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, 1997
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 10,561,326 Shares
Class Outstanding at 4/30/97
<PAGE> 1
FIRST INDIANA CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I Financial Information 3
Item 1. Financial Highlights
Financial Statements:
Condensed Consolidated Balance Sheets as
of March 31, 1997 and December 31, 1996 4
Condensed Consolidated Statements of
Earnings for the Three Months
Ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of
Shareholders' Equity for the Three Months
Ended March 31, 1997 6
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1997 and 1996 7
Notes to Condensed 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)
(Unaudited)
For the Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Total Interest Income $ 30,881 $ 32,235
Total Interest Expense 15,387 16,495
Net Earnings 4,079 4,509
Primary Earnings Per Share 0.38 0.42
Fully Diluted Earnings Per Share 0.38 0.42
Dividends Per Share 0.12 0.11
Net Interest Margin 4.39 % 4.40 %
Net Interest Spread 3.79 3.80
Return on Average Equity 11.58 13.72
Return on Average Assets 1.11 1.20
Average Shares Outstanding 10,472,027 10,343,948
Primary Shares Outstanding 10,868,748 10,729,869
Fully Diluted Shares Outstanding 10,868,784 10,740,263
<CAPTION>
At March 31,
1997 1996
<S> <C> <C>
Assets $ 1,481,157 $ 1,491,292
Loans-Net 1,224,652 1,215,124
Deposits 1,076,975 1,134,237
Shareholders' Equity 141,974 132,245
Shareholders' Equity/Assets 9.59 % 8.87 %
Shareholders' Equity Per Share $ 13.51 $ 12.78
Market Closing Price 18.38 18.20
Price/Earnings Multiple 12.09 x 10.94 x
<CAPTION>
At March 31, 1997
Actual Required
<S> <C> <C>
Capital Ratios
Tangible Capital/Total Assets 8.93 % 1.50 %
Core (Tier One) Capital/Total Assets 8.93 3.00 %
Risk-Based Capital/Risk-Weighted Assets 12.76 8.00 %
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
Cash $ 32,644 $ 31,618
Federal Funds Sold 10,500 42,000
Total Cash and Cash Equivalents 43,144 73,618
Investments Held for Sale 110,538 101,356
Investments (Market Value of $5,582 and $5,673) 5,475 5,539
Mortgage-Backed Securities - Net(Market Value of
$34,116 and $36,984) 33,866 36,412
Loans Held for Sale 21,994 23,223
Loans Receivable 1,222,395 1,211,095
Less Allowance for Loan Losses 19,737 18,768
Loans Receivable - Net 1,224,652 1,215,550
Premises and Equipment 13,418 13,705
Accrued Interest Receivable 11,045 10,696
Real Estate Owned - Net 3,610 4,285
Prepaid Expenses and Other Assets 35,409 35,260
Total Assets $ 1,481,157 $ 1,496,421
Liabilities and Shareholders' Equity
Liabilities
Non-Interest-Bearing Deposits $ 83,750 $ 83,259
Interest-Bearing Deposits 993,225 1,012,227
Total Deposits 1,076,975 1,095,486
Federal Home Loan Bank Advances 221,438 215,466
Short-Term Borrowings 22,160 30,055
Accrued Interest Payable 2,433 2,018
Advances by Borrowers for Taxes and Insurance 3,277 1,120
Other Liabilities 7,451 7,933
Total Liabilities 1,333,734 1,352,078
Negative Goodwill 5,449 5,685
Shareholders' Equity
Preferred Stock, $.01 Par Value: 2,000,000 Shares
Authorized; None Issued -
Common Stock, $.01 Par Value: 16,000,000 Shares
Authorized; 11,089,097 and 10,966,934 Shares Issued and
Outstanding, Including Shares in Treasury 111 110
Paid-In Capital in Excess of Par 34,416 33,203
Retained Earnings 114,157 111,767
Net Unrealized Loss on Securities Available For Sale (402) (72)
Treasury Stock-at Cost, 583,840 and 587,666 Shares (6,308) (6,350)
Total Shareholders' Equity 141,974 138,658
Total Liabilities and Shareholders' Equity $ 1,481,157 $ 1,496,421
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended March 31,
1997 1996
<S> <C> <C>
Interest Income
Loans $ 28,231 $ 29,540
Mortgage-Backed Securities 626 844
Investments 1,756 1,611
Federal Funds Sold and
Interest-Bearing Deposits 268 240
Total Interest Income 30,881 32,235
Interest Expense
Deposits 12,228 13,262
Federal Home Loan Bank Advances 2,951 2,871
Short-Term Borrowings 208 362
Total Interest Expense 15,387 16,495
Net Interest Income 15,494 15,740
Provision for Loan Losses 2,820 1,925
Net Interest Income After
Provision For Loan Losses 12,674 13,815
Non-Interest Income
Sale of Investments Held For Sale 2 208
Sale of Loans 564 1,093
Dividends on Federal Home Loan Bank Stock 255 263
Loan Servicing Income 706 651
Loan Fees 601 550
Insurance Commissions 119 346
Accretion of Negative Goodwill 237 237
Deposit Product Fee Income 650 553
Other 450 624
Total Non-Interest Income 3,584 4,525
Non-Interest Expense
Salaries and Benefits 4,630 5,346
Net Occupancy 769 785
Deposit Insurance 179 644
Real Estate Owned Operations - Net 63 95
Equipment 1,153 1,076
Office Supplies and Postage 497 549
Other 2,282 2,604
Total Non-Interest Expense 9,573 11,099
Earnings Before Income Taxes 6,685 7,241
Income Taxes 2,606 2,732
Net Earnings $ 4,079 $ 4,509
Primary Earnings Per Share $ 0.38 $ 0.42
Fully Diluted Earnings Per Share $ 0.38 $ 0.42
Dividends Per Common Share $ 0.12 $ 0.11
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
<TABLE>
<CAPTION>
CONDENSED 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 Secur- Share-
Common Stock in Excess Retained ities Available Treasury holders'
Shares Amount of Par Earnings For Sale Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 10,379,268 $110 $33,203 $111,767 ($72) ($6,350) $138,658
Common Stock Issued Under Restricted
Stock Plans-Net of Amortization 36,250 870 (798) 72
Exercise of Stock Options 93,825 1 492 493
Redemption of Common Stock (7,491) (177) (177)
Tax Benefit of Stock Options Exercised 376 376
Unrealized Loss on Securities Available
for Sale, Net of Income Taxes of $(225) (330) (330)
Common Stock Issued Under Deferred
Compensation Plan (6) (6)
Net Earnings For The Three Months
Ended March 31, 1997 4,079 4,079
Dividends on Common Stock (1,261) (1,261)
Payment for Fractional Shares (421) (12) (12)
Treasury Stock Issued Under
Long-Term Incentive Plan 3,826 40 42 82
Balance at March 31, 1997 10,505,257 $111 $34,416 $114,157 ($402) ($6,308) $141,974
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 6
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands)
(Unaudited)
Three Months Ended March 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 4,079 $ 4,509
Adjustments to Reconcile Net Earnings to:
Net Cash Provided (Used) by Operating Activities
(Gain) Loss on Sale of Assets (564) (1,303)
Amortization 202 628
Amortization of Restricted Stock Plan 72 162
Depreciation 509 492
Net (Accretion) Amortization of Loans and Mortgage-Backed 16 (42)
Provision for Loan Losses 2,820 1,925
Origination of Loans Held For Sale Net of Principal Colle (37,842) (88,842)
Proceeds from Sale of Loans Held for Sale 39,635 86,172
Change In:
Accrued Interest Receivable (349) 298
Other Assets (1,223) 1,113
Accrued Interest Payable 415 (33)
Other Liabilities (400) 2,932
Net Cash Provided by Operating Activities 7,370 8,011
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities 10,295 4,304
Proceeds from Sale of Investments Available for Sale - 15,543
Purchase of Investment Securities Available for Sale (19,958) (29,778)
Principal Collected on Mortgage-Backed Securities 2,546 3,449
Originations of Loans Net of Principal Collected (12,547) 34,917
Proceeds from Sale of Loans 906 2,730
Proceeds from Sale of Premises and Equipment 10 -
Purchase of Premises and Equipment (232) (518)
Net Cash Provided (Used) by Investing Activities (18,980) 30,647
Cash Flows from Financing Activities
Net Change in Deposits (18,511) (2,743)
Repayment of Federal Home Loan Bank Advances (39,028) (140,026)
Borrowings of Federal Home Loan Bank Advances 45,000 100,710
Net Change in Short-Term Borrowings (7,895) (15,618)
Net Change in Advances by Borrowers
for Taxes and Insurance 2,157 1,516
Stock Option Proceeds 316 69
Payment for Fractional Shares (12) (16)
Dividends Paid (1,261) (1,159)
Tax Benefit of Stock Options Exercised 376 -
Common Stock Issued Under Deferred Compensation Plan (6) (3)
Net Cash Used by Financing Activities (18,864) (57,270)
Net Change in Cash and Cash Equivalents (30,474) (18,612)
Cash and Cash Equivalents at Beginning of Period 73,618 74,894
Cash and Cash Equivalents at End of Period $ 43,144 $ 56,282
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period For:
Interest on Deposits, Advances, and
Other Borrowed Money $ 14,972 $ 16,528
Transfer of Loans to Real Estate Owned 1,526 165
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 7
FIRST INDIANA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three Months Ended March 31, 1997
(Unaudited)
Note 1 - Basis of Presentation
The foregoing condensed 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 consolidated 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, 1996.
Note 2 - Earnings Per Share
Earnings per share for 1997 and 1996 are computed by dividing net
earnings by the primary and fully diluted shares of common stock and
common stock equivalents outstanding during the period (10,868,748 and
10,868,784 for the three months ended March 31, 1997 and 10,729,869
and 10,740,263 for the three months ended March 31, 1996) after giving
retroactive effect to a five-for-four stock split in March 1997 and a
six-for-five stock split in March 1996. See Note 4 regarding impending
changes in the calculation of earnings per share.
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
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Effective January 1, 1997, the Bank
adopted Statement of Financial Accounting Standard ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of
a financial components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. The financial components approach focuses
<PAGE> 8
on the assets and liabilities that exist after the transfer.
In December 1996, the Financial Accounting Standards Board
("FASB") issued statement No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB No. 125," deferring by one year the effective
date of certain provisions of SFAS 125, which was effective for transfers
and extinguishments occurring after December 31, 1996. The deferral
applies to the provisions that deal with secured borrowing and collateral,
as well as to transfers of financial assets for repurchase agreements, dollar
rolls, and securities lending. These pronouncements had no material
impact on the financial statements of the Corporation.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 provides computation, presentation, and
disclosure requirements for earnings per share. The current presentation
of primary and fully diluted earnings per share will be replaced with basic
and diluted earnings per share. The Statement is effective for financial
statements for both interim and annual periods ending after December 15,
1997, and earlier application is not permitted. Because basic earnings per
share under SFAS 128 excludes dilutive securities, management expects
that the new basic earnings per share will be significantly higher than
primary earnings per share, which includes the effect of potentially dilutive
securities. Diluted earnings per share is not expected to materially change
from the current fully diluted earnings per share presentation.
In connection with SFAS 128, the FASB also issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS 129").
While SFAS 128 applies only to public companies, SFAS 129 is applicable
to both public and nonpublic companies. This statement is not expected
to have a material impact on disclosures currently made by the
Corporation.
Note 5 - Reclassifications
Certain amounts in the 1996 Consolidated Financial Statements
have been reclassified to conform to the 1997 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
$4,079,000 for the first quarter of 1997, compared with net earnings of
$4,509,000 in the first quarter of 1996. Earnings per share for the three
months ended March 31, 1997 were $.38, compared with $.42 per share
for the same period one year ago. Cash dividends per share for the first
three months of 1997 and 1996 were $.12 and $.11 per share, respectively.
Net Interest Income
Net interest income was $15,494,000 for the three months ended
March 31, 1997, compared with $15,740,000 for the three months ended
March 31, 1996.
Total net loans outstanding grew slightly to $1,224,652,000 at
March 31, 1997, compared with $1,215,124,000 one year earlier. The
1996 loans outstanding includes the $32,756,000 indirect automobile
portfolio, which the Bank sold in the third quarter of 1996. Much of the
Bank's growth in loans stemmed from two areas targeted for aggressive
expansion: home equity and business loans. At March 31, 1997, home
equity loans outstanding were $508,094,000, compared with $473,846,000
at March 31, 1996, a seven percent increase. Business and land
development loans were $100,615,000 at March 31, 1997, compared with
$77,114,000 one year earlier, a 30 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 1997 was $30,881,000,
compared with $32,235,000 for the three months ended March 31, 1996.
Interest expense for the first quarter of 1997 was $15,387,000, compared
with $16,495,000 for the three months ended March 31, 1996.
During the first quarter of 1997, the Corporation's cost of funds
was 4.97 percent, compared with 5.21 percent one year ago. The yield on
earning assets was 8.76 percent for the first quarter of 1997, compared
with 9.01 percent one year ago.
Annualized return on total average assets was 1.11 percent for the
three months ended March 31, 1997, compared with 1.20 percent for the
same period in 1996.
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) 1997 1996
<S> <C> <C>
Net Interest Income $ 15,494 $ 15,740
Average Interest-Earning Assets $ 1,410,359 $ 1,431,008
Average Interest-Bearing Liabilities 1,238,502 1,266,107
Average Interest-Free Funds $ 171,857 $ 164,901
Yield on Interest-Earning Assets 8.76% 9.01%
Yield on Interest-Bearing Liabilities 4.97% 5.21%
Interest-Rate Spread 3.79% 3.80%
Impact of Interest-Free Funds 0.60% 0.60%
Net Interest Margin 4.39% 4.40%
</TABLE>
All non-accruing delinquent loans have been included in average
interest-earning assets.
Non-Performing Assets and Summary of Loan Loss Experience
The following table analyzes the allowance for losses on loans and
REO for the three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Loan Loss REO Loss Loan and REO
Allowance Allowance Loss Allowance
1997 1996 1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance of Loss Allowance at
Beginning of Year $18,768 $16,234 $543 $1,066 $19,311 $17,300
Provision for Losses 2,820 1,925 -- -- 2,820 1,925
Charge-Offs -- Residential -- (9) -- -- 0 (9)
-- Consumer (2,152) (1,993) (33) (22) (2,185) (2,015)
-- Construction (424) -- -- -- (424) 0
-- Business (30) -- -- -- (30) 0
-- Commercial Real Estate -- -- -- -- 0 0
Recoveries -- Residential -- 1 -- -- 0 1
-- Consumer 394 54 102 -- 496 54
-- Construction 26 27 -- -- 26 27
-- Business 2 8 -- -- 2 8
-- Commercial Real Estate 333 -- -- -- 333 0
Balance at March 31, $19,737 $16,247 $612 $1,044 $20,349 $17,291
Ratio of Allowance for Loan Losses to Loans
Receivable 1.59% 1.38%
Ratio of REO Loss Allowance to Real Estate Owned 14.50% 40.40%
Ratio of Total Loan and REO Los Allowance to
Non-Performing Assets 84.76% 64.50%
</TABLE>
Non-performing assets were $24,007,000, or 1.62 percent of
assets, at March 31, 1997. This compares with $27,121,000, or 1.81
percent of assets, at December 31, 1996 and $26,806,000, or 1.82 percent
of assets, at March 31, 1996. 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, 1997, $2,189,000 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
<PAGE> 11
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
quarterly review of the loan portfolio and REO properties.
The provision for losses on loans and REO in the first quarter of
1997 was $2,820,000, compared with $1,925,000 in the first quarter of
1996. The increase is attributable to the growth in home equity and
commercial 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.
During 1996, management decreased the allowance for REO losses
by $400,000. Because of the sale of many foreclosed commercial real
estate properties and the careful review of the remaining REO portfolio,
management determined that it was not necessary to maintain an excess
REO allowance.
The increased charge-offs in 1996 and 1997 over previous levels
reflect both the significant increase in home equity loans outstanding and
a change to a more conservative charge-off policy. The Bank now writes
down consumer loans at the date of foreclosure and charges off the entire
balance of home equity loans greater than 120 days delinquent with
loan-to-value ratios above 90 percent. If the loan has a loan-to-value ratio
of less than 90 percent, the loan is written down to its estimated disposition
value after considering any first mortgage position and 15 percent
disposition costs. Indirect automobile loans greater than 120 days
delinquent are charged off in full. If collection efforts result in a
subsequent recovery of all or a portion of the loan amount, the Bank
recognizes the recovery at the time of receipt.
The amount of the provision in 1997 is 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, changes in current economic
conditions and the credit risk of the loan portfolio and REO.
Non-Interest Income
Total non-interest income was $3,584,000 for the three months
ended March 31, 1997, compared with $4,525,000 for the same period in
1996.
During the first quarter of 1996, the Bank sold $15,336,000 of its
investments available for sale at a gain of $208,000.
The Bank realized $564,000 on the sale of residential mortgage
loans in the normal course of the Bank's mortgage banking operations
during the first quarter of 1997. The 1996 gain of $1,093,000 is comprised
of both a $407,000 gain on the sale of fixed-rate home equity loans and a
$686,000 gain on residential mortgage loans.
Loan servicing income for the three months ended March 31, 1997
increased slightly from the comparable period in 1996.
<PAGE> 12
Insurance commissions decreased $227,000 for the three months
ended March 31, 1997 due to the second-quarter 1996 sale of the Bank's
investment and insurance subsidiaries, One Investment Corporation and
One Insurance Agency. Deposit product fee income increased $97,000
over 1996 levels due to targeted growth in transaction accounts. The
Bank also recognized prepayment penalty income of $144,000 during the
first quarter of 1996.
Non-Interest Expense
Total non-interest expense was $9,573,000 for the three months
ended March 31, 1997, compared with $11,099,000 for the same period
in 1996. Salaries and benefits decreased $716,000 during the three
months ended March 31, 1997 because of lower loan origination volume,
both in residential and consumer lending. Deposit insurance premiums
decreased $465,000 in the first quarter of 1997 as a result of lower
premium rates following the 1996 one-time charge to recapitalize the
Savings Association Insurance Fund ("SAIF"). Marketing expense
decreased $360,000 from the first quarter of 1996. Other operating
expenses, such as temporary help and home equity lending expenses,
decreased approximately $159,000 over 1996 levels due to decreased
consumer loan volume.
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 $32,000 for the three months ended
March 31, 1997 from one year ago.
Capital Resources and Liquidity
At March 31, 1997, shareholders' equity was $141,974,000, or
9.59 percent of total assets, compared with $138,658,000, or 9.27 percent,
at December 31, 1996 and $132,245,000, or 8.87 percent, at March 31,
1996.
The following table shows First Indiana's strong capital levels and
compliance with all capital requirements at March 31, 1997. First Indiana
is classified as "well-capitalized" under the OTS regulatory framework for
prompt corrective action, its highest classification. To be categorized as
"well-capitalized," the Bank must maintain minimum total risk-based, tier
one risk-based and tier one leverage ratios as set forth in the table. The
table reflects categories of assets includable under OTS regulations. There
are no conditions or events since the date of classification that management
believes have changed the Bank's category.
<PAGE> 13
<TABLE>
<CAPTION>
To Be Well
For FDICIA Capitalized Under OTS
(Dollars in Thousands) Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $132,312 8.93% $22,227 1.50% N/A N/A
Core (Tier One) Capital 132,312 8.93% 44,455 3.00% 74,091 5.00%
Tier One Risk-Based Capital 132,312 11.62% N/A N/A 68,319 6.00%
Total Risk-Based Capital 145,343 12.76% 91,092 8.00% 113,865 10.00%
Corporate Consolidated Capital 141,974 N/A N/A N/A N/A N/A
</TABLE>
The Corporation paid a quarterly dividend of $.12 per common
share March 18, 1997 to shareholders of record as of March 6, 1997.
This reflects an increase from $.11 per share in 1996. On March 18,
1997, the Corporation effected a five-for-four stock split. On March 1,
1996, the Corporation effected a six-for-five stock split. All per-share
amounts have been adjusted to reflect the stock splits.
The Corporation conducts its business through its subsidiaries.
The main source of funds for the Corporation is dividends from the
Bank. The Corporation has no significant assets other than its
investment in the Bank.
Regulations of the former Federal Home Loan Bank Board (the
Bank Board") required thrift institutions to maintain minimum levels of
certain liquid investments, as defined in the regulations, of at least five
percent of net withdrawable assets. The director of the OTS is required
to set minimum liquidity levels between four and 10 percent of assets.
Current regulations require a minimum liquidity level of five percent.
The Corporation's liquidity ratio at March 31, 1997, was 9.50 percent.
<PAGE> 14
Interest-Rate Sensitivity
The following schedule analyzes the difference in rate-sensitive
assets and liabilities or gap at March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
Rate Sensitivity by Period of Maturity or Rate Change
March 31, 1997
Over 180 Over
% of Within Days to 1 Year to Over
(Dollars in Thousands) Rate Balance Total 180 Days 1 Year 5 Years 5 Years
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Investment Securities & Other 5.96%$ 126,513 9.01%$ 33,350 25,006 68,157 -
Loans Receivable (1)
Mortgage-Backed Securities 7.55% 33,866 2.41% 10,114 5,504 11,517 6,731
Residential Mortgage Loans 7.90% 422,446 30.07% 169,250 71,766 132,319 49,111
Commercial Real Estate Loans 10.72% 42,268 3.01% 11,132 6,743 14,711 9,682
Business Loans 9.83% 100,615 7.16% 63,670 1,271 21,374 14,300
Consumer Loans 10.48% 535,065 38.09% 213,638 41,783 186,351 93,293
Residential Construction Loans 8.72% 143,995 10.25% 129,941 - 14,054 -
Total 9.01%$ 1,404,768 100.00% 631,095 152,073 448,483 173,117
Interest-Bearing Liabilities
Deposits:
Demand Deposits (2) 2.43%$ 101,294 8.19%$ - - - 101,294
Passbook Deposits (3) 2.99% 48,598 3.93% 10,993 2,262 14,066 21,277
Money Market Savings 4.72% 275,798 22.30% 275,798 - - -
Jumbo Certificates 5.77% 94,342 7.63% 52,300 13,809 28,233 -
Fixed-Rate Certificates 5.58% 473,193 38.26% 160,732 66,331 246,130 -
Total 4.91% 993,225 80.31% 499,823 82,402 288,429 122,571
Borrowings:
FHLB Advances 5.50% 221,438 17.90%$ 125,000 38,000 56,000 2,438
Short-Term Borrowings 5.14% 22,160 1.79% 22,160 - - -
Total 5.02% 1,236,823 100.00% 646,983 120,402 344,429 125,009
Net - Other (4) 167,945 167,945
Total $ 1,404,768 646,983 120,402 344,429 292,954
Rate Sensitivity Gap $ (15,888)$ 31,671 $ 104,054 $ (119,837)
March 31, 1997
Cumulative Rate-Sensitivity Gap $ (15,888)$ 15,783 $ 119,837
Percent of Total Interest-Earning Assets -1.13% 1.12% 8.53%
December 31, 1996
Cumulative Rate-Sensitivity Gap $ 28,793 $ 63,902 $ 116,236
Percent of Total Interest-Earning Assets 2.03% 4.50% 8.19%
(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 $10,017,000 of
Loans Held for Sale. Included in Consumer Loans are $11,977,000 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, 1997, the Corporation's cumulative one-year interest-rate gap
stood at 1.12 percent. This means that 1.12 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, 1997, were $1,481,157,000, a decrease
from $1,496,421,000 at December 31, 1996.
Loans and mortgage-backed securities-net at March 31, 1997, were
$1,224,652,000, compared with $1,215,550,000 at December 31, 1996.
Mortgage-backed securities decreased $2,546,000 due to prepayments.
In the past three months, consumer loans increased $8,296,000,
primarily because of originations of fixed-rate home equity loans during the
quarter. The Corporation's residential loan servicing portfolio amounted
to $1,035,410,000 at March 31, 1997, compared with $1,111,790,000 at
March 31, 1996.
Total deposits were $1,076,975,000 at March 31, 1997, compared
with $1,095,486,000 at December 31, 1996. Non-interest-bearing deposits
consist of retail and commercial checking accounts, as well as official
checking accounts. Commercial checking accounts are expected to
become a more significant source of funds. Included in commercial
checking accounts at March 31, 1997 and December 31, 1996 were
approximately $9,681,000 and $5,321,000 of escrow balances maintained
for loans serviced for others. Official checking accounts at March 31,1997
and December 31, 1996 were $31,823,000 and $33,157,000, respectively.
Federal Home Loan Bank advances totaled $221,438,000 at March 31,
1997, compared with $215,466,000 at December 31, 1996.
The Corporation also 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 16, 1997.
The following directors were elected at this meeting.
Votes For Votes Withheld
Gerald L. Bepko 7,284,023 20,712
Douglas W. Huemme 7,284,599 20,136
Andrew Jacobs, Jr. 7,275,842 28,892
John W. Wynne 7,284,608 20,127
The following directors' terms of office continued after the
meeting.
H. J. Baker
Marni McKinney
Phyllis W. Minott
Robert H. McKinney
Owen B. Melton, Jr.
Michael L. Smith
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on
Form 8-K filed during the three months ended
March 31, 1997.
<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, 1997 /s/ Owen B. Melton, Jr.
Owen B. Melton, Jr.
President
May 8, 1997 /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, 1997 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-31-1997
<CASH> 32,644
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110,538
<INVESTMENTS-CARRYING> 39,341
<INVESTMENTS-MARKET> 39,698
<LOANS> 1,244,389
<ALLOWANCE> 19,737
<TOTAL-ASSETS> 1,481,157
<DEPOSITS> 1,076,975
<SHORT-TERM> 110,160
<LIABILITIES-OTHER> 18,610
<LONG-TERM> 133,438
0
0
<COMMON> 111
<OTHER-SE> 141,863
<TOTAL-LIABILITIES-AND-EQUITY> 1,481,157
<INTEREST-LOAN> 28,231
<INTEREST-INVEST> 2,382
<INTEREST-OTHER> 268
<INTEREST-TOTAL> 30,881
<INTEREST-DEPOSIT> 12,228
<INTEREST-EXPENSE> 15,387
<INTEREST-INCOME-NET> 15,494
<LOAN-LOSSES> 2,820
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 9,573
<INCOME-PRETAX> 6,685
<INCOME-PRE-EXTRAORDINARY> 6,685
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,079
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 4.39
<LOANS-NON> 17,215
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,189
<LOANS-PROBLEM> 6,829
<ALLOWANCE-OPEN> 18,768
<CHARGE-OFFS> 2,606
<RECOVERIES> 755
<ALLOWANCE-CLOSE> 19,737
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,179
</TABLE>
