) |
|
|
(3,352 |
) |
|
|
2,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,308 |
|
|
|
8,991 |
|
|
|
11,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities
held-to-maturity |
|
|
19,904 |
|
|
|
16,377 |
|
|
|
14,284 |
|
Proceeds from maturities of investment securities
available-for-sale |
|
|
51,000 |
|
|
|
23,003 |
|
|
|
36,514 |
|
Purchases of investment securities held-to-maturity |
|
|
(31,451 |
) |
|
|
(28,417 |
) |
|
|
(25 |
) |
Purchases of investment securities available-for-sale |
|
|
(62,986 |
) |
|
|
(17,180 |
) |
|
|
(36,501 |
) |
Net (increase) decrease in loans |
|
|
28,771 |
|
|
|
(79,456 |
) |
|
|
(85,734 |
) |
Purchases of premises and equipment |
|
|
(3,247 |
) |
|
|
(6,947 |
) |
|
|
(6,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities |
|
|
1,991 |
|
|
|
(92,620 |
) |
|
|
(78,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
86,099 |
|
|
|
(38,796 |
) |
|
|
129,677 |
|
Net increase (decrease) in repurchase agreements and
other secured short-term borrowings |
|
|
30,168 |
|
|
|
(7,330 |
) |
|
|
(657 |
) |
Net change in FHLB borrowings |
|
|
|
|
|
|
(3,000 |
) |
|
|
(11,000 |
) |
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Repayment of long-term debt |
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
Net change in short-term debt |
|
|
(62 |
) |
|
|
4,200 |
|
|
|
|
|
Income tax benefit from deferred stock compensation |
|
|
414 |
|
|
|
321 |
|
|
|
552 |
|
Proceeds from issuance of stock |
|
|
1,144 |
|
|
|
833 |
|
|
|
804 |
|
Repurchase of stock |
|
|
(1,865 |
) |
|
|
(3,502 |
) |
|
|
(2,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
115,898 |
|
|
|
(47,274 |
) |
|
|
116,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
120,197 |
|
|
|
(130,903 |
) |
|
|
50,447 |
|
Cash and cash equivalents at beginning of year |
|
|
31,420 |
|
|
|
162,323 |
|
|
|
111,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
151,617 |
|
|
$ |
31,420 |
|
|
$ |
162,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
11,377 |
|
|
$ |
21,050 |
|
|
$ |
35,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
1,612 |
|
|
$ |
3,755 |
|
|
$ |
2,669 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
62
THE
NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The National Bank of Indianapolis
Corporation (the Corporation) was incorporated in the state of Indiana on January 29, 1993. The
Corporation subsequently formed a de novo national bank, The National Bank of Indianapolis (the
Bank), and a statutory trust, NBIN Statutory Trust I (the Trust). The Bank is a wholly owned
subsidiary and commenced operations in December 1993. The Trust was formed in September 2000 as
part of the issuance of trust preferred capital securities.
The Corporation and the Bank engage in a wide range of commercial, personal banking, and trust
activities primarily in central Indiana. Its primary deposit products are checking, savings, and
term certificate accounts, and its primary lending products are residential mortgage, commercial,
and installment loans. Substantially all loans are secured by specific items of collateral
including business assets, consumer assets, and commercial and residential real estate. Commercial
loans are expected to be repaid from cash flow from operations of businesses. There are no
significant concentrations of loans to any one industry or customer. However, the customers
ability to repay their loans is dependent on the real estate and general economic conditions in the
area.
The Corporation has a full-service Wealth Management division, which offers trust, estate,
retirement and money management services. Income from wealth management services is recognized
when earned.
The consolidated financial statements include the accounts of the Corporation and the Bank. In
accordance with applicable consolidation guidance, the Corporation does not consolidate the Trust
in its financial statements. See Note 4, Junior Subordinated Debentures in the notes to the
consolidated financial statements of this report for further information. All intercompany
accounts and transactions have been eliminated in consolidation.
Subsequent Events: The Corporation has evaluated subsequent events for recognition or
disclosure through March 12, 2010, which is the date that the Corporations financial statements
were issued.
Cash Flows: Cash and cash equivalents consist of cash, interest-bearing deposits, and
instruments with maturities of one month or less when purchased. Interest-bearing deposits are
available on demand. Net cash flows are reported for customer loan and deposit transactions,
interest bearing deposits in other financial institutions, and federal funds purchased and
repurchase agreements.
Investment Securities: Investments in debt securities are classified as held-to-maturity
or available-for-sale. Management determines the appropriate classification of the securities at
the time of purchase based on a policy approved by the Board of Directors.
When the Corporation classifies debt securities as held-to-maturity, it has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized
cost.
Debt securities not classified as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported as a component of other comprehensive income.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on
securities are amortized on the level-yield method without anticipating prepayments, except for
mortgage backed securities where prepayments are anticipated. Gains and losses on sales are
recorded on the trade date and determined using the specific identification method.
The Corporation obtains fair values from a third party on a monthly basis in order to adjust the
available-for-sale securities to fair value. Equity securities that do not have readily
determinable fair values are carried at cost. Management evaluates securities for
other-than-temporary-impairment (OTTI) at least on a quarterly basis, and more frequently when
economic or market conditions warrant such an evaluation.
63
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock: The Bank is a member
of FHLB Indianapolis. Members are required to own a certain amount of stock based on the level of
borrowings and other factors, and may invest in additional amounts. FHLB and FRB stock is carried
at cost, classified as a restricted security, and periodically evaluated for impairment based on
ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans Held for Sale: The Corporation periodically sells residential mortgage loans it
originates based on the overall loan demand of the Corporation and outstanding balances of the
residential mortgage portfolio. Loans held for sale are carried at the lower of cost or market,
determined on an aggregate basis. Gains from the sale of these loans into the secondary market are
included in mortgage banking income. The determination of loans held for sale is based on the
loans compliance with Federal National Mortgage Association (FNMA) underwriting standards.
Loans: Interest income on commercial, mortgage, and consumer loans are accrued on the
principal amount of such loans outstanding and is recognized when earned. Loan origination fees
and certain direct origination costs are deferred and recognized in interest income using the
level-yield method without anticipating prepayments.
Loans are typically placed on non-accrual when they become past due ninety days or it is determined
that the obligor will not pay all contractual principal and interest due. Unless there is a
significant reason to the contrary, consumer loans are charged off when deemed uncollectible, but
generally no later than when a loan is past due 150 days. Any accrued interest is charged against
interest income. Interest continues to legally accrue on these non-accrual loans, but no income is
recognized for financial statement purposes. Both principal and interest payments received on
non-accrual loans are applied to the outstanding principal balance, until the remaining balance is
considered collectible, at which time interest income may be recognized when received.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for
probable incurred credit losses. The allowance for loan losses is established through provisions
for loan losses charged against income. Loans deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance for
loan losses.
Management estimates the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and estimated collateral
values, economic conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in managements judgment,
should be charged off.
Within the allowance, there are specific and general loss components. The specific loss component
is assessed for non-homogeneous loans that management believes to be impaired. Loans are
considered to be impaired when it is determined that the obligor will not pay all contractual
principal and interest due. For loans determined to be impaired, the loans carrying value is
compared to its fair value using one of the following fair value measurement techniques: present
value of expected future cash flows, observable market price, or fair value of the associated
collateral less costs to sell. An allowance is established when the fair value is lower than the
carrying value of that loan. The general component covers non-classified loans and is based on
historical loss experience adjusted for current factors. These loans are segregated by major
product type and/or risk grade with an estimated loss ratio applied against each product type
and/or risk grade. The loss ratio is generally based upon historic loss experience for each loan
type as adjusted for certain environmental factors management believes to be relevant.
It is the policy of the Corporation to promptly charge off any commercial loan, or portion thereof,
which is deemed to be uncollectible. This includes, but is not limited to, any loan rated Loss
by the regulatory authorities. Impaired commercial credits are considered on a case-by-case basis.
An assessment of the adequacy of the allowance is performed on a quarterly basis. Management
believes the allowance for loan losses is maintained at a level that is adequate to absorb probable
incurred losses inherent in the loan portfolio.
64
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage Servicing Rights: Mortgage servicing rights are recognized separately when they
are acquired through sales of loans. Capitalized mortgage servicing rights are reported in other
assets. When mortgage loans are sold, servicing rights are initially recorded at fair value with
the income statement effect recorded in gains on sales of loans. Fair value is based on a
valuation model that calculates the present value of estimated future net servicing income. The
valuation model incorporates assumptions that market participants would use in estimating future
net servicing income, such as the cost to service, the discount rate, the custodial earnings rate,
an inflation rate, ancillary income, prepayment speeds and default rates and losses. The
Corporation obtains fair value estimates from an independent third party and compares significant
valuation model inputs to published industry data in order to validate the model assumptions and
results.
Under the fair value measurement method, the Corporation measures servicing rights at fair value at
each reporting date and reports changes in fair value of servicing assets in earnings in the period
in which the changes occur, and are included in mortgage banking income on the income statement.
The fair values of servicing rights are subject to significant fluctuations as a result of changes
in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income which is reported on the income statement as mortgage banking income is
recorded for fees earned for servicing loans. The fees are based on a contractual percentage of
the outstanding principal; or a fixed amount per loan and are recorded as income when earned.
Servicing fees totaled $349, $278, and $269 for the years ended December 31, 2009, 2008 and 2007.
Late fees and ancillary fees related to loan servicing are not material.
Transfer of Financial Assets: Transfers of financial assets are accounted for as sales,
when control over the assets has been relinquished. Control over transferred assets is deemed to
be surrendered when the assets have been isolated from the Corporation, the transferee obtains the
right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and the Corporation does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity.
Loan Commitments and Related Financial Instruments: Financial instruments include
off-balance sheet credit instruments, such as commitments to make loans and commercial letters of
credit, issued to meet customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.
Derivative Instruments and Hedging Activities: During 2004, the Corporation entered into a
three-year interest rate swap, which expired April 15, 2007. The interest rate swap was utilized
to mitigate the risk of adverse interest rate movements on the value of future cash flows related
to its investment in overnight Federal Funds sold. Cash flow hedges are accounted for by recording
the fair value of the derivative instrument on the consolidated balance sheets as either an asset
or liability, with a corresponding offset recorded in other comprehensive income within
shareholders equity, net of tax, to the extent the hedge was effective.
Under the cash flow hedge accounting method, derivative gains and losses not effective in hedging
the change in expected cash flows of the hedged item were recognized immediately in the
consolidated income statements. At the hedges inception and quarterly thereafter, a formal
assessment was performed to determine whether changes in cash flows of the derivative instrument
had been highly effective in offsetting changes in the cash flows of the
hedged item and whether they were expected to be highly effective in the future. If it was
determined a derivative instrument had not been highly effective as a hedge, hedge accounting was
discontinued. There were no outstanding derivative instruments as of December 31, 2009 and 2008.
Premises and Equipment: Premises and equipment are stated at cost less accumulated
depreciation computed by the straight-line method over their useful lives or, for leasehold
improvements, the shorter of the remaining lease term or useful life of the asset.
Maintenance and repairs are charged to operating expense when incurred, while
improvements that extend the useful life of the assets are capitalized and depreciated over the
estimated remaining life.
65
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially
recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair
value declines subsequent to foreclosure, a valuation allowance is recorded through non performing
assets expense. Operating costs after acquisition are expensed.
Bank-Owned Life Insurance: The Corporation owns bank-owned life insurance (BOLI) on
certain officers. BOLI is recorded at the amount that can be realized under the insurance contract
at the balance sheet date, which is the cash surrender value adjusted for other charges or other
amounts due that are probable at settlement.
Changes in the cash surrender values are included in other income. At December 31, 2009, 2008 and
2007, income recorded from BOLI totaled $410, $450 and $476, respectively.
Long-Term Assets: Premises and equipment and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value.
Securities Purchased Under Resale Agreements and Securities Sold Under Repurchase
Agreements: Securities purchased under resale agreements (also known as reverse repurchase
agreements) and securities sold under repurchase agreements are generally treated as collateralized
financing transactions and are recorded at the amount at which the securities were acquired or sold
plus accrued interest. Securities, generally U.S. government and Federal agency securities,
pledged as collateral under these financing arrangements cannot be sold by the secured party. The
fair value of collateral either received from or provided to a third party is monitored and
additional collateral is obtained or requested to be returned as deemed appropriate.
Comprehensive Income: Comprehensive income is defined as net income plus other
comprehensive income, which, under existing accounting standards, includes unrealized gains and
losses on available-for-sale debt securities and unrealized gains or losses on interest rate swaps
utilized in an effective cash flow hedge program, net of deferred taxes. Comprehensive income is
reported by the Corporation in the consolidated statements of shareholders equity.
Earnings Per Share: Basic earnings per share is computed by dividing net income available
to common shareholders by the weighted-average number of shares of common stock outstanding for the
period. Diluted earnings per share is computed by dividing net income applicable to common
shareholders by the sum of the weighted-average number of shares and the potentially dilutive
shares that could be issued through stock award programs or convertible securities.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the
ordinary course of business, are recorded as liabilities when the likelihood of loss is probable
and an amount or range of loss can be reasonably estimated. Based upon information presently
available, we believe that the total amounts, if any, that will ultimately be paid arising from
these claims and legal actions are reflected in the consolidated results of operations and
financial position.
Fair Values of Financial Instruments: The fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully disclosed in a
separate note. Fair value estimates involve uncertainties and matters of significant judgment
concerning several factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the estimates.
66
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation: Compensation cost is recognized for stock options and restricted
stock awards issued to employees, based on the fair value of these awards at the date of grant. A
Black-Scholes model is utilized to estimate the fair value of stock options, while the market price
of the Corporations common stock at the date of grant is used for restricted stock awards.
Compensation cost is recognized over the required service period, generally defined as the vesting
period. For awards with a cliff vest, compensation cost is recognized on a straight-line basis
over the requisite service period for the entire award.
New shares are issued upon share option exercise or restricted stock vesting from common stock.
Retirement Plans: Employee 401(k) expense is the amount of matching contributions.
Reportable Segments: The Corporation has determined that it has one reportable segment,
banking services. The Bank provides a full range of deposit, credit, and money management services
to its target markets, which are small to medium size businesses, affluent executive and
professional individuals, and not-for-profit organizations in the Indianapolis Metropolitan
Statistical Area of Indiana.
Income Taxes: The Corporation and the Bank file a consolidated federal income tax return.
The provision for income taxes is based upon income in the financial statements, rather than
amounts reported on the Corporations income tax return.
Income tax expense is the total of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in years in
which those temporary differences are expected to be recovered or settled. A valuation allowance,
if needed, reduces deferred tax assets to the amount expected to be realized.
The Corporation adopted guidance issued by the FASB with respect to accounting for uncertainty in
income taxes as of January 1, 2008. A tax position is recognized as a benefit only if it is more
likely than not that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on examination. For tax positions not meeting
the more likely than not test, no tax benefit is recorded. The adoption had no effect on the
Corporations financial statements.
The Corporation recognizes interest and/or penalties related to income tax matters in income tax
expense.
Use of Estimates: The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. The allowance for loan losses, loan servicing rights, and fair
values of financial instruments are particularly subject to change.
NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued guidance that defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. This guidance also
establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies
assumptions about risk and the effect of a restriction on the sale or use of an asset. The
guidance was effective for fiscal years beginning after November 15, 2007. In February 2008, the
FASB issued guidance that delayed the effective date of this fair value guidance for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years. The adoption of this statement did not have a material impact on the
Corporations consolidated financial position or results of
operations.
67
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In May 2009, the FASB issued guidance which requires the effects of events that occur subsequent to
the balance-sheet date be evaluated through the date the financial statements are either issued or
available to be issued. Companies should disclose the date through which subsequent events have
been evaluated and whether that date is the date the financial statements were issued or the date
the financial statements were available to be issued.
Companies are required to reflect in their financial statements the effects of subsequent events
that provide additional evidence about conditions at the balance-sheet date (recognized subsequent
events). Companies are also prohibited from reflecting in their financial statements the effects
of subsequent events that provide evidence about conditions that arose after the balance-sheet date
(nonrecognized subsequent events), but requires information about those events to be disclosed if
the financial statements would otherwise be misleading. This guidance was effective for interim
and annual financial periods ending after June 15, 2009, with prospective application. The
adoption of this statement did not have a material impact on the Corporations consolidated
financial position or results of operations.
In June 2009, the FASB replaced The Hierarchy of Generally Accepted Accounting Principles, with the
FASB Accounting Standards Codification TM (The Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with GAAP. Rules and
interpretive releases of the Securities and Exchange Commission under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. The Codification was
effective for financial statements issued for periods ending after September 15, 2009.
In April 2009, the FASB amended existing guidance for determining whether impairment is
other-than-temporary for debt securities. The guidance requires an entity to assess whether it
intends to sell, or it is more likely than not that it will be required to sell, a security in an
unrealized loss position before recovery of its amortized cost basis. If either of these criteria
is met, the entire difference between amortized cost and fair value is recognized as impairment
through earnings. For securities that do not meet the aforementioned criteria, the amount of
impairment is split into two components as follows: 1) other-than-temporary impairment (OTTI)
related to other factors, which is recognized in other comprehensive income and 2) OTTI related to
credit loss, which must be recognized in the income statement. The credit loss is defined as the
difference between the present value of the cash flows expected to be collected and the amortized
cost basis. Additionally, disclosures about other-than-temporary impairments for debt and equity
securities were expanded. This guidance was effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of this statement did not have a material impact on the
Corporations consolidated financial position or results of operations.
In April 2009, the FASB issued guidance that emphasizes that the objective of a fair value
measurement does not change even when market activity for the asset or liability has decreased
significantly. Fair value is the price that would be received for an asset sold or paid to
transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed
sale) between market participants at the measurement date under current market conditions. When
observable transactions or quoted prices are not considered orderly, then little, if any, weight
should be assigned to the indication of the asset or liabilitys fair value. Adjustments to those
transactions or prices should be applied to determine the appropriate fair value. The guidance,
which was applied prospectively, was effective for interim and annual reporting periods ending
after June 15, 2009. The adoption of this statement did not have a material impact on the
Corporations consolidated financial position or results of operations.
68
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS (Continued)
Effect of Newly Issued But Not Yet Effective Accounting Standards: In June 2009, the FASB
amended previous guidance relating to transfers of financial assets and eliminates the concept of a
qualifying special purpose entity.
This guidance must be applied as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual
reporting periods thereafter. This guidance must be applied to transfers occurring on or after the
effective date. Additionally, on and after the effective date, the concept of a qualifying
special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly
qualifying special-purpose entities should be evaluated for consolidation by reporting entities on
and after the effective date in accordance with the applicable consolidation guidance. The
disclosure provisions were also amended and apply to transfers that occurred both before and after
the effective date of this guidance. The adoption of this standard is not expected to have a
material effect on the Corporations results of operations or financial position.
In June 2009, the FASB amended guidance for consolidation of variable interest entity guidance by
replacing the quantitative-based risks and rewards calculation for determining which enterprise, if
any, has a controlling financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a variable interest entity
that most significantly impact the entitys economic performance and (1) the obligation to absorb
losses of the entity or (2) the right to receive benefits from the entity.
Additional disclosures about an enterprises involvement in variable interest entities are also
required. This guidance is effective as of the beginning of each reporting entitys first annual
reporting period that begins after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter. Early adoption is
prohibited. The adoption of this standard is not expected to have a material effect on the
Corporations results of operations or financial position.
NOTE 3 RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Corporation is required to maintain average reserve balances with the Federal Reserve Bank or
as cash on hand or on deposit with a correspondent bank. The required amount of reserve to be
maintained at the Federal Reserve Bank was approximately $2,661 at December 31, 2009, and $25 at
December 31, 2008.
NOTE 4 JUNIOR SUBORDINATED DEBENTURES
In September 2000, the Corporation established the Trust, a Connecticut statutory business trust,
which subsequently issued $13,500 of company obligated mandatorily redeemable capital securities
and $418 of common securities. The proceeds from the issuance of both the capital and common
securities were used by the Trust to purchase from the Corporation $13,918 fixed rate junior
subordinated debentures. The capital securities and debentures mature September 7, 2030, or upon
earlier redemption as provided by the Indenture. The Corporation has the right to redeem the
capital securities, in whole or in part, but in all cases, in a principal amount with integral
multiples of $1, on any March 7 or September 7 on or after September 7, 2010, at a premium,
declining ratably to par on September 7, 2020. The capital securities and the debentures have a
fixed interest rate of 10.60% and are guaranteed by the Bank. The subordinated debentures are the
sole assets of the Trust, and the Corporation owns all of the common securities of the Trust. The
net proceeds received by the Corporation from the sale of capital securities were used for general
corporate purposes. The indenture, dated September 7, 2000, requires compliance with certain
non-financial covenants.
The Corporation is not considered the primary beneficiary of this Trust, therefore the trust is not
consolidated in the Corporations financial statements. The junior subordinated debt obligation
issued to the Trust of $13,918 is reflected in the Corporations consolidated balance sheets at
December 31, 2009 and 2008. The junior subordinated debentures owed to the Trust and held by the
Corporation qualify as Tier 1 capital for the Corporation under Federal Reserve Board guidelines.
Interest payments made on the junior subordinated debentures are reported as a component of
interest expense on long-term debt.
69
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 5 INVESTMENT SECURITIES
The following is a summary of available-for-sale and held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale Securities |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
506 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
506 |
|
U.S. Government agencies |
|
|
66,795 |
|
|
|
97 |
|
|
|
102 |
|
|
|
66,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,301 |
|
|
$ |
97 |
|
|
$ |
102 |
|
|
$ |
67,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
494 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
499 |
|
U.S. Government agencies |
|
|
55,109 |
|
|
|
1,369 |
|
|
|
|
|
|
|
56,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,603 |
|
|
$ |
1,374 |
|
|
$ |
|
|
|
$ |
56,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrecognized |
|
|
Unrecognized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals |
|
$ |
54,913 |
|
|
$ |
1,805 |
|
|
$ |
47 |
|
|
$ |
56,671 |
|
Collateralized mortgage obligations,
residential |
|
|
30,124 |
|
|
|
29 |
|
|
|
232 |
|
|
|
29,921 |
|
Mortgage backed securities, residential |
|
|
9,735 |
|
|
|
111 |
|
|
|
|
|
|
|
9,846 |
|
Other securities |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
94,922 |
|
|
$ |
1,945 |
|
|
$ |
279 |
|
|
$ |
96,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals |
|
$ |
56,874 |
|
|
$ |
213 |
|
|
$ |
800 |
|
|
$ |
56,287 |
|
Collateralized mortgage obligations,
residential |
|
|
8,825 |
|
|
|
12 |
|
|
|
|
|
|
|
8,837 |
|
Mortgage backed securities, residential |
|
|
17,693 |
|
|
|
45 |
|
|
|
66 |
|
|
|
17,672 |
|
Other securities |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83,567 |
|
|
$ |
270 |
|
|
$ |
866 |
|
|
$ |
82,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of debt securities and carrying amount, if different, by contractual maturity were
as follows. Securities not due at a single maturity date, primarily mortgage-backed securities,
are shown separately. There were no sales of securities during 2009, 2008 or 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity |
|
|
Available-for-Sale |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
8,720 |
|
|
$ |
8,784 |
|
|
$ |
10,563 |
|
|
$ |
10,629 |
|
Due from one to five years |
|
|
8,190 |
|
|
|
8,428 |
|
|
|
56,738 |
|
|
|
56,667 |
|
Due from five to ten years |
|
|
38,153 |
|
|
|
39,609 |
|
|
|
|
|
|
|
|
|
CMOs/Mortgage-backed, residential |
|
|
39,859 |
|
|
|
39,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
94,922 |
|
|
$ |
96,588 |
|
|
$ |
67,301 |
|
|
$ |
67,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 5 INVESTMENT SECURITIES (Continued)
At year-end 2009 and 2008, there were no holdings of securities of any one issuer, other than the
U.S. Government and its agencies, in an amount greater than 10% of shareholder equity.
Investment securities with a carrying value of approximately $83,000 and $51,000 were pledged as
collateral for Wealth Management accounts and securities sold under agreements to repurchase at
December 31, 2009, and December 31, 2008, respectively.
Securities with unrealized losses at year-end 2009 and 2008, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies |
|
$ |
36,515 |
|
|
$ |
102 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
36,515 |
|
|
$ |
102 |
|
Collateralized mortgage
Obligations, residential |
|
|
24,851 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
24,851 |
|
|
|
232 |
|
Municipal bonds |
|
|
1,796 |
|
|
|
10 |
|
|
|
1,424 |
|
|
|
37 |
|
|
|
3,220 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
Impaired |
|
$ |
63,162 |
|
|
$ |
344 |
|
|
$ |
1,424 |
|
|
$ |
37 |
|
|
$ |
64,586 |
|
|
$ |
381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed
securities, residential |
|
$ |
14,035 |
|
|
$ |
66 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,035 |
|
|
$ |
66 |
|
Municipal bonds |
|
|
7,981 |
|
|
|
22 |
|
|
|
33,281 |
|
|
|
778 |
|
|
|
41,262 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
Impaired |
|
$ |
22,016 |
|
|
$ |
88 |
|
|
$ |
33,281 |
|
|
$ |
778 |
|
|
$ |
55,297 |
|
|
$ |
866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In determining other-than-temporary impairment (OTTI) for debt securities, management considers
many factors, including: (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the
market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent
to sell the debt security or more likely than not will be required to sell the debt security before
its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves
a high degree of subjectivity and judgment and is based on the information available to management
at a point in time.
When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity
intends to sell the security or it is more likely than not it will be required to sell the security
before recovery of its amortized cost basis, less any current-period credit loss. If an entity
intends to sell or it is more likely than not it will be required to sell the security before
recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be
recognized in earnings equal to the entire difference between the investments amortized cost basis
and its fair value at the balance sheet date. If an entity does not intend to sell the security
and it is not more likely than not that the entity will be required to sell the security before
recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into
the amount representing the credit loss and the amount related to all other factors. The amount of
the total OTTI related to the credit loss is determined based on the present value of cash flows
expected to be collected and is recognized in earnings. The amount of the total OTTI related to
other factors is recognized in other comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of
the investment.
71
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 5 INVESTMENT SECURITIES (Continued)
As of December 31, 2009, the Corporation held 21 investments for which the amortized cost was
greater than fair value.
The unrealized losses for investments classified as available-for sale are attributable to changes
in interest rates and individually are 0.87% or less of the respective amortized costs. The
largest unrealized loss relates to one security issued by the Federal Home Loan Bank (FHLB).
Given this investment is backed by the U.S. Government and its agencies, there is no credit risk.
The unrealized losses for investments classified as held-to-maturity are attributable to changes in
interest rates and/or economic environment and individually were 5.0% or less of their respective
amortized costs. The unrealized losses relate primarily to residential collateralized mortgage
obligations and securities issued by various municipalities. The residential collateralized
mortgage obligations were purchased in September 2009. Prepayments increased due to a decline in
long-term interest rates from the time of the investment purchases and December 31, 2009, which
affects the fair value of residential collateralized mortgage obligations. All residential
collateralized mortgage obligations are backed by the U.S. Government and its agencies and
represent no credit risk. The majority of securities issued by various municipalities that have an
unrealized loss were purchased during 2005 and first quarter of 2006 when rates were lower. The
largest unrealized loss relates to one municipal that was purchased February 2006. The credit
rating of the individual municipalities is assessed monthly. As of December 31, 2009, all but five
of the municipal debt securities were rated BBB or better (as a result of insurance of the
underlying rating on the bond). These five municipal debt securities have no underlying rating.
Credit reviews of the municipalities have been conducted. As a result, we have determined that all
of our non-rated debt securities would be rated a pass asset and thus classified as an investment
grade security. All interest payments are current for all municipal securities and management
expects all to be collected in accordance with contractual terms.
NOTE 6 LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans, including net unamortized deferred fees and costs, consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Residential loans secured by real estate |
|
$ |
254,722 |
|
|
$ |
260,354 |
|
Commercial loans secured by real estate |
|
|
232,841 |
|
|
|
217,445 |
|
Construction loans |
|
|
75,615 |
|
|
|
83,822 |
|
Other commercial and industrial loans |
|
|
273,117 |
|
|
|
307,409 |
|
Consumer loans |
|
|
28,427 |
|
|
|
35,177 |
|
|
|
|
|
|
|
|
Total loans |
|
|
864,722 |
|
|
|
904,207 |
|
Less allowance for loan losses |
|
|
(13,716 |
) |
|
|
(12,847 |
) |
|
|
|
|
|
|
|
Total loans, net |
|
$ |
851,006 |
|
|
$ |
891,360 |
|
|
|
|
|
|
|
|
The Corporation periodically sells residential mortgage loans it originates based on the overall
loan demand of the Corporation and outstanding balances of the residential mortgage portfolio.
As of December 31, 2009 and 2008, loans held for sale totaled $884 and $969, respectively, and are
included in the totals above.
72
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 6 LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
There were no loans pledged as collateral for FHLB advances as of December 31, 2009 and 2008.
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
12,847 |
|
|
$ |
9,453 |
|
|
$ |
8,513 |
|
Loan charge offs |
|
|
(11,432 |
) |
|
|
(4,393 |
) |
|
|
(882 |
) |
Recoveries |
|
|
396 |
|
|
|
387 |
|
|
|
918 |
|
Provision for loan losses |
|
|
11,905 |
|
|
|
7,400 |
|
|
|
904 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
13,716 |
|
|
$ |
12,847 |
|
|
$ |
9,453 |
|
|
|
|
|
|
|
|
|
|
|
Loans are considered to be impaired when it is determined that the obligor will not pay all
contractual principal and interest when due. The table below provides information on impaired
loans at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of impaired loans |
|
$ |
15,106 |
|
|
$ |
8,777 |
|
|
$ |
5,789 |
|
Related allowance on impaired loans |
|
$ |
1,724 |
|
|
$ |
1,689 |
|
|
$ |
1,066 |
|
Impaired loans with related
allowance |
|
$ |
7,844 |
|
|
$ |
6,210 |
|
|
$ |
3,358 |
|
Impaired loans without an allowance |
|
$ |
7,262 |
|
|
$ |
2,567 |
|
|
$ |
2,431 |
|
Average balance of impaired loans |
|
$ |
11,961 |
|
|
$ |
7,708 |
|
|
$ |
5,386 |
|
Accrued interest recorded
during impairment |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
Cash basis interest income recognized |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
At December 31, 2009 and 2008, there were approximately $7 and $4, respectively, of loans greater
than 90 days past due and still accruing interest. The total amount of non-accrual loans as of
December 31, 2009 was $15,099 as compared to $8,773 at December 31, 2008.
NOTE 7 PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Land and improvements |
|
$ |
8,893 |
|
|
$ |
8,893 |
|
Building and improvements |
|
|
14,507 |
|
|
|
12,548 |
|
Leasehold improvements |
|
|
2,259 |
|
|
|
2,257 |
|
Furniture and equipment |
|
|
13,624 |
|
|
|
12,339 |
|
|
|
|
|
|
|
|
|
|
|
39,283 |
|
|
|
36,037 |
|
Less accumulated depreciation and amortization |
|
|
(14,751 |
) |
|
|
(13,219 |
) |
|
|
|
|
|
|
|
Net premises and equipment |
|
$ |
24,532 |
|
|
$ |
22,818 |
|
|
|
|
|
|
|
|
Depreciation expense was $1,533, $1,545, and $1,408 for 2009, 2008 and 2007, respectively.
Certain Corporation facilities and equipment are leased under various operating leases. Rental
expense under these leases was $394, $307, and $257 for 2009, 2008 and 2007, respectively.
73
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 7 PREMISES AND EQUIPMENT (Continued)
Future minimum rental commitments under non-cancelable leases are:
|
|
|
|
|
2010 |
|
$ |
398 |
|
2011 |
|
|
350 |
|
2012 |
|
|
352 |
|
2013 |
|
|
357 |
|
2014 |
|
|
321 |
|
Thereafter |
|
|
1,001 |
|
|
|
|
|
|
|
$ |
2,779 |
|
|
|
|
|
NOTE 8 MORTGAGE BANKING ACTIVITIES
The unpaid principal balances of mortgage loans serviced for others were $154,323 and $125,353 at
December 31, 2009 and 2008, respectively.
Custodial escrow balances maintained in connection with serviced loans were $1,195 and $1,244 at
year-end 2009 and 2008, respectively.
The following table includes activity for mortgage servicing rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1 |
|
$ |
1,070 |
|
|
$ |
1,348 |
|
|
$ |
1,327 |
|
Plus additions |
|
|
723 |
|
|
|
437 |
|
|
|
166 |
|
Fair value adjustments |
|
|
(334 |
) |
|
|
(715 |
) |
|
|
(145 |
) |
|
|
|
|
|
|
|
|
|
|
Net ending balance |
|
$ |
1,459 |
|
|
$ |
1,070 |
|
|
$ |
1,348 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights are carried at fair value at December 31, 2009 and 2008. Fair value at
year-end 2009 was determined using discount rates ranging from 11.0% to 17.0%, prepayment speeds
ranging from 8.68% to 28.92%, depending on the stratification of the specific right, and a weighted
average default rate of 0.41%. Fair value at year-end 2008 was determined using discount rates
ranging from 11.0% to 17.0%, prepayment speeds ranging from 11.0% to 29.7%, depending on the
stratification of the specific right, and a weighted average default rate of 0.54%.
NOTE 9 DEPOSITS
Scheduled maturities of time deposits for the next five years are as follows:
|
|
|
|
|
2010 |
|
$ |
172,849 |
|
2011 |
|
|
19,397 |
|
2012 |
|
|
5,565 |
|
2013 |
|
|
4,637 |
|
2014 |
|
|
3,843 |
|
74
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 10 OTHER BORROWINGS
Repurchase agreements and other secured short-term borrowings consist of security repurchase
agreements and a non deposit product secured with the Corporations municipal portfolio. The
majority of the non deposit product generally matures within a year. Security repurchase
agreements generally mature within one to three days from the
transaction date. At maturity, the securities underlying the agreements are returned to the
Corporation. Information concerning the non deposit product and securities sold under agreements
to repurchase is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily balance during the year |
|
$ |
68,740 |
|
|
$ |
57,114 |
|
|
$ |
54,326 |
|
Average interest rate during the year |
|
|
0.25 |
% |
|
|
0.88 |
% |
|
|
3.83 |
% |
Maximum month-end balance during the year |
|
$ |
85,248 |
|
|
$ |
66,000 |
|
|
$ |
65,969 |
|
Weighted average interest rate at year-end |
|
|
0.27 |
% |
|
|
0.15 |
% |
|
|
3.04 |
% |
On June 29, 2007, the Bank entered into a Subordinated Debenture Purchase Agreement with U.S. Bank
in the amount of $5,000, which will mature on June 28, 2017. Under the terms of the Subordinated
Debenture Purchase Agreement, the Bank pays 3-month LIBOR plus 1.20% which equated to 1.51% at
December 31, 2009. Interest payments are due quarterly.
On June 29, 2007, the Corporation entered into a $5,000 loan agreement with U.S. Bank, which
matured on June 27, 2009, and was renewed and matured on August 31, 2009. The loan agreement was
used to provide additional liquidity support to the Corporation, if needed. On September 5, 2008,
and December 11, 2008, the Corporation drew $1,300 and $2,900, respectively, on the revolving loan
agreement with U.S. Bank.
On August 31, 2009, U.S. Bank renewed the revolving loan agreement which will mature on August 31,
2010. As part of the renewal of the revolving loan agreement, U.S. Bank reduced the revolving loan
amount from $5,000 to $2,000. Of the $4,138 outstanding, $3,000 was moved to a separate one-year
term facility with principal payments of $62 and interest payments due quarterly. Under the terms
of the one-year term facility, the Corporation pays prime plus 1.25% which equated to 4.50% at
December 31, 2009.
Under the terms of the revolving loan agreement, the Corporation paid prime minus 1.25% which
equated to 2.00% through August 31, 2009, and interest payments are due quarterly. Beginning
September 1, 2009, the Corporation pays prime plus 1.25% which equated to 4.50% at December 31,
2009. In addition, beginning October 1, 2009, U.S. Bank assessed a 0.25% fee on the unused portion
of the revolving line of credit.
The loan agreements contain various financial and non-financial covenants. The Bank was in
violation of the following covenants as of December 31, 2009:
|
|
|
|
|
|
|
|
|
Covenants |
|
U.S. Bank Policy |
|
|
Actual |
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total loans |
|
< 2.65 |
% |
|
|
2.70 |
% |
Return on assets |
|
not < 0.30 |
% |
|
|
0.19 |
% |
Loan loss reserve to non-performing loans |
|
not £ 100 |
% |
|
|
90.80 |
% |
At this time, U.S. Bank has not indicated an intention to exercise any of its remedies available
under the credit facility as a result of the Corporations covenant violation. The remedies
available to U.S. Bank are: make the note immediately due and payable; termination of the
obligation to extend further credit; and/or invoke default interest rate of 3.0% over current
interest rate. Management does not believe the impact of any of these remedies would have a
material impact on the Corporations results of operation or financial position and is currently
discussing a waiver for these covenant violations with U.S. Bank.
75
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 11 EQUITY-BASED COMPENSATION
The Board of Directors and the shareholders of the Corporation adopted stock option plans for
directors and key employees at the initial formation of the Bank in 1993. The Board of Directors
authorized 130,000 shares in 1993, 90,000 shares in 1996, 150,000 shares in 1999, and an additional
120,000 during 2002 to be reserved for issuance under the Corporations stock option plan. Options
awarded under these plans all vested during December 2009. In May 2003, the director stock option
plan was dissolved, and in June 2005, the key employee stock option plan was dissolved; however,
all of the options in these plans remain exercisable for a period of ten years from the date of
issuance, subject to the terms and conditions of the plans.
A summary of the activity in the 1993 Stock Option Plan for 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
Outstanding at beginning of year |
|
|
154,163 |
|
|
$ |
24.58 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
58,100 |
|
|
$ |
19.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
96,063 |
|
|
$ |
27.53 |
|
|
|
|
|
|
$ |
885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
96,063 |
|
|
$ |
27.53 |
|
|
|
2.4 |
|
|
$ |
885 |
|
Information related to the stock option plan during each year follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options exercised |
|
$ |
1,069 |
|
|
$ |
806 |
|
|
$ |
801 |
|
Cash received from option exercises |
|
$ |
1,145 |
|
|
$ |
667 |
|
|
$ |
498 |
|
Tax benefit realized from option exercises |
|
$ |
413 |
|
|
$ |
302 |
|
|
$ |
304 |
|
As of December 31, 2009, there was no unrecognized compensation cost. The recognized compensation
cost related to this plan during 2009, 2008 and 2007 was $7, $10, and $89, respectively.
1993 Restricted Stock Plan: The Board of Directors also approved a restricted stock plan
in 1993. Shares reserved by the Corporation for the restricted stock plan include 50,000 shares in
1993, 20,000 shares in 1996, 40,000 in 1999, and an additional 55,000 shares in 2002. Starting
January 1, 2006, compensation expense for the fair value of the restricted stock granted is earned
over the vesting period and recorded to additional paid-in capital (APIC). When the restricted
stock vests, then the fair value of the stock at the date of grant is recorded as an issuance of
common stock and removed from APIC. In June 2005, the restricted stock plan was dissolved, and no
additional restricted stock will be issued from this plan.
The table presented below is a summary of the Corporations nonvested restricted stock awards under
this plan and the changes during the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date Fair |
|
|
|
Stock |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Nonvested awards at beginning of year |
|
|
1,400 |
|
|
$ |
34.50 |
|
Vested |
|
|
1,400 |
|
|
$ |
34.50 |
|
|
|
|
|
|
|
|
|
Nonvested awards at end of year |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
76
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 11 EQUITY-BASED COMPENSATION (Continued)
Information related to the restricted stock plan during each year follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Intrinsic value of shares vested |
|
$ |
51 |
|
|
$ |
111 |
|
|
$ |
1,421 |
|
Tax benefit realized from shares vested |
|
$ |
1 |
|
|
$ |
19 |
|
|
$ |
247 |
|
As of December 31, 2009, there was no unrecognized compensation cost. The recognized compensation
costs related to this plan during 2009, 2008 and 2007 were $10, $12, and $97, respectively.
2005 Equity Incentive Plan: During 2005, the Board of Directors and the shareholders of
the Corporation adopted The National Bank of Indianapolis Corporation 2005 Equity Incentive Plan.
The maximum number of shares to be delivered upon exercise of all options and restricted stock
awarded under the plan will not exceed 333,000 shares. All equity awards are issued with a
five-year cliff vest.
A summary of option activity in the 2005 Equity Incentive Plan for 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year |
|
|
189,400 |
|
|
$ |
44.03 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
5,600 |
|
|
$ |
35.97 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(2,800 |
) |
|
$ |
49.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
192,200 |
|
|
$ |
43.71 |
|
|
|
6.6 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
2,800 |
|
|
$ |
43.38 |
|
|
|
6.4 |
|
|
$ |
|
|
Information related to the stock option plan during each year follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Intrinsic value of options exercised |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash received from option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit realized from option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted |
|
$ |
11.91 |
|
|
$ |
18.56 |
|
|
$ |
20.12 |
|
As of December 31, 2009, there was $1,016 of total unrecognized compensation costs related to
nonvested options granted under the 2005 Equity Incentive Plan, which is expected to be recognized
over the weighted-average period of 1.6 years. The compensation cost that was recognized during
2009, 2008 and 2007 was $684, $674, and $697, respectively.
The fair value for the options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: a dividend yield; volatility factor
of the expected market price of the Corporations common stock; an expected life of the options of
ten years; and the risk-free interest rate.
77
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 11 EQUITY-BASED COMPENSATION (Continued)
The following is a summary of the weighted-average assumptions used in the Black-Scholes pricing
model:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Dividend Yield |
|
|
Volatility Factor |
|
|
Risk-Free Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
13.42 |
% |
|
|
3.41 |
% |
2008 |
|
|
|
|
|
|
7.65 |
% |
|
|
4.37 |
% |
2007 |
|
|
|
|
|
|
3.92 |
% |
|
|
5.18 |
% |
The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. Expected stock price
volatility is based on historical volatilities of the Corporations common stock. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant.
Restricted Stock Issued:
The table presented below is a summary of the Corporations nonvested restricted stock awards under
the 2005 plan and the changes during the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date Fair |
|
|
|
Stock |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock at beginning of year |
|
|
70,675 |
|
|
$ |
50.03 |
|
Granted |
|
|
65,000 |
|
|
$ |
35.97 |
|
Forfeited or expired |
|
|
(900 |
) |
|
$ |
49.78 |
|
|
|
|
|
|
|
|
|
Nonvested restricted stock at end of year |
|
|
134,775 |
|
|
$ |
43.25 |
|
|
|
|
|
|
|
|
|
The total fair value of the shares related to this plan that vested during 2009, 2008, and 2007 was
$0, as the restricted stock grants were granted with a five-year cliff vest.
As of December 31, 2009, there was $3,795 of total unrecognized compensation costs related to
nonvested restricted stock awards granted under this plan which is expected to be recognized over
the weighted-average period of 3.4 years. The recognized compensation costs related to this plan
during 2009, 2008 and 2007 was $1,052, $666, and $326, respectively.
NOTE 12 EMPLOYEE BENEFIT PROGRAM
The Corporation sponsors The National Bank of Indianapolis Corporation 401(k) Savings Plan (the
401(k) Plan) for the benefit of substantially all of the employees of the Corporation and its
subsidiaries. All employees of the Corporation and its subsidiaries become participants in the
401(k) Plan after attaining age 18. The Corporation amended the plan January 1, 2007, with
additional amendments in 2008.
The Corporation expensed approximately $584, $594, and $505 for employee-matching contributions to
the plan during 2009, 2008, and 2007, respectively. The Board of Directors of the Corporation may,
in its discretion, make an additional matching contribution to the 401(k) Plan in such amount as
the Board of Directors may determine. In addition, the Corporation may fund all, or any part of,
its matching contributions with shares of its stock. The Corporation also may, in its discretion,
make a profit-sharing contribution to the 401(k) Plan. No additional matching contributions or
profit-sharing contributions have been made to the plan during 2009, 2008, or 2007.
78
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 12 EMPLOYEE BENEFIT PROGRAM (Continued)
An employee who has an interest in a qualified retirement plan with a former employer may transfer
the eligible portion of that benefit into a rollover account in the 401(k) Plan. The participant
may request that the trustee invests up to 25% of the fair market value of the participants
rollover contribution to a maximum of $200 (valued as of the effective date of the contribution to
the 401(k) Plan) in whole and fractional shares of the common stock to the Corporation.
NOTE 13 REGULATORY CAPITAL MATTERS
Dividends from the Bank to the Corporation may not exceed the net undivided profits of the Bank
(included in consolidated retained earnings) for the current calendar year and the two previous
calendar years without prior approval from the Office of the Comptroller of the Currency. In
addition, Federal banking laws limit the amount of loans the Bank may make to the Corporation,
subject to certain collateral requirements. No loans were made from the Bank to the Corporation
during 2009 or 2008. The Bank declared and made a $1,385, $1,315, and $1,300 dividend to the
Corporation during 2009, 2008, and 2007, respectively.
Banks and bank holding companies are subject to regulatory capital requirements administered by the
federal banking agencies. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Banks capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Failure to meet minimum capital requirements can initiate regulatory action. Management believes
as of December 31, 2009, the Corporation and Bank meet all capital adequacy requirements to which
it is subject.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined
in the regulations) to risk-weighted assets (as defined), and of total qualifying capital to total
adjusted asset (as defined).
Prompt corrective action regulations provide five classifications: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized,
although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized,
capital distributions are limited, as is asset growth and expansion, and capital restoration plans
are required. As of December 31, 2009 and 2008, the most recent notification from the Comptroller
of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification that management
believes have changed the institutions category.
79
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 13 REGULATORY CAPITAL MATTERS (Continued)
Actual and required capital amounts and ratios are presented below at year end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
|
Required |
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Regulations |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk
weighted assets
Consolidated |
|
$ |
103,202 |
|
|
|
11.1 |
% |
|
$ |
74,552 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
N/A |
|
Bank |
|
|
101,635 |
|
|
|
10.9 |
% |
|
|
74,335 |
|
|
|
8.0 |
% |
|
|
92,919 |
|
|
|
10.0 |
% |
Tier 1 (Core) Capital to risk
weighted assets
Consolidated |
|
|
86,528 |
|
|
|
9.3 |
% |
|
|
37,276 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
N/A |
|
Bank |
|
|
84,994 |
|
|
|
9.2 |
% |
|
|
37,168 |
|
|
|
4.0 |
% |
|
|
55,752 |
|
|
|
6.0 |
% |
Tier 1 (Core) Capital to
average assets
Consolidated |
|
|
86,528 |
|
|
|
6.8 |
% |
|
|
50,658 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
N/A |
|
Bank |
|
|
84,994 |
|
|
|
6.7 |
% |
|
|
50,715 |
|
|
|
4.0 |
% |
|
|
63,394 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk
weighted assets
Consolidated |
|
$ |
101,930 |
|
|
|
10.6 |
% |
|
$ |
76,961 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
N/A |
|
Bank |
|
|
101,121 |
|
|
|
10.5 |
% |
|
|
76,800 |
|
|
|
8.0 |
% |
|
|
96,000 |
|
|
|
10.0 |
% |
Tier 1 (Core) Capital to risk
weighted assets
Consolidated |
|
|
84,895 |
|
|
|
8.8 |
% |
|
|
38,480 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
N/A |
|
Bank |
|
|
84,110 |
|
|
|
8.8 |
% |
|
|
38,400 |
|
|
|
4.0 |
% |
|
|
57,600 |
|
|
|
6.0 |
% |
Tier 1 (Core) Capital to
average assets
Consolidated |
|
|
84,895 |
|
|
|
7.5 |
% |
|
|
45,069 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
N/A |
|
Bank |
|
|
84,110 |
|
|
|
7.5 |
% |
|
|
45,073 |
|
|
|
4.0 |
% |
|
|
56,341 |
|
|
|
5.0 |
% |
NOTE 14 RELATED PARTIES
Certain directors, executive officers, and principal shareholders of the Corporation, including
their families and companies in which they are principal owners, are loan customers of, and have
other transactions with, the Corporation or its subsidiary in the ordinary course of business. The
aggregate dollar amount of these loans was approximately $15,646 and $13,003 on December 31, 2009
and 2008, respectively. The amounts do not include loans made in the ordinary course of business
to companies in which officers or directors of the Corporation are either officers or directors,
but are not principal owners, of such companies. During 2009, new loans to these parties amounted
to $3,554, draws amounted to $31,138, and repayments amounted to $32,049. There were no changes in
the composition of related parties.
80
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 15 INCOME TAXES
The Corporation applies a federal income tax rate of 34% and a state tax rate of 8.5% in the
computation of tax expense or benefit. The provision for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Current tax (benefit) expense |
|
$ |
(405 |
) |
|
$ |
3,155 |
|
|
$ |
4,181 |
|
Deferred tax (benefit) expense |
|
|
(845 |
) |
|
|
(1,913 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,250 |
) |
|
$ |
1,242 |
|
|
$ |
3,856 |
|
|
|
|
|
|
|
|
|
|
|
The statutory tax rate reconciliation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income tax |
|
$ |
(1,138 |
) |
|
$ |
5,026 |
|
|
$ |
11,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) at federal
statutory rate |
|
$ |
(387 |
) |
|
$ |
1,709 |
|
|
$ |
3,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes |
|
|
(92 |
) |
|
|
203 |
|
|
|
603 |
|
Tax-exempt interest |
|
|
(716 |
) |
|
|
(685 |
) |
|
|
(558 |
) |
Other |
|
|
(55 |
) |
|
|
15 |
|
|
|
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,250 |
) |
|
$ |
1,242 |
|
|
$ |
3,856 |
|
|
|
|
|
|
|
|
|
|
|
The components of the Corporations net deferred tax assets in the consolidated balance sheets as
of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
5,364 |
|
|
$ |
5,025 |
|
Equity based compensation |
|
|
1,841 |
|
|
|
1,193 |
|
Accrued contingencies |
|
|
391 |
|
|
|
391 |
|
Other |
|
|
693 |
|
|
|
508 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
8,289 |
|
|
|
7,117 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
(570 |
) |
|
|
(418 |
) |
Net unrealized gain on securities |
|
|
|
|
|
|
(537 |
) |
Other |
|
|
(586 |
) |
|
|
(413 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,156 |
) |
|
|
(1,368 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
7,133 |
|
|
$ |
5,749 |
|
|
|
|
|
|
|
|
Unrecognized Tax Benefits: The Corporation had no unrecognized tax benefits as of January
1, 2009 and did not recognize any increase in unrecognized benefits during 2009 relative to any tax
positions taken in 2009. Should the accrual of any interest or penalties relative to unrecognized
tax benefits be necessary, it is the Corporations policy to record such accruals in its income tax
expense; no such accruals exist as of December 31, 2009. The Corporation and its subsidiary file a
consolidated U.S. federal and Indiana income tax return, which is subject to examination for all
years after 2005.
81
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 15 INCOME TAXES (Continued)
Valuation Allowance on Deferred Tax Assets: In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the existence of sufficient taxable income of the appropriate character within any
available carryback period or generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible, and the implementation of
various tax planning strategies, if necessary, management believes it is more likely than not the
Corporation will realize the benefits of these deductible differences as of December 31, 2009 and
2008 and accordingly no valuation allowance has been provided.
NOTE 16 COMMITMENTS AND CONTINGENCIES
Some financial instruments, such as loan commitments, credit lines, letters of credit, and
overdraft protection, are issued to meet customer financing needs. These are agreements to provide
credit or to support the credit of others, as long as conditions established in the contract are
met, and usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make such commitments as
are used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance sheet risk was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Unused commercial credit lines |
|
$ |
198,815 |
|
|
$ |
231,795 |
|
Unused revolving home equity and credit card lines |
|
|
99,629 |
|
|
|
98,925 |
|
Standby letters of credit |
|
|
24,338 |
|
|
|
24,224 |
|
Demand deposit account lines of credit |
|
|
2,499 |
|
|
|
2,917 |
|
|
|
|
|
|
|
|
|
|
$ |
325,281 |
|
|
$ |
357,861 |
|
|
|
|
|
|
|
|
The majority of commitments to fund loans are variable rate. The demand deposit account lines of
credit are a fixed rate at 18% with no maturity.
The credit risk associated with loan commitments and standby letters of credit is essentially the
same as that involved in extending loans to customers and is subject to normal credit policies.
Collateral may be obtained based on managements credit assessment of the customer.
The Corporation is party to various lawsuits and proceedings arising in the ordinary course of
business. In addition, many of these proceedings are pending in jurisdictions that permit damage
awards disproportionate to the actual economic damages alleged to have been incurred. Based upon
information presently available, we believe that the total amounts, if any, that will ultimately be
paid arising from these lawsuits and proceedings will not have a material adverse effect on our
consolidated results of operations or financial position.
82
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 17 FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a
liability (exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. There are three levels
of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing and asset or liability.
The Corporation used the following methods and significant assumptions to estimate the fair value
of each type of asset or liability carried at fair value:
The fair value of available for sale securities are determined by obtaining quoted prices on
nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a
mathematical technique widely used in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather by relying on securities
relationship to other benchmark quoted securities (Level 2 inputs).
The fair value of mortgage servicing rights is based on a valuation model that calculates the
present value of estimated net servicing income. The valuation model incorporates assumptions that
market participants would use in estimating future net servicing income. The Corporation is able
to compare the valuation model inputs and results to widely available published industry data for
reasonableness.
The fair value of impaired loans with specific allocations of the allowance for loan losses is
generally based on recent real estate appraisals. These appraisals may utilize a single valuation
approach or a combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences
between the comparable sales and income data available. Such adjustments are usually significant
and typically result in a Level 3 classification of the inputs for determining fair value.
Nonrecurring adjustments to certain commercial and residential real estate properties classified as
other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less
costs to sell. Fair values are generally based on third party appraisals of the property resulting
in a Level 3 classification. In cases where the carrying amount exceeds the fair value less costs
to sell, an impairment loss is recognized.
83
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 17 FAIR VALUE (Continued)
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
December 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
securities |
|
$ |
67,296 |
|
|
$ |
|
|
|
$ |
67,296 |
|
|
$ |
|
|
Mortgage servicing
rights |
|
|
1,459 |
|
|
|
|
|
|
|
1,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
securities |
|
$ |
56,977 |
|
|
$ |
|
|
|
$ |
56,977 |
|
|
$ |
|
|
Mortgage servicing
rights |
|
|
1,070 |
|
|
|
|
|
|
|
1,070 |
|
|
|
|
|
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
December 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
6,120 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,120 |
|
Other real estate |
|
|
8,432 |
|
|
|
|
|
|
|
|
|
|
|
8,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
4,521 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,521 |
|
Other real estate |
|
|
3,414 |
|
|
|
|
|
|
|
|
|
|
|
3,414 |
|
84
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 17 FAIR VALUE (Continued)
The following represent impairment charges recognized during the period:
Impaired loans, which are measured for impairment using the fair value of the collateral for
collateral dependent loans, had a carrying amount of $7,844, with a valuation allowance of $1,724
at December 31, 2009, resulting in an additional provision for loan losses of $5,284 for the year
ending December 31, 2009. At December 31, 2008, impaired loans had a carrying amount of $6,210,
with a valuation allowance of $1,689, resulting in an additional provision for loan losses of
$4,628 for the year ending December 31, 2008.
Other real estate is carried at lower of cost or fair value and was written down to a fair value of
$8,432 resulting in a charge of $905 to earnings for the year ending December 31, 2009. At
December 31, 2008, other real estate was carried at lower of cost or fair value and was written
down to a fair value of $3,414 resulting in a charge of $76 to earnings.
The estimated fair values of the Corporations financial instruments at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
149,375 |
|
|
$ |
149,375 |
|
|
$ |
29,819 |
|
|
$ |
29,819 |
|
Federal funds sold |
|
|
1,242 |
|
|
|
1,242 |
|
|
|
601 |
|
|
|
601 |
|
Reverse repurchase agreements |
|
|
1,000 |
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
1,000 |
|
Investment securities available-for-sale |
|
|
67,296 |
|
|
|
67,296 |
|
|
|
56,977 |
|
|
|
56,997 |
|
Investment securities held-to-maturity |
|
|
94,922 |
|
|
|
96,588 |
|
|
|
83,567 |
|
|
|
82,971 |
|
Net loans |
|
|
851,006 |
|
|
|
850,877 |
|
|
|
891,360 |
|
|
|
904,043 |
|
Federal Reserve and FHLB stock |
|
|
3,150 |
|
|
|
N/A |
|
|
|
3,150 |
|
|
|
N/A |
|
Accrued interest receivable |
|
|
4,199 |
|
|
|
4,199 |
|
|
|
4,855 |
|
|
|
4,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
1,052,065 |
|
|
|
1,053,849 |
|
|
|
965,966 |
|
|
|
967,071 |
|
Repurchase agreements and other
secured short-term borrowings |
|
|
81,314 |
|
|
|
81,415 |
|
|
|
51,146 |
|
|
|
51,146 |
|
Short-term debt |
|
|
4,138 |
|
|
|
4,138 |
|
|
|
4,200 |
|
|
|
4,200 |
|
Subordinated debt |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
4,997 |
|
Junior subordinated debentures |
|
|
13,918 |
|
|
|
10,102 |
|
|
|
13,918 |
|
|
|
9,962 |
|
Accrued interest payable |
|
|
2,158 |
|
|
|
2,158 |
|
|
|
2,222 |
|
|
|
2,222 |
|
The following methods and assumptions, not previously presented, were used by the Corporation in
estimating its fair value disclosures for financial instruments not recorded at fair value.
Carrying amount is the estimated fair value for cash and short-term investments, interest bearing
deposits, accrued interest receivable and payable, demand deposits, borrowings under repurchase
agreements, short-term debt, variable rate loans or deposits that reprice frequently and fully.
For fixed rate loans, deposits, or other secured short-term borrowings or for variable rate loans
or deposits with infrequent pricing or repricing limits, fair value is based on discounted cash
flows using current market rates applied to the estimated life and credit risk. It was not
practicable to determine the fair value of Federal Reserve and FHLB stock due to restrictions place
on its transferability. The fair value of the subordinated debt and junior subordinated debentures
are based upon discounted cash flows using rates for similar securities with the same maturities.
The fair value of off-balance-sheet items is not considered material.
85
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 18 ACCUMULATED OTHER COMPREHENSIVE INCOME
The following is a summary of activity in accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized gain (loss)
on securities available-for-sale at
January 1, net of tax |
|
$ |
836 |
|
|
$ |
460 |
|
|
$ |
(436 |
) |
Net unrealized gain (loss) for period |
|
|
(1,379 |
) |
|
|
612 |
|
|
|
1,484 |
|
Tax benefit (expense) |
|
|
540 |
|
|
|
(236 |
) |
|
|
(588 |
) |
|
|
|
|
|
|
|
|
|
|
Ending other comprehensive income
(loss) at December 31, net of tax |
|
$ |
(3 |
) |
|
$ |
836 |
|
|
$ |
460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized loss on
swap at January 1, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
(97 |
) |
Net unrealized gain for period |
|
|
|
|
|
|
|
|
|
|
161 |
|
Tax expense |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
Ending other comprehensive income
at December 31, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income (loss) at January 1, net of tax |
|
$ |
836 |
|
|
$ |
460 |
|
|
$ |
(533 |
) |
Other comprehensive income (loss),
net of tax |
|
|
(839 |
) |
|
|
376 |
|
|
|
993 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income (loss) at December 31,
net of tax |
|
$ |
(3 |
) |
|
$ |
836 |
|
|
$ |
460 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 19 EARNINGS PER SHARE
A computation of earnings per share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS Calculation |
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding |
|
|
2,301,502 |
|
|
|
2,311,022 |
|
|
|
2,327,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
112 |
|
|
$ |
3,784 |
|
|
$ |
7,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.05 |
|
|
$ |
1.64 |
|
|
$ |
3.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Calculation |
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
2,301,502 |
|
|
|
2,311,022 |
|
|
|
2,327,878 |
|
Nonvested restricted stock |
|
|
19,289 |
|
|
|
15,239 |
|
|
|
12,574 |
|
Net effect of the assumed exercise of
stock options |
|
|
28,313 |
|
|
|
65,046 |
|
|
|
69,833 |
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares |
|
|
2,349,104 |
|
|
|
2,391,307 |
|
|
|
2,410,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
112 |
|
|
$ |
3,784 |
|
|
$ |
7,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.05 |
|
|
$ |
1.58 |
|
|
$ |
3.27 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 2008 and 2007, options to purchase 4,004, 183,220, and 0 shares
respectively, and 6,076, 1,051, and 0 restricted shares, respectively, were outstanding but not
included in the computation of diluted earnings per share because they were antidilutive.
86
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 20 PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of the Corporation, prepared on a parent company unconsolidated
basis, are presented as follows:
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
3,974 |
|
|
$ |
3,801 |
|
Investment in subsidiary |
|
|
85,137 |
|
|
|
85,054 |
|
Other assets |
|
|
3,002 |
|
|
|
2,274 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
92,113 |
|
|
$ |
91,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
1,026 |
|
|
$ |
799 |
|
Short term debt |
|
|
4,138 |
|
|
|
4,200 |
|
Junior subordinated debentures owed to
unconsolidated subsidiary trust |
|
|
13,918 |
|
|
|
13,918 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
19,082 |
|
|
|
18,917 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
73,031 |
|
|
|
72,212 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
92,113 |
|
|
$ |
91,129 |
|
|
|
|
|
|
|
|
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
35 |
|
Interest expense |
|
|
1,596 |
|
|
|
1,492 |
|
|
|
1,482 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
(1,589 |
) |
|
|
(1,485 |
) |
|
|
(1,447 |
) |
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
44 |
|
|
|
44 |
|
|
|
44 |
|
Dividend income from subsidiary |
|
|
1,385 |
|
|
|
1,315 |
|
|
|
1,300 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
1,753 |
|
|
|
1,362 |
|
|
|
1,209 |
|
Other expenses |
|
|
304 |
|
|
|
321 |
|
|
|
345 |
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
2,057 |
|
|
|
1,683 |
|
|
|
1,554 |
|
|
|
|
|
|
|
|
|
|
|
Net loss before tax benefit and equity
in undistributed net income of
subsidiary |
|
|
(2,217 |
) |
|
|
(1,809 |
) |
|
|
(1,657 |
) |
Tax benefit |
|
|
1,406 |
|
|
|
1,213 |
|
|
|
1,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before equity in undistributed
net income of subsidiary |
|
|
(811 |
) |
|
|
(596 |
) |
|
|
(496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed net income of
subsidiary |
|
|
923 |
|
|
|
4,380 |
|
|
|
8,387 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
112 |
|
|
$ |
3,784 |
|
|
$ |
7,891 |
|
|
|
|
|
|
|
|
|
|
|
87
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
(Dollar amounts in thousands except per share data)
NOTE 20 PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
112 |
|
|
$ |
3,784 |
|
|
$ |
7,891 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiary |
|
|
(923 |
) |
|
|
(4,380 |
) |
|
|
(8,387 |
) |
Stock compensation |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Excess tax benefit from deferred compensation |
|
|
(414 |
) |
|
|
(321 |
) |
|
|
(552 |
) |
Compensation expense related to restricted
stock and options |
|
|
1,753 |
|
|
|
1,362 |
|
|
|
1,209 |
|
Increase in deferred income taxes |
|
|
(648 |
) |
|
|
(499 |
) |
|
|
(148 |
) |
Increase in other assets |
|
|
(79 |
) |
|
|
(31 |
) |
|
|
(32 |
) |
Increase in other liabilities |
|
|
641 |
|
|
|
409 |
|
|
|
773 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
542 |
|
|
|
424 |
|
|
|
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of stock |
|
|
1,144 |
|
|
|
833 |
|
|
|
804 |
|
Repurchase of stock |
|
|
(1,865 |
) |
|
|
(3,502 |
) |
|
|
(2,394 |
) |
Net change in short term debt |
|
|
(62 |
) |
|
|
4,200 |
|
|
|
|
|
Income tax benefit from deferred
compensation |
|
|
414 |
|
|
|
321 |
|
|
|
552 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) in financing activities |
|
|
(369 |
) |
|
|
1,852 |
|
|
|
(1,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
173 |
|
|
|
2,276 |
|
|
|
(184 |
) |
Cash and cash equivalents at beginning of year |
|
|
3,801 |
|
|
|
1,525 |
|
|
|
1,709 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
3,974 |
|
|
$ |
3,801 |
|
|
$ |
1,525 |
|
|
|
|
|
|
|
|
|
|
|
88
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2007
NOTE 21 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
11,665 |
|
|
$ |
11,795 |
|
|
$ |
12,185 |
|
|
$ |
11,886 |
|
Interest expense |
|
|
3,157 |
|
|
|
2,834 |
|
|
|
2,763 |
|
|
|
2,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
8,508 |
|
|
|
8,961 |
|
|
|
9,422 |
|
|
|
9,327 |
|
|
|
|
|
|
Provision for loan losses |
|
|
1,250 |
|
|
|
2,650 |
|
|
|
3,955 |
|
|
|
4,050 |
|
Other operating income |
|
|
3,003 |
|
|
|
3,569 |
|
|
|
2,991 |
|
|
|
3,340 |
|
Other operating expense |
|
|
9,210 |
|
|
|
10,060 |
|
|
|
9,128 |
|
|
|
9,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before tax |
|
|
1,051 |
|
|
|
(180 |
) |
|
|
(670 |
) |
|
|
(1,339 |
) |
Federal and state income tax (benefit) |
|
|
206 |
|
|
|
(259 |
) |
|
|
(462 |
) |
|
|
(735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after tax |
|
$ |
845 |
|
|
$ |
79 |
|
|
$ |
(208 |
) |
|
$ |
(604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.37 |
|
|
$ |
0.03 |
|
|
$ |
(0.09 |
) |
|
$ |
(0.26 |
) |
Diluted earnings per share |
|
$ |
0.36 |
|
|
$ |
0.03 |
|
|
$ |
(0.09 |
) |
|
$ |
(0.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
15,689 |
|
|
$ |
13,913 |
|
|
$ |
13,788 |
|
|
$ |
12,987 |
|
Interest expense |
|
|
6,700 |
|
|
|
4,794 |
|
|
|
4,556 |
|
|
|
4,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
8,989 |
|
|
|
9,119 |
|
|
|
9,232 |
|
|
|
8,588 |
|
|
|
|
|
|
Provision for loan losses |
|
|
1,075 |
|
|
|
2,100 |
|
|
|
1,800 |
|
|
|
2,425 |
|
Other operating income |
|
|
2,413 |
|
|
|
3,048 |
|
|
|
2,926 |
|
|
|
2,817 |
|
Other operating expense |
|
|
9,747 |
|
|
|
8,353 |
|
|
|
7,917 |
|
|
|
8,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax |
|
|
580 |
|
|
|
1,714 |
|
|
|
2,441 |
|
|
|
292 |
|
Federal and state income tax (benefit) |
|
|
34 |
|
|
|
505 |
|
|
|
798 |
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income after tax |
|
$ |
546 |
|
|
$ |
1,209 |
|
|
$ |
1,643 |
|
|
$ |
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.24 |
|
|
$ |
0.52 |
|
|
$ |
0.71 |
|
|
$ |
0.17 |
|
Diluted earnings per share |
|
$ |
0.23 |
|
|
$ |
0.50 |
|
|
$ |
0.69 |
|
|
$ |
0.16 |
|
89
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. The Corporations principal executive officer and
principal financial officer have concluded that the Corporations disclosure controls and
procedures (as defined under Rules 13(a)-15(e) or Rules 15d-15(e) under the Securities Exchange Act
of 1934, as amended), based on their evaluation of these controls and procedures as of the period
covered by this Form 10-K, are effective.
Managements Report on Internal Control Over Financial Reporting.
See report on page 55.
Attestation Report of the Independent Registered Public Accounting Firm.
See report on page 56.
Changes in Internal Controls Over Financial Reporting. There has been no change in the
Corporations internal controls over financial reporting that has occurred during the Corporations
last fiscal quarter that has materially affected or is reasonable likely to materially affect, the
Corporations internal control over financial reporting.
The Corporations management, including its principal executive officer and principal
financial officer, does not expect that the Corporations disclosure controls and procedures and
other internal controls will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can only be reasonable assurance that any design will
succeed in achieving its stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Appearing immediately following the Signatures section of this report there are Certifications
of the Corporations principal executive officer and principal financial officer. The
Certifications are required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the
Section 302 Certifications). This Item of this report which you are currently reading is the
information concerning the Evaluation referred to in the
Section 302 Certifications and this information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.
90
Item 9B. Other Information
Not Applicable.
PART III
Items 10. 11, 12, 13 and 14
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for the required disclosures under Items 10, 11, 12, 13 and 14 are not set forth herein
because the Corporation intends to file with the Securities and Exchange Commission a definitive
Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2009
fiscal year, which Proxy Statement will contain such information. The information required by Items
10, 11, 12, 13 and 14 is incorporated herein by reference to such Proxy Statement.
91
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) (1) The following consolidated financial statements are included in Item 8:
|
|
|
|
|
|
|
Page Number in |
|
|
|
10-K |
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
63 |
|
|
(2) |
|
See response to Item 15 (a)(1). All other financial statement
schedules have been omitted because they are not applicable, or the
required information is shown in the consolidated financial statements
or notes thereto. |
92
EXHIBIT INDEX
|
|
|
|
|
|
3.01 |
|
|
Articles of Incorporation of the Corporation, filed as Exhibit 3(i) to the Corporations Form
10-QSB as of September 30, 1995 are incorporated by reference and Articles of Amendment filed
as Exhibit 3(i) to the Form 10-K for the fiscal year ended December 31, 2001 |
|
|
|
|
|
|
3.02 |
|
|
Bylaws of the Corporation, filed as Exhibit 3(ii) to the Corporations Form 8-K filed July
30, 2009, are incorporated by reference |
|
|
|
|
|
|
10.01 |
* |
|
1993 Key Employees Stock Option Plan of the Corporation, as amended, filed as Exhibit 10(a)
to the Form 10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.02 |
* |
|
1993 Directors Stock Option Plan of the Corporation, as amended, filed as Exhibit 10(b) to
the Corporations Form 10-Q as of June 30, 2001 is incorporated by reference |
|
|
|
|
|
|
10.03 |
* |
|
1993 Restricted Stock Plan of the Corporation, as amended, filed as Exhibit 10(c) to the
Form 10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.04 |
* |
|
Form of agreement under the 1993 Key Employees Stock Option Plan, filed as Exhibit 10(d) to
the Form 10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.05 |
* |
|
Form of agreement under the 1993 Restricted Stock Plan, filed as Exhibit 10(e) to the Form
10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.06 |
* |
|
Schedule of Directors Compensation Arrangements, filed as Exhibit 10(f) to the Form 10-K for
the fiscal year ended December 31, 2004, is incorporated by reference |
|
|
|
|
|
|
10.07 |
* |
|
Schedule of Named Executive Officers Compensation Arrangements, filed as Exhibit 10.07 to
the Corporations Form 8-K dated May 18, 2006 is incorporated by reference, as amended by the
Corporations Form 8-K filed January 9, 2009, the Corporations Form 8-K filed April 16, 2009,
and the Corporations Form 8-K filed January 11, 2010 |
|
|
|
|
|
|
10.08 |
* |
|
The National Bank of Indianapolis Corporation 2005 Equity Incentive Plan, filed as Exhibit
10.01 to the Corporations Form 8-K dated June 22, 2005 is incorporated by reference |
|
|
|
|
|
|
10.09 |
* |
|
Form of Restricted Stock Award Agreement for The National Bank of Indianapolis Corporation
2005 Equity Incentive Plan, filed as Exhibit 10.02 to the Corporations Form 8-K dated June
22, 2005 is incorporated by reference |
|
|
|
|
|
|
10.10 |
* |
|
Form of Stock Option Award Agreement for The National Bank of Indianapolis Corporation 2005
Equity Incentive Plan, filed as Exhibit 10.03 to the Corporations Form 8-K dated June 22,
2005, is incorporated by reference |
|
|
|
|
|
|
10.11 |
* |
|
Employment Agreement dated December 15, 2005 between Morris L. Maurer and the Corporation,
filed as Exhibit 10.06 to the Corporations Form 8-K dated December 21, 2005, and as amended
by Exhibit 10.06 to the Corporations Form 8-K dated November 26, 2008, is incorporated by
reference |
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10.13 |
* |
|
The National Bank of Indianapolis Corporation Executives Deferred Compensation Plan, filed
as Exhibit 10.08 to the Corporations Form 8-K dated December 21, 2005, and as amended by
Exhibit 10.08 to the Corporations Form 8-K dated November 26, 2008, is incorporated by
reference |
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|
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10.14 |
* |
|
The National Bank of Indianapolis Corporation 401(K) Savings Plan (as amended and restated
generally effective January 1, 2006), filed as Exhibit 10.14 to the Corporations Form 10-K
dated December 31, 2005 is incorporated by reference |
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|
|
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|
21.00 |
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|
Subsidiaries of The National Bank of Indianapolis Corporation |
93
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31.1 |
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Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended |
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31.2 |
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Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended |
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32.1 |
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Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 |
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32.2 |
|
|
Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 |
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
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(Registrant)
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The National Bank of Indianapolis Corporation |
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By (Signature and Title)
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/S/ Morris L. Maurer
Morris L. Maurer, President (Principal Executive Officer)
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March 12, 2010
Date
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|
Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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By (Signature and Title)
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/S/ Morris L. Maurer
Morris L. Maurer, President (Principal Executive Officer)
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March 12, 2010
Date
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By (Signature and Title)
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/S/ Philip B. Roby
Philip B. Roby, Executive Vice President
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March 12, 2010
Date
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By (Signature and Title)
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/S/ Debra L. Ross
Debra L. Ross, Senior Vice President (Principal
Financial and Accounting Officer)
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March 12, 2010
Date
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By (Signature and Title)
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/S/ Michael S. Maurer
Michael S. Maurer, Chairman of the Board
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March 12, 2010
Date
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By (Signature and Title)
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/S/ Kathryn G. Betley
Kathryn G. Betley, Director
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March 12, 2010
Date
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By (Signature and Title)
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/S/ David R. Frick
David R. Frick, Director
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March 12, 2010
Date
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By (Signature and Title)
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/S/ Andre B. Lacy
Andre B. Lacy, Director
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March 12, 2010
Date
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By (Signature and Title)
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/S/ William S. Oesterle
William S. Oesterle, Director
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|
March 12, 2010
Date
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By (Signature and Title)
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/S/ Todd H. Stuart
Todd H. Stuart, Director
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|
March 12, 2010
Date
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By (Signature and Title)
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/S/ John T. Thompson
John T. Thompson, Director
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March 12, 2010
Date
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95
EXHIBIT INDEX
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3.01 |
|
|
Articles of Incorporation of the Corporation, filed as Exhibit 3(i) to the Corporations
Form 10-QSB as of September 30, 1995 are incorporated by reference and Articles of Amendment
filed as Exhibit 3(i) to the Form 10-K for the fiscal year ended December 31, 2001 |
|
|
|
|
|
|
3.02 |
|
|
Bylaws of the Corporation, filed as Exhibit 3(ii) to the Corporations Form 8-K filed July
30, 2009, are incorporated by reference |
|
|
|
|
|
|
10.01 |
* |
|
1993 Key Employees Stock Option Plan of the Corporation, as amended, filed as Exhibit 10(a)
to the Form 10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.02 |
* |
|
1993 Directors Stock Option Plan of the Corporation, as amended, filed as Exhibit 10(b) to
the Corporations Form 10-Q as of June 30, 2001 is incorporated by reference |
|
|
|
|
|
|
10.03 |
* |
|
1993 Restricted Stock Plan of the Corporation, as amended, filed as Exhibit 10(c) to the
Form 10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.04 |
* |
|
Form of agreement under the 1993 Key Employees Stock Option Plan, filed as Exhibit 10(d) to
the Form 10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.05 |
* |
|
Form of agreement under the 1993 Restricted Stock Plan, filed as Exhibit 10(e) to the Form
10-K for the fiscal year ended December 31, 2004 is incorporated by reference |
|
|
|
|
|
|
10.06 |
* |
|
Schedule of Directors Compensation Arrangements, filed as Exhibit 10(f) to the Form 10-K for
the fiscal year ended December 31, 2004, is incorporated by reference |
|
|
|
|
|
|
10.07 |
* |
|
Schedule of Named Executive Officers Compensation Arrangements, filed as Exhibit 10.07 to
the Corporations Form 8-K dated May 18, 2006 is incorporated by reference, as amended by the
Corporations Form 8-K filed January 9, 2009, the Corporations Form 8-K filed April 16, 2009,
and the Corporations Form 8-K filed January 11, 2010 |
|
|
|
|
|
|
10.08 |
* |
|
The National Bank of Indianapolis Corporation 2005 Equity Incentive Plan, filed as Exhibit
10.01 to the Corporations Form 8-K dated June 22, 2005 is incorporated by reference |
|
|
|
|
|
|
10.09 |
* |
|
Form of Restricted Stock Award Agreement for The National Bank of Indianapolis Corporation
2005 Equity Incentive Plan, filed as Exhibit 10.02 to the Corporations Form 8-K dated June
22, 2005 is incorporated by reference |
|
|
|
|
|
|
10.10 |
* |
|
Form of Stock Option Award Agreement for The National Bank of Indianapolis Corporation 2005
Equity Incentive Plan, filed as Exhibit 10.03 to the Corporations Form 8-K dated June 22,
2005 is incorporated by reference |
|
|
|
|
|
|
10.11 |
* |
|
Employment Agreement dated December 15, 2005 between Morris L. Maurer and the Corporation,
filed as Exhibit 10.06 to the Corporations Form 8-K dated December 21, 2005, and as amended
by Exhibit 10.06 to the Corporations Form 8-K dated November 26, 2008, is incorporated by
reference |
|
|
|
|
|
|
10.13 |
* |
|
The National Bank of Indianapolis Corporation Executives Deferred Compensation Plan, filed
as Exhibit 10.08 to the Corporations Form 8-K dated December 21, 2005, and as amended by
Exhibit 10.08 to the Corporations Form 8-K dated November 26, 2008, is incorporated by
reference |
|
|
|
|
|
|
10.14 |
* |
|
The National Bank of Indianapolis Corporation 401(K) Savings Plan (as amended and restated
generally effective January 1, 2006), filed as Exhibit 10.14 to the Corporations Form 10-K
dated December 31, 2005 is incorporated by reference |
|
|
|
|
|
|
21.00 |
|
|
Subsidiaries of The National Bank of Indianapolis Corporation |
96
|
|
|
|
|
|
31.1 |
|
|
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended |
|
|
|
|
|
|
31.2 |
|
|
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended |
|
|
|
|
|
|
32.1 |
|
|
Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 |
|
|
|
|
|
|
32.2 |
|
|
Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 |
97