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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
135 North Pennsylvania Street, Indianapolis, IN 46204
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(Address of principal executive office) (Zip Code)
(317) 269-1200
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(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:
Class Shares
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Common Stock, par value $0.01 per share Outstanding at 07/31/2000
12,614,603
<PAGE>
<TABLE>
<CAPTION>
FIRST INDIANA CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
<S> <C> <C>
Page
Part I Financial Information 3
Item 1. Financial Highlights 3
Condensed Consolidated Financial Statements: 3
Condensed Consolidated Balance Sheets as of June 30, 2000 and 4
December 31, 1999
Condensed Consolidated Statements of Earnings for the Three 5
and Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Shareholders' Equity for the 6
Six Months Ended June 30, 2000
Condensed Consolidated Statements of Cash Flows for the Six Months 7
Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and 12
Results of Operations
Item 3. Disclosures About Market Risk 21
Part II Other Information 22
Signatures 24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Financial Highlights
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
For the Three Months Ended
June 30,
2000 1999
---------------------------
<S> <C> <C>
Total Interest Income $ 43,184 $ 35,917
Total Interest Expense 23,623 18,427
Net Earnings 6,179 5,021
Basic Earnings Per Share 0.49 0.40
Diluted Earnings Per Share 0.48 0.39
Dividends Per Share 0.14 0.13
Net Interest Margin 3.89% 3.89%
Net Interest Spread 3.18 3.27
Return on Average Equity 13.48 11.97
Return on Average Assets 1.19 1.07
Average Shares Outstanding 12,622,194 12,606,654
Average Diluted Shares Outstanding 12,798,351 12,831,456
<CAPTION>
For the Six Months Ended
June 30,
2000 1999
---------------------------
<S> <C> <C>
Total Interest Income $ 83,440 $ 70,300
Total Interest Expense 44,918 36,226
Net Earnings 11,696 9,651
Basic Earnings Per Share 0.93 0.76
Diluted Earnings Per Share 0.91 0.75
Dividends Per Share 0.28 0.26
Net Interest Margin 3.91% 3.87%
Net Interest Spread 3.22 3.23
Return on Average Equity 12.90 11.54
Return on Average Assets 1.15 1.05
Average Shares Outstanding 12,614,938 12,643,297
Average Diluted Shares Outstanding 12,795,639 12,876,487
<CAPTION>
At June 30,
2000 1999
---------------------------
<S> <C> <C>
Assets $ 2,119,047 $ 1,916,745
Loans - Net 1,816,887 1,604,192
Deposits 1,376,203 1,347,515
Shareholders' Equity 185,058 166,716
Shareholders' Equity/Assets 8.73% 8.70%
Shareholders' Equity Per Share $ 14.67 $ 13.30
Market Closing Price 19.88 21.38
Price/Earnings Multiple 10.92x 13.70x
<CAPTION>
At June 30, 2000
Actual Required
-------------------
<S> <C> <C>
Capital Adequacy Ratios
Tangible Capital/Total Assets 7.80% 1.50%
Core (Tier One) Capital/Total Assets 7.80 4.00
Risk-Based Capital/Risk-Weighted Assets 10.70 8.00
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheets
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
June 30, December 31,
2000 1999
------------ -----------
<S> <C> <C>
Assets
Cash $ 34,767 $ 30,941
Federal Funds Sold 21,000 30,500
----------- -----------
Total Cash and Cash Equivalents 55,767 61,441
Investments Available for Sale 100,429 103,169
Mortgage-Backed Securities Available for Sale 51,066 54,734
Loans Held for Sale 42,517 32,567
Loans Receivable 1,805,868 1,669,614
Less Allowance for Loan Losses 31,498 28,759
----------- -----------
Loans Receivable - Net 1,816,887 1,673,422
Premises and Equipment 17,282 17,071
Accrued Interest Receivable 16,201 13,554
Real Estate Owned - Net 2,905 1,227
Prepaid Expenses and Other Assets 58,510 55,156
----------- -----------
Total Assets $2,119,047 $1,979,774
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Non-Interest-Bearing Deposits $ 130,127 $ 114,356
Interest-Bearing Deposits 1,246,076 1,197,759
----------- -----------
Total Deposits 1,376,203 1,312,115
Federal Home Loan Bank Advances 421,759 366,854
Short-Term Borrowings 111,177 98,754
Accrued Interest Payable 6,845 5,605
Advances by Borrowers for Taxes and Insurance 3,528 1,377
Other Liabilities 14,477 17,966
----------- -----------
Total Liabilities 1,933,989 1,802,671
----------- -----------
Shareholders' Equity
Preferred Stock, $.01 Par Value: 2,000,000
Shares Authorized; None Issued - -
Common Stock, $.01 Par Value: 33,000,000 Shares
Authorized; 13,716,274 and 13,611,965 Shares Issued
and Outstanding, Including Shares in Treasury 137 136
Paid-In Capital in Excess of Par 39,399 37,962
Retained Earnings 161,211 153,710
Accumulated Other Comprehensive Income (Loss) (1,443) (724)
Treasury Stock-at Cost, 1,101,671 and 1,088,813 Shares (14,246) (13,981)
----------- -----------
Total Shareholders' Equity 185,058 177,103
----------- -----------
Commitments and Contingent Liabilities - -
----------- -----------
Total Liabilities and Shareholders' Equity $2,119,047 $1,979,774
=========== ===========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Earnings
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income
Loans $ 39,981 $ 33,141 $ 77,049 $ 64,954
Investments 1,645 1,445 3,356 2,988
Mortgage-Backed Securities 920 910 1,870 1,451
Dividends on Federal Home Loan Bank Stock 418 331 823 697
Federal Funds Sold and Interest-Bearing Deposits 220 90 342 210
-------- -------- -------- --------
Total Interest Income 43,184 35,917 83,440 70,300
-------- -------- -------- --------
Interest Expense
Deposits 15,905 14,007 30,300 27,181
Federal Home Loan Bank Advances 6,143 3,801 11,673 7,947
Short-Term Borrowings 1,575 619 2,945 1,098
-------- -------- -------- --------
Total Interest Expense 23,623 18,427 44,918 36,226
-------- -------- -------- --------
Net Interest Income 19,561 17,490 38,522 34,074
Provision for Loan Losses 2,439 2,460 4,878 4,920
-------- -------- -------- --------
Net Interest Income After Provision for Loan Losses 17,122 15,030 33,644 29,154
-------- -------- -------- --------
Non-Interest Income
Loan and Deposit Charges 1,898 1,492 3,551 2,737
Sale of Investments Held For Sale 33 - 43 218
Sale of Loans 1,303 2,448 2,323 4,568
Loan Servicing Income 299 262 595 513
Loan Fees 675 1,106 1,332 1,952
Trust Fees 369 262 675 289
Other 802 742 1,638 2,032
-------- -------- -------- --------
Total Non-Interest Income 5,379 6,312 10,157 12,309
-------- -------- -------- --------
Non-Interest Expense
Salaries and Benefits 6,702 7,285 13,735 14,291
Net Occupancy 667 773 1,347 1,563
Equipment 1,537 1,439 2,957 2,561
Deposit Insurance 67 176 133 358
Real Estate Owned Operations - Net 161 169 285 289
Office Supplies and Postage 418 527 888 1,073
Other 2,791 2,877 5,386 5,613
-------- -------- -------- --------
Total Non-Interest Expense 12,343 13,246 24,731 25,748
-------- -------- -------- --------
Earnings Before Income Taxes 10,158 8,096 19,070 15,715
Income Taxes 3,979 3,075 7,374 6,064
-------- -------- -------- --------
Net Earnings $ 6,179 $ 5,021 $ 11,696 $ 9,651
======== ======== ======== ========
Basic Earnings Per Share $ 0.49 $ 0.40 $ 0.93 $ 0.76
======== ======== ======== ========
Diluted Earnings Per Share $ 0.48 $ 0.39 $ 0.91 $ 0.75
======== ======== ======== ========
Dividends Per Common Share $ 0.14 $ 0.13 $ 0.28 $ 0.26
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Shareholders' Equity
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Paid-In Accumulated
Capital Other Total
Common Stock in Excess Retained Comprehensive Treasury Shareholders'
Shares Amount of Par Earnings Income Stock Equity
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 12,523,152 $136 $37,962 $153,710 $ (724) $(13,981) $177,103
Comprehensive Income:
Net Earnings - Year to Date - - - 11,696 - - 11,696
Unrealized Loss on Securities Available
for Sale of $1,189, Net of Income Taxes
and Reclassification Adjustment of $43 - - - - (719) - (719)
---------
Total Comprehensive Income 10,977
---------
Common Stock Issued Under Restricted
Stock Plans - Net of Amortization 36,000 - 792 (660) - - 132
Exercise of Stock Options 70,960 1 454 - - - 455
Redemption of Common Stock (2,651) - (56) - - - (56)
Tax Benefit of Option Compensation - - 219 - - - 219
Dividends on Common Stock ($.28 per share) - - - (3,535) - - (3,535)
Purchase of Treasury Stock (15,000) - - - - (283) (283)
Reissuance of Treasury Stock 2,142 - 28 - - 18 46
----------------------------------------------------------------------------------
Balance at June 30, 2000 12,614,603 $137 $39,399 $161,211 $(1,443) $(14,246) $185,058
==================================================================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
First Indiana Corporation and Subsidiaries
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 11,696 $ 9,651
Adjustments to Reconcile Net Earnings to:
Net Cash Provided (Used) by Operating Activities
(Gain) Loss on Sale of Assets and Deposits (2,366) (4,786)
Amortization of Net Premium, Prepaid Assets and
Negative Goodwill 50 1,425
Amortization of Restricted Stock Plan 132 223
Depreciation 1,418 1,088
Loan and Mortgage-Backed Securities Net Accretion 221 (151)
Provision for Loan Losses, Net 4,878 4,920
Origination of Loans Held For Sale Net of Principal
Collected (142,134) (391,216)
Proceeds from Sale of Loans Held for Sale 134,492 402,783
Tax Benefit of Option Compensation 219 323
Change In:
Accrued Interest Receivable (2,647) (1,130)
Prepaid Expenses, Market Valuation, and Other Assets (9,285) (30,819)
Accrued Interest Payable 1,240 670
Other Liabilities (3,489) 1,143
---------- ----------
Net Cash Used by Operating Activities (5,575) (5,876)
Cash Flows from Investing Activities
Proceeds from Sale of Investments Available for Sale 22,255 30,211
Proceeds from Maturities of Investment Securities
Available for Sale (112) 18,957
Purchase of Investment Securities Available for Sale (20,000) (49,806)
Purchase of Mortgage Backed Securities Available for Sale - (30,284)
Principal Collected on Mortgage-Backed Securities 3,035 2,271
Originations of Loans Net of Principal Collected (135,885) (73,562)
Proceeds from Sale of Loans 1,960 -
Purchase of Premises and Equipment (1,687) (2,167)
Proceeds from Sale of Premises and Equipment 141 31
---------- ----------
Net Cash Used by Investing Activities (130,293) (104,349)
Cash Flows from Financing Activities
Net Change in Deposits 64,088 119,597
Repayment of Federal Home Loan Bank Advances (475,096) (472,071)
Borrowings of Federal Home Loan Bank Advances 530,001 456,684
Net Change in Short-Term Borrowings 12,423 13,209
Net Change in Advances by Borrowers for Taxes and Insurance 2,151 778
Stock Option Proceeds and Redemption of Common Stock 399 216
Purchase of Treasury Stock (283) (4,444)
Reissuance of Treasury Stock 46 -
Dividends Paid (3,535) (3,278)
---------- ----------
Net Cash Provided by Financing Activities 130,194 110,691
Net Change in Cash and Cash Equivalents (5,674) 466
Cash and Cash Equivalents at Beginning of Period 61,441 57,653
---------- ----------
Cash and Cash Equivalents at End of Period $ 55,767 $ 58,119
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period For:
Interest on Deposits, Advances, and Other Borrowed Money $ 43,678 $ 35,556
Income Taxes 10,600 8,636
Transfer of Loans to Real Estate Owned 4,672 23,855
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 8
FIRST INDIANA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended June 30, 2000
(Unaudited)
Note 1 - Basis of Presentation
The accompanying financial statements have been prepared with generally
accepted accounting principles for interim financial information and with the
instruction to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of the condensed consolidated
financial statements have been included. Results for any interim period are
not necessarily indicative of results to be expected for the year. The
condensed consolidated financial statements include the accounts of First
Indiana Corporation and its subsidiaries ("Corporation"). The principal
subsidiary of the Corporation is First Indiana Bank and its subsidiaries
("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/A for the year ended December 31,
1999.
Note 2 - Earnings Per Share
Basic earnings per share for 2000 and 1999 were computed by dividing net
earnings by the weighted averages shares of common stock outstanding
(12,622,194 and 12,660,654 for the three months ended June 30, 2000 and 1999
and 12,614,938 and 12,643,297 for the six months ended June 30, 2000 and
1999). Diluted earnings per share for 2000 and 1999 were computed by dividing
net earnings by the weighted average shares of common stock and common stock
that would have been outstanding assuming the issuance of all dilutive
potential common shares outstanding (12,798,351 and 12,831,456 for the three
months ended June 30, 2000 and 1999 and 12,795,639 and 12,876,487 for the six
months ended June 30, 2000 and 1999). Dilution of the per-share calculation
relates to stock options.
<PAGE> 9
Note 3 - Allowance for Loan Losses
Allowances have been established for 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 to
provide for loan losses inherent in the loan and REO portfolios. 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 allowances based on
their judgments about information available to them at the time of their
examination.
Note 4 - Segment Reporting
The Corporation's business units are primarily organized to operate in the
banking industry, and are determined by the products and services offered. The
consumer segment includes the origination, sale, servicing, and portfolio
activities of both home equity and installment loans, and the residential
segment encompasses the origination, sale, servicing, and portfolio of both
residential first mortgage and Community Reinvestment Act loans. The business
segment originates construction, commercial, and commercial real estate loans,
and provides traditional cash management services to business customers.
Investment portfolio management is included in the treasury segment. The
retail segment includes the Bank's 23-branch network, as well as virtual
banking services, which were introduced in February 1998. FirstTrust, which
commenced operations in the first quarter of 1999, provides trust and
advisory services to the Bank's customers. Revenues in the Corporation's
segments are generated from loans, deposits, investments, servicing fees,
loan sales and trust and advisory services. There are no foreign operations.
<PAGE> 10
<TABLE>
<CAPTION>
Segment Reporting
Second Quarter
2000
Total Intersegment Consolidated
Consumer Residential Business Treasury Retail FirstTrust Segments Eliminations Totals
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets $742,148 $525,998 $573,623 $217,718 $21,033 $ 932 $2,081,452 $(4,215) (1) $2,077,237
Net Interest Income 6,055 1,705 5,432 847 4,934 - 18,973 588 (2) 19,561
Non-Interest Income
(Expense) 1,630 368 883 34 1,532 368 4,815 564 (3) 5,379
Intersegment Income
(Expense) 1,194 (67) - - - - 1,127 (1,127) (4) -
Significant Non-cash
Items:
Provision for Loan
Losses 1,684 47 708 - - - 2,439 - 2,439
Earnings (Loss) Before
Income Tax 6,452 1,512 3,690 693 3,102 10 15,459 (5,301) (3) 10,158
<CAPTION>
Second Quarter
1999
Total Intersegment Consolidated
Consumer Residential Business Treasury Retail FirstTrust Segments Eliminations Totals
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets $617,259 $530,180 $478,128 $186,500 $55,241 $1,016 $1,868,324 $16,247 (1) $1,884,571
Net Interest Income 5,480 1,939 4,374 281 3,908 - 15,982 1,508 (2) 17,490
Non-Interest Income
(Expense) 1,880 505 1,316 25 1,201 262 5,189 1,123 (3) 6,312
Intersegment Income
(Expense) 1,120 1,539 (620) - 310 - 2,349 (2,349) (4) -
Significant Non-cash
Items:
Provision for Loan
Losses 1,880 30 550 - - - 2,460 - 2,460
Earnings (Loss) Before
Income Tax 5,449 2,204 3,101 53 1,537 (210) 12,134 (4,038) (3) 8,096
<CAPTION>
Segment Reporting
YTD 2000
Total Intersegment Consolidated
Consumer Residential Business Treasury Retail FirstTrust Segments Eliminations Totals
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets $724,388 $511,516 $564,184 $216,926 $20,538 $ 974 $2,038,526 $(2,428) (1) $2,036,098
Net Interest Income 11,616 3,295 10,076 1,811 9,845 - 36,643 1,879 (2) 38,522
Non-Interest Income
(Expense) 2,974 738 1,729 43 2,947 675 9,106 1,051 (3) 10,157
Intersegment Income
(Expense) 2,283 (76) - - - - 2,207 (2,207) (4) -
Significant Non-cash
Items:
Provision for Loan
Losses 3,834 110 934 - - - 4,878 - 4,878
Earnings (Loss) Before
Income Tax 11,450 2,835 6,846 1,520 6,193 (45) 28,799 (9,729) (3) 19,070
<CAPTION>
YTD 1999
Total Intersegment Consolidated
Consumer Residential Business Treasury Retail FirstTrust Segments Eliminations Totals
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets $610,978 $530,055 $455,271 $178,598 $52,527 $ 929 $1,828,358 $16,677 (1) $1,845,035
Net Interest Income 10,697 3,909 8,041 737 7,353 - 30,737 3,337 (2) 34,074
Non-Interest Income
(Expense) 4,022 2,389 2,267 218 2,138 289 11,323 986 (3) 12,309
Intersegment Income
(Expense) 2,938 3,135 (1,157) - 456 - 5,372 (5,372) (4) -
Significant Non-cash
Items:
Provision for Loan
Losses 3,671 43 1,206 - - - 4,920 - 4,920
Earnings (Loss) Before
Income Tax 11,442 4,988 5,453 488 2,370 (591) 24,150 (8,435) (3) 15,715
<CAPTION>
(1) Segment assets differ from consolidated assets due to reclassification adjustments (primarily related to income tax assets)
that are not reflected in the management reporting system.
(2) The net interest income amounts in the segment results reflect not only the actual interest income and expense from segment
activities, but also amounts for transfer income and expense to match fund each segment. Transfer income and expense is
assigned to each asset and liability based on the treasury yield curve. These match-funding entries are not made to the
Corporation's actual results.
(3) Represents other income and expense items which are allocated to Corporate overhead departments. These amounts are included
in the Corporation's overall results, but are not part of the management reporting system.
(4) Intersegment income and expenses are received by one segment for performing a service for another segment. In the case of
residential and consumer portfolios, an amount is paid to the origination office which is capitalized in the portfolio and
amortized over a four-year period. These charges are similar to premiums paid for the purchase of loans, and are treated as
such for management reporting. These entries are eliminated from the Corporation's actual results.
</TABLE>
<PAGE> 11
Note 5 - Current Accounting Pronouncements
FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" was issued in June 1999. Statement No.
137 defers the effective date of Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" for one year. Statement No. 133, as
amended, is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
FASB Statement No. 133 generally requires that derivatives embedded in
hybrid instruments be separated from their host contracts and be accounted for
separately as derivative contracts. For instruments existing at the date of
adoption, Statement No. 133 provides an entity the option of not applying this
provision to such hybrid instruments entered into before January 1, 1998 and
not substantially modified thereafter. Consistent with the deferral of the
effective date for one year, Statement No. 137 also provides an entity the
option of not applying this provision to hybrid instruments entered into
before January 1, 1998 or 1999 and not substantially modified thereafter.
Management is currently assessing the impact of this Statement on the
financial condition and results of operations of the Corporation in the year
of adoption.
Note 6 - Reclassifications
Certain amounts in the 1999 Condensed Consolidated Financial Statements have
been reclassified to conform to the 2000 presentation.
Note 7 - Pending Acquisition
On April 19, 2000, First Indiana and The Somerset Group, Inc. ("Somerset")
jointly announced the signing of a definitive agreement pursuant to which
Somerset will be merged with and into a wholly-owned subsidiary of First
Indiana. The merger agreement provides that each shareholder of Somerset will
have the option of receiving 1.21 shares of First Indiana common stock (valued
at $21.48, based on First Indiana's April 18, 2000 closing price of $17.75 per
share) or $24.70 in cash, or a combination of each (with cash limited to 35% of
Somerset's shares outstanding at closing), for each share of Somerset stock
owned as of the effective date of the merger. Based on First Indiana's April
18, 2000 closing price, and assuming that 80% of Somerset's shares are
exchanged for stock and 20% are exchanged for cash, the transaction has an
aggregate value of approximately $63 million. This transaction, which is
expected to close in August 2000, will be accounted for using purchase
accounting. The transaction is also subject to approval by First Indiana and
Somerset shareholders, the Office of Thrift Supervision, and the Securities and
Exchange Commission.
<PAGE> 12
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 $6,179,000
for the second quarter of 2000, compared with net earnings of $5,021,000 in
the second quarter of 1999. Diluted earnings per share for the three months
ended June 30, 2000 were $0.48, compared with $0.39 per share for the same
period one year ago. Cash dividends for the second quarter of 2000 and 1999
were $0.14 and $0.13 per share of common stock outstanding, respectively.
For the first six months of 2000, net earnings were $11,696,000, compared
with $9,651,000 one year ago. For the six months ended June 30, 2000, diluted
earnings per share were $0.91, compared with $0.75 for the same period one year
ago. Cash dividends through the first six months of 2000 and 1999 were $0.28
and $0.26 per share of common stock outstanding, respectively.
Net Interest Income
Net interest income was $19,561,000 for the three months ended June 30,
2000, compared with $17,490,000 for the three months ended June 30, 1999.
For the six months ended June 30, 2000, net interest income was $38,522,000,
compared with $34,074,000 for the six months ended June 30, 1999. In order to
enhance net interest income, First Indiana has targeted the consumer,
business, and construction loan portfolios for growth in 2000 while
de-emphasizing residential loan portfolio growth.
Net loans outstanding increased to $1,816,887,000 at June 30, 2000, compared
with $1,604,192,000 one year earlier. At June 30, 2000, home equity loans
outstanding were $734,747,000, compared with $603,507,000 at June 30, 1999, a
22 percent increase. Business loans were $283,883,000 at June 30, 2000,
compared with $196,715,000 one year earlier, a 44 percent increase. Consumer
loans sales for the six months ended June 30, 2000 were $126,280,000, compared
with $144,212,000 for the same period in 1999. Residential loan sales for the
six months ended June 30, 2000 were $9,856,000, compared with $254,002,000 for
the same period in 1999. This drop is consistent with the Bank's strategy
related to exiting the mortgage business.
Interest income for the second quarter of 2000 was $43,184,000, compared
with $35,917,000 for the three months ended June 30, 1999. Interest income
for the six months ended June 30, 2000 was $83,440,000, compared with
$70,300,000 for the same period in 1999. Interest expense for the second
quarter of 2000 was $23,623,000, compared with $18,427,000 for the three months
ended June 30, 1999. Interest expense for the six months ended June 30, 2000
and 1999 was $44,918,000 and $36,226,000, respectively. The increase in
interest expense is related to an increase in costs of funds and the growth in
deposits and the increase in short-term borrowings to fund the increase in
loans outstanding.
<PAGE> 13
During the second quarter of 2000, the Corporation's cost of funds was 5.41
percent, compared with 4.72 percent one year ago. For the six months ended
June 30, 2000, the cost of funds was 5.25 percent, compared with 4.74 percent
for the same period in 1999. The yield on earning assets was 8.59 percent for
the second quarter of 2000, compared with 7.99 percent one year ago. For the
six months ended June 30, 2000, the yield on earning assets was 8.47 percent,
compared with 7.97 percent for the same period in 1999. These changes are both
related to the rising interest rate environment.
Annualized return on total average assets was 1.19 percent for the three
months ended June 30, 2000, compared with 1.07 percent one year ago. For the
six months ended June 30, 2000, the Corporation's annualized return on total
average assets was 1.15 percent, compared with 1.05 percent for the same period
in 1999.
<PAGE> 14
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 Corporation's ability to generate strong net interest
income resulting from a prudent combination of assets and liabilities.
<TABLE>
<CAPTION>
Net Interest Margin Three Months Ended June 30,
(Dollars in Thousands) 2000 1999
----------- -----------
<S> <C> <C>
Net Interest Income $ 19,561 $ 17,490
=========== ===========
Average Interest-Earning Assets $2,011,324 $1,798,308
Average Interest-Bearing Liabilities 1,746,459 1,561,204
----------- -----------
Average Interest-Free Funds $ 264,865 $ 237,104
=========== ===========
Yield on Interest-Earning Assets 8.59% 7.99%
Cost of Interest-Bearing Liabilities 5.41 4.72
----------- -----------
Interest-Rate Spread 3.18 3.27
Impact of Interest-Free Funds 0.71 0.62
----------- -----------
Net Interest Margin 3.89% 3.89%
=========== ===========
<CAPTION>
Net Interest Margin Six Months Ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Net Interest Income $ 38,522 $ 34,074
=========== ===========
Average Interest-Earning Assets $1,970,588 $1,763,091
Average Interest-Bearing Liabilities 1,710,952 1,527,727
----------- -----------
Average Interest-Free Funds $ 259,636 $ 235,364
=========== ===========
Yield on Interest-Earning Assets 8.47% 7.97%
Cost of Interest-Bearing Liabilities 5.25 4.74
----------- -----------
Interest-Rate Spread 3.22 3.23
Impact of Interest-Free Funds 0.69 0.64
----------- -----------
Net Interest Margin 3.91% 3.87%
=========== ===========
<CAPTION>
Non-accruing delinquent loans have been included in average
interest-earning assets.
</TABLE>
Margin has been closely monitored throughout the industry because recent
interest rate increases have put upward pressure on deposit costs and
borrowings. To counteract this, the Bank has focused efforts on prime-based
business and consumer lending, which helps ease the downward pressure on net
interest margin. A direct result of loan growth has been favorable gains in
net interest income. However, loan growth has outpaced deposit growth, causing
an increase in borrowed funds.
<PAGE> 15
Non-Performing Assets and Summary of Loan Loss Experience
The following table analyzes the allowance for loan losses and REO
for the six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Allowance for Loan & REO
Loan Losses REO Loss Allowance Loss Allowance
2000 1999 2000 1999 2000 1999
------------------- ------------------ ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance of Loss Allowance at Beginning of Year $28,759 $25,700 $ 500 $ 500 $29,259 $26,200
Provision for Losses 4,878 4,920 (225) (211) 4,653 4,709
Charge-Offs - Residential (43) - - (14) (43) (14)
- Consumer (2,212) (2,983) (10) (19) (2,222) (3,002)
- Construction (322) (208) (5) (4) (327) (212)
- Business (73) (278) - - (73) (278)
- Commercial Real Estate - - - (79) - (79)
Recoveries - Residential 6 20 45 16 52 36
- Consumer 378 500 141 254 519 754
- Construction 75 202 54 33 129 235
- Business 52 4 - - 52 4
- Commercial Real Estate - - - 24 - 24
------------------- ----------------- -------------------
Balance at June 30, $31,498 $27,877 $ 500 $ 500 $31,998 $28,377
=================== ================= ===================
Ratio of Allowance for Loan Losses
to Loans Receivable 1.70% 1.71%
Ratio of REO Loss Allowance
to Real Estate Owned 14.69% 16.36%
Ratio of Total Loan and REO Loss
Allowance to Non-Performing Assets 133.00% 167.08%
</TABLE>
Non-performing assets were $24,058,000, or 1.14 percent of assets, at June
30, 2000. This compares with $19,399,000, or 0.98 percent of assets, at
December 31, 1999 and $16,984,000, or 0.89 percent of assets, at June 30, 1999.
This category includes not only non-accrual loans and real estate owned, but
also restructured loans on which the Bank continues to accrue interest. Since
December 31, 1999, the growth in non-performing assets consists of $664,000 in
Land Development loans, $1,940,000 in Construction loans, and $2,015,000 in
Home Equity loans.
The Bank regularly reviews all non-performing assets to evaluate the
adequacy of the allowances for losses on loans and REO inherent in the loan
portfolio. 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.
<PAGE> 16
The amount of the provision in 2000 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, based on the risk inherent in the portfolio.
Non-Interest Income
Total non-interest income was $5,379,000 for the three months ended June
30, 2000, compared with $6,312,000 for the same period in 1999. For the six
months ended June 30, 2000 and 1999, total non-interest income was $10,157,000
and $12,309,000, respectively.
Non-interest income was down primarily due to a reduction in gain on sale
for loans and a decrease in loan fees. Gain on sale of loans is down
$2,245,000 and loan fees are down $620,000 for the six months ended June 30,
2000 compared to the same period last year. This stems from a restructuring
of the Bank's mortgage operations in October of 1999. As planned, construction
lending originations of residential construction and permanent mortgage loans
are down from the same period last year, resulting in a reduction of loan fees.
The decrease in non-interest income is offset by a decrease in non-interest
expense from the mortgage operations restructuring.
The gain on sale of loans of $1,303,000 and $2,323,000 for the three and six
month periods ended June 30, 2000 consists primarily of gains on the sale of
fixed-rate home equity loans, but also includes gains on the sale of residential
mortgage loans. The gain on sale of loans for the three and six month periods
ended June 30, 1999 was $2,448,000 and $4,568,000. A national network of
agents, coupled with a call center, has allowed the Bank to aggressively pursue
originations of home equity products with loan-to-value ratios of greater than
80 percent. The Bank processes and underwrites these loans and subsequently
sells them into the secondary market. In some cases, the Bank retains the
servicing rights on the home equity loan sales.
The Corporation's residential loan servicing portfolio amounted to
$789,603,000 at June 30, 2000, compared with $768,100,000 at June 30, 1999.
The consumer loan servicing portfolio was $315,337,000 at June 30, 2000,
compared with $172,910,000 at June 30, 1999.
Loan and deposit charges increased $406,000 and $814,000 for the three and
six months ended June 30, 2000 compared with the same periods last year,
primarily as a result of the Bank's successful promotional campaigns to
acquire new checking accounts.
First Indiana's trust subsidiary, FirstTrust Indiana, had $527,637,000 in
trust assets under management at June 30, 2000. Trust fees generated from
these assets are also included in other non-interest income.
<PAGE> 17
During the first quarter of 1999, the Bank recognized $905,000 on the sale
of $148 million in loan servicing rights, which is included as a component of
other non-interest income.
Non-Interest Expense
Total non-interest expense was $12,343,000 for the three months ended June
30, 2000, compared with $13,246,000 for the same period in 1999. Non-interest
expense for the six months ended June 30, 2000 and 1999 was $24,731,000 and
$25,748,000, respectively. Salaries and benefits decreased $583,000 and
$556,000 during the three and six months ended June 30, 2000 compared to 1999.
Occupancy expenses decreased $106,000 and $216,000 for the quarter and six
months when compared with 1999. Both are primarily due to the discontinuance
of mortgage banking operations and the sale of the Evansville division in the
third quarter of 1999. Resources have been redeployed to commercial and
consumer banking. Equipment, a component of other operating expenses, increased
$396,000 in 2000 compared with 1999, primarily due to additional depreciation
of equipment and software related to hardware and software improvements.
Deposit Insurance premiums for the three and six months ended June 30, 2000
were $67,000 and $133,000, compared to $176,000 and $358,000 for the same
periods in 1999. These reductions are due to a drop in premiums to realign
thrift deposit insurance with that of banks.
Capital Resources and Liquidity
At June 30, 2000, shareholders' equity was $185,058,000, or 8.73 percent of
total assets, compared with $177,103,000, or 8.95 percent, at December 31, 1999
and $166,716,000, or 8.70 percent, at June 30, 1999.
The Corporation paid a quarterly dividend of $0.14 per common share on June
16, 2000 to shareholders of record as of June 6, 2000. This reflects an
increase from a quarterly dividend of $0.13 per share in 1999. For the six
months ended June 30, 2000, the Corporation has paid $0.28 per share in
dividends, compared to $0.26 for the same period in 1999.
The following table shows First Indiana's strong capital levels and
compliance with all capital requirements at June 30, 2000. First Indiana Bank
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> 18
<TABLE>
<CAPTION>
Capital Requirements To Be Well
Capitalized under
For FDICIA OTS Prompt
(Dollars in Thousands) June 30, 2000 Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
First Indiana Bank Capital $165,269
Tangible Capital (1) 165,131 7.80% $ 31,751 1.50% N/A N/A
Core (Tier One) Capital 165,131 7.80 84,670 4.00 $105,837 5.00%
Tier One Risk-Based Capital 165,131 9.53 N/A N/A 103,931 6.00
Total Risk-Based Capital (2) 185,305 10.70 138,575 8.00 173,219 10.00
<CAPTION>
(1) First Indiana Bank capital differs from tangible capital by the FAS115 equity securities
adjustment of ($1,443) and a goodwill adjustment of $1,581.
(2) Risk-based capital includes a $21,774 addition for general loan loss reserves and a
$1,600 deduction for land loans with loan-to-value ratios in excess of 80 percent.
</TABLE>
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 require the director of the OTS to set minimum liquidity levels
between four and 10 percent of assets. In the fourth quarter of 1997, the
regulations were altered to lower the liquidity requirement to four percent of
net withdrawable assets, and the definition of net withdrawable assets was
simplified. This change did not have a significant impact on the Corporation's
liquidity position. The Corporation's average liquidity ratio for the second
quarter was 4.39 percent.
Financial Condition
Total assets at June 30, 2000, were $2,119,047,000, an increase of
$139,273,000 from $1,979,774,000 at December 31, 1999.
Net loans receivable at June 30, 2000, were $1,816,887,000, compared with
$1,673,422,000 at December 31, 1999. The predominant growth in loans
occurred in the targeted portfolios of business and consumer, both of which
increased from year-end 1999.
<PAGE> 19
Total deposits were $1,376,203,000 at June 30, 2000, compared with
$1,312,115,000 at December 31, 1999. This increase is primarily due to an
increase in retail checking deposits and jumbo certificates of deposit.
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, 2000 and December 31, 1999 were
approximately $9,364,000 and $3,407,000 of escrow balances maintained for loans
serviced for others. These balances represent principal, interest, taxes, and
insurance that require separate maintenance at the request of the investor.
Official checking accounts at June 30, 2000 and December 31, 1999 were
$26,477,000 and $26,111,000, respectively.
Federal Home Loan Bank advances totaled $421,759,000 at June 30, 2000,
compared with $366,854,000 at December 31, 1999.
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 lending activities.
Interest-Rate Sensitivity
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, 2000, the
Corporation's cumulative one-year interest-rate gap stood at a negative 6.39
percent. This means that 6.39 percent of First Indiana's liabilities will
reprice within one year without a corresponding repricing of the assets they
fund. Because of the changing interest rate environment, it is management's
intention to reduce this liability sensitive position.
<PAGE> 20
<TABLE>
<CAPTION>
The following schedule analyzes the difference in rate-sensitive assets and liabilities or
gap at June 30, 2000 and December 31, 1999.
Rate Sensitivity by Period of Maturity or Rate Change
June 30, 2000
Over 180 Over One
Percent Within Days to Year to Over
(Dollars in Thousands) Rate Balance of Total 180 Days One Year Five Years Five Years
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Investment Securities & Other 6.75% $ 143,020 7.00% $ 21,604 $ 76 $ 99,749 $ 21,591
Loans Receivable (1)
Mortgage-Backed Securities 7.03 51,066 2.50 4,254 4,065 26,960 15,787
Residential Mortgage Loans 7.50 538,505 26.37 94,528 60,653 338,174 45,150
Commercial Real Estate Loans 8.90 41,854 2.05 12,333 7,164 15,687 6,670
Business Loans 9.52 283,833 13.90 209,924 5,984 53,817 14,108
Consumer Loans 9.53 746,188 36.53 290,735 39,352 216,865 199,236
Residential Construction Loans 6.49 238,005 11.65 216,931 11,932 9,142 -
-------------------------------------------------------------------
Total Interest-Earning Assets 8.37% $2,042,471 100.00% 850,309 129,226 760,393 302,542
==========================
Interest-Bearing Liabilities
Deposits:
Demand Deposits (2) 1.30% $ 94,920 5.34% - - - 94,920
Passbook Deposits (3) 1.93 37,905 2.13 2,812 907 7,258 26,928
Money Market Savings 4.78 341,700 19.21 341,700 - - -
Jumbo Certificates 6.31 339,827 19.10 103,559 49,769 186,499 -
Fixed-Rate Certificates 5.83 431,724 24.26 158,794 91,362 181,568 -
-------------------------------------------------------------------
Total Deposits 5.21 1,246,076 70.04 606,865 142,038 375,325 121,848
Borrowings:
FHLB Advances 6.38 421,759 23.71 200,000 50,000 165,000 6,759
Short-Term Borrowings 5.96 111,177 6.25 111,177 - - -
-------------------------------------------------------------------
Total Interest-Bearing Liabilities 5.53% 1,779,012 100.00% 918,042 192,038 540,325 128,607
===== =======
Net - Other (4) 263,459 263,459
---------- ---------------------------------------------
Total $2,042,471 918,042 192,038 540,325 392,066
========== ---------------------------------------------
Rate Sensitivity Gap $ (67,733) $ (62,812) $220,068 $ (89,524)
=============================================
June 30, 2000 $ (67,733) $(130,545) $ 89,523
=================================
Percent of Total Interest-
Earning Assets (3.32%) (6.39%) 4.38%
=================================
December 31, 1999 $(101,665) $(162,521) $184,713
=================================
Percent of Total Interest-
Earning Assets (5.32%) (8.50%) 9.67%
=================================
(1) The distribution of fixed-rate loans is based upon contractual maturity and scheduled contractual
repayment adjusted for estimated prepayments. For adjustable-rate loans, interest rates adjust at
intervals of six months to five years. Included in Consumer Loans are $42,517 of Home Equity Loans Held for Sale.
(2) These deposits have been included in the Over Five Years category to reflect management's assumption
that these accounts are not rate-sensitive. This assumption is based 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 have been included in the Over Five Years category to reflect management's
assumption that these accounts are not rate-sensitive. This assumption is based 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> 21
Disclosures About Market Risk
The Corporation's success is largely dependent upon its ability to manage
interest-rate risk, which is defined as the exposure of the Corporation's net
interest income and net earnings to changes in interest rates. The Bank's
Asset/Liability Committee ("ALCO") is responsible for managing interest-rate
risk and the Corporation has established acceptable limits for interest-rate
exposure, which are reviewed on a monthly basis. The Bank uses a model which
measures interest-rate sensitivity to determine the impact on net earnings of
immediate and sustained upward and downward movements in interest rates.
Incorporated into the model are assumptions regarding the current and
anticipated interest rate environment, estimated prepayment rates of certain
assets and liabilities, forecasted loan and deposit originations, contractual
maturities, and renewal rates on certificates of deposits, estimated borrowing
needs, anticipated loan loss provision, projected secondary marketing gains and
losses, expected repricing spreads on variable-rate products, and contractual
maturities and repayments on lending and investment products. The model
incorporates interest-rate sensitive instruments which are held to maturity or
available for sale. The Bank has no trading assets. Based on the information
and assumptions in effect at June 30, 2000, management believes that a 100
basis point increase or decrease in interest rates over a 12 month period would
result in a 3.8 percent decrease and a 6.3 percent decrease in net earnings,
respectively, because of the change in net interest income. Because of the
numerous assumptions used in the computation of interest-rate sensitivity, and
the fact that the model does not assume any actions the ALCO could take in
response to the change in interest rates, the results should not be relied upon
as indicative of actual results.
Historically 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, or when the contract
matures or is terminated.
<PAGE> 22
Other Information
Items 1, 2 , 3 and 4 are not applicable.
Item 5. When used in this Form 10-Q, the words "believes," "expects,"
"estimates," "will likely result," or "will continue" and similar
expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially. In particular, among
the factors that could cause actual results to differ materially are
general business and economic conditions, competitive and regulatory
factors, credit risks of lending activities, and interest rates.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
The Corporation undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may
be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
<PAGE> 23
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - Two Forms 8-K were filed during the
three months ended June 30, 2000.
On April 20, 2000, a Form 8-K was filed related to the following
event:
On April 19, 2000, First Indiana and The Somerset Group, Inc.
("Somerset") jointly announced the signing of a definitive
agreement pursuant to which Somerset will be merged with and
into a wholly-owned subsidiary of First Indiana. The merger
agreement provides that each shareholder of Somerset will have
the option of receiving 1.21 shares of First Indiana common
stock (valued at $21.48, based on First Indiana's April 18,
2000 closing price of $17.75 per share) or $24.70 in cash, or
a combination of each (with cash limited to 35% of Somerset's
shares outstanding at closing), for each share of Somerset stock
owned as of the effective date of the merger. Based on First
Indiana's April 18, 2000 closing price, and assuming that 80% of
Somerset's shares are exchanged for stock and 20% are exchanged
for cash, the transaction has an aggregate value of
approximately $63 million. This transaction, which is expected
to close in August 2000, will be accounted for using purchase
accounting. The transaction is also subject to approval by First
Indiana and Somerset shareholders, the Office of Thrift
Supervision, and the Securities and Exchange Commission.
On May 24, 2000, a Form 8-K was filed related to the following event:
On May 24, 2000, First Indiana Corporation ("First Indiana")
announced that it had elected William J. Brunner Vice President
and Treasurer of First Indiana and Senior Vice President and
Chief Financial Officer of First Indiana Bank. Mr. Brunner will
join First Indiana on May 30, 2000, replacing David L. Gray, who
has retired.
<PAGE> 24
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 8, 2000 /s/Owen B. Melton, Jr.
Owen B. Melton, Jr.
President
August 8, 2000 /s/William J. Brunner
William J. Brunner
Vice President and Treasurer
