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10/2014

I I 1 II L

BANI(1NDIANAPOLIS

2014

ANNUAL REPORT

2014 Annual Report

Table of Contents

Page

The National Bank of Indianapolis Corporation ............ . ........................................... . ... ............................................. 1

Stock Information .................................................. . ............................. ........................................................................ I

Five Year Total Shareholder Retum ................................. .. . .. ... .......................... . . ..... .................... .............................. 2

Forward Looking Statements .................................... .... . .. . ................................... . ........... . .... .. . .................................... 3

Report of Independent Registered Public Accounting Firm ................................................ . ................. ..... ................. 4

Consolidated Balance Sheets ............................................. ... . ................................................................. . .................... 5

Consolidated Statements of Income ....................................................................................................................: ...... 6

Consolidated Statements of Comprehensive Income .................................. ... ... ...................................................... . ... 7

Consolidated Statements of Shareholders' Equity ................ ........ ............. . ................................. . .... . ...................... . .. 8

Consolidated Statements of Cash Flows ........................................ .................................. ., . . . . . . . .......... ... .. ..... ,.. ... .. . .. .. . . 9

Notes to Consolidated Financial Statements .. . ........................................................................ .... .. ....... ........ ... ........... I 0

Directors and Executive Officers ............................................................................................... ................................ 5 I

Indianapolis Corporation

High

The National Bank of

The National Bank of Indianapolis Corporation ("Corporation") owns all of the outstanding stock of The

National Bank of Indianapolis ("Bank"), a national banking institution located in Indianapolis, Indiana. The Bank

began operations in December 1 993, and conducts its business through its downtown headquarters located at I 07

North Pennsylvania Street in Indianapolis and twelve other of fices located in the Indianapol is metropolitan area.

The Bank provides a full range of deposits, 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 basic strategy of the Bank emphasizes the del ivery of highly personal ized services to the target

cl ient base with an emphasis on quick response and financial expertise.

Stock Information

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 20 1 4 and 20 1 3.

Price Per Share Low

20 1 4 First Quarter $ 52.00 $ 48.96 Second Quarter 52.46 50.87 Third Quarter 59.79 49.54 Fourth Quarter 54.99 53.86

20 1 3 First Quarter $ 50.00 $ 46. 1 6 Second Quarter 50.80 49.34 Third Quarter 53.00 49.53 Fourth Quarter 50.68 50.02

There may have been other trades at other prices bf 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 62 1 shareholders of record as of April 30, 20 1 5.

The Corporation has not declared or paid any cash dividends on its shares of common stock since its

organization in 1 993. The Corporation and the Bank anticipate that earnings will be retained to finance the Bank's

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.

200 -

I

+- -1- ---1 --- ...... -1

2

175

150

100

75

50

National Bank of Indianapolis Corporation

Total Return Performance

r--·--·- ··--···--···-··----·-···-··-·-·--·····--·--··-·--! -4-National Bank of Indianapolis Corporation

-Russell 2000

-SNL Bank $1B·$5B Bank

25

12/31/09 12/31/10 12/31/11 12/31i12 12/31/13 12/31/14

Period Ending 12/31/11 12/31/12 12/31/13 12/31/14

118.67 125.33 136.00 157.33

121.56 141.43 196.34 205.95

103.38 127.47 185.36 193.81

Five Year Total Shareholder Return

The following indexed graph indicates the Corporation's total return to its shareholders on its common

stock for the pat five years, assuming dividend reinvestment, as compared to total return for the Russell 2000 Index

and the Peer Group Index (which is the SNL Bank $\B - $5B Bank Index). The comparison of total return on

investment for each of the periods assumes that $ 1 00 was invested on January I, 20 1 0, in each of the Corporation,

the Russell 2000 Index, and the Peer Group Index.

Index 12/31/09 12/31/10 National Bank of Indianapolis Corporation 100.00 110.67

Russell 2000 100.00 126.86

SNL Bank $ 1B-$5B Bank 100.00 113.35

4

Crowe Horwath LLP Independent Member Crowe Horwath International

Crowe Horwath

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders The National Bank oflndianapolis Corporation Indianapolis, Indiana

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of The National Bank oflndianapolis Corporation, which comprise the consolidated balance sheets as of December 31 , 201 4 and 2013, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 3 1 , 2014, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The National Bank oflndianapolis Corporation as of December 3 1 , 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 3 1 , 2014, in accordance with accounting principles generally accepted in the United States of America.

I .

CrfJWe p Indianapolis, Indiana Crowe Horwath LLP February 20, 201 5

{12,204} {13,056}

5 THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

CONSOLIDATED BALANCE SHEETS DECEMBER 3 1 , 20 14 and 2013

(Dollar amounts in thousands except share and per share data)

2014 2013 Assets Cash and cash equivalents

Cash and due from banks $ 26,735 $ 32,654 Interest bearing due from banks 21 5,716 227,627

Federal funds sold I8,853 16, 1 84

Total cash and cash equivalents 261 ,304 276,465 Investment securities

Available-for-sale securities 134,188 1 5 1 ,826 Held-to-maturity securities (Fair value of $ 175,302 at December 3 1, 201 4 and $141 ,055 at December 3 1 , 20 13)

Total investment securities Loans held fer sale Loans

Less: Allowance for loan losses Net loans Bank owned life insurance 21 ,444 21 , 105 Other real estate owned 5, 125 5,526 Premises and equipment 26,540 26,616 Deferred tax asset 5,777 6,877 Federal Reserve and FHLB stock at cost 3,341 2,990 Accrued interest 4,640 4,425 Other assets 9,684 10,4 15 Total assets $ 1 ,742,898 $ 1 ,656,700

Liabilities and shareholders' equity Deposits:

Noninterest-bearing demand deposits $ 346,633 $ 298,3 12

Money market and savings deposits 1 ,047,334 1 ,009,232

Time deposits 120 583 126,806

Total deposits 1 ,5 14,550 1 ,434,350 Repurchase agreements and other secured short term borrowings 78,639 87,384 Short term debt 1 ,688 1 ,938

5,000Subordinated debt 8,799Subordinated notes

Junior subordinated debentures owed to unconsolidated subsidiary trust 13,91 8 1 3,91 8 Other liabilities 1 1 ,562 10,390 Total liabilities 1 ,629, 1 56 1 ,552,980 Shareholders' equity:

Preferred stock, no par value - authorized 5,000,000 shares; issued 0 shares; outstanding 0 shares $ - $ Common stock, no par value - authorized 1 5,000,000 shares; issued 3,153,374 and 3,073,664 shares; outstanding 2,35 1 ,360 and 2,332,636 shares 47,825 44,523 Treasury stock, at cost!- 802,014 and 741 ,028 shares (33,393) (30,2 1 1 ) Additional paid in capital 1 3,032 13,923 Retained earnings 84,498 73,698 Accumulated other comprehensive income 1 ,780 1 ,787

Total shareholders' equity 1 1 3,742 1 03,720 Total liabilities and shareholders' equity $ 1,742,898 $ 1 ,656,700

175,756 1 42,304 309,944 294,1 30

494 1 ,948 1 , 106,809 1 ,019,259

1 ,094,605 1 ,006,203

See notes to consolidated financial statements.

{71 5}

$

$

6

34 474

3,794

4,743

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION CONSOLIDATED STATEMENTS OF INCOME

December 3 1 , 2014, 201 3, and 201 2 (Dollar amounts in thousands except share and per share data)

2014 2013 2012 Interest income:

Interest and fees on loans $ 43, 1 77 $ 41 ,252 $ 41 ,906 Interest and dividends on taxable securities 2,821 2,367 2,763

Interest on nontaxable securities 2,3 10 2,273 2,304 Interest o n federal funds sold 52 50 Interest on due from banks 48 1 479

Provision for loan losses

4, 169 44,635

1 ,457 2,594

Net interest income after provision for loan losses 45,350 40,252 39,3 1 5

Other operating income: Wealth management fees 7,998 7,305 6,388 Service charges and fees on deposit accounts 3,654 3,629 3,433 Rental income 1 ,25 1 1 ,502 761 Mortgage banking income 1 ,413 2,034 4,201 Debit and credit card interchange and fees 2,1 68 2, 1 12 1 ,832 Net gain (loss) on sale of securities

48,804

2,429 86 87

1 ,567

837 19 ( 13)

Other 775 3,295 Total other operating income 17,278 1 7,419 19,897

Other operating expenses: Salaries, wages and employee benefits 29,272 27,726 27,93 1 Occupancy 2,842 2,796 2,743 Furniture and equipment 1 , 1 89 1 , 1 57 1 , 1 83 Professional services 1 ,830 1 ,765 1 ,997 Data processing 3,824 3,689 3,401 Business development 2,21 3 2,002 1 ,947 FDIC Insurance 1 , 1 06 1 ,205 1 ,255 Non performing assets 1 ,368 1 ,400 3,589 Other 3,625 4,061 4,420

Total interest income 46,452 47,487

Interest expense: Interest on deposits 3,0 10 Interest on other short term borrowings 84 1 1 2 Interest on short term debt 98 1 1 0 Interest on long term debt 1 ,55 1 1 ,562

Total interest expense 5,578 Net interest income 41 ,709 41 ,909

Total other operating expenses Income before tax

Federal and state income tax Net income

Basic earnings per share

Diluted earnings per share


47,269 45,801 48,466 1 5,359 1 1,870 10,746 4,559 3,386 2,74 1

$ 10,800 $ 8,484 8,005

$ 4.6 1 $ 3.62 $ 3.42

$ 4.40 3.43 $ 3.23

{7} {l,591} {186}


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

December 3I, 2014, 201 3, and 2012

(Dollar amounts i n thousands except share an d per share data)

2014 2013 2012 Net income $ 10,800 $ 8,484 $ 8,005

Other comprehensive income (loss): Change in securities available for sale: Net unrealized loss during the period (29) (2,634) (308) Tax effect 22 1 ,043 122

Total other comprehensive loss Comprehensive income


$ 10,793 $ 6,893 $ 7,819

CaJ:!ital Eamin&s

1,371

p3,3932$ 13,032 1,780

8

3,564 $

Accumulated Additional Other

Common Treasury Paid In Retained Comprehensive Stock Stock Income TOTAL

Net income 8,005 8,005 Other comprehensive loss (186) (186) Income tax effect from deferred stock compensation 122 122 Issuance of stock I 04,822 shares of common stock under stock-based compensation plans 4,750 (3,274) 1,476 Repurchase of stock 84,797 shares of common stock (4,092) (4,092) Stock based compensation earned 1,628 1,628 Balance at December 31, 2012 41,778 (26,863) 13,565 65,214 3,378 97,072

Net income 8,484 8,484 Other comprehensive loss (1,591) (1,591) Income tax effect from deferred stock compensation (124) (124) Issuance of stock 48,385 shares of common stock under stock-based compensation plans 2,745 (889) 1,856 Repurchase of stock 66, 157 shares of common stock (3,348) (3,348) Stock based compensation earned 1,371

Net income 10,800 I0,800 (7) (7)

compensation 335 335 Issuance of 79,7!0 shares of common stock under stock-based compensation plans 3,302 (2,364) 938 Repurchase of 60,986 shares of common stock (3,182) (3,182)

1,138 Balance at December 31, 2014 $


THE NATIONAL BANK OF INDIANAPOLIS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

DECEMBER 3 1 , 2014, 2013, and 2012 (Dollar amounts in thousands except share and per share data)

13,923

1,138 47,825 $ $ 84,498 $ $ 113,742

Balance at January I, 2012 $ 37,028 $ (22,771)$ 15,089 $ 57,209 $ 90,119

Balance at December 31, 2013 44,523 (30,211) 73,698 1,787 !03,720

Other comprehensive loss Income tax effect from deferred stock

Stock based compensation earned

(1 ,1031

(1,5401 (9701 (2,4271

p,1821 p,3481 (4,0921 27,423

295,511 276,465

(I)

(335)

3,597


CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 3 1 , 2014, 20 13, and 2012

(Dollar amounts i n thousands except share and per share data)

2014 2013 2012 Operating Activities

Net Income $ 10,800 $ 8,484 $ 8,005 Adjustments to reconcile net income to net cash provided (used) by operating activities:

Provision for loan losses (7 1 5) 1,457 2,594 Proceeds from sale of loans 35,512 69,905 120,429 Origination of loans held for sale (33,386) (71 ,829) (122,763)

Depreciation and amortization 1,616 1,625 1,589

Fair value adjustment on mortgage servicing rights 453 (231) 626

(Gain) loss on sales of investment securities (19) 13 Gain on sale of loans (858) (1,153) (4,236) Net loss on sales and writedowns of other real estate and repossessions 233 153 1,121

(24) Gain on disposal of premises and equipment Net (increase) decrease in deferred income taxes 1,122 Earnings on bank owned life insurance (339) (382) (445) Income tax effect from deferred stock compensation 124 (122) Board stock compensation 155 1 70 150 Net accretion of discounts and amortization of premiums on investments 2,467 2,855 3,289 Compensation expense related to restricted stock and options 1 ,138 1,371 1 ,628 Changes in assets and liabilities:

Accrued interest receivable (215) 122 (144) Other assets 613 (460) (1,062) Other1iabilities 1,172 1,233

Net cash provided by operating activities 19,414 1 1 ,083 12,858 Investing Activities

Proceeds from maturities of investment securities held to maturity 34,719 52,995 51,059 Proceeds from maturities of investment securities available for sale 33,208 23,500 47,725 Proceeds from sales of investment securities available for sale 294 449 Purchases of investment securities held to maturity (69,609) (73,363) (63,012) Purchases of investment securities available for sale (16,903) (13,683) (74,615) Purchases of Federal Reserve and FHLB stock (351) Purchase of bank owned life insurance (8,000) Net increase in loans (88,386) (62,361) (28,367) Proceeds from sale of loans 186 10,791 7,392 Proceeds from sales of other real estate and repossessions 867 5,539 4,596 Purchases of bank premises and equipment Net cash used by investing activities ( 1 07,515) (57,552) (65,200) Financing Activities

Net increase in deposits 80,200 18,068 174,004 Net increase (decrease) in short term borrowings (8,745) 11,391 (19,592) Net change in revolving line of credit/short-term debt (250) (250) (250) Proceeds from issuance of long-term debt 8,799 Repayment of long-term debt (5,000) Income tax effect from deferred stock compensation 335 (124) 122 Proceeds from issuance of stock 783 1,686 1,326 Repurchase of stock Net cash provided by financing activities 72,940 151,518

Increase (decrease) in cash and cash equivalents (15,161) (19,046) 99,176 Cash and cash equivalents at beginning of year 276,465 196,335 Cash and cash eqµivalents at end of year $ 261,304 $ $ 295,511

Supplemental cash flow information Interest paid $ 4,148 $ 4,809 $ 5,606 Income taxes paid 3,419

Supplemental non cash disclosure Loan balances transferred to real estate owned 699 6,906 2,454 Loan balances transferred to loans held for sale 186 10,791 7,392


953

891

Operations Principles


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 3 1 , 2014 and 2013


NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -

Nature of and of Consolidation: The National Bank of Indianapolis Corporation (the Corporation) was incorporated in the state of Indiana on January 29, 1 993. 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 1 993. 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 wealth management 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 consumer 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 Corporation derives a substantial proportion of its business from the Indianapolis, Indiana Metropolitan Statistical Area.

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 1 1 , "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.

Cash Flows: Cash and cash equivalents consist of cash, interest-bearing deposits, and instruments with maturities of ninety days or less when purchased. Interest-bearing deposits are available on demand. Net cash flows are reported for customer loan and dt;posit transactions, 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 and collateralized mortgage obligations 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. Management evaluates securities for other-than-temporary-impairment ("OTT!") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

'

Instrµments:

11 THE NA TI ON AL BANK OF INDIANAPOLIS CORPORATION


December 3 1 , 2014 and 2013


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are sold with servicing rights retained. Gains and losses on sale of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold and are included in mortgage banking income. The determination of loans held for sale is based on the loan's compliance with Federal National Mortgage Association (FNMA) and/or Federal Loan Home Bank of lndianapolis (FHLBI) underwriting standards.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs. Interest income on commercial, mortgage, and consumer loans is 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. The recorded investment in loans includes accrued interest receivable and net deferred loan costs.

All loan classes including troubled debt restructurings, except overdraft protection lines of credit and credit cards, are typically placed on non-accrual when they become 90 days past due or full repayment of principal and interest becomes doubtful, unless the loan is well secured and in the process of collection. Unless there is a significant reason to the contrary, overdraft protection lines of credit and credit cards are charged off when deemed uncollectible, but generally no later than when they become 1 50 days past due. Past due status for all loans is based on the contractual terms of the loan. Any accrued interest is charged against interest income when the loan is placed on non-accrual status. 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. Loans will be returned to accrual status when they are deemed collectible.

Loan Commitments and Related Financial 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.

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 for each loan portfolio segment by 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 management's judgment, should be charged off.

Within the allowance, there are specific and general loss components. The specific loss component is assessed for loans that management believes to be impaired. All loan classes are considered to be impaired when it is determined that the obligor will not pay all contractual principal and interest due or they become 90 days past due. For collateral dependent loans determined to be impaired, the loan's carrying value is compared to its fair value using one of the following fair value measurement techniques: 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. For noncollateral dependent loans determined to be impaired,.the loan's carrying value is compared to the present value of the expected future cash flows. An allowance is established when the present value of the expected future cash flows



December 3 1 , 2014 and 2013



are lower than the carrying value of the loan. The general component covers non-impaired loans and is based on a three-year historical loss experience supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: changes in lending policies and procedures; effects of changes in risk selection and underwriting standards; national and local economic trends and conditions; trends in nature, volume, and growth rate of loans; experience, ability, and depth of lending management and other relevant staff; levels of and trends in past due and classified loans; collateral valuations in the market for collateral dependent loans; effects of changes in credit concentrations; and competition, legal, and regulatory factors. In addition to the economic factors that are based on the risk within each portfolio segment, management also establishes a high level factor that is consistent for each loan segment. It is based on the directional consistency of the allowance for loan losses as measured against the trends of high level key credit quality ratios as follows: regulatory asset quality rating, allowance for loan losses to total loans, allowance for loan losses to non-performing loans, annualized net charge-offs to total loans, ALLL to annualized net charge-offs, total non-performing loans to total loans, and allowance to non-performing loans. These loans are segregated by loan class and/or risk grade with an estimated loss ratio applied against each loan class and/or risk grade.

Loans for which the terms have been modified resulting in concessions and for which the borrower is experiencing financial difficulties are considered a troubled debt restructuring and are classified as impaired. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the carrying value and a specific reserve is established if the fair value of the collateral is less than the carrying value. For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The following portfolio segments have been identified: commercial and industrial, commercial real estate, residential, and consumer. Commercial credits and personal lines of credit are subject to the assignment of individual risk grades in accordance with the Corporation's Loan Risk Rating Guidelines. These loans are individually graded as Pass, Special Mention, Substandard or Doubtful, with the "Pass" rating further subdivided into risk gradients. Residential loans (including home equity lines of credit) and consumer loans (excluding aforementioned personal lines of credit) are not generally individually graded; rather, these loans are treated as homogenous pools within each category. When included in these pools, these loans are assigned a "Pass" Risk Rating. These loans may become individually graded based on a pledge of liquid collateral, delinquency status, identified changes in the borrower's repayment capacity, or as a result oflegal action.

Commercial credits are subject to adverse market conditions which may impact the borrower's ability to make repayments on the loan or could cause a decline in the value of the collateral that secures the loan. Residential real estate and consumer loans are subject to adverse employment conditions in the local economy which could increase default rates on loans.

It is the policy of the Corporation to promptly charge off any 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. All impaired loan classes 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 losses incurred in the loan portfolio.

I

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.

Equipment:

Federal (FHLB) (FR8)


NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS

December 3 1 , 2014 and 2013



Changes in the cash surrender values are included in other income. At December 31;2014, 2013, and 2012, income recorded from BOLi totaled $339, $382, and $445, respectively.

Other Real Estate Owned: 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. Any excess recorded investment over the fair value of the property received is charged to the allowance for loan losses. The fair value of foreclosed assets is subject to fluctuations in appraised values which are affected by the local and national economy. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through non performing assets expense.

When the Corporation owns and operates these assets, it is exposed to risks inherent in the ownership of real estate. In addition to declines in the value of the property, there are expenditures associated with the ownership of real estate which are expensed after the Corporation acquires the property. These expenditures primarily include real estate taxes, insurance, and maintenance costs. These expenses may adversely affect the income since they may exceed the amount of rental income collected.

Premises and Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from five to thirty-nine years. Furniture, fixtures, and equipment are depreciated using the straight-line method with useful lives ranging from three to seven years. Leasehold improvements are depreciated over the lease term or useful life of the asset ranging from three to ten years, whichever is shorter. 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.

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 Corporation's 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.

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 Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.

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 ividends are reported as income.

Home Loan Bank and Federal Reserve Bank Stock: The Bank is a member of' FHLB Indianapolis and the Bank is also a member of the Federal Reserve Bank. Members are required to own a certain

Mortgage Servicing Rights:

Repurchase Agreements Borrowings:

Comprehensive

Earnings


NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS

December 3 1 , 2014 and 2013

(Dollar amounts i n thousands except share an d per share data)


Mortgage servicing rights are recognized separately when they are acquired through sales of loans. 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 Corporation obtains fair value estimates from an independent third party. 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.

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.

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 balance and are recorded as income when collected. Servicing fees totaled $683, $650, and $591 for the years ended December 3 1 , 2014, 201 3, and 2012. Late fees and ancillary fees related to loan servicing are not material.

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.

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.

Securities sold under agreements to repurchase are secured by US government-sponsored agencies, collateralized mortgage obligations and mortgage-backed securities. Other short-term borrowings are secured by the municipal portfolio. Securities pledged as collateral under these financing arrangements cannot be sold by the secured party. The fair value of the collateral provided to a third party is monitored and additional collateral is pledged if required. · ·

Income: Comprehensive income is 'defined as net income plus other comprehensive income (loss), which, under existing accounting standards, includes unrealized gains and losses on available-for-sale debt, net of deferred taxes which are also recognized as a separate components of equity. Comprehensive income is reported by the Corporation in the consolidated statements of comprehensive income.

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.

'

and Other Short-Term

Contingencies:

Compensation:

Reportable Segments:

Subseguent

1 5 THE NATIONAL BANK OF INDIANAPOLIS CORPORATION


December 3 1;2014 and 2013



Loss 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, management believes 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.

Restrictions on Cash and Due from Bank Accounts: Cash on hand and a portion of the cash on deposit with the Federal Reserve was required to meet regulatory reserve and clearing requirements.

Stock-Based 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 Corporation's 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 from common stock upon share option exercise or restricted stock vesting.

The Corporation issues common stock as partial compensation for the board of directors' service and the expense is recorded as part of other expense.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to the shareholders.

Retirement Plans: Employee 40 1(k) expense is the amount of matching contributions.

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.' Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Some items in prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior years' net income or shareholders' equity.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions based on available information that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Events: The Corporation has evaluated subsequent events for recognition and disclosure through February 20, 2015 , which is the date the financial statements were avail ble to be issued.

{Loss}

$ {35}

{Loss}

{913i

16

54 (35)

76 Other securities 250 250

Total Held-to-maturity $ 175,756 $ 459 $

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION


December 3 1 , 2014 and 2013


NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS

In December 20 13, the F ASB amended the Glossary of the Codification to include a single definition of a public business entity for future use in U.S. GAAP. The definition of a public business entity will be used in considering the scope of new financial guidance and will identify whether the guidance does or does not apply to public business entities. The amendment does not affect existing requirements and there is no effective date. The Corporation is considered to be a public business entity and the adoption of this standard did not have a material effect on the Corporation's operating results or financial condition.

In January 2014, the F ASB amended existing guidance to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession ofresidential real estate property collateralizing a consumer mortgage loan, upon either: ( 1 ) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 1 5, 2014. Amendments in this standard can be applied using a modified retrospective or prospective transition method. Early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Corporation's operating results or financial condition.

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 $6,683 at December 3 1 , 2014, and $ ,865 at December 3 1 , 2013 .

NOTE 4 - INVESTMENT SECURITIES

The following !s a summary of available-for-sale and held-to-maturity securities: Gross Gross Estimated

Amortized Unrealized Unrealized Fair 2014 Cost Gain Value Available-for-sale

1 3 1 ,257 $ 2,966 $ $ 134, 1 88

Cost Gain Value

175,302

MuniCipal securities 63,603 2,912

500 $ - $ - $ 500U.S. Treasury securities $ 67, 1 73 U.S. Government agencies 67, 154 66,5 1 5

Total available-for-sale

Gross Gross Estimated Amortized Unrecognized Unrecognized Fair

Held-to-maturity (532) $ 88,286Collateralized mortgage obligations, residential $ 88,435 $ 383 $ (38 1 ) 86,766Mortgage backed securities, residential 87,071

$

{Loss}

{49}

{Loss}

- $

148,866 $ 3,009 $

570 $ ( 1 ,8 1 9) $

1 5 1 ,826

Amortized Fair Cost Value

Available-for-sale Due in one year or less $ 43, 1 13 $ 43, 195 Due from one to five years 57,808 58,579 Due from five to ten years 22,290 24, 123 Due after ten years 8,046 8,291

Total $ 1 3 1 ,257 $ 1 34, 1 88 Held-to-maturity

Due in one year or less $ 50 $ 50 Due from one to five years 200 200 CMO/Mortgage-backed, residential 1 75,506 1 75,052

Total $ 1 75,756 $ 1 75,302



December 3 1 , 2014 and 2013


NOTE 4 - INVESTMENT SECURITIES (Continued)

Gross Gross Estimated Amortized Unrealized Unrealized Fair

201 3 Cost Gain Value Available-for-sale

U.S. Treasury securities $ 500 $ - $ 500 U.S. Government agencies Municipal securities

85,982 62,384

1 18 2 891

(49) 86,05 1 65,275

Total available-for-sale $ $

Gross Gross Estimated Amortized Unrecognized Unrecognized Fair

Cost Gain Value Held-to-maturity

Collateralized mortgage obligations, residential $ 87,21 5 $ 568 $ (688) $ 87,095 Mortgage backed securities, residential Other securities

54,889 200

2 ( 1 , 1 3 1 ) 53,760 200

Total Held-to-maturity $ 142,304 $ 14 1 ,055

The Corporation sold one available-for-sale municipal security with a net carrying amount of$275 resulting in a gain of$ 19 during 2014. The municipal security had been placed on negative outlook by the rating agency and appeared to have increased credit risk. The Corporation had no sales of securities during 2013 . During 2012, the Corporation sold one available-for-sale municipal security with a net carrying amount of $463 resulting in a loss of $13 . The municipality had been downgraded and appeared to have increased credit risk.

The fair value of debt securities and carrying amount, if different, by contractual maturity were as follows at December 3 1 , 20 I 4. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

At year-end 201 4 and 201 3, 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 $81 ,000 and $89,000 were pledged as collateral for Wealth Management accounts and securities sold under agreements to repurchase at December 3 1 , 2014, and December 3 1 , 2013, respectively.

'

Loni:er

(Loss) (Loss) (Loss)

psi psi

(5 1) p30) p81) (269) (644) (913)

(29) (20) (49)

(20) (49)

(1 , 1 3 1) ( 1 , 13 1)

(2) $ ( 1 ,8 19)

18

(35)

44,739

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 3 1 , 2014 and 201 3 (Dollar amounts i n thousands except share and per share data)


Securities with unrealized losses at year-end 2014 and 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

Less Than 1 2 Months 12 Months or Total Fair Unrealized Fair Unreali zed Fair Unrealized

Value Value Value 2014 Available-for-sale

U.S. Government agencies $ 21 , 1 1 2 $ $ - $ - $ 21 , 1 1 2 $ Total available-for-sale $ 2 1 , 1 12 $ (35) $ - $ - $ 2 1 , 1 12 $

Held-to-maturity Collateralized mortgage obligations, residential $ 36,592 $ (21 8) $ 26,958 $ (314) $ 63,550 $ (532) Mortgage backed securities, residential 8,147 45,1 42 53,289

Total Held-to-maturity $ $ $ 72,100 $ $ 1 1 6,839 $

2013 Available-for-sale

U.S. Government agencies Total available-for-sale

$ $

38,208 38,208

$ $ ' (29)

$ $

15,536 1 5,536

$ $

$ $

53 744 53,744

$ $

Held-to-maturity Collateralized mortgage obligations, residential Mortgage backed

. securities, residential

Total Held-to-maturity

$

$

44,810 53,7 1 8 98,528

$

$

(686)

( 1 ,8 17)

$

$

2. 10 1

2. 1 0 1

$

$

(2) $ 46,91 1 53,718

1 00,629

$

$

(688)

In determining other-than-temporary impairment ("OTT!") for debt securities, management considers many factors, including: ( l ) 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 Corporation 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 OTT! occurs, the amount of the OTT! 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 investment's 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 OTT! 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 OTT! 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.

As of December 3 1 , 2014, the Corporation held 30 investments of which the amortized cost was greater than fair value. The Corporation has no securities in which OTT! has been recorded.

(12,204) {13,056}

'

19

1 ,094,605 $ 1 ,006,203



December 3 1 , 2014 and 2013



The unrealized losses for investments classified as available-for-sale are attributable to changes in interest rates and/or economic environment and individually were 0.35% or less of their respective amortized costs. The largest unrealized loss is related to the February 2014 purchase of an FHLB Agency. Given this investment is backed by the U.S. Government and its agencies; there is minimal credit risk at this time.

The credit rating of the individual municipalities was assessed. As of December 3 1 , 2014, all but two of the municipal debt securities were rated BBB or better (as a result of insurance of the underlying rating on the bond). The two municipal debt securities have no underlying rating. A complete credit review of the municipal securities was completed in September 20 14 by a third party consultant. As a result, management has determined that all of the municipal securities are investment grade securities. All interest payments are current for all municipal securities and management expects all to be collected in accordance with contractual terms.

The unrealized losses for investments classified as held-to-maturity are attributable to changes in interest rates and/or economic environment and individually were 2.03% or less of their respective amortized costs. The unrealized losses relate primarily to residential collateralized mortgage obligations ("CMOs") and residential mortgage-backed securities ("MBS"). The residential CMOs and MBS were purchased between August 201 1 and December 2014. There has been a decrease in Jong-term interest rates from the time of the investment purchase and December 3 1 , 2014, which affects the fair value of residential collateralized mortgage obligations and prepayment speeds. All residential CMOs and MBS are backed by the U.S. Government and its agencies and represent minimal credit risk at this time.

NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans, which are principally to borrowers in central Indiana, including unamortized deferred costs net offees, consist of the following at December 3 1 :

2014 201 3 Residential loans secured by real estate $ 328,430 $ 297,766 Commercial loans secured by real estate 357,475 33 1 ,307 Construction loans 81 ,026 68,948 Other commercial and industrial loans 301 ,093 290,03 1 Consumer loans 38,544 30,935 Total loans 1 , 106,568 1 ,0 1 8,987 Net deferred loan costs 241 272 Allowance for loan losses Total loans, net $

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. These amounts are disclosed in the investing activities section of the consolidated statement of cash flows.

As of December 3 1 , 20 14 and 20 13, there was $123,886 and $94, 170, of 1-4 family residential mortgage loans, respectively, pledged as collateral for FHLB advances. There were no borrowings under this arrangement at December 3 1 , 2014 and ;2013 .

There was an aggregate of $2 1 8,585 and $222,090 of commercial Joans, commercial real estate, and construction loans pledged as collateral at the Federal Reserve Bank , Discount Window at December 3 1, 2014 and 2013, respectively. There were no borrowings under this arrangement at December 3 1 , 2014 and 2013 .

{474} {1,455} {71 5}

{1 53} {132}

{2 18l

20

7 14 $

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 3 1 , 2014 and 2013 (Dollar amounts in thousands except share and per share data)

NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 3 1 :

Commercial Commercial 2014 & industrial real estate Residential Consumer Unallocated Total Beginning balance $ 3,631 $ 5,610 $ 2,381 $ 401 $ 1 ,033 $ 1 3,056

(63 1 ) 494

43 $ 3,325 $ 4,098 $ 2, 1 58 $ 576 $ 2,047 $ 12,204

Loan charge offs ( 169) (75) (305) (82) Recoveries 337 18 39 100 Provision 1 57 1,014

Ending balance

Commercial Commercial 20 13 & industrial real estate Residential Consumer Unallocated Total Beginning balance $ 3,6 1 1 $ 6,640 $ 1 ,292 $ 227 $ 1 , 1 65 $ 12,935 Loan charge offs (225) ( 1 ,091 ) (455) ( 149) ( 1,920) Recoveries 163 214 1 66 41 584 Provision 82 1 ,378 282 1 ,457

Ending balance $ 3,63 1 $ 5,610 $ 2,381 $ 40 1 $ 1 ,033 $ 13,056

Commercial Commercial 20 12 & industrial r.eal estate Residential Consumer Unallocated Total Beginning balance $ 5,377 $ 6,279 $ 1 ,644 $ 228 $ 14,242 Loan charge offs

$ 3,61 1 $ 6,640 $ 1,292 $ 227 $ 1 , 1 65 $ 12,935

(2,356) ( 1 ,734) (803) (53) (4,946) Recoveries 808 20 196 21 1 ,045 Provision 2,075 255 3 1 45 1 2,594

Ending balance

301,895 1,109,961

$


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 3 1 , 201 4 and 2013



The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method at December 3 1 :

Commercial & Commercial 20 1 4 industrial real estate Residential Consumer Unallocated Total Allowance for loan losses Ending allowance balance attributable to loans: Individually evaluated for impairment $ 728 $ 832 $ 221 $ 308 $ - $ 2,089 Collectively evaluated for impairment 2,597 3,266 1 ,937 268 2,047 10, 1 1 5 Total ending allowance balance $ 3,325 $ 4,098 $ 2, 158 $ 576 $ 2,047 $ 12,204

Allowance as a % of loans 1 . 1 0% 0.94% 0.66% 1 .49% NIA 1 . 1 0%

Loans:

Loans individually evaluated for impairment $ 2,759 $ 6,999 $ 4,979 $ 409 $ NIA $ 15 , 146 Loans collectively evaluated for impairment 298,520 431 ,025 323,965 38,153 NIA 1 ,091 ,663 Accrued interest receivable 6 1 6 1 ,060 1 ,386 90 NIA 3, 1 52 Total recorded investment $ $ 439,084 $ 330,330 $ 38,652 $ NIA $

Commercial & Commercial 20 1 3 industrial real estate Residct1lial Consumer Unallocated Total Allowance for loan losses

Ending allowance balance attributable to loans: Individually evaluated for impairment $ 758 $ 1 ,4 1 7 $ 288 $ 168 $ $ 2,63 1 Collectively evaluated for impairment 2,873 4,193 2,093 233 1 ,033 1 0,425 Total ending allowance balance $ 3,63 1 $ 5,6 1 0 $ 2,38 1 $ 401 $ 1 ,033 1 3,056

Allowance as a % of loans 1 .25% 1 .40% 0.79% 1 .29% NIA 1 .28%

Loans:

Loans individually evaluated for impairment $ 6,323 $ 9,425 $ 4,873 $ 869 $ NIA $ 21 ,490 Loans collectively evaluated for impairment 283,83 1 390,442 293,41 4 30,082 NIA 997,769 Accrued interest receivable 607 980 1 ,33 1 84 NIA 3,002

Total recorded investment $ 290,761 $ 400,847 $ 299,61 8 $ 3 1 ,035 $ NIA $ 1 ,022,261

The above disclosure is required to be presented using the recorded investment of loans, which includes accrued interest receivable and net deferred loan costs.

78



December 3 1 , 20 14 and 2013



Loans are considered to be impaired when it is determined that the obligor will not pay all contractual principal and interest when due. The following table presents loans individually evaluated for impairment by class of loans at December 3 1 . For purposes of this disclosure, the unpaid principal is not reduced for net charge-offs.

20 14 With no related allowance recorded:

Commercial & industrial Commercial real estate Residential

1-4 family Home equity

Consumer Personal LOC Personal Term DDA Overdraft Protection Credit cards

With an allowance recorded: Commercial & industrial Commercial real estate Residential

1 -4 family Home equity


Total

Unpaid Allowance for Principal Recorded Loan Losses Balance Investment Allocated

$ 570 $ 496 $ 2,330 2,330

3,143 2,5 19 1 ,583 1 ,5 15

2,263 2,263 728 5,803 4,669 832

886 867 143 78 78

243 243 142 1 54 1 54 1 54

12 12 12 $ 17,065 $ 15,146 $ 2,089

94

733

"3 THE NA TI ON AL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 3 1 , 2014 and 2013


N OTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Unpaid Allowance for Principal Recorded Loan Losses

2013 Balance Investment Allocated With no related allowance recorded:

Commercial & industrial $ 2,500 $ 1 ,755 $

Commercial real estate 2,81 3 2,8 13

Residential

1 -4 family 2,363 1 ,838

Home equity 1 ,981 1 ,9 13

Consumer

Personal LOC 70 1 701 Personal Term DOA Overdraft Protection Credit cards

With an allowance recorded: Commercial & industrial 4,568 4,568 758 Commercial real estate 7,950 6,612 1 ,4 1 7 Residential

1 -4 family 1 ,050 1 ,0 17 1 94 Home equity 105 105

Consumer Personal LOC

1 50 Personal Term 1 50 1 50 DOA Overdraft Protection Credit cards 1 8 1 8 1 8

Total $ 24, 1 99 $ 21 ,490 $ 2,63 1

The following table presents the average balance of loans individually evaluated for impairment by class for the year ended December 3 1 :



Consumer

$ 2014

6,754 $ 8,863

3,012 1 ,545

2013 8,461

10,959

2,868 2,339

$ 2012

5,8 1 7 1 5,577

l,821 2,855

Personal LOC 429 65 Personal Term 149 128 32 DOA Overdraft Protection 1 Credit cards 12 1 6 12

Total $ 20,764 $ 25,505 $ 26, 1 79

There was $ 1 , 1 85, $772, and $297 in interest income recorded on a cash or accrual basis on impaired loans for the year ended December, 3 1 , 201 4, 20 13, and 2012, respectively.

$

24 THE NA TI ON AL BANK OF INDIANAPOLIS CORPORATION


December 3 1, 2014 and 2013



The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans at December 3 1 :

Loans Past Due Nonaccrual Over 90 Days Still Accruing

2014 2013 2014 201 3 Commercial & industrial $ 2, 192 $ 3, 1 14 $ - $ Commercial real estate 3,652 5,0 18 Residential

1 -4 family 2,698 2, 1 52 Home equity 1 ,592 1 ,999

Consumer Personal LOC Personal Term 17 DDA Overdraft Protection Credit cards

1 0 . 1 5 1 $ 1 2 .283 $ 1 2 1 8

Total 12 $ 1 8

25

1 3 1 1 3 1

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION NOTES TO CONSOLIDATED F INANCIAL STATEMENTS

December 3 1 , 20 1 4 and 20 1 3 ( Dollar amounts in thousands except share and per share data)


The following table presents the aging of the recorded investment in past due loans by class of loans at December 3 1 :

30 - 89 Greater than Days 90 Days Total

20 1 4 Past Due Past Due Past Due Commercial & industrial $ 3 1 5 $ 1 7 1 $ 486 Commercial real estate 97 Residential

1 -4 family 3,464 1 ,522 4,986 Home equity 580 1 1 8 698

Consumer Personal LOC Personal Term 22 22 DDA Overdraft Protection 3 3 Credit cards

Total

Past due as a % of loans

3 0 - 89 Greater than Days 90 Days Total

20 1 3 Past Due Past Due Past Due Commercial & industrial $ 578 $ 96 1 $ 1 ,539 Commercial real estate 246 1 75 42 1 Residential

1 -4 family 3,699 9 1 6 4,6 1 5 Home equity 1 23 75 1 98

Consumer Personal LOC Personal Term DDA Overdraft Protection Credit cards 1 09 1 8 1 27

Total $ 4,886 $ 2, 1 45 $ 7,03 1

Past due as a % of loans 0.48% 0.2 1 % 0.69%

As of December 3 1 , 20 1 4 and 20 1 3 , nonaccrual loans that were 0-29 days past due totaled $7,373 and $8,783, respectively.

Troubled Debt Restructurings:

As of December 3 I , 20 1 4, the Corporation had $ 1 2,424 in outstanding balances and had allocated $ 1 ,982 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings. Of the total $ 1 2,424 in outstanding balances of troubled debt restructurings, $7,44 1 are non-accrual and have a specific reserve of $ 1 ,038 and those balances have been reported as such. As of December 3 1 , 20 1 3, the Corporation had $ 1 6,795 in outstanding balances and had allocated $2,239 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings. Of the total $ 1 6,795 in outstanding balances of troubled debt restructurings, $7,606 are nonaccrual and have a specific reserve of $ 1 ,278 and those balances have been reported as such. The Corporation has committed to lend an additional $ 1 ,467 and $582 to customers with outstanding loans that are classified as troubled debt restructurings as of December 3 1 , 20 1 4 and 20 1 3, respectively.

97

52 $ 4,436 $

0.40%

1 2 1 ,920

0. 1 7%

64 $ 6,356

0.57%

=$======4=,3=7=9

26

439



December 3 1 , 2014 and 2013



During the period ending December 3 1 , 20 14 and 201 3, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate ofinterest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 2 years to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 5 years.

The following table presents loans by class modified as troubled debt restructurings that occurred during the period ending December 3 1 , 2014, 20 13, and 20 12:

20 14 Troubled Debt Restructurings:


1 -4 family Home equity


Total

Number of

Loans

4 3

9

Pre-Modification Post-Modification Outstanding Recorded Outstanding Recorded

Investment Investment

$ 2,637 $ 2,206 2,294 2,1 08

43 48

1 9 1 7

$ 4,993

The troubled debt restructurings described above increased the allowance for loan losses by $756 and resulted in charge offs of $0 during the period ending December 3 1,, 2014.

Number Pre-Modification Post-Modification of Outstanding Recorded Outstanding Recorded

2013 Loans Investment Investment Troubled Debt Restructurings:

Commercial & industrial 5 $ 5 14 $ Commercial real estate 4 2,897 2,783 Residential

1 -4 family 5 403 401 Home equity 3 1 1 1 3 1 00


: Personal Term 120 1 1 5 DDA Overdraft Protection Credit cards

Total 1 8 $ 4,047 $ 3.838

The troubled debt restructurings described above increased the allowance for loan losses by $ 1 ,002 and resulted in chargeoffs of $300 during the period ending December 3 1 , 2013 .

27

775 52

775 43



December 3 I , 2014 and 2013



Number Pre-Modification Post-Modification of Outstanding Recorded Outstanding Recorded

2012 Loans Investment Investment Troubled Debt Restructurings:

Commercial & industrial 2 1 $ 7,464 $ 6,630 Commercial real estate 6 4,602 4,329 Residential

1 -4 family 1 0 900 906 Home equity I 221 221

Consumer Personal LOC Personal Term DOA Overdraft Protection Credit cards

Total 40 $ 14,014 $ 12,904

The troubled debt restructurings described above increased the allowance for loan losses by $ 1 ,980 and resulted in chargeoffs of $0 during the period ending December 3 1 , 2012.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ending December 3 1 , 2014, 2013 and 2012:

Number of

20 14 Loans Recorded Investment Troubled Debt Restructurings that subsequently defaulted:

Commercial & industrial $ 93 Commercial real estate 3 1 1 Residential



Personal Term

DDA Overdraft Protection Credit cards

Total 3 $ 452

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 and resulted in charge offs of $0 during the period ending December 3 1 , 2014.

$

568.



December 3 1 , 2014 and 20 13



Number of

20 13 Loans Recorded Investment

Number of

20 12 Loans Recorded Investment

Troubled Debt Restructurings that subsequently defaulted: Commercial & industrial Commercial real estate Residential


Consumer Personal LOC Personal Term DOA Overdraft Protection Credit cards

Total

3 I

2

6

$ 25 1 246

134

63 1

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 and resulted in charge offs of $0 during the period ending December 3 1 , 2013.

Troubled Debt Restructurings that subsequently defa,ulted: Commercial & industrial $ 74 Commercial real estate 42 Residential

1 -4 family 3 409 Home equity

Consumer

Personal LOC

Personal Term ' ODA overdraft Protection

Credit cards

Total

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0 and resulted in charge offs of $0 during the period ending December 3 1 , 201 2.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The terms of certain other loans were modified during the period ending December 3 1 , 2014 and 20 13, which did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 3 1 , 20 14 and 201 3, of$9,856 and $5,676. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

6 $

43

708,546 $ 6,698 $ 24,059 $

Substandard



December 3 1, 2014 and 2013



In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes certain loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial, commercial real estate, and loans for personal or consumer purpose as warranted. This analysis is performed on a monthly basis. The Corporation uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss ifthe deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The total accrued interest or commercial and industrial and commercial real estate was $ 1 ,676 and $ 1 ,587 at December 3 1 , 2014 and 201 3, respectively.

Based on the most recent analysis performed, the risk rating of the loans by class ofloans at December 3 1 is as follows:

Special Pass Mention Doubtful2014

Commercial & industrial $ 283,729 $ 6,075 $ 1 1,475 $ Commercial real estate 424,81 7 623 1 2,584 Total $

Special 201 3 Pass Mention Substandard Doubtful Commercial & industrial $ 273,541 $ 5,037 $ 1 1 ,576 $ Commercial real estate I 382,805 2,956 14, 106 Total $ 656,346 $ 7,993 $ 25,682 $

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation alsp evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. A loan is considered to be nonperforming when one or more of the following conditions exist: past due 90 days or greater, non-accruing status, or non-accruing troubled debt restructurings., The total accrued interest for consumer and residential loans was $1 ,476 and $ 1 ,4 15 at December 3 1 , 2014 and 2013, respectively.

famil Home uib:'.

famil Home eguib:'.

{790} {4,875} {4,323}

{1 85} (6)

30

7,575



December 3 1 , 2014 and 2013



The following table presents the recorded investment in residential and consumer loans based on payment activity at December 3 1 :

Consumer Residential 2014 DDA .

Personal Personal Overdraft LOC Term Protection Credit cards 1-4

Performing $ 19,467 $ 9,345 $ 3,585 $ 6, 136 $ 1 68,603 $ 1 56,05 1 Nonperforming 17 12 2,698 1 ,592 Total $ 19,467 $ 9,362 $ 3,585 $ 6, 148 $ 17 1 ,301 $ 1 57,643

Consumer Residential 20 1 3 ODA

Personal Personal Overdraft LOC Term Protection Credit cards 1 -4

Performing $ 14,228 $ 9,994 $ 810 $ 5,901 $ 142,957 $ 1 5 1 , 179 Nonperforming 1 8 2, 1 52 1 ,999 Total $ 14,228 $ 9,994 $ 8 10 $ 5,919 $ 145,109 $ 1 53,178

NOTE 6 - OTHER REAL ESTATE OWNED

Activity in real estate owned was as follows:

2014 201 3 2012 Balance at beginning of period $ 5,526 $ 4,3 12 $ Loan balances transferred to real estate owned 699 6,906 2,454 Capitalized expenditures 8 26 Direct write-downs, net Sales of real estate owned Balance at end of period

Expenses related to real estate owned include:

Net loss (gain) on sales Provision for unrealized losses Operating expenses, net of rental income Net expense (income)

Expenses related to real estate owned are included in non-performing assets expenses. Other real estate rental income is included in rental income.

(3 18) (843) ( l ,394)

$ 5, 125 $ 5,526 $ 4,3 12

2014 201 3 2012 $ (77) $ (664) $ (273)

3 18 843 1 ,394 1 8 1 ,780

$ 259 $ $ 2,90 1

(19,695) {18,375}

31

435



December 3 1 , 201 4 and 2013


NOTE 7 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following at December 3 1 :

Land and improvements Building and improvements Construction in progress Leasehold improvements Furniture and equipment

Less accumulated depreciation and amortization Net premises and equipment

$ 2014

9,944 1 7,937

4 2,241

16, 109 46,235

2013 $ 9,944

1 7,506 13 I

1 ,989 1 5,42 1 44,99 1

Certain Corporation facilities are leased under various operating leases. Rental expense under these leases was $368, $36 1 , and $421 for 2014, 201 3 and 2012, respectively. In 2012, the Corporation terminated its lease for the Carmel Banking Center and paid a lease termination fee of$75.

Future minimum rental commitments under non-cancelable leases are:

201 5 $ 358 201 6 ' I 307 201 7 270 201 8 262 2019 263 Thereafter

$ 1 ,895

NOTE 8 - MORTGAGE SER\flCING

Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at December 3 1 are as follows:

and 20 13, respectively.

$ 26,540 $ 26,61 6

2014 2013 Mortgage loan portfolios serviced for:

FNMA $ 223,937 $ 232,996 Private 23,460 24,91 7 FHLBI 21 ,775 1 3,552

Balance at end of period $ 269, 172 $ 271 ,465

Custodial escrow balances maintained in connection with serviced loans were $1 , 142 and $995 at December 3 1 , 20 1 4

{453} {626}



December 3 1 , 2014 and 2013


NOTE 8 - MORTGAGE SERVICING (Continued)

The following table includes activity for mortgage servicing rights:

2014 2013 201 2 Balance at beginning of period $ 2,543 $ 1 ,699 $ 1 ,455 Plus additions 325 613 70 Fair value adjustments 23 1 Balance at end of period $ 2,415 $ 2,543 $ 1 ,699

Mortgage servicing rights are carried at fair value at December 3 1 , 2014 and 2013 . Fair value at December 3 1 , 2014, was determined using discount rates ranging from 9.5% to 13.0%, prepayment speeds ranging from 7. 18% to 30.46%, depending on the stratification of the specific right, and a weighted average default rate of 0.34%. Fair value at December 3 1 , 2013, was determined using discount rates ranging from 10.5% to 14.5%, prepayment speeds ranging from 7. 1 1% to 25.63%, depending on the stratification of the specific right, and a weighted average default rate of 0.3 1%.

NOTE 9 - DEPOSITS

Time deposits that meet or exceed the FDIC Insurance limit of$250 or more were $28, 784 and $3 1 , 1 25 at December 3 1 , 2014 and 20 13, respectively.

Scheduled maturities of time deposits for the next five years are as follows:

. 20 15 $ 74,765 2016 20,064 2017 7,334 2018 3,7 18 2019 3,05 1 Thereafter 1 1 ,65 1

$ 120

Documents

;. :- :}I/media/others/banking/...225.S(b)) and sction 10(c)(2)(H) of the He Owners' instructions or more laail of who must file.) The Federal Loan t. Return to 1he appropriate Fderal