United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
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 or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
135 North Pennsylvania Street, Indianapolis, IN 46204
(Address of principal executive office) (Zip Code)
(317) 269-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, par value $0.01 per share 8,278,225 Shares
Class Outstanding at 4/30/96
<PAGE> 1
FIRST INDIANA CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I Financial Highlights 3
Item 1. Financial Statements:
Consolidated Balance Sheets as of
March 31, 1996 and December 31,
1995 4
Consolidated Statements of Earnings
for the Three Months Ended March 31,
1996 and 1995 5
Consolidated Statements of
Shareholders' Equity for the Three
Months Ended March 31, 1996 6
Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1996 and 1995 7
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Part II Other Information 17
Signatures 18
<PAGE> 2
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
For the Three Months Ended
March 31,
------------------------------
1996 1995
<S> <C> <C>
Total Interest Income $ 32,235 $ 28,652
Total Interest Expense 16,495 15,127
Net Earnings 4,509 4,300
Primary Earnings Per Share 0.53 0.49
Fully Diluted Earnings Per Share 0.52 0.49
Dividends Per Share 0.14 0.11
Net Interest Margin 4.40 % 3.99 %
Net Interest Spread 3.80 3.52
Return on Average Equity 13.72 14.31
Return on Average Assets 1.21 1.22
Average Shares Outstanding 8,275,158 8,476,384
Primary Shares Outstanding 8,583,895 8,706,910
Fully Diluted Shares Outstanding 8,592,210 8,722,419
<CAPTION>
At March 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Assets $ 1,476,879 $ 1,475,157
Loans-Net 1,215,124 1,173,705
Deposits 1,119,824 1,038,597
Shareholders' Equity 132,245 117,941
Shareholders' Equity/Assets 8.95 % 8.00 %
Shareholders' Equity Per Share $ 15.97 $ 14.39
Market Closing Price 22.75 14.17
Price/Earnings Multiple 10.94 x 7.20 x
<CAPTION>
At March 31, 1996
------------------------
Actual Required
--------- ---------
Capital Ratios
<S> <C> <C>
Tangible Capital/Total Assets 8.68% 1.50 %
Core (Tier One) Capital/Total Assets 8.68% 3.00 %
Risk-Based Capital/Risk-Weighted Assets 12.19% 8.00 %
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
March 31, December 31,
1996 1995
(Unaudited)
------------- --------------
<S> <C> <C>
Assets
Cash $ 21,869 $ 24,000
Federal Funds Sold 20,000 33,000
------ ------
Total Cash and Cash Equivalents 41,869 57,000
Investments Held for Sale 105,876 96,813
Investments (Market Value of $5,908 and $5,949) 5,760 5,843
Mortgage-Backed Securities - Net(Market Value of
$46,641 and $50,426) 46,049 49,498
Loans Held for Sale 56,496 52,733
Loans Receivable 1,174,875 1,214,227
Less Allowance for Loan Losses 16,247 16,234
--------- ---------
Loans Receivable - Net 1,215,124 1,250,726
Premises and Equipment 13,182 13,157
Accrued Interest Receivable 11,347 11,645
Real Estate Owned - Net 1,540 1,877
Prepaid Expenses and Other Assets 36,132 37,390
--------- ---------
Total Assets $ 1,476,879 $ 1,523,949
========= =========
Liabilities and Shareholders' Equity
Liabilities
Non-Interest-Bearing Deposits $ 81,102 $ 64,343
Interest-Bearing Deposits 1,038,722 1,054,743
--------- ---------
Total Deposits 1,119,824 1,119,086
Federal Home Loan Bank Advances 175,465 214,781
Short-Term Borrowings 23,024 38,642
Accrued Interest Payable 2,682 2,715
Advances by Borrowers for Taxes and Insurance 3,623 2,107
Other Liabilities 13,620 10,688
--------- ---------
Total Liabilities 1,338,238 1,388,019
Negative Goodwill 6,396 6,633
--------- ---------
Shareholders' Equity
Preferred Stock, $.01 Par Value: 2,000,000 Shares
Authorized; None Issued - -
Common Stock, $.01 Par Value: 16,000,000 Shares
Authorized; 8,278,225 and 8,272,323 Shares Issued and
Outstanding 88 88
Paid-In Capital in Excess of Par 32,896 32,715
Retained Earnings 105,830 102,449
Net Unrealized Loss on Securities Available For Sale (219) 395
Treasury Stock-at Cost, 470,133 Shares in 1996 and (6,350) (6,350)
--------- -------
Total Shareholders' Equity 132,245 129,297
--------- -------
Total Liabilities and Shareholders' Equity $ 1,476,879 $ 1,523,949
========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended March 31,
1996 1995
----------------------------
<S> <C> <C>
Interest Income
Loans $ 29,540 $ 24,950
Mortgage-Backed Securities 844 1,190
Investments 1,611 2,358
Federal Funds Sold and Interest-Bearing 240 154
------- -------
Total Interest Income 32,235 28,652
------- -------
Interest Expense
Deposits 13,262 11,570
Federal Home Loan Bank Advances 2,871 2,977
Short-Term Borrowings 362 580
Mortgage-Backed Bonds - -
------ ------
Total Interest Expense 16,495 15,127
------ ------
Net Interest Income 15,740 13,525
Provision for Loan Losses 1,925 900
------ ------
Net Interest Income After
Provision For Loan Losses 13,815 12,625
------ ------
Non-Interest Income
Sale of Investments Held For Sale 208 (51)
Sale of Loans 1,093 119
Sale of Deposits - 1,497
Dividends on Federal Home Loan Bank Stock 263 210
Loan Servicing Income 651 770
Loan Fees 550 487
Insurance Commissions 346 205
Accretion of Negative Goodwill 237 237
Other 1,177 911
----- -----
Total Non-Interest Income 4,525 4,385
----- -----
Non-Interest Expense
Salaries and Benefits 5,346 5,575
Net Occupancy 785 765
Deposit Insurance 644 536
Real Estate Owned Operations - Net 95 (624)
Equipment 1,076 1,154
Office Supplies and Postage 549 468
Other 2,604 2,088
------ ------
Total Non-Interest Expense 11,099 9,962
------ ------
Earnings Before Income Taxes 7,241 7,048
Income Taxes 2,732 2,748
------ ------
Net Earnings $ 4,509 $ 4,300
====== ======
Primary Earnings Per Share $ 0.53 $ 0.49
====== ======
Fully Diluted Earnings Per Share $ 0.52 $ 0.49
====== ======
Dividends Per Common Share $ 0.14 $ 0.11
====== ======
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data) Paid-In Net Unrealized Total
(Unaudited) Capital Loss on Securities Share-
Common Stock in Excess Retained Available for Treasury holders'
Shares Amount of Par Earnings Sale Stock Equity
--------- -------- ---------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 8,272,323 $88 $32,715 $102,449 $395 ($6,350) $129,297
Common Stock Issued Under Restricted
Stock Plans-Net of Amortization - - 128 34 - - 162
Exercise of Stock Options 6,612 - 69 - - - 69
Unrealized Gain on Securities Available
for Sale, Net of Income Taxes of $(149) - - - - (614) - (614)
Common Stock Issued Under Deferred
Compensation Plan - - - (3) - - (3)
Net Earnings For The Three Months
Ended March 31, 1996 - - _ 4,509 - - 4,509
Dividends on Common Stock - - - (1,159) - - (1,159)
Payment for Fractional Shares (710) - (16) - - - (16)
Purchase of Treasury Stock - - - - - - 0
-----------------------------------------------------------------------------------
Balance at March 31, 1996 8,278,225 $88 $32,896 $105,830 ($219) ($6,350) $132,245
===================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands)
Three Months Ended March 31,
1996 1995
---------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 4,509 $ 4,300
Adjustments to Reconcile Net Earnings to:
Net Cash Provided (Used) by Operating Activities
(Gain) Loss on Sale of Assets (1,303) (1,567)
Amortization 628 365
Amortization of Restricted Stock Plan 162 47
Depreciation 492 465
Net (Accretion) Amortization of Loans
and Mortgage-Backed Securities (42) 325
Provision for Loan Losses 1,925 900
Origination of Loans Held For Sale
Net of Principal Collected (88,842) (8,178)
Proceeds from Sale of Loans Held for Sale 86,172 12,799
Change In:
Accrued Interest Receivable 298 (473)
Other Assets 1,113 (2,719)
Accrued Interest Payable (33) 634
Other Liabilities 2,932 3,522
------- --------
Net Cash Provided (Used) by Operating Activities 8,011 10,420
------- --------
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities 4,304 5,022
Proceeds from Sale of Investments Held for Sale 15,543 1,370
Purchase of Investment Securities Available for Sale (29,778) --
Principal Collected on Mortgage-Backed Securities 3,449 3,834
Originations of Loans Net of Principal Collected 34,917 (100,831)
Proceeds from Sale of Loans 2,730 --
Purchase of Premises and Equipment (518) (308)
------ -------
Net Cash Used by Investing Activities 30,647 (90,913)
------ -------
Cash Flows from Financing Activities
Net Change in Deposits 738 47,393
Proceeds from Sale of Deposits -- (25,462)
Repayment of Federal Home Loan Bank Advances (140,026) (66,024)
Borrowings of Federal Home Loan Bank Advances 100,710 114,000
Net Change in Short-Term Borrowings (15,618) 8,676
Net Change in Advances by Borrowers
for Taxes and Insurance 1,516 2,042
Stock Option Proceeds 69 6
Payment for Fractional Shares (16) --
Dividends Paid (1,159) (993)
Purchase of Treasury Stock -- (6,203)
Common Stock Issued Under Deferred Compensation Plan (3) --
-------- ------
Net Cash Provided by Financing Activities (53,789) 73,435
-------- ------
Net Change in Cash and Cash Equivalents (15,131) (7,058)
Cash and Cash Equivalents at Beginning of Period 57,000 39,684
------- ------
Cash and Cash Equivalents at End of Period $ 41,869 $ 32,626
====== ======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period For:
Interest on Deposits, Advances, and
Other Borrowed Money $ 16,528 $ 14,493
Income Taxes -- 600
Transfer of Loans to Real Estate Owned 165 107
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 7
FIRST INDIANA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1996
(Unaudited)
Note 1 - Basis of Presentation
The foregoing consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (comprising only
normal recurring accruals) necessary for a fair presentation of the financial
statements have been included. Results for any interim period are not
necessarily indicative of results to be expected for the year. The consolida-
ted financial statements include the accounts of First Indiana Corporation and
subsidiaries (the "Corporation"). The principal subsidiary of the Corporation
is First Indiana Bank and its subsidiaries (the "Bank"). A summary of the
Corporation's significant accounting policies is set forth in Note 1 of the
Notes to Consolidated Financial Statements in the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995.
Note 2 - Earnings Per Share
Earnings per share for 1996 and 1995 are computed by dividing net
earnings by the primary and fully diluted shares of common stock and common
stock equivalents outstanding during the period (8,583,895 and 8,592,210 for
the three months ended March 31, 1996 and 8,706,911 and 8,722,420 for the
three months ended March 31, 1995) after giving retroactive effect to a
six-for-five stock split in March 1996.
Note 3 - Allowance for Loan Loss Reserve
Allowances have been established for possible losses on loans and real
estate owned ("REO"). The provisions for losses charged to operations are
based on management's judgment of current circumstances 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 REO, 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 examinations, periodically review these allowances
and may require the Corporation to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
Note 4 - Current Accounting Pronouncements
The Bank originates mortgage loans for sale to the secondary market,
and sells the loans with servicing either retained or released. Effective
January 1, 1996, the Bank adopted Statement of Financial Accounting Standard
No. 122, "Accounting for Mortgage Servicing Rights" (FAS 122). For servicing
retained loan sales, this Statement requires capitalization of the cost of
mortgage servicing rights, regardless of whether those rights were acquired
through purchase or origination activities. Prior to adoption of FAS 122, only
purchased loan servicing rights were capitalized.
<PAGE> 8
Beginning in 1996, the total cost of mortgage loans originated with the
intent to sell is allocated between the loan servicing right and the mortgage
loan without servicing based on their relative fair values at the date of sale.
The capitalized cost of loan servicing rights is amortized in proportion to,
and over the period of, estimated net servicing revenue. For this purpose,
estimated servicing revenues include late charges and other ancillary income.
Estimated servicing costs include direct costs associated with performing the
servicing function and appropriate allocations of other costs.
Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the underlying
serviced loans. These risk characteristics include loan type (fixed or
adjustable rate), investor type (FHLMC, GNMA, private), term, and note rate.
Impairment represents the excess of cost of an individual mortgage servicing
rights stratum over its fair value, and is recognized through a valuation
allowance.
Fair values for individual stratum are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment,
default and interest rates, and other factors which are subject to change over
time. Changes in these underlying assumptions could cause the fair value of
loan servicing rights, and the related valuation allowance, to change
significantly in the future. As of March 31, 1996, the balance of capitalized
loan servicing rights was $286,000.
Note 5 - Current Regulatory Issues
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% of insured deposits
and could be payable in 1996. The legislation is currently awaiting the budget
reconciliation between the Executive Branch and the Congress, and to date has
not been included in any of the budget reconciliation bills.
If the assessment is made, the effect on First Indiana would be a pre-tax
charge of approximately $8,900,000. The Bank's well-capitalized ranking
would not be adversely affected.
Note 6 - Reclassifications
Certain amounts in the 1995 Consolidated Financial Statements have
been reclassified to conform to the 1996 presentation.
<PAGE> 9
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Summary of Corporation's Results
First Indiana Corporation and subsidiaries had net earnings of
$4,509,000 for the first quarter of 1996, compared with net earnings of
$4,300,000 in the first quarter of 1995. Earnings per share for the three
months ended March 31, 1996 were $.52, compared with $.49 per share for the
same period one year ago. Cash dividends per share for the first three months
of 1996 and 1995 were $.14 and $.11 per share, respectively.
Net Interest Income
Net interest income was $15,740,000 for the three months ended March
31, 1996, compared with $13,525,000 for the three months ended March 31,
1995. The increase in net interest income can be attributed to loan growth
and a favorable interest-rate environment.
Total loans outstanding grew four percent to $1,215,124,000 at March
31, 1996, compared with $1,173,705,000 one year earlier. Much of the Bank's
growth stemmed from three areas targeted for expansion: home equity, business
and residential construction loans. At March 31, 1996, home equity loans
outstanding were $473,846,000, compared with $381,817,000 at March 31,
1995, a 24 percent increase. Business and land development loans were
$77,114,000 at March 31, 1996, compared with $44,111,000 one year earlier,
a 75 percent increase. Residential construction loans stood at $139,988,000,
compared with $135,847,000 at March 31, 1995, a three percent increase. The
Bank is capitalizing on consumer demand for home equity loans and lines of
credit by offering streamlined approval and no closing costs or annual fees.
These products help maintain the Bank's competitive edge and further enhance
its reputation as an innovative real estate lender.
Interest income for the first quarter of 1996 was $32,235,000,
compared with $28,652,000 for the three months ended March 31, 1995.
Interest expense for the first quarter of 1996 was $16,495,000, compared with
$15,127,000 for the three months ended March 31, 1995.
During the first quarter of 1996, the Corporation's cost of funds was
5.21 percent, compared with 4.93 percent one year ago. The yield on earning
assets was 9.01 percent for the first quarter of 1996, compared with 8.45
percent one year ago. Growth in higher-yielding loans contributed to the
stronger margin.
Annualized return on total average assets was 1.21 percent for the three
months ended March 31, 1996, compared with 1.22 percent for the same
period in 1995.
Net Interest Margin
Net interest margin consists of two components: interest-rate spread
and the contribution of interest-free funds (primarily capital and other
non-interest-bearing liabilities). The following analysis of net interest
margin reflects the favorable impact of the Corporation's asset-sensitive
position.
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in Thousands) 1996 1995
--------- ----------
<S> <C> <C>
Net Interest Income $ 15,740 $ 13,525
========= ==========
Average Interest-Earning Assets $ 1,431,008 $ 1,356,243
Average Interest-Bearing Liabilities 1,266,107 1,227,493
--------- ---------
Average Interest-Free Funds $ 164,901 $ 128,750
========= =========
Yield on Interest-Earning Assets 9.01% 8.45%
Yield on Interest-Bearing Liabilities 5.21% 4.93%
--------- ---------
Interest-Rate Spread 3.80% 3.52%
Impact of Interest-Free Funds 0.60% 0.47%
--------- ---------
Net Interest Margin 4.40% 3.99%
========= =========
All non-accruing delinquent loans have been included in average
interest-earning assets.
</TABLE>
Non-Performing Assets and Summary of Loan Loss Experience
The following table analyzes the allowance for losses on loans and real
estate owned ("REO") for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Loan REO Loan and REO
Loss Allowance Loss Allowance Loss Allowance
-------------- --------------- --------------
1996 1995 1996 1995 1996 1995
(Dollars in Thousands) ------ ------ ----- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance of Loss Allowance
at Beginning of Year $16,234 $12,525 $1,066 $1,217 $17,300 $13,742
Provision for Losses 1,925 900 -- -- 1,925 900
Charge-Offs -- Residential (9) (34) -- (50) (9) (84)
-- Consumer (1,993) (921) (22) (15) (2,015) (936)
-- Construction -- (17) -- (62) 0 (79)
-- Commercial Rea -- (105) -- -- 0 (105)
Recoveries -- Residential 1 1 -- 23 1 24
-- Consumer 54 42 -- -- 54 42
-- Construction 27 10 -- 4 27 14
-- Business 8 -- -- -- 8 0
------- ------- ------- ------ ------- -------
Balance at March 31, $16,247 $12,401 $1,044 $1,117 $17,291 $13,518
======= ======= ======= ====== ======= =======
Ratio of Allowance for Loan Losses to Loans
Receivable 1.38% 1.05%
Ratio of REO Loss Allowance to Real Estate Owned 40.40% 17.47%
Ratio of Total Loan and REO Los Allowance to
Non-Performing Assets 64.50% 48.68%
</TABLE>
Non-performing assets were $26,806,000, or 1.82 percent of assets, at
March 31, 1996. This compares with $27,165,000, or 1.78 percent of assets,
at December 31, 1995 and $27,769,000, or 1.88 percent of assets, at March 31,
1995. This category includes not only non-accrual loans and real estate owned,
but also restructured loans on which the Bank continues to accrue interest.
At March 31, 1996, $5,892,000 of non-performing assets were restructured
loans.
The Bank regularly reviews all non-performing assets to evaluate the
adequacy of the allowances for losses on loans and REO. The allowance for
loan losses is maintained through a provision for loan losses, which is charged
to earnings. The provisions are determined in conjunction with management's
review and evaluation of current economic conditions, changes in the character
and size of the loan portfolio, estimated charge-offs, and other pertinent
information derived from a
<PAGE> 11
quarterly review of the loan portfolio and REO properties.
The provision for losses on loans and REO in the first quarter of 1996
was $1,925,000, compared with $900,000 in the first quarter of 1995. The
increase is attributable to greater originations of higher loan-to-value home
equity loans and to an increase in delinquencies in the Bank's portfolio of
home equity and automobile loans. At March 31, 1996, home equity delinquencies
increased to 2.08 percent of the total home equity portfolio, an increase of
approximately 17 percent from year-end 1995 levels. 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.
The increased charge-offs in the first quarter of 1996 are reflective of the
significant increase in home equity loans outstanding. The Bank discontinued
the indirect automobile lending business in 1994, and the non-performing auto
loans remaining in the Bank's portfolio represent lingering delinquencies and
an increase in charge-offs. The amount of the provision in 1996 was the result
of management's ongoing evaluation of the adequacy of its loan and real estate
owned loss allowances and the changing composition of the Corporation's loan
portfolio and REO. Management will continue to evaluate the adequacy of the
provision and will adjust it if necessary to reflect changes in the amount or
category of loans originated.
Non-Interest Income
Total non-interest income was $4,525,000 for the three months ended
March 31, 1996, compared with $4,385,000 for the same period in 1995.
During the first quarter of 1996, the Bank sold three of its investments
available for sale at a gain of $208,000. This compares with the $51,000 loss
recognized in the first quarter of 1995 on investment sales.
The Bank realized $407,000 on the sale of approximately $24,428,000
in fixed-rate home equity loans in the first quarter of 1996. The remaining
gain on sale of loans of $686,000 is attributable to the sale of residential
mortgage loans in the normal course of the Bank's mortgage banking operations.
These items were offset in 1995 by a gain of $1,497,000 from the sale of
approximately $25,462,000 of the Bank's deposits.
Loan servicing income for the three months ended March 31, 1996
decreased from the comparable period in 1995 principally due to amortization
of purchased and originated mortgage servicing right assets. The Bank
purchased $310 million in residential mortgage loan servicing rights in the
second quarter of 1995.
Dividends on Federal Home Loan Bank stock increased $53,000 for the
three months ended March 31, 1996 compared with the same periods in 1995,
due to an increase in dividend yield and the amount of stock held by First
Indiana. Insurance commissions increased $141,000 for the three months
ended March 31, 1996. The Bank also recognized prepayment penalty income
of $144,000 during the first quarter of 1996.
<PAGE> 12
Non-Interest Expense
Total non-interest expense was $11,099,000 for the three months ended
March 31, 1996, compared with $9,962,000 for the same period in 1995.
Salaries and benefits increased $69,000 during the three months ended March
31, 1996 because of higher loan commissions associated with the increased
growth in consumer loan production. Capitalized costs increased $298,000
over the first quarter of 1995 due to increased consumer loan volume.
Marketing expense increased $85,000 over the first quarter of 1995 because
of a renewed commitment to research, sales training, and advertising. Due to
the increased consumer loan volume, other operating expenses, such as
temporary help and home equity lending expenses, increased approximately
$150,000 over 1995 levels.
Included in real estate owned operations-net are all of the operating
revenues and expenses associated with the Corporation's real estate owned.
Such net results declined by $719,000 for the three months ended March 31,
1996 from one year ago. This decline reflects a 1995 first quarter gain of
$713,000 on a payoff of a commercial real estate REO property.
Capital Resources and Liquidity
At March 31, 1996, shareholders' equity was $132,245,000, or 8.95
percent of total assets, compared with $129,297,000, or 8.48 percent, at
December 31, 1995 and $117,941,000, or 8.00 percent, at March 31, 1995.
The Bank continues to exceed all minimum capital requirements. At
March 31, 1996, the Bank's tangible and core capital stood at $ 129,343,000,
or 8.68 percent of assets, $106,985,000 in excess of the 1.50 percent minimum
tangible capital and $84,626,000 in excess of the three percent minimum
required core capital. Risk-based capital equaled $142,861,000, or 12.19
percent of risk-weighted assets, $49,211,000 more than the minimum eight
percent risk-based level required.
<TABLE>
<CAPTION>
Regulatory Capital
March 31, 1996
--------------------
GAAP Tangible Core Risk-Based
(Dollars in Thousands) Capital Capital % Capital % Capital %
------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Indiana Corporation Capital $132,245
=======
First Indiana Bank Capital $129,321 $129,321 $129,321 $129,321
=======
Additional Capital Items:
SFAS 115 Adjustment 219 219 219
Non-Qualifying Servicing (197) (197) (197)
General Valuation Allowance 14,653
Land Loans above 80% Loan-to-Value (1,135)
Computed Regulatory Capital 129,343 8.68% 129,343 8.68% 142,861 12.19%
Minimum Capital Requirement (22,358) 1.50% (44,717) 3.00% (93,650) 8.00%
------- ------- -------
Excess Regulatory Capital $106,985 $84,626 $49,211
======= ======= =======
Fully Phased-in Requirement 1.50% 3.00% 8.00%
</TABLE>
<PAGE> 13
The Corporation paid a quarterly dividend of $.14 per common share
March 18, 1996 to shareholders of record as of March 4, 1996. This reflects
an increase from $.11 per share in 1995. On March 1, 1996, the
Corporation effected a six-for-five stock split. All per-share amounts have
been adjusted to reflect the stock split.
The Corporation conducts its business through its subsidiaries. The
main source of funds for the Corporation is dividends from the Bank. The
Corporation has no significant assets other than its investment in the Bank.
The director of the Office of Thrift Supervision ("OTS") is required
under applicable law to set standards requiring thrift institutions to maintain
minimum levels of certain liquid investments of at least five percent of net
withdrawable assets. The director of the OTS shall set minimum liquidity
levels between four and 10 percent of net withdrawable assets. Current
regulations require a minimum liquidity level of five percent. The
Corporation's liquidity ratio at March 31, 1996, was 10.50 percent.
<PAGE> 14
Interest-Rate Sensitivity
The following schedule analyzes the difference in rate-sensitive assets
and liabilities or gap at March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
Rate Sensitivity by Period of Maturity or Rate Change
March 31, 1996
-----------------------------------------------------
Over 180 Over
% of Within Days to 1 Year to Over
(Dollars in Thousands) Rate Balance Total 180 Days 1 Year 5 Years 5 Years
------- ------- ------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Investment Securities & Other 5.91%$ 131,636 9.34%$ 59,582 16,997 55,057 --
Loans Receivable (1)
Mortgage-Backed Securities 7.77% 46,049 3.27% 16,487 5,277 11,409 12,876
Residential Mortgage Loans 7.91% 412,720 29.29% 197,956 67,362 117,990 29,412
Commercial Real Estate Loans 10.91% 48,411 3.44% 12,946 7,292 14,976 13,197
Business Loans 9.69% 77,114 5.47% 57,572 3,257 16,285 --
Consumer Loans 10.50% 553,138 39.26% 224,957 48,626 195,458 84,097
Residential Construction Loans 9.12% 139,988 9.93% 126,204 -- 13,416 368
--------- ------ ------- ------- ------- -------
Total 9.06%$ 1,409,056 100.00% 695,704 148,811 424,591 139,950
========= ====== ------- ------- ------- -------
Interest-Bearing Liabilities
Deposits:
Demand Deposits (2) 1.50%$ 168,919 12.81%$ -- -- -- 168,919
Passbook Deposits (3) 2.99% 52,872 4.01% 14,289 1,376 9,689 27,518
Money Market Savings 4.85% 240,748 18.26% 240,748 -- -- --
Jumbo Certificates 5.74% 113,246 8.59% 61,102 2,174 49,970 --
Fixed-Rate Certificates 5.61% 544,039 41.27% 213,209 132,541 198,289 --
--------- ----- ------- ------- ------- -------
Total 4.72% 1,119,824 84.94% 529,348 136,091 257,948 196,437
Borrowings:
FHLB Advances 5.74% 175,466 13.31%$ 75,000 4,000 94,000 2,466
Short-Term Borrowings 5.45% 23,024 1.75% 23,024 -- -- --
--------- ------ ------- ------- ------- -------
Total 4.86% 1,318,314 100.00% 627,372 140,091 351,948 198,903
Net - Other (4) 90,742 90,742
--------- -------
Total $ 1,409,056 627,372 140,091 351,948 289,645
========= -------- ------- ------- --------
Rate Sensitivity Gap $ 68,332 $ 8,720 $ 72,643 $ (149,695)
======= ======= ======= ========
March 31, 1996 Gap
Cumulative Rate-Sensitivity Gap $ 68,332 $ 77,052 $ 149,695
======= ======= ========
Percent of Total Interest-Earning Assets 4.85% 5.47% 10.62%
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%
(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 $38,896,000 of Loans Held for Sale. Included in
Consumer Loans are $17,600,000 of Home Equity Loans Held for Sale.
(2) These deposits have been included in the Over 5 Years category to reflect management's assumption that these
accounts are not rate-sensitive. This assumption is based upon 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 5 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> 15
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. At March 31, 1996, the
Corporation's cumulative one-year interest-rate gap stood at 5.47 percent.
This means that 5.47 percent of First Indiana's assets will reprice within one
year without a corresponding repricing of the liabilities funding them.
Financial Condition
Total assets at March 31, 1996, were $1,476,879,000, a decrease from
$1,523,949,000 at December 31, 1995.
Loans and mortgage-backed securities-net at March 31, 1996, were
$1,215,124,000, compared with $1,250,726,000 at December 31, 1995.
Mortgage-backed securities decreased $3,449,000 due to prepayments.
In the past three months, consumer loans decreased $21,872,000,
mainly because of the sale of fixed-rate home equity loans during the quarter.
The Corporation's residential loan servicing portfolio amounted to
$1,111,790,000 at March 31, 1996, compared with $789,985,000 at March 31,
1995.
Total deposits were $1,119,824,000 at March 31, 1996, compared with
$1,119,086,000 at December 31, 1995. Non-interest-bearing deposits consist
of retail and commercial checking accounts. Commercial checking accounts are
expected to become a more significant source of funds. Included in commercial
checking accounts at March 31, 1996 and December 31, 1995 were
approximately $10,429,000 and $6,815,000 of escrow balances maintained for
loans serviced for others. Additional funds were obtained through Federal
Home Loan Bank advances. Federal Home Loan Bank advances totaled
$175,465,000 at March 31, 1996, compared with $214,781,000 at December
31, 1995.
In addition to deposits and advances, the Corporation uses short-term
repurchase agreements as sources of funds. Borrowings will continue to be
used in the short run to compensate for periodic or other reductions in
deposits or inflows at less than projected levels, and long-term to support
mortgage lending activities.
<PAGE> 16
Other Information
Items 1, 2, 3 and 5 are not applicable.
Item 4. Submission of matters to Vote of Security Holders.
An annual meeting of shareholders was held April 17,
1996. The following directors were elected at this meeting.
Votes For Votes Withheld
H. J. Baker 6,357,031 7,922
Marni McKinney 6,354,603 10,350
Phyllis W. Minott 6,356,465 8,487
The following directors' terms of office continued after the
meeting.
Robert H. McKinney
Owen B. Melton, Jr.
Michael L. Smith
Gerald L. Bepko
Douglas W. Huemme
John W. Wynne
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - There were no reports on
Form 8-K filed during the three months ended March
31, 1996.
<PAGE> 17
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Indiana Corporation
May 8, 1996 /s/ Owen B. Melton, Jr.
-----------------------
Owen B. Melton, Jr.
President
May 8, 1996 /s/ David L. Gray
-----------------
David L. Gray
Vice President and Treasurer
<PAGE> 18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the three months ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,869
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 20,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,876
<INVESTMENTS-CARRYING> 51,809
<INVESTMENTS-MARKET> 52,549
<LOANS> 1,231,371
<ALLOWANCE> 16,247
<TOTAL-ASSETS> 1,476,879
<DEPOSITS> 1,119,824
<SHORT-TERM> 52,024
<LIABILITIES-OTHER> 26,321
<LONG-TERM> 146,465
0
0
<COMMON> 88
<OTHER-SE> 132,157
<TOTAL-LIABILITIES-AND-EQUITY> 1,476,879
<INTEREST-LOAN> 29,540
<INTEREST-INVEST> 2,455
<INTEREST-OTHER> 240
<INTEREST-TOTAL> 32,235
<INTEREST-DEPOSIT> 13,262
<INTEREST-EXPENSE> 16,495
<INTEREST-INCOME-NET> 15,740
<LOAN-LOSSES> 1,925
<SECURITIES-GAINS> 208
<EXPENSE-OTHER> 11,099
<INCOME-PRETAX> 7,241
<INCOME-PRE-EXTRAORDINARY> 7,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,509
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 4.40
<LOANS-NON> 17,626
<LOANS-PAST> 0
<LOANS-TROUBLED> 5,892
<LOANS-PROBLEM> 3,281
<ALLOWANCE-OPEN> 16,234
<CHARGE-OFFS> 2,002
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 16,234
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,637
</TABLE>
