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 June 30, 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
incorporation or organization) Identification Number)
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 7/31/97
<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 June 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of
Earnings for the Three and Six Months
Ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of
Shareholders' Equity for the Six Months
Ended June 30, 1997 6
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 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 11
Part II Other Information 19
Signatures 20
<PAGE> 2
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
For the Three Months Ended
June 30,
1997 1996
<S> <C> <C>
Total Interest Income $ 31,253 $ 30,928
Total Interest Expense 15,736 15,720
Net Earnings 3,973 4,860
Primary Earnings Per Share 0.37 0.45
Fully Diluted Earnings Per Share 0.37 0.45
Dividends Per Share 0.12 0.11
Net Interest Margin 4.36 % 4.34 %
Net Interest Spread 3.73 3.67
Return on Average Equity 11.04 14.47
Return on Average Assets 1.07 1.31
Average Shares Outstanding 10,550,896 10,356,788
Primary Shares Outstanding 10,845,317 10,771,861
Fully Diluted Shares Outstanding 10,880,154 10,771,979
<CAPTION>
For the Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Total Interest Income $ 62,134 $ 63,163
Total Interest Expense 31,123 32,215
Net Earnings 8,052 9,369
Primary Earnings Per Share 0.74 0.87
Fully Diluted Earnings Per Share 0.74 0.87
Dividends Per Share 0.24 0.22
Net Interest Margin 4.38 % 4.37
Net Interest Spread 3.75 3.74
Return on Average Equity 11.31 14.10
Return on Average Assets 1.09 1.26
Average Shares Outstanding 10,511,461 10,350,368
Primary Shares Outstanding 10,857,033 10,750,865
Fully Diluted Shares Outstanding 10,871,494 10,764,688
<CAPTION>
At June 30,
1997 1996
<S> <C> <C>
Assets $ 1,520,762 $ 1,493,042
Loans-Net 1,259,829 1,209,085
Deposits 1,093,848 1,130,427
Shareholders' Equity 145,432 136,048
Shareholders' Equity/Assets 9.56 % 9.11 %
Shareholders' Equity Per Share $ 13.77 $ 13.12
Market Closing Price 22.50 19.20
Price/Earnings Multiple 15.20 x 10.71 x
<CAPTION>
At June 30, 1997
Actual Required
<S> <C> <C>
Capital Ratios
Tangible Capital/Total Assets 8.73 % 1.50 %
Core (Tier One) Capital/Total Assets 8.73 % 3.00 %
Risk-Based Capital/Risk-Weighted Assets 12.48 % 8.00 %
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Share Data)
June 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
Cash $ 45,380 $ 31,618
Federal Funds Sold 9,000 42,000
Total Cash and Cash Equivalents 54,380 73,618
Investments Held for Sale 105,997 101,356
Investments (Market Value of $5,525 and $5,673) 5,411 5,539
Mortgage-Backed Securities - Net(Market Value of
$32,430 and $36,984) 31,876 36,412
Loans Held for Sale 18,979 23,223
Loans Receivable 1,261,579 1,211,095
Less Allowance for Loan Losses (20,729) (18,768)
Loans Receivable - Net 1,259,829 1,215,550
Premises and Equipment 13,284 13,705
Accrued Interest Receivable 11,103 10,696
Real Estate Owned - Net 3,837 4,285
Prepaid Expenses and Other Assets 35,045 35,260
Total Assets $ 1,520,762 $ 1,496,421
Liabilities and Shareholders' Equity
Liabilities
Non-Interest-Bearing Deposits $ 86,078 $ 83,259
Interest-Bearing Deposits 1,007,770 1,012,227
Total Deposits 1,093,848 1,095,486
Federal Home Loan Bank Advances 217,458 215,466
Short-Term Borrowings 45,529 30,055
Accrued Interest Payable 2,016 2,018
Advances by Borrowers for Taxes and Insurance 1,710 1,120
Other Liabilities 9,557 7,933
Total Liabilities 1,370,118 1,352,078
Negative Goodwill 5,212 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; 11,145,166 and 10,966,934 Shares Issued and
Outstanding, Including Shares in Treasury 111 110
Paid-In Capital in Excess of Par 34,463 33,203
Retained Earnings 117,210 111,767
Net Unrealized Loss on Securities Available For Sale (44) (72)
Treasury Stock-at Cost, 583,840 and 587,666 Shares (6,308) (6,350)
Total Shareholders' Equity 145,432 138,658
Total Liabilities and Shareholders' Equity $ 1,520,762 $ 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 June 30, Six Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income
Loans $ 28,823 $ 28,302 $ 57,054 $ 57,842
Mortgage-Backed Securities 595 758 1,221 1,602
Investments 1,690 1,686 3,446 3,297
Federal Funds Sold and
Interest-Bearing Deposits 145 182 413 422
Total Interest Income 31,253 30,928 62,134 63,163
Interest Expense
Deposits 12,292 13,049 24,520 26,311
Federal Home Loan Bank Advances 2,996 2,496 5,947 5,367
Short-Term Borrowings 448 175 656 537
Total Interest Expense 15,736 15,720 31,123 32,215
Net Interest Income 15,517 15,208 31,011 30,948
Provision for Loan Losses 2,680 2,450 5,500 4,375
Net Interest Income After
Provision for Loan Losses 12,837 12,758 25,511 26,573
Non-Interest Income
Sale of Investments Held For Sale 0 15 2 223
Sale of Loans 1,014 921 1,578 2,014
Sale of Subsidiary - 1,204 - 1,204
Dividends on Federal Home Loan Bank Stock 259 249 514 512
Loan Servicing Income 749 637 1,455 1,288
Loan Fees 661 618 1,262 1,168
Insurance Commissions 57 221 176 566
Accretion of Negative Goodwill 237 237 474 474
Deposit Product Fee Income 646 633 1,298 1,186
Other 643 520 1,091 1,145
Total Non-Interest Income 4,266 5,255 7,850 9,780
Non-Interest Expense
Salaries and Benefits 5,132 4,902 9,762 10,248
Net Occupancy 757 755 1,526 1,540
Deposit Insurance 175 644 354 1,288
Real Estate Owned Operations - Net 199 (4) 262 91
Equipment 1,141 1,088 2,294 2,164
Office Supplies and Postage 440 573 937 1,122
Other 2,747 2,330 5,029 4,934
Total Non-Interest Expense 10,591 10,288 20,164 21,387
Earnings Before Income Taxes 6,512 7,725 13,197 14,966
Income Taxes 2,539 2,865 5,145 5,597
Net Earnings $ 3,973 $ 4,860 $ 8,052 $ 9,369
Primary Earnings Per Share $ 0.37 $ 0.45 $ 0.74 $ 0.87
Fully Diluted Earnings Per Share $ 0.37 $ 0.45 $ 0.74 $ 0.87
Dividends Per Common Share $ 0.12 $ 0.11 $ 0.24 $ 0.22
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
First Indiana Corporation and Subsidiaries Net Unreal-
(Dollars in Thousands, Except Share Data) Paid-In ized Loss on
(Unaudited) Capital Securities Total
Common Stock in Excess Retained Available for Treasury Shareholders
Shares Amount of Par Earnings 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 (725) 145
Exercise of Stock Options 167,255 1 863 864
Redemption of Common Stock (24,852) (501) (501)
Tax Benefit of Stock Options Exercised 656 656
Unrealized Gain on Securities Available
for Sale, Net of Income Taxes of $19 28 28
Common Stock Issued Under Deferred
Compensation Plan (12) (12)
Net Earnings For The Six Months
Ended June 30, 1997 8,052 8,052
Dividends on Common Stock (2,528) (2,528)
Payment for Fractional Shares (421) (12) (12)
Treasury Stock Issued Under Long-
Term Incentive Plan 3,826 40 42 82
Balance at June 30, 1997 10,561,326 $111 $34,463 $117,210 ($44) ($6,308) $145,432
</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)
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 8,052 $ 9,369
Adjustments to Reconcile Net Earnings to
Net Cash Provided (Used) by Operating Activities
(Gain) Loss on Sale of Assets (1,578) (2,227)
Amortization 365 981
Amortization of Restricted Stock Plan 145 245
Depreciation 1,011 973
Net (Accretion) Amortization of Loans
and Mortgage-Backed Securities 195 (79)
Provision for Loan Losses 5,500 4,375
Origination of Loans Held For Sale
Net of Principal Collected (79,992) (144,711)
Origination of Mortgage-Backed
Available for Sale - (734)
Proceeds from Sale of Loans Held for Sale 85,814 160,567
Change In:
Accrued Interest Receivable (407) 89
Other Assets (2,341) (555)
Accrued Interest Payable (2) (808)
Other Liabilities 1,706 126
Net Cash Provided (Used) by Operating Activities 18,468 27,611
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities 15,509 17,073
Proceeds from Sale of Investments Available for Sale - 25,560
Purchase of Investment Securities Available for Sale (19,958) (63,227)
Principal Collected on Mortgage-Backed Securities 4,536 7,528
Originations of Loans Net of Principal Collected (52,147) 20,938
Proceeds from Sale of Loans 59 2,730
Proceeds from Sale of Premises and Equipment 15 28
Purchase of Premises and Equipment (605) (1,756)
Net Cash Provided (Used) by Investing Activities (52,591) 8,874
Cash Flows from Financing Activities
Net Change in Deposits (1,638) (6,553)
Repayment of Federal Home Loan Bank Advances (85,058) (160,026)
Borrowings of Federal Home Loan Bank Advances 87,050 140,710
Net Change in Short-Term Borrowings 15,474 (28,642)
Net Change in Advances by Borrowers
for Taxes and Insurance 590 115
Stock Option Proceeds 363 252
Payment for Fractional Shares (12) (16)
Dividends Paid (2,528) (2,321)
Tax Benefit of Stock Options Exercised 656 -
Common Stock Issued Under Deferred Compensation Plan (12) (8)
Net Cash Provided (Used) by Financing Activities 14,885 (56,489)
Net Change in Cash and Cash Equivalents (19,238) (20,004)
Cash and Cash Equivalents at Beginning of Period 73,618 74,894
Cash and Cash Equivalents at End of Period $ 54,380 $ 54,890
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period For:
Interest on Deposits, Advances, and
Other Borrowed Money $ 31,125 $ 33,023
Income Taxes 3,900 6,700
Transfer of Loans to Real Estate Owned 2,130 165
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 7
FIRST INDIANA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Six Months Ended June 30, 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 its subsidiary (the
"Corporation"). The 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 (10,845,317 and 10,880,154 for the three months ended June
30, 1997; 10,771,861 and 10,771,979 for the three months ended June
30, 1996; 10,857,033 and 10,871,494 for the six months ended June
30, 1997; and 10,750,865 and 10,764,688 for the six months ended
June 30, 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 - Derivative Financial Instruments
The Bank enters into forward sales contracts for future
delivery of residential fixed-rate mortgage loans at a specified yield in
order to limit market risk associated with its pipeline of residential
mortgage loans held for sale and commitments to fund residential
mortgage loans. Market risk arises from the possible inability of either
party to comply with the contract terms.
The Bank designates these forward sales contracts as hedges.
To qualify as a hedge, the forward sales contract must be effective in
reducing the market risk of the identified anticipated residential
mortgage loan sale which is probable to occur. Effectiveness is
evaluated on an ongoing basis through analysis of the residential
mortgage loan pipeline position. Commitments under these forward
sales contracts and the underlying residential mortgage loans are
valued, and the net position is carried at the lower of cost or market.
Unrecognized gains and losses on these forward sales contracts are
generally immaterial and are charged to current earnings as an
adjustment to the gain or loss on residential mortgage loan sales when
realized, when the contract matures, or is terminated.
<PAGE> 8
Note 4 - 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 judgment about information
available to them at the time of their examination.
Note 5 - 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 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 on the assets and liabilities that exist after the
transfer.
In December 1996, the Financial Accounting Standards Board
("FASB") issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS 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.
<PAGE> 9
In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes standards
for reporting and displaying comprehensive income and its
components in the financial statements. Comprehensive income is the
total of net income and all nonowner changes in shareholders' equity.
The Statement is effective for fiscal years beginning after December
15, 1997, with earlier application permitted. The Statement will
require new disclosures by the Corporation, but is not expected to
have an impact on the financial statements or results of operations.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS
131"), which introduces new guidance on segment reporting. The
Statement is effective for fiscal years beginning after December 15,
1997, with earlier application encouraged. The statement is not
expected to have a material impact on the financial condition or results
of operations of the Corporation.
Note 5 - Reclassifications
Certain amounts in the 1996 Condensed Consolidated
Financial Statements have been reclassified to conform to the 1997
presentation.
<PAGE> 10
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
$3,973,000 for the second quarter of 1997, compared with net
earnings of $4,860,000 in the second quarter of 1996. Earnings per
share for the three months ended June 30, 1997 were $.37, compared
with $.45 per share for the same period one year ago.
For the first six months of 1997, net earnings were
$8,052,000, compared with $9,369,000 one year ago. For the six
months ended June 30, 1997, net earnings per share were $0.74,
compared with $0.87 for the same period one year ago.
Included in 1996 second quarter net earnings is a non-recurring
after-tax gain of $716,000, or $.07 per share, from the sale
of the Bank's investment and insurance subsidiaries, One Investment
Corporation and One Insurance Agency. These subsidiaries were sold
to the Somerset Group, Inc., a publicly held affiliate that owns
approximately 22 percent of First Indiana Corporation. Cash
dividends per share for the first six months of 1997 and 1996 were
$.24 and $.22 per share, respectively.
Net Interest Income
Net interest income was $15,517,000 for the three months
ended June 30, 1997, compared with $15,208,000 for the three
months ended June 30, 1996. For the six months ended June 30,
1997, net interest income was $31,011,000, compared with
$30,948,000 for the six months ended June 30, 1996.
Total net loans outstanding grew four percent to
$1,259,829,000 at June 30, 1997, compared with $1,209,085,000 one
year earlier. Much of the Bank's growth stemmed from two areas
targeted for aggressive expansion: home equity and business loans.
At June 30, 1997, home equity loans outstanding were $507,164,000,
compared with $476,981,000 at June 30, 1996, a six percent increase.
Business and land development loans were $111,480,000, compared
with $82,508,000 one year earlier, a 35 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 a premier real estate lender.
Interest income for the second quarter of 1997 was
$31,253,000, compared with $30,928,000 for the three months ended
June 30, 1996. Interest income for the six months ended June 30,
1997 was $62,134,000, compared with $63,163,000 for the same
period in 1996. Interest expense for the second quarter of 1997 was
$15,736,000, compared with $15,720,000 for the three months ended
June 30, 1996. Interest expense for the six months ended June 30,
1997 and 1996 was $31,123,000 and $32,215,000, respectively.
During the second quarter of 1997, the Corporation's cost of
funds was 5.06 percent, compared with 5.15 percent one year ago.
For the six months ended June 30, 1997, the cost of funds was 5.02
percent, compared with 5.18 percent for the same period in 1996. The
yield on earning
<PAGE> 11
assets was 8.79 percent for the second quarter of
1997, compared with 8.82 percent one year ago. For the six months
ended June 30, 1997, the yield on earning assets was 8.77 percent,
compared with 8.92 percent for the same period in 1996.
Annualized return on total average assets was 1.07 percent for
the three months ended June 30, 1997, compared with 1.31 percent
one year ago. For the six months ended June 30, 1997, the
Corporation's annualized return on total average assets was 1.09
percent, compared with 1.26 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.
<TABLE>
<CAPTION>
Three Months Ended June 30,
(Dollars in Thousands) 1997 1996
<S> <C> <C>
Net Interest Income $ 15,517 $ 15,208
Average Interest-Earning Assets $ 1,422,121 $ 1,402,184
Average Interest-Bearing Liabilities 1,243,257 1,220,828
Average Interest-Free Funds $ 178,864 $ 181,356
Yield on Interest-Earning Assets 8.79% 8.82%
Yield on Interest-Bearing Liabilities 5.06% 5.15%
Interest-Rate Spread 3.73% 3.67%
Impact of Interest-Free Funds 0.63% 0.67%
Net Interest Margin 4.36% 4.34%
<CAPTION>
All non-accruing delinquent loans have been included in average
interest-earning assets.
Six Months Ended June 30,
(Dollars in Thousands) 1997 1996
<S> <C> <C>
Net Interest Income $ 31,011 $ 30,948
Average Interest-Earning Assets $ 1,416,240 $ 1,416,596
Average Interest-Bearing Liabilities 1,240,880 1,243,470
Average Interest-Free Funds $ 175,360 $ 173,126
Yield on Interest-Earning Assets 8.77% 8.92%
Yield on Interest-Bearing Liabilities 5.02% 5.18%
Interest-Rate Spread 3.75% 3.74%
Impact of Interest-Free Funds 0.63% 0.63%
Net Interest Margin 4.38% 4.37%
</TABLE>
All non-accruing delinquent loans have been included in average
interest-earning assets.
<PAGE> 12
Non-Performing Assets and Summary of Loan Loss Experience
The following table analyzes the allowance for losses on loans
and REO for the six months ended June 30, 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 5,500 4,375 -- (100) 5,500 4,275
Charge-Offs -- Residential -- (8) -- (4) 0 (12)
-- Consumer (3,954) (4,692) (176) (176) (4,130) (4,868)
-- Construction (572) (16) (6) (39) (578) (55)
-- Business (30) -- -- -- (30) 0
-- Commercial Real
Estate -- -- -- -- 0 0
Recoveries -- Residential -- 1 6 1 6 2
-- Consumer 654 356 123 58 777 414
-- Construction 26 1 17 -- 43 1
-- Business 4 57 -- -- 4 57
-- Commercial Real
Estate 333 -- -- -- 333 0
Balance at June 30, $20,729 $16,308 $507 $806 $21,236 $17,114
Ratio of Allowance for Loan Losses to Loans
Receivable 1.62% 1.33%
Ratio of REO Loss Allowance to Real Estate Owned 11.67% 23.74%
Ratio of Total Loan and REO Loss Allowance to
Non-Performing Assets 91.76% 69.90%
</TABLE>
Non-performing assets were $23,142,000, or 1.52 percent of
assets, at June 30, 1997. This compares with $27,121,000, or 1.81
percent of assets, at December 31, 1996 and $24,484,000, or 1.64
percent of assets, at June 30, 1996. This category includes not only
non-accrual loans and REO, but also restructured loans on which the
Bank continues to accrue interest. At June 30, 1997, $1,132,000 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 quarterly review of the loan portfolio and
REO properties.
The provision for losses on loans and REO in the second
quarter of 1997 was $2,680,000, compared with $2,450,000 in the
second quarter of 1996. For the six months ended June 30, 1997, the
total provision for loan losses was $5,500,000, compared with
$4,375,000 for the same period in 1996. The increase is attributable
to the growth in home equity 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
loan portfolios, and has increased the Bank's loan loss provision
accordingly.
<PAGE> 13
During the second quarter of 1996, the Bank decreased the
allowance for REO losses by $100,000. 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 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 $4,266,000 for the three
months ended June 30, 1997, compared with $5,255,000 for the same
period in 1996. For the six months ended June 30, 1997 and 1996,
total non-interest income was $7,850,000 and $9,780,000,
respectively. Non-interest income in 1996 includes a $1,204,000 pre-tax
gain from the sale of the Bank's investment and insurance
subsidiaries, One Investment Corporation and One Insurance Agency.
During the first half of 1996, the Bank sold $15,336,000 of its
investments available for sale at a gain of $208,000.
In the second quarter of 1997, the Bank realized $552,000 on
the sale of fixed-rate home equity loans. The remaining gain on sale
of loans of $1,026,000 in 1997 is attributable to the sale of residential
mortgage loans in the normal course of the Bank's mortgage banking
operations. The 1996 gain of $2,014,000 is comprised of both a
$752,000 gain on home equity loans and a $1,262,000 gain on
residential mortgage loans.
Loan servicing income for the three and six months ended June
30, 1997 increased from the comparable period in 1996, primarily due
to the reduced amortization of mortgage servicing rights..
Insurance commissions decreased $164,000 and $390,000 for
the three and six months ended June 30, 1997 compared to the same
periods in 1996 due to the sale of the Bank's insurance subsidiary.
<PAGE> 14
Non-Interest Expense
Non-interest expense was $10,591,000 for the three months
ended June 30, 1997, compared with $10,288,000 for the same period
in 1996. Non-interest expense for the six months ended June 30, 1997
and 1996 was $20,164,000 and $21,387,000, respectively.
Capitalized costs decreased $303,000 and $350,000 for the three and
six months ended June 30, 1997, respectively, compared with a year
ago due to lower loan origination volume. Deposit insurance
premiums decreased $934,000 in the first half of 1997 as a result of
lower premium rates following the 1996 one-time charge to
recapitalize the Savings Association Insurance Fund. Marketing
expense decreased $415,000 for the six months ended June 30, 1997
compared with the same period last year, when the Bank was heavily
involved in a television advertising campaign.
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 $203,000 and
$171,000 for the three and six months ended June 30, 1997,
respectively, from one year ago. This decline resulted from an
increase in the general maintenance expenses of the consumer REO
portfolio.
Capital Resources and Liquidity
At June 30, 1997, shareholders' equity was $145,432,000, or
9.56 percent of total assets, compared with $138,658,000, or 9.27
percent, at December 31, 1996 and $136,048,000, or 9.11 percent, at
June 30, 1996.
The following table shows First Indiana's strong capital levels
and compliance with all capital requirements at June 30, 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.
<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>
First Indiana Bank Capital $132,580
Tangible Capital (1) $132,624 8.73% $22,797 1.50% N/A N/A
Core (Tier One) Capital 132,624 8.73% 45,595 3.00% 75,991 5.00%
Tier One Risk-Based Capital 132,624 11.34% N/A N/A 70,175 6.00%
Total Risk-Based Capital (2) 145,955 12.48% 93,567 8.00% 116,958 10.00%
(1) First Indiana Bank capital differs from tangible capital by the FAS115 equity
securities adjustment of $44.
(2) Risk-based capital includes a $14,695 addition for general loan loss reserves and
a $1,364 deduction for land loans with loan-to-value ratios in excess of 80 percent.
</TABLE>
<PAGE> 15
The Corporation paid a quarterly dividend of $.12 per
common share June 17, 1997 to shareholders of record as of June
5, 1997. This reflects an increase from $.11 per share in 1996. For
the six months ended June 30, 1997 the Corporation has paid $.24
per share in dividends, compared to $.22 for the same period in
1996. On March 18, 1997, the Corporation effected a five-for-four
stock split. On March 1, 1996, the Corporation effected a six-for-five
stock split. All per-share amounts have been adjusted to reflect
the stock splits.
The Corporation conducts its business through its
subsidiaries. The main source of funds for the Corporation is
dividends from the Bank. The Corporation has no significant assets
other than its investment in the Bank.
Regulations of the former Federal Home Loan Bank Board
(the Bank Board") required thrift institutions to maintain minimum
levels of certain liquid investments, as defined in the regulations, of
at least five percent of net withdrawable assets. The director of the
OTS is required to set minimum liquidity levels between four and
10 percent of assets. Current regulations require a minimum
liquidity level of five percent. The Corporation's liquidity ratio at
June 30, 1997, was 8.10 percent. A proposal currently being
considered by the OTS would lower the liquidity requirement to
four percent of net withdrawable assets, as well as change the
definition of liquid assets and net withdrawable assets.
<PAGE> 16
Interest-Rate Sensitivity
The following schedule analyzes the difference in rate-sensitive
assets and liabilities or gap at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
Rate Sensitivity by Period of Maturity or Rate Change
June 30, 1997
Over 180 Over
% of Within Days to 1 Year to Over
(Dollars in Thousands) Rate Balance Total 180 Days 1 Year 5 Years 5 Years
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Investment Securities & Other 5.94%$ 120,408 8.40%$ 31,646 35,145 53,617 -
Loans Receivable (1)
Mortgage-Backed Securities 7.60% 31,876 2.22% 4,380 10,243 10,593 6,660
Residential Mortgage Loans 7.89% 434,763 30.34% 174,236 73,126 147,675 39,726
Commercial Real Estate Loans 9.96% 42,214 2.95% 11,862 6,998 15,253 8,101
Business Loans 9.44% 111,480 7.78% 69,585 1,249 22,437 18,209
Consumer Loans 10.32% 531,576 37.10% 207,358 43,323 190,317 90,578
Residential Construction Loans 8.24% 160,525 11.20% 144,746 - 15,779 -
Total 8.84%$ 1,432,842 100.00% 643,813 170,084 455,671 163,274
Interest-Bearing Liabilities
Deposits:
Demand Deposits (2) 2.41%$ 98,937 7.79%$ - - - 98,937
Passbook Deposits (3) 2.99% 46,847 3.69% 11,937 4,450 20,303 10,157
Money Market Savings 4.81% 270,827 21.31% 270,827 - - -
Jumbo Certificates 5.81% 127,458 10.03% 79,477 19,855 28,126 -
Fixed-Rate Certificates 5.63% 463,701 36.49% 121,449 120,339 221,913 -
Total 4.99% 1,007,770 79.31% 483,690 144,644 270,342 109,094
Borrowings:
FHLB Advances 5.56% 217,458 17.11%$ 95,000 42,000 77,000 3,458
Short-Term Borrowings 5.26% 45,529 3.58% 45,529 - - -
Total 5.10% 1,270,757 100.00% 624,219 186,644 347,342 112,552
Net - Other (4) 162,085 162,085
Total $ 1,432,842 624,219 186,644 347,342 274,637
Rate Sensitivity Gap $ 19,594 $ (16,560)$ 108,329 $ (111,363)
June 30, 1997
Cumulative Rate-Sensitivity Gap $ 19,594 $ 3,034 $ 111,363
Percent of Total Interest-Earning Assets 1.37% 0.21% 7.77%
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
$14,972,000 of Loans Held for Sale. Included in Consumer Loans are $4,007,000 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> 17
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 June 30, 1997, the Corporation's cumulative one-year interest-rate
gap stood at 0.21 percent. This means that 0.21 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 June 30, 1997, were $1,520,762,000, an
increase from $1,496,421,000 at December 31, 1996.
Loans and mortgage-backed securities net at June 30, 1997,
were $1,259,829,000, compared with $1,215,550,000 at December
31, 1996. Mortgage-backed securities decreased $4,536,000 due to
normal principal repayments.
In the past six months, consumer loans increased $4,807,000,
primarily as the Bank built a portfolio of available-for-sale fixed-rate
home equity loans. The Corporation's residential loan servicing
portfolio amounted to $1,007,912,000 at June 30, 1997, compared
with $1,096,130,000 at June 30, 1996.
Total deposits were $1,093,848,000 at June 30, 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 June 30, 1997 and December 31,
1996 were approximately $6,163,000 and $5,321,000 of escrow
balances maintained for loans serviced for others. Official checking
accounts included in total deposits at June 30, 1997 and December 31,
1996 were $31,878,000 and $33,157,000, respectively. Federal
Home Loan Bank advances totaled $217,458,000 at June 30, 1997,
compared with $215,466,000 at December 31, 1996.
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.
a<PAGE> 18
Other Information
Items 1, 2, 3 , 4 and 5 are not applicable.
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 six
months ended June 30, 1997.
<PAGE> 19
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
August 7, 1997 /s/ Owen B. Melton, Jr.
Owen B. Melton, Jr.
President
August 7, 1997 /s/ David L. Gray
David L. Gray
Vice President and
Treasurer
<PAGE> 20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the six months ended June 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 45,380
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,997
<INVESTMENTS-CARRYING> 37,287
<INVESTMENTS-MARKET> 37,955
<LOANS> 1,280,558
<ALLOWANCE> 20,729
<TOTAL-ASSETS> 1,520,762
<DEPOSITS> 1,093,848
<SHORT-TERM> 132,529
<LIABILITIES-OTHER> 18,495
<LONG-TERM> 130,458
0
0
<COMMON> 111
<OTHER-SE> 145,321
<TOTAL-LIABILITIES-AND-EQUITY> 1,520,762
<INTEREST-LOAN> 57,054
<INTEREST-INVEST> 4,667
<INTEREST-OTHER> 413
<INTEREST-TOTAL> 62,134
<INTEREST-DEPOSIT> 24,520
<INTEREST-EXPENSE> 31,123
<INTEREST-INCOME-NET> 31,011
<LOAN-LOSSES> 5,500
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 20,164
<INCOME-PRETAX> 13,197
<INCOME-PRE-EXTRAORDINARY> 13,197
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,052
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 4.38
<LOANS-NON> 17,780
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,132
<LOANS-PROBLEM> 3,513
<ALLOWANCE-OPEN> 18,768
<CHARGE-OFFS> 4,555
<RECOVERIES> 1,017
<ALLOWANCE-CLOSE> 20,729
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,219
</TABLE>
