UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

¨ 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)

Indiana	35-1887991
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
107 North Pennsylvania Street Indianapolis, Indiana	46204
(Address of Principal Executive Offices)	(Zip Code)

(317) 261-9000

(Registrant’s 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  ¨     No  x

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  ¨     No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x     No  ¨

Indicate by check mark 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  x     No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨     No  x

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2011, was approximately $72,626,005. The number of shares of the registrant’s Common Stock outstanding March 9, 2012 was 2,329,984.

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 Registrant’s definitive proxy statement to be filed in connection with the annual meeting of shareholders to be held on June 21, 2012.

Form 10-K Cross Reference Index

PART I
Item 1. Business	1
Item 1A. Risk Factors	13
Item 1B. Unresolved Staff Comments	19
Item 2. Properties	19
Item 3. Legal Proceedings	20
Item 4. Mine Safety Disclosures	20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6. Selected Financial Data	22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	49
Item 8. Financial Statements and Supplementary Data	51
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	91
Item 9A. Controls and Procedures	91
Item 9B. Other Information	92
PART III
Item 10. Directors, Executive Officers and Corporate Governance	92
Item 11. Executive Compensation	92
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	92
Item 13. Certain Relationships and Related Transactions, and Director Independence	92
Item 14. Principal Accounting Fees and Services	92
PART IV
Item 15. Exhibits, Financial Statement Schedules	92
Signatures	95

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 Bank’s deposits are insured by the Federal Deposit Insurance Corporation (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:

• 8451 Ditch Road, Indianapolis, in northwestern Marion County;

• 6807 East 82nd Street, Indianapolis, in northeastern Marion County;

• Chamber of Commerce Building at 320 North Meridian Street in downtown Indianapolis;

• 4930 North Pennsylvania Street, Indianapolis, in northern Marion County;

• One America Office Complex in downtown Indianapolis;

• 613 East Carmel Drive, Carmel, in Hamilton County;

• 1689 West Smith Valley Road, Greenwood, in Johnson County;

• 10590 North Michigan Road, Carmel, in Hamilton County;

• 2714 East 146^th Street, Carmel, in Hamilton County;

• 2410 Harleston Street, Carmel, in Hamilton County; and

• 11701 Olio Road, Fishers, 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, 2011, the Corporation had consolidated total assets of $1.5 billion and total deposits of $1.2 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.

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 customer’s 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.

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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 and non profit organizations 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 Federal National Mortgage Association (“FNMA”) and Federal Loan Home Bank of Indianapolis (“FHLBI”), 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 Bank’s 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 Bank’s ability to maintain its historical levels of financial performance will depend in part on the Bank’s 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.

Employees. The Corporation and the Bank have 279 employees, of which 274 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 Bank’s lending strategy emphasizes a high quality, well-diversified loan portfolio. The Bank’s 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 obtained prior to the time funds are advanced. The Bank also often requires personal guarantees from principals involved with closely-held corporate borrowers.

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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 borrower’s 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 officer’s lending authority, up to $2.0 million, must receive the approval of the Chief Executive Officer (“CEO”), Chief Lending Officer (“CLO”), Chief Credit Officer, Commercial Lending Manager, Non-Profit Manager, or the Private Banking Manager. Any loan in excess of a lending officer’s lending authority, greater than $2.0 million, up to $2.5 million, must receive the approval of the CEO or CLO. Loans in excess of $2.5 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 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 Bank’s 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 (the “OCC”), and 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 the Corporation’s business and prospects. The following summary is qualified by reference to the statutory and regulatory provisions discussed.

The Dodd-Frank Act

On July 21, 2010, financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial industry, including provisions that, among other things, will:

• Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining, and enforcing compliance with federal consumer financial laws.

• Create the Financial Stability Oversight Council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management, and other requirements as companies grow in size and complexity.

• Require the OCC to seek to make its capital requirements for national banks countercyclical so that capital requirements increase in times of economic expansion and decrease in times of economic contraction.

• Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks from availing themselves of such preemption.

• Provide mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans and new disclosures. In addition, certain compensation for mortgage brokers based on certain loan terms will be restricted.

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• Require financial institutions to make a reasonable and good faith determination that borrowers have the ability to repay loans for which they apply. If a financial institution fails to make such a determination, a borrower can assert this failure as a defense to foreclosure.

• Require financial institutions to retain a specified percentage (5% or more) of certain non-traditional mortgage loans and other assets in the event that they seek to securitize such assets.

• Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund (“DIF”), and increase the floor on the size of the DIF, which generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion.

• Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions.

• Implement corporate governance revisions, including with regard to executive compensation, say on pay votes, proxy access by shareholders, and clawback policies which apply to all public companies, not just financial institutions.

• Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transactions and other accounts.

• Amend the Electronic Fund Transfer Act (“EFTA”) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

• Limit the hedging activities and private equity investments that may be made by various financial institutions.

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Corporation, its customers or the financial industry more generally. Provisions in the legislation that affect the payment of interest on demand deposits and interchange fees are likely to increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate. Provisions in the legislation that revoke the Tier 1 capital treatment of trust preferred securities and otherwise require revisions to the capital requirements of the Bank and the Corporation could require the Bank and the Corporation to seek other sources of capital in the future.

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 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.

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Bank holding companies which meet certain management, capital, and Community Reinvestment Act of 1977 (“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 Reserve’s 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, non-cumulative 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.

Certain regulatory capital ratios for the Corporation as of December 31, 2011, are shown below:

	September 30,
Tier 1 Capital to Risk-Weighted Assets	9.8	%
Total Risk Based Capital to Risk-Weighted Asset	11.5	%
Tier 1 Leverage Ratio	6.7	%

Dividends. The Federal Reserve’s 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 company’s 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.

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) requirements for audit committees of public companies, including independence and expertise standards; (ii) additional responsibilities regarding financial statements for the chief executive officers and chief financial officers of reporting companies; (iii) 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.

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.

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The deposits of the Bank are insured by the DIF administered by the FDIC and are subject to the FDIC’s 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 bank’s 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 bank’s legal lending limit.

Deposit Insurance. Due to the recent difficult economic conditions in the United States, deposit insurance per account owner was increased from $100,000 to $250,000 through December 31, 2013. The Dodd-Frank Act has now made this change in deposit insurance permanent and, as a result, each account owner’s deposits will be insured up to $250,000 by the FDIC.

In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (“TLGP”) in October of 2008 by which, for a fee, non-interest bearing transaction accounts received unlimited FDIC insurance coverage through December 31, 2010 and certain senior unsecured debt issued by institutions and their holding companies would be guaranteed by the FDIC through December 31, 2012. The Corporation elected to participate in both the unlimited non-interest bearing transaction account coverage and the unsecured debt guarantee program.

Under the Transaction Account Guarantee Program (“TAGP”), the FDIC provided unlimited deposit insurance coverage initially through December 31, 2009 for non-interest bearing transaction accounts (typically business checking accounts) and certain funds swept into non-interest bearing savings accounts. Institutions that participated in the TAGP paid a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the additional deposit insurance was in place. The FDIC authorized an extension of the TAGP through December 31, 2010 for institutions participating in the original TAGP, unless an institution opted out of the extension period. During the extension period, fees increased to 15 to 25 basis points depending on an institution’s risk category for deposit insurance purposes. Importantly, the Dodd-Frank Act now provides for unlimited deposit insurance coverage on non-interest bearing transaction accounts, including Interest On Lawyer Trust Accounts but excluding interest-bearing NOW accounts, without an additional fee at insured institutions such as the Bank through December 31, 2012.

The TLGP also included the Debt Guarantee Program (“DGP”), under which the FDIC guarantees certain senior unsecured debt issued by FDIC-insured institutions and their holding companies. Under the DGP, upon a default by an issuer of FDIC-guaranteed debt, the FDIC will continue to make scheduled principal and interest payments on the debt. The unsecured debt must have been issued on or after October 14, 2008 and not later than October 31, 2009, and the guarantee is effective through the earlier of the maturity date (or mandatory conversion date) or December 31, 2012, although the debt may have a maturity date beyond December 31, 2012. Depending on the maturity of the debt, the nonrefundable DGP guarantee fee ranges from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity or December 31, 2012. The FDIC also established an emergency debt guarantee facility through April 30, 2010 through which institutions that are unable to issue non-guaranteed debt to replace maturing senior unsecured debt because of market disruptions or other circumstances beyond their control may apply on a case-by-case basis to issue FDIC-guaranteed senior unsecured debt. The FDIC guarantee of any debt issued under this emergency facility would be subject to an annualized assessment rate equal to a minimum of 300 basis points. The Dodd-Frank Act also authorizes the FDIC to guarantee debt of solvent institutions and their holding companies in a manner similar to the DGP; however, the FDIC and the Federal Reserve must make a determination that there is a liquidity event that threatens the financial stability of the United States and the United States Department of the Treasury (“Treasury Department”) must approve the terms of the guarantee program.

The Bank’s deposits are insured up to the applicable limits under the DIF. The FDIC maintains the DIF by assessing depository institutions an insurance premium. Pursuant to the Dodd-Frank Act, the FDIC is required to set a DIF reserve ratio of 1.35% of estimated insured deposits and is required to achieve this ratio by September 30, 2020. Also, the Dodd-Frank Act has eliminated the 1.50% ceiling on the reserve ratio and provides that the FDIC is no longer required to refund amounts in the DIF that exceed 1.50% of insured deposits.

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Under the FDIC’s risk-based assessment system, insured institutions are required to pay deposit insurance premiums based on the risk that each institution poses to the DIF. An institution’s risk to the DIF is measured by its regulatory capital levels, supervisory evaluations, and certain other factors. An institution’s assessment rate depends upon the risk category to which it is assigned. As noted above, pursuant to the Dodd-Frank Act, the FDIC will calculate an institution’s assessment level based on its total average consolidated assets during the assessment period less average tangible equity (i.e., Tier 1 capital) as opposed to an institution’s deposit level which was the previous basis for calculating insurance assessments. Pursuant to the Dodd-Frank Act, institutions will be placed into one of four risk categories for purposes of determining the institution’s actual assessment rate. The FDIC will determine the risk category based on the institution’s capital position (well capitalized, adequately capitalized, or undercapitalized) and supervisory condition (based on exam reports and related information provided by the institution’s primary federal regulator).

Prior to the passage of the Dodd-Frank Act, assessments for FDIC deposit insurance ranged from 7 to 77 basis points per $100 of assessable deposits. On May 22, 2009, the FDIC imposed a special assessment of five basis points on each institution’s assets minus Tier 1 capital as of June 30, 2009, which was payable to the FDIC on September 30, 2009. The Bank paid a total of $557 thousand related to the special assessment. No institution may pay a dividend if it is in default on its federal deposit insurance assessment. The Bank paid a total FDIC assessment of $1.4 million in 2011.

Also during 2009, the FDIC adopted a rule requiring each insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which was due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will continue to record quarterly expenses for FDIC deposit insurance. Collection of the prepayment amount does not preclude the FDIC from changing assessment rates or revising the risk-based assessment system in the future. If events cause actual assessments during the prepayment period to vary from the prepaid amount, institutions will pay excess assessments or receive a rebate of prepaid amounts not fully utilized after the collection of assessments due in June 2013. The amount of the Bank’s prepayment was $6.0 million.

In connection with the Dodd-Frank Act’s requirement that insurance assessments be based on assets, the FDIC recently issued the final rule that provides that assessments be based on an institution’s average consolidated assets (less average tangible equity) as opposed to its deposit level. Pursuant to this new rule, the assessment base will be larger than the current assessment base, but the new rates are lower than current rates, ranging from approximately 2.5 basis points to 45 basis points (depending on applicable adjustments for unsecured debt and brokered deposits) until such time as the FDIC’s reserve ratio equals 1.15%. Once the FDIC’s reserve ratio equals or exceeds 1.15%, the applicable assessment rates may range from 1.5 basis points to 40 basis points.

In addition to the FDIC insurance premiums, the Bank is required to make quarterly payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize a predecessor deposit insurance fund. These assessments will continue until the FICO bonds are repaid.

Transactions with Affiliates and Insiders. Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, 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 (including the Corporation) and insiders and 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.

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Extensions of credit by the Bank to its executive officers, directors, certain principal shareholders, and their related interests must:

• 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

• not involve more than the normal risk of repayment or present other unfavorable features.

The Dodd-Frank Act also included specific changes to the law related to the definition of a “covered transaction” in Sections 23A and 23B and limitations on asset purchases from insiders. With respect to the definition of a “covered transaction,” the Dodd-Frank Act now defines that term to include the acceptance of debt obligations issued by an affiliate as collateral for an institution’s loan or extension of credit to another person or company. In addition, a “derivative transaction” with an affiliate is now deemed to be a “covered transaction” to the extent that such a transaction causes an institution or its subsidiary to have a credit exposure to the affiliate. A separate provision of the Dodd-Frank Act states that an insured depository institution may not “purchase an asset from, or sell an asset to” a bank insider (or their related interests) unless (1) the transaction is conducted on market terms between the parties and (2) if the proposed transaction represents more than 10 percent of the capital stock and surplus of the insured institution, it has been approved in advance by a majority of the institution’s non-interested directors.

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 year’s 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 Bank would thereafter be undercapitalized. The FDIC may prevent the 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.

Community Reinvestment Act. The CRA 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 bank’s 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 bank’s particular circumstances warrant. Banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

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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 OCC’s risk-based capital guidelines for the Bank at December 31, 2011, are shown below:

	September 30,
Tier 1 Capital to Risk-Weighted Assets	9.4	%
Total Risk-Based Capital to Risk-Weighted Assets	11.2	%
Tier 1 Leverage Ratio	6.5	%

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 bank’s capital for interest rate risk. These qualitative factors include the adequacy and effectiveness of the bank’s 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 bank’s overall risk profile, and its earning exposure to interest rate movements. The interagency supervisory policy statement describes the responsibilities of a bank’s board of directors in implementing a risk management process and the requirements of the bank’s senior management in ensuring the effective management of interest rate risk. Further, the statement specifies the elements that a risk management process must contain.

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, 2011, the Bank was qualified as “well capitalized.” It should be noted that a bank’s 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 bank’s 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.

S.A.F.E. Act Requirements. Regulations issued under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ( the “S.A.F.E. Act” ) require residential mortgage loan originators who are employees of institutions regulated by the foregoing agencies, including national banks, to meet the registration requirements of the S.A.F.E. Act.

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The S.A.F.E. Act requires residential mortgage loan originators who are employees of regulated financial institutions to be registered with the Nationwide Mortgage Licensing System and Registry, a database created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the states. Employees of regulated financial institutions are generally prohibited from originating residential mortgage loans unless they are registered.

Troubled Asset Relief Program Initiatives to Address Financial and Economic Crises. The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008. EESA gave the Treasury Department broad authority to address the then-current deterioration of the United States economy, to implement certain actions to help restore confidence, stability, and liquidity to United States financial markets, and to encourage financial institutions to increase their lending to clients and to each other. EESA authorized the Treasury Department 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 Treasury Department allocated $250 billion to the voluntary Capital Purchase Program (“CPP”) under TARP. TARP also included direct purchases or guarantees of troubled assets of certain financial institutions by the U.S. Government.

Under the CPP, the Treasury Department was authorized to purchase debt or equity securities from participating financial institutions. In connection therewith, each participating financial institution issued to the Treasury Department a warrant to purchase a certain number of shares of stock of the institution. During such time as the Treasury Department holds securities issued under the CPP, the participating financial institutions are required to comply with the Treasury Department’s standards for executive compensation and corporate governance and will have limited ability to increase the amounts of dividends paid on, or to repurchase, their common stock. The Corporation determined not to participate in the CPP.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the federal economic stimulus or economic recovery package, went into effect. ARRA includes a wide variety of programs intended to stimulate the United States economy and provide for extensive infrastructure, energy, health, and education needs. ARRA also imposes new executive compensation limits and corporate governance requirements on participants in the CPP in addition to those previously announced by the Treasury Department. Because the Corporation elected not to participate in the CPP, these limits and requirements do not apply to the Corporation.

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 Bank’s loan operations are also subject to federal and state laws applicable to credit transactions, such as the:

• Truth-In-Lending Act and state consumer protection laws governing disclosures of credit terms and prohibiting certain practices with regard to consumer borrowers;

• 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;

• 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;

• 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:

• 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.

• 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.

• 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.

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.

As noted above, the new Bureau of Consumer Financial Protection will have authority for amending existing consumer compliance regulations and implementing new such regulations. In addition, the Bureau will have the power to examine the compliance of financial institutions with an excess of $10 billion in assets with these consumer protection rules. The Bank’s compliance with consumer protection rules will be examined by the OCC since the Bank does not meet this $10 billion asset level threshold.

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 institution’s 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.

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Effect of Governmental Monetary Policies. The Corporation’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Bank’s 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.

Other Regulatory Developments

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States, including the Bank.

For banks in the United States, among the most significant provisions of Basel III concerning capital are the following:

• a minimum ratio of common equity to risk-weighted assets reaching 4.5% plus an additional 2.5% as a capital conservation buffer, by 2019 after a phase-in period;

• a minimum ratio of Tier 1 capital to risk-weighted assets reaching 6.0% by 2019 after a phase-in period;

• a minimum ratio of total capital to risk-weighted assets, plus the additional 2.5% capital conservation buffer, reaching 10.5% by 2019 after a phase-in period;

• an additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice;

• restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone;

• deduction from common equity of deferred tax assets that depend on future profitability to be realized;

• increased capital requirements for counterparty credit risk relating to over the counter derivatives, repos and securities financing activities; and

• for capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement such that the instrument must be written off or converted to common equity if a trigger event occurs, either pursuant to applicable law or at the direction of the banking regulator. A trigger event is an event under which the banking entity would become nonviable without the write-off or conversion, or without an injection of capital from the public sector. The issuer must maintain authorization to issue the requisite shares of common equity if conversion were required.

The Basel III provisions on liquidity include complex criteria establishing the liquidity coverage ratio (“LCR”) and the net stable funding ratio (“NSFR”). The purpose of the LCR is to ensure that a bank maintains adequate unencumbered, high quality liquid assets to meet its liquidity needs for 30 days under a severe liquidity stress scenario. The purpose of the NSFR is to promote more medium and long-term funding of assets and activities, using a one-year horizon. Although Basel III is described as a “final text,” it is subject to the resolution of certain issues and to further guidance and modification, as well as to adoption by United States banking regulators, including decisions as to whether and to what extent it will apply to United States banks that are not large, internationally active banks.

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 Corporation’s filings are also accessible at no cost on the Corporation’s website at www.nbofi.com.

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Item 1A. Risk Factors

Difficult conditions in the capital markets and the economy generally may materially adversely affect the Corporation’s business and results of operations

From December 2007 through June 2009, the U.S. economy was in recession. Business activity across a wide range of industries and regions in the U.S. was greatly reduced. Although economic conditions have begun to improve, certain sectors, such as real estate, remain weak and unemployment remains high. Local governments and many businesses are still in serious difficulty due to lower consumer spending and the lack of liquidity in the credit markets.

Market conditions also led to the failure or merger of several prominent financial institutions and numerous regional and community-based financial institutions. These failures, as well as projected future failures, have had a significant negative impact on the capitalization level of the deposit insurance fund of the FDIC, which, in turn, has led to a significant increase in deposit insurance premiums paid by financial institutions.

The Corporation’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that the Corporation offers, is highly dependent upon the business environment in the markets where the Corporation operates and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters, or a combination of these or other factors.

During 2011, the business environment continued to be adverse for many households and businesses in the United States and worldwide. While economic conditions in the United States and worldwide have begun to improve, there can be no assurance that this improvement will continue. Such conditions have affected, and could continue to adversely affect, the credit quality of the Corporation’s loans, results of operations and financial condition.

In response to economic and market conditions, from time to time the Corporation has undertaken initiatives to reduce its cost structure where appropriate. These initiatives may not be sufficient to meet current and future changes in economic and market conditions and allow the Corporation to achieve profitability. In addition, costs actually incurred in connection with these restructuring actions may be higher than our estimates of such costs or may not lead to the anticipated cost savings.

The soundness of other financial institutions could adversely affect us

The ability of the Corporation to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by the Corporation or by other institutions. Many of these transactions expose the Corporation to credit risk in the event of default of the Corporation’s counterparty or client. In addition, the Corporation’s credit risk may be adversely impacted when the collateral held by the Corporation cannot be realized upon or its liquidated price is not sufficient to recover the full amount of the financial instrument exposure. There is no assurance that any such losses would not materially and adversely affect the Corporation’s results of operations.

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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

There has been much legislative and regulatory action in response to the financial crises affecting the banking system and financial markets. There can be no assurance, however, as to the actual impact that the legislation and its implementing regulations or any other governmental program will have on the financial markets or on the Corporation. 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 the Corporation’s business, financial condition, results of operations, access to credit or the trading price of the Corporation’s common stock.

Contemplated and proposed legislation, state and federal programs, and increased government control or influence may adversely affect the Corporation by increasing the uncertainty on its lending operations and expose it to increased losses, including legislation that would allow bankruptcy courts to prevent modifications to mortgage loans on a debtor’s primary residence, moratoriums on a mortgager’s right to foreclose on property, and requirements that fees be paid to register other real estate owned property. Statutes and regulations may be altered which potentially increase the Corporation’s cost of service and underwrite mortgage loans.

Recently enacted and potential further financial regulatory reforms could have a significant impact on our business, financial condition and results of operations

The Dodd—Frank Wall Street Reform and Consumer Protection Act (the “Dodd–Frank Act”), enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes in light of the recent performance of and government intervention in the financial services sector. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Corporation. The changes resulting from the Dodd–Frank Act may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect the Corporation’s business. In particular, the potential impact of the Dodd–Frank Act on the Corporation’s operations and activities, both currently and prospectively, include, among others:

• a reduction in the ability to generate or originate revenue–producing assets as a result of compliance with heightened capital standards;

• increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;·

• the limitation on the ability to raise new capital through the use of trust preferred securities, as any new issuances of these securities will no longer be included as Tier 1 capital going forward;

• a potential reduction in fee income due to limits on interchange fees applicable to larger institutions which could effectively reduce the fees we can charge; and

• the limitation on the ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations.

Further, the Corporation may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd–Frank Act, which may negatively impact results of operations and financial condition.

The Corporation cannot predict whether there will be additional proposed laws or reforms that would affect the U.S. financial system or financial institutions, whether or when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may impact the Corporation’s financial condition and results of operations. However, the costs of complying with any additional laws or regulations could have a material adverse effect on the Corporation’s financial condition and results of operations.

The Corporation may be required to pay significantly higher Federal Deposit Insurance Corporation (FDIC) premiums in the future

Insured institution failures during the past several years, 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 the higher rate of insured institution failures to continue for the next few years compared to the past; thus, the reserve ratio may continue to decline. In addition the Dodd-Frank Act permanently implemented FDIC insurance coverage for all deposit accounts up to $250,000 and revised the insurance premium

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assessment base from all domestic deposits to the average of total assets less tangible equity. If financial institution failures continue and the FDIC reserve continues to decline, actions taken by the FDIC to increase assessment rates or enact special assessments could have an adverse impact on the Corporation’s results of operations.

The Corporation is subject to interest rate risk

The Corporation’s earnings and cash flows are largely dependent upon the Corporation’s 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 the Corporation’s 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 that is received on loans and securities and the interest that is paid on deposits and borrowings, but such changes could also affect (i) the Corporation’s ability to originate loans and obtain deposits, and (ii) the fair value of the Corporation’s financial assets and liabilities. Currently, the Corporation is 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 the Corporation’s net interest margin. Also, in a rising interest rate environment, the Corporation may be unable to sell its lower-yielding mortgage loans, thus further impacting its ability to generate higher yielding loans. If this happens, earnings could be adversely affected. In addition, due to the current low interest rate environment, if interest rates further decrease, the Corporation’s liabilities will reprice downward more quickly than the Corporation’s assets. Because deposit pricing cannot become significantly lower than current levels, the Corporation’s 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 Corporation’s 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. Credit issues may continue to broaden during 2012 depending on the severity and duration of the declining economy and the current credit cycle.

The Bank originates commercial real estate loans, commercial loans, consumer loans and residential real estate loans primarily within its market areas. Commercial real estate, commercial, and consumer loans may expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans may not be sold as easily as residential real estate. These loans also have greater credit risk than residential real estate for the following reasons:

• Commercial Real Estate Loans. Repayment is dependent upon income being generated in amounts sufficient to cover operating expenses and debt service.

• Commercial Loans. Repayment is dependent upon the successful operation of the borrower’s business.

• Consumer Loans. Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not provide an adequate source of payment of the loan due to depreciation, damage, or loss.

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.

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The Corporation’s 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 management’s best estimate of probable incurred losses that are inherent within the existing portfolio of loans. The level of the allowance reflects management’s 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 Corporation’s control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review the Corporation’s 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 Corporation’s financial condition and results of operations.

The Corporation may foreclose on collateral property and would be subject to the increased costs associated with ownership of real property, resulting in reduced revenues and earnings

The Corporation may have to foreclose on collateral property to protect its investment and may thereafter own and operate such property, in which case it will be exposed to the risks inherent in the ownership of real estate. The amount that the Corporation as a mortgagee, may realize after a default is dependent upon factors outside of its control, including, but not limited to: (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) environmental remediation liabilities; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God. Certain expenditures associated with the ownership of real estate, principally real estate taxes, insurance, and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating real property may exceed the income earned from such property, and the Corporation may have to advance funds in order to protect its investment, or it may be required to dispose of the real property at a loss. These expenditures and costs could adversely affect the Corporation’s ability to generate revenues, resulting in reduced levels of profitability.

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 Corporation’s 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.

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The Corporation’s ability to compete successfully depends on a number of factors, including, among other things:

• The ability to develop, maintain and build upon long-term customer relationships based on top quality service, and safe, sound assets;

• The ability to expand the Corporation’s market position;

• The scope, relevance and pricing of products and services offered to meet customer needs and demands;

• The rate at which the Corporation introduces new products and services relative to its competitors;

• Customer satisfaction with the Corporation’s level of service; and

• Industry and general economic trends.

Failure to perform in any of these areas could significantly weaken the Corporation’s competitive position, which could adversely affect the Corporation’s growth and profitability, which, in turn, could have a material adverse effect on the Corporation’s financial condition and results of operations.

On July 18, 2011, the Board of Governors of the Federal Reserve System published a final rule repealing Regulation Q, which prohibits the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System. The rule implements Section 627 of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed by President Obama on July 21, 2010, which repealed Section 19(i) of the Federal Reserve Act in its entirety effective July 21, 2011. As a result, financial institutions may now offer interest-bearing demand deposit accounts to commercial customers, which were previously forbidden under Regulation Q. The repeal of Regulation Q may cause increased competition from other financial institutions for these deposits.

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 Corporation’s 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 Corporation’s 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.

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 the Corporation’s ability to maintain and manage these portfolios effectively, which could negatively affect the Corporation’s revenues. In addition, loss of key personnel could result in increased recruiting and hiring expenses, which could cause a decrease in the Corporation’s net income.

The Corporation’s internal operations are subject to a number of risks

The Corporation’s internal operations are subject to certain risks, including but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. Operational risk resulting from inadequate or failed internal processes, people, and systems includes the risk of fraud by employees or persons outside of our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.

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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 Corporation’s 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 Corporation’s operations. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Corporation’s business and, in turn, the Corporation’s financial condition and results of operations.

The Corporation’s earnings could be adversely impacted by incidences of fraud and compliance failures that are not within our direct control

Financial institutions are inherently exposed to fraud risk. A fraud can be perpetrated by a customer of the Bank, an employee, a vendor, or members of the general public. We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, ATM transactions and checking transactions. Our largest fraud risk, associated with the origination of loans, includes the intentional misstatement of information in property appraisals or other underwriting documentation provided to us by third parties. Compliance risk is the risk that loans are not originated in compliance with applicable laws and regulations and our standards. There can be no assurance that we can prevent or detect acts of fraud or violation of law or our compliance standards by the third parties that we deal with. Repeated incidences of fraud or compliance failures would adversely impact the performance of our loan portfolio.

The Corporation’s 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 Corporation’s 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 Corporation’s information systems could damage the Corporation’s 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 Corporation’s financial condition and results of operations.

The Corporation has opened new offices

The Corporation has placed a strategic emphasis on expanding the Bank’s 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 the Corporation’s markets makes the Corporation’s business highly susceptible to local economic conditions

Unlike larger banking organizations that are more geographically diversified, the Corporation’s operations are currently concentrated in three counties located in central Indiana. As a result of this geographic concentration, the Corporation’s financial results depend largely upon economic conditions in these market areas. Deterioration in economic conditions in the Corporation’s market could result in one or more of the following:

• an increase in loan delinquencies;

• an increase in problem assets and foreclosures;

• a decrease in the demand for the Corporation’s products and services; and

• 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.

18

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 Corporation’s future operating results erode capital or the Corporation elects to expand through loan growth or acquisition it may be required to raise capital. The Corporation’s ability to raise capital will depend on conditions in the capital markets, which are outside of its control, and on the Corporation’s 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 Corporation’s 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.

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 Corporation’s main office at 107 North Pennsylvania Street, Indianapolis, Indiana. The Bank and the Corporation utilize nine floors of this ten-story building and lease the remainder to other business enterprises.

		September 30,		September 30,
Location	Year Opened		Owned or Leased
Banking Centers:
107 North Pennsylvania		1993		Owned
Indianapolis, IN 46204
8451 Ditch Road		1995		Owned
Indianapolis, IN 46260
6807 82nd Street		1995		Owned
Indianapolis, IN 46250
320 North Meridian Street		1996		Leased
Indianapolis, IN 46204
4930 North Pennsylvania Street		1998		Owned
Indianapolis, IN 46205
One America Square, Suite 100		1999		Leased
Indianapolis, IN 46282
613 East Carmel Drive		2012		Owned
Carmel, IN 46032
1689 West Smith Valley Road		2001		Owned
Greenwood, IN 46142
10590 North Michigan Road		2005		Owned
Carmel, IN 46032
2714 East 146th Street		2008		Owned
Carmel, IN 46033
2410 Harleston Street		2008		Owned
Carmel, IN 46032
11701 Olio Road		2009		Owned
Fishers, IN 46038

19

In 2000, the Bank began leasing a location at 650 East Carmel Drive, which is now closed and the lease will be terminated. In 2011, the Corporation purchased land and began construction on a new banking center located at 613 East Carmel Drive which opened in February 2012.

The Bank has installed three remote ATMs at the following locations: Indianapolis City Market, Parkwood Crossing, and Angie’s 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 Corporation’s 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.

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. Mine Safety Disclosures

Not applicable

PART II

Item 5. Market for Registrant’s 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 2011 and 2010.

		September 30,		September 30,
	Price Per Share
	High		Low
2011
First Quarter	$	44.00	$	40.00
Second Quarter		45.70		41.50
Third Quarter		46.37		45.70
Fourth Quarter		43.56		41.17
2010
First Quarter	$	50.00	$	35.91
Second Quarter		40.00		35.52
Third Quarter		44.00		35.84
Fourth Quarter		41.49		39.36

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 633 shareholders of record as of March 9, 2012.

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 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.

20

During the fourth quarter of 2011, the Corporation sold common stock pursuant to the exercise of stock options to employees in the aggregate of 3,900 shares for $152 thousand. As previously reported in the Corporation’s prior filings with the Securities and Exchange Commission, the Corporation sold pursuant to the exercise by employees and directors of stock options an aggregate of 31,100 shares for $863 thousand during the third quarter of 2011, an aggregate of 15,100 shares for $452 thousand during the second quarter of 2011, and an aggregate of 800 shares for $22 thousand during the first quarter of 2011. 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 three-year stock repurchase program for directors and employees, which the Corporation amended on February 18, 2011. Under the amended repurchase program, the Corporation was authorized to repurchase up to $705 thousand in net costs from outside shareholders in addition to the previously approved employee and director repurchase program. This was funded from working capital. Under the now terminated repurchase plan, during 2011 the Corporation purchased in the aggregate 41,183 shares for a cost of approximately $1.8 million. The repurchase program terminated on December 31, 2011.

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 2011 under the repurchase program:

		September 30,		September 30,		September 30,		September 30,
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs**		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (Dollars in thousands)
October 1—
October 31, 2011		2,657	$	42.75		2,657	$	3,911
November 1—
November 30, 2011		3,151	$	41.58		3,151	$	3,780
December 1—
December 31, 2011		6,900	$	43.50		6,900	$	3,479
		12,708		*		12,708

* The weighted average price per share for the period October 2011 through December 2011 was $42.87.

** All shares repurchased by the Corporation during 2011 were completed pursuant to the repurchase program.

During February 2012, the Board of Directors approved a new stock repurchase plan. Under the terms of this stock repurchase plan, the Corporation can repurchase up to $3.8 million in net costs from employees, directors and outside shareholders. The Corporation anticipates that it will fund the purchases under the repurchase program from working capital. This stock repurchase program will expire on December 31, 2012.

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 Corporation’s audited financial statements included elsewhere herein for the years ended December 31, (dollars in thousands), except share, per share, and book value data:

		September 30,			September 30,			September 30,			September 30,			September 30,
	2011			2010			2009			2008			2007
Consolidated Operating Data:
Interest income	$	47,909		$	47,130		$	47,531		$	56,377		$	68,880
Interest expense		7,274			9,029			11,313			20,449			35,263
Net interest income		40,635			38,101			36,218			35,928			33,617
Provision for loan losses		3,824			4,279			11,905			7,400			904
Net interest income after provision for loan losses		36,811			33,822			24,313			28,528			32,713
Other operating income		14,521			14,248			12,903			11,204			9,834
Other operating expenses		44,835			43,522			38,354			34,706			30,800
Income (loss) before taxes		6,497			4,548			(1,138	)		5,026			11,747
Federal and state income tax (benefit)		1,141			762			(1,250	)		1,242			3,856
Net income		5,356			3,786			112			3,784			7,891
Consolidated Balance Sheet Data (at end of period):
Total assets	$	1,459,596		$	1,441,393		$	1,236,077		$	1,117,784		$	1,163,109
Total investment securities (including stock in Federal Banks)		257,273			193,418			165,368			143,694			137,174
Total loans		953,612			901,756			864,722			904,207			830,328
Allowance for loan losses		(14,242	)		(15,134	)		(13,716	)		(12,847	)		(9,453	)
Deposits		1,242,819			1,238,840			1,052,065			965,966			1,004,762
Shareholders’ equity		90,119			79,357			73,031			72,212			68,938
Weighted basic average shares outstanding		2,326			2,314			2,302			2,311			2,328
Per Share Data:
Diluted net income per common share (1)	$	2.19		$	1.59		$	0.05		$	1.58		$	3.27
Cash dividends declared		—			—			—			—			—
Book value (2)		38.67			34.24			31.65			31.48			29.63
Other Statistics and Operating Data:
Return on average assets		0.4	%		0.3	%		0.0	%		0.3	%		0.7	%
Return on average equity		6.3	%		5.0	%		0.2	%		5.3	%		12.3	%
Net interest margin - FTE (3)		3.1	%		3.2	%		3.3	%		3.5	%		3.4	%
Average loans to average deposits		73.4	%		78.7	%		85.5	%		88.5	%		82.3	%
Allowance for loan losses to loans at end of period		1.5	%		1.7	%		1.6	%		1.4	%		1.1	%
Allowance for loan losses to non-performing loans		53.2	%		135.5	%		90.8	%		146.4	%		164.1	%
Non-performing loans to loans at end of period		2.8	%		1.2	%		1.7	%		1.0	%		0.7	%
Net charge-offs/to average loans		0.5	%		0.3	%		1.2	%		0.5	%		0.0	%
Number of offices		12			12			12			11			9
Number of full and part-time employees		279			274			270			252			228
Number of Shareholders of Record		634			638			679			681			676
Capital Ratios:
Average shareholders’ equity to average assets		5.8	%		5.8	%		6.1	%		6.3	%		5.9	%
Equity to assets		6.2	%		5.5	%		5.9	%		6.5	%		5.9	%
Total risk-based capital ratio (Bank only)		11.2	%		11.2	%		10.9	%		10.5	%		10.6	%

(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 fully-taxable equivalent (“FTE”) as a percentage of average interest-earning assets.

22

Item 7. Management’s 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, 2011, 2010, and 2009 and should be read in conjunction with the Corporation’s Consolidated Financial Statements and Notes thereto included elsewhere herein.

Overview

The primary source of the Bank’s 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, 2011, 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, 2011, as compared to year ended December 31, 2010. Wealth management fees increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase is attributable to an increase in the stock market for the year ended December 31, 2011, as compared to the year ended December 31, 2010, as well as new business. The increase in wealth management fees is offset by the decrease in mortgage banking income for the year ended December 31, 2011, as compared to the year ended December 31, 2010, which was the result of a decrease in gains recorded on mortgage loan sales. Other non-interest expense increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase is due to an increase in salaries, wages and employee benefits during 2011 as compared to 2010. The increase is partially offset by a decrease in non performing assets expense and FDIC insurance premiums for the year ended December 31, 2011, as compared to the year ended December 31, 2010. In addition, other expenses decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, due to a reversal of a $1 million accrual established by the Corporation in 2008 relating to a certain deposit account. The provision for loan losses decreased for the year ended December 31, 2011, as compared to December 31, 2010. The decrease was driven by longer term improvements in asset quality, primarily lower net charge offs as a percentage of outstanding loans in the three-year historical loss experience, which affects the level of allocation required for loans collectively evaluated for impairment. 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 management’s 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, 2011.

The risks and challenges that management believes will be important during 2012 are price competition for loans and deposits by competitors, marketplace credit effects, continued spread compression, a slow recovery of 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.

23

Results of Operations

Year Ended December 31, 2011, Compared to the Year Ended December 31, 2010, and the Year Ended December 31, 2010, Compared to the Year Ended December 31, 2009.

The Corporation’s 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.

2011 compared with 2010

The Corporation had net income of $5.4 million for 2011 compared to net income of $3.8 million for 2010. The increase in net income is due to a decrease in: the provision for loan losses, non performing asset expense, FDIC insurance expense, other operating expense and an increase in net interest income and wealth management fees. The increase in net income is partially offset by an increase in salary, wages, and employee benefits and a decrease in mortgage banking income.

The Bank experienced an increase in total assets in 2011 compared with 2010. Total assets increased $18 million or 1% to $1.5 billion in 2011 from $1.4 billion in 2010. The increase is primarily due to: an increase in investments of $64 million or 34% to $254 million in 2011 from $190 million in 2010, and an increase in loans of $54 million or 6% to $954 million in 2011 from $900 million in 2010. The increase is partially offset by a decrease in cash and cash equivalents of $97 million or 33% to $196 million in 2011 from $293 million in 2010.

2010 compared with 2009

The Corporation had net income of $3.8 million for 2010 compared to net income of $112 thousand for 2009. The increase in net income is due to a decrease in the provision for loan losses and an increase in mortgage banking income and wealth management fees. The increase in net income is partially offset by an increase in non performing asset expense and salary, wages, and employee benefits.

The Bank experienced an increase in total assets in 2010 compared with 2009. Total assets increased $205 million or 17% to $1.4 billion in 2010 from $1.2 billion in 2009. The increase is primarily due to: an increase in cash and cash equivalents of $142 million or 93% to $294 million in 2010 from $152 million in 2009, an increase in investments of $28 million or 17% to $190 million in 2010 from $162 million in 2009, and an increase in loans of $36 million or 4% to $900 million in 2010 from $864 million in 2009.

Net Interest Income

The following table details the components of net interest income for the years ended December 31, (dollars in thousands):

		September 30,		September 30,		September 30,			September 30,
	2011		2010		$ Change			% Change
Interest income:
Interest and fees on loans	$	42,405	$	42,471	$	(66	)		-0.2	%
Interest on investment securities taxable		2,705		2,172		533			24.5	%
Interest on investment securities nontaxable		2,297		2,070		227			11.0	%
Interest on federal funds sold		30		25		5			20.0	%
Interest on due from banks		472		392		80			20.4	%
Total interest income	$	47,909	$	47,130	$	779			1.7	%
Interest expense:
Interest on deposits	$	5,390	$	7,002	$	(1,612	)		-23.0	%
Interest on other short term borrowings		209		289		(80	)		-27.7	%
Interest on short term debt		123		183		(60	)		-32.8	%
Interest on long term debt		1,552		1,555		(3	)		-0.2	%
Total interest expense	$	7,274	$	9,029	$	(1,755	)		-19.4	%
Net interest income	$	40,635	$	38,101	$	2,534			6.7	%

24

2011 compared with 2010

Total average earning assets increased for 2011 as compared to 2010. The increase is primarily due to an increase in the average balance in interest bearing due from banks, taxable investment securities, and loan balances. These increases in average balances contributed to the overall increase in interest income for 2011 as compared to 2010.

Total interest bearing liabilities increased for 2011 as compared to 2010. The increase is primarily due to an increase in the average balance in savings accounts offset by a decrease in the average balance in CD’s over $100 thousand. Interest expense decreased primarily due to lower interest rates paid on interest bearing liabilities.

Net interest income increased for 2011 as compared to 2010. The increase is a result of an overall increase in earning assets. Net interest spread—FTE decreased to 3.01% for 2011 as compared to 3.10% for 2010 which is primarily due to a larger decline in the yield on earning assets than the decline in the cost of interest bearing liabilities. The net interest margin—FTE decreased to 3.13% for 2011 from 3.24% for 2010. The decrease is attributable to the decrease in the contribution of non-interest bearing funds to 0.12% for 2011 from 0.14% for 2010, as well as a decrease in the net interest spread—FTE.

The following table details the components of net interest income for the years ended December 31, (dollars in thousands):

		September 30,		September 30,		September 30,			September 30,
	2010		2009		$ Change			% Change
Interest income:
Interest and fees on loans	$	42,471	$	42,217	$	254			0.6	%
Interest on investment securities taxable		2,172		3,011		(839	)		-27.9	%
Interest on investment securities nontaxable		2,070		2,068		2			0.1	%
Interest on federal funds sold		25		4		21			525.0	%
Interest on due from banks		392		231		161			69.7	%
Total interest income	$	47,130	$	47,531	$	(401	)		-0.8	%
Interest expense:
Interest on deposits	$	7,002		9,427	$	(2,425	)		-25.7	%
Interest on other short term borrowings		289		182		107			58.8	%
Interest on short term debt		183		121		62			51.2	%
Interest on long term debt		1,555		1,583		(28	)		-1.8	%
Total interest expense	$	9,029	$	11,313	$	(2,284	)		-20.2	%
Net interest income	$	38,101	$	36,218	$	1,883			5.2	%

2010 compared with 2009

Total average earning assets increased for 2010 as compared to 2009. The increase is primarily due to an increase in the average balance in interest bearing due from banks, an increase in the average balance of non taxable investment securities and an increase in the average loan balances. Interest income increased for 2010 as compared to 2009 due to an increase in the average balances of interest bearing due from banks, federal funds sold and an increase in both the average balances and rates for non taxable investment securities and loans.

Total interest bearing liabilities increased for 2010 as compared to 2009. The increase is primarily due to an increase in the average balance in savings and interest bearing demand deposit accounts offset by a decrease in the average balance in CD’s over $100 thousand. Interest expense decreased primarily due to lower interest rates paid on interest bearing liabilities.

Net interest income increased for 2010 as compared to 2009. The increase is a result of an overall increase in earning assets. Net interest spread—FTE decreased to 3.10% for 2010 as compared to 3.13% for 2009 which is primarily due to a larger decline in the yield on earning assets than the decline in the cost of interest bearing liabilities. The net interest margin – FTE decreased to 3.24% for 2010 from 3.33% for 2009. The decrease is attributable to the decrease in the contribution of non-interest bearing funds to 0.14% for 2010 from 0.20% for 2009, as well as a decrease in the net interest spread—FTE.

25

The following table details average balances, interest income/expense and average rates/yields for the Bank’s earning assets and interest bearing liabilities for the years ended December 31, (tax equivalent basis/dollars in thousands):

	2011							2010							2009
	Average Balance		Interest Income/ Expense		Average Rate/ Yield			Average Balance		Interest Income/ Expense		Average Rate/ Yield			Average Balance		Interest Income/ Expense		Average Rate/ Yield
Assets:
Interest bearing due from banks	$	187,140	$	472		0.25	%	$	155,472	$	392		0.25	%	$	91,295	$	231		0.25	%
Reverse repurchase agreements		1,000		—		0.01	%		1,000		—		0.01	%		1,000		—		0.01	%
Federal funds		13,546		30		0.22	%		9,934		25		0.25	%		2,646		4		0.15	%
Non taxable investment securities - FTE		62,322		3,565		5.72	%		56,533		3,200		5.66	%		56,070		3,140		5.60	%
Taxable investment securities		188,182		2,705		1.44	%		117,235		2,172		1.85	%		88,855		3,011		3.39	%
Loans (gross) - FTE		927,559		43,622		4.70	%		886,933		43,028		4.85	%		883,721		42,363		4.79	%
Total earning assets—FTE	$	1,379,749	$	50,394		3.65	%	$	1,227,107	$	48,817		3.98	%	$	1,123,587	$	48,749		4.34	%
Non-earning assets		94,130							89,564							83,573
Total assets	$	1,473,879						$	1,316,671						$	1,207,160
Liabilities:
Interest bearing DDA	$	201,224	$	258		0.13	%	$	205,541	$	474		0.23	%	$	160,233	$	600		0.37	%
Savings		636,819		2,558		0.40	%		514,703		2,903		0.56	%		472,181		3,448		0.73	%
CD’s under $100		64,969		846		1.30	%		66,974		1,156		1.73	%		63,609		1,665		2.62	%
CD’s over $100		95,195		1,362		1.43	%		114,953		2,005		1.74	%		129,325		3,160		2.44	%
Individual retirement accounts		22,122		366		1.65	%		22,666		464		2.05	%		19,980		554		2.77	%
Repurchase agreements and other secured short term borrowings		96,355		209		0.22	%		84,048		289		0.34	%		68,742		182		0.26	%
Short-term debt		2,592		123		4.75	%		3,656		183		5.01	%		4,200		121		2.88	%
Subordinated debt		5,000		77		1.54	%		5,000		80		1.60	%		5,000		108		2.16	%
Long term debt		13,918		1,475		10.60	%		13,918		1,475		10.60	%		13,918		1,475		10.60	%
Total interest bearing liabilities	$	1,138,194	$	7,274		0.64	%	$	1,031,459	$	9,029		0.88	%	$	937,188	$	11,313		1.21	%
Non-interest bearing liabilities		243,403							202,808							188,594
Other liabilities		6,975							6,181							8,034
Total liabilities	$	1,388,572						$	1,240,448						$	1,133,816
Equity		85,307							76,223							73,344
Total liabilities & equity	$	1,473,879						$	1,316,671						$	1,207,160
Recap:
Interest income - FTE			$	50,394		3.65	%			$	48,817		3.98	%			$	48,749		4.34	%
Interest expense				7,274		0.64	%			$	9,029		0.88	%			$	11,313		1.21	%
Net interest income/spread - FTE			$	43,120		3.01	%			$	39,788		3.10	%			$	37,436		3.13	%
Contribution of non-interest bearing funds						0.12	%						0.14	%						0.20	%
Net interest margin - FTE						3.13	%						3.24	%						3.33	%

Notes to the average balance and interest rate tables:

• Average balances are computed using daily actual balances.

• The average loan balance includes loans held for sale, as well as 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 costs net of loan fees, of $(643) thousand, $(730) thousand, and $(645) thousand, for the years ended December 31, 2011, 2010, and 2009, respectively.

• Net interest income on a fully taxable equivalent basis, the most significant component of the Corporation’s 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.

26

• 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 on tax exempt loans and 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 tax exempt loans and 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 on loans were $1.2 million, $557 thousand, and $146 thousand for the years ended December 31, 2011; 2010, and 2009, respectively. The appropriate tax equivalent adjustments to interest income on municipal securities were $1.3 million, $1.1 million, and $1.1 million, for the years ended December 31, 2011, 2010, and 2009, 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 Corporation’s results of operations. This adjustment is considered helpful in the comparison of a financial institution’s net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from their earning asset portfolios.

27

The following table sets forth an analysis of volume and rate changes in interest income and interest expense of the Corporation’s 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 (dollars in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	2011 Changes from 2010									2010 Changes from 2009
	Net Change			Due to Rate			Due to Volume			Net Change			Due to Rate			Due to Volume
Interest earning assets:
Interest bearing due from banks	$	80		$	—		$	80		$	161		$	(1	)	$	162
Federal funds		5			(3	)		8			21			4			17
Non taxable investment securities - FTE		365			34			331			60			34			26
Taxable investment securities		533			(566	)		1,099			(839	)		(1,621	)		782
Loans (gross) - FTE		594			(1,341	)		1,935			665			511			154
TOTAL	$	1,577		$	(1,876	)	$	3,453		$	68		$	(1,073	)	$	1,141
Interest bearing liabilities:
Interest bearing DDA	$	(216	)	$	(206	)	$	(10	)	$	(126	)	$	(268	)	$	142
Savings deposits		(345	)		(944	)		599			(545	)		(835	)		290
CDs under $100		(310	)		(276	)		(34	)		(509	)		(593	)		84
CDs over $100		(643	)		(329	)		(314	)		(1,155	)		(832	)		(323	)
Individual retirement accounts		(98	)		(87	)		(11	)		(90	)		(158	)		68
Repurchase agreements and other short-term secured borrowings		(80	)		(118	)		38			107			61			46
Short-term debt		(60	)		(9	)		(51	)		62			79			(17	)
Subordinated debt		(3	)		(3	)		—			(28	)		(28	)		—
TOTAL	$	(1,755	)	$	(1,972	)	$	217		$	(2,284	)	$	(2,574	)	$	290
Net change in net interest income	$	3,332		$	96		$	3,236		$	2,352		$	1,501		$	851

Provision for Loan Losses

The amount charged to the provision for loan losses by the Bank is based on management’s evaluation as to the amounts required to maintain an allowance adequate to provide for probable incurred losses inherent in the loan portfolio. The provision for loan losses was at a level deemed necessary by management to absorb estimated, probable incurred losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for loan losses is completed quarterly by management, the results of which are used to determine the provision for loan losses. The level of this allowance is dependent upon the total amount of past due and non-performing loans, general economic conditions and management’s assessment of probable incurred losses based upon internal credit evaluations of loan portfolios and particular loans. Loans are principally to borrowers in central Indiana.

Due to the imprecise nature of estimating the allowance for loan losses, the allowance for loan losses includes an unallocated component. The unallocated component of the allowance for loan losses incorporates management’s judgmental determination of the inherent losses that may not be fully reflected in other allocations, including factors such as economic uncertainties, industry trends impacting specific portfolio segments, and broad portfolio quality trends. Therefore, the ratio of allocated to unallocated components within the total allowance may fluctuate from period to period.

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The following table details the components of loan loss reserve as of December 31, (dollars in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,
	2011			2010			2009			2008			2007
Beginning of Period	$	15,134		$	13,716		$	12,847		$	9,453		$	8,513
Provision for loan losses		3,824			4,279			11,905			7,400			904
Chargeoffs
Commercial & industrial		1,668			1,437			2,603			1,697			228
Commercial real estate		594			1,363			6,150			1,126			—
Construction		2,007			—			1,710			49			—
Residential		703			252			864			1,360			600
Consumer		163			36			21			64			50
Credit cards		51			61			84			97			4
		5,186			3,149			11,432			4,393			882
Recoveries
Commercial & industrial		372			119			343			187			814
Commercial real estate		53			5			—			—			—
Residential		22			152			20			174			67
Consumer		5			2			—			1			6
Credit cards		18			10			33			25			31
		470			288			396			387			918
End of Period	$	14,242		$	15,134		$	13,716		$	12,847		$	9,453
Allowance as a % of Loans		1.49	%		1.68	%		1.59	%		1.42	%		1.14	%

2011 compared with 2010

The provision for loan losses was $3.8 million for 2011 compared to $4.3 million for 2010. Provision expense is affected by the level of net charge-offs as well as changes in the specific and general loss components of the allowance for loan losses. The decrease was due to $265 thousand of the charge-offs being reserved for in a prior period and an improvement in the three-year historical loss experience as a percentage of outstanding loans, which lowers the general loss component of the allowance for loan losses.

Non-performing loans increased $15.6 million to $26.8 million as of December 31, 2011, from $11.2 million as of December 31, 2010. The increase is due to two large commercial relationships totaling $13.6 million. Due to the strength of the specific collateral of one these loans, a lower specific allowance was required than when the loan was part of the general loss component. The specific allowance attributable to non-performing loans increased $2.7 million to $4.3 million, or 16.2% of total non-performing loans, as of December 31, 2011, from $1.6 million, or 14.2% of total non-performing loans, as of December 31, 2010. Of the $2.7 million increase, $1.4 million is attributable to these two relationships.

Offsetting this increase to the specific loss component of the allowance for loans losses was a decrease in the general loss component of the allowance for loan losses. Due to an improvement in the three-year historical loss experience as a percentage of outstanding loans, which lowered the general loss component of the allowance for loan losses, the allowance for loan losses allocation for loans collectively evaluated for impairment decreased $3.6 million to $9.9 million, or 1.1% of total loans collectively evaluated for impairment, as of December 31, 2011, from $13.5 million, or 1.5% of total loans collectively evaluated for impairment, as of December 31, 2010.

29

Loans collectively evaluated for impairment are comprised of two components: loans with a defined weakness and the remaining loan portfolio. Loans with a defined weakness decreased as of December 31, 2011, as compared to December 31, 2010. This decrease was offset by an increase in the overall outstanding loan balances for the same period. The outstanding balances of loans collectively evaluated for impairment increased $37.6 million to $926.8 million as of December 31, 2011, from $889.2 million as of December 31, 2010. The overall outstanding loan balances increased $53.3 million to $953.6 million as of December 31, 2011, from $900.3 million as of December 31, 2010.

2010 compared with 2009

The provision for loan losses was $4.3 million for 2010 compared to $11.9 million for 2009. The decrease in the provision for loan losses for 2010 as compared to 2009 is due to an overall improvement in loan quality. Contributing to the decrease for 2010 compared to 2009 is a decrease in chargeoffs relating to commercial real estate, construction, and commercial and industrial loans. Management does not believe that these chargeoffs are indicative of systematic problems with the loan portfolio.

Other Operating Income

The following table details the components of other operating income for the years ended December 31, (dollars in thousands):

		September 30,		September 30,			September 30,			September 30,
	2011		2010			$ Change			% Change
Wealth management fees	$	6,148	$	5,377		$	771			14.3	%
Service charges and fees on deposit accounts		2,992		3,011			(19	)		-0.6	%
Rental income		859		712			147			20.6	%
Mortgage banking income		1,311		2,184			(873	)		-40.0	%
Interchange income		1,439		1,263			176			13.9	%
Net gain (loss) on sale of securities		45		(5	)		50			-1000.0	%
Other		1,727		1,706			21			1.2	%
Total other operating income	$	14,521	$	14,248		$	273			1.9	%

2011 compared with 2010

Other operating income increased for 2011 compared to 2010. There are several factors that contributed to the overall increase.

Wealth Management fees increased for 2011 compared to 2010. The increase is attributable to the overall increase in the stock market and assets under management, Irrevocable Life Insurance Trust (“ILIT”) fees, estate fees, and tax preparation fees. Partially offsetting the increase is a decrease in the fees for Dreyfus money market funds.

Service charges and fees on deposit accounts decreased for 2011 compared to 2010. The decrease is primarily attributable to a decrease in service charges collected for checking accounts and overdraft and NSF fees. The decrease is partially offset by an increase in wire transfer fees and ATM fees.

Rental income increased for 2011 compared to 2010. The increase is primarily due to an increase in rental income collected on foreclosed property owned by the Corporation. The increase is partially offset by a decrease in building rental income 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.

Mortgage banking income decreased for 2011 compared to 2010. The decrease for 2011 compared to 2010 is due to a decrease in the net gain on the sale of mortgage loans. A net gain on the sale of mortgage loans of $1.7 million was recorded for 2011, as compared to a net gain on the sale of mortgage loans of $2.3 million for 2010. The gains recorded in 2011 over 2010 are lower due to a lower sales price compared to the par amount of the mortgage period over period. Also, contributing to the decrease was an increase in the write down of the fair value of mortgage servicing rights of $911 thousand for 2011, as compared to a write down of $527 thousand for 2010.

30

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 MSR’s. 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.

Interchange income increased for 2011 compared to 2010. The increase is attributable to higher transaction volumes for debit cards and credit cards in 2011 compared to 2010. The increase is partially offset by an increase in cash back rewards expense for 2011 compared to 2010.

Net gain on sale of securities increased for 2011 compared to 2010. Four available-for-sale municipal securities were sold during 2011. The non-rated municipals are out of state making it difficult to monitor their credit risk on a timely basis.

Other income increased for 2011 compared to 2010. The increase is primarily due to an increase in prepayment penalties collected, Mastercard/Visa merchant fees, fees collected for loan covenant waivers, and a loan commitment fee. The increase is partially offset by a decrease in bank owned life insurance income, letter of credit fees, Dreyfus money market funds sweep fees, late fee income, and loan modification fees.

The following table details the components of other operating income for the years ended December 31, (dollars in thousands):

		September 30,			September 30,		September 30,			September 30,
	2010			2009		$ Change			% Change
Wealth management fees	$	5,377		$	4,917	$	460			9.4	%
Service charges and fees on deposit accounts		3,011			3,113		(102	)		-3.3	%
Rental income		712			350		362			103.4	%
Mortgage banking income		2,184			1,576		608			38.6	%
Interchange income		1,263			1,007		256			25.4	%
Net gain (loss) on sale of securities		(5	)		—		(5	)		100.0	%
Other		1,706			1,940		(234	)		-12.1	%
Total other operating income	$	14,248		$	12,903	$	1,345			10.4	%

2010 compared with 2009

Other operating income increased for 2010 compared to 2009. There are several factors that contribute to the overall increase.

Wealth Management fees increased for 2010 compared to 2009. The increase is attributable to the overall increase in the stock market, estate fees, and tax preparation fees. Partially offsetting the increase is a decrease in Dreyfus money market funds.

Service charges and fees on deposit accounts decreased for 2010 compared to 2009. The decrease is primarily attributable to a decrease in service charges collected for DDA business and non-profit accounts due to a higher earnings credit rate in 2010 compared to 2009 and a decrease in overdraft and NSF fees. The decrease is partially offset by an increase in wire transfer fees.

Rental income increased for 2010 compared to 2009. The increase is primarily due to an increase in rental income collected on foreclosed property owned by the Corporation. The increase is partially offset by a decrease in building rental income 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.

Mortgage banking income increased for 2010 compared to 2009. The increase for 2010 compared to 2009 is due to an increase in the net gain on the sale of mortgage loans. A net gain on the sale of mortgage loans of $2.3 million was recorded for 2010, as compared to a net gain on the sale of mortgage loans of $1.6 million for 2009. The increase in the net gain on sale of mortgage loans is due to an increase in the volume of loans originated period over period. For 2010, origination of loans held for sale was $88.8 million. For 2009, origination of loans held for sale was $69.7 million. Also, contributing to the increase was the sale of residential mortgages that were previously originated so that the Corporation could shorten the duration of earning assets.

31

Offsetting this increase was a write down of the fair value of MSRs of $527 thousand for 2010, as compared to a write down of $334 thousand for 2009.

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 MSR’s. 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.

Interchange income increased for 2010 compared to 2009. The increase is attributable to higher transaction volumes for debit cards and credit cards in 2010 compared to 2009.

Net loss on sale of securities increased for 2010 compared to 2009. There was one sale of a held-to-maturity municipal security during 2010. Since the municipal security has a non-rated issuer, a credit review of the municipality was conducted. As a result of the review, it was determined that the investment was no longer considered a pass asset and thus below investment grade. Per investment policy, the Corporation is prohibited from holding any securities below investment grade.

Other income decreased for 2010 compared to 2009. The decrease is due to a decrease in bank owned life insurance income, letter of credit fees, Dreyfus money market funds sweep fees, late fee income, and income collected for a swap fee. The decrease is partially offset by an increase in prepayment penalties collected, and Mastercard/Visa merchant fees.

Other Operating Expenses

The following table details the components of other operating expenses for the years ended December 31, (dollars in thousands):

		September 30,		September 30,		September 30,			September 30,
	2011		2010		$ Change			% Change
Salaries, wages and employee benefits	$	28,188	$	24,859	$	3,329			13.4	%
Occupancy		2,709		2,556		153			6.0	%
Furniture and equipment		1,171		1,220		(49	)		-4.0	%
Professional services		1,996		2,148		(152	)		-7.1	%
Data processing		3,295		3,014		281			9.3	%
Business development		1,701		1,610		91			5.7	%
FDIC Insurance		1,410		2,101		(691	)		-32.9	%
Non performing assets		1,526		2,100		(574	)		-27.3	%
Other		2,839		3,914		(1,075	)		-27.5	%
Total other operating expenses	$	44,835	$	43,522	$	1,313			3.0	%

2011 compared with 2010

Other operating expenses increased for 2011 compared to 2010. There are several factors that contribute to the overall increase.

Salaries, wages, and employee benefits increased for 2011 compared to 2010. The increase is the result of increased salary expense, employer FICA expense, federal and state unemployment tax expense, group medical benefits, performance bonus, deferred compensation, employee relations, and 401K expense. There was an increase in the number of employees to 274 full-time equivalents in 2011 from 267 full-time equivalents in 2010. The percentage accrued for the performance bonus was higher in 2011 as compared to the percentage for 2010. The increase is partially offset by an increase in direct loan origination costs capitalized.

32

Occupancy expense increased for 2011 compared to 2010. The increase is due to an increase in real estate taxes, building and improvements depreciation expense, lawn maintenance, building operating costs, and utilities expense. The increase is partially offset by a decrease in building and property repair expense, land and leasehold improvements depreciation expense, snow removal, and building cleaning and supplies.

Furniture and equipment expense decreased for 2011 compared to 2010. This decrease is due to a decrease in furniture, fixture, and equipment purchased for less than $500 and expensed, computer equipment depreciation expense, and maintenance contracts. The decrease is partially offset by an increase in furniture, fixture, and equipment repair expense and furniture, fixture, and equipment depreciation expense.

Professional services expense decreased for 2011 compared to 2010. The decrease is due to a decrease in consulting fees, design services, courier service, and attorney fees. The decrease is partially offset by an increase in accounting fees, outsourced internal audit services, and advertising agency fees.

Data processing expenses increased for 2011 compared to 2010. The increase is due to an increase in bill payment services, ATM/debit cards, credit cards, remote deposit capture fees, fiduciary income tax preparation for Wealth Management accounts, transaction processing fees and mutual fund expense for Wealth Management accounts, and software maintenance. The increase is partially offset by a decrease in service bureau fees related to activity by the Bank.

Business development expenses increased for 2011 compared to 2010. The increase is due to an increase in customer relations, customer entertainment, customer promotions and premium items, market research, advertising, and public relations. The increase is partially offset by a decrease in direct mail campaign and sales and product literature.

FDIC insurance expense decreased for 2011 compared to 2010. The decrease is due to the new rate schedule adopted by the FDIC effective April 1, 2011. In addition, effective January 1, 2011, the FDIC changed the Temporary Liquidity Guarantee Program and the Corporation was no longer required to pay for this program. The decrease is partially offset by an increase in the FDIC assessment because of higher assets period over period.

Non-performing asset expenses decreased for 2011 compared to 2010. This decrease is due to a decrease in the write down of the carrying value of other real estate owned and classified loan expense. Recorded net gains on the sale of the other real estate owned by the Corporation also contributed to the decrease. The decrease is partially offset by an increase in real estate taxes, lawn maintenance, and appraisal fees related to other real estate owned by the Corporation.

Other expenses decreased for 2011 compared to 2010. The decrease is due to a reversal of a $1.0 million accrual established by the Corporation in 2008 relating to a certain deposit account. In 2010, the Corporation recorded a reserve as a result of a wire transfer inadvertently sent to the wrong beneficiary. During 2011, the Corporation recovered $395 thousand relating to the wire transfer. The decrease is partially offset by an increase in check losses.

The following table details the components of other operating expenses for the years ended December 31, (dollars in thousands):

		September 30,		September 30,		September 30,			September 30,
	2010		2009		$ Change			% Change
Salaries, wages and employee benefits	$	24,859	$	21,332	$	3,527			16.5	%
Occupancy		2,556		2,441		115			4.7	%
Furniture and equipment		1,220		1,359		(139	)		-10.2	%
Professional services		2,148		1,873		275			14.7	%
Data processing		3,014		2,752		262			9.5	%
Business development		1,610		1,531		79			5.2	%
FDIC Insurance		2,101		2,142		(41	)		-1.9	%
Non performing assets		2,100		1,383		717			51.8	%
Other		3,914		3,541		373			10.5	%
Total other operating expenses	$	43,522	$	38,354	$	5,168			13.5	%

33

2010 compared with 2009

Other operating expenses increased for 2010 compared to 2009. There are several factors that contribute to the overall increase.

Salaries, wages, and employee benefits increased for 2010 compared to 2009. The increase is the result of increased salary expense, employer FICA expense, performance bonus, deferred compensation, 401K expense, and security guard. At the beginning of 2010 rates for group medical and dental benefits increased as compared to 2009. There was an increase in the number of employees to 267 full-time equivalents in 2010 from 261 full-time equivalents in 2009. The increase is partially offset by a decrease in group life insurance, training expense, and direct loan origination costs.

Occupancy expense increased for 2010 compared to 2009. The increase is due to an increase in building and improvements depreciation expense due to the opening of the banking center located at 11701 Olio Road in December 2009. Also contributing to this increase is an increase in rent expense at the disaster location, building and property repairs and maintenance, management fees, utilities, and snow removal. The increase is partially offset by a decrease in real estate taxes, building operating costs, supplies, and leasehold improvements depreciation expense due to assets being fully depreciated.

Furniture and equipment expense decreased for 2010 compared to 2009. This decrease is due to a decrease in depreciation for furniture, fixture, and equipment due to older assets being fully depreciated. Also contributing to the decrease was a decrease in furniture, fixture, and equipment maintenance contracts and repair expense.

Professional services expense increased for 2010 compared to 2009. The increase is due to an increase in consulting fees, design services, outsourced internal audit services, accounting fees, and attorney fees. The increase is partially offset by a decrease in courier service and advertising agency fees.

Data processing expenses increased for 2010 compared to 2009. The increase is due to an increase in bill payment services, ATM/debit cards, credit cards, fiduciary income tax preparation for Wealth Management accounts, transaction processing fees and mutual fund expense for Wealth Management accounts, computer software, and software maintenance. The increase is partially offset by a decrease in service bureau fees related to activity by the Bank.

Business development expenses increased for 2010 compared to 2009. The increase is due to an increase in customer relations, customer entertainment, sales and product literature, customer promotions and premium items, market research, and public relations. The increase is partially offset by a decrease in grand opening expense.

FDIC insurance expense decreased for 2010 compared to 2009. The decrease is due to a special assessment of $557 thousand that was expensed during the second quarter of 2009 and is partially offset by higher assessment rates in 2010.

Non-performing assets expenses increased for 2010 compared to 2009. This increase is due to an increase in the write down of the carrying value of other real estate owned and classified loan expense. Also contributing to the increase is an increase in real estate taxes, lawn maintenance, and appraisal fees related to other real estate owned by the Corporation. The increase is partially offset by gains on the sale of other real estate.

Other expenses increased for 2010 compared to 2009. The increase is due to the Corporation recording a reserve as a result of a wire transfer inadvertently sent to the wrong beneficiary. During 2011, the Corporation collected the remaining misappropriated funds. Also contributing to the increase was an increase in office supplies, stationery and printing, telephone service, ATM surcharges refunded, personal property taxes, charitable contributions, board fees, Comptroller of the Currency assessment, Wealth Management client adjustments, and debit card losses. The increase is partially offset by a decrease in documents and forms, armored transportation, loan collection expense, loan appraisals, correspondent bank charges, check losses, credit card losses, and postage expense.

34

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 or benefit. The provision for income taxes consisted of the following for the years ended December 31, (dollars in thousands):

		September 30,			September 30,			September 30,
	2011			2010			2009
Current (benefit) expense
Federal	$	736		$	1,771		$	(425	)
State		634			611			20
Deferred benefit
Federal		(129	)		(1,234	)		(664	)
State		(100	)		(386	)		(181	)
Total income tax (benefit)	$	1,141		$	762		$	(1,250	)

The statutory rate reconciliation is as follows for the years ended December 31, (dollars in thousands):

		September 30,			September 30,			September 30,
	2011			2010			2009
Income (loss) before federal and state income tax	$	6,497		$	4,548		$	(1,138	)
Tax expense (benefit) at federal statutory rate	$	2,209		$	1,546		$	(387	)
Increase (decrease) in taxes resulting from:
State income tax		332			148			(92	)
Tax exempt interest		(1,280	)		(937	)		(716	)
Bank owned life insurance		(115	)		(133	)		(139	)
Community Reinvestment Act credit		(67	)		—			—
Customer entertainment		85			95			92
Other		(23	)		43			(8	)
Total income tax (benefit)	$	1,141		$	762		$	(1,250	)

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 Corporation’s net deferred tax assets in the consolidated balance sheet as of December 31, are as follows (dollars in thousands):

		September 30,			September 30,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	5,586		$	5,919
Equity based compensation		3,371			2,594
Other real estate owned		888			645
Accrued contingencies		—			391
Other		599			786
Total deferred tax assets		10,444			10,335
Deferred tax liabilities:
Net unrealized gain on securities		(2,338	)		(211	)
Mortgage servicing rights		(571	)		(635	)
Depreciation		(443	)		(258	)
Other		(450	)		(691	)
Total deferred tax liabilities		(3,802	)		(1,795	)
Net deferred tax assets	$	6,642		$	8,540

35

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.

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 the Asset Liability Committee (“ALCO”). In addition, the Corporation has established a contingency funding plan to address liquidity needs in the event of depressed economic or market conditions, unexpected events, and/or situations beyond the Corporation’s control. 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 classified as available for sale, maturity of investments classified as held to maturity, deposits, Federal Home Loan Bank (“FHLB”) advances, and issuance of debt. During 2011, proceeds from maturities of investment securities were the most significant source of funds while purchases of investment securities available for sale and held to maturity were the most significant use of funds. During and 2010 and 2009, deposits provided the most significant funding source while purchases of investment securities available for sale and held to maturity were the most significant use of funds.

The Corporation entered into a $2.0 million revolving line of credit with U.S. Bank which matured on August 31, 2011. On September 1, 2011, the Corporation renewed the revolving loan agreement which will mature on August 31, 2012. As part of the renewal of the revolving loan agreement, the commitment was reduced from $2.0 million to $1.0 million. Under the terms of the revolving line of credit, the Corporation paid prime plus 1.25% which equated to 4.50% at December 31, 2011. In addition, the Corporation paid a 0.25% fee on the unused portion of the revolving line of credit. As of December 31, 2011, the outstanding balance of the revolving line of credit was $0.

The Corporation also has a $3.0 million one-year facility with U.S. Bank which matured August 31, 2011. The one-year term facility was renewed and will now mature on August 31, 2012. Under the terms of the one-year term facility, the Corporation pays prime plus 1.25% which equated to 4.50% at December 31, 2011. In addition to quarterly interest payments, the Corporation makes quarterly principal payments of $62.5 thousand. As of December 31, 2011, the outstanding balance of the term facility was $2.4 million.

All of the U.S. Bank agreements contain various financial and non-financial covenants. As of December 31, 2011, the Corporation was in compliance with all covenants.

Primary liquid assets of the Corporation are cash and due from banks, federal funds sold, investments held as available for sale, and maturing loans. Interest bearing due from banks represented the Corporation’s primary source of immediate liquidity and averaged approximately $187.1 million, $155.5 million, and $91.3 million for the years ended December 31, 2011, 2010, and 2009, respectively. 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 Corporation’s loan and investment portfolios are monitored regularly to avoid matching short-term deposits with long-term loans and investments. Other assets and liabilities are also monitored to provide the proper balance between liquidity, safety, and profitability. This monitoring process must be continuous due to the constant flow of cash which is inherent in a financial institution.

36

The Corporation’s management believes its liquidity sources are adequate to meet its operating needs and does not know of any trends, events or uncertainties that may result in a significant adverse effect on the Corporation’s liquidity position.

The Corporation actively manages its interest rate sensitive assets and liabilities to reduce the impact of interest rate fluctuations. At December 31, 2011, the Corporation’s rate sensitive liabilities exceeded rate sensitive assets due within one year by $106.9 million. At December 31, 2010, the Corporation’s rate sensitive liabilities exceeded rate sensitive assets due within one year by $105.7 million.

The purpose of the Bank’s 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 Bank’s 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 100, 200, and 300 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 Bank’s Investment Committee to determine if the security should be liquidated. At December 31, 2011, the Bank held two high risk mortgage-related securities. At December 31, 2010, the Bank held three high risk mortgage-related securities.

The Bank’s 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 Bank’s Credit Department. At December 31, 2011, the Corporation held two municipal debt securities from one issuer that have no underlying rating. A credit review of the municipality has been conducted. As a result, it was determined that these two non-rated debt securities would be rated a “pass” asset and thus classified as an investment grade security. Generally, municipal securities from each issuer will be limited to $2 million, never to exceed 10% of the Bank’s tier 1 capital and will not have a stated final maturity date of greater than fifteen (15) years.

The FTE average yield on the Bank’s investment portfolio is as follows for the years ended December 31,

		September 30,			September 30,			September 30,
	2011			2010			2009
U.S. Treasury securities		0.09	%		0.19	%		1.09	%
U.S. Government agencies		1.07	%		1.47	%		3.42	%
Collateralized mortgage obligations		1.74	%		2.63	%		3.28	%
Municipals		5.72	%		5.66	%		5.60	%
Other securities		0.31	%		0.31	%		0.39	%

With the exception of securities of the U.S. Government and its agencies, the Corporation had no other securities with a book or market value greater than 10% of shareholders’ equity as of December 31, 2011, 2010, and 2009.

37

The following is a summary of available-for-sale and held-to-maturity securities as of December 31, (dollars in thousands):

		September 30,		September 30,		September 30,			September 30,
2011	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)			Estimated Fair Value
Available-for-sale
U.S. Treasury securities	$	500	$	—	$	—		$	500
U.S. Government agencies		70,967		334		(35	)		71,266
Municipal securities		63,115		5,603		—			68,718
Total available-for-sale	$	134,582	$	5,937	$	(35	)	$	140,484
	Amortized Cost		Gross Unrecognized Gain		Gross Unrecognized (Loss)			Estimated Fair Value
Held-to-maturity
Collateralized mortgage obligations, residential	$	112,842	$	1,308	$	(119	)	$	114,031
Mortgage backed securities, residential		832		15		—			847
Other securities		125		—		—			125
Total Held-to-maturity	$	113,799	$	1,323	$	(119	)	$	115,003
2010	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)			Estimated Fair Value
Available-for-sale
U.S. Treasury securities	$	8,700	$	—	$	—		$	8,700
U.S. Government agencies		66,444		535		(2	)		66,977
Total available-for-sale	$	75,144	$	535	$	(2	)	$	75,677
	Amortized Cost		Gross Unrecognized Gain		Gross Unrecognized (Loss)			Estimated Fair Value
Held-to-maturity
Municipal securities	$	55,429	$	2,121	$	(115	)	$	57,435
Collateralized mortgage obligations, residential		57,569		714		(139	)		58,144
Mortgage backed securities, residential		1,528		45		—			1,573
Other securities		150		—		—			150
Total Held-to-maturity	$	114,676	$	2,880	$	(254	)	$	117,302
2009	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)			Estimated Fair Value
Available-for-sale
U.S. Treasury securities	$	506	$	—	$	—		$	506
U.S. Government agencies		66,795		97		(102	)		66,790
Total available-for-sale	$	67,301	$	97	$	(102	)	$	67,296
	Amortized Cost		Gross Unrecognized Gain		Gross Unrecognized (Loss)			Estimated Fair Value
Held-to-maturity
Municipal securities	$	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
Total Held-to-maturity	$	94,922	$	1,945	$	(279	)	$	96,588

38

On May 31, 2011, the Corporation transferred the municipal securities, with a net unrecognized gain of $3,478 thousand, from held-to-maturity to available-for-sale. This enabled the Corporation to sell a municipal bond if it deems it to be appropriate when there may be an opportunity due to changes in interest rate levels to reposition maturities within the portfolio and the ability to react faster to potential credit problems with non-rated issuers and sell the bond. Since the municipal securities have a longer average life than the remaining securities of the available for sale investment portfolio, it is still the intent of the Corporation to hold the municipal securities until maturity.

During 2011, the Corporation sold four available-for-sale municipal securities with a net carrying amount of $2,439 thousand resulting in a net gain of $45 thousand. The non-rated municipals were out of state and monitoring their credit risk on a timely basis was difficult. There was one sale of a held-to-maturity municipal security with a net carrying amount of $483 thousand that was sold for a loss of $5 thousand during 2010. Since the security had a non-rated issuer, a credit review of the municipality was conducted. As a result of this review, it was determined that the investment was no longer considered a pass asset and thus below investment grade. Per investment policy, the Corporation is prohibited from holding any securities below investment grade. There were no sales of securities during 2009.

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 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 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 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 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.

As of December 31, 2011, the Corporation held 8 investments of which the amortized cost was greater than fair value. The Corporation has no securities in which OTTI has been recorded.

The unrealized losses for investments classified as available-for-sale are attributable to changes in interest rates and/or economic environment and individually were 0.27% or less of the respective amortized costs. There was one unrealized loss on a FNMA Agency that was purchased December 2011. Given this investment is backed by the U.S. Government and its agencies; there is minimal credit risk at this time.

Although there were no unrealized losses on the municipals at December 31, 2011, the credit rating of the individual municipalities was assessed. As of December 31, 2011, 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. Credit reviews of the municipalities have been conducted. As a result, management has determined that all of the 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.

39

The unrealized losses for investments classified as held-to-maturity are attributable to changes in interest rates and/or economic environment and individually were 0.84% or less of their respective amortized costs. The unrealized losses relate primarily to residential collateralized mortgage obligations. The residential collateralized

mortgage obligations were purchased between October 2010 and August 2011. There has been a decrease in long-term interest rates from the time of the investment purchase and December 31, 2011, which affects the fair value of residential collateralized mortgage obligations and prepayment speeds. All residential collateralized mortgage obligations are backed by the U.S. Government and its agencies and represent minimal credit risk at this time.

The following table shows the carrying value and weighted-average yield of investment securities at December 31, 2011, 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, 2011, (dollars in thousands).

		September 30,			September 30,			September 30,			September 30,			September 30,
	Available-for-Sale Securities
	Within 1 Year			1 to 5 Years			5 to 15 Years			Total			Weighted- Average Yield
U.S. Treasury securities	$	500		$	—		$	—		$	500			0.08	%
U.S. Government agencies		47,959			23,307			—			71,266			1.05	%
Municipals—FTE		—			18,350			50,368			68,718			5.71	%
Fair value	$	48,459		$	41,657		$	50,368		$	140,484
Weighted-average yield—FTE		1.18	%		2.97	%		5.66	%		3.32	%

		September 30,			September 30,			September 30,			September 30,			September 30,
	Held-to-Maturity Securities
	Within 1 Year			1 to 5 Years			5 to 15 Years			Total			Weighted- Average Yield
Collateralized mortgage obligations, residential	$	41,110		$	62,851		$	8,881		$	112,842			1.04	%
Mortgage backed securities, residential		375			457			—			832			3.87	%
Other securities		25			100			—			125			2.47	%
Amortized cost	$	41,510		$	63,408		$	8,881		$	113,799
Weighted-average yield		1.07	%		1.06	%		1.04	%		1.06	%

Investment securities with a carrying value of approximately $97 million and $103 million were pledged as collateral for Wealth Management accounts and securities sold under agreements to repurchase at December 31, 2011, and 2010, respectively.

As part of managing liquidity, the Corporation monitors its loan to deposit ratio on a daily basis. At December 31, 2011, the ratio was 76.7 percent and as of December 31, 2010, the ratio was 72.7 percent, which is within the Corporation’s acceptable range.

The following table shows the composition of the Bank’s loan portfolio, including unamortized deferred costs net of fees, as of December 31, (dollars in thousands):

	2011						2010						2009						2008						2007
	Amount			% of Total			Amount			% of Total			Amount			% of Total			Amount			% of Total			Amount			% of Total
TYPES OF LOANS
Commercial & industrial	$	313,019			32.8	%	$	287,543			31.9	%	$	294,884			34.1	%	$	307,409			34.0	%	$	279,109			33.6	%
Commercial real estate		302,475			31.7	%		289,013			32.1	%		232,840			27.0	%		217,445			24.0	%		175,027			21.1	%
Construction		43,314			4.6	%		44,615			4.9	%		75,615			8.8	%		83,822			9.3	%		82,581			9.9	%
Residential		262,611			27.5	%		258,963			28.8	%		241,592			28.0	%		260,354			28.8	%		243,015			29.3	%
Consumer		27,235			2.9	%		15,769			1.8	%		14,968			1.7	%		31,833			3.5	%		47,550			5.7	%
Credit cards		4,958			0.5	%		4,429			0.5	%		3,939			0.4	%		3,344			0.4	%		3,046			0.4	%
Total—Gross	$	953,612			100.0	%	$	900,332			100.0	%	$	863,838			100.0	%	$	904,207			100.0	%	$	830,328			100.0	%
Allowance		(14,242	)					(15,134	)					(13,716	)					(12,847	)					(9,453	)
Total—Net	$	939,370					$	885,198					$	850,122					$	891,360					$	820,875

40

The following table shows the composition of the commercial and industrial loan category, including unamortized deferred costs net of fees, by industry type as of December 31, (dollars in thousands):

	2011					2010					2009					2008					2007
Type	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Agriculture, Forestry & Fishing	$	567		0.2	%	$	565		0.2	%	$	358		0.1	%	$	369		0.1	%	$	307		0.1	%
Mining		8,229		2.6	%		5,259		1.8	%		5,169		1.8	%		6,947		2.3	%		5,136		1.8	%
Utilities		—		0.0	%		—		0.0	%		25		0.0	%		31		0.0	%		28		0.0	%
Construction		15,753		5.0	%		10,338		3.6	%		7,594		2.6	%		14,417		4.7	%		10,885		3.9	%
Manufacturing		30,275		9.7	%		33,750		11.7	%		41,799		14.2	%		38,979		12.7	%		43,067		15.4	%
Wholesale Trade		34,922		11.2	%		38,352		13.3	%		38,603		13.1	%		37,627		12.2	%		40,889		14.6	%
Retail Trade		13,302		4.2	%		10,664		3.7	%		6,892		2.3	%		6,025		2.0	%		7,257		2.6	%
Transportation		22,045		7.0	%		16,302		5.7	%		17,482		5.9	%		18,045		5.9	%		16,635		6.0	%
Information		4,139		1.3	%		797		0.3	%		733		0.3	%		123		0.0	%		140		0.0	%
Finance & Insurance		8,438		2.7	%		6,099		2.1	%		10,957		3.7	%		10,667		3.5	%		6,866		2.5	%
Real Estate and Rental & Leasing		53,670		17.2	%		47,173		16.4	%		53,477		18.1	%		58,624		18.9	%		44,657		16.0	%
Professional, Scientific & Technical Services		29,433		9.4	%		31,837		11.1	%		31,544		10.7	%		39,809		13.0	%		37,345		13.4	%
Management of Companies & Enterprises		40		0.0	%		388		0.1	%		1,792		0.6	%		2,521		0.8	%		2,652		1.0	%
Administrative and Support, Waste Management & Remediation Services		6,256		2.0	%		5,028		1.8	%		1,848		0.6	%		2,367		0.8	%		2,428		0.9	%
Educational Services		4,745		1.5	%		3,867		1.3	%		3,355		1.1	%		4,919		1.6	%		4,270		1.5	%
Health Care & Social Assistance		18,031		5.8	%		21,268		7.4	%		30,030		10.2	%		32,063		10.4	%		26,264		9.4	%
Arts, Entertainment & Recreation		2,142		0.7	%		2,145		0.8	%		2,705		0.9	%		3,013		1.0	%		2,093		0.8	%
Accommodation & Food Services		3,498		1.1	%		3,556		1.2	%		3,112		1.1	%		3,627		1.2	%		3,908		1.4	%
Other Services		40,562		13.0	%		40,158		14.0	%		37,409		12.7	%		27,236		8.9	%		24,282		8.7	%
Public Administration		16,972		5.4	%		9,997		3.5	%		—		0.0	%		—		0.0	%		—		0.0	%
	$	313,019		100.0	%	$	287,543		100.0	%	$	294,884		100.0	%	$	307,409		100.0	%	$	279,109		100.0	%

The following table shows the composition of the Bank’s deposit portfolio as of December 31, (dollars in thousands):

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	2011					2010					2009
	Amount		% of Total			Amount		% of Total			Amount		% of Total
TYPES OF DEPOSITS
Demand	$	258,874		24.1	%	$	221,129		21.2	%	$	192,705		22.9	%
MMDA/Savings		817,081		75.9	%		821,345		78.8	%		650,353		77.1	%
Total Demand Deposits		1,075,955		100.0	%		1,042,474		100.0	%		843,058		100.0	%
CDs < $100,000		46,768		28.0	%		72,665		37.0	%		62,769		30.0	%
CDs > $100,000		98,045		58.8	%		101,564		51.7	%		124,085		59.4	%
Individual Retirement Accounts		22,051		13.2	%		22,137		11.3	%		22,153		10.6	%
Total Certificates of Deposit		166,864		100.0	%		196,366		100.0	%		209,007		100.0	%
Total Deposits	$	1,242,819				$	1,238,840				$	1,052,065

41

The following table (dollars in thousands) illustrates the projected maturities and the repricing mechanisms of the major asset/liabilities categories of the Corporation as of December 31, 2011, 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.

Of the $40.8 million Jumbo CDs maturing in 0-180 days, $28.7 million will mature in three months or less.

	0 - 180 days			181 - 365 days			1 - 2 years			2 - 3 years			3 -5 years			5 + years			Non- interest Earning			Total
Interest Earning Assets:
Interest bearing due from banks	$	159,290		$	—		$	—		$	—		$	—		$	—		$	—		$	159,290
Reverse repurchase agreements		1,000			—			—			—			—			—			—			1,000
Federal funds sold		2,911			—			—			—			—			—			—			2,911
Investments		47,579			42,416			55,108			25,043			44,088			40,049			—			254,283
Loans
Commercial & Industrial
Fixed		32,032			6,006			5,893			3,321			6,571			17,046			370			71,239
Variable		231,126			3,362			25			—			—			—			7,014			241,527
Construction		37,319			68			742			898			945			45			4,586			44,603
Commercial Loans Secured by Real Estate
Fixed		5,448			8,824			18,497			17,376			45,727			26,638			482			122,992
Variable		164,776			447			1,137			1,154			3,857			—			7,062			178,433
Residential Loans Secured by Real Estate
Fixed		23,878			12,737			17,455			17,743			9,757			2,490			2,639			86,699
Variable		130,579			12,385			11,493			7,760			9,453			2,162			1,561			175,393
Other
Fixed		1,363			566			873			697			1,753			70			—			5,322
Variable		26,844			—			—			—			—			—			—			26,844
Federal reserve and FHLB stock		2,028			—			—			—			—			962			—			2,990
Total Interest Earning Assets	$	866,173		$	86,811		$	111,223		$	73,992		$	122,151		$	89,462		$	23,714		$	1,373,526
Non-Interest Earning Assets																				86,070			86,070
Total Assets	$	866,173		$	86,811		$	111,223		$	73,992		$	122,151		$	89,462		$	109,784		$	1,459,596
Interest Bearing Liabilities:
Interest Bearing Demand	$	216,311		$	—		$	—		$	—		$	—		$	—		$	—		$	216,311
Savings Deposits		31,428			—			—			—			—			—			—			31,428
Money Market Accounts		569,342			—			—			—			—			—			—			569,342
Certificate of Deposits		26,504			16,695			8,429			3,737			2,125			4,651			—			62,141
Jumbo CDs		40,797			27,304			12,850			4,542			2,167			17,063			—			104,723
Repurchase agreements and other short-term secured borrowings		94,533			—			1,052			—			—			—			—			95,585
Short-term debt		126			2,312			—			—			—			—			—			2,438
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	$	984,041		$	46,311		$	22,331		$	8,279		$	4,292		$	35,632		$	—			1,100,886
Demand Deposits		15,255			14,257			26,059			23,098			38,622			141,583			—			258,874
Non-Interest Bearing Liabilities																				9,717			9,717
Equity																				90,119			90,119
Total Liabilities & Shareholders’ Equity	$	999,296		$	60,568		$	48,390		$	31,377		$	42,914		$	177,215		$	99,836		$	1,459,596
Interest Sensitivity Gap per Period	$	(133,123	)	$	26,243		$	62,833		$	42,615		$	79,237		$	(87,753	)	$	9,948
Cumulative Interest Sensitivity Gap	$	(133,123	)	$	(106,880	)	$	(44,047	)	$	(1,432	)	$	77,805		$	(9,948	)	$	—
Interest Sensitivity Gap as a Percentage of Earning Assets		-9.86	%		1.94	%		4.65	%		3.16	%		5.87	%		-6.50	%		0.74	%
Cumulative Sensitivity Gap as a percentage of Earning Assets		-9.86	%		-7.92	%		-3.26	%		-0.11	%		5.76	%		-0.74	%		0.00	%

42

Contractual Obligations

The following table (dollars in thousands) presents, as of December 31, 2011, 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.

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Note Reference		Less than One Year		One to Two Years		Three to Five Years		Over Five Years		Total
Deposits without a stated maturity(a)			$	1,075,955	$	—	$	—	$	—	$	1,075,955
Consumer certificates of deposits(a)		9		111,301		29,558		4,292		21,713		166,864
Short term debt(a)		10		2,438		—		—		—		2,438
Repurchase agreements and other secured short-term borrowings(a)		10		94,533		1,052		—		—		95,585
Long-term debt(a)		10, 11		—		—		—		18,918		18,918
Operating leases (b)		7		417		810		513		548		2,288

(a) Excludes Interest

(b) The Corporation’s operating lease obligations represent rental payments for banking center offices.

Critical Accounting Policies

The Corporation’s 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, foreclosed assets, 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.

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.

43

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.

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 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 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 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.

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.

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.

44

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 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: 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-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. 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 the 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 of legal action.

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 inherent in the loan portfolio.

The following table shows the dollar amount of the allowance for loan losses using management’s estimate by loan portfolio segment as of December 31, (dollars in thousands):

		September 30,		September 30,		September 30,		September 30,		September 30,
	2011		2010		2009		2008		2007
Commercial & industrial	$	5,377	$	3,870	$	4,155	$	5,113	$	3,422
Commercial real estate		6,279		7,845		6,279		4,028		3,105
Residential		1,644		2,400		3,003		3,332		2,445
Consumer		228		200		279		374		481
Unallocated reserve		714		819		—		—		—
Total	$	14,242	$	15,134	$	13,716	$	12,847	$	9,453

45

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.

There was an overall decrease in the allowance for loan losses as of December 31, 2011, as compared to December 31, 2010. The allowance for loan losses is affected by the level of net charge-offs as well as changes in the specific and general loss components of the allowance for loan losses. The decrease was due to $265 thousand of the charge-offs being reserved for in a prior period and an improvement in the three-year historical loss experience as a percentage of outstanding loans, which lowers the general loss component of the allowance for loan losses.

Non-performing loans increased $15.6 million to $26.8 million as of December 31, 2011, from $11.2 million as of December 31, 2010. The increase is due to two large commercial relationships totaling $13.6 million. Due to the strength of the specific collateral of one these loans, a lower specific allowance was required than when the loan was part of the general loss component. The specific allowance attributable to non-performing loans increased $2.7 million to $4.3 million, or 16.2% of total non-performing loans, as of December 31, 2011, from $1.6 million, or 14.2% of total non-performing loans, as of December 31, 2010. Of the $2.7 million increase, $1.4 million is attributable to these two relationships.

Offsetting this increase to the specific loss component of the allowance for loans losses was a decrease in the general loss component of the allowance for loan losses. Due to an improvement in the three-year historical loss experience as a percentage of outstanding loans, which lowered the general loss component of the allowance for loan losses, the allowance for loan losses allocation for loans collectively evaluated for impairment decreased $3.6 million to $9.9 million, or 1.1% of total loans collectively evaluated for impairment, as of December 31, 2011, from $13.5 million, or 1.5% of total loans collectively evaluated for impairment, as of December 31, 2010.

Loans collectively evaluated for impairment are comprised of two components: loans with a defined weakness and the remaining loan portfolio. Loans with a defined weakness decreased as of December 31, 2011, as compared to December 31, 2010. This decrease was offset by an increase in the overall outstanding loan balances for the same period. The outstanding balances of loans collectively evaluated for impairment increased $37.6 million to $926.8 million as of December 31, 2011, from $889.2 million as of December 31, 2010. The overall outstanding loan balances increased $53.3 million to $953.6 million as of December 31, 2011, from $900.3 million as of December 31, 2010.

Loans except for overdraft protection and credit cards are typically placed on non-accrual when the loan becomes 90 days past due, unless the loan is well secured and in the process of collection, or it is determined that the obligor will not pay all contractual principal and interest due. Overdraft protection lines of credit and credit cards are charged off when deemed uncollectible, but generally no later than when they become 150 days past due. 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, (dollars in thousands):

	2011					2010					2009					2008					2007
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Commercial & industrial	$	7,384		31.1	%	$	3,567		31.9	%	$	3,422		22.7	%	$	3,429		39.1	%	$	316		5.5	%
Commercial real estate		12,130		51.2	%		3,327		29.8	%		10,345		68.5	%		3,085		35.2	%		3,491		60.6	%
Residential		4,200		17.7	%		4,165		37.3	%		1,332		8.8	%		2,243		25.5	%		1,851		32.1	%
Consumer		—		0.0	%		106		1.0	%		—		0.0	%		17		0.2	%		104		1.8	%
Total non-accrual loans	$	23,714		100.0	%	$	11,165		100.0	%	$	15,099		100.0	%	$	8,774		100.0	%	$	5,762		100.0	%
Loans 90 Days Past Due—Still Accruing	$	20				$	5				$	7				$	4				$	27
Troubled debt restructurings	$	3,047				$	—				$	—				$	—				$	—

46

The following table presents a summary of non-performing loans as of December 31, (dollars in thousands):

	2011		2010		2009		2008		2007
Loan Type
Commercial and industrial
# of loans		14		26		11		25		4
Interest income recognized	$	165	$	82	$	37	$	140	$	34
Additional interest income if loan had been accruing	$	255	$	201	$	180	$	148	$	62
Commercial real estate
# of loans		10		6		8		5		3
Interest income recognized	$	236	$	22	$	354	$	110	$	51
Additional interest income if loan had been accruing	$	209	$	147	$	146	$	122	$	127
Construction
# of loans		3		1		3		—		1
Interest income recognized	$	170	$	—	$	178	$	—	$	105
Additional interest income if loan had been accruing	$	283	$	151	$	13	$	—	$	10
Residential
# of loans		33		27		27		17		15
Interest income recognized	$	42	$	78	$	48	$	73	$	47
Additional interest income if loan had been accruing	$	279	$	170	$	65	$	72	$	72
Consumer
# of loans		2		1		2		5		4
Interest income recognized	$	—	$	46	$	—	$	1	$	1
Additional interest income if loan had been accruing	$	1	$	1	$	—	$	1	$	20
Credit cards
# of loans		1		1		2		3		6
Interest income recognized	$	1	$	—	$	—	$	—	$	3
Additional interest income if loan had been accruing	$	—	$	—	$	—	$	—	$	1
Troubled debt restructurings	$	20,226	$	61	$	—	$	—	$	—

Capital Resources

The Corporation has a $1.0 million revolving line of credit and a $2.4 million one-year term loan with U.S. Bank. See “Liquidity and Interest Rate Sensitivity” section of this report for further discussion.

On June 29, 2007, the Bank entered into a Subordinated Debenture Purchase Agreement with U.S. Bank in the amount of $5.0 million, which will mature on June 28, 2017. Under the terms of the Subordinated Debenture Purchase Agreement, the Bank pays 3-month London Interbank Offered Rate (LIBOR) plus 1.20% which equated to 1.83% at December 31, 2011. Interest payments are due quarterly.

In September 2000, the Trust, which is wholly owned by the Corporation, issued $13.5 million of company obligated mandatorily redeemable capital securities and $418 thousand of common securities. The proceeds from the issuance of the capital securities and the common securities were used by the Trust to purchase from the Corporation $13.9 million 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 of 104.8%, 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.

47

There were no FHLB advances outstanding as of December 31, 2011 and 2010.

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 Corporation’s 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, 2011, and 2010, the weighted average interest rate on these borrowings was 0.22% and 0.34%, respectively. During 2011, the maximum amount outstanding at any month-end during the year was $115 million. Due to the fact that security repurchase agreements are a sweep product used by the Corporation’s 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.

Capital for the Bank is above well-capitalized regulatory requirements at December 31, 2011. Pertinent capital ratios for the Bank as of December 31, 2011, are as follows:

		September 30,			September 30,			September 30,
	Actual			Well Capitalized			Adequately Capitalized
Tier 1 risk-based capital ratio		9.4	%		6.0	%		4.0	%
Total risk-based capital ratio		11.2	%		10.0	%		8.0	%
Leverage ratio		6.5	%		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 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 2011 or 2010. A dividend of $1.4 million and $1.5 million was declared and paid by the Bank to the Corporation during 2011 and 2010, respectively.

On November 20, 2008, the Board of Directors adopted a three-year stock repurchase program for directors and employees, which the Corporation amended on February 18, 2011. Under the amended repurchase program, the Corporation was authorized to repurchase up to $705 thousand in net costs from outside shareholders in addition to the previously approved employee and director repurchase program. This was funded from working capital. Under the now terminated repurchase plan, during 2011 the Corporation purchased in the aggregate 41,183 shares for a cost of approximately $1.8 million. The repurchase program terminated on December 31, 2011.

During February 2012, the Board of Directors approved a new stock repurchase plan. Under the terms of this stock repurchase plan, the Corporation can repurchase up to $3.8 million in net costs from employees, directors and outside shareholders. The Corporation anticipates that it will fund the purchases under the repurchase program from working capital. This stock repurchase program will expire on December 31, 2012.

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 2011 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.

48

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 the Corporation’s future financial results and performance. This could cause results or performance to differ materially from those expressed in the Corporation’s 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 management’s judgments regarding the collectability of loans. Liquidity requirements may change as a result of fluctuations in assets and liabilities and off-balance sheet exposures, which will impact the Corporation’s 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, the OCC, and the FDIC, whose policies and regulations could affect the Corporation’s 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 the Corporation operates; introduction and acceptance of new banking-related products, services and enhancements; fee pricing strategies, mergers and acquisitions and the Corporation’s ability to manage these and other risks.

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 Corporation’s 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. 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 Corporation’s Board of Directors.

The Corporation’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may adversely impact the Corporation’s 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.

49

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, 2011, 2010, and 2009, 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, 2011, projects an approximate decrease of 6.2% in net income in a 200 basis point upward interest rate shock. As of December 31, 2011, the Corporation was well within the policy limits established by the ALCO policy. As of December 31, 2010, the earnings simulation model projected an approximate decrease of 13.8% in net income in a 200 basis point upward interest rate shock. The Corporation was well within the policy limits established by the ALCO policy. Management performs additional interest rate scenarios that have higher probabilities of occurrence. In higher rate scenarios the change in net income is well within established policy limits established by the ALCO policy. Further discussion on interest rate sensitivity can be found on page 36.

50

Item 8. Financial Statements and Supplementary Data

Management’s 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 management’s 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 the financial reporting period ending December 31, 2011, 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 the financial reporting period ending December 31, 2011, its system of internal control over financial reporting is effective, in all material respects, 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
Morris L. Maurer	Debra L. Ross
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2011 and 2010 and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. We also have audited The National Bank of Indianapolis Corporation’s internal control over financial reporting as of December 31, 2011, 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 Corporation’s 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 Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the company’s 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 audit 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 company’s 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 company’s 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 company’s 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, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, 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, 2011, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

/s/ Crowe Horwath LLP

Indianapolis, Indiana

March 9, 2012

52

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 and 2010

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

		September 30,			September 30,
	2011			2010
Assets
Cash and cash equivalents
Cash and due from banks	$	33,134		$	24,143
Interest bearing due from banks		159,290			252,266
Reverse repurchase agreements		1,000			1,000
Federal funds sold		2,911			16,109
Total cash and cash equivalents		196,335			293,518
Investment securities
Available-for-sale securities		140,484			75,677
Held-to-maturity securities (Fair value of $115,003 at December 31, 2011 and $117,302 at December 31, 2010)		113,799			114,676
Total investment securities		254,283			190,353
Loans held for sale		—			1,424
Loans		953,612			900,332
Less: Allowance for loan losses		(14,242	)		(15,134	)
Net loans		939,370			885,198
Bank owned life insurance		12,278			11,938
Other real estate owned		7,575			9,574
Premises and equipment		26,432			24,852
Deferred tax asset		6,642			8,540
Federal Reserve and FHLB stock at cost		2,990			3,065
Accrued interest		4,403			4,216
Other assets		9,288			8,715
Total assets	$	1,459,596		$	1,441,393
Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing demand deposits	$	258,874		$	221,129
Money market and savings deposits		817,081			821,345
Time deposits		166,864			196,366
Total deposits		1,242,819			1,238,840
Repurchase agreements and other secured short term borrowings		95,585			93,523
Short term debt		2,438			2,688
Subordinated debt		5,000			5,000
Junior subordinated debentures owed to unconsolidated subsidiary trust		13,918			13,918
Other liabilities		9,717			8,067
Total liabilities		1,369,477			1,362,036
Shareholders’ equity:
Preferred stock, no par value - authorized 5,000,000 shares	$	—		$	—
Common stock, no par value - authorized 15,000,000 shares issued 2,920,458 shares at December 31, 2011 and 2,866,641 shares at December 31, 2010		37,028			35,269
Treasury stock, at cost; 590,074 shares at December 31, 2011 and 548,891 shares at December 31, 2010		(22,771	)		(20,953	)
Additional paid in capital		15,089			12,866
Retained earnings		57,209			51,853
Accumulated other comprehensive income		3,564			322
Total shareholders’ equity		90,119			79,357
Total liabilities and shareholders’ equity	$	1,459,596		$	1,441,393

See notes to consolidated financial statements.

53

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

DECEMBER 31, 2011, 2010, and 2009

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

		September 30,		September 30,			September 30,
	2011		2010			2009
Interest income:
Interest and fees on loans	$	42,405	$	42,471		$	42,217
Interest on investment securities taxable		2,705		2,172			3,011
Interest on investment securities nontaxable		2,297		2,070			2,068
Interest on federal funds sold		30		25			4
Interest on due from banks		472		392			231
Total interest income		47,909		47,130			47,531
Interest expense:
Interest on deposits		5,390		7,002			9,427
Interest on other short term borrowings		209		289			182
Interest on short term debt		123		183			121
Interest on long term debt		1,552		1,555			1,583
Total interest expense		7,274		9,029			11,313
Net interest income		40,635		38,101			36,218
Provision for loan losses		3,824		4,279			11,905
Net interest income after provision for loan losses		36,811		33,822			24,313
Other operating income:
Wealth management fees		6,148		5,377			4,917
Service charges and fees on deposit accounts		2,992		3,011			3,113
Rental income		859		712			350
Mortgage banking income		1,311		2,184			1,576
Interchange income		1,439		1,263			1,007
Net gain (loss) on sale of securities		45		(5	)		—
Other		1,727		1,706			1,940
Total other operating income		14,521		14,248			12,903
Other operating expenses:
Salaries, wages and employee benefits		28,188		24,859			21,332
Occupancy		2,709		2,556			2,441
Furniture and equipment		1,171		1,220			1,359
Professional services		1,996		2,148			1,873
Data processing		3,295		3,014			2,752
Business development		1,701		1,610			1,531
FDIC Insurance		1,410		2,101			2,142
Non performing assets		1,526		2,100			1,383
Other		2,839		3,914			3,541
Total other operating expenses		44,835		43,522			38,354
Income (loss) before tax		6,497		4,548			(1,138	)
Federal and state income tax (benefit)		1,141		762			(1,250	)
Net income	$	5,356	$	3,786		$	112
Basic earnings per share	$	2.30	$	1.64		$	0.05
Diluted earnings per share	$	2.19	$	1.59		$	0.05

See notes to consolidated financial statements.

54

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

DECEMBER 31, 2011, 2010, and 2009

(Dollar amounts in thousands except share and per share data

		September 30,			September 30,			September 30,
	2011			2010			2009
Net income	$	5,356		$	3,786		$	112
Other comprehensive income:
Change in securities available for sale:
Transfer of securities from held-to-maturity to available-for-sale		3,478			—			—
Net unrealized gain (loss) during the period		1,891			538			(1,379	)
Tax effect		(2,127	)		(213	)		540
Total other comprehensive income		3,242			325			(839	)
Comprehensive Income	$	8,598		$	4,111		$	(727	)

See notes to consolidated financial statements.

55

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

DECEMBER 31, 2011, 2010, and 2009

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

		September 30,		September 30,			September 30,			September 30,		September 30,			September 30,
											Accumulated
						Additional					Other
	Common		Treasury			Paid In			Retained		Comprehensive
	Stock		Stock			Capital			Earnings		Income			TOTAL
Balance at January 1, 2009	$	33,136	$	(18,481	)	$	8,766		$	47,955	$	836		$	72,212
Comprehensive income:
Net income		—		—			—			112		—			112
Other comprehensive income		—		—			—			—		(839	)		(839	)
Income tax benefit from deferred stock compensation		—		—			414			—		—			414
Issuance of stock 62,071 shares of common stock under stock-based compensation plans		1,304		—			(60	)		—		—			1,244
Repurchase of stock 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
Comprehensive income:
Net income		—		—			—			3,786		—			3,786
Other comprehensive income		—		—			—			—		325			325
Income tax benefit from deferred stock compensation		—		—			68			—		—			68
Issuance of stock 26,259 shares of common stock under stock-based compensation plans		829		—			(101	)		—		—			728
Repurchase of stock 15,686 shares of common stock		—		(607	)		—			—		—			(607	)
Stock based compensation earned		—		—			2,026			—		—			2,026
Balance at December 31, 2010		35,269		(20,953	)		12,866			51,853		322			79,357
Comprehensive income:
Net income		—		—			—			5,356		—			5,356
Other comprehensive income		—		—			—			—		3,242			3,242
Income tax benefit from deferred stock compensation		—		—			264			—		—			264
Issuance of 53,817 shares of common stock under stock-based compensation plans		1,759		—			(138	)		—		—			1,621
Repurchase of 41,183 shares of common stock		—		(1,818	)		—			—		—			(1,818	)
Stock based compensation earned		—		—			2,097			—		—			2,097
Balance at December 31, 2011	$	37,028	$	(22,771	)	$	15,089		$	57,209	$	3,564		$	90,119

See notes to consolidated financial statements.

56

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

DECEMBER 31, 2011, 2010, and 2009

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

		September 30,			September 30,			September 30,
	2011			2010			2009
Operating Activities
Net Income	$	5,356		$	3,786		$	112
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Provision for loan losses		3,824			4,279			11,905
Proceeds from sale of loans		79,467			89,606			69,961
Origination of loans held for sale		(78,043	)		(88,801	)		(69,691	)
Depreciation and amortization		1,529			1,511			1,533
Fair value adjustment on mortgage servicing rights		911			527			334
(Gain) loss on sales of investment securities		(45	)		5			—
Gain on sale of loans		(1,723	)		(2,289	)		(1,561	)
Net (gain) loss on sales and writedowns of other real estate and repossessions		(91	)		1,010			845
Net increase in deferred income taxes		(229	)		(1,620	)		(845	)
Earnings on bank owned life insurance		(340	)		(391	)		(410	)
Excess tax benefit from deferred stock compensation		(264	)		(68	)		(414	)
Board stock compensation		132			120			100
Net accretion of discounts and amortization of premiums on investments		2,563			1,310			480
Compensation expense related to restricted stock and options		2,097			2,026			1,753
Changes in assets and liabilities:
Accrued interest receivable		(187	)		(17	)		656
Other assets		(1,408	)		5,448			(6,397	)
Other liabilities		1,914			(923	)		(1,164	)
Net cash provided by operating activities		15,463			15,519			7,197
Investing Activities
Proceeds from maturities of investment securities held to maturity		32,715			26,501			19,904
Proceeds from maturities of investment securities available for sale		63,542			51,977			51,000
Proceeds from sales of investment securities available for sale		2,484			477			—
Purchases of investment securities held to maturity		(88,831	)		(47,225	)		(31,451	)
Purchases of investment securities available for sale		(70,990	)		(60,557	)		(62,986	)
Net (increase) decrease in loans		(74,390	)		(52,502	)		21,158
Proceeds from sale of loans		15,824			8,809			969
Proceeds from sales of other real estate and repossessions		4,383			3,130			1,755
Purchases of bank premises and equipment		(3,109	)		(1,831	)		(3,247	)
Net cash used by investing activities		(118,372	)		(71,221	)		(2,898	)
Financing Activities
Net increase in deposits		3,979			186,775			86,099
Net increase in short term borrowings		2,062			12,209			30,168
Net change in revolving line of credit/short-term debt		(250	)		(1,450	)		(62	)
Income tax benefit from deferred stock compensation		264			68			414
Proceeds from issuance of stock		1,489			608			1,144
Repurchase of stock		(1,818	)		(607	)		(1,865	)
Net cash provided by financing activities		5,726			197,603			115,898
Increase (decrease) in cash and cash equivalents		(97,183	)		141,901			120,197
Cash and cash equivalents at beginning of year		293,518			151,617			31,420
Cash and cash equivalents at end of year	$	196,335		$	293,518		$	151,617
Supplemental cash flow information
Interest paid	$	7,356		$	9,689		$	11,377
Income taxes paid		1,298			194			1,612
Supplemental non cash disclosure
Held to maturity investments transferred to available for sale investments	$	55,429		$	—		$	—
Loan balances transferred to foreclosed real estate		2,293			5,282			7,614
Loan balances transferred to loans held for sale		17,248			9,614			969

See notes to consolidated financial statements.

57

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

(Dollar amounts in thousands except share and 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 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 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 11, “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 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. 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.

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 aggregate cost or 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. The carrying value of mortgage loans sold is reduced by the amount

58

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

allocated to the servicing right. 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 Indianapolis (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, 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, overdraft protection lines of credit and credit cards are charged off when deemed uncollectible, but generally no later than when they become 150 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 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.

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 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: 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-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. 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.

59

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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 the 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 of legal action.

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 inherent in the loan portfolio.

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, 2011, 2010, and 2009, income recorded from BOLI totaled $340, $391, and $410, 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 Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation computed by the straight-line method over their useful lives ranging from three to seven years, or for leasehold improvements, the shorter of the remaining lease term or useful life of the asset ranging from three to eight years. 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.

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.

60

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) 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 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.

Mortgage Servicing Rights: 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 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.

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 $499, $421, and $349 for the years ended December 31, 2011, 2010, and 2009. 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.

61

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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, net of deferred taxes. Comprehensive income is reported by the Corporation in the consolidated statements of income and comprehensive income.

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, 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 or on deposit with the Federal Reserve was required to meet regulatory reserve and clearing requirements.

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 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 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.

62

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

Reclassifications: Some items in prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no affect 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. The allowance for loan losses, loan servicing rights, deferred tax assets, and fair values of financial instruments are particularly subject to change.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

In April 2011, the FASB issued updated guidance for determining whether a restructuring is a troubled debt restructuring (TDR). In determining whether a restructuring of a financing receivable is a troubled debt restructuring, the creditor must separately conclude that both the restructuring of the debt constitutes a concession and the debtor is experiencing financial difficulties.

The updated guidance was effective for public entities beginning with the first interim or annual period on or after June 15, 2011, and was applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired and for those receivables, the entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. Early adoption was permitted. The adoption of this standard had a material effect on the Corporation’s results of operations or financial position. Due to the adoption of this standard, the Corporation had an increase of $13,082 in outstanding balances of loans whose terms had been modified in troubled debt restructurings and held $385 less in the allowance for loan losses than it did when these loans were collectively evaluated for impairment.

In April 2011, the FASB issued updated guidance on Transfers and Servicing. The update to the guidance is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity if all of the following conditions are met: the assets to be repurchased or redeemed are the same or substantially the same as those transferred; the agreement to repurchase or redeem them before maturity, at a fixed or determinable price; the agreement is entered into contemporaneously with, or in contemplation of, the transfer. This update removes the assessment of effective control, the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and the collateral maintenance implementation guidance related to that criterion. This updated guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Management continues to evaluate the impact of the adoption of this update, but does not anticipate it to have a material impact on the Corporation’s financial statements.

In May 2011, the FASB issued updated guidance on Fair Value Measurement. The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments are to clarify the Board’s intent regarding the application of existing fair value measurement requirements. The updated guidance is effective during interim and annual periods beginning after December 15, 2011, for public entities. The updates to this guidance are to be applied prospectively. Management continues to evaluate the impact of the adoption of this update, but does not anticipate it to have a material impact on the Corporation’s financial statements.

In June 2011, the FASB issued updated guidance on the presentation of Comprehensive Income in an entity’s financial statements. Currently, U.S. GAAP provides entities three alternatives for presenting other comprehensive income and its components in financial statements. The update eliminates presenting the components of other comprehensive income as part of the statement of changes in the stockholders’ equity.

63

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

The update does provide two options to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of the presentation the entity chooses, the entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.

In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total of other comprehensive income along with the total of comprehensive income in that statement. In the two statement option, an entity is required to present components of net income and total net income in the statement of income. The statement of other comprehensive income should immediately follow the statement of income and include components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In either presentation the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.

The updated guidance is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Corporation early adopted this standard and it did not have a material effect on the Corporation’s 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 $1,833 at December 31, 2011, and $2,984 at December 31, 2010.

NOTE 4 – INVESTMENT SECURITIES

The following is a summary of available-for-sale and held-to-maturity securities:

		September 30,		September 30,		September 30,			September 30,
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)			Estimated Fair Value
2011
Available-for-sale
U.S. Treasury securities	$	500	$	—	$	—		$	500
U.S. Government agencies		70,967		334		(35	)		71,266
Municipal securities		63,115		5,603		—			68,718
Total available-for-sale	$	134,582	$	5,937	$	(35	)	$	140,484
			Gross		Gross			Estimated
	Amortized		Unrecognized		Unrecognized			Fair
	Cost		Gain		(Loss)			Value
Held-to-maturity
Collateralized mortgage obligations, residential	$	112,842	$	1,308	$	(119	)	$	114,031
Mortgage backed securities, residential		832		15		—			847
Other securities		125		—		—			125
Total Held-to-maturity	$	113,799	$	1,323	$	(119	)	$	115,003

64

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

		September 30,		September 30,		September 30,			September 30,
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		(Loss)			Value
2010
Available-for-sale
U.S. Treasury securities	$	8,700	$	—	$	—		$	8,700
U.S. Government agencies		66,444		535		(2	)		66,977
Total available-for-sale	$	75,144	$	535	$	(2	)	$	75,677
			Gross		Gross			Estimated
	Amortized		Unrecognized		Unrecognized			Fair
	Cost		Gain		(Loss)			Value
Held-to-maturity
Municipal securities	$	55,429	$	2,121	$	(115	)	$	57,435
Collateralized mortgage obligations, residential		57,569		714		(139	)		58,144
Mortgage backed securities, residential		1,528		45		—			1,573
Other securities		150		—		—			150
Total Held-to-maturity	$	114,676	$	2,880	$	(254	)	$	117,302

On May 31, 2011, the Corporation transferred the municipal securities, with a net unrecognized gain of $3,478, from held-to-maturity to available-for-sale. This enabled the Corporation to sell a municipal bond if it deems it to be appropriate when there may be an opportunity due to changes in interest rate levels to reposition maturities within the portfolio and the ability to react faster to potential credit problems with non-rated issuers and sell the bond. Since the municipal securities have a longer average life than the remaining securities of the available for sale investment portfolio, it is still the intent of the Corporation to hold the municipal securities until maturity.

During 2011, the Corporation sold four available-for-sale municipal securities with a net carrying amount of $2,439 resulting in a net gain of $45. The non-rated municipals were out of state and monitoring their credit risk on a timely basis was difficult. There was one sale of a held-to-maturity municipal security with a net carrying amount of $483 that was sold for a loss of $5 during 2010. Since the security had a non-rated issuer, a credit review of the municipality was conducted. As a result of the review, it was determined that the investment was no longer considered a pass asset and thus below investment grade. Per investment policy, the Corporation is prohibited from holding any securities below investment grade. There were no sales of securities during 2009.

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.

		September 30,		September 30,
	Amortized		Fair
	Cost		Value
Available-for-sale
Due in one year or less	$	48,186	$	48,459
Due from one to five years		40,295		41,657
Due from five to ten years		30,179		32,773
Due after ten years		15,922		17,595
Total	$	134,582	$	140,484
Held-to-maturity
Due in one year or less	$	25	$	25
Due from one to five years		100		100
CMO/Mortgage-backed, residential		113,674		114,878
Total	$	113,799	$	115,003

At year-end 2011 and 2010, 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.

65

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

Investment securities with a carrying value of approximately $97,000 and $103,000 were pledged as collateral for Wealth Management accounts and securities sold under agreements to repurchase at December 31, 2011, and December 31, 2010, respectively.

Securities with unrealized losses at year-end 2011 and 2010, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

		September 30,		September 30,			September 30,		September 30,		September 30,		September 30,
	Less Than 12 Months					12 Months or Longer				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		(Loss)			Value		(Loss)		Value		(Loss)
2011
Available-for-sale
U.S. Government agencies	$	12,990	$	(35	)	$	—	$	—	$	12,990	$	(35	)
Total available-for-sale	$	12,990	$	(35	)	$	—	$	—	$	12,990	$	(35	)
Held-to-maturity
Collateralized mortgage obligations, residential	$	19,208	$	(119	)	$	—	$	—	$	19,208	$	(119	)
Total Held-to-maturity	$	19,208	$	(119	)	$	—	$	—	$	19,208	$	(119	)
2010
Available-for-sale
U.S. Government agencies	$	16,070	$	(2	)	$	—	$	—	$	16,070	$	(2	)
Total available-for-sale	$	16,070	$	(2	)	$	—	$	—	$	16,070	$	(2	)
Held-to-maturity
Collateralized mortgage obligations, residential	$	12,744	$	(139	)	$	—	$	—	$	12,744	$	(139	)
Municipal securities		8,358		(115	)		—		—		8,358		(115	)
Total Held-to-maturity	$	21,102	$	(254	)	$	—	$	—	$	21,102	$	(254	)

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 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 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.

As of December 31, 2011, the Corporation held 8 investments of which the amortized cost was greater than fair value. The Corporation has no securities in which OTTI has been recorded.

66

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

The unrealized losses for investments classified as available-for sale are attributable to changes in interest rates and/or economic environment and individually were 0.27% or less of the respective amortized costs. There was one unrealized loss on a FNMA Agency that was purchased December 2011. Given this investment is backed by the U.S. Government and its agencies; there is minimal credit risk at this time.

Although there were no unrealized losses on the municipals at December 31, 2011, the credit rating of the individual municipalities was assessed. As of December 31, 2011, 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. Credit reviews of the municipalities have been conducted. As a result, management has determined that all of the 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.

The unrealized losses for investments classified as held-to-maturity are attributable to changes in interest rates and/or economic environment and individually were 0.84% or less of their respective amortized costs. The unrealized losses relate primarily to residential collateralized mortgage obligations. The residential collateralized mortgage obligations were purchased between October 2010 and August 2011. There has been a decrease in long-term interest rates from the time of the investment purchase and December 31, 2011, which affects the fair value of residential collateralized mortgage obligations and prepayment speeds. All residential collateralized mortgage obligations 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 of fees, consist of the following at December 31:

		September 30,			September 30,
	2011			2010
Residential loans secured by real estate	$	262,092		$	258,483
Commercial loans secured by real estate		301,425			289,286
Construction loans		44,603			44,639
Other commercial and industrial loans		312,766			287,706
Consumer loans		32,166			20,172
Total loans		953,052			900,286
Net deferred loan costs		560			46
Allowance for loan losses		(14,242	)		(15,134	)
Total loans, net	$	939,370		$	885,198

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, 2011 and 2010, there was $81,838 and $85,851, of 1-4 family residential mortgage loans, respectively, pledged as collateral for FHLB advances. There were no borrowings under this arrangement at December 31, 2011 and 2010.

There was an aggregate of $236,993 and $297,617 of commercial loans, commercial real estate, and construction loans pledged as collateral at the Federal Reserve Bank Discount Window at December 31, 2011 and 2010, respectively. There were no borrowings under this arrangement at December 31, 2011 and 2010.

67

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2011:

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Commercial & industrial			Commercial real estate			Residential			Consumer			Unallocated			Total
Beginning balance	$	3,870		$	7,845		$	2,400		$	200		$	819		$	15,134
Loan charge offs		(1,668	)		(2,601	)		(703	)		(214	)		—			(5,186	)
Recoveries		372			53			22			23			—			470
Provision		2,803			982			(75	)		219			(105	)		3,824
Ending balance	$	5,377		$	6,279		$	1,644		$	228		$	714		$	14,242

Activity in the allowance for loan losses was as follows:

		September 30,			September 30,
	2010			2009
Beginning balance	$	13,716		$	12,847
Loan charge offs		(3,149	)		(11,432	)
Recoveries		288			396
Provision for loan losses		4,279			11,905
Ending balance	$	15,134		$	13,716

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 31:

		September 30,			September 30,			September 30,			September 30,			September 30,		September 30,
2011	Commercial & industrial			Commercial real estate			Residential			Consumer			Unallocated		Total
Allowance for loan losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,702		$	897		$	720		$	20		$	—	$	4,339
Collectively evaluated for impairment		2,675			5,382			924			208			714		9,903
Total ending allowance balance	$	5,377		$	6,279		$	1,644		$	228		$	714	$	14,242
Allowance as a % of loans		1.72	%		1.82	%		0.63	%		0.71	%		N/A		1.49	%
Loans:
Loans individually evaluated for impairment	$	7,872		$	14,409		$	4,480		$	20		$	N/A	$	26,781
Loans collectively evaluated for impairment		305,147			331,380			258,131			32,173			N/A		926,831
Accrued interest receivable		877			885			1,296			80			N/A		3,138
Total recorded investment	$	313,896		$	346,674		$	263,907		$	32,273		$	N/A	$	956,750

		September 30,			September 30,			September 30,			September 30,			September 30,		September 30,
2010	Commercial & industrial			Commercial real estate			Residential			Consumer			Unallocated		Total
Allowance for loan losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	781		$	—		$	801		$	5		$	—	$	1,587
Collectively evaluated for impairment		3,089			7,845			1,599			195			819		13,547
Total ending allowance balance	$	3,870		$	7,845		$	2,400		$	200		$	819	$	15,134
Allowance as a % of loans		1.35	%		2.35	%		0.93	%		0.99	%		N/A		1.68	%
Loans:
Loans individually evaluated for impairment	$	3,567		$	3,327		$	4,165		$	111		$	N/A	$	11,170
Loans collectively evaluated for impairment		283,976			330,301			254,798			20,087			N/A		889,162
Accrued interest receivable		900			984			1,188			43			N/A		3,115
Total recorded investment	$	288,443		$	334,612		$	260,151		$	20,241		$	N/A	$	903,447

68

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

The above disclosure is required to be presented using the recorded investment of loans, which includes accrued interest receivable and net loan origination fees. Although accrued interest receivable balances have been presented separately, all accrued interest receivable balances are related to the loans collectively evaluated for impairment as practically all loans individually evaluated for impairment are on nonaccrual.

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 31. For purposes of this disclosure, the unpaid principal is not reduced for net charge-offs.

		September 30,		September 30,		September 30,
	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
2011	Balance		Investment		Allocated
With no related allowance recorded:
Commercial & industrial	$	2,471	$	1,812	$	—
Commercial real estate		4,811		2,523		—
Residential
1-4 family		1,371		920		—
Home equity		1,399		1,245		—
Consumer
Personal LOC		—		—		—
Personal Term		—		—		—
DDA Overdraft Protection		—		—		—
Credit cards		—		—		—
With an allowance recorded:
Commercial & industrial		6,060		6,060		2,702
Commercial real estate		11,886		11,886		897
Residential
1-4 family		391		387		80
Home equity		1,928		1,928		640
Consumer
Personal LOC		—		—		—
Personal Term		—		—		—
DDA Overdraft Protection		11		11		11
Credit cards		9		9		9
Total	$	30,337	$	26,781	$	4,339

69

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

		September 30,		September 30,		September 30,
	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
2010	Balance		Investment		Allocated
With no related allowance recorded:
Commercial & industrial	$	3,467	$	2,524	$	—
Commercial real estate		3,640		3,327		—
Residential
1-4 family		1,080		710		—
Home equity		729		630		—
Consumer
Personal LOC		106		106		—
Personal Term		—		—		—
DDA Overdraft Protection		—		—		—
Credit cards		—		—		—
With an allowance recorded:
Commercial & industrial		1,043		1,043		781
Commercial real estate		—		—		—
Residential
1-4 family		56		56		20
Home equity		2,769		2,769		781
Consumer
Personal LOC		—		—		—
Personal Term		—		—		—
DDA Overdraft Protection		—		—		—
Credit cards		5		5		5
Total	$	12,895	$	11,170	$	1,587

The following table presents the average balance of loans individually evaluated for impairment by class for the year ended December 31:

		September 30,
	2011
Commercial & industrial	$	5,926
Commercial real estate		8,869
Residential
1-4 family		1,086
Home equity		3,561
Consumer
Personal LOC		26
Personal Term		—
DDA Overdraft Protection		—
Credit cards		14
Total	$	19,482

The average balance of individually impaired loans for the year ended December 31, 2010 and 2009 was $13,957 and $11,961, respectively.

There was $55, $0, and $0 in interest income recorded on a cash or accrual basis for the year ended December 31, 2011, 2010, and 2009, respectively.

70

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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 31:

		September 30,		September 30,		September 30,		September 30,
	Nonaccrual				Loans Past Due Over 90 Days Still Accruing
	2011		2010		2011		2010
Commercial & industrial	$	7,384	$	3,567	$	—	$	—
Commercial real estate		12,130		3,327		—		—
Residential
1-4 family		1,061		766		—		—
Home equity		3,139		3,399		—		—
Consumer
Personal LOC		—		106		—		—
Personal Term		—		—		—		—
DDA Overdraft Protection		—		—		11		—
Credit cards		—		—		9		5
Total	$	23,714	$	11,165	$	20	$	5

The following table presents the aging of the recorded investment in past due loans by class of loans at December 31:

		September 30,			September 30,			September 30,
	30 - 89			Greater than
	Days			90 Days			Total
2011	Past Due			Past Due			Past Due
Commercial & industrial	$	1,090		$	128		$	1,218
Commercial real estate		4,346			1,931			6,277
Residential
1-4 family		899			677			1,576
Home equity		32			1,070			1,102
Consumer
Personal LOC		—			—			—
Personal Term		8			—			8
DDA Overdraft Protection		1			11			12
Credit cards		78			9			87
Total	$	6,454		$	3,826		$	10,280
Past due as a % of loans		0.68	%		0.40	%		1.08	%
	30 - 89			Greater than
	Days			90 Days			Total
2010	Past Due			Past Due			Past Due
Commercial & industrial	$	667		$	1,501		$	2,168
Commercial real estate		1,849			3,066			4,915
Residential
1-4 family		1,785			289			2,074
Home equity		1,024			430			1,454
Consumer
Personal LOC		850			106			956
Personal Term		14			—			14
DDA Overdraft Protection		—			—			—
Credit cards		39			5			44
Total	$	6,228		$	5,397		$	11,625
Past due as a % of loans		0.69	%		0.60	%		1.29	%

As of December 31, 2011 and 2010, nonaccrual loans that were 0-29 days past due totaled $14,418 and $4,360, respectively.

71

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

Troubled Debt Restructurings:

During 2011, the Corporation adopted new guidance for troubled debt restructuring as discussed in Note 2. As of December 31, 2011, the Corporation had $20,226 in outstanding balances and had allocated $4,160 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings. This was an increase of $20,168 from December 31, 2010, due to the adoption of new guidance for troubled debt restructurings. Of the total $20,226 in outstanding balances of troubled debt restructurings, $17,178 are non-accrual and have a specific reserve of $3,707 and those balances have been reported as such. As of December 31, 2010, the Corporation had $58 in outstanding balances and had allocated $0 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings. The Corporation has committed to lend an additional $2,695 and $0 to customers with outstanding loans that are classified as troubled debt restructurings as of December 31, 2011 and 2010, respectively.

During the period ending December 31, 2011, 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 of interest 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 23.7 years to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 4 months to 9 years.

The following table presents loans by class modified as troubled debt restructurings that occurred during the period ending December 31, 2011:

		September 30,		September 30,		September 30,
	Number		Pre-Modification		Post-Modification
	of		Outstanding Recorded		Outstanding Recorded
	Loans		Investment		Investment
Troubled Debt Restructurings:
Commercial & industrial		9	$	6,360	$	6,047
Commercial real estate		6		12,316		11,886
Residential
1-4 family		6		353		354
Home equity		3		2,112		1,939
Consumer
Personal LOC		—		—		—
Personal Term		—		—		—
DDA Overdraft Protection		—		—		—
Credit cards		—		—		—
Total		24	$	21,141	$	20,226

The troubled debt restructurings described above increased the allowance for loan losses by $1,255 and resulted in charge offs of $0 during the period ending December 31, 2011.

72

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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 31, 2011:

		September 30,		September 30,
	Number
	of
	Loans		Recorded Investment
Troubled Debt Restructurings that subsequently defaulted:
Commercial & industrial		2	$	443
Commercial real estate		2		3,797
Residential
1-4 family		3		201
Home equity		—		—
Consumer
Personal LOC		—		—
Personal Term		—		—
DDA Overdraft Protection		—		—
Credit cards		—		—
Total		7	$	4,441

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

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $7 and resulted in charge offs of $0 during the period ending December 31, 2011.

The terms of certain other loans were modified during the period ending December 31, 2011, that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2011, of $12,079. 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.

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.

Certain loans which were modified during the period ending December 31, 2011, and did not meet the definition of a troubled debt restructuring as the modification was a delay in a payment that was considered to be insignificant had a delay in payment of 1.5 to 6 months.

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 if the deficiencies are not corrected.

73

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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. As of December 31, and based on the most recent analysis performed, the risk rating of the loans by class of loan is as follows:

		September 30,		September 30,		September 30,		September 30,		September 30,
	Not				Special
2011	Rated		Pass		Mention		Substandard		Doubtful
Commercial & industrial	$	—	$	291,453	$	3,566	$	18,000	$	—
Commercial real estate		—		307,170		11,622		26,997		—
Total	$	—	$	598,623	$	15,188	$	44,997	$	—
	Not				Special
2010	Rated		Pass		Mention		Substandard		Doubtful
Commercial & industrial	$	—	$	265,528	$	7,893	$	14,122	$	—
Commercial real estate		—		288,324		31,244		14,060		—
Total	$	—	$	553,852	$	39,137	$	28,182	$	—

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 also 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 troubled debt restructurings. The following table presents the recorded investment in residential and consumer loans based on payment activity at December 31:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Consumer								Residential
					DDA
	Personal		Personal		Overdraft
2011	LOC		Term		Protection		Credit cards		1-4 family		Home equity
Performing	$	17,541	$	9,223	$	460	$	4,949	$	112,791	$	145,340
Nonperforming		—		—		11		9		1,307		3,173
Total	$	17,541	$	9,223	$	471	$	4,958	$	114,098	$	148,513

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Consumer								Residential
					DDA
	Personal		Personal		Overdraft
2010	LOC		Term		Protection		Credit cards		1-4 family		Home equity
Performing	$	14,158	$	885	$	620	$	4,424	$	109,360	$	145,438
Nonperforming		106		—		—		5		766		3,399
Total	$	14,264	$	885	$	620	$	4,429	$	110,126	$	148,837

74

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

NOTE 6 – OTHER REAL ESTATE OWNED

Activity in real estate owned was as follows:

		September 30,			September 30,			September 30,
	2011			2010			2009
Balance at beginning of period	$	9,574		$	8,432		$	3,418
Additions		2,293			5,282			7,614
Write downs		(1,052	)		(1,142	)		(905	)
Write ups		162			—			—
Sales		(3,402	)		(2,998	)		(1,695	)
Balance at end of period	$	7,575		$	9,574		$	8,432
Expenses related to real estate owned include:
	2011			2010			2009
Net gain on sales	$	(981	)	$	(132	)	$	(60	)
Net write downs		890			1,142			905
Operating expenses, net of rental income		853			466			417
	$	762		$	1,476		$	1,262

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

NOTE 7 – PREMISES AND EQUIPMENT

Premises and equipment consist of the following at December 31:

		September 30,			September 30,
	2011			2010
Land and improvements	$	9,944		$	8,893
Building and improvements		15,471			15,196
Construction in progress		1,084			—
Leasehold improvements		2,253			2,259
Furniture and equipment		13,997			14,764
		42,749			41,112
Less accumulated depreciation and amortization		(16,317	)		(16,260	)
Net premises and equipment	$	26,432		$	24,852

Certain Corporation facilities and equipment are leased under various operating leases. Rental expense under these leases was $414, $407, and $394 for 2011, 2010 and 2009, respectively.

Future minimum rental commitments under non-cancelable leases are:

		September 30,
2012	$	417
2013		422
2014		388
2015		284
2016		229
Thereafter		548
	$	2,288

75

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

NOTE 8 – MORTGAGE SERVICING

Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year end are as follows:

		September 30,		September 30,
	2011		2010
Mortgage loan portfolios serviced for:
FNMA	$	188,332	$	166,327
Private		21,583		16,844
FHLBI		8,800		—
Balance at end of period	$	218,715	$	183,171

Custodial escrow balances maintained in connection with serviced loans were $876 and $725 at December 31, 2011 and 2010, respectively.

The following table includes activity for mortgage servicing rights:

		September 30,			September 30,			September 30,
	2011			2010			2009
Balance at beginning of period	$	1,624		$	1,459		$	1,070
Plus additions		742			692			723
Fair value adjustments		(911	)		(527	)		(334	)
Balance at end of period	$	1,455		$	1,624		$	1,459

Mortgage servicing rights are carried at fair value at December 31, 2011 and 2010. Fair value at December 31, 2011, was determined using discount rates ranging from 10.5% to 15.0%, prepayment speeds ranging from 6.77% to 31.62%, depending on the stratification of the specific right, and a weighted average default rate of 0.35%. Fair value at December 31, 2010, was determined using discount rates ranging from 10.6% to 16.0%, prepayment speeds ranging from 6.39% to 23.08%, depending on the stratification of the specific right, and a weighted average default rate of 0.39%.

NOTE 9 – DEPOSITS

Time deposits of $100 thousand or more were $104,722 and $108,840 at December 31, 2011 and 2010, respectively.

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

		September 30,
2012	$	111,301
2013		21,279
2014		8,279
2015		2,662
2016		1,630
Thereafter		21,713
	$	166,864

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 Corporation’s 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.

76

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

Information concerning the non-deposit product and securities sold under agreements to repurchase is summarized as follows:

		September 30,			September 30,			September 30,
	2011			2010			2009
Average daily balance during the year	$	96,354		$	84,048		$	68,740
Average interest rate during the year		0.22	%		0.34	%		0.25	%
Maximum month-end balance during the year	$	114,959		$	100,988		$	85,248
Weighted average interest rate at year-end		0.16	%		0.33	%		0.27	%

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 London Interbank Offered Rate (LIBOR) plus 1.20% which equated to 1.83% at December 31, 2011. Interest payments are due quarterly.

The Corporation entered into a $2,000 revolving line of credit with U.S. Bank which matured on August 31, 2011. On September 1, 2011, the Corporation renewed the revolving loan agreement which will mature on August 31, 2012. As part of the renewal of the revolving loan agreement, the revolving loan amount was reduced from $2,000 to $1,000. Under the terms of the revolving line of credit, the Corporation paid a prime plus 1.25% which equated to 4.50% at December 31, 2011. In addition, the Corporation paid a 0.25% fee on the unused portion of the revolving line of credit. As of December 31, 2011, the outstanding balance of the revolving line of credit was $0.

The Corporation also has a $3,000 one-year facility with U.S. Bank which matured August 31, 2011. The one-year term facility was renewed and will now mature on August 31, 2012. Under the terms of the one-year term facility, the Corporation pays prime plus 1.25% which equated to 4.50% at December 31, 2011. In addition to quarterly interest payments, the Corporation makes quarterly principal payments of $62.5. As of December 31, 2011, the outstanding balance of the term facility was $2,438.

All of the U.S. Bank agreements contain various financial and non-financial covenants. As of December 31, 2011, the Corporation was in compliance with all covenants.

NOTE 11 – 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 of 104.8%, 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 does not have the power to direct activities of the trust, therefore, the trust is not consolidated in the Corporation’s financial statements. The junior subordinated debt obligation issued to the Trust of $13,918 is reflected in the Corporation’s consolidated balance sheets at December 31, 2011 and 2010. 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.

77

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

NOTE 12 – 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 Corporation’s 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 the year ended December 31, 2011 follows:

		September 30,			September 30,		September 30,		September 30,
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at beginning of year		80,863		$	27.98
Exercised		(45,300	)		27.50
Outstanding at end of year		35,563			28.61		0.8	$	532
Exercisable at end of year		35,563		$	28.61		0.8	$	532

Information related to the stock option plan during each year follows:

		September 30,		September 30,		September 30,
	2011		2010		2009
Intrinsic value of options exercised	$	804	$	208	$	1,069
Cash received from option exercises	$	1,246	$	382	$	1,145
Tax benefit realized from option exercises	$	301	$	70	$	413

As of December 31, 2011, there was no unrecognized compensation cost. The recognized compensation cost related to this plan during 2011, 2010, and 2009 was $0, $0, and $7, 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.

Information related to the restricted stock plan during each year follows:

		September 30,		September 30,		September 30,
	2011		2010		2009
Intrinsic value of shares vested	$	—	$	—	$	51
Tax benefit realized from shares vested	$	—	$	—	$	1

All restricted stock grants related to this plan vested during December 2009. As of December 31, 2011, there was no unrecognized compensation cost. The recognized compensation costs related to this plan during 2011, 2010, and 2009 was $0, $0, and $10, respectively.

78

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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 Board of Directors authorized 333,000 shares during 2005 and 400,000 shares during 2010, for a total of 733,000 authorized shares, to be reserved for common stock grants or restricted stock awards. All equity awards are issued with a five-year cliff vest.

A summary of option activity in the 2005 Equity Incentive Plan for the year ended December 31, 2011 follows:

		September 30,			September 30,		September 30,	September 30,		September 30,
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at beginning of year		183,800		$	43.84
Exercised		(5,600	)		43.38
Forfeited		(1,300	)	$	43.38
Outstanding at end of year		176,900		$	43.85		4.3		$	50
Fully vested and expected to vest		176,900							$	50
Exercisable at end of year		159,500		$	43.38		4.2		$	29

Information related to the stock option plan during each year follows:

		September 30,			September 30,		September 30,
	2011			2010		2009
Intrinsic value of options exercised	$	7		$	—	$	—
Cash received from options exercised		243			—		—
Tax expense realized from option exercises		(37	)		—		—
Weighted average fair value of options granted	$	—		$	—	$	11.91

As of December 31, 2011, there was $65 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 one year. The compensation cost that was recognized during 2011, 2010, and 2009 was $252, $544, and $684, 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 Corporation’s common stock; an expected life of the options of ten years; and the risk-free interest rate.

The following is a summary of the weighted-average assumptions used in the Black-Scholes pricing model:

		September 30,		September 30,			September 30,
Year	Dividend Yield		Volatility Factor			Risk-Free Rate
2011		—		—			—
2010		—		—			—
2009		—		13.42	%		3.41	%

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.

79

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

Restricted Stock Issued: The table presented below is a summary of the Corporation’s nonvested restricted stock awards under the 2005 plan and the changes during the year ended December 31, 2011:

		September 30,			September 30,
				Weighted Average
	Restricted Stock			Grant Date Fair Value
Nonvested restricted stock at beginning of year		239,675		$	42.11
Granted		4,800		$	43.27
Forfeited or expired		(10,175	)	$	41.34
Nonvested restricted stock at end of year		234,300		$	42.16

The total fair value of the shares related to this plan that vested during 2011 was $0, $68 during 2010, and $0 during 2009. When granted, restricted stock grants are granted with a five-year cliff vest.

Information related to the restricted stock plan during each year follows:

		September 30,		September 30,			September 30,
	2011		2010			2009
Intrinsic value of shares vested	$	—	$	71		$	—
Tax expense realized from shares vested	$	—	$	(2	)	$	—

As of December 31, 2011, there was $4,591 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 2.4 years. The recognized compensation costs related to this plan during 2011, 2010, and 2009 was $1,845, $1,482, and $1,052, respectively.

NOTE 13 – 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 restated the plan on November 18, 2011, in its entirety to comply with the Internal Revenue Service required restatement, incorporating all prior amendments.

The 401(k) benefit plan allows employee contributions up to 50% of their compensation, where they are matched equal to 100% of the first 3% of the compensation withheld, then matched 50% of the next 2% of compensation withheld.

The Corporation expensed approximately $701, $596, and $584 for employee-matching contributions to the plan during 2011, 2010, and 2009, 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 2011, 2010, or 2009.

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 participant’s 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.

80

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

NOTE 14 – 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 2011 or 2010. The Bank declared and paid a $1,423 and $1,483 dividend to the Corporation during 2011 and 2010, 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 Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s 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, 2011, 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 assets (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, 2011 and 2010, 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 institution’s category.

Actual and required capital amounts and ratios are presented below at year end.

		September 30,		September 30,			September 30,		September 30,		September 30,	September 30,		September 30,
											To Be Well Capitalized
						Required For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2011
Total Capital to risk weighted assets
Consolidated	$	117,906		11.5	%	$	82,001		8.0	%				N/A
Bank		113,834		11.2	%		81,618		8.0	%		102,022		10.0	%
Tier 1 (Core) Capital to risk weighted assets
Consolidated		100,076		9.8	%		41,001		4.0	%				N/A
Bank		96,063		9.4	%		40,809		4.0	%		61,213		6.0	%
Tier 1 (Core) Capital to average assets
Consolidated		100,076		6.7	%		59,540		4.0	%				N/A
Bank		96,063		6.5	%		59,466		4.0	%		74,332		5.0	%
2010
Total Capital to risk weighted assets
Consolidated	$	109,534		11.4	%	$	76,607		8.0	%				N/A
Bank		106,660		11.2	%		76,326		8.0	%		95,407		10.0	%
Tier 1 (Core) Capital to risk weighted assets
Consolidated		92,525		9.7	%		38,304		4.0	%				N/A
Bank		89,694		9.4	%		38,163		4.0	%		57,244		6.0	%
Tier 1 (Core) Capital to average assets
Consolidated		92,525		6.7	%		55,407		4.0	%				N/A
Bank		89,694		6.5	%		55,415		4.0	%		69,269		5.0	%

81

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

NOTE 15 – 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.

Loans to principal officers, directors, and their affiliates during 2011 were as follows:

		September 30,
Beginning balance at January 1, 2011	$	19,184
New loans		5,711
Draws on lines of credit		43,027
Effect of changes in composition of related parties		510
Repayments		(48,714	)
Ending balance at December 31, 2011	$	19,718

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.

Deposits from principal officers, directors, and their affiliates as of December 31, 2011 and 2010 were $5,992 and $6,347, respectively.

NOTE 16 – 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:

		September 30,			September 30,			September 30,
	2011			2010			2009
Current (benefit) expense
Federal	$	736		$	1,771		$	(425	)
State		634			611			20
Deferred benefit
Federal		(129	)		(1,234	)		(664	)
State		(100	)		(386	)		(181	)
Total income tax (benefit)	$	1,141		$	762		$	(1,250	)

The statutory rate reconciliation is as follows for the years ended December 31:

		September 30,			September 30,			September 30,
	2011			2010			2009
Income (loss) before federal and state income tax	$	6,497		$	4,548		$	(1,138	)
Tax expense (benefit) at federal statutory rate	$	2,209		$	1,546		$	(387	)
Increase (decrease) in taxes resulting from:
State income tax		332			148			(92	)
Tax exempt interest		(1,280	)		(937	)		(716	)
Bank owned life insurance		(115	)		(133	)		(139	)
Community Reinvestment Act credit		(67	)		—			—
Customer entertainment		85			95			92
Other		(23	)		43			(8	)
Total income tax (benefit)	$	1,141		$	762		$	(1,250	)

82

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

The components of the Corporation’s net deferred tax assets in the consolidated balance sheets as of December 31 are as follows:

		September 30,			September 30,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	5,586		$	5,919
Equity based compensation		3,371			2,594
Other real estate owned		888			645
Accrued contingencies		—			391
Other		599			786
Total deferred tax assets		10,444			10,335
Deferred tax liabilities:
Net unrealized gain on securities		(2,338	)		(211	)
Mortgage servicing rights		(571	)		(635	)
Depreciation		(443	)		(258	)
Other		(450	)		(691	)
Total deferred tax liabilities		(3,802	)		(1,795	)
Net deferred tax assets	$	6,642		$	8,540

Unrecognized Tax Benefits: The Corporation had no unrecognized tax benefits as of January 1, 2011, and did not recognize any increase in unrecognized benefits during 2011 relative to any tax positions taken in 2011. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Corporation’s policy to record such accruals in its income tax expense; no such accruals exist as of December 31, 2011 and 2010. 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 2007.

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, 2011 and 2010, and accordingly no valuation allowance has been provided.

The Corporation is subject to U.S. federal income tax, as well as state income tax in the state of Indiana and various other states. In July 2011, the Corporation was notified by the Indiana Department of Revenue that it had been selected for audit for the years 2008, 2009, and 2010. The audit results have not been finalized as of December 31, 2011. Management does not expect any adjustments to result in a material change to its financial position. The Corporation is no longer subject to income tax examinations for tax years before 2008.

NOTE 17 – 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.

83

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

The contractual amount of financial instruments with off-balance sheet risk was as follows:

		September 30,		September 30,
	2011		2010
Committed, not funded, commercial loans	$	2,500	$	6,500
Committed, not funded, residential loans		17,753		18,037
Unused commercial credit lines		232,578		222,387
Unused revolving home equity and credit card lines		119,459		107,712
Standby letters of credit		9,066		7,712
Demand deposit account lines of credit		2,583		2,596
	$	383,939	$	364,944

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 management’s credit assessment of the customer.

A reserve for unfunded standby letters of credit and commercial credit lines in the amount of $147 was established as of December 31, 2011, for two commercial relationships that are currently classified as impaired loans.

Other than routine litigation incidental to business and based on the information presently available, the Corporation 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.

NOTE 18 – 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 entity’s 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 is 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 future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income.

84

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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 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.

The fair value of other real estate owned is measured at fair value, less cost to sell. Fair values are based on recent real estate appraisals. These appraisals may use 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 independent 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.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

		September 30,		September 30,		September 30,		September 30,
			Fair Value Measurements Using:
			Quoted Prices
			in Active Markets		Significant Other		Significant
			for Identical Assets		Observable Inputs		Unobservable Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
2011
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	500	$	500	$	—	$	—
U.S. Government agencies		71,266		—		71,266		—
Municipal securities		68,718		—		68,718		—
Mortgage servicing rights		1,455		—		1,455		—
2010
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	8,700	$	8,700	$	—	$	—
U.S. Government agencies		66,977		—		66,977		—
Mortgage servicing rights		1,624		—		1,624		—

A detailed breakdown of the fair value for the available-for-sale investment securities is provided in the Investment Securities note.

There were no significant transfers between Level 1 and Level 2 during 2011.

85

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

		September 30,		September 30,		September 30,		September 30,
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:
			Quoted Prices
			in Active Markets		Significant Other		Significant
			for Identical Assets		Observable Inputs		Unobservable Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
2011
Assets:
Impaired loans
Commercial
Commercial & industrial	$	2,987	$	—	$	—	$	2,987
Commercial real estate		6,208		—		—		6,208
Construction		2,783		—		—		2,783
Residential
1-4 family		104		—		—		104
Home equity		1,266		—		—		1,266
Other real estate
Commercial
Commercial real estate		3,547		—		—		3,547
Residential
1-4 family		115		—		—		115
2010
Assets:
Impaired loans
Commercial
Commercial & industrial	$	262	$	—	$	—	$	262
Residential
1-4 family		36		—		—		36
Home equity		1,988		—		—		1,988
Other real estate
Commercial
Commercial real estate		4,826		—		—		4,826
Residential
1-4 family		97		—		—		97

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 gross carrying amount of $17,234, with a valuation allowance of $3,886, at December 31, 2011. This resulted in an additional provision for loan losses of $3,862 for the year ending December 31, 2011. At December 31, 2010, impaired loans had a carrying amount of $3,873, with a valuation allowance of $1,587. This resulted in an additional provision for loan losses of $1,428 for the year ending December 31, 2010.

Other real estate owned measured at fair value less costs to sell subsequent to being transferred to other real estate, had a net carrying amount of $3,662, which is made up of the outstanding balance of $5,719, net of a valuation allowance of $2,057 at December 31, 2011. At December 31, 2010, other real estate owned measured at fair value less costs to sell subsequent to being transferred to other real estate, had a net carrying amount of $4,923, which is made up of the outstanding balance of $6,496, net of a valuation allowance of $1,573. There was a charge to earnings through non performing asset expense of $890 and $1,142 for 2011 and 2010, respectively.

86

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

		September 30,		September 30,		September 30,		September 30,
The estimated fair value of the Corporation’s financial instruments at December 31, are as follows:
	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets
Cash and due from banks	$	192,424	$	192,424	$	276,409	$	276,409
Federal funds sold		2,911		2,911		16,109		16,109
Reverse repurchase agreements		1,000		1,000		1,000		1,000
Investment securities available-for-sale		140,484		140,484		75,677		75,677
Investment securities held-to-maturity		113,799		115,003		114,676		117,302
Loans held for sale		—		—		1,424		1,424
Net loans		939,370		948,559		885,198		893,665
Federal Reserve and FHLB stock		2,990		N/A		3,065		N/A
Accrued interest receivable		4,403		4,403		4,216		4,216
Liabilities
Deposits		1,242,819		1,244,367		1,238,840		1,238,175
Repurchase agreements and other secured short-term borrowings		95,585		95,596		93,523		93,554
Short-term debt		2,438		2,438		2,688		2,688
Subordinated debt		5,000		5,000		5,000		5,000
Junior subordinated debt		13,918		10,389		13,918		10,245
Accrued interest payable		1,416		1,416		1,498		1,498

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 adjusted for allowance for loan losses. It was not practicable to determine the fair value of Federal Reserve and FHLB stock due to restrictions placed 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.

NOTE 19 – EARNINGS PER SHARE

A computation of earnings per share follows:

		September 30,		September 30,		September 30,
	2011		2010		2009
Basic average shares outstanding		2,326,197		2,313,570		2,301,502
Net income	$	5,356	$	3,786	$	112
Basic net income per common share	$	2.30	$	1.64	$	0.05
Diluted
Average shares outstanding		2,326,197		2,313,570		2,301,502
Nonvested restricted stock		103,456		47,959		19,289
Net effect of the assumed exercise of stock options		16,566		20,662		28,313
Diluted average shares		2,446,219		2,382,191		2,349,104
Net income	$	5,356	$	3,786	$	112
Diluted net income per common share	$	2.19	$	1.59	$	0.05

87

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

As of December 31, 2011, 2010, and 2009, options to purchase 171,300, 183,800, and 192,200 shares respectively, and 0, 108,300, and 6,076 restricted shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.

NOTE 20 – PARENT COMPANY FINANCIAL STATEMENTS

The condensed financial statements of the Corporation, prepared on a parent company unconsolidated basis, are as follows:

Balance Sheets

		September 30,		September 30,
	December 31,
	2011		2010
Assets
Cash	$	2,709	$	2,996
Investment in subsidiary		99,772		90,178
Other assets		4,985		3,751
Total assets	$	107,466	$	96,925
Liabilities and shareholders’ equity
Other liabilities	$	991	$	962
Short term debt		2,438		2,688
Junior subordinated debentures owed to unconsolidated subsidiary trust		13,918		13,918
Total liabilities		17,347		17,568
Shareholders’ equity		90,119		79,357
Total liabilities and shareholders’ equity	$	107,466	$	96,925

Statements of Income

		September 30,			September 30,			September 30,
	Years ended December 31,
	2011			2010			2009
Interest income	$	8		$	14		$	7
Interest expense		1,598			1,658			1,596
Net interest expense		(1,590	)		(1,644	)		(1,589	)
Other income		44			44			44
Dividend income from subsidiary		1,423			1,483			1,385
Other operating expenses:
Deferred compensation		2,097			2,026			1,753
Other expenses		352			338			304
Total other operating expenses		2,449			2,364			2,057
Net loss before tax benefit and equity in undistributed net income of subsidiary		(2,572	)		(2,481	)		(2,217	)
Tax benefit		1,576			1,551			1,406
Net loss before equity in undistributed net income of subsidiary		(996	)		(930	)		(811	)
Equity in undistributed net income of subsidiary		6,352			4,716			923
Net income	$	5,356		$	3,786		$	112

88

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

Statements of Cash Flows

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009
Operating activities
Net income	$	5,356		$	3,786		$	112
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed income of subsidiary		(6,352	)		(4,716	)		(923	)
Stock compensation		132			120			100
Excess tax benefit from deferred compensation		(264	)		(68	)		(414	)
Compensation expense related to restricted stock and options		2,097			2,026			1,753
Increase in deferred income taxes		(777	)		(753	)		(648	)
(Increase) decrease in other assets		(457	)		4			(79	)
Increase in other liabilities		293			4			641
Net cash provided by operating activities		28			403			542
Investing activities
Net cash used by investing activities		—			—			—
Financing activities
Proceeds from issuance of stock		1,489			608			1,144
Repurchase of stock		(1,818	)		(607	)		(1,865	)
Net change in short term debt		(250	)		(1,450	)		(62	)
Income tax benefit from deferred compensation		264			68			414
Net cash used by financing activities		(315	)		(1,381	)		(369	)
Increase (decrease) in cash and cash equivalents		(287	)		(978	)		173
Cash and cash equivalents at beginning of year		2,996			3,974			3,801
Cash and cash equivalents at end of year	$	2,709		$	2,996		$	3,974

89

THE NATIONAL BANK OF INDIANAPOLIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

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:

		September 30,		September 30,		September 30,			September 30,
2011	March 31		June 30		September 30			December 31
Interest income	$	11,944	$	12,066	$	11,948		$	11,951
Interest expense		2,007		1,904		1,751			1,612
Net interest income		9,937		10,162		10,197			10,339
Provision for loan losses		1,689		989		(371	)		1,517
Other operating income		3,274		3,466		3,699			4,082
Other operating expense		9,443		11,459		12,436			11,497
Net income before tax		2,079		1,180		1,831			1,407
Federal and state income tax		462		142		390			147
Net income after tax	$	1,617	$	1,038	$	1,441		$	1,260
Basic earnings per share	$	0.70	$	0.45	$	0.62		$	0.54
Diluted earnings per share	$	0.67	$	0.43	$	0.58		$	0.51
2010	March 31		June 30		September 30			December 31
Interest income	$	11,615	$	11,686	$	11,898		$	11,931
Interest expense		2,394		2,316		2,252			2,067
Net interest income		9,221		9,370		9,646			9,864
Provision for loan losses		1,235		1,234		1,875			(65	)
Other operating income		2,933		3,307		4,208			3,800
Other operating expense		10,222		10,464		11,137			11,699
Net income before tax		697		979		842			2,030
Federal and state income tax		75		143		86			458
Net income after tax	$	622	$	836	$	756		$	1,572
Basic earnings per share	$	0.27	$	0.36	$	0.33		$	0.68
Diluted earnings per share	$	0.26	$	0.35	$	0.32		$	0.66

90

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures. The Corporation’s principal executive officer and principal financial officer have concluded that the Corporation’s 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.

Management’s Report on Internal Control Over Financial Reporting.

See report on page 51.

Attestation Report of the Independent Registered Public Accounting Firm.

See report on page 52.

Changes in Internal Controls Over Financial Reporting. There has been no change in the Corporation’s internal controls over financial reporting that has occurred during the Corporation’s last fiscal quarter that has materially affected or is reasonable likely to materially affect, the Corporation’s internal control over financial reporting.

The Corporation’s management, including its principal executive officer and principal financial officer, does not expect that the Corporation’s 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 Corporation’s 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.

91

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 2011 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.

Part IV

Item 15. Exhibits, Financial Statement Schedules

(a) (1)  The following consolidated financial statements are included in Item 8:

		September 30,
	Page Number
	in 10-K
Management’s Report on Internal Control over Financial Reporting		51
Reports of Independent Registered Public Accounting Firms		52
Consolidated Balance Sheets as of December 31, 2011 and 2010		53
Consolidated Statements of Income and Comprehensive Income For the years ended December 31, 2011, 2010 and 2009		54-55
Consolidated Statements of Shareholders’ Equity For the years ended December 31, 2011, 2010 and 2009		56
Consolidated Statements of Cash Flows For the years ended December 31, 2011, 2010, and 2009		57
Notes to consolidated Financial Statements		58

(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.

(3) List of Exhibits

92

EXHIBIT INDEX

3.01	Articles of Incorporation of the Corporation, filed as Exhibit 3(i) to the Corporation’s 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 Corporation’s Form 8-K filed July 30, 2011, 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 Corporation’s 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
10.07*	Schedule of Named Executive Officers Compensation Arrangements, filed as Exhibit 10.07 to the Corporation’s Form 8-K dated May 18, 2006 is incorporated by reference, as amended by the Corporation’s Form 8-K filed January 25, 2012
10.08*	The Amended and Restated National Bank of Indianapolis Corporation 2005 Equity Incentive Plan, filed as Exhibit 10.01 to the Corporation’s Form 8-K filed June 23, 2010 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 Corporation’s 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 Corporation’s 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 Corporation’s Form 8-K dated December 21, 2005, and as amended by Exhibit 10.06 to the Corporation’s Form 8-K dated November 26, 2008, is incorporated by reference
10.13*	The National Bank of Indianapolis Corporation Executive’s Deferred Compensation Plan, filed as Exhibit 10.08 to the Corporation’s Form 8-K dated December 21, 2005, and as amended by Exhibit 10.08 to the Corporation’s 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 Corporation’s Form 10-K dated December 31, 2005 is incorporated by reference
21	Subsidiaries of The National Bank of Indianapolis Corporation

93

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
101.	The following material from The National Bank of Indianapolis Corporation’s Form 10-K Report for the annual period ended December 31, 2011, formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Shareholders’ Equity, and (v) the Notes to Consolidated Financial Statements.**

* Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.

** Furnished, not filed, for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

94

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)	The National Bank of Indianapolis Corporation
By (Signature and Title)	/S/ Morris L. Maurer	March 9, 2012
	Morris L. Maurer, President (Principal Executive Officer)	Date

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)	/S/ Morris L. Maurer	March 9, 2012
	Morris L. Maurer, President (Principal Executive Officer)	Date
By (Signature and Title)	/S/ Debra L. Ross	March 9, 2012
	Debra L. Ross, Executive Vice President (Principal Financial and Accounting Officer)	Date
By (Signature and Title)	/S/ Michael S. Maurer	March 9, 2012
	Michael S. Maurer, Chairman of the Board	Date
By (Signature and Title)	/S/ Kathryn G. Betley	March 9, 2012
	Kathryn G. Betley, Director	Date
By (Signature and Title)	/S/ Nathan Feltman	March 9, 2012
	Nathan Feltman, Director	Date
By (Signature and Title)	/S/ David R. Frick	March 9, 2012
	David R. Frick, Director	Date
By (Signature and Title)	/S/ Andre B. Lacy	March 9, 2012
	Andre B. Lacy, Director	Date
By (Signature and Title)	/S/ William S. Oesterle	March 9, 2012
	William S. Oesterle, Director	Date
By (Signature and Title)	/S/ John T. Thompson	March 9, 2012
	John T. Thompson, Director	Date

95

EXHIBIT INDEX

3.01	Articles of Incorporation of the Corporation, filed as Exhibit 3(i) to the Corporation’s 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 Corporation’s Form 8-K filed July 30, 2011, 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 Corporation’s 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
10.07*	Schedule of Named Executive Officers Compensation Arrangements, filed as Exhibit 10.07 to the Corporation’s Form 8-K dated May 18, 2006 is incorporated by reference, as amended by the Corporation’s Form 8-K filed January 25, 2012
10.08*	The Amended and Restated National Bank of Indianapolis Corporation 2005 Equity Incentive Plan, filed as Exhibit 10.01 to the Corporation’s Form 8-K filed June 23, 2010 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 Corporation’s 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 Corporation’s 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 Corporation’s Form 8-K dated December 21, 2005, and as amended by Exhibit 10.06 to the Corporation’s Form 8-K dated November 26, 2008, is incorporated by reference
10.13*	The National Bank of Indianapolis Corporation Executive’s Deferred Compensation Plan, filed as Exhibit 10.08 to the Corporation’s Form 8-K dated December 21, 2005, and as amended by Exhibit 10.08 to the Corporation’s 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 Corporation’s Form 10-K dated December 31, 2005 is incorporated by reference
21	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
101.	The following material from The National Bank of Indianapolis Corporation’s Form 10-K Report for the annual period ended December 31, 2011, formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Shareholders’ Equity, and (v) the Notes to Consolidated Financial Statements.**

* Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.

** Furnished, not filed, for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

97