UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from____ to ____
Commission File Number 0-14354
FIRST INDIANA CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1692825
(State of Incorporation) (I.R.S. Employer Identification No.)
135 N. Pennsylvania St.
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 269-1200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $.01 par value NASDAQ
______________________________________
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 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. [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 ___.
State the aggregate market value of the voting stock held
by non-affiliates of the registrant: $137,596,000 as of February 29,
1996.
On February 29, 1996, the registrant had 8,277,456 shares of
common stock outstanding, $.01 par value (as adjusted for six-for-five
stock split paid March 1, 1996).
Documents Incorporated by Reference: See Page 2.
<PAGE> 1
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Annual Report to Shareholders for 1995 Part II
Proxy Statement Dated March 13, 1996 Part III
Total Number of Pages in this Report 112
List of Exhibits on Pages 35-37
<PAGE> 2
FIRST INDIANA CORPORATION
FORM 10-K
Table of Contents
Page
PART I 4
Item 1. Business 4
Item 2. Properties 25
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote
of Security Holders 28
PART II 29
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters 29
Item 6. Selected Financial Data 29
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operation 29
Item 8. Financial Statements and
Supplementary Data 29
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 29
PART III 29
Item 10. Directors and Executive Officers
of the Registrant 29
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain
Beneficial Owners and Management 31
Item 13. Certain Relationships and
Related Transactions 31
PART IV 32
Item 14. Exhibits, Financial Statements
Schedules, and Reports on Form 8-K 32
SIGNATURES 34
EXHIBIT INDEX 35
<PAGE> 3
PART I
Item I. Business
First Indiana Corporation
First Indiana Corporation, an Indiana corporation formed
in 1986 (the "Corporation"), is a nondiversified, unitary savings
and loan holding company. The principal asset of the Corporation
is the outstanding stock of First Indiana Bank ("First Indiana" or the
"Bank"), its wholly owned subsidiary. The Corporation has no
separate operations, and its business consists only of First Indiana
and its subsidiaries. These include One Mortgage Corporation, a
mortgage origination subsidiary; One Investment Corporation, an
investment subsidiary; One Insurance Agency, Inc., an insurance
subsidiary; and One Property Corporation, a real estate investment
subsidiary.
First Indiana Bank
First Indiana Bank is a federally chartered stock savings
bank insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation (the "FDIC").
Established in 1934, First Indiana was operated as a federally
chartered, mutual savings and loan institution until August 1983,
when it converted to a federal stock savings bank. First Indiana has
$1.5 billion in assets and is the largest publicly held bank based in
Indianapolis.
First Indiana is engaged primarily in the business of
attracting deposits from the general public and originating
residential mortgage loans, commercial loans, and consumer loans.
First Indiana offers a full range of banking services through 28
banking offices located throughout Metropolitan Indianapolis,
Evansville, Franklin, Pendleton, Westfield, Mooresville and
Rushville, Indiana. The Bank's divisions in Evansville,
Mooresville, and Rushville operated under the names Mid-West
Federal Savings Bank, Mooresville Savings Bank, and First
Federal Savings and Loan of Rushville until January 1996, when
all three divisions adopted the First Indiana Bank name.
First Indiana's subsidiary, One Mortgage Corporation,
operates mortgage origination offices in Florida and North
Carolina. First Indiana has four regional mortgage services offices
in Central Indiana. First Indiana's investment and insurance
subsidiaries, One Investment Corporation and One Insurance
Agency, Inc., operate from offices in Indianapolis.
The six-county area served by First Indiana consists of
Indianapolis, the state's largest city and state capital, together with
outlying suburban and agricultural areas in the central part of the
state. The population of the six-county metropolitan Indianapolis
area in 1990 was approximately 1,200,000. Indianapolis'
diversified economy includes manufacturing and service industries,
such as Eli Lilly & Company (pharmaceuticals), the federal and
state governments, General Motors (engines), and Ameritech
(communications).
First Indiana's Evansville Division is based in the third
largest metropolitan area in Indiana, and conducts business through
five offices in Evansville and surrounding communities. The 1990
population of the Evansville metropolitan statistical area was about
280,000. The local economy is primarily agricultural- and
manufacturing-based, with local industries including aluminum,
plastics, health care products, and major household appliances.
Among the largest local employers are Bristol-Myers Squibb
(nutritional and pharmaceutical products), Whirlpool (refrigerators
and freezers), and General Electric Co. (plastics). Evansville is the
regional hub for a tri-state area which includes portions of Indiana,
Kentucky and Illinois.
First Indiana experiences substantial competition in
attracting and retaining deposits and in lending funds. The primary
factors in competing for deposits are the ability to offer attractive
rates and the availability of convenient office locations and flexible
hours. Direct competition for deposits comes from other savings
institutions, commercial banks, money market mutual funds, and
other investment products. The primary factors in competing for
loans are interest rates, loan origination fees, and loan product
variety. Competition for origination of loans normally comes from
other banks, brokers, and insurance companies.
<PAGE> 4
Lending Activities
General. First Indiana Bank offers a broad range of
lending products to selected segments of the markets it serves. The
Bank has expanded upon its heritage as a single-family mortgage
lender by offering a complete array of loans secured primarily by
real estate. In addition to first mortgage loans, the Bank now has
a substantial market presence in residential construction lending,
commercial real estate lending, business loans to selected segments
of the market, and consumer loans, primarily home equity loans
originated both on a direct and indirect basis.
The Bank's management believes that the surest path for
the Bank's long-term success is to concentrate on selected product
lines sold to certain segments of the market. Accordingly, in 1994
the Bank discontinued its indirect (dealer) auto lending business to
redirect resources toward real estate-focused activities. The Bank
is also implementing a series of process and operational
enhancements that will enable it to act as both a mortgage banker
and portfolio lender with maximum efficiencies as interest rates
cause consumer preferences to shift between these two types of
residential mortgage loan products.
To minimize the mismatch between the duration of its
rate-sensitive assets and liabilities, First Indiana has a policy of (i)
increasing its portfolio of adjustable-rate and shorter-term
mortgage, consumer and business loans; (ii) selling almost all
fixed-rate, longer-term loans to the secondary market unless those
loans can be funded by liabilities of a similar maturity; and (iii)
increasing transaction accounts, which are less volatile than
certificates of deposit.
Loan Portfolio Composition. The following tables set
forth information concerning the composition of First Indiana's loan
portfolio in dollar amounts and in percentages, by type of security,
and by type of loan. Also presented is a reconciliation of total
loans receivable and mortgage-backed securities ("loans") before
net items to loans receivable after net items. Net items consist of
loans in process (undisbursed portion of loan balances), deferred
income, unearned discounts and unamortized premiums, and
allowances for loan losses.
<PAGE> 5
<TABLE>
<CAPTION>
Loan Portfolio Composition
(Dollars in Thousands) At December 31,
---------------
1995 1994 1993
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Loans by Type of Security:
First Mortgage Loans Secured by:
Single-Family Units $ 625,133 45.0% $ 583,345 47.1% $ 561,413 48.7%
2-4 Family Units 1,885 0.1% 2,173 0.2% 1,909 0.2%
Over 4 Family Units 18,946 1.4% 21,881 1.8% 27,990 2.4%
Mortgage-Backed Securities 49,089 3.6% 69,061 5.6% 100,924 8.7%
Commercial Real Estate and
Other Mortgage Loans 46,137 3.3% 45,647 3.7% 50,294 4.4%
Consumer Loans 575,009 41.4% 474,465 38.3% 382,360 33.1%
Business Loans 72,146 5.2% 41,770 3.4% 29,308 2.5%
---------- ------ ---------- ------ ---------- ------
Total Mortgage-Backed
Securities and Loans Receivable
(Before Net Items) $1,388,345 100.0% $1,238,342 100.0% $1,154,198 100.0%
========== ====== ========== ====== ========== ======
Loans by Type of Loan:
Real Estate:
Conventional:
Loans on Existing Property $ 464,604 33.5% $ 450,935 36.4% $ 454,560 39.4%
Construction Loans:
Commercial Real Estate Loans 6,835 0.5% 9,019 0.7% 3,213 0.3%
Residential Loans 207,957 15.0% 186,145 15.0% 167,077 14.5%
Insured or Guaranteed:
Mortgage-Backed Securities 49,089 3.5% 69,061 5.6% 100,924 8.7%
FHA and VA Loans 12,705 0.9% 6,947 0.6% 16,756 1.5%
Total Real Estate Loans 741,190 53.4% 722,107 58.3% 742,530 64.3%
Consumer Loans 575,009 41.4 474,465 38.3 382,360 33.1
Business Loans 72,146 5.2 41,770 3.4 29,308 2.5
---------- ----- -------- ----- ---------- -----
Total Mortgage-Backed Securities
and Loans Receivable
(Before Net Items) $1,388,345 100.0% $1,238,342 100.0% $1,154,198 100.0%
========== ====== ========== ====== ========== ======
<CAPTION>
At December 31,
----------------
1992 1991
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Loans by Type of Security:
First Mortgage Loans Secured by:
Single-Family Units $ 563,783 48.4% $ 557,267 52.7%
2-4 Family Units 4,033 0.3% 1,985 0.2%
Over 4 Family Units 25,166 2.2% 23,694 2.2%
Mortgage-Backed Securities 180,211 15.5% 137,500 13.0%
Commercial Real Estate and
Other Mortgage Loans 77,576 6.7% 96,252 9.1%
Consumer Loans 298,206 25.6% 238,892 22.6%
Business Loans 15,542 1.3% 1,840 0.2%
---------- ------ ---------- ------
Total Mortgage-Backed
Securities and Loans Receivable
(Before Net Items) $1,164,517 100.0% $1,057,430 100.0%
========== ====== ========== ======
Loans by Type of Loan:
Real Estate:
Conventional:
Loans on Existing Property $ 566,445 48.7% $ 584,142 55.2%
Construction Loans:
Commercial Real Estate Loans 5,178 0.4% 4,375 0.4%
Residential Loans 78,435 6.7% 80,001 7.6%
Insured or Guaranteed:
Mortgage-Backed Securities 180,211 15.5% 137,500 13.0%
FHA and VA Loans 20,500 1.8% 10,680 1.0%
Total Real Estate Loans 850,769 73.1% 816,698 77.2%
Consumer Loans 298,206 25.6 238,892 22.6
Business Loans 15,542 1.3 1,840 0.2
---------- ----- ---------- ------
Total Mortgage-Backed Securities
and Loans Receivable
(Before Net Items) $1,164,517 100.0% $1,057,430 100.0%
========== ====== ========== ======
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Loan Portfolio Composition
(Continued) At December 31,
----------------
1995 1994 1993 1992 1991
(Dollars in Thousands) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Mortgage-Backed Securities $ 1,388,345 $ 1,238,342 $ 1,154,198 $ 1,164,517 $ 1,057,430
and Loans Receivable
(Before Net Items)
Less:
Undisbursed Portion of Loans 72,511 78,588 63,382 54,482 34,025
Deferred Income, Unearned Discounts,
and Unamortized Premiums (624) (521) 646 2,016 860
Plus:
Loan Valuation Adjustment
for Acquisitions 0 341 682 1,024 0
---------- --------- --------- --------- ---------
Total Mortgage-Backed Securities and Loans
Receivable Before Allowance for
Loan Losses 1,316,458 1,160,616 1,090,852 1,109,043 1,022,545
Less:
Allowance for Loan Losses 16,234 12,525 11,506 8,748 7,797
----------- ----------- ----------- ----------- -----------
Mortgage-Backed Securities and Loans
Receivable - Net $ 1,300,224 $ 1,148,091 $ 1,079,346 $ 1,100,295 $ 1,014,748
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 7
Adjustable- and Fixed-Rate Loans. The following
table sets forth the balances at the dates indicated of all loans
receivable and mortgage-backed securities before net items which
have fixed interest rates and adjustable interest rates. Adjustable-rate
loans include all loans with original maturities of five years or less.
<TABLE>
<CAPTION>
At December 31,
---------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Residential Mortgage Loans
Fixed Rates $ 186,886 $ 157,706 $ 225,305 $ 317,808 $ 331,045
Adjustable Rates 491,681 494,090 440,381 424,492 365,772
----------- ----------- ----------- ----------- -----------
Total $ 678,566 $ 651,796 $ 665,686 $ 742,300 $ 696,817
=========== =========== =========== =========== ===========
Commercial Real Estate Loans
Fixed Rates $ 11,948 $ 15,770 $ 21,835 $ 39,434 $ 50,627
Adjustable Rates 50,676 54,541 55,009 69,035 69,254
----------- ----------- ----------- ----------- -----------
Total $ 62,624 $ 70,311 $ 76,844 $ 108,469 $ 119,881
=========== =========== =========== =========== ===========
Total Real Estate Loans
Fixed Rates $ 198,833 $ 173,476 $ 247,140 $ 357,242 $ 381,672
Adjustable Rates 542,357 548,631 495,390 493,527 435,026
----------- ----------- ----------- ----------- -----------
Total $ 741,190 $ 722,107 $ 742,530 $ 850,769 $ 816,698
=========== =========== =========== =========== ===========
Consumer Loans
Fixed Rates $ 411,030 $ 307,136 $ 251,297 $ 189,551 $ 140,905
Adjustable Rates 163,980 167,329 131,063 108,655 97,987
----------- ----------- ----------- ----------- -----------
Total $ 575,009 $ 474,465 $ 382,360 $ 298,206 $ 238,892
=========== =========== =========== =========== ===========
Business Loans
Fixed Rates $ 0 $ 0 $ 0 $ 0 $ 0
Adjustable Rates 72,146 41,770 29,308 15,542 1,840
----------- ----------- ----------- ----------- -----------
Total $ 72,146 $ 41,770 $ 29,308 $ 15,542 $ 1,840
=========== =========== =========== =========== ===========
Total Mortgage-Backed Securites
and Loans Receivable
Fixed Rates $ 609,863 $ 480,612 $ 498,437 $ 546,793 $ 522,577
Adjustable Rates 778,482 757,730 655,761 617,724 534,853
----------- ----------- ----------- ----------- -----------
Total $ 1,388,345 $ 1,238,342 $ 1,154,198 $ 1,164,517 $ 1,057,430
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 8
Residential Mortgage Loans. The original contractual
loan payment period for residential loans originated by First
Indiana normally ranges from 10 to 30 years. Because borrowers
may refinance or prepay their loans, however, such loans normally
remain outstanding for a substantially shorter period. First Indiana
sells almost all fixed-rate residential loans to secondary market
investors, including the Federal Home Loan Mortgage Corporation
("FHLMC") and the Federal National Mortgage Association
("FNMA").
Residential originations amounted to $354 million in
1995, a 3.2 percent increase over 1994. First Indiana enjoyed a
resurgence of residential mortgage loan sales as part of the Bank's
normal mortgage banking activity, resulting in pre-tax gains of
$1.2 million.
First Indiana's fixed-rate mortgage loans include a due-on-sale clause,
which gives the Bank the right to declare a loan immediately due and
payable if, among other things, the borrower sells or otherwise disposes of
the real property subject to the mortgage and the loan is not repaid.
Due-on-sale clauses are generally considered important tools to prevent
both the unrestricted transfer of low interest-rate loans in high interest-rate
environments and the corresponding increase in the average life of
such loans. First Indiana's policy is to enforce these clauses in its
loan contracts.
Commercial Loans. First Indiana offers a variety of
commercial loans, primarily residential construction loans,
business loans, and commercial real estate loans (including land
development loans).
First Indiana's construction loans are made both to
individuals and builders. These loans have terms ranging from six
months to one year and include options for the home buyer to
convert the loan to fixed- or adjustable-rate permanent financing.
The interest rate on construction loans is generally one percent
over the Bank's prime rate and adjusts upon changes in the prime
rate. At December 31, 1995 and 1994, the Bank's construction
loans outstanding equaled $208 million and $187 million.
Also included in business loans are $13 million in land
development loans, which are exclusively for the acquisition and
development of land into individual single-family building lots.
The interest rate on land development loans is generally one and
one-quarter percent over the Bank's prime rate, which adjusts upon
changes in the prime rate, and the term of these loans is generally
36 months.
The following table presents the remaining maturities and
rate sensitivity of residential construction and business loans.
<TABLE>
<CAPTION>
Remaining Maturities
--------------------
One Year Over One Year Over
or Less to Five Years Five Years Total Percent
(Dollars in Thousands) -------- ------------- ---------- ----- -------
<S> <C> <C> <C> <C> <C>
Type of Loan:
Residential Construction $ 127,707 $14,224 $368 $142,299 66.3 %
Business 57,271 14,875 - 72,146 33.7
------------- ------- ---- -------- -------
Total $ 184,978 $29,099 $368 $214,445 100.0 %
============= ======= ==== ======== =======
Rate Sensitivity:
Adjustable Rate $ 184,978 $29,099 $368 $214,445 100.0 %
------------- ------- ---- -------- -------
Total $ 184,978 $29,099 $368 $214,445 100.0 %
============= ======= ==== ======== =======
</TABLE>
<PAGE> 9
Multi-family and commercial real estate lending was a
substantial part of First Indiana's business activities from the early
1970's until 1991, when such activity was largely curtailed because
of the economic environment. With the changing environment and
improved market for commercial real estate lending, the Bank
intends to increase somewhat its volume of these loans to include
permanent financing for selected apartments, office buildings and
warehouses. The Bank's management continues to monitor the
credit quality of these loans aggressively, both with respect to new
originations and loans already in the portfolio.
The following table shows, as of December 31, 1995 and
1994, outstanding multi-family and commercial real estate loans
originated and purchased by First Indiana.
<TABLE>
<CAPTION>
1995 1994
(Dollars in Millions) Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Loans Originated $54.5 97.7 $59.9 97.9
Loans Purchased 1.3 2.3 1.3 2.1
----- ---- ----- ----
$55.8 100.0 $61.2 100.0
===== ===== ===== =====
</TABLE>
Consumer Lending. As part of its strategy for growth
in interest income, First Indiana has increased its origination and
purchase of consumer loans, primarily home equity loans and home
equity lines of credit. At December 31, 1995, such loans totaled
$575.0 million, or 41.4 percent of total loans receivable, compared
with $474.5 million, or 38.3 percent of total loans receivable, at
December 31, 1994.
Consumer loans generally have shorter terms and higher
interest rates than residential loans but involve somewhat higher
credit risks, particularly for unsecured lending. Of the $575.0
million of consumer loans outstanding at December 31, 1995, 84.4
percent were secured by first or second mortgages on real property,
0.5 percent was secured by deposits, and 15.1 percent were
secured by personal property.
First Indiana offers revolving lines of credit and loans
secured by a lien on the equity in the borrower's home in amounts
up to 100 percent of the appraised value of the real estate. For
lines of credit at or below an 80 percent loan-to-value ("LTV")
ratio, the interest rate is the Wall Street Journal prime rate plus one
or two percent, depending on the size of the loan. The interest rate
rises in various increments as the LTV ratio increases. The highest
rate charged is the Wall Street Journal prime rate plus 3.5 percent
for lines of credit at a 100 percent LTV. At December 31, 1995,
the Bank had approximately $204.9 million in loans above 80
percent LTV. Each month, holders of revolving lines of credit with
up to an 80 percent LTV ratio are billed monthly for interest at the
daily periodic rate due on the daily loan balances for the billing
cycle. Holders of revolving lines of credit above 85 percent LTV
are required to pay at least two percent of the outstanding loan
balance.
First Indiana also offers variable- and fixed-rate term
home equity loans with up to a 100 percent LTV ratio. Borrowers
of fixed-rate term loans make fixed payments over a term ranging
from one to 15 years. Variable-rate term loans in excess of 80
percent LTV feature monthly payments equal to two percent of the
outstanding loan balance. At December 31, 1995, First Indiana
had approved $260 million of 80 percent LTV lines of credit, of
which $154 million were outstanding, compared with $245
million of such lines which had been approved at December 31,
1994, $131 million of which were outstanding.
Until August 1994, First Indiana offered indirect auto
lending through a network of dealers throughout the Midwest. The
Bank discontinued this activity as part of its strategic plan to focus
its resources on core real estate businesses in which management
believes it can differentiate itself from the competition more
effectively. First Indiana will continue to offer direct automobile
loans as an accommodation to its customers. These loans will be
made generally for terms of one to five
<PAGE> 10
years at variable and fixed rates of interest.
The balances of First Indiana's installment loans,
including the remaining portfolio of automobile loans, were $83
million and $137 million at December 31, 1995 and 1994. The
size of this portfolio will decline as loans made under the
discontinued indirect automobile lending program pay off.
First Indiana makes loans secured by deposits and
overdraft loans in connection with its checking accounts. First
Indiana also offers fixed-rate, fixed-term loans primarily for home
improvement purposes; unsecured loans; and Visa credit cards
through an agent.
Consumer loans may entail greater risk than residential
mortgage loans, particularly in the case of consumer loans that are
unsecured or secured by rapidly depreciating assets such as
automobiles. First Indiana has endeavored to reduce certain of
these risks by, among other things, employing individuals
experienced in this type of lending and emphasizing prompt
collection efforts. In addition, First Indiana adds general provisions
to its loan loss allowance, in amounts determined to be adequate to
cover future loan losses, at the time the loans are originated.
Federal regulations limit the amount of consumer loans
that savings institutions are able to originate and hold in their loan
portfolios. First Indiana complies with such regulations, and the
amount of its consumer loan portfolio is approximately $446
million below the maximum permitted.
Origination, Purchase, and Sale of Loans. As a
federally chartered savings bank, First Indiana has general authority
to make real estate loans throughout the United States. At
December 31, 1995, however, most of First Indiana's real estate
loans receivable were secured by real estate located in Indiana.
First Indiana also originates loans through a subsidiary in several
other states, principally Florida and North Carolina.
Interest rates charged by First Indiana on its new loans are
affected primarily by the demand for such loans and the supply of
money available for lending purposes. These factors are in turn
affected by general economic conditions and such other factors as
monetary policies of the federal government, including the Federal
Reserve Board, the general supply of money in the economy,
legislative tax policies, and governmental budgetary matters.
Loan originations come from a number of sources.
Residential loan originations are attributable primarily to referrals
from real estate brokers, builders, and walk-in customers.
Construction loan originations are obtained primarily by direct
solicitation of builders and repeat business from builders. Multi-family
and commercial real estate loan originations are obtained
from previous borrowers and direct contacts with First Indiana.
Consumer loans come from walk-in customers, commissioned loan
brokers, agents and originators. First Indiana aggressively solicits
residential loans with a sales force that works with real estate
brokers and builders to obtain referrals.
First Indiana obtains title insurance on secured properties
and requires borrowers to obtain hazard insurance and, if
applicable, flood insurance. First Indiana's appraisers note any
obvious environmental problems, and the title companies the Bank
uses to close loans give First Indiana an endorsement insuring over
any existing environmental liens.
Income from Lending Activities. In making long-term
one- to four-family home mortgage loans, First Indiana generally
charges an origination fee of one percent of the loan amount. As
part of the loan application, the applicant also reimburses First
Indiana for its out-of-pocket costs in reviewing the application,
such as the appraisal fee, whether or not the loan is closed. The
interest rate charged is normally the prevailing rate at the time the
loan application is received. Commitments to home purchasers
generally have a term of 60 days or less from the date First Indiana
issues the loan commitment.
In the case of one-to-four-family residential construction
loans, First Indiana charges a one to three percent non-refundable
commitment fee. Interest rates on construction loans are based on
the prevailing lending rates at the time the commitment is
extended. Commitment fees and other terms of commercial real
estate and business loans are individually negotiated.
<PAGE> 11
First Indiana earns fees on existing loans, including
prepayment charges, late charges, and assumption fees.
Servicing Activity. First Indiana's sale of whole loans
and loan participations in the secondary market generates income
and provides additional funds for loan originations. In the case of
loans sold with servicing retained where the stated servicing fee
differs materially from a current, normal servicing fee, the sales
price is adjusted to provide a normal servicing fee in each
subsequent year for purposes of determining gain or loss on the
sale. At December 31, 1995, the balance of deferred excess
servicing was approximately $735,000. The resulting deferred
balance is amortized in proportion to the related net servicing
income over the estimated life of the loans.
In the second quarter of 1995, First Indiana purchased
$310 million in mortgage loan servicing rights. The December 31,
1995 balance of $3.5 million will be amortized in proportion to the
related net servicing income over the estimated life of the loans.
At December 31, 1995, First Indiana serviced
approximately $1.1 billion in loans and loan participations which
it had sold. As of December 31, 1995, approximately $26.9
million in loans, or about 2.1 percent of First Indiana's loans
receivable after net items, were serviced by others.
Asset Quality
General. First Indiana's asset quality is directly affected
by the credit risk of the assets on its balance sheet. A significant
portion of First Indiana's credit risk is concentrated in its loan and
real estate owned ("REO") portfolios. Consequently, First Indiana
has established policies and procedures to ensure accurate and
timely assessment of credit risk.
The procedures for reviewing the quality of First Indiana's
loans, the appropriateness of loan and REO classifications, and the
adequacy of loan and REO loss allowances fall within the purview
of First Indiana's Board of Directors. To manage these tasks, the
Board of Directors has established a two-tiered asset review
system. Under this system, standing management committees
regularly discuss and review potential losses on all loans and REO
and the adequacy of First Indiana's loan and REO loss allowances.
Recommendations on the allowances are forwarded to the
Investment Committee of First Indiana's Board of Directors for
approval each quarter, then presented to the full Board of Directors
for approval and ratification. Management committees also
recommend loan and REO classifications which, if approved by the
Advisory Committee of the Board of Directors, are referred to the
full Board for final approval and ratification.
The other part of First Indiana's asset review system is
managed by an independent credit review officer appointed by the
Board of Directors. The credit review officer makes an
independent evaluation of First Indiana's portfolio and
management's recommendations on allowances for loan and REO
losses. He then regularly reviews these recommendations with
First Indiana's Chairman. These meetings give the credit review
officer a forum for discussing asset quality issues with a member
of the Board of Directors who has no loan approval authority. This
system provides an independent check on management's
recommendations about loan and REO classifications and loss
allowances. This entire process is subject to the continual review
and approval by the Board of Directors.
The Board of Directors establishes general allowances as
percentages of loans outstanding. The percentages are based on a
model that incorporates empirical data about loss experience,
credit risk, geographic diversity, general economic trends, and
other factors.
Specified reserves are established through a rating system
based on numerous factors. Certain loans are placed on a watch
list. Management then calculates the value of the collateral (based
upon the ability of the underlying property's cash flow to support
the current loan structure) for all loans on the watch list and
recommends specified reserves as appropriate. Final approval of
the credit review officer's recommendations on general and
specified reserves is subject to review by the chairman and the
Board of Directors as described above.
Management believes that First Indiana's current loan and
REO loss allowances are sufficient to absorb potential
<PAGE> 12
future losses; however, there can be no assurance that additional
allowances will not be required or that the amount of any such
allowances will not be significant. In addition, various regulatory
agencies, as an integral part of their examinations, periodically
review these allowances and may require First Indiana to recognize
additions to the allowances based on their judgment about
information available at the time of their examination. No such
additions were required by the Office of Thrift Supervision (the
"OTS") or the FDIC in their most recent examinations of First
Indiana.
As of January 1, 1995, the Bank adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a
Loan." The Bank reviews all loans except those which are smaller balance
and homogenous in nature. The homogenous loan portfolios include residential
mortgage loans secured by one- to four-family dwellings, consumer loans, and
certain business and residential construction loans which do not meet the
Bank's parameters for review. Loans subject to review under SFAS 114 include
commercial real estate loans and larger business and residential construction
loans which, because of their size, nature and unique characteristics, could
negatively impact the Bank if the borrower experiences credit deterioration.
First Indiana places loans on non-accrual status when payments of
principal or interest become 90 days or more past due, or earlier when an
analysis of a borrower's creditworthiness indicates that payments could
become past due. A loan is deemed impaired when, in the opinion of manage-
ment, full collection of the contractual principal and interest is not
probable.
At December 31, 1995, the Bank identified an impaired loan totaling
$3,306,000 with an allocated reserve of $167,000. The interest income
earned on this loan in 1995 was $300,000, only $48,000 below the contractual
interest.
The Investment Committee of First Indiana's Board of
Directors is responsible for monitoring and reviewing First
Indiana's liquidity and investments. The Investment Committee
approves investment policies and meets quarterly to review
transactions. Credit risk is controlled by limiting the number and
size of investments and by approving the brokers and dealers
through which investments are made.
Regulatory Classification of Assets. Federal
regulations require that each savings institution regularly classify
its own assets. In addition, in connection with examinations of
savings institutions, the OTS and the FDIC examiners have
authority to identify problem assets and, if appropriate, to require
them to be classified.
There are three classifications for problem assets:
Substandard, Doubtful and Loss. Substandard assets have one or
more defined weaknesses and are characterized by the distinct
possibility that the institution will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the
weaknesses of Substandard assets, with the additional
characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a significant possibility of loss. An asset
classified as Loss is considered uncollectible and of such little
value that continuance as an asset of the institution is not
warranted.
Assets classified as Substandard or Doubtful require the
institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as Loss, the institution
must either establish specific allowances for loan losses in the
amount of 100 percent of the portion of the asset classified Loss or
charge off such amount. If an institution does not agree with an
examiner's classification of an asset, it may appeal this
determination to the District Director of the OTS.
On the basis of management's review of its assets as of
December 31, 1995 on a net basis, First Indiana had classified
$34.5 million as Substandard, compared with $31.2 million and
$35.6 million at December 31, 1994 and 1993. The amount of
First Indiana's Doubtful and Loss loans at each such date was
immaterial.
Non-Performing Assets. First Indiana categorizes its
non-performing assets into four categories: Non-Accrual Loans,
Impaired Loans, Restructured Loans, and Real Estate Owned.
First Indiana places loans on non-accrual status when
payments of principal or interest become 90 days or more
<PAGE> 13
past due, or earlier when an analysis of a borrower's creditworthiness
indicates that payments could become past due. Total non-accrual
loans were $14.7 million at December 31, 1995, compared with
$11.0 and $10.9 million at December 31, 1994 and 1993.
At December 31, 1995, First Indiana identified an
impaired loan totaling $3.4 million which had an allocated reserve
of $167,000.
Loan modifications classified as troubled debt
restructuring as defined in Statement of Financial Accounting
Standard No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructuring," amounted to $5.9 million at
December 31, 1995, compared with $10.7 and $11.3 million at
December 31, 1994 and 1993. Management modified the payment
terms, interest rates, and contractual maturities of these loans with
the objective of improving the likelihood of recovery of First
Indiana's investment.
REO is generally acquired by deed in lieu of foreclosure
and is carried at the lower of cost (the unpaid balance at the date of
acquisition plus foreclosure and other related costs) or fair market
value. A review of REO properties, including the adequacy of the
loss allowance and decisions whether to charge off REO, occurs in
conjunction with the review of the loan portfolios.
First Indiana has carefully managed its loan portfolio,
including its non-performing assets, to reduce exposure to the
commercial real estate loan sector and to diversify its assets
geographically and by type of loan. Accordingly, First Indiana has
not experienced the difficulties faced by financial institutions which
have had concentrations in areas of the country hardest hit by
economic cycles. First Indiana's non-performing assets fell seven
percent in 1995 to $27.2 million at December 31, 1995 from $29.1
million one year earlier.
Summary of Loan Loss Experience. First Indiana
regularly reviews the status of all non-performing assets to evaluate
the adequacy of the allowances for losses on loans and real estate
owned.
Investment Activities
Federally chartered savings institutions have authority to
invest in various types of liquid assets, including United States
Treasury obligations, securities of various federal agencies, certain
certificates of deposits of insured banks and savings institutions,
certain bankers' acceptances, and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest
a portion of their assets in commercial paper and corporate debt
securities and in mutual funds whose assets conform to the
investments a federally chartered savings institution is otherwise
authorized to make directly.
As an Indiana corporation, the Corporation has authority
to invest in any type of investment permitted under Indiana law. As
a savings and loan holding company, however, its investments are
subject to certain regulatory restrictions described under "Savings
Institution Regulation."
The relative mix of investment securities and loans in
First Indiana's portfolio is dependent upon management's
evaluation of the yields available on loans compared to investment
securities. The Board of Directors has established an investment
policy, and the Investment Committee of the Board meets quarterly
with management to establish more specific investment guidelines
about types of investments, relative amounts, and maturities. First
Indiana's current investment guidelines do not permit investment
purchases in below investment grade corporate bonds (minimum
investment rating of A-) or "junk" bonds. Liquid investments are
managed to ensure that regulatory requirements are satisfied.
At December 31, 1995, First Indiana's investments
totaled $102.7 million, or 6.74 percent of total assets, and
consisted primarily of U.S. Treasury and agency obligations,
corporate debt securities and asset-backed securities. For
additional information concerning investments held by the
Corporation at certain dates, see the Corporation's Consolidated
Financial Statements, including Note 2 thereto.
<PAGE> 14
Sources of Funds
General. Deposits are an important source of the
Corporation's funds for use in lending and for other general
business purposes. In addition to deposits, First Indiana derives
funds from repayments of loans and mortgage-backed securities,
Federal Home Loan Bank ("FHLB") advances, repurchase
agreements, short-term borrowings, and sales of loans.
Repayments of loans and mortgage-backed securities are a
relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used to compensate
for reductions in normal sources of funds, such as deposit inflows
at less than projected levels, or to support expanded activities.
Historically, First Indiana's borrowings have been primarily from
the FHLB and through repurchase agreements.
Deposits. First Indiana has a wide variety of deposit
programs designed to attract both short-term and long-term
deposits from the general public. These deposit accounts include
passbook accounts, non-interest-bearing demand accounts, NOW
accounts, and money market checking accounts, as well as fixed-rate
certificates and money market accounts. In 1996 First Indiana
intends to increase checking accounts and certificates of deposit in
an effort to reduce funding costs and strengthen core deposits.
The following table shows the distribution of First
Indiana's deposits by interest-rate categories at each of the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
(Dollars in Thousands) 1995 1994 1993
Rate
<S> <C> <C> <C>
Under 3.00% $195,188 $271,294 $421,825
3.00 - 5.00 177,524 315,168 449,268
5.01 - 7.00 695,103 403,449 93,783
7.01 - 9.00 50,354 26,537 37,499
9.01 - 11.00 917 1,584 10,098
11.01 - 13.00 0 131 2,835
--------- -------- -------
$1,119,086 $1,018,163 $1,015,308
</TABLE>
<PAGE> 15
The following table reflects the increase (decrease) in
deposits for various types of deposit programs offered by First
Indiana for each of the periods indicated:
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C>
NOW Checking and
Non-Interest-Bearing
Deposits $ 13,990 $ (749) $ 19,384
Money Market
Checking (3,355) (10,503) 2,318
Passbook and
Statement Savings 34,797 854 1,191
Money Market Savings (8,860) (8,804) 1,234
Jumbo Certificates of
$100 or More 54,943 7,831 35,112
Fixed-Rate Certificates 9,408 14,226 (85,970)
-------- -------- --------
Total Increase (Decrease) $100,923 $2,855 $(26,731)
======== ======== ========
</TABLE>
First Indiana's jumbo certificates of $100,000 or more at
December 31, 1995, the maturities of such deposits, and the
percentage of total deposits represented by these certificates are set
forth in the table below:
<TABLE>
<CAPTION>
Over
Three
Three Months to Over Six % of
Months or Six Months to Over One Total
Less Months One Year Year Total Deposits
(Dollars in Thousands) --------- ---------- --------- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Jumbo Certificates of $100
or More $45,170 $17,597 $7,728 $49,970 $120,465 10.76%
</TABLE>
Borrowings. The FHLB of Indianapolis functions as a
central reserve bank providing credit for financial institutions in
Indiana and Michigan. As a member of the FHLB of Indianapolis,
First Indiana is required to own capital stock in the FHLB of
Indianapolis and is authorized to apply for advances on the security
of such stock and certain of First Indiana's residential mortgage
loans and other assets, provided subject to credit standards. The
FHLB of Indianapolis advances are made pursuant to several
different credit programs, each with its own interest rate and range
of maturities.
The FHLB of Indianapolis prescribes the acceptable uses
for advances and imposes size limits on them. Acceptable uses
have included expansion of residential mortgage lending and short-term
liquidity needs. Depending on the program, limitations on the
amount of advances are generally based on the FHLB of
Indianapolis' assessment of the institution's creditworthiness. At
December 31, 1995, First Indiana had $214.8 million in FHLB of
Indianapolis advances (14.09
<PAGE> 16
percent of total assets), with a weighted average rate of 5.97 percent.
First Indiana also enters into repurchase agreements as a
short-term source of borrowing, but only with registered
government securities dealers.
Borrowings Balances. The following table sets forth
certain information regarding repurchase agreements and federal
funds purchased (short-term borrowings) at and for the years ended
on the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C>
Highest Month-End Balance of Short-Term Borrowings
During the Year $61,982 $35,922 $29,459
Average Month-End Balance of Short-Term Borrowings
During The Year 41,963 6,137 13,180
Weighted Average Interest Rate of Short-Term Borrowings
During the Year 6.17% 5.23% 3.19%
Weighted Average Interest Rate of Short-Term Borrowings
at End of the Year 5.81 6.14 -
</TABLE>
Regulatory Capital
Risk-Based Capital. Savings institutions are required
to have risk-based capital of eight percent of risk-weighted assets.
At December, 31, 1995, First Indiana's risk-based capital was
$141.4 million, or 11.53 percent of risk-weighted assets. Risk-based
capital is defined as common equity, less goodwill, the
excess portion of land loans with a loan-to-value ratio of greater
than 80 percent, and investments in non-mortgage-lending-related
subsidiaries, plus general allowances for loan losses. Risk-weighting
of assets is derived from assigning one of four risk-weighted categories
to an institution's assets, based on the degree of credit risk associated
with the asset. The categories range from zero percent for low-risk assets
(such as United States Treasury securities) to 100 percent for high-risk assets
(such as real estate owned). The carrying value of each asset is then
multiplied by the risk-weighting applicable to the asset category. The sum of
the products of the calculation equals total risk-weighted assets.
Core Capital. Savings institutions are also required to
maintain a minimum leverage ratio, under which core (Tier One)
capital must equal at least three percent of total assets, but not less
than the minimum required by the Office of the Comptroller of the
Currency (the "OCC") for national banks, which minimum
currently stands at four percent. First Indiana's primary regulator,
the OTS, is expected to adopt the OCC minimum. The
components of core capital are the same as those set by the OCC
for national banks, and consist of common equity, plus non-cumulative
preferred stock and minority interest in consolidated
subsidiaries, minus certain intangible assets, including purchased
loan servicing. At December 31, 1995, First Indiana's core capital
and leverage ratio were $127.2 million and 8.26 percent.
Tangible Capital. Savings institutions must also
maintain minimum tangible capital of 1.5 percent of total assets.
First Indiana's tangible capital and tangible capital ratio at
December 31, 1995, were $127.2 million and 8.26 percent
respectively. Management intends to maintain capital well in
excess of regulatory minimums.
Capital Regulations. The OTS has minimum capital
standards that place savings institutions into one of five categories,
from "critically undercapitalized" to "well-capitalized," depending
on levels of three measures of capital. A well-capitalized
institution as defined by the regulations has a total risk-based
capital ratio of at least ten percent, a Tier One (core) risk-based
capital ratio of at least six percent, and a leverage (core) risk-based
capital ratio of at least five percent. At December 31, 1995 First
Indiana was classified as "well-capitalized."
Effective January 1, 1994, the OTS adopted regulations
adding an interest-rate risk component to the proposed
<PAGE> 17
capital regulations. Under this component, an institution with an "above
normal" level of interest-rate risk exposure is subject to an "add-on" to
its risk-based capital requirement. "Above normal" interest-rate risk
is defined as a reduction in "market value portfolio equity"
(as defined) resulting from a 200 basis point increase or decrease
in interest rates, if the decline in value exceeds two percent of the
institution's assets. Institutions failing to meet this test will be
required to add to their risk-based capital. Based on its interest-rate
risk at December 31, 1995, First Indiana was not required to
add to its risk-based capital under the new regulation.
The OTS issued this final rule to implement the portions
of section 305 of the Federal Deposit Insurance Corporation
Improvement Act of 1991, which requires the agencies to revise
their risk-based capital standards for insured depository institutions
to ensure that those standards take adequate account of
concentration of credit risk and the risks of nontraditional activities.
The final rule amends the risk-based capital standards by explicitly
identifying concentration of credit risk and certain risks arising
from nontraditional activities, as well as an institution's ability to
manage these risks, as important factors in assessing an institution's
overall capital adequacy. First Indiana does not expect its required
level of risk-based capital to increase by these rules.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data
presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of
money over time due to inflation.
Virtually all of the assets and liabilities of a financial
institution are monetary, which limits the usefulness of data derived
by adjusting a financial institution's financial statements for the
effects of changing prices.
Regulation
Federal Deposit Insurance Corporation Improvement Act
of 1991
The Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), contains various provisions intended to
recapitalize the Bank Insurance Fund and enacts a number of
regulatory reforms that affect all insured depository institutions,
regardless of the insurance fund in which they participate. Among
other things, FDICIA grants the OTS broader regulatory authority
to take prompt corrective action against insured institutions that do
not meet capital requirements, including placing severely under-capitalized
institutions into conservatorship or receivership. Since
First Indiana exceeded all capital requirements at December 31,
1995, these provisions are not expected to have any significant
impact on its operations.
Savings and Loan Holding Company Regulations
General. Under the Home Owner's Loan Act ("HOLA"),
as amended, the Director of the OTS has regulatory jurisdiction
over savings and loan holding companies. The Corporation, as a
savings and loan holding company within the meaning of HOLA,
is subject to regulation, supervision and examination by and the
reporting requirements of the Director of OTS.
Savings Institution Regulation
General. As a SAIF-insured savings institution, First
Indiana is subject to supervision and regulation by the Director of
OTS. Under OTS regulations, First Indiana is required to obtain
audits by independent auditors and to be examined periodically by
the Director of OTS. First Indiana is subject to assessments by
OTS and the FDIC to cover the costs of such examinations. The
OTS may revalue assets of First Indiana based upon appraisals and
require the establishment of specified reserves in amounts equal to
the difference between such revaluation and the book value of the
assets. The Director of the OTS also is authorized to promulgate
regulations to ensure the safe and sound operations of savings
institutions and may impose various requirements and restrictions
on the activities of savings institutions.
<PAGE> 18
The regulations and policies of the Director of the OTS
for the safe and sound operations of savings institutions can be no
less stringent than those established by the OCC for national
banks. Additionally, under the FDICIA, the OTS prescribed safety
and soundness regulations in 1995 relating to (i) internal controls,
information systems, and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest-rate
exposure; (v) asset growth; and (vi) compensation and benefit
standards for officers, directors, employees and principal
shareholders. These regulations are not expected to have a
material effect on First Indiana.
As a member of SAIF, First Indiana is also subject to
regulation and supervision by the FDIC, in its capacity as
administrator of SAIF, to ensure the safety and soundness of SAIF.
Qualified Thrift Lender Requirement. In order for
First Indiana to exercise the powers granted to federally chartered
savings institutions and maintain full access to FHLB advances, it
must be a "qualified thrift lender" ("QTL"). A savings institution
is a QTL if its qualified thrift investments equal or exceed 65
percent of the savings institution's portfolio assets on a monthly
average basis in nine out of 12 months. As amended by the
FDICIA, qualified thrift investments generally consist of (i) various
housing related loans and investments (such as residential
construction and mortgage loans, home improvement loans, mobile
home loans, home equity loans, and mortgage-backed securities);
(ii) certain obligations of the FDIC, the Federal Savings and Loan
Insurance Corporation Resolution Fund and the Resolution Trust
Corporation (for limited periods); and (iii) shares of stock issued
by any Federal Home Loan Bank, the Federal Home Loan
Mortgage Corporation, or the Federal National Mortgage
Association.
At December 31, 1995, the qualified thrift investment
percentage test for First Indiana was in excess of 87 percent. First
Indiana complies with the new QTL test as revised upon enactment
of FDICIA.
Liquidity. Under applicable federal regulations, savings
institutions are required to maintain an average daily balance of
liquid assets (including cash, certain time deposits, certain banker's
acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds and specified
Untied States government, state or federal agency obligations)
equal to a monthly average of not less than a specified
withdrawable deposits plus short-term borrowings. Under HOLA,
this liquidity requirement may be changed from time to time by the
Director of the OTS to any amount within the range of four percent
to ten percent, depending upon economic conditions and the
deposit flows of member institutions. The Bank's liquidity ratio at
December 31, 1995 was 6.50 percent. A savings institution is also
required to maintain an average daily balance of short-term liquid
assets at a specified percentage (currently one percent) of the total
of the average daily balance of its net withdrawable deposits and
short-term borrowing. At December 31, 1995, First Indiana was
in compliance with these liquidity requirements.
Loans-to-One-Borrower Limitations. HOLA generally
requires savings institutions to comply with the loans-to-one-borrower
limitations applicable to national banks. In general,
national banks may make loans to one borrower in amounts up to
15 percent of the bank's unimpaired capital and surplus, plus an
additional 10 percent of capital and surplus for loans secured by
readily marketable collateral. At December 31, 1995, First
Indiana's loan-to-one borrower limitation was approximately
$21.6 million, and no loans to a single borrower exceeded that
amount.
Commercial Real Property Loans. HOLA limits the
aggregate amount of commercial real estate loans that a federal
savings institution may make to an amount not in excess of 400
percent of the savings institution's capital. First Indiana was in
compliance at December 31, 1995.
Limitation on Capital Distributions. Under OTS
regulations, a savings institution is classified as a tier 1 institution,
a tier 2 institution or a tier 3 institution, depending on its level of
regulatory capital both before and after giving effect to a proposed
capital distribution. A tier 1 institution may generally make capital
distributions in any calendar year up to 100 percent of its net
income to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (i.e., the percentage by
which the institution's capital-to-assets ratio exceeds the ratio of its
fully-phased-in capital requirements to its assets) at the beginning
of the calendar year. No regulatory approval of the capital
distribution is required, but prior notice must be given to the OTS.
Restrictions exist on the ability of tier 2 and tier 3 institutions to
make capital distributions. For purposes of these regulations, First
Indiana is a tier 1 institution.
<PAGE> 19
Limitation of Equity Risk Investments. Under
applicable regulations, First Indiana is generally prohibited from
investing directly in equity securities and real estate (other than that
used for offices and related facilities or acquired through, or in lieu
of, foreclosure or on which a contract purchaser has defaulted). In
addition, OTS regulations limit the aggregate investment by
savings institutions in certain equity risk investments including
equity securities, real estate, service corporations and operating
subsidiaries and loans for the purchase of land and construction
loans made after February 27, 1987 on non-residential properties
with loan-to-value ratios exceeding 80 percent. At December 31,
1995, First Indiana was in compliance with the equity risk
investment limitations.
Insurance of Deposits. FDIC-insured institutions pay
deposit insurance premiums between $.23 and $.31 per $100 of
their domestic deposits, depending on their placement within one
of nine categories. The categories are determined by (i) the insured
institution's placement in capital group 1, 2, or 3, depending on its
classification as "well-capitalized," "adequately capitalized," or
"undercapitalized," and (ii) its supervisory rating of A, B, or C.
Well-capitalized institutions with a supervisory rating of A pay
$.23 per $100 of deposits, while undercapitalized institutions with
a rating of C pay $.31 per $100 of deposits. First Indiana was a
well-capitalized institution at December 31, 1995, and pays $.23
per $100 of deposits.
Legislation pending in Congress proposes a one-time
assessment on all SAIF-insured deposits in the range of $.85 to
$.90 per $100 of domestic deposits. This one-time assessment is
intended to recapitalize the Savings Association Insurance Fund to
the required level of 1.25 percent of insured deposits, and could be
payable in 1996. If the assessment occurs, the effect on First
Indiana would be a pre-tax charge of approximately $8.9 million,
but the Bank's well-capitalized ranking would not be adversely
affected. At the current time, this legislation is awaiting the budget
reconciliation between the Executive Branch and the Congress.
Community Reinvestment Act. Ratings of depository
institutions under the Community Reinvestment Act of 1977
("CRA") must be disclosed. The disclosure includes both a four-tier
descriptive rating using terms such as satisfactory and
unsatisfactory and a written evaluation of each institution's
performance. Also, the FHLB is required to adopt regulations
establishing standards of community investment and service for
members of the FHLB System to meet to be eligible for long-term
advances. Those regulations are required to take into account a
savings institution's CRA record and the member's record of
lending to first-time home buyers. The Corporation intends to
maintain its long-standing record of community lending and to
meet or exceed the CRA standards under FIRREA.
Transactions with Affiliates
Pursuant to HOLA, transactions engaged in by a savings
institution or one of its subsidiaries with affiliates of the savings
institution generally are subject to the affiliate transaction
restrictions contained in Sections 23A and 23B of the Federal
Reserve Act. Section 23A of the Federal Reserve Act imposes
both quantitative and qualitative restrictions on transactions
engaged in by a member bank or one of its subsidiaries with an
affiliate, while Section 23B of the Federal Reserve Act requires,
among other things, that all transactions with affiliates be on terms
substantially the same as and at least as favorable to the member
bank or its subsidiary as the terms that would apply to or would be
offered in a comparable transaction with an unaffiliated party.
Section 22(h) of the Federal Reserve Act imposes
restrictions on loans to executive officers, directors and principal
shareholders. Under Section 22(h), loans to an executive officer
or to a greater than ten percent shareholder of a savings institution,
or certain affiliated entities of either, may not exceed the
institution's loan-to-one-borrower limit when considered with all
other outstanding loans to such person and affiliated entities.
Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers
and greater than 10 percent shareholders of a savings institution
and their respective affiliates, unless the loan is approved in
advance by a majority of the board of directors of the institution
with any interested director not participating in the voting. The
Federal Reserve Board has prescribed the loan amount (which
includes all other outstanding loans to such person) as to which
such prior board of director approval is required, as the greater of
$25,000 or 5 percent of capital and surplus (up to $500,000).
Further, the Federal Reserve Board requires that loans to directors,
executive officers and principal shareholders be made on terms
<PAGE> 20
substantially the same as offered in comparable transactions to
other persons. First Indiana was in compliance with these
regulations at December 31, 1995.
Federal Home Loan Bank System
The Federal Home Loan Bank System consists of 12
regional FHLBs, each subject to supervision and regulation by the
Federal Housing Finance Board. The FHLBs provide a central
credit facility for member savings institutions. As a member of the
FHLB of Indianapolis, First Indiana is required to own shares of
capital stock in the FHLB in an amount at least equal to one
percent of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. As of December 31, 1995,
First Indiana was in compliance with this requirement.
Federal Reserve System
The Federal Reserve Board has adopted regulations that
require savings institutions to maintain non-earning reserves
against their transaction accounts (primarily NOW and regular
checking accounts) and non-personal time deposits (those which
are transferable or held by a person other than a natural person)
with an original maturity of less than one and one-half years. At
December 31, 1995, First Indiana was in compliance with these
requirements. These reserves may be used to satisfy liquidity
requirements imposed by the Director of the OTS. Because
required reserves must be maintained in the form of vault cash or
non-interest-bearing account at a Federal Reserve Bank, the effect
of this reserve requirement is to reduce the amount of the
institution's interest-earning assets.
Savings institutions also have the authority to borrow
from the Federal Reserve discount window. Federal Reserve
Board regulations, however, require savings institutions to exhaust
all the FHLB sources before borrowing from a Federal Reserve
Bank. The FDICIA places limitations upon a Federal Reserve
Bank's ability to extend advances to under-capitalized and critically
under-capitalized depository institutions. The FDICIA provides
that a Federal Reserve bank generally may not have advances
outstanding to an under-capitalized institution for more than 60
days in any 120-day period.
Taxation
Federal. The Corporation, on behalf of itself, First
Indiana and its subsidiaries, files a calendar tax year consolidated
federal income tax return and reports items of income and expense
using the accrual method of accounting.
Savings institutions are generally taxed in the same
manner as other corporations. Unlike other corporations, however,
qualifying savings institutions such as First Indiana that meet
certain definitional tests relating to the nature of their supervision,
income, assets and business operations are allowed to establish a
reserve for bad debts. For purposes of the bad debt reserve
deduction, loans are separated into "qualifying real property loans"
and "nonqualifying real property loans." "Qualifying real property
loans" are, in general, loans secured by interests in improved real
property or real property to be improved with the proceeds of the
loan. The addition to the reserve with respect to "qualifying real
property loans" may be based on the more favorable of the
following two alternative methods: (I) a method based on the
institution's actual loss experience (the "experience method") or (ii)
a method based on a specified percentage of the institution's
taxable income (the "percentage of taxable income method"). The
addition to the reserve for nonqualifying real property loans must
be computed under the experience method. First Indiana has
generally computed additions to its reserves for losses on
qualifying real property loans using the experience method.
The amount of the bad debt deduction that a savings
institution may claim with respect to additions to its reserve for bad
debts is subject to certain limitations. First, the bad debt deduction
may be reduced or eliminated entirely (regardless of the method of
computation) unless at least 60 percent of the savings institution's
assets fall within certain designated categories. Second, the bad
debt deduction attributable to "qualifying real property loans"
cannot exceed the greater of (i) the amount deductible under the
experience method or (ii) the amount which, when added to the bad
debt deduction for nonqualifying loans, equals the amount by which
12 percent of the sum of the total deposits and the advance
payments by borrowers for taxes and insurance at the end of the
taxable year exceeds the sum of the surplus, undivided profits and
<PAGE> 21
reserves at the beginning of the taxable year. Third, the amount of
the bad debt deduction attributable to qualifying real property loans
computed using the percentage of taxable income method is
permitted only to the extent that the institution's reserve for losses
on qualifying real property loans at the close of the taxable year,
taking into account the addition to that reserve for the taxable year,
does not exceed six percent of such loans outstanding at such time.
Fourth, the amount of the bad debt deduction is reduced,
but not below zero, by the amount of the addition to reserves for
losses on nonqualifying loans for the taxable year. Finally, a
savings institution that computes its bad debt deduction using the
percentage of taxable income method and files its federal income
tax return as part of a consolidated group, as First Indiana does, is
required to reduce proportionally its bad debt deduction for losses
attributable to activities of non-savings institution members of the
consolidated group that are "functionally related" to the savings
institution member. (The savings institution member is permitted,
however, to proportionally increase its bad debt deduction in
subsequent years to recover any such reduction to the extent the
non-savings institution members realize income in subsequent
years from their "functionally related" activities.) First Indiana
does not expect these restrictions will operate to limit the amount
of its otherwise available bad debt deductions in the reasonably
foreseeable future.
To the extent that (i) a savings institution's reserve for
losses on qualifying real property loans exceeds the amount that
would have been allowed under the experience method and (ii) the
savings institution makes distributions to its shareholders that are
considered to result in withdrawals from that excess bad debt
reserve, then the amounts withdrawn will be included in the
savings institution's taxable income. The amount considered to be
withdrawn by such a distribution will be the amount of the
distribution plus the amount necessary to pay the tax with respect
to the withdrawal. Dividends paid out of the savings institution's
current or accumulated earnings and profits as calculated for
federal income tax purposes, however, will not be considered to
result in withdrawals from its bad debt reserves. Distributions in
excess of the savings institution's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions
in partial or complete liquidation of the savings institution will be
considered to result in withdrawals from the savings institution's
bad debt reserve.
Under Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" ("SFAS 109"), the
Corporation may recognize deferred tax assets for deductible
temporary differences based on an evaluation of the likelihood of
realizing the underlying tax benefits. The realization of these
benefits principally depends upon the following sources of taxable
income (i) taxable income in the current year or prior years that is
available through carryback (potential recovery of taxes paid for
the current year or prior years), or (ii) future taxable income that
will result from the reversal of existing taxable temporary
differences (potential offsetting of deferred tax liabilities), or (iii)
future taxable income, exclusive of the reversal of existing
temporary differences, that is generated by future operations.
In addition, tax-planning strategies may be available to
accelerate taxable income or deductions, change the character of
taxable income or deductions, or switch from tax-exempt to taxable
investments so that there would be sufficient taxable income of the
appropriate character and in the appropriate periods to allow for
realization of the tax benefits.
The Federal Financial Institutions Examination Council
(the "FFIEC") has adopted all provisions of SFAS 109 for
regulatory reporting purposes, including those provisions related
to deferred tax assets. However, the FFIEC agencies have imposed
a limitation on the amount of net deferred tax assets that may be
included in the calculation of regulatory capital. The limitation
requires an institution to deduct from capital, when computing its
regulatory capital ratios, any amount of net deferred tax asset that
is not supported by the sum of the carryback potential of the
institution plus the lower of the next twelve months' estimated
earnings or ten percent of Tier 1 capital. At December 31, 1995,
First Indiana met all the above requirements and had no
adjustments to regulatory capital.
The Internal Revenue Service has examined the tax
returns of First Indiana through 1991, and the Indiana Department
of Revenue has examined the state income tax returns of First
Indiana through 1991. The State of Indiana is currently conducting
a routine tax audit of First Indiana for the years 1992-1994.
As a result of a routine tax audit, the IRS adjusted the
timing of certain income taxes owed by First Indiana for the years
ended December 31, 1985 and 1986. The adjustments involved
the timing of First Indiana's deduction of interest
<PAGE> 22
expense paid on customers' certificate of deposit accounts. First Indiana
paid the taxes and interest and subsequently filed for a refund of these
amounts. The case is still pending, but a tentative settlement has
been reached and the Bank is awaiting final governmental
approval.
State. The State of Indiana imposes a franchise tax on
the "adjusted gross income" of financial institutions at a fixed rate
of 8.5 percent per year. This franchise tax is imposed in lieu of the
gross income tax, adjusted gross income tax, savings and loan
excise tax and supplemental net income tax otherwise imposed on
certain corporate entities and financial institutions. "Adjusted gross
income" is computed by making certain modifications to an
institution's federal taxable income. For example, tax-exempt
interest is included in the savings institution's adjusted gross
income, and the bad debt deduction is limited to actual charge-offs
for purposes of this new financial institutions tax.
Service Corporation Subsidiaries
OTS regulations permit federal savings institutions to
invest in the capital stock, obligations or specified types of
securities of subsidiaries (referred to as "service corporations") and
to make loans to such subsidiaries and joint ventures in which such
subsidiaries are participants in an aggregate amount not exceeding
two percent of an institution's assets, plus an additional one percent
of assets if the amount over two percent is used for specified
community or inner-city development purposes. In addition,
federal regulations permit institutions to make specified types of
loans to such subsidiaries (other than special-purpose finance
subsidiaries), in which the institution owns more than ten percent
of the stock, in an aggregate amount not exceeding 50 percent of
the institution's regulatory capital if the institution's regulatory
capital is in compliance with applicable regulations. FIRREA
requires a savings institution which acquires a non-savings
institution subsidiary, or which elects to conduct a new activity
within a subsidiary, to give the FDIC and the OTS at least 30 days'
advance written notice. The FDIC may, after consultation with the
OTS, prohibit specific activities if it determines such activities
pose a serious threat to SAIF. Moreover, savings institutions must
deduct from capital, for purposes of meeting the leverage limit,
tangible capital, and risk-based capital requirements, their entire
investment in and loans to a subsidiary engaged in activities
permissible for a national bank (other than exclusively agency
activities for its customers or mortgage banking subsidiaries).
One Mortgage Corporation. One Mortgage
Corporation is a wholly owned mortgage banking subsidiary which
originates single-family residential mortgage loans outside of
Indiana for sale to First Indiana or for sale into the secondary
market. It originates loans through offices located in Brandon and
Orlando, Florida, and in Charlotte and Raleigh, North Carolina.
One Property Corporation. One Property Corporation
is a wholly owned subsidiary formed in 1985 to engage in
commercial real estate investment activities. To date, One
Property Corporation has not engaged in any such activities.
One Investment Corporation. One Investment
Corporation is a wholly owned subsidiary of First Indiana and
currently owns all of the outstanding stock of One Insurance
Agency, Inc. One Investment Corporation also engages in
securities brokerage through City Securities Corporation, an
unaffiliated registered broker/dealer.
One Insurance Agency, Inc. One Insurance Agency,
Inc., a subsidiary of One Investment Corporation, engages in
general insurance agency and insurance brokerage business and
acts as an insurance agent. One Insurance Agency currently
markets various insurance products which are underwritten by
major insurance companies including a tax-deferred annuity.
Pioneer Service Corporation. Pioneer Service
Corporation is a wholly owned subsidiary of the Bank. In April
1990, Pioneer Service Corporation invested in a limited
partnership which was formed to develop and own a 112-unit
apartment complex in Greencastle, Indiana.
<PAGE> 23
Employees
At December 31, 1995, the Corporation and its
subsidiaries employed 588 persons, including part-time employees.
Management considers its relations with its employees to be
excellent. None of these employees is represented by any
collective bargaining group.
The Corporation and its subsidiaries currently maintain
a comprehensive employee benefit program providing, among
other benefits, a qualified pension plan, a 401(k) plan,
hospitalization and major medical insurance, paid sick leave, long-term
disability insurance, life insurance, an employees' stock
purchase plan, and reduced loan rates for employees who qualify.
<PAGE> 24
Item 2. Properties
At December 31, 1995, the Corporation operated through
28 full-service banking centers and six loan origination offices.
The aggregate carrying value at December 31, 1995 of the
properties owned or leased, including headquarters of properties
and leasehold improvements at the leased offices, was $13.2
million. See Note 6 to the Corporation's Consolidated Financial
Statements. The carrying value of First Indiana's data processing
equipment at December 31, 1995 was $1.9 million.
The following table sets forth information with respect to
the Corporation's offices and office leases as of December 31,
1995:
<TABLE>
<CAPTION>
Year Owned Expiration
Opened or or Date
Office Location Acquired Leased of Lease
- --------------- --------- ------ ----------
<S> <C> <C> <C>
First Indiana
- -------------
Downtown Banking Center 1988 Leased Mar. 1998 (a)
and Corporate Headquarters
135 N. Pennsylvania Street
Indianapolis, Indiana
Eastgate Banking Center 1957 Leased Jan. 1999 (b)
7150 E. Washington Street
Indianapolis, Indiana
West Side Banking Center 1988 Leased Oct. 2003 (c)
925 N. High School Road
Indianapolis, Indiana
Nora Plaza Banking Center 1959 Leased Mar. 1997
1300 E. 86th Street
Indianapolis, Indiana
Southern Plaza Banking Center 1960 Leased Apr. 1999(b)
4200 S. East Street
Indianapolis, Indiana
Esquire Plaza Banking Center 1962 Leased May 2002(b)
8205 Pendleton Pike
Indianapolis, Indiana
Allisonville Banking Center 1972 Leased Sep. 1996(b)
6254 Allisonville Road
Indianapolis, Indiana
Carmel Banking Center 1973 Owned
2138 E. 116th Street
Carmel, Indiana
Zionsville Banking Center 1973 Leased Jun. 1998
75 Boone Village Shopping Center
Zionsville, Indiana
Greenwood Banking Center 1988 Leased Nov. 2008 (c)
8675 U.S. 31 South
Indianapolis, Indiana
Washington Square Banking Center 1988 Owned
10040 E. Washington Street
Indianapolis, Indiana
Brownsburg Banking Center 1979 Leased Dec. 2004 (b)
1073 N. Green Street
Brownsburg, Indiana
West 86th Banking Center 1983 Owned
1180 West 86th Street
Indianapolis, Indiana
Franklin Banking Center 1982 Owned
198 N. Main Street
Franklin, Indiana
East 82nd Banking Center 1981 Leased Mar. 1996 (d)
7320 E. 82nd Street
Indianapolis, Indiana
Westfield Banking Center 1981 Owned
111 E. Main Street
Westfield, Indiana
Pendleton Banking Center 1981 Owned
115 W. State Street
Pendleton, Indiana
Fishers Banking Center 1990 Owned
11991 Fishers Crossing Drive
Fishers, Indiana
North 31 Banking Center 1993 Owned
14811 Greyhound Ct.
Carmel, Indiana
Carmel Mortgage Services Office 1991 Leased Jan. 1999
10401 N. Meridian, Suite 100
Carmel, Indiana
Washington Square Office 1977 Owned
10044 E. Washington Street
Indianapolis, Indiana
Greenwood Mortgage 1984 Leased Jun. 1997
Services Office
720 Fry Road
Indianapolis, Indiana
South Bend Consumer Loan Office 1992 Leased July 1996
6910 N. Gumwood Suite 12H
Box 33
Granger, Indiana
Columbus Consumer Loan Office 1994 Leased Sep. 1996
425 W. Shrock, Suite 102
Westerville, Ohio
Fort Wayne Consumer Loan Office 1995 Leased Sep. 1996
3711 Rupp Drive, Suite 208
Fort Wayne, Indiana
Louisville Consumer Loan Office 1992 Leased Apr. 1996
3303 Plaza Drive, Suite 1
New Albany, Indiana
One Mortgage Corporation 1984 Leased Jun. 1998
2100 Rexford Road, Suite 204
Charlotte, North Carolina
One Mortgage Corporation 1985 Leased Sep. 1997
4700 Homewood Court Suite 100
Raleigh, North Carolina
One Mortgage Corporation 1992 Leased May 1998
445 North Wymore Road,
Suite 201
Winter Park, Florida
One Mortgage Corporation 1990 Leased Jan. 1997
Sable Business Ctrs. V
3922 Coconut Palm Dr., Suite 106
Brandon, Florida
Greenwood Operations Center 1993 Owned
1300 Windhorst Way
Greenwood, Indiana
Land - Outlot #1 1993 Owned
Meridian Oaks Commercial
Subdivision
State Road 135 South
Greenwood, Indiana
Downtown Evansville Banking Center 1977 Owned
123 Main Street
Evansville, Indiana
Mount Vernon Banking Center 1965 Owned
405 E. 4th Street
Mt. Vernon, Indiana
East Side Banking Center 1980 Owned
4720 Lincoln Avenue
Evansville, Indiana
Bell Oaks Banking Center 1980 Owned
8388 Bell Oaks Drive
Newburgh, Indiana
<PAGE> 27
North Brook Banking Center 1986 Owned
3540 First Avenue
Evansville, Indiana
Mooresville Banking Center 1952 Owned
24 West Main Street
Mooresville, Indiana
Drive-Up Banking Center 1982 Owned
33 West Main Street
Mooresville, Indiana
Spring Mill Banking Center 1984 Owned
24 Springmill Court
Mooresville, Indiana
Rushville Banking Center 1985 Owned
201 Harcourt Way
Rushville, Indiana
Downtown Rushville Banking Center 1955 Owned
315 North Main Street
Rushville, Indiana
(a) The lease also provides six ten-year renewal options.
(b) The lease also provides a five-year renewal option.
(c) The lease also provides two five-year renewal options.
(d) This banking center is moving to 7652 N. Shadeland Avenue,
Indianapolis, in April 1996.
</TABLE>
Item 3. Legal Proceedings
As a result of a routine audit, the Internal Revenue
Service assessed additional income taxes of approximately
$1,500,000 related to the years ended December 31, 1986 and
1985. The assessment involved the timing of First Indiana's
deduction for accrued interest expense relating to customers'
certificate of deposit accounts. The assessed tax and interest were
paid in the tax year ending December 31, 1990 and claim for
refund was subsequently filed. The Corporation is now negotiating
a settlement with the United States Department of Justice - Tax
Division.
Other than the above mentioned item, there are no
pending legal proceedings to which the Corporation or any
subsidiary was a party or to which any of their property is subject
other than routine litigation incidental to the Corporation's
business. In the opinion of management, such litigation is not
material to the Corporation's business, operations, or financial
condition.
Item 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of the Corporation's
security holders during the three months ended December 31,
1995.
<PAGE> 28
Part II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters
The information required by this item is incorporated by
reference from page xiv of the Corporation's 1995 Annual Report
under the heading, "Corporate Profile."
For restrictions on the Corporation's present or future
ability to pay dividends, see Note 11 of "Notes to Consolidated
Financial Statements" on page 24 - 25 of the Corporation's 1995
Annual Report, which is incorporated herein by reference.
The Corporation paid a cash dividend of $.12 per share
outstanding in each quarter of 1995 and $.11 per share outstanding
in each quarter of 1994, as adjusted for stock splits on March 1,
1996 and March 17, 1994.
Item 6. Selected Financial Data
The information required by this item is incorporated by
reference to page 1 of the Corporation's 1995 Annual Report from
the material under the heading "Five-Year Summary of Selected
Financial Data."
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
The information required by this item is incorporated by
reference to pages 2 - 11 of the Corporation's 1995 Annual Report
from the material under the heading "Financial Review."
Item 8. Financial Statements and Supplementary Data
The Corporation's Consolidated Financial Statements and
Notes to Consolidated Financial Statements at December 31, 1995
and 1994 and for each of the years in the three-year period ended
December 31, 1995 are incorporated by reference to pages 12 - 30
of the Corporation's 1995 Annual Report. The Corporation's
unaudited quarterly financial data for the two-year period ended
December 31, 1995 is incorporated by reference to Note 15 of
"Notes to Consolidated Financial Statements" on page 29 of the
Corporation's 1995 Annual Report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the
Registrant
The information required by this item with respect to the
directors is incorporated by reference to pages 3-5 and page 14 of
the Corporation's Proxy Statement dated March 13, 1996 under the
heading "Election of Directors," and "Compliance with Section
16(a) of the Securities Exchange Act of 1934."
<PAGE> 29
The following table sets forth information about the
executive officers of the Corporation and the Bank who are not
directors of the Corporation or the Bank. All executive officers are
appointed by the Board of Directors and serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
Year First
Name Position Age Elected Officer
------------- ------------- ------- ---------------
<S> <C> <C> <C>
David L. Gray Vice President and Treasurer 52 1981
of the Corporation; Chief
Financial Officer, Treasurer,
and Senior Vice President,
Internal Support Services
Division of the Bank
David A. Lindsey Senior Vice President, 45 1983
Consumer Banking Sales
Division of the Bank;
President, One Mortgage Corporation
and One Insurance Agency
Merrill E. Matlock Senior Vice President, 46 1984
Commercial Banking Division
of the Bank
Timothy J. O'Neill Senior Vice President, 48 1972
Consumer Banking Services
Division of the Bank
Kenneth L. Turchi Senior Vice President, 37 1987
Marketing and Strategic
Planning Division of the Bank
</TABLE>
David L. Gray has been with the Bank since July 1981,
and currently serves as the Corporation's vice president and
treasurer, and the Bank's chief financial officer, treasurer, and
senior vice president, Internal Support Services Division. He also
serves as the chairman of the Bank's Asset/Liability Committee.
David A. Lindsey has been with the Bank since January
1983, serving as the Bank's senior vice president, Consumer
Banking Sales Division. His duties include mortgage and
consumer lending, retail deposit activities, supervision of the
Bank's branches, and customer assistance. He also is responsible
for the management of the Bank's investment, insurance and
mortgage banking subsidiaries.
Merrill E. Matlock is senior vice president of the Bank's
Commercial Banking Division. He is responsible for the Bank's
construction, business, and commercial real estate lending. Mr.
Matlock has worked for First Indiana since 1984 and was most
recently first vice president of the construction lending department.
Timothy J. O'Neill has been with the Bank since 1970.
He currently serves as the Bank's senior vice president, Consumer
Banking Services Division. He is responsible for the
administration of the processing and servicing of the Bank's
lending and deposit products.
Kenneth L. Turchi joined First Indiana in September 1985
and currently serves as senior vice president, Marketing and
Strategic Planning Division. His duties include strategic planning,
marketing, advertising, market research, investor relations, and
public relations.
Item 11. Executive Compensation.
The information required by this item with respect to
executive compensation is incorporated by reference to pages 7-14
of the material under the heading "Executive Compensation" in the
Corporation's Proxy Statement.
<PAGE> 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The information required by this item is incorporated by
reference to pages 1-6 of the material under the heading "Voting
Securities and Beneficial Owners" and "Proposal No 1: Election of
Directors" in the Corporation's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by
reference to page 6 of the material under the heading "Certain
Transactions" in the Corporation's Proxy Statement.
<PAGE> 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
a. The following documents are filed as part of this report:
1995 Annual
Report
(Exhibit 13)
Financial Statements Page(s)
-------------------- ------------
Consolidated Balance Sheets as of
December 31, 1995 and 1994 12
Consolidated Statements of Earnings
for the Years Ended December 31, 1995, 1994 and 1993 13
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 14
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993 15
Notes to Consolidated Financial Statements 16-30
Independent Auditors' Report 31
<PAGE> 32
Exhibits
Refer to list of exhibits on pages 35-37
b. Reports on Form 8-K
No Reports on Form 8-K were filed during the three
months ended December 31, 1995.
c. The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit index on pages 35-37.
d. Financial Statement Schedules required by Regulation S-X.
None
<PAGE> 33
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST INDIANA CORPORATION
By: /s/Owen B. Melton, Jr.
Owen B. Melton, Jr.
President and Chief Operating Officer
Date: March 21, 1996
Pursuant to the requirements of the Securities and
Exchange Act of 1934, this annual report has been signed below
by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Officers
By: /s/Robert H. McKinney By: /s/David L. Gray
Robert H. McKinney David L. Gray
Chairman and Chief Vice President and
Executive Officer Treasurer
Date: March 21, 1996 Date: March 21, 1996
Directors
By: /s/Gerald L. Bepko By: /s/Robert H. McKinney
Gerald L. Bepko Robert H. McKinney
Date: March 21, 1996 Date: March 21, 1996
By: /s/Douglas W. Huemme By: /s/Owen B. Melton, Jr.
Douglas W. Huemme Owen B. Melton, Jr.
Date: March 21, 1996 Date: March 21, 1996
By: /s/Marni McKinney By: /s/Phyllis W. Minott
Marni McKinney Phyllis W. Minott
Date: March 21, 1996 Date: March 21, 1996
By: /s/John W. Wynne By: /s/Michael L. Smith
John W. Wynne Michael L. Smith
Date: March 21, 1996 Date: March 21, 1996
By: /s/H.J. Baker
H.J. Baker
Date: March 21, 1996
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit Index
Page(s)
Exhibit (by Sequential
Number Numbering System)
<S> <C> <C>
2(a) Amended and Restated Merger Agreement, dated as of February 28,
1992 and restated as of September 8, 1992, among Registrant,
Mooresville Savings Bank ("Mooresville"), and First Indiana.*
2(b) Amended and Restated Merger Agreement, dated as of November 8,
1991 and restated as of September 4, 1992, among Registrant, First
Federal Savings and Loan Association of Rushville ("Rushville"), and
First Indiana.*
2(c) Amended and Restated Mooresville Plan of Merger Conversion. *
2(d) Amended and Restated Rushville Plan of Merger Conversion. *
3(a) Articles of Incorporation and Bylaws of First Indiana Corporation,
incorporated by reference to Exhibit 3(a) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
4(a) Form of Certificate of Common Stock of Registrant, incorporated by
reference to Exhibit 4(c) of the Registrant's registration statement on
Form S-1, filed as No. 33-46547 on March 20, 1992.
10(a) First Indiana Bank 1983 Stock Option and Incentive Plan,
incorporated by reference to Exhibit 10(a) of the Registrant's statement
on Form S-4 filed as File No. 33-3273 on February 18, 1986, as
amended.
10(b) First Indiana Bank 1988 Management Performance Incentive Plan,
incorporated by reference to Exhibit 10(b) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
10(c) First Indiana Bank 1988 Long-Term Management Performance Plan,
incorporated by reference to Exhibit 10(c) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
10(d) First Indiana Corporation 1987 Stock Option and Incentive Plan,
incorporated by reference to Exhibit 1 of the Registrant's February 27,
1987 Proxy Statement pages E-1 to E-8.
10(e) First Indiana Corporation Directors' Deferred Fee Plan, incorporated
by reference to Exhibit 10(e) of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.
10(f) First Indiana Bank 1990 Management Performance Incentive Plan,
incorporated by reference to Exhibit 10(f) of the Registrant's Annual
Report on From 10-K for the year ended December 31, 1988.
10(g) Form of Employment Agreement between Registrant and Maurice E.
Mobley, incorporated by reference to Exhibit 10(a) of the Registrant's
registration statement on Form S-1, filed as File No. 33-27459 on
March 9, 1989.
<PAGE> 35
10(h) Form of Amended and Restated Supplemental Pension Benefits
Agreement between Registrant and Maurice E. Mobley, incorporated
by reference to Exhibit 10(b) of the Registrant's registration statement
on Form S-1, filed as File No. 33-27459 on March 9, 1989.
10(i) First Indiana Corporation 1989 Stock Option Plan, incorporated by
reference to Exhibit 10(i) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989.
10(j) First Indiana Bank 1991 Management Performance Incentive Plan,
incorporated by reference to Exhibit 10(j) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
10(k) First Indiana Bank 1991 Long-Term Management Performance
Incentive Plan, incorporated by reference to Exhibit 10(k) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
10(l) Mid-West Federal Savings Bank Nonqualified Retirement Plan for
Directors, incorporated by reference to Exhibit 10(l) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.
10(m) Nonqualified Deferred Compensation Program for the Directors of
Mid-West Federal Savings Bank, incorporated by reference to Exhibit
10(m) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.
10(n) First Indiana Corporation 1991 Stock Option and Incentive Plan,
incorporated by reference to Exhibit A of the Registrant's March 20,
1991 Proxy Statement, Pages A-1 to A-8.
10(o) First Indiana Corporation 1992 Director Stock Option Plan,
incorporated by reference to Exhibit A of the Registrant's March 13,
1992 Proxy Statement, Pages A-1 to A-3.
10(p) Form of Employment Agreement between First Indiana and each of
Boyd C. Head, N. Thomas Lloyd and John D. Ehrhart (included as
Exhibits A, B and C, respectively, to Exhibit 2(a) above).
10(q) Form of Employment Agreement between First Indiana and each of
Eugene Spurlin and Garry E. Cooley (included as Exhibits A and B,
respectively, to Exhibit 2(b) above).
10(r) Form of Executive Supplement Retirement Income Agreement
between First Indiana and each of Boyd C. Head, N. Thomas Lloyd and
John D. Ehrhart (included as Exhibits D, E and F, respectively, to
Exhibit 2(a) above.
10(s) First Indiana Corporation 1992 Stock Option Plan, incorporated by
reference to Exhibit A of the Registrant's March 12, 1993 Proxy
Statement, pages 15 to 19.
13 1995 Annual Report. 10-K 38-89
21 Subsidiaries of First Indiana Corporation and First Indiana Bank. 10-K 90
<PAGE> 36
22 Definitive Proxy Statement relating to the 1996 Annual Meeting of
Shareholders. 10-K 91-110
23 Consent of KPMG Peat Marwick LLP. 10-K 111
27 Financial Data Schedule. 10-K 112
* Previously Filed
</TABLE>
<PAGE> 37
[cover of small annual report booklet]
[includes photograph of First Indiana Plaza building exterior]
FIRST INDIANA CORPORATION
1995 FINANCIAL HIGHLIGHTS
<PAGE> i (10-K page 38)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
First Indiana Corporation and Subsidiaries
For the Years Ended
December 31,
-------------------
(Dollars in Thousands, Except Per Share Data) 1995 1994
-------------------
<S> <C> <C>
Net Earnings $17,267 $10,636
Primary Earnings Per Share 2.02 1.20
Fully Diluted Earnings Per Share 2.00 1.20
Dividends Per Share 0.47 0.43
Return on Average Total Assets 1.18% 0.81%
Return on Average Shareholders' Equity 14.03 9.08
Yield on Interest-Earning Assets 8.80% 7.85%
Cost of Interest-Bearing Liabilities 5.20 4.28
Net Interest Margin 4.12 3.96
Net Interest Spread 3.60 3.57
<CAPTION>
At December 31,
-------------------
1995 1994
-------------------
<S> <C> <C>
Assets $1,523,949 $1,394,881
Loans, Net 1,250,726 1,078,494
Deposits 1,119,086 1,018,163
Shareholders' Equity $ 129,297 $ 120,712
Shareholders' Equity/Assets 8.48% 8.65%
Book Value Per Share $ 15.63 $ 13.96
Market Closing Price 21.46 13.125
Price/Earnings Multiple 10.73x 10.94x
<CAPTION>
--------------------
At December 31, 1995
--------------------
Actual Required
<S> <C> <C>
Tangible Capital/Total Assets 8.26% 1.50%
Core Capital/Total Assets 8.26 3.00
Risk-Based Capital/Risk-Weighted Assets 11.53 8.00
</TABLE>
<PAGE> ii (10-K page 39)
MESSAGE TO SHAREHOLDERS
We are pleased to report that for the year ended December 31,
1995, First Indiana Corporation earned a record $17.3 million, or
$2.02 per primary share, compared with $10.6 million, or $1.20 per
primary share, for the year ended December 31, 1994.
As an affirmation of our confidence in First Indiana's future,
we are paying a six-for-five stock split on March 1, 1996 to
shareholders of record as of February 21, 1996. We have effected six
stock splits since 1983. Our quarterly cash dividend of $.14 per share
will be paid on shares outstanding after the split, resulting in a 20
percent increase in our annual dividend payout.
Included in 1995 earnings are a first quarter after-tax gain of
$914,000, or $.11 per primary share, from the sale of deposits of a
banking center in Princeton, Indiana, and an after-tax gain of
$937,000, or $.11 per primary share, from the sale of $45 million in
fixed-rate home equity loans during the second quarter. Additionally,
the Bank had a fourth quarter after-tax gain of $1.3 million, or $.15
per primary share, on the sale of a foreclosed property and increased
its after-tax loan loss provision by an additional $1.5 million, or $.17
per primary share. Even without these items, our earnings for 1995
of $15.6 million, or $1.82 per primary share, are a record.
A favorable economy in all of our markets contributed to our
record earnings. But we also attribute our performance to a renewed
commitment as a specialized provider of financial services.
The economy helped fuel growth in all lending sectors. Home
equity loan originations rose 61 percent to $302 million, compared
with $188 million in 1994. Residential mortgage loan originations in
1995 were $354 million, compared with $343 million the previous
year. Construction loan originations were $284 million, compared
with $322 million in 1994. These three product lines, along with
business lending to targeted segments, form the cornerstone of our
strategies for growth.
First Indiana's net interest margin reached a record 4.12
percent for the year ended December 31, 1995, surpassing the 1994
record of 3.96 percent. Our margin,
<PAGE> iii (10-K page 40)
[This page contains a photograph of the following persons and
this caption]
Marni McKinney
(12 years' service) Vice Chairman
Owen B. Melton, Jr.
(18 years) President and Chief Operating Officer
Robert H. McKinney
(43 years) Chairman and Chief Executive Officer
<PAGE> iv (10-K page 41)
which has increased every year since 1989, shows that we have chosen
the proper asset mix and funded it with strategically priced deposits.
Net interest income in 1995 amounted to $58 million, compared with
$49 million one year ago.
We experienced marked improvement in our asset quality
throughout 1995. At December 31, total non-performing assets were
$27.2 million, a seven percent reduction from December 31, 1994 and
nearly half of their highest level in February 1992. The improvement
in loan quality arises primarily from the successful fourth quarter sale
of a foreclosed commercial real estate loan that resulted in a $2.2
million pre-tax gain.
The Bank's allowance for losses on loans and real estate
owned now equals $17.3 million, 64 percent of non-performing assets
and 1.4 percent of net loans and real estate owned. As our
construction, home equity, and business loan outstandings have
grown, we have continued increasing our allowance for losses on
loans and real estate owned to keep pace with the growth.
Mortgage banking activity continued to form an important part
of First Indiana's earnings for 1995. The Bank's loan servicing
portfolio at year-end stood at $1.1 billion, compared with just $802
million at December 31, 1994. Included in this expanded portfolio is
the purchase of $310 million in residential mortgage loan servicing
from another bank. First Indiana also enjoyed strong residential
mortgage loan sales as part of our normal mortgage banking activity
in 1995, resulting in pre-tax gains of $1.2 million.
Our capital position remains very strong at $129 million at
year-end 1995, or 8.48 percent of assets, well above all minimum
capital requirements. Our strong capital level and continually
increasing loan loss allowance give us flexibility for growth and reflect
our prudent approach to loan expansion.
As part of our continuing strategic planning, First Indiana's
senior management team has rewritten our mission statement to reflect
the Bank's role as a specialized provider of financial services. We
have reprinted it in this booklet, and we encourage you to read it. It
serves not only as our corporate philosophy, but also as a template for
strategic decision-making.
Our mission statement states that First Indiana is The Real
Estate Bank. Our goal is to be the premier real estate finance experts
in our markets by focusing on
<PAGE> v (10-K page 42)
[This page contains bar graphs and pie charts showing the following
information]
<TABLE>
<CAPTION>
Net Earnings (Dollars in Thousands) Earnings Per Primary Share
- ----------------------------------- --------------------------
<S> <C> <S> <C>
1991 $ 8,790 1991 $1.18
1992 11,002 1992 1.48
1993 15,101 1993 1.76
1994 10,636 1994 1.20
1995 17,267 1995 2.02
<CAPTION>
Net Interest Income (Dollars in Thousands) Net Interest Margin
- ------------------------------------------ -------------------
<S> <C> <S> <C>
1991 $32,317 1991 2.93%
1992 36,858 1992 3.28
1993 45,905 1993 3.64
1994 49,229 1994 3.96
1995 58,044 1995 4.12
<CAPTION>
Price/Earnings Multiple Total Loans Originated (Dollars in Thousands)
- ----------------------- ---------------------------------------------
<S> <C> <S> <C>
1991 5.81x 1991 $ 606,962
1992 7.34x 1992 999,948
1993 8.00x 1993 1,161,519
1994 10.94x 1994 982,754
1995 10.73x 1995 1,012,753
<CAPTION>
Composition of Loan Portfolio 1990 vs. 1995
- -------------------------------------------
1990 1995
---- ----
<S> <C> <C>
Residential Mortgage 58% 33%
Residential Construction 6 11
Commercial Real Estate 13 4
Consumer 23 46
Business 0 6
<CAPTION>
Loan Servicing Portfolio (Dollars in Thousands)
- -----------------------------------------------
<S> <C>
1991 $ 732,890
1992 792,808
1993 806,874
1994 802,191
1995 1,130,209
</TABLE>
<PAGE> vi (10-K page 43)
three segments: home buyers, home builders, and home equity borrowers.
We recognize that the best way for us to bring added value to our
shareholders and customers is by limiting our focus to these three segments,
complemented with banking services for targeted businesses and
innovative deposit products.
To be successful in serving these market segments, we have
pledged adherence to four key principles:
Focus on market segments and lines of business where
we can bring something unique to the marketplace.
Despite innumerable consolidations over the past 10
years, there are still too many banks in the United
States and an ever-increasing number of non-bank
competitors. We recognize that we cannot be all
things to all people. We can only succeed if we look
for unmet needs in the marketplace and fulfill them
through innovative product and service offerings.
Design products from our customers' point of view.
To do this, we must learn all we can about our
customers and make sure that whatever point of entry
they choose, we make their first experience with First
Indiana a positive one and offer them other products
and services based on their specific needs.
Continuously improve processes and systems so that
we can operate as efficiently as possible. We
understand that the systems for serving our customers
are as important as the sales of the products
themselves. We believe that process improvement will
bring the same benefits to First Indiana that economies
of scale bring to the superregionals.
Toward that end, we made several organizational changes in 1995.
The most significant of these grouped all consumer sales functions
into one division and consolidated all consumer servicing functions
into another division. This new structure eliminates vertically
integrated mortgage and non-mortgage consumer lending in separate
divisions and encourages efficiencies through continuous improvement
and consolidation of processes. We hope that this new structure
will lead to lower operating costs and greater price advantages
for our customers.
Create the proper culture, one that embraces and
develops continuous, constructive change. In order
for us to continue to be successful, we must not only
recognize that the world is changing quickly, but also
welcome and embrace these
<PAGE> vii (10-K page 44)
[This page contains a photograph of the following persons and
this caption]
BOARD OF DIRECTORS
From top to bottom
Robert H. McKinney
(43 years' service) Chairman and Chief Executive Officer,
First Indiana Corporation
Marni McKinney
(12 years) Vice Chairman, First Indiana Corporation; President and
Chief Executive Officer, The Somerset Group
Owen B. Melton, Jr.
(18 years) President and Chief Operating Officer,
First Indiana Corporation
Center Column, top to bottom
H.J. Baker
(29 years) Chairman Emeritus, BMW Constructors, Inc.
Gerald L. Bepko
(nine years) Vice President for Long-Range Planning, Indiana
University, and Chancellor, IUPUI
William L. Elder
(four years)*, Retired President, Southern Indiana Commerce Corporation
Douglas W. Huemme
(two years) Chairman, President, and CEO, Lilly Industries, Inc.
Phyllis W. Minott
(20 years) Chairman and CEO, Minott Motion Pictures, Inc.; formerly
General Auditor, Eli Lilly and Company
Below, top to bottom
Michael L. Smith
(11 years) President, Somerset Financial Services, a Division of The
Somerset Group, Inc.
John W. Wynne
(six years) Chairman of the Board, Duke Realty Investments, Inc.
*Director, First Indiana Bank only
<PAGE> viii (10-K page 45)
changes so that we can take advantage of them.
These four strategic principles guide our planning as we move
ahead. We believe they hold the key to our long-term success as we
add value for our shareholders and customers.
First Indiana is widely recognized as an expert in community
lending. We have a long-standing record of working with
neighborhood organizations to make housing possible for their
constituents. We made 378 housing units available in 1995.
Innovative financing packages, including lease/purchase programs,
special savings accounts, and low down payment loans, have made the
American Dream of home ownership a reality for hundreds of families.
In early 1996, we are introducing a new theme line: Banking
shouldn't take up a lot of space in your life. These words are more
than just a slogan. They reflect months of market research about the
role that consumers want their bank to play in their lives. Our
customers tell us that they want their bank to keep things simple,
provide them with access to their accounts when and where they want
it, and give them quick decisions on their loan requests.
Much of our strategic planning is geared toward making sure that banking
doesn't take up a lot of space in our customers' lives. Even the format
of this Annual Report, with the abbreviated highlights booklet that you are
now reading, reflects the differing interests of individual and
institutional investors and enables us to tell our corporate story in a
way that doesn't take up a lot of space in your life. We welcome your
comments on this new format.
With continuous change come changes in management. We
welcomed Sherry F. Haynes to First Indiana during the third quarter
as president of our Mid-West Federal Division in Evansville. An
Evansville native, Sherry has many years' experience in banking and
will provide excellent leadership in that market. She replaces Ben M.
Redden, who retired in June after 24 years of service. We commend
Ben for his contributions. He will continue to serve Mid-West Federal
as a member of its Advisory Board.
We also welcomed Larry L. Grubbs to First Indiana early in
1996 as our national sales manager for mortgage lending. Larry
replaces Robert C. Dhonau,
<PAGE> ix (10-K page 46)
[This page contains bar graphs showing the following information]
<TABLE>
<CAPTION>
Loan and REO Loss Allowances
Non-Performing Assets (Dollars in Thousands) (Dollars in Thousands)
- -------------------------------------------- --------------------------
<S> <C> <S> <C>
1991 $49,097 1991 $ 8,492
1992 39,781 1992 10,378
1993 36,474 1993 12,989
1994 29,077 1994 13,741
1995 27,165 1995 17,300
<CAPTION>
Shareholders' Equity
Loan Loss Allowance to Non-Performing Loans (Dollars in Thousands)
- ------------------------------------------- --------------------
<S> <C> <S> <C>
1991 22.95% 1991 $ 80,704
1992 31.38 1992 100,735
1993 51.80 1993 113,583
1994 57.72 1994 120,712
1995 67.91 1995 129,297
<CAPTION>
Bank Capital/Assets Checking Deposits (Dollars in Thousands)
- ------------------- ----------------------------------------
Actual Required <S> <C>
- ------ -------- 1991 $ 90,806
<C> <C> 1992 138,825
8.26% 1.50% 1993 160,527
8.26 3.00 1994 149,275
11.53 8.00 1995 159,910
<CAPTION>
Construction Loans Outstanding
Assets (Dollars in Thousands) (Dollars in Thousands)
- ----------------------------- -----------------------------
<S> <C> <S> <C>
1991 $1,168,605 1991 $ 80,001
1992 1,319,770 1992 94,961
1993 1,307,339 1993 107,695
1994 1,394,881 1994 117,170
1995 1,523,949 1995 142,299
<CAPTION>
Home Equity Loans Outstanding
(Dollars in Thousands)
- -----------------------------
<S> <C>
1991 $165,560
1992 198,557
1993 227,550
1994 328,594
1995 485,032
<PAGE> x (10-K page 47)
whom we congratulate for his 30 years of service. With over 30 years'
experience at a major superregional bank, Larry will bring new resources to
bear on our key mortgage lending businesses.
With sadness, we note the loss of Aubrey D. Ryals, who
served as a director of Mid-West Federal for 22 years; Maurice Dunn,
a director of First Federal of Rushville for 24 years; and Kenneth L.
Earnest, vice chairman of First Federal of Rushville and a 39-year
board member. Russell Wallace, a member of our Westfield Advisory
Board for 20 years, retired in 1995. All of these fine gentlemen
contributed many years of advice and wisdom to our organization, and
we will miss their input.
In early 1996, our three affiliated banks are adopting the First
Indiana name. Our intention when we affiliated with these institutions
was to leave their names in place, but we now realize that doing so
imposes higher operating costs that we eventually would have had to
pass along to our customers. Mid-West Federal Savings Bank,
Mooresville Savings Bank, and First Federal Savings and Loan of
Rushville will take the First Indiana Bank family name in the first
quarter of 1996.
We appreciate your continued support and look forward to
reporting to you on a strong year in 1996.
Sincerely,
/s/Robert H. McKinney /s/Marni McKinney
Robert H. McKinney Marni McKinney
Chairman and Chief Executive Officer Vice Chairman
/s/Owen B. Melton, Jr.
Owen B. Melton, Jr.
President and Chief Operating Officer
<PAGE> xi (10-K page 48)
[This page contains a photograph of the following persons and
this caption]
Merrill E. Matlock (12 years' service) Commercial Banking Division
David A. Lindsey (13 years) Consumer Banking Sales Division
Kenneth L. Turchi (11 years) Marketing and Strategic Planning Division
Timothy J. O'Neill (26 years) Consumer Banking Services Division
David L. Gray (14 years) Internal Support Services Division
<PAGE> xii (10-K page 49)
MANAGEMENT AND ADVISORY BOARDS
FIRST INDIANA BANK
Robert H. McKinney* (43 years' service), Chairman
Marni McKinney* (12 years), Vice Chairman
Owen B. Melton, Jr.* (18 years), President and Chief Executive Officer
David J. Gunderson (13 years), Vice President and Credit Review Officer
Richard E. Walke (10 years), Director of Internal Audit
David A. Butcher* (13 years), Secretary
Commercial Banking Division
Merrill E. Matlock (12 years), Senior Vice President
Vice Presidents
E. Christian Barham (three years)
John H. Goggins (three years)
Max E. Inglert (24 years)
Mark S. Kesner (two years)
Thomas E. Mock (five years)
Gregory P. O'Connor (four years)
Regional Vice Presidents
Victoria H. Duckworth (13 years)
Bronda C. Hensley (11 years)
Michael D. Mathew (one year)
Consumer Banking Sales Division
David A. Lindsey (13 years), Senior Vice President, and President, One
Insurance Agency and One Mortgage Corporation
First Vice President
Larry L. Grubbs (one year), Executive Vice President, One Mortgage Corporation
Vice Presidents
Robert E. Kennedy (three years)
Richard C. Fattic (29 years)
Allen D. McIlwraith (nine years)
Carl M. Steele (22 years)
Michael C. Wise (14 years)
Regional Vice Presidents
Kenneth Blaudow (five years)
N. Jeanne Bowling (12 years)
Steven J. Schilling (13 years)
Darrel D. Thornton (24 years)
Internal Support Services Division
David L. Gray* (15 years), Senior Vice President, Chief Financial Officer, and
Treasurer
Vice Presidents
John D. Ehrhart (18 years)
John M. Huter (29 years)
Michael T. McAninch (13 years), Controller
Thomas M. Ryan (16 years)
Consumer Banking Services Division
Timothy J. O'Neill (26 years), Senior Vice President
First Vice Presidents
Larry F. Meadows (20 years)
David L. Sewell (five years)
Vice Presidents
David J. Fitzgerald (five years)
John M. Ramsey (five years)
Mickey J. Walden (13 years)
Marketing and Strategic Planning Division
Kenneth L. Turchi (11 years), Senior Vice President
One Insurance Agency
Donald P. Feldhaus (five years), Executive Vice President
One Mortgage Corporation
Vice Presidents
Thomas E. Helms (three years), Orlando Office
Robert E. Riggins (11 years), Tampa Office
Frederick A. Shields (three years), Raleigh Office
Donald R. Witter (two years), Charlotte Office
Central Indiana Advisory Boards
Franklin
Gilmore C. Abplanalp (25 years)
Timothy J. Dell (three years)
Jerry B. Maguire (six years)
Jerry D. Petro (four years)
Norbert C. Smith (six years)
Pendleton
Hugh W. Begley (27 years)
F. G. Hinkle (35 years)
Ralph E. Miller (17 years)
David L. Puckett (17 years)
L. Ann Reeder (four years)
Phillip R. Shirley, DVM (20 years)
Westfield
Manson E. Church (39 years)
J. Joseph Edwards (three years)
James Gapenski (three years)
Jerry C. McMullan (27 years)
Carl M. Steele (23 years)
Russell Wallace (21 years)
*Officer--First Indiana Corporation<PAGE>
MID-WEST FEDERAL SAVINGS BANK
Edward L. Plane (68 years), Chairman of the Board
Maurice E. Mobley (43 years), Vice Chairman of the Board
Sherry F. Haynes (one year), President
Timothy N. Wathen (six years), Senior Vice President
Vice Presidents
Patrick L. Boyle (13 years)
W. Gattis Bryant, Jr. (28 years)
Sandra K. Potter (eight years)
Wayne R. Stovall (29 years)
James L. Thomas (11 years)
Advisory Directors
James O. Baxter (22 years)
Sherry F. Haynes (one year)
Maurice E. Mobley (43 years)
Paul G. Mosier (18 years)
Edward L. Plane (68 years)
Lewis A. Plane (31 years)
Ben M. Redden (24 years)
Dr. David L. Rice (18 years)
MOORESVILLE SAVINGS BANK
Boyd C. Head (35 years), Chairman of the Board
Charles D. Swisher (13 years), Vice Chairman of the Board
Norman T. Lloyd (23 years), President and Secretary
Advisory Directors
Robert S. Gregory (31 years)
Boyd C. Head (35 years)
Russell J. Lockwood (12 years)
Eugene D. Perry (13 years)
Charles F. Quillen (12 years)
Charles D. Swisher (13 years)
George Watson (23 years)
FIRST FEDERAL SAVINGS AND LOAN OF RUSHVILLE
W. Richard Waggoner (30 years), Chairman of the Board
E. Eugene Spurlin (26 years), Vice Chairman of the Board
Garry E. Cooley (11 years), President and Chief Executive Officer
Advisory Directors
Dr. Frank H. Green (36 years)
Richard K. Levi (eight years)
Marjorie Shoemaker (15 years)
E. Eugene Spurlin (26 years)
W. Richard Waggoner (30 years)
<PAGE> xiii (10-K page 50)
CORPORATE PROFILE
First Indiana Corporation is a holding company whose
principal subsidiary is First Indiana Bank. The Bank is engaged
primarily in retail banking and lending through 28 banking centers in
Metropolitan Indianapolis, Evansville, Franklin, Pendleton, Westfield,
Rushville, and Mooresville. In addition, the Bank has four mortgage
services offices in Central Indiana. One Mortgage Corporation, a
subsidiary, operates offices in Florida and North Carolina. Its other
subsidiaries, One Insurance Agency, One Investment Corporation, and
One Property Corporation, are engaged in insurance sales,
investments, and full-service securities brokerage.
Stock Trading Information. First Indiana Corporation's
common stock is traded in the over-the-counter market and is quoted
on the National Association of Securities Dealers' Automated
Quotations (NASDAQ) National Market System under the symbol
FISB. The abbreviations often used in newspaper listings are "FstInd"
and "Fst Indiana."
Transfer Agent and Registrar. Harris Trust and Savings
Bank, Attention: Shareholder Services, P.O. Box A3504, Chicago,
Illinois 60690-3504, 1-800-573-4048.
Annual Meeting of Shareholders. The annual meeting of
shareholders will be held on Wednesday, April 17, 1996, at 9:00 a.m.
E.S.T., in the Conference Center of First Indiana Plaza, 135 North
Pennsylvania Street, Seventh Floor, Indianapolis, Indiana.
Annual Report on Form 10-K. Upon request, shareholders
may receive, without charge, a copy of the Annual Report on Form
10-K filed with the Securities and Exchange Commission. Requests
should be directed to First Indiana Corporation, Investor Relations
Department, First Indiana Plaza, 135 North Pennsylvania Street,
Indianapolis, Indiana 46204, (317) 269-1231.
Market Information. The following table sets forth the high
and low prices per share and ending book value per share of First
Indiana Corporation's common stock for the periods indicated.
</TABLE>
<TABLE>
<CAPTION>
Book
High Low Value
------ ------ ------
<S> <C> <C> <C>
1995 1st Quarter $14.17 $13.125 $14.39
2nd Quarter 17.08 13.75 14.87
3rd Quarter 21.46 16.25 15.23
4th Quarter 22.71 20.83 15.63
1994 1st Quarter $15.10 $12.71 $13.30
2nd Quarter 15.21 12.71 13.49
3rd Quarter 15.83 12.50 13.72
4th Quarter 15.21 12.08 13.96
</TABLE>
At December 31, 1995, there were approximately 2,041
shareholders of record and 8,272,323 shares of common stock
outstanding.
EQUAL HOUSING
Member FDIC LENDER
<PAGE> xiv (10-K page 51)
MISSION STATEMENT
First Indiana Bank is The Real Estate Bank.
Our mission is to be the premier real estate finance experts in
our markets. We serve three market segments: home buyers, home
builders, and users of home equity.
Our mission is directly tied to our commitment to providing
long-term value for our customers and shareholders. The best way to
achieve our commitment is by focusing on these three groups, with
additional banking products for targeted businesses and innovative
deposit products.
We believe in four key principles:
Focus only on market segments and lines of business
where we can bring something unique to the
marketplace.
Learn everything we can about our customers, so that
we design products from their point of view and
introduce them to additional products based on their
specific needs.
Continuously improve processes and systems, so that
the Bank operates efficiently.
Create a culture that embraces and develops
continuous, constructive change.
As a tightly focused bank, we are uniquely positioned to
advance home ownership, real estate finance, and efficient delivery of
products and services. As a locally owned bank, we are uniquely
positioned to advance corporate citizenship, community development,
and clear career paths for our associates.
<PAGE> xv (10-K page 52)
[back cover of small annual report booklet]
[includes logo of First Indiana Corporation and the
following text]
First Indiana Bank
One Mortgage Corporation
One Insurance Agency
One Investment Corporation
One Property Corporation
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
(317) 269-1200
Equal Housing Lender Member FDIC
<PAGE> xvi (10-K page 53)
[front cover of large annual report booklet]
[includes photograph of First Indiana Plaza building exterior]
FIRST INDIANA CORPORATION
1995 ANNUAL REPORT
<PAGE> I (10-K page 54)
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Five-Year Summary of Selected Financial Data 1
Financial Review 2
Consolidated Balance Sheets 12
Consolidated Statements of Earnings 13
Consolidated Statements of Shareholders' Equity 14
Consolidated Statements of Cash Flows 15
Notes to Consolidated Financial Statements 16
Independent Auditors' Report 31
Statement of Management Responsibility 32
Affirmative Action Policy IBC
</TABLE>
<PAGE> II (10-K page 55)
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
First Indiana Corporation and Subsidiaries
At December 31,
--------------------------------------------------
(Dollars in Thousands, 1995 1994 1993 1992 1991
Except Per Share Data) --------------------------------------------------
Selected Financial Condition Data
<S> <C> <C> <C> <C> <C>
Total Assets $1,523,949 $1,394,881 $1,307,339 $1,319,770 $1,168,605
Loans Receivable -- Net 1,250,726 1,078,494 978,053 920,386 876,883
Mortgage-Backed Securities 49,498 69,597 101,293 179,909 137,865
Investments 102,656 149,529 113,165 92,570 71,786
Total Deposits 1,119,086 1,018,163 1,015,308 1,042,039 920,514
Federal Home Loan Bank Advances 214,781 201,155 106,877 21,159 22,180
Short-Term Borrowings 38,642 35,922 - 2,469 1,988
Floating-Rate Notes - - - 70,000 70,000
Mortgage-Backed Bonds - - 50,000 50,000 50,000
Shareholders' Equity 129,297 120,712 113,583 100,735 80,704
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
Selected Operations Data
<S> <C> <C> <C> <C> <C>
Interest Income $124,061 $97,572 $97,084 $95,711 $104,970
Interest Expense 66,017 48,343 51,179 58,853 72,653
Provision for Losses on Loans and
Real Estate Owned 7,900 3,900 4,396 3,219 4,483
Earnings Before Cumulative Effect
Change in Accounting Principle 17,267 10,636 15,101 9,484 8,790
Net Earnings 17,267 10,636 15,101 11,002 8,790
Net Interest Margin During Year 4.12% 3.96% 3.64% 3.28% 2.93%
Dividends Declared Per Common Share $ .47 $ .43 $ .30 $ .24 $ .12
Selected Ratios
Net Earnings to:
Average Total Assets 1.18% .81% 1.13% .92% .76%
Average Shareholders' Equity 14.03 9.08 14.05 12.73 11.57
Average Shareholders' Equity to
Average Total Assets 8.41 8.93 8.04 7.25 6.53
Dividend Payout Ratio 22.45 35.23 17.05 16.20 9.44
</TABLE>
<PAGE> 1 (10-K page 56)
FINANCIAL REVIEW
First Indiana Corporation had record earnings of $17,267,000 for the
year ended December 31, 1995, compared with $10,636,000 for the same
period in 1994 and $15,101,000 for the year ended December 31, 1993.
Net earnings per primary share for 1995 were $2.02, compared with
$1.20 in 1994 and $1.76 in 1993. Return on average equity for 1995 was
14.03 percent, compared with 9.08 percent in 1994 and 14.05 percent in
1993. Dividends per common share (adjusted for stock splits) were $.47 in
1995, $.43 in 1994, and $.30 in 1993. On February 1, 1996, the Corporation
announced a six-for-five stock split effective March 1, 1996 for shareholders
of record as of February 21, 1996, the fourth stock split in five years. All
per-share amounts in the 1995 Annual Report have been adjusted for all of the
stock splits.
Several factors contributed to the Corporation's record performance.
A strong economy in all of the Bank's markets fueled growth. The Bank's
renewed focus on real estate finance created efficiencies and encouraged
emphasis on carefully targeted sales strategies.
Residential mortgage loan originations, First Indiana Bank's heritage
and the basis for its mortgage banking growth, amounted to $354 million,
compared with $343 million in 1994. Originations in home equity lending
grew 61 percent to $302 million, compared with $188 million in 1994.
The Bank continued building its franchise in construction lending,
with originations of $284 million, compared with $322 million last year.
Despite the slight downturn in this area, First Indiana maintained its market
share of the custom builder market in Metropolitan Indianapolis, with strong
performance in the production builder segments as well. Loan originations
at the Bank's mortgage banking subsidiary, One Mortgage Corporation,
which operates in Florida and North Carolina, further contributed to the
Bank's success.
These three areas form the cornerstone of the Bank's lending
portfolio, and all experienced substantial growth in outstandings during 1995.
At December 31, 1995, home equity and construction loans outstanding were
$485 million and $142 million, compared with $329 million and $117 million
one year earlier. A fourth area, business lending to selected segments within
the Indianapolis market, added to the Bank's growth, rising to $72 million
outstanding at year-end 1995, compared with $42 million one year earlier.
The Bank's management has identified several strategies for
improving earnings in 1996 and beyond. First Indiana's Strategic Plan calls
for continued enhancements to its core real estate lending business, including
construction, home equity, and residential mortgage lending. In addition, the
Bank is continuing its efforts to enhance efficiencies and streamline
processes, particularly in mortgage banking. Toward that end, the Bank
grouped all consumer sales functions into one division and consolidated all
consumer servicing functions into another division in the fourth quarter of
1995. This new structure eliminated vertically integrated mortgage and
non-mortgage consumer lending in separate divisions and will encourage
efficiencies through continuous improvement and consolidation of processes.
This will create lower operating costs and lead to price advantages that the
Bank can share with its customers. The Bank further intends to expand its
business lending portfolio, specializing in loans to smaller, independently
owned companies with a demonstrated history of strong performance.
Finally, the Bank is looking toward the development and acquisition of
companies that will provide additional sources of non-interest income.
Included in 1995 earnings are a first quarter pre-tax gain of
$1,497,000 from the sale of deposits of a banking center in Princeton,
Indiana, and a pre-tax gain of $1,535,000 from the sale of $45 million in
fixed-rate home equity loans during the second quarter. During the fourth
quarter, the Bank realized a pre-tax gain $2,156,000 from the sale of a
foreclosed commercial real estate property and increased its pre-tax provision
for loan losses by an additional $2,450,000 in response to significant growth
in the consumer loan portfolio. Even without these items, 1995 earnings
from operations are a record.
First Indiana's assets grew in 1995 to $1,523,949,000 at year-end,
compared with $1,394,881,000 at December 31, 1994. Shareholders' equity
rose during 1995 to $129,297,000 at December 31, a seven percent increase
over the December 31, 1994 level of $120,712,000. The tangible and core
capital of the Bank was $127,229,000, or 8.26 percent of assets, which
exceeded regulatory minimums by $104,125,000 and $81,022,000 at year-end 1995.
Average shareholders' equity to average assets equaled 8.41
percent and 8.93 percent for 1995 and 1994.
Net Interest Income
Net interest income is the most critical component of First Indiana's
net earnings. It is affected by both the volume and interest rate of
interest-earning assets and interest-bearing liabilities.
Net interest income was $58,044,000 in 1995, compared with
$49,229,000 in 1994 and $45,905,000 in 1993. The increase in 1995 is the
result of significant growth in the Bank's home equity, residential
construction and business loan portfolios. These loans generally have higher
yields than a traditional residential mortgage loan portfolio.
Net Interest Margin
First Indiana's net interest margin is the clearest indicator of its
ability to generate core earnings. The margin rose to a record 4.12 percent
for the year ended December 31, 1995, compared with 3.96 percent in 1994 and
3.64 percent in 1993. This illustrates
<PAGE> 2 (10-K page 57)
that the Bank has chosen an optimal mix of assets and liabilities for
its portfolio.
Net interest margin consists of two components: interest-rate spread
and the contribution of interest-free funds (primarily shareholders' equity and
other non-interest-bearing liabilities). Interest-rate spread is the difference
between the yield on total earning assets and the cost of total interest-bearing
liabilities.
The Corporation's average interest-rate spread on average interest-earning
assets for the year ended December 31, 1995 was 3.60 percent,
compared with 3.57 percent in 1994 and 3.24 percent in 1993. The increased
spread arose when the Bank's interest-earning assets repriced faster than the
liabilities funding them during 1995.
The contribution of interest-free funds to First Indiana's net interest
margin varies depending on the level of capital and use of interest-free
liabilities. Average interest-free funds provided an additional 52 basis points
to the margin in 1995, compared with 39 and 40 basis points in 1994 and
1993.
The following table analyzes First Indiana's net interest margin and
the components that contributed to it.
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------------------
Average Average Average
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Federal Funds Sold $10,399 $613 5.89% $ 11,123 $587 5.28% $14,512 $441 3.04%
Interest-Bearing
Deposits - - - 3,478 175 5.03 7,296 237 3.25
Investments 139,569 9,181 6.58 160,030 9,784 6.11 118,438 7,568 6.39
Mortgage-Backed
Securities 60,602 4,396 7.25 82,566 5,473 6.63 153,364 10,178 6.64
Loans Receivable (1) 1,199,619 109,871 9.16 986,437 81,553 8.27 965,810 78,660 8.14
------------------ ------------------ ------------------
Total Earning Assets 1,410,189 124,061 8.80 1,243,634 97,572 7.85 1,259,420 97,084 7.71
Other Assets 53,860 ------- 68,743 ------ 77,660 ------
--------- --------- ---------
Total Assets $1,464,049 $1,312,377 $1,337,080
========= ========= =========
Liabilities and Share-
holders' Equity
Liabilities
Interest-Bearing
Liabilities
Deposits:
NOW and Money
Market Checking $ 99,405 2,334 2.35 $113,574 2,677 2.36 $ 101,413 2,719 2.68
Passbook and
Statement Savings 224,282 10,414 4.64 215,781 8,156 3.78 216,358 6,110 2.82
Money Market Savings 22,582 730 3.23 33,485 906 2.71 36,997 1,250 3.38
Jumbo Certificates 108,834 6,572 6.04 56,549 2,320 4.10 38,273 1,247 3.26
Fixed-Rate
Certificates 560,279 30,483 5.44 551,505 25,283 4.58 589,371 32,105 5.45
Federal Home Loan
Bank Advances 212,696 12,891 6.06 121,333 6,952 5.73 32,400 2,039 6.29
Short-Term
Borrowings 42,019 2,593 6.17 6,308 330 5.23 13,180 421 3.19
Mortgage-Backed Bonds
and Floating-Rate
Note - - - 31,440 1,719 5.47 116,889 5,288 4.52
------------------ ------------------ ------------------
Total Interest-Bearing
Liabilities 1,270,097 66,017 5.20 1,129,975 48,343 4.28 1,144,881 51,179 4.47
Other Liabilities 70,894 ------ 65,234 ------ 84,715 ------
Shareholders' Equity 123,058 117,168 107,484
--------- --------- ---------
Total Liabilities and
Shareholders' Equity $1,464,049 $1,312,377 $1,337,080
========= ========= =========
Net Interest
Income/Spread $58,044 3.60% $49,229 3.57% $45,905 3.24%
====== ===== ====== ===== ====== =====
Net Interest Margin 4.12% 3.96% 3.64%
===== ===== =====
(1) Included in loans receivable are loans held for sale totaling $35,953,
$24,086, and $70,067 in 1995, 1994, and 1993, and non-accrual loans.
</TABLE>
<PAGE> 3 (10-K page 58)
Changes in Rate/Volume
The following table shows the impact on net interest income of
changes in interest rates and volume of the Corporation's assets and
liabilities.
<TABLE>
<CAPTION>
1995 Compared with 1994 1994 Compared with 1993
---------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
---------------------------------------------------------------------
Net Net
(Dollars in Thousands) Rate Volume Other Change Rate Volume Other Change
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $8,793 $17,625 $1,900 $28,318 $1,188 $1,680 $25 $2,893
Mortgage-Backed Securities 516 (1,456) (137) (1,077) (12) (4,699) 6 (4,705)
Investments 743 (1,251) (95) (603) (327) 2,658 (115) 2,216
Interest-Bearing Deposits (175) (175) 175 (175) 130 (124) (68) (62)
Federal Funds Sold 69 (38) (5) 26 325 (103) (76) 146
---------------------------------------------------------------------
9,946 14,705 1,838 26,489 1,304 (588) (228) 488
---------------------------------------------------------------------
Interest Expense
Deposits
NOW and Money Market Checking (10) (334) 1 (343) (21) (21) 0 (42)
Passbook and Statement Savings 1,864 322 73 2,259 2,068 (16) (6) 2,046
Money Market Savings 176 (295) (57) (176) (249) (119) 24 (344)
Jumbo Certificates 1,095 2,145 1,012 4,252 324 595 154 1,073
Fixed-Rate Certificates 4,722 402 75 5,199 (5,086) (2,063) 327 (6,822)
Federal Home Loan Bank Advances 402 5,235 302 5,939 (183) 5,597 (501) 4,913
Short-Term Borrowings 59 1,868 336 2,263 269 (220) (140) (91)
Mortgage-Backed Bonds and
Floating-Rate Notes (1,719) (1,719) 1,719 (1,719) 1,103 (3,866) (806) (3,569)
--------------------------------------------------------------------
6,589 7,624 3,461 17,674 (1,775) (113) (948) (2,836)
--------------------------------------------------------------------
Net Interest Income $3,357 $7,081 $(1,623) $8,815 $3,079 $(475) $720 $3,324
====================================================================
</TABLE>
Non-Interest Income
The following table shows First Indiana's non-interest income for the
past three years.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) Increase (Decrease)
----------------------------------------------------------
1995 Amount Percent 1994 Amount Percent 1993
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of Investments $ 46 $ 46 100.0% $ - $ (11) (100.0)% $ 11
Trading Account Activity - 335 100.0 (335) (621) (217.1) 286
Sale of Loans 2,749 3,455 489.4 (706) (3,509) (125.2) 2,803
Sale of Deposits 1,497 1,497 100.0 - - - -
Dividends on FHLB Stock 996 394 65.4 602 (269) (30.9) 871
Loan Servicing Income 2,645 (216) (7.5) 2,861 1,434 100.5 1,427
Loan Fees 2,206 (172) (7.2) 2,378 (30) (1.2) 2,408
Insurance Commissions 1,280 544 73.9 736 (442) (37.5) 1,178
Accretion of
Negative Goodwill 948 0 0.0 948 (7) (0.7) 955
Deposit Product Fee Income 2,124 214 11.2 1,910 46 2.5 1,864
Other 1,760 (171) (8.9) 1,931 (103) (5.1) 2,034
---------------- ---------------- -------
$16,251 $5,926 57.4 $10,325 $(3,512) (25.4) $13,837
================ ================ =======
</TABLE>
<PAGE> 4 (10-K page 59)
The increase in non-interest income in 1995 arose from a pre-tax gain
of $1,497,000 from the sale of approximately $25,462,000 of the deposits of
a banking center in Princeton, Indiana that did not fit strategically with the
Bank's plans. The Bank also realized a $1,535,000 pre-tax gain on the sale
of $45 million in fixed-rate home equity loans in the second quarter of 1995
and gains on the sale of residential mortgage loans in the secondary market
as part of the Bank's normal mortgage banking activity throughout the year.
As interest rates fell in 1995, alternative investments such as mutual
funds and annuities became more attractive to the Bank's savings customers.
As a result, insurance commissions earned by the Bank's subsidiary, One
Insurance Corporation, rose almost 74 percent.
Losses in non-interest income in 1994 arose mainly from two sources.
First, a sudden, unexpected increase in interest rates in the first quarter led
to losses in the Bank's trading account, which consisted primarily of
Treasurys and other government securities. That account was immediately
closed and the Bank's trading desk disbanded.
Second, as often occurs in mortgage banking, losses from the sale of
loans arose during the first quarter of 1994, when rates rose quickly and the
Bank had committed to deliver loans to the secondary market. The value of
these loans fell between the time of their origination and the promised date
of delivery. First Indiana has since reduced the maximum amount permitted
to be held in its pipeline for sale to the secondary market, and losses of this
magnitude are not expected to recur.
Non-Interest Expense
The following table describes First Indiana's non-interest expense for
each of the past three years.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) Increase (Decrease)
--------------------------------------------------------------
1995 Amount Percent 1994 Amount Percent 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and Benefits $26,394 $3,232 14.0% $23,162 $50 0.2% $23,112
Capitalized Salaries
and Benefits (5,504) (1,807) (48.9) (3,697) 2,045 35.6 (5,742)
Net Occupancy 3,069 80 2.7 2,989 218 7.9 2,771
Deposit Insurance 2,298 (20) (0.9) 2,318 454 24.4 1,864
Real Estate Owned
Operations - Net (3,060) (3,034) (11,169.2) (26) (21) (420.0) (5)
Equipment 4,636 147 3.3 4,489 1,602 55.5 2,887
Office Supplies and Postage 1,934 208 12.1 1,726 (102) (5.6) 1,828
Other 8,880 1,339 17.8 7,541 752 11.1 6,789
---------------- ---------------- -------
$38,647 $ 145 0.4 $38,502 $4,998 14.9 $33,504
================ ================ =======
</TABLE>
The major items of non-interest expense for 1995 consisted of higher
expense credits for capitalized salaries and benefits due to higher consumer
loan origination volume; sale of a foreclosed commercial real estate property
at a pre-tax gain of $2,156,000; and slightly higher expenses related to
marketing and strategic planning. These expenses are part of the Bank's
ongoing efforts to rely more heavily on market research and strategic
planning in positioning the Bank, developing products, and advertising the
Bank's products and services.
Asset Quality
First Indiana's asset quality is directly affected by the credit risk of
the assets on its balance sheet. The procedures for reviewing the quality of
First Indiana's loans, the appropriateness of loan and real estate owned
("REO") classifications, and the adequacy of loan and REO loss allowances are
reviewed by First Indiana's Board of Directors.
General Allowances. First Indiana establishes general allowances as
percentages of loans outstanding. The percentages are based on the Bank's
risk model, which incorporates empirical data about loss experience, credit
risk, geographic diversity, general economic trends, and other factors.
Specified Reserves. Specified reserves are established through a
rating system based on numerous factors. Certain loans are placed on a
watch list. Management calculates the value of the collateral for all loans on
the watch list and recommends specified reserves.
Adequacy of Allowances. Management believes that First Indiana's
current loan and REO loss allowances are sufficient to absorb potential future
losses. However, there can be no assurance that additional allowances will
not be required or that the amount of any such allowances will not be
significant. Various regulatory agencies periodically review these allowances
and may require First Indiana to recognize additions to the allowances.
The Investment Committee of First Indiana's Board of Directors is
responsible for monitoring and reviewing investment quality and liquidity.
The Investment Committee approves investment policies and meets quarterly
to review investment transactions. Credit risk is controlled by limiting the
number and size of investments and by approving the brokers and dealers
through which investments are made.
<PAGE> 5 (10-K page 60)
Non-Performing Assets.
First Indiana has managed its loan portfolio to reduce concentration
of loan types and to diversify assets geographically. Non-performing assets,
which consist of non-accrual, impaired and restructured loans, real estate
owned ("REO"), and other repossessed assets, fell seven percent during 1995
to $27.2 million at December 31 from $29.1 million one year earlier.
The following table sets forth the amounts of First Indiana's non-
performing assets. The information pertaining to non-accrual loans and
restructured loans is set forth by type of loan. Most of the Bank's non-
performing commercial real estate loans consist of apartments and hotels
located in Indiana and contiguous states.
<TABLE>
<CAPTION>
Non-Performing Assets December 31,
------------------------------------------
(Dollars in Thousands) 1995 1994 1993 1992 1991
------------------------------------------
<S>
Non-Accrual Loans <C> <C> <C> <C> <C>
Residential Mortgage $2,399 $1,720 $3,796 $4,310 $6,607
Residential Construction 2,229 2,212 3,029 2,879 3,847
Commercial Real Estate 1,514 105 275 118 8,789
Business 428 331 775 387 0
Consumer 8,120 6,603 3,025 3,269 1,686
------------------------------------------
Total Non-Accrual Loans 14,690 10,971 10,900 10,963 20,929
------------------------------------------
Impaired Loans 3,306 - - - -
Restructured Loans
Residential Mortgage - - - 448 451
Commercial Real Estate 5,909 10,730 11,311 16,465 12,591
-----------------------------------------
Total Restructured Loans 5,909 10,730 11,311 16,913 13,042
Real Estate Owned 2,943 7,012 13,961 11,748 14,971
Other Repossessed Assets 317 364 302 157 155
-------------------------------------------
Total Non-Performing Assets $27,165 $29,077 $36,474 $39,781 $49,097
===========================================
</TABLE>
Non-Accrual, Impaired, and Restructured Loans. First Indiana
places loans on non-accrual status when payments of principal or interest
become 90 days or more past due, or earlier when an analysis of a borrower's
creditworthiness indicates that payments could become past due. At
December 31, 1995, First Indiana had identified an impaired loan totaling
$3,306,000 which had an allocated reserve of $167,000.
Loan modifications classified as "restructured loans" under Statement
of Financial Accounting Standard No. 15 improved to $5.9 million at
December 31, 1995, compared with $10.7 million at December 31, 1994 and
$11.3 million at December 31, 1993. Management modified the payment
terms, interest rates, and contractual maturities of these loans to improve the
likelihood of recovery of the Bank's investment. The interest earned on
these loans in 1995 totaled $829,000, only $48,000 below the original
interest obligation.
Real Estate Owned. Real estate owned is generally acquired by deed
in lieu of foreclosure. It is carried at the lower of the Bank's book balance
in the property or the fair market value of the property, less reasonable costs
of disposition. A review of REO properties, including the adequacy of the
loss allowance and decisions whether to charge off REO, occurs in
conjunction with the review of the loan portfolios described above.
The following schedule is a summary of REO, net of the allowance
for REO losses.
<TABLE>
<CAPTION>
Real Estate Owned
(Dollars in Thousands) December 31,
----------------------------------------
1995 1994 1993 1992 1991
----------------------------------------
<S> <C> <C> <C> <C> <C>
Residential Mortgage $ 430 $1,427 $ 1,112 $ 781 $ 1,470
Residential Construction 713 791 1,204 1,405 -
Commercial Real Estate 94 3,503 9,267 9,204 13,501
Consumer 1,706 1,291 2,378 358 -
Allowance for REO Losses (1,066) (1,216) (1,483) (1,630) (695)
-------------------------------------------
Net Real Estate Owned $1,877 $5,796 $12,478 $10,118 $14,276
===========================================
</TABLE>
<PAGE> 6 (10-K page 61)
Potential Problem Assets. The Corporation had $6.7 million in
potential problem loans at December 31, 1995. Of this amount, $5.6 million
consists of loans to residential builders. These loans are currently performing
according to their loan agreements, but the builders' financial operations and
condition cause management to question their ability to comply with present
repayment terms. The collateral for these loans is one-to-four family
dwellings with loan-to-value ratios of 80 percent or less. The remaining $1.1
million represents two commercial real estate loans which are currently
performing, but the underlying properties have not achieved their original
projected operating levels. In December 1995, the Bank identified a $3
million par value corporate debt security as a potential problem investment
because management questioned the issuer's ability to meet the security's
repayment terms. As a result, the Bank reduced the carrying value of the
available-for-sale security by $818,000 to its estimated recoverable value
through a charge to earnings. In January 1996, Moody's Investor Service
reduced the rating for this security to below investment grade. Management
continues to monitor the issuer's financial condition closely and will further
reduce the carrying value of the security should further deterioration occur.
Summary of Loan Loss Experience.
The following is a summary of activity in First Indiana's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Summary of Loan Loss Experience Years Ended December 31,
--------------------------------------------------
(Dollars in Thousands) 1995 1994 1993 1992 1991
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan Losses at
Beginning of Year $12,525 $11,506 $ 8,748 $ 7,797 $ 4,919
Charge-Offs
Residential Mortgage (34) (82) (294) (230) (10)
Residential Construction (231) (425) (279) (443) (354)
Commercial Real Estate (1,139) (167) (80) (33) -
Consumer (2,969) (2,181) (993) (904) (804)
Business (61) (194) (136) - -
-------------------------------------------------
Total Charge-Offs (4,434) (3,049) (1,782) (1,610) (1,168)
-------------------------------------------------
Recoveries
Residential Mortgage 6 3 - 5 11
Residential Construction 16 - 33 18 1
Commercial Real Estate 13 - - - -
Consumer 190 165 111 129 134
Business 18 - - - -
-------------------------------------------------
Total Recoveries 243 168 144 152 146
-------------------------------------------------
Net Charge-Offs (4,191) (2,881) (1,638) (1,458) (1,022)
Provision for Loan Losses 7,900 3,900 4,396 2,250 3,900
Allowance for Loan Losses for Acquisitions - - - 159 -
Balance of Allowance for Loan Losses at ------------------------------------------------
End of Year 16,234 12,525 11,506 8,748 7,797
------------------------------------------------
Balance of REO Loss Allowance at
End of Year 1,066 1,216 1,483 1,630 695
------------------------------------------------
Balance of Loan and REO Loss Allowance
at End of Year $17,300 $13,741 $12,989 $10,378 $ 8,492
=================================================
Ratio of Net Charge-Offs to Average Loans
Outstanding 0.35% 0.29% 0.17% 0.16% 0.11%
Ratio of Allowance for Loan Losses to
Loans Receivable 1.28% 1.15% 1.16% 0.94% 0.88%
Ratio of Total Loan and REO Loss Allowance to
Non-Performing Assets 63.68% 47.26% 35.61% 26.09% 17.30%
Ratio of Allowance for Loan Losses to
Non-Performing Loans 67.91% 57.72% 51.80% 31.38% 22.95%
</TABLE>
<PAGE> 7 (10-K page 62)
First Indiana's 1993 loan loss provision rose to $4.4 million to reflect
the increased risk associated with the Bank's growing portfolio of business,
residential construction, and consumer loans. During 1994, First Indiana
decided to discontinue indirect automobile lending, which incurs significant
charge-offs as part of normal lending activities. Management had provided
for this risk in prior years in anticipation of delinquencies that normally
occur when the automobile lending portfolio reaches certain points in the
maturity cycle. Based on an overall analysis of the risk of loss in the
loan portfolio, First Indiana reduced the annual loan loss provision to
$3.9 million during 1994. The 1995 loan loss provision increased to
$7.9 million in response to the significant growth in the Bank's targeted
portfolios of home equity, residential construction, and business loans.
While management believes that these portfolios have strong credit quality,
it recognizes the increased risk of such portfolios compared to traditional
residential portfolios, and has increased the Bank's loan loss provision
accordingly.
Allocation of Loan Loss Allowance.
The following table presents an allocation of First Indiana's allowance
for loan losses at the dates indicated.
<TABLE>
<CAPTION>
Allocation of Loan Loss Allowance
(Dollars in Thousands) December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Amount Category Amount Category Amount Category Amount Category Amount Category
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance At End of Period
Applicable to:
Residential Mortgage $ 426 33.3% $ 376 36.4% $ 796 40.1% $ 549 45.8% $ 256 57.4%
Residential
Construction Loans 2,928 11.2 2,110 10.7 1,852 10.9 917 10.5 829 7.8
Commercial Real
Estate Loans 1,095 4.4 2,219 5.6 2,681 7.4 2,571 11.9 2,979 11.2
Consumer Loans 7,808 45.4 5,375 43.5 3,571 38.6 2,173 31.5 1,760 23.4
Business Loans 820 5.7 519 3.8 505 3.0 75 0.3 15 0.2
Unallocated 3,157 - 1,926 - 2,101 - 2,463 - 1,958 -
----------------- ----------------- ----------------- --------------- -----------------
$16,234 100.0% $12,525 100.0% $11,506 100.0% $8,748 100.0% $7,797 100.0%
================= ================= ================= =============== =================
</TABLE>
Capital Resources and Liquidity
Capital.
At December 31, 1995, First Indiana's shareholders' equity was
$129,297,000, or 8.48 percent of total assets, compared with $120,712,000,
or 8.65 percent of total assets, at December 31, 1994. Most of the
Corporation's equity consists of its investment in the Bank.
The following table shows First Indiana's strong capital levels and
compliance with all capital requirements at December 31, 1995. First Indiana
is classified as "well-capitalized" under Office of Thrift Supervision ("OTS")
regulations, its highest classification. The table reflects categories of
assets includable under OTS regulations.
In August 1994, the Corporation's Board of Directors authorized the
repurchase of approximately 10 percent of the Corporation's outstanding
common stock. At December 31, 1995, the Corporation had repurchased
470,133 shares of its common stock, or 5.7 percent of its shares outstanding.
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31, 1995
---------------------------------------------------------------
GAAP Tangible Core (Tier One) Risk-Based
Capital Capital Percent Capital Percent Capital Percent
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Indiana Corporation Capital $129,297
========
First Indiana Bank Capital $127,881 $127,881 $127,881 $127,881
========
SFAS 115 Adjustment (396) (396) (396)
Nonqualifying Servicing (256) (256) (256)
Additional Capital Items
General Valuation Allowance - - 15,339
Land Loans Above 80%
Loan-to-Value - - (1,135)
------- ------- -------
Computed Capital 127,229 8.26% 127,229 8.26% 141,433 11.53%
Minimum Capital Requirement 23,104 1.50 46,207 3.00 98,168 8.00
-------- -------- --------
Excess Capital $104,125 $ 81,022 $ 43,265
======== ======== ========
Fully Phased-In Requirement 3.00 3.00 8.00
</TABLE>
<PAGE> 8 (10-K page 63)
Liquidity.
First Indiana Corporation conducts its business through subsidiaries.
The main source of funds for the Corporation is dividends from the Bank.
The Bank's primary source of funds is its deposits, which increased
to $1,119,086,000 at December 31, 1995 from $1,018,163,000 at December
31, 1994. In 1995, much of the Bank's increase in deposits came from
jumbo certificates of deposit (above $100,000) because the low interest-rate
environment was not conducive to retail deposit growth.
In recent years, First Indiana has relied on loan payments, loan
payoffs, sale of loans, Federal Home Loan Bank advances, repurchase
agreements, mortgage-backed bonds, and floating-rate notes as sources of
funds. Although the Bank will continue to rely on core retail deposits as its
chief source of funds, the use of borrowed funds, including Federal Home
Loan Bank advances, is likely to increase in 1996 because of expected
growth.
Scheduled loan payments are a relatively stable source of funds, but
loan payoffs, the sale of loans, and deposit inflows and outflows fluctuate
significantly, depending on interest rates and economic conditions. However,
management does not expect any of these items to occur in amounts that
would affect the Corporation's ability to meet consumer demand for liquidity
or regulatory liquidity requirements.
Regulations require the director of OTS to set minimum liquidity
levels between four and ten percent of assets. The Bank's liquidity ratio at
December 31, 1995 was 6.50 percent.
Asset/Liability Management
First Indiana engages in rigorous, formal asset/liability management,
the objectives of which are to manage interest-rate risk, ensure adequate
liquidity, and coordinate sources and uses of funds.
The management of interest-rate risk entails the control, within
acceptable limits, of the impact on earnings caused by fluctuating interest
rates and changing rate relationships. In this process, management examines
the Bank's interest-rate sensitivity using gap analysis. This method
recognizes the dynamics of the balance sheet and the effect of changing
interest rates on First Indiana's net earnings.
The cumulative rate-sensitivity gap reflects First Indiana's sensitivity
to interest-rate changes over time. It is a static indicator and does not
attempt to predict the net interest income of a dynamic business in a rapidly
changing environment. Significant adjustments are made when the rate
outlook changes.
At December 31, 1995, First Indiana's six-month and one-year
cumulative gap stood at 5.22 percent and 3.70 percent of total interest-
earning assets. This compares with (0.12) percent and 4.05 percent at
December 31, 1994. This means that 5.22 percent and 3.70 percent of First
Indiana's assets will reprice within six months and one year without a
corresponding repricing of the liabilities funding them. Management intends
to maintain a similar gap position to reduce the volatility of earnings.
<PAGE> 9 (10-K page 64)
Interest-Rate Sensitivity.
The following table shows First Indiana's interest-rate sensitivity at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Interest-Rate Sensitivity
(Dollars in Thousands) Rate Sensitivity by Period of Maturity or Rate Change At December 31, 1995
--------------------------------------------------------------------------
Percent Over 180 Over One Over
1995 of Within Days to Year to Five
Rate Balance Total 180 Days One Year Five Years Years
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Investment Securities
and Other 6.75%$ 135,656 9.34 % $ 58,654 $ 8,838 $ 59,079 $ 9,085
Loans Receivable (1)
Mortgage-Backed
Securities 7.76 49,498 3.41 19,104 3,434 12,667 14,293
Residential Mortgage
Loans 7.86 422,084 29.06 185,887 71,130 130,274 34,793
Residential Construction
Loans 9.53 142,299 9.80 127,707 -- 14,224 368
Commercial Real
Estate Loans 10.89 55,422 3.82 18,556 9,335 14,910 12,621
Business Loans 10.31 72,146 4.97 54,296 2,975 14,875 --
Consumer Loans 10.65 575,009 39.60 252,853 46,471 187,965 87,720
-----------------------------------------------------------------
9.26 $1,452,114 100.00 % 717,057 142,183 433,994 158,880
===================== ----------------------------------------
Interest-Bearing Liabilities
Deposits
Demand Deposits (2) 1.31 $ 159,910 11.65 % -- -- -- 159,910
Passbook Deposits (3) 2.99 54,020 3.93 15,437 1,376 9,689 27,518
Money Market Savings 5.10 213,530 15.56 213,530 -- -- --
Jumbo Certificates 5.84 122,082 8.89 63,677 8,435 49,970 --
Fixed-Rate Certificates 5.70 569,544 41.50 199,958 149,404 220,182 --
----------------------------------------------------------------
4.84 1,119,086 81.53 492,602 159,215 279,841 187,428
Borrowings
FHLB Advances 5.97 214,781 15.65 110,000 5,000 98,000 1,781
Short-Term Borrowings 5.81 38,642 2.82 38,642 -- -- --
----------------------------------------------------------------
5.05 1,372,509 100.00 % 641,244 164,215 377,841 189,209
========
Net - Other (4) 79,605 79,605
---------- ----------------------------------------
Total $1,452,114 641,244 164,215 377,841 268,814
========== ----------------------------------------
Rate Sensitivity Gap $ 75,813 $ (22,032)$ 56,153 $ (109,934)
===========================================
December 31, 1995 Gap
Cumulative Rate-
Sensitivity Gap $ 75,813 $ 53,781 $ 109,934
================================
Percent of Total
Interest-Earning Assets 5.22% 3.70% 7.57%
================================
December 31, 1994 Gap
Cumulative Rate-
Sensitivity Gap $ (1,536)$ 53,603 $ 59,450
================================
Percent of Total
Interest-Earning Assets (0.12)% 4.05% 4.49%
================================
(1) The distribution of fixed-rate loans is based upon contractual maturity and scheduled contractual
repayments adjusted for estimated prepayments. For adjustable-rate loans, interest rates adjust
at intervals of six months to five years. Included in Residential Mortgage Loans are $16,889 of
Loans Held for Resale. Included in Consumer Loans are $35,844 of Home Equity Loans Held for
Resale.
(2) These deposits have been included in the Over Five Years category to reflect management's
assumption that these accounts are not rate-sensitive. This assumption is based on historic trends
of these deposits through periods of significant increases and decreases in interest rates without
changes in rates paid on these deposits. Included in this category are NOW, money market checking,
and non-interest bearing deposits. The rate represents a blended rate on all deposit types in the
category.
(3) A portion of these deposits has been included in the Over Five Years category to reflect
management's assumption that these accounts are not rate-sensitive. This assumption is based upon
the historic minimal decay rates on these types of deposits experienced through periods of
significant increases and decreases in interest rates without changes in rates paid on these
deposits.
(4) Net-Other is the excess of other non-interest-bearing liabilities and capital over other non-interest-bearing assets.
</TABLE>
<PAGE> 10 (10-K page 65)
Financial Condition
First Indiana's total assets at December 31, 1995 were
$1,523,949,000, compared with $1,394,881,000 at December 31, 1994.
Loans receivable stood at $1,250,726,000 at year-end 1995, compared with
$1,078,494,000 one year earlier.
The composition of the Bank's loan portfolio changed in 1995, as the
Bank continued to execute its strategy of adding higher-yielding loans to the
balance sheet through the origination of home equity and residential
construction loans.
Residential loans outstanding amounted to $421,502,000 at
December 31, 1995, compared with $395,996,000 in 1994. Consumer loans
outstanding increased to $575,009,000 at the end of 1995, compared with
$474,465,000 one year earlier. Much of this increase consisted of growth in
home equity loans, which stood at $485,032,000 outstanding at year-end,
compared with $328,594,000 one year earlier. Construction loans
outstanding grew to $142,299,000, compared with $117,170,000 at the end
of 1994.
Investments held to maturity decreased by $131,761,000 at December
31, 1995, or 96 percent compared with the end of 1994. This decrease is
principally due to a one-time reclassification of investment securities
available for sale permitted by the Financial Accounting Standards Board
("FASB"). The Corporation also sold $67,250,000 in investment-grade
corporate debt securities in December 1995. The Corporation holds no
investment in derivative securities.
Total loan sales in 1995 amounted to $264,116,000, compared with
$239,851,000 in 1994 and $489,934,000 in 1993.
The Bank's loan servicing portfolio continued to produce fee income
in 1995. The portfolio stood at $1,130,209,000 at year-end, compared with
$802,191,000 and $806,874,000 at December 31, 1994 and 1993. The
servicing portfolio provides a source of fee income, but is subject to
fluctuations as rates fall and loans being serviced pay off. During the second
quarter of 1995, the Bank purchased $310 million in residential mortgage
loan servicing rights.
Impact of Accounting and Regulatory Standards Not Yet Adopted
In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights." SFAS 122 amends SFAS 65, "Accounting for
Certain Mortgage Banking Activities," to require that a mortgage banking
enterprise recognize as separate assets the rights to service mortgage loans
for others, however those servicing rights are acquired. These mortgage
servicing right ("MSR") assets must be carried at fair value. The Statement
applies prospectively in fiscal years beginning after December 15, 1995.
Accordingly, the Bank will adopt the provisions of SFAS 122 as of January
1, 1996. Assuming a stable interest rate environment, the Bank estimates
that the adoption of this statement will result in the establishment of an MSR
asset (and a corresponding increase in 1996 pre-tax earnings) of $2,000,000
to $4,000,000. However, in a rapidly declining interest rate environment, the
fair value of the MSR asset may significantly deteriorate, requiring a
valuation allowance which could partially or completely offset any previously
recognized income.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 allows the recognition of
expense based upon the estimated fair value of all stock-based compensation.
However, the Statement also allows enterprises the option of retaining the
accounting treatment for stock-based compensation set forth in Accounting
Principle Board Opinion 25, "Accounting for Stock Issued to Employees "
("APB 25"). APB 25 does not require expense recognition for the type of
stock options issued by First Indiana. The Statement requires pro forma
disclosures of net income and earnings per share computed as if the fair value
based method had been applied in financial statements of companies that
continue to follow current accounting practice under APB 25. The
Statement is applied prospectively in fiscal years beginning after December
15, 1995. First Indiana intends to retain the APB 25 accounting treatment
of stock-based compensation. Consequently, adoption of this Statement will
not have any effect on First Indiana's financial condition or results of
operations.
Legislation pending in Congress proposes a one-time assessment on
all SAIF-insured deposits in the range of $.85 to $.90 per $100 of domestic
deposits. This one-time assessment is intended to recapitalize the Savings
Association Insurance Fund to the required level of 1.25 percent of insured
deposits, and could be payable in 1996. If the assessment occurs, the effect
on First Indiana would be a pre-tax charge of approximately $8,900,000, and
the Bank's well-capitalized ranking would not be adversely affected.
<PAGE> 11 (10-K page 66)
<TABLE>
<CAPTION>
Consolidated Balance Sheets
First Indiana Corporation and Subsidiaries
December 31,
------------------------
(Dollars in Thousands, Except per Share Data) 1995 1994
------------------------
<S> <C> <C>
Assets
Cash $ 24,000 $ 24,684
Federal Funds Sold 33,000 15,000
------------------------
Total Cash and Cash Equivalents 57,000 39,684
Investments Available For Sale (Note 2) 96,813 11,925
Investments Held to Maturity (Market Value of $5,949 and $131,068)
(Notes 2, 9, and 12) 5,843 137,604
Mortgage-Backed Securities Available For Sale (Note 3) - 5,411
Mortgage-Backed Securities Held to Maturity--Net
(Market Value of $50,426 and $61,828) (Notes 3,9, and 12) 49,498 64,186
Loans Held for Sale 52,733 8,868
Loans Receivable (Notes 4, 8, and 12) 1,214,227 1,082,151
Less Allowance for Loan Losses (Note 5) 16,234 12,525
--------------------------
Loans Receivable--Net 1,250,726 1,078,494
Premises and Equipment (Note 6) 13,157 13,333
Accrued Interest Receivable 11,645 9,812
Real Estate Owned--Net (Note 5) 1,877 5,796
Prepaid Expenses and Other Assets 37,390 28,636
---------------------------
Total Assets $1,523,949 $1,394,881
===========================
Liabilities and Shareholders' Equity
Liabilities
Non-Interest-Bearing Deposits $ 64,343 $ 38,250
Interest-Bearing Deposits 1,054,743 979,913
--------------------------
Total Deposits (Note 7) 1,119,086 1,018,163
Federal Home Loan Bank Advances (Note 8) 214,781 201,155
Short-Term Borrowings (Note 9) 38,642 35,922
Accrued Interest Payable 2,715 1,696
Advances by Borrowers for Taxes and Insurance 2,107 2,356
Other Liabilities 10,688 7,296
--------------------------
Total Liabilities 1,388,019 1,266,588
--------------------------
Negative Goodwill 6,633 7,581
--------------------------
Shareholders' Equity (Notes 11 and 13)
Preferred Stock, $.01 Par Value: 2,000,000 Shares Authorized; None Issued - -
Common Stock, $.01 Par Value: 16,000,000 Shares Authorized; 8,272,323
Shares Issued and Outstanding in 1995 and 8,649,902 Shares in 1994 73 72
Paid-In Capital in Excess of Par 32,730 31,926
Retained Earnings 102,449 88,981
Net Unrealized Gain (Loss) on Securities Available For Sale 395 (120)
Treasury Stock - At Cost, 470,133 Shares in 1995 and 12,000 Shares in 1994 (6,350) (147)
-------------------------
Total Shareholders' Equity 129,297 120,712
Commitments and Contingencies (Note 12) - -
-------------------------
Total Liabilities and Shareholders' Equity $1,523,949 $1,394,881
===========================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 12 (10-K page 67)
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
First Indiana Corporation and Subsidiaries Years Ended December 31,
-------------------------------------
(Dollars in Thousands, Except Per Share Data) 1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
Interest Income
Loans $109,871 $ 81,553 $ 78,660
Mortgage-Backed Securities 4,396 5,473 10,178
Investments 9,181 9,784 7,568
Federal Funds Sold and Interest-Bearing Deposits 613 762 678
-----------------------------------
Total Interest Income 124,061 97,572 97,084
-----------------------------------
Interest Expense
Deposits (Note 7) 50,533 39,342 43,431
Federal Home Loan Bank Advances 12,891 6,952 2,039
Mortgage-Backed Bonds - 1,719 2,287
Floating-Rate Notes - - 3,001
-----------------------------------
Total Interest Expense 66,017 48,343 51,179
-----------------------------------
Net Interest Income 58,044 49,229 45,905
Provision for Loan Losses (Note 5) 7,900 3,900 4,396
-----------------------------------
Net Interest Income After Provision for Loan Losses 50,144 45,329 41,509
-----------------------------------
Non-Interest Income
Sale of Investments (7) - 11
Trading Account Activity - (335) 286
Sale of Investments Available for Sale 53 - -
Sale of Loans 2,749 (706) 2,803
Sale of Deposits 1,497 - -
Sale of Mortgage-Backed Securities - - (24)
Dividends on FHLB Stock 996 602 871
Loan Servicing Income 2,645 2,861 1,427
Loan Fees 2,206 2,378 2,408
Insurance Commissions 1,280 736 1,178
Accretion of Negative Goodwill 948 948 955
Other 3,884 3,841 3,922
-----------------------------------
Total Non-Interest Income 16,251 10,325 13,837
-----------------------------------
Non-Interest Expense
Salaries and Benefits 20,890 19,465 17,370
Net Occupancy 3,069 2,989 2,771
Deposit Insurance 2,298 2,318 1,864
Real Estate Owned Operations--Net (3,060) (26) (5)
Equipment 4,636 4,489 2,887
Office Supplies and Postage 1,934 1,726 1,828
Other 8,880 7,541 6,789
-----------------------------------
Total Non-Interest Expense 38,647 38,502 33,504
-----------------------------------
Earnings Before Income Taxes 27,748 17,152 21,842
Income Taxes (Note 10) 10,481 6,516 6,741
-----------------------------------
Net Earnings $17,267 $10,636 $ 15,101
===================================
Primary Earnings Per Share $ 2.02 $ 1.20 $ 1.76
===================================
Fully Diluted Earnings Per Share $ 2.00 $ 1.20 $ 1.76
===================================
Dividends Per Common Share $ 0.47 $ 0.43 $ 0.30
===================================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 13 (10-K page 68)
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
First Indiana Corporation and Subsidiaries
Net
Unrealized
Paid-In Gain (Loss) on
Common Stock Capital Securities Total
-------------------- in Excess Retained Available Treasury Shareholders'
(Dollars in Thousands, Except Per Share Data) Shares Amount of Par Earnings for Sale Stock Equity
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 8,577,512 $72 $30,722 $ 69,941 $ - $ - $100,735
Common Stock Issued Under Restricted
Stock Plans-Net of Amortization (Note 13) - - 243 - - - 243
Exercise of Stock Options 4,003 - 29 - - - 29
Net Earnings for 1993 - - - 15,101 - - 15,101
Dividends -- $.30 Per Share - - - (2,574) - - (2,574)
Payment for Fractional Shares (1,026) - (14) - - - (14)
Reversal of Merger-Conversion Cost Accrual - - 63 - - - 63
----------------------------------------------------------------------------------
Balance at December 31, 1993 8,580,489 72 31,043 82,468 - - 113,583
Common Stock Issued Under Restricted
Stock Plans-Net of Amortization (Note 13) 38,400 - 563 (375) - - 188
Exercise of Stock Options 43,399 - 326 - - - 326
Unrealized Loss on Securities Available
for Sale, Net of Income Taxes of $(82) - - - - (120) - (120)
Net Earnings for 1994 - - - 10,636 - - 10,636
Dividends -- $.43 Per Share - - - (3,748) - - (3,748)
Purchase of Treasury Stock (12,000) - - - - (147) (147)
Payment for Fractional Shares (386) - (6) - - - (6)
---------------------------------------------------------------------------------
Balance at December 31, 1994 8,649,902 72 31,926 88,981 (120) (147) 120,712
Common Stock Issued Under Restricted
Stock Plans-Net of Amortization (Note 13) - - 268 99 - - 367
Common Stock Issued Under Deferred
Compensation Plan - - - (21) - - (21)
Exercise of Stock Options 80,554 1 536 - - - 537
Unrealized Gain on Securities Available
for Sale, Net of Income Taxes of $351 - - - - 515 - 515
Net Earnings for 1995 - - - 17,267 - - 17,267
Dividends -- $.47 Per Share - - - (3,877) - - (3,877)
Purchase of Treasury Stock (458,133) - - - - (6,203) (6,203)
--------------------------------------------------------------------------------
Balance at December 31, 1995 8,272,323 $73 $32,730 $102,449 $395 $(6,350) $129,297
================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 14 (10-K page 69)
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
First Indiana Corporation and Subsidiaries
(Dollars in Thousands)
Years Ended December 31,
-----------------------------------
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 17,267 $ 10,636 $ 15,101
Adjustments to Reconcile Net Earnings to Net Cash Provided
(Used) by Operating Activities
Loss (Gain) on Sale of Assets and Deposits (4,307) 1,051 (3,155)
Amortization 2,197 1,609 28
Amortization of Restricted Stock Plan 367 188 243
Depreciation 1,909 1,922 1,437
Loan and Mortgage-Backed Securities Net Accretion (366) (202) (45)
Provision for Loan Losses 7,900 3,900 4,396
Proceeds From Sales of Trading Investments -- 307,539 1,060,411
Purchase of Trading Investments -- (307,874) (1,047,183)
Proceeds From Sale of Mortgage-Backed
Securities Available for Sale -- -- 18,762
Origination of Loans Held for Sale
Net of Principal Collected (179,919) (177,085) (484,809)
Proceeds from Sale of Loans Held for Sale 138,803 239,851 489,934
Change In:
Accrued Interest Receivable (1,833) 76 370
Other Assets (7,321) 3,132 (79)
Accrued Interest Payable 1,019 (1,411) 286
Other Liabilities 3,392 (561) (5,037)
-------------------------------------
Net Cash (Used) Provided by Operating Activities (20,892) 82,771 50,660
-------------------------------------
Cash Flows From Investing Activities
Proceeds From Sales of Investment Securities 2,993 -- 1,777
Proceeds From Sales of Investments Available for Sale 72,857 -- --
Proceeds From Maturities of Investment Securities 6,018 28,525 88,832
Purchase of Investment Securities (35,388) (66,381) (122,796)
Principal Collected on Mortgage-Backed Securities 20,099 31,696 74,873
Purchase of Mortgage-Backed Securities -- -- (20,092)
Proceeds From Sale of Mortgage-Backed Securities -- -- 5,049
Originations of Loans Net of Principal Collected (260,919) (167,336) (75,938)
Proceeds From Sale of Loans 125,313 1,819 6,099
Purchase of Premises and Equipment (1,750) (1,615) (7,712)
Proceeds From Sale of Premises and Equipment 32 10 265
-------------------------------------
Net Cash Used by Investing Activities (70,745) (173,282) (49,643)
-------------------------------------
Cash Flows From Financing Activities
Net Change in Deposits 127,882 2,855 (26,731)
Proceeds from Sale of Deposits (25,462) -- --
Repayments of Federal Home Loan Bank Advances (366,024) (197,822) (111,121)
Borrowings of Federal Home Loan Bank Advances 379,650 292,100 196,839
Net Change in Short-Term Borrowings 2,720 35,922 (2,469)
Maturity of Floating-Rate Note -- -- (70,000)
Maturity of Mortgage-Backed Bond -- (50,000) --
Net Change in Drafts Payable -- -- (5,138)
Net Change in Advances by Borrowers for Taxes and Insurance (249) 277 (578)
Stock Option Proceeds 537 326 29
Common Stock Issued Under Deferred Compensation Plan (21) -- --
Proceeds From Issuance of Common Stock -- -- 63
Payment for Fractional Shares -- (6) (14)
Purchase of Treasury Stock (6,203) (147) --
Dividends Paid (3,877) (3,748) (2,574)
-------------------------------------
Net Cash Provided (Used) By Financing Activities 108,953 79,757 (21,694)
-------------------------------------
Net Change in Cash and Cash Equivalents 17,316 (10,754) (20,677)
Cash and Cash Equivalents at Beginning of Year 39,684 50,438 71,115
-------------------------------------
Cash and Cash Equivalents at End of Year $ 57,000 $ 39,684 $ 50,438
=====================================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 15 (10-K page 70)
Notes to Consolidated Financial Statements
First Indiana Corporation and Subsidiaries
Years Ended December 31, 1995, 1994, and 1993
(1) Nature of Operations and Summary of Significant
Accounting Policies
First Indiana Corporation ("First Indiana" or the "Corporation") is a
nondiversified, unitary savings and loan holding company. First Indiana Bank
and its subsidiaries (collectively the "Bank"), the principal asset of the
Corporation, is a federally chartered stock savings bank insured by the
Federal Deposit Insurance Corporation. First Indiana is the largest publicly
held bank based in Indianapolis.
The Bank is engaged primarily in the business of attracting deposits
from the general public and originating residential mortgage, commercial and
consumer loans. The Bank offers a full range of banking services from 28
banking offices located throughout Metropolitan Indianapolis, Evansville,
Franklin, Mooresville, Pendleton, Rushville, and Westfield, Indiana.
The Bank experiences substantial competition in attracting and
retaining deposits and in lending funds. The primary factors in competing for
deposits are the ability to offer attractive rates and the availability of
convenient access. Direct competition for deposits comes from other savings
institutions, commercial banks, money market mutual funds, corporate and
government securities, and other non-insured investments. The primary
factors in competing for loans are interest rates, loan origination fees, and
loan product variety. Competition for origination of loans normally comes
from other banks, brokers, and insurance companies.
The majority of the Bank's assets and liabilities are financial
instruments (investments, loans, deposits, and borrowings). Each of these
financial instruments earns or pays interest for a given term at a negotiated
rate of interest. First Indiana's Asset/Liability Committee manages these
financial instruments for the dual objectives of maximizing net interest income
(the difference between interest income and interest expense) while limiting
interest-rate risk. The Bank manages interest-rate risk by closely matching
both the maturities and interest rate repricing dates of its assets and
liabilities. Should this matching objective not be achieved, significant,
rapid, and sustained changes in market interest rates will significantly
increase or decrease net interest income. Because of this risk, the Committee
continuously monitors its financial instruments to ensure that these dual
objectives are achieved.
The accounting and reporting policies of the Corporation and its
subsidiaries conform to generally accepted accounting principles and to
general practices within the savings bank industry. The more significant
policies are summarized below.
(A) Basis of Financial Statement Presentation. The consolidated
financial statements include the accounts of the Corporation and of the Bank.
All significant intercompany balances and transactions have been eliminated
in consolidation. The financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of allowances for possible
loan and real estate owned losses.
(B) Investments and Mortgage-Backed Securities. The Bank
adopted the provisions of Statement of Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities," as
of January 1, 1994. Under SFAS 115, the Bank classifies investments in debt
securities as either trading, held to maturity, or available for sale.
Investments and debt securities classified as held to maturity are
stated at cost, as adjusted for amortization of premiums and accretion of
discounts using the level yield method. The Bank has the ability and positive
intent to hold these securities to maturity.
Investments in debt securities classified as available for sale are stated
at fair value, based on quoted market prices, with unrealized holding gains
and losses excluded from earnings and reported net of related income taxes,
as a separate component of shareholders' equity until realized. A decline in
the fair value of any available-for-sale or held-to-maturity security below cost
that is deemed other than temporary is charged to earnings, resulting in the
establishment of a new cost basis for the security.
Investments in debt securities classified as trading are stated at fair
value. Unrealized holding gains and losses for trading securities are included
in earnings.
Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
In November 1995, the Financial Accounting Standards Board
("FASB") issued a special report ("SR"), "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." Under a provision of this SR, the Bank reassessed the
appropriateness of the classification of all securities held at the time the SR
was published. This one-time reassessment does not call into question the
intent of the Bank to hold other debt securities to maturity and such
reassessment must occur no later than December 31, 1995. Accordingly, the
Bank reclassified certain investments and debt securities, the results of which
are disclosed in Note (2).
<PAGE> 16 (10-K page 71)
(C) Loans. Loans originated for portfolio are recorded at cost, with
any discount or premium amortized to maturity using the level-yield method.
Loans are placed on non-accrual status when payments of principal or
interest become 90 days or more past due or earlier when an analysis of a
borrower's creditworthiness indicates that payments could become past due.
Interest income on such loans is recognized only to the extent that cash is
received and where future collection is probable. Interest accruals are
resumed on such loans only when they are brought current with respect to
interest and principal and when, in the opinion of management, the loans are
estimated to be fully collectible.
(D) Mortgage and Home Equity Loan Origination Activities. In
general, the Bank originates fixed-rate mortgage loans and selected fixed-rate
home equity loans for sale in the secondary market. Adjustable-rate
mortgage and home equity loans are originated primarily for investment
purposes, with the intention of holding them to maturity. In certain instances,
adjustable-rate mortgage loans originated are identified as held for sale. This
action is taken primarily to manage effectively the total interest-rate risk
levels of the Bank's asset/liability structure.
Loans held for sale are carried at the lower of cost or estimated
market value in the aggregate. In the case of loans sold with servicing
retained where the stated servicing fee differs materially from a current,
normal servicing fee, the sales price is adjusted for purposes of determining
gain or loss on the sale to provide a normal servicing fee in each subsequent
year. The resulting deferred balance is amortized in proportion to the related
net servicing income over the estimated life of the loans. Commitment fees
paid to an investor in connection with the sale of loans are treated as a sales
expense and reduce the net sales proceeds.
(E) Loan Fees. Non-refundable loan fees and certain direct costs are
deferred and the net amount amortized over the contractual life of the related
loan as an adjustment of the yield.
(F) Discounts, Premiums, and Prepaid Dealer Fees. Discounts
and premiums on the purchase of loans and prepaid dealer fees are amortized
to interest income on a level-yield basis.
(G) Real Estate Owned. Real estate owned ("REO") generally is
acquired by deed in lieu of foreclosure and is carried at the lower of cost (the
unpaid balance at the date of acquisition plus foreclosure and other related
costs) or fair market value.
(H) Loss Allowances. Allowances have been established for
possible loan and REO losses. The provisions for losses charged to
operations are based on management's judgment of current economic
conditions and the credit risk of the loan portfolio and REO. Management
believes that these allowances are adequate. While management uses
available information to recognize losses on loans and real estate owned,
future additions to the allowances may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review these allowances and
may require the Corporation to recognize additions to the allowances based
on their judgment about information available to them at the time of their
examination.
As of January 1, 1995, the Bank adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of
a Loan." Under this standard, loans considered to be impaired are reduced
to the present value of expected future cash flows or to the fair value of
collateral by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to require an
increase, allocations are considered in relation to the overall adequacy of the
allowance for loan losses and subsequent adjustments to the loss provision.
Adopting this standard did not have a material impact on earnings in 1995.
The recorded investment in impaired loans is periodically adjusted to
reflect cash payments, revised estimates of future cash flows, and increases
in the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such. Other cash
payments are reported as reductions in recorded investment. Increases or
decreases due to changes in estimates of future payments and due to the
passage of time are considered in relation to the overall adequacy of the
provision for the allowance for loan losses.
(I) Income Taxes. The Corporation uses the asset and liability
method to account for income taxes. 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 the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
First Indiana files a consolidated income tax return.
(J) Earnings Per Share. Earnings per share for 1995 and 1994 were
computed by dividing net earnings by the primary and fully diluted shares of
common stock and common stock equivalents outstanding (8,574,205 and
8,632,911 in 1995 and 8,888,443 and 8,893,150 in 1994). Earnings per
share for 1993 were computed by dividing net earnings by the weighted
average number of shares of common stock outstanding (8,578,549 in 1993).
Dilution of the per-share calculation relates primarily to stock options.
(K) Premises and Equipment. Premises and equipment are carried
at cost, less accumulated depreciation and amortization. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the various classes of assets.
<PAGE> 17 (10-K page 72)
(L) Cash and Cash Equivalents. For purposes of reporting cash
flows, cash and cash equivalents include cash on hand, amounts due from
banks, interest-bearing deposits with banks, and federal funds sold.
Generally, federal funds are sold for one-day periods. All cash and cash
equivalents mature within 90 days.
(M) Reclassification. Certain amounts in the 1994 Financial
Statements have been reclassified to conform to the current year
presentation.
(N) Negative Goodwill. The excess of assigned value of assets and
liabilities acquired over the cost of the acquired enterprises ("negative
goodwill") aggregated $9,858,000 and is being accreted to earnings over a
ten-year period using the straight-line method. The negative goodwill arises
from the Bank's acquisition of Mooresville Savings Bank and First Federal
Savings and Loan Association of Rushville in 1992.
(2) Investments and Their Scheduled Maturities
<TABLE>
<CAPTION>
Investments Available for Sale:
December 31,
----------------------------------------------------------------------
1995 1994
----------------------------------------------------------------------
Unreal- Unreal- Unreal- Unreal-
Book ized ized Market Book ized ized Market
Value Gains Losses Value Value Gains Losses Value
(Dollars in Thousands) ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Government
Agencies' Obligations $40,353 $115 $(13) $40,455 $10,292 $13 $(203) $10,102
Corporate Debt Securities 36,182 439 - 36,621 - - - -
Asset-Backed Securities 19,318 106 - 19,424 - - - -
Other 295 18 - 313 1,810 13 - 1,823
----------------------------------------------------------------------
$96,148 $678 $(13) $96,813 $12,102 $26 $(203) $11,925
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Scheduled Maturities:
December 31, 1995
------------------------------------------------------------------------------
U.S Treasury and Corporate Asset-
Government Agencies' Debt Backed
Obligations Securities Securities
------------------------------------------------------------------------------
Book Market Book Market Book Market
Value Value Yield Value Value Yield Value Value Yield
------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year or Less $20,047 $20,076 6.86% $10,321 $10,333 7.68% $ - $ - -%
After One Year to
Five Years 20,056 20,129 5.50 23,097 23,374 7.84 6,030 6,095 9.45
After Five Years to
Ten Years 250 250 6.80 2,764 2,914 9.50 - - -
After Ten Years - - - - - - 13,288 13,329 7.05
---------------- ---------------- ----------------
$40,353 $40,455 $36,182 $36,621 $19,318 $19,424
================ ================ ================
<CAPTION>
------------------------------------------------------
Other
Securities Total Portfolio
------------------------------------------------------
Book Market Book Market
Value Value Yield Value Value Yield
------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One Year or Less $95 $97 8.40% $30,463 $30,506 7.14%
After One Year to
Five Years 200 216 6.48 49,383 49,814 7.08
After Five Years to
Ten Years - - - 3,014 3,164 9.28
After Ten Years - - - 13,288 13,329 7.05
------------- ----------------
$295 $313 $96,148 $96,813
============= ================
</TABLE>
<PAGE> 18 (10-K page 73)
The weighted average yield on investments held for sale was 7.16
percent at December 31, 1995 and 7.43 percent at December 31, 1994. In
1994, the Corporation reclassified $20,450,000 of investments from held to
maturity to available for sale. The asset-backed securities are collateralized
by student loans and credit card receivables. While the majority of these
securities have maturity dates in excess of ten years, they are expected to
prepay within the next five to seven years.
At December 31, 1995, the majority of First Indiana's corporate debt
securities were issued by finance companies, with the highest concentration
with one issuer at $5,303,000 and the average concentration per issuer at
$3,289,000. At December 31, 1995, First Indiana held a $3,000,000 par value
corporate debt security which management identified as a potential problem
asset. As a result, the Bank reduced the carrying amount of the security by
$818,000 to its estimated recoverable value. All other corporate debt
securities held for sale at December 31, 1995 were rated investment grade or
higher by Standard & Poor's or Moody's Investor Services. In 1995,
realized gains (losses) from the sale of investment securities available for
sale were $961,000 and $(89,000). In 1994, there were no realized gains
or losses from the sale of investments available for sale.
<TABLE>
<CAPTION>
Investments Held to Maturity:
December 31,
------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------
Unreal- Unreal- Unreal- Unreal-
Book ized ized Market Book ized ized Market
(Dollars in Thousands) Value Gains Losses Value Value Gains Losses Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Government
Agencies' Obligations $ - $ - $ - $ - $ 9,998 $ - $ (214) $ 9,784
Corporate Debt Securities - - - - 101,266 226 (6,781) 94,711
Asset-Backed Securities 5,843 106 - 5,949 26,340 233 - 26,573
-------------------------------------------------------------------------------
$ 5,843 $ 106 $ - $ 5,949 $137,604 $ 459 $(6,995) $131,068
===============================================================================
</TABLE>
Securities totaling $911,000 with a weighted average yield of 10
percent mature within five to 10 years, while the remaining $4,932,000 of
investments held to maturity, yielding 7.19 percent, have maturities in excess
of 10 years. On December 1, 1995, First Indiana reassessed the
appropriateness of the classification of all investments and mortgage-backed
securities held as of that date. As a result, the Bank reclassified
$126,591,000 investments from held to maturity to available for sale and
$89,000 mortgage-backed securities from available for sale to held to
maturity.
The asset-backed securities are collateralized by consumer home
equity loans. While these securities have maturity dates in excess of ten
years, they are expected to prepay within the next five to seven years.
The average yield on investments was 7.63 percent at December 31,
1995 and 7.75 percent at December 31, 1994. In 1995, realized losses from
the sale of held-to-maturity investment securities which experienced a
deterioration of credit quality were $7,000. In 1994, there were no realized
gains or losses from the sale of held-to-maturity investment securities. In
1993, realized gains from the sale of portfolio investment securities near
maturity were $11,000.
(3) Mortgage-Backed Securities
<TABLE>
<CAPTION>
Held to Maturity:
December 31, 1995
------------------------------------------------
Unreal- Unreal-
Book ized ized Market
Value Gains Losses Value
(Dollars in Thousands) ------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC $ 28,862 $ 921 $ - $ 29,783
FNMA 19,006 408 - 19,414
GNMA 193 8 - 201
Participation Certificates 1,028 - - 1,028
Deferred Income and Net Unearned Discounts 409 - (409) -
------------------------------------------------
$ 49,498 $1,337 $ (409) $ 50,426
================================================
<CAPTION>
December 31, 1994
------------------------------------------------
Unreal- Unreal-
Book ized ized Market
Value Gains Losses Value
(Dollars in Thousands) ------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC $ 37,358 $ 107 $ (938) $ 36,527
FNMA 24,581 6 (989) 23,598
GNMA 204 - (6) 198
Participation Certificates 1,507 - (2) 1,505
Deferred Income and Net Unearned Discounts 536 - (536) -
------------------------------------------------
$ 64,186 $ 113 $(2,471) $ 61,828
================================================
</TABLE>
<PAGE> 19 (10-K page 74)
The weighted average yield on mortgage-backed securities was 7.76
percent and 7.26 percent at December 31, 1995 and 1994. There were no
realized gains or losses from the sale of held-to-maturity mortgage-backed
securities in 1995 and 1994. Realized losses from the sale of mortgage-backed
securities near maturity in 1993 were $24,000. Seventy-two percent
of the Bank's mortgage-backed securities have maturities in excess of ten
years, with the remaining 28 percent maturing in five to ten years.
At December 31, 1995, First Indiana had no mortgage-backed
securities available for sale. At December 31, 1994, the book value of
mortgage-backed securities available for sale was $5,436,000 with unrealized
losses of $25,000. The weighted average yield on mortgage-backed
securities available for sale was 7.64 percent at December 31, 1994. In 1994,
the Bank transferred $5,048,000 mortgage-backed securities from held to
maturity to available for sale.
(4) Loans Receivable
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
(Dollars in Thousands) ---------------------------
<S> <C> <C>
Residential Mortgage Loans
Loans Held for Sale $ 16,889 $ 8,868
Loans Held in Portfolio 404,613 387,128
Residential Construction Loans 207,975 186,739
Commercial Real Estate Loans 55,789 61,292
Business Loans 78,981 50,789
Consumer Loans
Home Equity Loans Held for Sale 35,844 -
Home Equity Loans Held in Portfolio 449,188 328,594
Installment Loans 83,266 136,554
Other Consumer Loans 6,711 9,317
Undisbursed Portion of Loans
Residential Construction Loans (65,676) (69,569)
Business Loans (6,835) (9,019)
Deferred Income and Net Unearned Discounts 215 (15)
Valuation Adjustment for Acquisitions - 341
Allowance for Loan Losses (16,234) (12,525)
---------------------------
$1,250,726 $1,078,494
===========================
</TABLE>
The weighted average yield on loans was 9.59 percent and 8.90
percent at December 31, 1995 and 1994. Loans serviced for others
amounted to $1,130,209,000 and $802,191,000 at December 31, 1995 and
1994.
Total restructured loans amounted to $5,909,000 and $10,730,000
at December 31, 1995 and 1994. In 1995, $877,000 in gross interest income
would have been recorded if these loans had been current in accordance with
their original terms. Actual interest income recognized on these loans was
$829,000 in 1995. At December 31, 1995, the Bank had identified an
impaired loan totaling $3,306,000 which had an allocated reserve of
$167,000.
Nearly 70 percent of First Indiana's residential construction and
permanent mortgage loans are secured by collateral located in Indiana, with
another 11 percent and 17 percent located in North Carolina and Florida.
Nearly 71 percent of the Bank's consumer loans are secured by collateral
located in Indiana and its contiguous states, with over 51 percent located in
Indiana itself. The Bank's commercial real estate and business loans are
secured primarily by collateral in Indiana and contiguous states.
In connection with the Bank's attempts to establish a secondary
market for its home equity loan originations, $45 million in loans were sold
in the second quarter of 1995. In addition, at December 31, 1995, the Bank
has classified $35.8 million of home equity loans as held for sale.
During 1995, 1994, and 1993, the Bank transferred $295,000,
$2,094,000, and $5,499,000 from loans to real estate owned. During 1995,
the Bank transferred $78,506,000 from residential loans receivable to
residential loans held for sale.
<PAGE> 20 (10-K page 75)
(5) Allowance for Loan and REO Losses
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994 1993
(Dollars in Thousands) -----------------------------------
<S> <C> <C> <C>
Balance of Allowance for Loan Losses at Beginning of Year $12,525 $11,506 $8,748
Charge-Offs
Residential Mortgage (34) (82) (294)
Residential Construction (231) (425) (279)
Commercial Real Estate (1,139) (167) (80)
Business (61) (194) (136)
Consumer (2,969) (2,181) (993)
---------------------------------
Total Charge-Offs (4,434) (3,049) (1,782)
---------------------------------
Recoveries
Residential Mortgage 6 3 -
Residential Construction 16 - 33
Commercial Real Estate 13 - -
Business 18 - -
Consumer 190 165 111
---------------------------------
Total Recoveries 243 168 144
---------------------------------
Net Charge-Offs (4,191) (2,881) (1,638)
---------------------------------
Provision for Loan Losses 7,900 3,900 4,396
---------------------------------
Balance of Allowance for Loan Losses at End of Year 16,234 12,525 11,506
Balance of REO Loss Allowance at End of Year 1,066 1,216 1,483
----------------------------------
Balance of Loan and REO Loss Allowance at End of Year $17,300 $13,741 $12,989
==================================
</TABLE>
A summary of activity in the allowance for REO losses for the years
ended December 31, 1995, 1994, and 1993 follows.
<TABLE>
<CAPTION>
December 31,
------------------------
REO Loss Allowance 1995 1994 1993
------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at Beginning of Year $1,216 $1,483 $1,630
REO Charge-Offs (150) (267) (147)
------------------------
Balance at End of Year $1,066 $1,216 $1,483
========================
</TABLE>
(6) Premises and Equipment
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
(Dollars in Thousands) --------------------------
<S> <C> <C>
Land $ 2,383 $ 2,158
Buildings 7,679 7,481
Leasehold Improvements 981 1,205
Furniture, Fixtures, and Equipment 13,955 12,717
Accumulated Depreciation and Amortization (11,841) (10,228)
--------------------------
$13,157 $13,333
==========================
</TABLE>
<PAGE> 21 (10-K page 76)
(7) Deposits
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1995 1994
----------------------------------------------------------------
Weighted Weighted
(Dollars in Thousands) Average Average
Amount Percent Rate Amount Percent Rate
Type ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Interest-Bearing $ 64,343 5.75% - % $ 38,250 3.76% - %
NOW Checking 82,022 7.33 2.21 94,125 9.25 2.47
Money Market Checking 13,545 1.21 2.16 16,900 1.66 2.28
Passbook and Statement Savings 248,393 22.20 4.78 213,596 20.99 4.15
Money Market Savings 19,157 1.71 3.30 28,017 2.75 3.12
Jumbo Certificates of $100 or Greater 120,465 10.76 5.84 65,522 6.44 5.78
Fixed-Rate Certificates 571,161 51.04 5.70 561,290 55.15 5.11
----------------- -----------------
1,119,086 100.00% 4.84 1,017,700 100.00% 4.41
======= =======
Valuation Adjustment for Acquisitions - 463
--------- ---------
$1,119,086 $1,018,163
========= =========
<CAPTION>
Maturity Amount Percent Amount Percent
------------------ -------------------
<S> <C> <C> <C> <C>
Checking $ 159,910 14.29% $ 149,275 14.67%
Passbook and Statement Savings 248,393 22.20 213,596 20.99
Money Market Savings 19,157 1.71 28,017 2.75
Certificates Maturing in:
One Year 406,696 36.34 305,392 30.01
Two Years 126,064 11.26 245,177 24.09
Three Years 93,678 8.37 30,536 3.00
Four Years 27,623 2.47 35,592 3.50
Five Years 37,565 3.36 10,115 0.99
------------------ ------------------
$1,119,086 100.00% $1,017,700 100.00%
================== ==================
</TABLE>
Interest expense for the years ended December 31, 1995, 1994, and
1993 was as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
-----------------------------------
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
NOW and Money Market Checking $ 2,333 $ 2,677 $ 2,719
Passbook, Statement, and
Money Market Savings 11,144 9,061 7,360
Certificates of Deposit 37,056 27,604 33,352
-----------------------------------
$50,533 $39,342 $43,431
===================================
</TABLE>
Cash paid during the year for interest on deposits, advances, and
other borrowed money was $64,998,000, $49,754,000, and $50,893,000 for
1995, 1994, and 1993.
Included in checking deposits at December 31, 1995 and 1994 were
$6,815,000 and $5,837,000 of non-interest-bearing escrows held for
investors under the terms of various servicing agreements.
(8) Federal Home Loan Bank Advances
Each Federal Home Loan Bank ("FHLB") is authorized to make
advances to its member institutions, subject to FHLB regulations and
limitations. First Indiana's advances outstanding and their stated rates were
as follows at the dates shown:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
(Dollars in Thousands) 1995 1994
-----------------------------------------------------------
Interest Interest
Rates Amount Rates Amount
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity
1995 - % $ - 5.55 to 6.95% $76,000
1996 5.71 to 6.96 65,000 - -
1997 6.13 to 7.05 24,000 - -
1998 5.60 to 5.75 74,000 5.60 to 5.75 74,000
1999 5.87 50,000 5.93 50,000
2000 - - - -
Thereafter 2.79 to 8.76 1,781 2.79 to 8.76 1,155
-------- --------
$214,781 $201,155
======== ========
</TABLE>
<PAGE> 22 (10-K page 77)
The weighted average interest rate on advances was 5.97 percent at
December 31, 1995 and 1994. Under a security agreement with the FHLB,
First Indiana is required to pledge FHLB stock and qualifying first mortgages
equal to the sum of 120 percent of FHLB advances and a $5,000,000 line of
credit between First Indiana and the FHLB. As of December 31, 1995 and
1994, First Indiana had sufficient collateral under this agreement.
(9) Other Borrowings
Short-term borrowings represent federal funds purchased and
repurchase agreements. At December 31, 1995 and 1994, short-term
borrowings had balances of $38,642,000 and $35,922,000 with weighted
average interest rates of 5.81 and 6.14 percent, respectively.
Repurchase agreements represent an indebtedness of First Indiana
secured by investments and mortgage-backed securities issued by (or fully
guaranteed as to principal and interest by) the United States or an agency of
the United States. All agreements represent obligations to repurchase the
same securities at maturity. Repurchase agreements averaged $41,963,000
and $6,137,000 during 1995 and 1994, and the maximum amounts
outstanding at the end of any month during 1995 and 1994 were $61,982,000
and $35,922,000. The book value of the underlying securities at December
31, 1995 and 1994 was $38,639,000 and $37,152,000 with market values of
$39,191,000 and $36,242,000. These securities are under the Bank's
control.
In August 1994, First Indiana extinguished $50,000,000 in mortgage-backed
bonds with a $50,000,000 FHLB advance due in 1999.
First Indiana had $44,000,000 in unused lines of credit available from
local financial institutions, the Federal Reserve Bank, and the FHLB of
Indianapolis at December 31, 1995 and 1994. There are no fees associated
with these lines.
(10) Income Taxes
Income tax expense attributable to earnings before income taxes
consists of:
<TABLE>
<CAPTION>
(Dollars in Thousands) Current Deferred Total
----------------------------------------
<S> <C> <C> <C>
Year Ended December 31, 1995:
Federal $ 8,936 $ (714) $ 8,222
State and Local 2,449 (190) 2,259
----------------------------------------
$11,385 $ (904) $10,481
========================================
Year Ended December 31, 1994:
Federal $ 5,475 $ (382) $ 5,093
State and Local 1,524 (101) 1,423
----------------------------------------
$ 6,999 $ (483) $ 6,516
========================================
Year Ended December 31, 1993:
Federal $ 5,317 $ (325) $ 4,992
State and Local 1,814 (65) 1,749
----------------------------------------
$ 7,131 $ (390) $ 6,741
========================================
</TABLE>
The effective income tax rate differs from the statutory federal
corporate tax rate as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
Statutory Rate 35.0% 35.0% 35.0%
State Income Taxes 5.3 5.4 5.2
Negative Goodwill (1.1) (1.8) (1.5)
Non-Taxable Interest Income (0.4) (0.5) (0.5)
Other (1.0) (0.1) (7.3)
-------------------------------------
Effective Rate 37.8% 38.0% 30.9%
=====================================
</TABLE>
Internal Revenue Service examinations through December 31, 1991
were completed in 1993 without significant effect on the Bank, and
accordingly, additional tax accruals established in 1992 were reversed in
1993.
<PAGE> 23 (10-K page 78)
Deferred income tax credits result from temporary and timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets included in other
assets are presented below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Deferred Tax Assets 1995 1994
-------------------------
<S> <C> <C>
Allowance for Loan and REO Losses $ 7,132 $ 5,283
Pension and Retirement Benefits 1,877 1,703
Acquisition Adjustment - Deposits - 187
Premises and Equipment 377 480
Excess Servicing 477 327
Unrealized Loss on Investments - 82
Accrued Compensation 543 173
Other 268 256
------------------------
10,674 8,491
------------------------
Deferred Tax Liabilities
FHLB Stock Dividends 575 575
Acquisition Adjustment - Loans - 138
Interest on Proposed Tax Deficiency 450 450
Net Deferred Loan Fees 1,984 654
Excess Tax Reserves 583 394
Unrealized Gain on Investments 351 -
Other 213 233
------------------------
4,156 2,444
------------------------
$ 6,518 $ 6,047
========================
</TABLE>
Other liabilities include income taxes payable of $22,000 and
$1,012,000 at December 31, 1995 and 1994.
Cash paid during the year for income taxes was $12,375,000,
$6,694,000, and $9,658,000 for 1995, 1994, and 1993.
(11) Shareholders' Equity
The Corporation is subject to regulation as a savings and loan holding
company by the Office of Thrift Supervision. The Bank, as a subsidiary of
a savings and loan holding company, is subject to certain restrictions in its
dealings with the Corporation. The Bank is further subject to the regulatory
requirements applicable to a federal savings bank.
Savings institutions are required to have risk-based capital of eight
percent of risk-weighted assets. Risk-based capital is defined as the Bank's
common equity, less goodwill and investments in non-mortgage-lending-related
subsidiaries, plus general allowances for loan and REO losses. Risk
weighting of assets is derived from assigning one of five risk-weighted
categories to an institution's assets, based on the degree of credit risk
associated with the asset. The categories range from zero percent for low-risk
assets (such as United States Treasury securities) to 100 percent for
high-risk assets (such as real estate owned). The book value of each asset is
then multiplied by the risk weighting applicable to the asset category. The
sum of the products of the calculation equals total risk-weighted assets. At
December 31, 1995, the Bank's risk-based capital exceeded the minimum
requirement.
Savings institutions are also required to maintain a minimum leverage
ratio, under which core (Tier One) capital must equal at least three percent
of total assets. The components of core capital consist of common equity
plus non-cumulative preferred stock and minority interests in consolidated
subsidiaries, minus certain intangible assets, including purchased loan
servicing. Savings institutions must also maintain minimum tangible capital
of one and one-half percent of total assets. Until January 1, 1995, thrifts
could deduct a portion of intangible assets, including supervisory goodwill,
from their calculation. At December 31, 1995, the Bank exceeded the
minimum tangible and core capital requirements.
OTS has adopted additional minimum capital standards that place
savings institutions into one of five categories, from "critically
undercapitalized" to "well-capitalized," depending on levels of three
measures of capital. A well-capitalized institution as defined by the
regulations has a total risk-based capital ratio of at least 10 percent, a Tier
One risk-based capital ratio of at least six percent, and a leverage risk-based
capital ratio of at least five percent. At December 31, 1995, First Indiana
was classified as "well-capitalized."
<PAGE> 24 (10-K page 79)
OTS has further proposed an interest-rate risk component of the
proposed capital regulations. Under this component, an institution with an
"above normal" level of interest-rate risk exposure will be subject to an
"add-on" to its risk-based capital requirement. "Above normal" interest-rate
risk is defined as a reduction in "market value portfolio equity" (as defined)
resulting from a 200 basis point increase or decrease in interest rates, if the
decline in value exceeds two percent of the institution's assets. Institutions
failing to meet this test will be required to add to their risk-based capital.
Based on its interest-rate risk at December 31, 1995 and 1994, First Indiana
does not expect to be required to add to its risk-based capital under the
proposed regulation.
Approximately $16,300,000 of First Indiana's retained earnings
attributable to the Bank at December 31, 1995 represent appropriations to
tax bad debt reserves for which no provision for income taxes has been made.
If these amounts are used for any purpose other than to absorb losses,
income taxes will be imposed at the then applicable rates. In addition, any
dividend or other shareholder distribution by the Bank in excess of current
year or accumulated earnings for income tax purposes will be treated as made
from the tax bad debt reserves.
Pursuant to prior OTS regulations, liquidation accounts for the
benefit of eligible account holders were established in amounts equal to the
net worths of the merged or converted entities. At December 31, 1995, the
liquidation accounts relating to all prior transactions aggregated $12,907,000,
which amount satisfies the minimum required of each. The Bank is not
permitted to pay dividends on its common stock if its shareholders' equity
would be reduced below the aggregate amount then required for the
liquidation accounts.
The Corporation is not subject to any regulatory restrictions on the
payment of dividends to its shareholders. However, the Bank may not
declare or pay a cash dividend on its stock if, as a result, the Bank's capital
would be reduced below the minimum requirements. The Bank is required
to give OTS 30 days' advance notice before declaring a dividend. Under
OTS regulations, the Bank may, without prior OTS approval, make capital
distributions to the Corporation of up to all of the Bank's net earnings over
the most recent four-quarter period, less capital distributions made during
such four-quarter period.
First Indiana's stock has split four times since December 31, 1991.
In February 1993, First Indiana effected a five-for-four split, which resulted
in a 25 percent increase in cash dividends for 1993. In March 1994, the
Corporation effected a four-for-three stock split and increased the annual cash
dividend to $.43 per share from $.30 per share. In all instances, the
increased dividend was paid on shares outstanding after the split. In February
1996, the Corporation announced a six-for-five stock split. All per-share
amounts in this Annual Report have been adjusted to reflect the stock splits.
(12) Commitments and Contingencies
At December 31, 1995 and 1994, First Indiana had the following
outstanding commitments to fund loans:
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
-------------------------
1995 1994
-------------------------
<S> <C> <C>
Commitments to Fund:
Residential Mortgage Loans $169,608 $137,290
Commercial Real Estate Loans 4,500 1,200
Consumer Loans
Home Equity Loans 119,756 113,777
Installment Loans - 466
Other 4,942 4,708
-------------------------
$298,806 $257,441
=========================
</TABLE>
Of the commitments to fund loans at December 31, 1995,
approximately 80 percent are commitments to fund variable-rate products,
while the remaining 20 percent are commitments to fund fixed-rate products.
Commitments to sell residential loans at December 31, 1995 and 1994 were
$47,485,000 and $14,884,000.
At December 31, 1995, the Corporation had approximately
$72,145,000 in commitments to repurchase convertible adjustable-rate
mortgage loans from third-party investors. If the borrower under any of
these loans elects to convert the loan to a fixed rate during the first five
years of the loan, the investor has the option to require First Indiana to
repurchase it. If the investor exercises this option, First Indiana sets a
purchase price for the loan which equals its market value, and immediately
sells the loan in the secondary market. Thus, the Bank incurs minimal interest-
rate risk upon repurchase because of the immediate resale.
First Indiana issues lines of credit to residential builders to purchase
residential lots to build model or spec homes. The Bank receives a fee upon
issuing the lines of credit. At December 31, 1995, First Indiana had
outstanding lines of credit totaling $94,661,000, with $73,884,000 disbursed
against those lines. First Indiana's collateral policy on these residential
construction loans requires a first mortgage on the underlying real estate and
improvements.
<PAGE> 25 (10-K page 80)
In 1985, First Indiana issued a letter of credit to enhance the bond
rating of economic development bonds guaranteed by local government
authorities for the construction and permanent financing of multi-family
apartment buildings. This letter of credit may be collateralized by residential
mortgage loans, mortgage-backed securities guaranteed by FHLMC, FNMA,
or GNMA, U.S. Treasury and government agencies' obligations, and cash.
First Indiana receives a fee upon issuing the letter of credit and receives
annual fees throughout the term of the bonds. At December 31, 1995, First
Indiana had a letter of credit outstanding totaling $6,993,000. Should this
letter of credit be submitted for payment, First Indiana's collateral policy
requires the assignment of the mortgage on the underlying commercial real
estate. Evaluation of the credit risk of this property is part of First
Indiana's commercial real estate loan review procedures. The collateral pledged
for this letter was $10,685,000 in mortgage-backed securities secured by
FHLMC and FNMA.
Rental Obligations. Obligations under non-cancelable operating
leases for office space at December 31, 1995 require minimum future
payments of $1,953,000 in 1996, $1,820,000 in 1997, $679,000 in 1998,
$157,000 in 1999, $141,000 in 2000, and $676,000 thereafter. Minimum
future payments have not been reduced by minimum sublease rental income
of $369,000 receivable in the future under noncancelable subleases. Rental
expense on office buildings was $1,891,000, $1,800,000, and $1,712,000 for
1995, 1994, and 1993.
Other Contingencies. Other lawsuits and claims are pending in the
ordinary course of business on behalf of and against First Indiana. In the
opinion of management, adequate provision has been made for these items
in the Consolidated Financial Statements.
(13) Employee Benefit Plans
Retirement Plans. First Indiana is a participant in a pension fund
known as the Financial Institutions Retirement Fund ("FIRF"). This plan is
a multi-employer plan; separate actuarial valuations are not made with
respect to each participating employer. According to FIRF administrators,
the market value of the fund's assets exceeded the value of vested benefits
in the aggregate as of June 30, 1995, the date of the latest actuarial valu-
ation. Pension expense was $36,000, $14,000 and $17,000 for 1995, 1994, and
1993.
During 1995, the Bank established a voluntary savings plan for
eligible employees which qualifies under Section 401 (k) of the Internal
Revenue Code. Employees can participate after twelve months' employment
by designating a portion of their salary to purchase appropriate investment
options. The Corporation in turn matches the first six percent of the
employee contribution at a rate of $.25 for every $1 in employee
contributions. First Indiana matched $49,000 in contributions for 1995.
In addition, First Indiana maintains non-qualified retirement plans for
the directors of Mooresville Savings Bank, First Federal of Rushville, and
Mid-West Federal Savings Bank and supplemental pension benefit plans
covering certain senior officers of First Indiana Bank and its divisions. These
supplemental benefit plans provide benefits for some of their participants that
normally would be paid under the FIRF or Mooresville pension plans but are
precluded from being paid by limitations under the Internal Revenue Code.
Net periodic pension expense for the plans consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) Years Ended December 31,
-------------------------
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Year $113 $172 $133
Interest Cost on Projected Benefit Obligation 344 392 252
Net Amortization and Deferral 12 74 (60)
--------------------------
Net Pension Costs $469 $638 $325
==========================
</TABLE>
The funded status of the plans and the amounts reflected in the accompanying
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Projected Benefit Obligation $5,140 $4,584
Fair Value of Plan Assets - -
----------------------
Excess of Projected Benefit Obligation Over
Fair Value of Plan Assets 5,140 4,584
Unrecognized Net Transition Obligation (219) (207)
Unrecognized Loss (847) (751)
----------------------
Accrued Pension Cost $4,074 $3,626
======================
</TABLE>
<PAGE> 26 (10-K page 81)
The unrecognized net transition obligation is being amortized over 15
years. The projected benefit obligations were determined using an assumed
discount rate of seven percent at December 31, 1995 and 8.50 percent at
December 31, 1994. The assumed long-term salary increases were 6.50
percent, compounded annually.
Post-Retirement Benefits Other Than Pension. The projected benefit
obligation for post-retirement medical, dental, and life insurance programs for
Board members and certain officers related to merger agreements of prior
acquisitions was $692,000 and $784,000, and the accrued liability was
$993,000 and $976,000 at December 31, 1995 and 1994. Expense under the
programs was $16,000 in 1995, $88,000 in 1994 and $95,000 in 1993.
The accumulated post-retirement benefit obligation was determined
using an assumed discount rate of seven percent at December 31, 1995 and
8.50 percent at December 31, 1994. The assumed long-term salary increase
was 6.50 percent. The assumed health care cost trend rates used were 15
percent for each of the next four years with an approximate one percent per
year decrease from this level for years five through nine. The trend rate for
years 10 and thereafter was six percent per year.
Employees' Stock Purchase Plan. First Indiana has an Employees'
Stock Purchase Plan, under which employees can participate after six
months' employment by designating a portion of their salary to purchase
Corporation stock. The Corporation in turn matches the employee
contribution at a rate of $1 for every $3 or $4 in employee contributions,
depending on whether the Corporation has met specified performance
objectives for the previous calendar year. A one-to-four contribution was in
effect for the 1995 plan year, while a one-to-three contribution was in effect
for the 1994 and 1993 plan years. A one-to-three contribution will be in
effect for the 1996 plan year. First Indiana's matching contributions for the
years ended 1995, 1994, and 1993 were $121,000, $154,000, and $121,000.
Stock Option and Incentive Plan. First Indiana has a combined stock
option and incentive plan under which options have been granted to
key employees to purchase common stock of First Indiana. The exercise
price in each case equaled the fair market value of the Corporation's
stock at the date of grant. Presented below is activity under the plan.
<TABLE>
<CAPTION>
Weighted
Average
Options Price Per
Outstanding Share
----------- ---------
<S> <C> <C>
Balance at December 31, 1992 519,500 $7.33
Options Granted in 1993 83,172 11.31
Options Exercised in 1993 (4,003) 7.12
Options Surrendered in 1993 (600) 10.78
-------
Balance at December 31, 1993 598,069 7.89
Options Granted in 1994 18,969 13.17
Options Exercised in 1994 (43,399) 7.50
-------
Balance at December 31, 1994 573,639 8.09
Options Granted in 1995 14,988 14.17
Options Exercised in 1995 (80,554) 6.65
Options Surrendered in 1995 (1,200) 12.71
-------
Options Outstanding at December 31, 1995 506,873 8.48
=======
</TABLE>
In addition to the options outstanding at December 31, 1995, 347,472
shares of common stock were available for future grants or awards.
On January 16, 1991, First Indiana awarded 30,000 shares of stock
to each of two executive officers. These shares were subject to recall by First
Indiana in the event that certain specified employment and performance
objectives were not met by December 31, 1993. The employment and
performance objectives were met on December 31, 1993, and the restrictions
on the shares lapsed. First Indiana expensed $621,000 in 1993 in connection
with the awards. On January 26, 1994, First Indiana awarded 38,400 shares
of stock to each of two executive officers. These shares are subject to recall
by First Indiana in the event certain specified employment and performance
objectives are not met by December 31, 1996. First Indiana expensed
$667,000 and $342,000 in 1995 and 1994 in connection with the awards.
<PAGE> 27 (10-K page 82)
(14) Parent Company Statements
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31,
--------------------------
1995 1994
(Dollars in Thousands) --------------------------
<S> <C> <C>
Assets
Certificate of Deposit and Interest-Bearing
Checking Account with the Bank $ 501 $ 501
Due from Bank 399 6,277
Investment in the Bank 127,881 113,470
Other Assets 536 464
---------------------------
Total Assets $129,317 $120,712
===========================
Liabilities $ 20 $ -
Shareholders' Equity 129,297 120,712
---------------------------
Total Liabilities and Shareholders' Equity $129,317 $120,712
===========================
<CAPTION>
Condensed Statements of Earnings
Years Ended December 31,
--------------------------------
1995 1994 1993
(Dollars in Thousands) --------------------------------
<S> <C> <C> <C>
Cash Dividends from the Bank $ 3,483 $ 7,207 $ 3,646
Interest Income on Certificate of Deposit and Checking Account 29 19 14
Expenses (211) (214) (243)
Income Tax Credit 71 74 87
------------------------------
Earnings Before Equity in Undistributed Net Earnings
of Subsidiaries 3,372 7,086 3,504
Equity in Undistributed Net Earnings of Subsidiaries 13,895 3,550 11,597
-------------------------------
Net Earnings $17,267 $10,636 $15,101
===============================
<CAPTION>
Condensed Statements of Cash Flows
Years Ended December 31,
-------------------------------
1995 1994 1993
(Dollars in Thousands) -------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Earnings $17,267 $10,636 $15,101
Adjustments to Reconcile Net Earnings to Net Cash Provided
by Operating Activities
Equity in Undistributed Earnings of Subsidiaries (13,895) (3,550) (11,597)
Amortization of Restricted Stock Plan 367 188 243
Change in Other Liabilities (20) - -
Change in Due from the Bank and Other Assets 5,806 (3,699) (1,188)
-------------------------------
Net Cash Provided by Operating Activities 9,525 3,575 2,559
-------------------------------
Cash Flows from Investing Activities
Increase in Investment in the Bank - - (63)
-------------------------------
Net Cash Used by Investing Activities - - (63)
-------------------------------
Cash Flows from Financing Activities
Proceeds from Exercise of Stock Options 537 326 29
Stock Issued Under Deferred Compensation Plan 18 - -
Payment for Purchase of Treasury Stock (6,203) (147) -
Payment for Fractional Shares - (6) (14)
Cash Dividends Paid (3,877) (3,748) (2,574)
Other - - 63
------------------------------
Net Cash Provided (Used) by Financing Activities (9,525) (3,575) (2,496)
------------------------------
Net Change in Cash and Cash Equivalents - - -
Cash and Cash Equivalents at Beginning of Year 501 501 501
-------------------------------
Cash and Cash Equivalents at End of Year $ 501 $ 501 $ 501
===============================
</TABLE>
<PAGE> 28 (10-K page 83)
(15) Interim Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Dollars in Thousands, Except Per Share Data) ------------------------------------------
<S> <C> <C> <C> <C>
1995
Total Interest Income $28,652 $31,178 $31,510 $32,721
Net Interest Income 13,525 14,268 14,761 15,490
Provision for Loan Loss 900 1,350 1,600 4,050
Earnings Before Income Taxes 7,048 7,833 6,506 6,361
Net Earnings 4,300 4,771 4,174 4,022
Primary Earnings Per Share 0.49 0.57 0.49 0.47
Fully Diluted Earnings Per Share 0.49 0.56 0.49 0.47
1994
Total Interest Income $23,075 $23,323 $24,637 $26,537
Net Interest Income 11,841 11,863 12,433 13,092
Provision for Loan Loss 900 900 900 1,200
Earnings Before Income Taxes 3,168 4,272 4,821 4,891
Net Earnings 2,005 2,669 3,002 2,960
Primary and Fully Diluted Earnings Per Share 0.23 0.30 0.33 0.33
</TABLE>
(16) Estimated Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standard No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined by the Corporation using available market information and
appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates herein are not necessarily indicative of the
amounts the Corporation could realize in a current market exchange. The
use of different market assumptions and/or estimation methods may have a
material effect on the estimated fair value amount.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(Dollars in Thousands) Amount Value Amount Value
-------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents $57,000 $57,000 $39,684 $39,684
Investment Securities and Other 102,656 102,762 149,529 142,993
Loans Receivable
Mortgage-Backed Securities 49,498 50,426 69,597 67,239
Residential Mortgage Loans 421,658 432,703 396,323 388,711
Residential Construction Loans 139,371 139,371 115,060 115,060
Commercial Real Estate Loans 54,327 55,715 58,683 57,140
Business Loans 71,326 71,326 41,251 41,251
Consumer Loans 567,201 569,483 469,103 464,010
Unallocated Allowance
for Loan Losses (3,157) (3,157) (1,926) (1,926)
Accrued Interest Receivable 11,645 11,645 9,812 9,812
Liabilities
Deposits
Demand Deposits 159,910 159,910 149,235 149,235
Passbook and Statement Deposits 54,020 54,020 95,755 95,755
Money Market Savings 213,530 213,530 145,897 145,897
Jumbo Certificates 122,082 123,170 66,742 66,685
Fixed-Rate Certificates 569,544 575,680 560,534 554,829
Borrowings
FHLB Advances 214,781 214,966 201,155 194,326
Short-Term Borrowings 38,642 38,642 35,922 35,941
Accrued Interest Payable 2,715 2,715 1,696 1,696
Advances by Borrowers for
Taxes and Insurance 2,107 2,107 2,356 2,356
Off-Balance-Sheet Instruments
(Unrealized Gains (Losses))
Interest-Rate Swap Agreements, Net (32) (46) (162) (200)
Commitments to Extend Credit - 164 - 3
Letters of Credit - (330) - (348)
Residential Mortgage Loan Servicing 4,258 9,870 679 10,223
---------------------------------
98,420 $112,192 88,341 $86,932
======== =======
Other Non-Financial Assets 48,166 47,086
Other Non-Financial Liabilities (10,656) (7,134)
Negative Goodwill (6,633) (7,581)
-------- --------
Shareholders' Equity $129,297 $120,712
======== ========
</TABLE>
<PAGE> 29 (10-K page 84)
Cash and Cash Equivalents. For cash and equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment Securities and Other. For securities held for trading
purposes and securities held for investment purposes, fair values are based
on quoted market prices or dealer quotes.
Loans Receivable. For certain homogeneous categories of loans,
such as some residential mortgages, fair value is estimated using the quoted
market prices for securities backed by similar loans, adjusted for differences
in loan characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. It was not practicable to estimate fair value of
non-performing commercial loans of approximately $5.9 million and $10.8
million in the Bank's portfolio at December 31, 1995 and 1994 because it
was not practicable to assess reasonably the credit adjustment that would be
applied in the marketplace for such loans. Consequently, the carrying amount
of these loans is also shown as their fair value. Interest rates on such loans
approximate current lending rates. The fair values of all categories of loans
receivable are shown net of their allocated share of the loan loss allowance.
Mortgage-Backed Securities. Estimated fair value for mortgage-backed
securities issued by quasi-governmental agencies is based on quoted
market prices. The fair value of mortgage-backed securities issued by
non-quasi-governmental agencies is estimated based on similar securities with
quoted market prices and adjusted for any differences in credit ratings or
maturities.
Deposits. The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Borrowings. Rates currently available to the Corporation for debt
with similar terms and remaining maturities are used to estimate fair value of
existing debt.
Interest-Rate Swap Agreements. The fair value of interest rate swaps
used for hedging purposes is the estimated amount that the Corporation
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties.
Commitments to Extend Credit and Letters of Credit. The fair value
of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also includes the difference between
current levels of interest rates and the committed rates. The fair value of
guaranties and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
Residential Loan Servicing, Purchased Servicing Rights, and Excess
Servicing. The fair value of residential loan servicing, purchased servicing
rights and excess servicing is determined based on the estimated discounted
net cash flows to be received less the estimated costs of servicing. This
estimated fair value approximates the amount for which the servicing could
currently be sold.
Accrued Interest Receivable, Accrued Interest Payable, Drafts
Payable, and Advances by Borrowers for Taxes and Insurance. The
estimated fair value of these financial instruments approximates their carrying
value.
<PAGE> 30 (10-K page 85)
INDEPENDENT AUDITORS' REPORT
[on KPMG letterhead]
KPMG Peat Marwick LLP
Certified Public Accountants
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204-2452
The Board of Directors and Shareholders of First Indiana
Corporation:
We have audited the accompanying Consolidated Balance
Sheets of First Indiana Corporation and Subsidiaries as of December
31, 1995 and 1994 and the related Consolidated Statements of
Earnings, Shareholders' Equity, and Cash Flows for each of the years
in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position
of First Indiana Corporation and subsidiaries as of December 31, 1995
and 1994 and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995
in conformity with generally accepted accounting principles.
As discussed in note 1 to the Consolidated Financial
Statements, the Corporation adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standard No. 115, Accounting for Certain Investments in Debt and
Equity Securities, in 1994.
/s/KPMG Peat Marwick LLP
January 16, 1996
Member Firm of Klynveld Peat Marwick Goerdeler
<PAGE> 31 (10-K page 86)
STATEMENT OF MANAGEMENT RESPONSIBILITY
[on First Indiana Corporation letterhead]
Management of First Indiana Corporation has prepared and is
responsible for the financial statements and for the integrity and
consistency of other related information contained in the Annual
Report. In the opinion of management, the financial statements,
which necessarily include amounts based on management's estimates
and judgments, have been prepared in conformity with generally
accepted accounting principles appropriate to the circumstances.
The Corporation maintains a system of internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with the
Corporation's authorizations and policies, and that transactions are
properly recorded so as to permit preparation of financial statements
that fairly present the financial position and results of operations in
conformity with generally accepted accounting principles. Internal
accounting controls are augmented by written policies covering
standards of personal and business conduct and an organizational
structure providing for division of responsibility and authority.
The effectiveness of and compliance with established control
systems is monitored through a continuous program of internal audit
and credit examinations. In recognition of cost-benefit relationships
and inherent control limitations, some features of the control systems
are designed to detect rather than prevent errors, irregularities, and
departures from approved policies and practices. Management
believes the system of controls has prevented or detected on a timely
basis any occurrences that could be material to the financial statements
and that timely corrective actions have been initiated when
appropriate.
The Corporation engaged the firm of KPMG Peat Marwick,
independent certified public accountants, to render an opinion on the
financial statements. The accountants have advised management that
they were provided with access to all information and records
necessary to render their opinion.
The Board of Directors exercises its responsibility for the
financial statements and related information through the Audit
Committee, which is composed entirely of outside directors. The
Audit Committee meets regularly with management, the auditor of the
Corporation, and KPMG Peat Marwick to assess the scope of the
annual audit plan, to review the status and results of audits, to review
the Annual Report and Form 10-K, including major changes in
accounting policies and reporting practices, and to approve non-audit
services rendered by the independent auditors.
KPMG Peat Marwick also meets with the Audit Committee,
without management present, to afford the Committee the opportunity
to express its opinion on the adequacy of compliance with established
corporate policies and procedures and the quality of financial
reporting.
January 16, 1996
/s/Robert H. McKinney /s/Marni McKinney
Robert H. McKinney Marni McKinney
Chairman and Chief Executive Officer Vice Chairman
/s/Owen B. Melton, Jr. /s/David L. Gray
Owen B. Melton, Jr. David L. Gray
President and Chief Operating Officer Treasurer
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204
317.269.1200 Fax 317.269.1341
<PAGE> 32 (10-K page 87)
[inside back cover of large annual report booklet]
Affirmative Action Policy
It has been the policy and will continue to be the policy of First
Indiana Bank to afford equal-opportunity employment to qualified
individuals regardless of race, color, religion, sex, national origin,
veteran status, and mental or physical disability.
First Indiana Bank will continue to take affirmative action to
ensure that all recruitment, hiring, and promotion decisions are based
on the principles of equal employment opportunity and that all
personnel actions, such as compensation, transfers, layoffs, benefits,
educational assistance, and social and recreational programs, will be
administered without regard to race, color, religion, sex, national
origin, veteran status or mental or physical disability.
The successful achievement of a non-discriminatory
employment program requires cooperation between management and
employees. In fulfilling its part of this cooperative effort, management
will continue to lead the way by establishing and implementing
affirmative action procedures and practices which will ensure our
objective: equal employment for all.
<PAGE> 33 (10-K page 88)
[back cover of large annual report booklet]
[contains First Indiana Corporation logo]
First Indiana Corporation
First Indiana Bank
One Mortgage Corporation
One Insurance Agency
One Investment Corporation
One Property Corporation
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
(317)269-1200
Equal Housing Member
Lender FDIC
<PAGE> 34 (10-K page 89)
Exhibit 21
SUBSIDIARIES OF FIRST INDIANA CORPORATION
AND
FIRST INDIANA BANK
First Indiana Corporation's wholly owned subsidiary is
First Indiana Bank, which is organized under the laws of the United
States.
First Indiana Bank has the following direct and indirect
subsidiaries:
Name State of Incorporation
One Mortgage Corporation Indiana
One Investment Corporation Indiana
One Property Corporation Indiana
One Insurance Agency, Inc. * Indiana
Pioneer Service Corporation Indiana
* One Insurance Agency, Inc. is a wholly owned subsidiary of One
Investment Corporation.
<PAGE> (10-K page 90)
[First Indiana Corporation Letterhead]
March 13, 1996
Dear Shareholder:
The directors and officers of First Indiana Corporation join
me in extending to you a cordial invitation to attend the annual
meeting of our shareholders. This meeting will be held on
Wednesday, April 17, 1996 at 9:00 a.m., in the First Indiana Plaza
Conference Center, Ohio and Pennsylvania Streets, Seventh Floor,
Indianapolis, Indiana.
First Indiana enjoyed record earnings in 1995 as a strategic
provider of targeted financial services. To share our success with our
shareholders, we recently announced a 20 percent increase in our
dividend payout through a stock split. At the annual meeting, we will
review our achievements in 1995 and share our plans for additional
growth.
The formal notice of this annual meeting and the proxy
statement appear on the following pages. After reading the proxy
statement, please mark, sign, and return the enclosed proxy card
to ensure that your votes on the business matters of the meeting
will be recorded.
We hope that you will attend this meeting. Whether or not
you attend, we urge you to return your proxy promptly in the postpaid
envelope provided. After returning the proxy, you may, of course,
vote in person on all matters brought before the meeting.
We look forward to seeing you on April 17.
Sincerely,
/s/ Robert H. McKinney
Robert H. McKinney,
Chairman and Chief Executive
Officer
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204
317.269.1200 Fax 317.269.1341
<PAGE> i (10-K page 91)
[Form Intentionally Blank]
<PAGE> ii (10-K page 92)
FIRST INDIANA CORPORATION
INDIANAPOLIS, INDIANA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders of First Indiana
Corporation (the "Corporation") will be held in the First Indiana
Plaza Conference Center, 135 North Pennsylvania Street, Seventh
Floor, Indianapolis, Indiana on April 17, 1996, at 9:00 a.m. EST, to
consider and to take action on the following matters:
1. The election of three (3) directors of the
Corporation; and
2. The transaction of such other business as may
properly come before the meeting and any
adjournments thereof.
Only shareholders of record at the close of business on February 23,
1996 are entitled to notice of and to vote at this meeting and any
adjournments thereof.
By order of the Board of Directors,
/s/ David A. Butcher
David A. Butcher
Secretary
Indianapolis, Indiana
March 13, 1996
<PAGE> iii (10-K page 93)
[Form Intentionally Blank]
<PAGE> iv (10-K page 94)
FIRST INDIANA CORPORATION
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
PROXY STATEMENT
The accompanying proxy is solicited by the Board of
Directors of First Indiana Corporation (the "Corporation") for use at
the annual meeting of shareholders to be held April 17, 1996 and any
adjournments thereof. When the proxy is properly executed and
returned, the shares it represents will be voted at the meeting in
accordance with any directions noted on that proxy. If no direction
is indicated, the proxy will be voted in favor of the proposals set forth
in the notice attached to this proxy statement.
The election of directors will be determined by a plurality
of the shares present in person or represented by proxy. The holder
of each outstanding share of common stock is entitled to vote for as
many persons as there are directors to be elected. All other matters
to come before the meeting will be determined by a majority of the
shares present in person or represented by proxy. An abstention or
broker non-vote on any matter will not change the number of votes
cast for or against the matter. Any shareholder giving a proxy has the
power to revoke it at any time before it is voted. The approximate
date of mailing of this proxy statement is March 13, 1996.
VOTING SECURITIES AND BENEFICIAL OWNERS
Only shareholders of record as of the close of business on
February 23, 1996 will be entitled to vote at the annual meeting. On
March 1, 1996, the Corporation distributed one additional share of
stock for every five shares owned by shareholders of record on
February 21, 1996 (the "Stock Split"). As a result, the shares issued
in the Stock Split may be voted by the recipients thereof at the annual
meeting. All share information pertaining to the Corporation's
shares of stock has been restated to reflect the Stock Split. The
Corporation has only one class of stock outstanding, its common
stock, of which approximately 8,272,322 shares were outstanding as
of the close of business on February 28, 1996.
The following table shows, as of February 28, 1996, the
number and percentage of shares of common stock held by each
person known to the Corporation who owned beneficially more than
five percent of the issued and outstanding common stock of the
Corporation and by the Corporation's directors and certain executive
officers:
<PAGE> 1 (10-K page 95)
<TABLE>
<CAPTION>
Beneficial Amount and Nature of Percent
Owner Beneficial Ownership of Class
---------- -------------------- ---------
<S> <C> <C>
H. J. Baker 36,446 1, 2 3
Gerald L. Bepko 12,002 1, 4 3
David L. Gray 42,613 5 3
Douglas W. Huemme 6,469 6 3
David A. Lindsey 66,475 8 3
Marni McKinney 2,262,348 7 27.1%
Robert H. McKinney 2,262,348 7 27.1%
Owen B. Melton, Jr. 182,607 9 2.21%
Phyllis W. Minott 13,334 1, 10 3
Timothy J. O'Neill 59,188 11 3
Michael L. Smith 22,314 1, 12 3
The Somerset Group, Inc. 2,262,348 7 27.1%
John W. Wynne 21,740 1, 13 3
All Executive Officers and
Directors as a Group (18 Persons) 2,779,658 14 32.5%
</TABLE>
- ------------
1 Includes 9,993 shares as to which the director has the right to
acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934 (the "Exchange
Act").
2 Includes 2,260 shares held in trust under the First Indiana
Bank Employees' Stock Purchase Plan (the "Stock Purchase
Plan").
3 The number of shares represents less than one percent of the
Corporation's common stock outstanding.
4 Includes 1,759 shares held in trust under the Stock Purchase
Plan.
5 Includes 902 shares held in trust under the Stock Purchase
Plan and 32,248 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under
the Exchange Act.
6 Includes 130 shares held in trust under the Stock Purchase
Plan, 4,996 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under
the Exchange Act and 1,342 shares held in trust under the
Directors' Deferred Fee Plan.
7 These shares are beneficially owned by a group consisting of
The Somerset Group, Inc. ("Somerset"), Robert H. McKinney
and Marni McKinney. Robert H. McKinney owns 411,112
shares of the Corporation, including 1,447 shares held in trust
under the Stock Purchase Plan, and 68,246 shares of the
Corporation as to which Mr. McKinney has the right to
acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Exchange Act. Mr. McKinney, his immediate
family, a family limited partnership, and various irrevocable
trusts established by Mr. McKinney for the benefit of his
children together beneficially own, directly or indirectly,
approximately 45% of the outstanding capital stock of
Somerset, which owns of record 1,811,979 shares of the
Corporation. The total held by the group also includes 39,255
shares of the Corporation owned by Mr. McKinney's
daughter, Marni McKinney, including 1,030 shares held in
trust under the Stock
<PAGE> 2 (10-K page 96)
Purchase Plan and 6,870 shares as to
which she has the right to acquire beneficial ownership as
specified in Rule 13d-3(d)(1) under the Exchange Act. Mr.
McKinney is the Chairman and a director of Somerset;
Ms. McKinney is the President and Chief Executive Officer
and a director of Somerset; and Mr. McKinney's son, Kevin
K. McKinney, is Vice President and a director of Somerset.
8 Includes 75 shares held in trust under the Stock Purchase Plan
and 29,848 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under
the Exchange Act.
9 Includes 44,498 shares as to which Mr. Melton has the right
to acquire beneficial ownership as specified in Rule
13d-3(d)(1) under the Exchange Act, 5,660 shares held in
trust under the Stock Purchase Plan, and 84,937 shares owned
of record jointly with Mr. Melton's spouse.
10 Includes 2,558 shares held in trust under the Stock Purchase
Plan and 81 shares held under the Corporation's Dividend
Reinvestment and Stock Purchase Plan (the "DR Plan").
11 Includes 9,451 shares held in trust under the Stock Purchase
Plan and 18,448 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under
the Exchange Act.
12 Includes 1,686 shares held in trust under the Stock Purchase
Plan.
13 Includes 1,051 shares held in trust under the Stock Purchase
Plan and 72 shares held under the DR Plan.
14 The address of The Somerset Group, Inc. is 135 North
Pennsylvania Street, Suite 2800, Indianapolis, Indiana 46204.
This number includes 1,811,979 shares owned of record by
The Somerset Group, Inc. (see note 7), 32,660 shares held in
trust under the Stock Purchase Plan, 583 shares held under the
DR Plan, and 281,330 shares as to which there is a right to
acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Exchange Act.
- -----------
Proposal No. 1: ELECTION OF DIRECTORS
Three directors are to be elected. H. J. Baker, Marni
McKinney and Phyllis W. Minott have been nominated for a term of
three years and until their successors are elected and qualified. All
nominees are members of the present Board of Directors. The other
directors listed in the table below will continue in office until the
expiration of their terms. All of the nominees and the other directors
listed in the table below are also members of the Board of Directors
of First Indiana Bank (the "Bank"), a wholly owned subsidiary of the
Corporation. Except for directors elected after 1986, all of the
nominees and directors were directors of the Bank and became
directors of the Corporation in 1986 when the Corporation was
formed and the stock of the Bank was exchanged for Corporation
stock. If, at the time of the annual meeting, any of the nominees is
unable or declines to serve, the discretionary authority provided in
the proxy may be exercised to vote for a substitute or substitutes.
The Board of Directors has no reason to believe that any substitute
nominee or nominees will be required.
<PAGE> 3 (10-K page 97)
The Board of Directors unanimously recommends the election of the
following nominees.
<TABLE>
<CAPTION>
NOMINEES FOR TERMS EXPIRING IN 1999
Name, Age, Principal
Occupation(s) and
Business Experience Director
During Past 5 Years Since
- ----------------------------------------------------------------------------
<S> <C>
H. J. Baker, Age 68 1966
Chairman Emeritus, BMW Constructors, Inc., industrial mechanical
contractors; Director of The Somerset Group, Inc. and Lilly
Industries, Inc.
Marni McKinney, Age 39 1992
Vice Chairman of the Corporation and the Bank; Director, President,
and Chief Executive Officer, The Somerset Group, Inc., an affiliate
of the Corporation, financial services; previously Executive Vice
President of The Somerset Group, Inc., and Vice President of the
Corporation and the Bank.
Phyllis W. Minott, Age 57 1976
Chairman and Chief Executive Officer, Minott Motion Pictures, Inc.,
commercial movie production; previously General Auditor, Eli Lilly
& Company, a pharmaceutical company; Controller, Accounting and
Chief Accounting Officer, Eli Lilly & Company.
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Name, Age, Principal
Occupation(s) and
Business Experience Director
During Past 5 Years Since
- ------------------------------------------------------------------------------
<S> <C>
Robert H. McKinney, Age 70 1954
Chairman and Chief Executive Officer of the Corporation and
Chairman of the Bank; Chairman and Director, The Somerset Group,
Inc., an affiliate of the Corporation, financial services; Director of
Lilly Industries, Inc.; retired partner, Bose McKinney & Evans,
attorneys; Chairman, Federal Home Loan Bank Board, 1977-1979.
Owen B. Melton, Jr., Age 49 1983
President and Chief Operating Officer of the Corporation and
President and Chief Executive Officer of the Bank.
Michael L. Smith, Age 47 1985
President, Somerset Financial Services, a division of The Somerset
Group, Inc.; Director of The Somerset Group, Inc.; formerly
Chairman, President and Chief Executive Officer, Mayflower Group,
Inc., diversified transportation services; Director of Acordia, Inc.
<PAGE> 4 (10-K page 98)
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Name, Age, Principal
Occupation(s) and
Business Experience Director
During Past 5 Years Since
- ------------------------------------------------------------------------------
<S> <C>
Gerald L. Bepko, Age 55 1988
Vice President for Long-Range Planning of Indiana University and
Chancellor, Indiana University-Purdue University at Indianapolis;
previously Dean and Professor of Law, Indiana University School of
Law, Indianapolis; Director of Indiana Energy, Inc. and Circle
Income Shares, Inc.
Douglas W. Huemme, Age 54 1994
Chairman, President, and Chief Executive Officer, Lilly Industries,
Inc., industrial coatings; formerly Vice President and Group
Executive, Chemicals Group, Whittaker Corporation; Director of
The Somerset Group, Inc.
John W. Wynne, Age 63 1991
Chairman and Director of Duke Realty Investments, Inc., a real estate
investment trust; partner, Duke Associates, real estate development;
retired as counsel (previously partner), Bose McKinney & Evans,
attorneys.
</TABLE>
The Boards of Directors of the Corporation and the Bank
each met 12 times during the last year. All directors attended in
excess of 75% of the aggregate of (1) the total number of meetings
of the Boards of Directors of the Corporation and the Bank
(considered separately) and (2) the total number of meetings held by
all Corporation and Bank committees (considered separately) on
which he or she served.
Nominees for election as a director of the Corporation are
selected by the full Board of Directors, acting as a nominating
committee. Nominations for directors, other than those made by the
nominating committee, will not be eligible to be voted upon at an
annual meeting unless submitted in accordance with the procedure
set forth under heading "SHAREHOLDER PROPOSALS AND
NOMINATIONS."
Certain Committees of the Boards of Directors of
the Corporation and the Bank
Among other committees, the Board of Directors of the
Corporation has an Audit Committee and a Stock Administration
Committee. The Board of Directors of the Bank has, among other
committees, an Audit Committee, a Compensation Committee, and
a Stock Administration Committee.
The functions of the Audit Committees are to evaluate audit
performance, handle relations with the Corporation's and the Bank's
independent auditors, and evaluate policies and procedures related
to internal audit functions and controls. The members of the
Corporation's and the Bank's Audit Committees in 1995 were
Phyllis W. Minott (Chairperson), Douglas W. Huemme, and John W.
Wynne. The Corporation's and the Bank's Audit Committees met
jointly three times during 1995.
The functions of the Compensation Committee are to
review and make recommendations to the Board of Directors with
respect to the compensation of directors, officers, and employees of
the Bank. Because the officers and employees of the Corporation, all
of whom are officers or employees of the Bank, receive no separate
cash compensation from the Corporation, the Compensation
Committee of the Board of Directors of the Bank effectively
<PAGE> 5 (10-K page 99)
serves as the compensation committee of the Board of Directors of the
Corporation. The members of the Compensation Committee are H.
J. Baker (Chairperson), Gerald L. Bepko, and Phyllis W. Minott.
The Committee met twice during 1995.
The Corporation's Stock Administration Committee
administers and grants options and other such stock awards under the
Corporation's stock option and incentive plans, and, together with
the Bank's Stock Administration Committee, administers the Bank's
Employees' Stock Purchase Plan. The members of the Corporation's
and the Bank's Stock Administration Committees are Gerald L.
Bepko (Chairperson), H. J. Baker and Douglas W. Huemme. The
Corporation's and the Bank's Stock Administration Committees met
jointly three times during 1995.
Compensation of Directors
Directors of the Corporation and the Bank, other than
Robert H. McKinney, Marni McKinney and Owen B. Melton, Jr.,
received in 1995 a quarterly retainer of $1,800, plus $500 per
meeting of the Board of Directors attended and an additional $500
per committee meeting attended.
Under the First Indiana 1992 Director Stock Option Plan,
the Corporation reserved 145,809 shares of its common stock for
issuance upon the exercise of options to be granted under the plan.
The plan provides for the issuance of non-qualified options to
purchase 2,498 shares to each outside director of the Corporation on
the date of each annual meeting of shareholders. The Corporation
granted 2,498 shares to each outside director on April 19, 1995, in
accordance with the plan. No option is exercisable during the period
of one year following the date of grant, and options granted under the
plan must specify an exercise price of not less than 100% of the
market price of the shares at the date of grant.
Under the Directors' Deferred Fee Plan, directors of the
Corporation may elect to defer all or any portion of the fees paid for
attendance at a Board of Directors' or committee meeting. The
deferred fees are then contributed to a trust which buys stock with
such fees or invests such fees in an interest-bearing account.
Directors are not eligible to receive shares or cash held under the
plan until they cease to be a director, officer, or employee of the
Corporation. Amounts deferred are not taxable to the director until
the trust distributes the cash or stock to the director. In the event of
a change in control of the Corporation, amounts held under the plan
are payable immediately in one lump sum.
Directors may also elect to contribute part of their fees to
the Bank's Stock Purchase Plan. As with other participants, the
Bank matches a certain portion of such contributions and purchases
the Corporation's common stock on the open market at the prevailing
market price. The material features of the Stock Purchase Plan are
described under the heading "EXECUTIVE COMPENSATION."
Certain Transactions
The Bank offers its employees and officers (other than
executive officers) a loan plan involving variable-rate mortgages,
lines of credit, home equity loans, credit cards, and various
installment loans with a lower interest rate (not below the Bank's
cost of funds) and waiver of loan origination fees, and fixed-rate
mortgage loans with waiver of loan origination fees only. All
outstanding loans to directors and executive officers have been made
in the ordinary course of business and on substantially the same
terms (including interest rates and collateral) as those prevailing at
the time for comparable transactions with non-affiliated persons.
Management believes that these loans neither involve more than the
normal risk of collectibility nor present other unfavorable features.
<PAGE> 6 (10-K page 100)
EXECUTIVE COMPENSATION
Joint Report of the Compensation Committee and
the Stock Administration Committee
Policy and Performance Measures
In determining the compensation of executive officers, the
Compensation Committee strives to maintain an appropriate balance
between executive pay and the creation of shareholder value.
Executive compensation must attract and retain well qualified
officers while at the same time motivating them to achieve the
short-term and long-term strategic goals of the Corporation. To
achieve this balance, executive officers receive a reasonable base
salary and also have the opportunity to earn bonuses tied to the
Corporation's overall performance.
The Compensation Committee based the 1995 annual
salaries of the Corporation's executive officers on the results of
surveys compiled by an independent consultant. The compensation
consultant began with an analysis of the compensation of the
executive officers of two groups of financial institutions with assets
of up to $2.3 billion. The consultant derived the median salary of the
executive officers of the institutions contained in each of the two
surveys and then calculated an average (mean) salary. The
Compensation Committee relied on this calculation of average
salaries in setting the salaries of the Corporation's executive officers.
In order to more directly tie executive compensation to the
Corporation's overall performance, the Compensation Committee
also administers short-term and long-term bonus plans. These plans
are designed to increase the total compensation of the Corporation's
executive officers, but only if the Corporation's performance merited
such increases. The Compensation Committee is guided by the
principle that when certain corporate goals are achieved, the
compensation of the executive officers who contributed to the
Corporation's success should increase accordingly.
The 1995 One Year Management Incentive Plan (the
"Short-Term Plan") provided for a bonus pool in an amount equal to
between 30% and 50% of the participants' aggregate annual salaries,
with bonuses to be awarded based upon both overall corporate
performance and individual contributions to the Corporation. In the
case of each of the executive officers named in the Summary
Compensation Table, at least 50% of the amount contributed on
behalf of such executive officer to the bonus pool was allocated to
overall corporate performance. The corporate performance
component of the bonuses was to be paid based on the Corporation's
after-tax return on average equity for 1995. Bonuses were paid in
the aggregate of 100% on that portion of the pool allocated to overall
corporate performance because the Corporation achieved the
performance targets for 1995 which were determined in relation to
the Corporation's performance during 1994. The individual
performance component of the bonuses depended on the extent to
which each participant achieved certain individual or division goals
and contributed to the Corporation's overall performance, and
whether or not the corporate performance targets were met.
Under the 1994-1996 Long-Term Plan (the "Long-Term
Plan"), additional performance-based compensation may be awarded
at the end of fiscal year 1996. This plan provides for a bonus pool
in an amount equal to 50% of the average of the aggregate annual
salary of participants over the term of the Long-Term Plan, with
bonuses in an aggregate amount equal to 0% to 100% of the pool to
be paid if the Corporation's average after-tax return on average
equity for the three years 1994-96 compares favorably with the
aggregate reported returns on average equity of publicly traded thrifts
in Indiana and the four contiguous states (the "Midwest Thrift
Group"), and the Corporation achieves specific financial goals, such
as interest-rate margin and asset/liability maturity mix. If the
financial goals set forth in the Long-Term Plan are achieved, the
bonus pool will be allocated among participants according to their
individual contributions to the attainment of the goals. Tying
long-term bonuses not only to the Corporation's attainment of its
own goals, but also to the performance of the Midwest Thrift Group,
enables the Compensation Committee to establish financial goals
which are objective and ambitious when compared with those of
similarly situated institutions. The Midwest Thrift Group serves as
an independent basis for assessing performance-based compensation
of the Corporation's executive officers.
<PAGE> 7 (10-K page 101)
The Stock Administration and Compensation Committees
believe that stock ownership by management and stock-based
performance compensation arrangements are beneficial in aligning
management's and shareholders' interests in the enhancement of
shareholder value, and, typically, consider granting stock options to
various executive officers, including the executive officers named in
the Summary Compensation Table, every two years. Given this two
year cycle, no stock options were awarded in 1995.
Nonetheless, in 1995 the Board of Directors reaffirmed its
position on the merits of stock ownership by management and
instituted specified management stock ownership objectives to be
attained by the end of the year 2000. By the end of that year, each
officer and director of the Bank must own Corporation stock with a
market value equal to a specified multiple of such officer's or
director's compensation. These multiples range from one times base
compensation for vice presidents to three times base compensation
for senior vice presidents, and five times base compensation for the
Bank's Chairman, Vice Chairman and President, as well as for the
Bank's Board of Directors. The Board of Directors believes that
implementing these stock ownership requirements will further align
the interests of the Bank's management with the objectives of the
Corporation's shareholders.
To further encourage Bank officers and employees, as well
as directors, to acquire ownership of the Corporation, such persons
are eligible to contribute a portion of their earnings to the Bank's
Employee's Stock Purchase Plan after completing six months of
service. Such contributions are used to purchase the Corporation's
stock each month at the then prevailing market price. If the
Corporation attains a specified after-tax return on average equity for
a calendar year (as determined by the Bank's Stock Administration
Committee), the Bank will match participant contributions during the
subsequent Plan Year (as defined in the Plan) at a ratio of one to
three. If such after-tax returns are not achieved for a calendar year,
participant contributions during the subsequent Plan Year will be
matched at a ratio of one to four. Because the Corporation failed to
achieve its performance objectives for the year ended December 31,
1994, participant contributions for the Plan Year beginning April 1,
1995 were matched at a ratio of one to four. However, the
Corporation did achieve its performance objectives for the year
ended December 31, 1995, and participant contributions for the Plan
Year beginning April 1, 1996 will be matched at a ratio of one to
three. Contributions by the Bank to the accounts of the executive
officers named in the Summary Compensation Table during the
calendar year ended December 31, 1995 are set forth in the column
entitled "All Other Compensation."
In 1993, the Internal Revenue Code of 1986 (the "Code")
was amended to limit to $1 million the amount of compensation that
may be deducted by the Corporation in any year with respect to
certain of the Corporation's executive officers. While annual salaries
and bonuses of the Corporation's executive officers have generally
been structured so that all compensation will be deductible, the Stock
Administration and Compensation Committees recognize that the
vesting of restricted stock under the Long-Term Plan may, in certain
instances, cause an executive officer to receive annual compensation
which cannot be deducted in full by the Corporation. The
Committees believe that such compensation is appropriate because
the inability to fully deduct compensation will be limited almost
exclusively to situations in which an executive officer has had to bear
the risk of a decline in the market price of the Corporation's stock
and has shared the rewards of an increase in such price with the
Corporation's shareholders. Nonetheless, the Stock Administration
and Compensation Committees intend, from time to time, to explore
the options available to the Corporation in order to qualify all of its
compensation for deductibility under the Code.
CEO Performance
Mr. McKinney serves as the chief executive officer of the
Corporation, and Mr. Melton serves as the chief executive officer of
the Corporation's principal operating unit, the Bank. While Mr.
McKinney devotes a major portion of his time to the operations of the
Corporation and the Bank, Mr. Melton devotes all of his time to
those operations.
Like the salaries of the Corporation's other executive
officers, Mr. Melton's and Mr. McKinney's salaries are also derived
from the data compiled by the independent consultant. Since these
two individuals have the greatest impact on the Corporation's
long-term performance, their salaries are determined based on their
achievement of
<PAGE> 8 (10-K page 102)
certain goals relating to the Corporation's
performance during the prior year, such as return on equity, return on
assets, credit quality, and management of operating expenses.
Because Mr. Melton is the chief executive officer of the
Corporation's sole operating unit and responsible for its day-to-day
activities, the Compensation Committee gives special weight to Mr.
Melton's achievement of these objectives when determining his
salary for the coming year. In addition, the Compensation Committee
meets separately with Mr. McKinney for his candid evaluation of Mr.
Melton's performance during the preceding year and his achievement
of the objectives described above. The Corporation's failure to attain
the 1994 performance goals resulted in no increase in either Mr.
McKinney's or Mr. Melton's salaries for 1995.
Along with the Corporation's other executive officers, Mr.
McKinney and Mr. Melton participate in the Short-Term Plan and
the Long-Term Plan. However, under the Short-Term Plan, 60% of
the amount contributed to the bonus pool on behalf of Mr. McKinney
and Mr. Melton was allocated to the overall corporate performance
component, rather than the 50% contribution used for the remaining
executive officers named in the Summary Compensation Table. The
Compensation Committee believes that such modifications
emphasize Mr. McKinney's and Mr. Melton's leadership roles and
encourage them to manage the Corporation with the shareholders'
long-term interests in mind. Additionally, under the Long-Term
Plan, Mr. McKinney and Mr. Melton received in 1994 a grant of
restricted stock in lieu of their participation in the bonus pool. The
stock will be freed from the restrictions at the end of 1996 if the
Corporation attains the performance objectives set forth in the
Long-Term Plan. Further, if the stock is freed from the restrictions,
the Corporation will pay to Mr. McKinney and Mr. Melton an
amount equal to the tax liability they incur as a result of such vesting.
The Compensation Committee believes that such tax payments are
appropriate given the nature of the stock awards, which required Mr.
McKinney and Mr. Melton to assume for three years the risk of a
decline in the market value of the Corporation's stock, and given that
such tax payments will only be made if the Corporation meets the
performance targets set forth in the Long-Term Plan.
Compensation Committee Stock Administration Committee
---------------------- ------------------------------
H. J. Baker, Chairperson Gerald L. Bepko, Chairperson
Gerald L. Bepko H. J. Baker
Phyllis W. Minott Douglas W. Huemme
<PAGE> 9 (10-K page 103)
Performance Graph
The following line graph compares the cumulative total
shareholder return on the common stock of the Corporation over the
last five fiscal years with the cumulative total return of the NASDAQ
Stock Market Index and the cumulative total return of the NASDAQ
Bank Index over the same period.
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
FIRST INDIANA CORPORATION COMMON STOCK, NASDAQ STOCK MARKET INDEX
AND NASDAQ BANK INDEX**
TOTAL RETURN INDEX
----------------------------------------------
First Indiana Nasdaq Stock Nasdaq Bank
Period Corp. Market Index
- ------ ------------- ------------ -----------
<S> <C> <C> <C>
Dec-90 $100 $100 $100
Jun-91 $156 $128 $136
Dec-91 $244 $161 $164
Jun-92 $316 $154 $201
Dec-92 $385 $187 $239
Jun-93 $512 $194 $255
Dec-93 $504 $215 $272
Jun-94 $490 $196 $290
Dec-94 $479 $210 $271
Jun-95 $607 $261 $328
Dec-95 $796 $296 $404
* Assumes that the value of the investment in the Corporation's stock and
each index was $100 on December 31, 1990 and that all dividends were
reinvested.
**The NASDAQ Bank Index contains performance data for banks, savings
institutions and holding companies
<CAPTION>
Percent First Indiana Nasdaq Stock Nasdaq Bank
Change Corp. Market Index
- ------------- ------------- ------------ -----------
<S> <C> <C> <C>
Six Months
Ended 12/31/95 +31.3% +13.4% +23.3%
Twelve Months
Ended 12/31/95 +66.2% +41.3% +49.0%
</TABLE>
<PAGE> 10 (10-K page 104)
Summary
The following table sets forth the compensation awarded
to, earned by, or paid to the chief executive officer and the four most
highly compensated executive officers other than the chief executive
officer (collectively, the "Named Executive Officers") during the last
three fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
----------------------
Annual Compensation Awards (1) Payouts
---------------------------- ------------------------ -------
Name and Restricted Securities
Principal Other Annual Stock Awards Underlying All Other
Position Year Salary Bonus Compensation Options (#) LTIP Payouts Compensation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. McKinney 1995 $190,000 $ 95,000 $ -- $ -- -- $ -- $111,230(3)
Chairman and Chief 1994 190,000 -- -- 282,000 (2) -- -- 189,072
Executive Officer 1993 180,000 87,210 347,985 -- 12,000 421,875 136,142
of the Corporation;
Chairman of the Bank
- --------------------------------------------------------------------------------------------------------------------------
Owen B. Melton, Jr. 1995 248,000 126,157 -- -- -- -- 94,848(4)
President and Chief 1994 248,000 -- -- 282,000 (2) -- -- 119,807
Operating Officer of 1993 235,000 113,858 340,790 -- 12,000 421,875 82,733
the Corporation;
President and Chief
Executive Officer of
the Bank
- --------------------------------------------------------------------------------------------------------------------------
Timothy J. O'Neill 1995 137,000 63,705 -- -- -- -- 21,125(5)
Senior Vice President 1994 135,000 -- -- -- -- -- 28,782
Consumer Banking Services 1993 129,000 65,351 -- -- 7,200 59,333 22,908
Division of the Bank
- --------------------------------------------------------------------------------------------------------------------------
David L. Gray 1995 138,000 65,000 -- -- -- -- 17,958(6)
Vice President and 1994 132,000 -- -- -- -- -- 21,520
Treasurer of the Corpor- 1993 126,000 61,208 -- -- 6,000 59,167 18,227
ation; Senior Vice
President-Internal
Support Services Division,
and Chief Financial Officer
and Treasurer of the Bank
- --------------------------------------------------------------------------------------------------------------------------
David A. Lindsey 1995 120,000 60,850 -- -- -- -- 12,610(7)
Senior Vice President- 1994 110,500 -- -- -- -- -- 14,378
Consumer Banking Sales 1993 106,000 51,033 -- -- 7,200 50,167 13,930
Division of the Bank;
President of One Mortgage
Corporation and One
Insurance Agency
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Adjusted for all stock splits.
2 Represents the market value on the date of grant of 19,200 shares of
restricted stock granted to each of Mr. McKinney and Mr. Melton under the
1994-1996 Long-Term Management Incentive Plan. The restricted stock (i)
had a market value of $412,000 on December 31, 1995, (ii) will vest on
December 31, 1996 if the Corporation attains the performance targets described
in the Joint Report of the Compensation Committee and the Stock
Administration Committee, and (iii) earns dividends while restricted.
3 Consists of a $3,319 contribution by the Bank to the Stock Purchase Plan and
the accrual by the Bank of $107,911 for Mr. McKinney's supplemental
pension.
<PAGE> 11 (10-K page 105)
4 Consists of a $1,350 contribution by the Bank to the Stock Purchase Plan and
the accrual by the Bank of $93,498 for Mr. Melton's supplemental pension.
5 Consists of a $2,290 contribution by the Bank to the Stock Purchase Plan, the
payment by the Bank of $1,169 for term life insurance premiums and the
accrual by the Bank of $17,666 for Mr. O'Neill's supplemental pension.
6 Consists of a $3,375 contribution by the Bank to the Stock Purchase Plan, the
payment by the Bank of $1,165 for term life insurance premiums and the
accrual by the Bank of $13,418 for Mr. Gray's supplemental pension.
7 Consists of a $3,192 contribution by the Bank to the Stock Purchase Plan, the
payment by the Bank of $950 for term life insurance premiums and the accrual
by the Bank of $8,468 for Mr. Lindsey's supplemental pension.
Stock Options
The following table sets forth on an aggregate basis each
exercise of stock options during fiscal year 1995 by each of the
Named Executive Officers and the 1995 year-end value of the
unexercised options of each such executive officer. The number of
shares and stock options set forth below have been adjusted to reflect
the Stock Split.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options at FY-End In-the-Money Options
at FY-End
------------------------------- ---------------------------
Shares
Acquired on
Name Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. McKinney -- $ -- 68,246 -- $1,464,454 --
Owen B. Melton, Jr. 15,000 218,000 44,498 -- 973,402 --
Timothy J. O'Neill -- -- 18,448 -- 395,880 --
David L. Gray -- -- 32,248 -- 692,006 --
David A. Lindsey 1,800 28,035 29,848 -- 640,506 --
</TABLE>
Pension Plans
The following table sets forth, in specified compensation
and years of service classifications, the estimated annual benefits
payable upon retirement at age 65 under the Bank's
non-contributory, qualified defined benefit pension plan (the
"Qualified Plan"), as supplemented by the supplemental benefit plan
adopted by the Bank on January 17, 1992 (the "Supplemental Plan")
(the Qualified Plan and the Supplemental Plan are collectively
referred to as the "Plans"). While the table shows the annual benefit
payable, participants may elect to receive the present value of the
entire benefit in one lump sum.
<PAGE> 12 (10-K page 106)
<TABLE>
<CAPTION>
PENSION PLAN TABLE 1
Covered 10 Years' Benefit 20 Years' Benefit 30 Years' Benefit 40 Years' Benefit
Compensation Service Service Service Service
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$100,000 $ 18,900 $ 37,700 $ 56,600 $ 76,000
120,000 22,900 45,700 68,600 92,000
140,000 26,900 53,700 80,600 108,000
160,000 30,900 61,700 92,600 124,000
180,000 34,900 69,700 104,600 140,000
200,000 38,900 77,700 116,600 156,000
220,000 42,900 85,700 128,600 172,000
240,000 46,900 93,700 140,600 188,000
260,000 50,900 101,700 152,600 204,000
280,000 54,900 109,700 164,600 220,000
300,000 58,900 117,700 176,600 236,000
320,000 62,900 126,700 188,600 252,000
340,000 66,900 133,700 200,600 268,000
360,000 70,900 141,700 212,600 284,000
380,000 74,900 149,700 224,600 300,000
400,000 78,900 157,700 236,600 316,000
500,000 98,900 197,700 296,600 396,000
600,000 118,900 237,700 356,600 476,000
700,000 138,900 277,700 416,600 556,000
</TABLE>
- -----------------------------------------------------------------------------
1 Amounts shown are based on an assumed Social Security integration base of
$22,716 and are not subject to any deduction for Social Security or other
offset amounts.
The annual retirement benefit displayed in the Pension
Plan Table is the product of (i) the participant's number of years of
credited benefit service, multiplied by (ii) the sum of 1.5% of that
portion of the participant's covered compensation that does not
exceed the Social Security integration base for the participant plus
2% of the participant's covered compensation that exceeds such
integration base. Compensation covered by the Plans is the sum of
the average of a participant's annualized rate of base salary (as
reported in the Salary column of the Summary Compensation Table)
for the five consecutive years of employment which produce the
highest such average, plus the annual average of all bonuses
(including both the Bonus and the LTIP Payouts columns as reported
in the Summary Compensation Table, the market value on the date
of vesting of any restricted stock awards made pursuant to the
Long-Term Plan and any tax reimbursements paid in connection with
such vesting) paid to the participant for the three years next
preceding the participant's retirement.
As of January 1, 1996, the number of years of credited
benefit service and the compensation covered by the Plans (based on
average annual salaries for 1991-1995 and average annual bonuses
for 1993-1995) for each of the Named Executive Officers were as
follows: Robert H. McKinney, 40 years - $496,757; Owen B.
Melton, Jr., 16 years - $555,427; David L. Gray, 14 years - $186,791
Timothy J. O'Neill, 23 years - $188,397; David A. Lindsey, 11 years
- - $160,316.
Employment Contracts and Termination of
Employment and Change in Control Arrangements
Special retirement benefits are provided under the
Supplemental Plan to Mr. McKinney. His retirement benefit under
the Supplemental Plan is payable for life and 15 years certain. The
monthly amount of his benefit is the higher of two calculated
amounts. The first is his monthly retirement benefit that would be
payable to him under the Supplemental Plan if such benefit were
determined in the normal way and were payable for life only. The
second is a monthly retirement benefit equal to the excess of (i) 80%
of his adjusted monthly compensation over (ii) the sum of (a) his
monthly retirement benefit under the Qualified Plan (determined as
though such benefit were payable in the form of a straight-line
annuity) plus (b) his primary Social Security benefit payable at age
65. For purposes of the foregoing, Mr. McKinney's adjusted
monthly compensation is one-twelfth of the sum of (i) his
<PAGE> 13 (10-K page 107)
highest annual rate of salary from the Bank plus (ii) the greater of
(a) 37.5% of his highest annual rate of salary from the Bank or (b) the
annual average of all bonuses paid to him by the Bank for the three years
next preceding his retirement.
Special death benefits are provided under the
Supplemental Plan to Mr. McKinney and Mr. Melton. The death
benefit provided to Mr. McKinney equals three times his highest
annual rate of salary, grossed up for income taxes at the highest
applicable marginal rate in effect at the time of his death, and is
payable whether he dies before or after separation from service and,
because he has already attained age 65, without regard to when he
separates from service. The death benefit provided to Mr. Melton
equals three times his highest annual rate of salary, grossed up for
income taxes at the highest applicable marginal rate in effect at the
time of his death, unless his employment terminates prior to age 65
other than by reason of his death or disability or after a change of
control, in which case the death benefit provided to him is $100,000,
grossed up for income taxes.
APPOINTMENT OF AUDITORS
The Corporation's financial statements for the year ended
December 31, 1995 were audited by KPMG Peat Marwick LLP
("Peat Marwick"). The Corporation has selected Peat Marwick as
its independent auditors for the fiscal year ending December 31,
1996. Representatives of Peat Marwick are expected to attend the
annual meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any shareholder of the Corporation wishing to have a
proposal considered for inclusion in the Corporation's 1997 proxy
solicitation materials must set forth such proposal in writing and file
it with the Secretary of the Corporation on or before November 13,
1996. In order to be considered in the 1997 annual meeting,
shareholder proposals not included in the Corporation's 1997 proxy
solicitation materials, as well as shareholder nominations for
directors, must be submitted in writing to the Secretary of the
Corporation at least 60 days before the date of the 1997 annual
meeting, or, if the 1997 annual meeting is held prior to March 17,
1997, within ten days after notice of the annual meeting is mailed to
shareholders. The Board of Directors of the Corporation will review
any shareholder proposals that are filed as required, and will
determine whether such proposals meet applicable criteria for
inclusion in its 1997 proxy solicitation materials or consideration at
the 1997 annual meeting. Shareholder nominations must set forth
(a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business
address and residence address of such person, (ii) the principal
occupation or employment of such person, and (iii) such person's
written consent to serve as a director, if elected; and (b) as to the
shareholder giving the notice (i) the name and address of such
shareholder and (ii) the class and the number of shares of the
Corporation which are owned of record by such shareholder.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Corporation's officers and directors, and
persons who own more than 10% of the Corporation's Common
Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and
greater than 10% shareholders (the "Reporting Persons") are
required by Securities and Exchange Commission regulation to
furnish the Corporation with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such forms
furnished to the Corporation, the Corporation believes that during
1995 all Reporting Persons complied with the filing requirements of
Section 16(a).
<PAGE> 14 (10-K page 108)
ANNUAL REPORT
A copy of the Corporation's Annual Report for the year
ended December 31, 1995 has been provided to all shareholders as
of the record date. The Annual Report is not to be considered as
proxy solicitation material.
OTHER MATTERS
The Board of Directors knows of no other matters to be
brought before this annual meeting. However, if other matters
should come before the meeting, it is the intention of each person
named in the proxy to vote such proxy in accordance with his or her
judgment on such matters.
EXPENSES OF SOLICITATION
The entire expense of preparing, assembling, printing and
mailing the proxy form and the material used in the solicitation of
proxies will be paid by the Corporation. The Corporation does not
expect that the solicitation will be made by specially engaged
employees or paid solicitors. Although the Corporation might use
such employees or solicitors if it deems them necessary, no
arrangements or contracts have been made with any such employees
or solicitors as of the date of this statement. In addition to the use of
the mails, solicitation may be made by telephone, telegraph, cable or
personal interview. The Corporation will request record holders of
shares beneficially owned by others to forward this proxy statement
and related materials to the beneficial owners of such shares, and will
reimburse such record holders for their reasonable expenses incurred
in doing so.
IT IS IMPORTANT THAT PROXIES BE
RETURNED PROMPTLY. Whether or not you attend the
meeting, you are urged to execute and return the proxy.
For the Board of Directors,
/s/ Robert H. McKinney
Robert H. McKinney
Chairman
March 13, 1996
<PAGE> 15 (10-K page 109)
FIRST INDIANA BANK
Principal Subsidiary of First Indiana Corporation
<PAGE> 16 (10-K page 110)
[KPMG LETTERHEAD]
KPMG Peat Marwick LLP
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204-2452
The Board of Directors and Shareholders
First Indiana Corporation:
We consent to incorporation by reference in the registration statement
on Form S-8 of First Indiana Corporation of our report dated January 16,
1996 relating to the consolidated balance sheets of First Indiana
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of
the years in the three-year period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K of First
Indiana Corporation.
/s/KPMG Peat Marwick LLP
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the twelve months ended December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 24,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 33,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 96,813
<INVESTMENTS-CARRYING> 55,341
<INVESTMENTS-MARKET> 56,375
<LOANS> 1,266,960
<ALLOWANCE> 16,234
<TOTAL-ASSETS> 1,523,949
<DEPOSITS> 1,119,086
<SHORT-TERM> 103,642
<LIABILITIES-OTHER> 22,143
<LONG-TERM> 149,781
0
0
<COMMON> 73
<OTHER-SE> 129,224
<TOTAL-LIABILITIES-AND-EQUITY> 1,523,949
<INTEREST-LOAN> 109,871
<INTEREST-INVEST> 13,577
<INTEREST-OTHER> 613
<INTEREST-TOTAL> 124,061
<INTEREST-DEPOSIT> 50,533
<INTEREST-EXPENSE> 66,017
<INTEREST-INCOME-NET> 58,044
<LOAN-LOSSES> 7,900
<SECURITIES-GAINS> 46
<EXPENSE-OTHER> 38,647
<INCOME-PRETAX> 27,748
<INCOME-PRE-EXTRAORDINARY> 27,748
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,267
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 4.12
<LOANS-NON> 14,690
<LOANS-PAST> 0
<LOANS-TROUBLED> 5,909
<LOANS-PROBLEM> 6,719
<ALLOWANCE-OPEN> 12,525
<CHARGE-OFFS> 4,434
<RECOVERIES> 243
<ALLOWANCE-CLOSE> 16,234
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,157
</TABLE>
