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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from____ to ____
Commission File Number 0-14354
FIRST INDIANA CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1692825
- ----------------------------------- ------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
135 N. Pennsylvania St.
Indianapolis, Indiana 46204
- ----------------------------------- ------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 269-1200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
- ----------------------------------- ------------------------------------------
Common Stock, $.01 par value NASDAQ
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $176,419,000 as of February 18, 2000.
On February 18, 2000, the registrant had 12,577,512 shares of common stock
outstanding, $.01 par value.
Documents Incorporated by Reference: Portions of the Annual Report to
Shareholders for the Year Ended December 31, 1999 (Part II) and portions of the
definitive proxy statement for the 2000 Annual Meeting of Shareholders
(Part III).
2
FIRST INDIANA CORPORATION
FORM 10-K
Table of Contents
Page
PART I 3
Item 1. Business 3
Item 2. Properties 31
Item 3. Legal Proceedings 31
Item 4. Submission of Matters to a Vote of Security Holders 31
PART II 32
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters 32
Item 6. Selected Financial Data 32
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation 32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 33
PART III 33
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 34
Item 13. Certain Relationships and Related Transactions 35
PART IV 35
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K 35
SIGNATURES 36
EXHIBIT INDEX 37
3
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number
of places in this Form 10-K and include statements regarding the intent,
belief, outlook, estimate or expectations of the Corporation (as defined
below), its directors or its officers primarily with respect to future events
and the future financial performance of the Corporation. Readers of this Form
10-K are cautioned that any such forward looking statements are not guarantees
of future events or performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward looking
statements as a result of various factors. The accompanying information
contained in this Form 10-K identifies important factors that could cause such
differences. These factors include changes in interest rates, loss of deposits
and loan demand to other savings and financial institutions, substantial
changes in financial markets; changes in real estate values and the real estate
market; regulatory changes, or unanticipated results in pending legal
proceedings.
PART I
Item I. Business
First Indiana Corporation
First Indiana Corporation, an Indiana corporation formed in 1986
("Corporation"), is a nondiversified, unitary savings and loan holding company.
The principal asset of the Corporation is the outstanding stock of First
Indiana Bank ("First Indiana" or "Bank"), its wholly owned subsidiary. The
Corporation has no separate operations, and its business consists only of First
Indiana and its subsidiaries. First Indiana's subsidiaries include One
Mortgage Corporation, a mortgage origination subsidiary; One Investment
Corporation, an operating subsidiary; Pioneer Service Corporation, a limited
partnership; and One Property Corporation, a real estate investment subsidiary.
First Indiana Bank
First Indiana is a federally chartered stock savings bank whose depository
accounts are insured by the Savings Association Insurance Fund ("SAIF") of
the Federal Deposit Insurance Corporation ("FDIC"). Established in 1934,
First Indiana was operated as a federally chartered, mutual savings and loan
institution until August 1983, when it converted to a federal stock savings
bank. First Indiana has $2.0 billion in assets and is the largest publicly
held bank based in Indianapolis.
4
First Indiana is engaged primarily in the business of attracting deposits
from the general public and originating home equity loans, residential
construction loans, and business loans. First Indiana offers a full range of
banking services through 23 banking offices located throughout metropolitan
Indianapolis, Franklin, Pendleton, Westfield, Mooresville, and Rushville,
Indiana. The Bank also originates home equity loans indirectly through a
network of loan originators and loan agents throughout the United States.
During the third quarter of 1999, First Indiana completed two significant
events, both of which are discussed more fully in Item 7. These were the sale
of $120 million of deposits of the Bank's five Evansville, Indiana-area
branches and changes in the Bank's mortgage banking strategy.
In August, First Indiana sold its Evansville Division to another bank.
This action reflects the Bank's relationship-based strategy as it allowed the
Bank to focus resources in Central Indiana, the fastest-growing region of the
state.
Also in the third quarter, the Bank exited the traditional mortgage banking
business in favor of originating mortgages for relationship customers.
Mortgage lending has become a commodity business, where the only
differentiating factor for most customers is a low rate of interest;
consequently, First Indiana shifted its emphasis to products and services where
the Bank can add value in other ways. First Indiana continues to offer
consumer loan products, which allows the Bank to capitalize on prosperous
markets throughout the United States and diversify geographic risk, without the
overhead of fixed offices.
First Indiana has construction and consumer loan service offices throughout
Indiana and in Arizona, Florida, Illinois, North Carolina, Ohio, and Oregon.
In early 1999, First Indiana established a new operating subsidiary, One
Investment Corporation. One Investment Corporation purchases and sells loan
participations originated by First Indiana and by others in the secondary
market.
FirstTrust Indiana, the Bank's trust and investment advisory division,
completed its first year of operation since receiving trust powers on December
31, 1998. Account relationships have been accepted in three product lines:
personal trust, institutional investment management, and estate and
guardianship administration. FirstTrust enables First Indiana to diversify
sources of non-interest income while providing a broader spectrum of products
to retail and commercial customers.
The metropolitan area served by First Indiana consists of Indianapolis, the
State's capital and largest city, and the surrounding six-county suburban and
agricultural areas in the central part of the State. The population of the
metropolitan Indianapolis area in 1990 was approximately 1,200,000.
Indianapolis' diversified economy includes manufacturing and service
industries, such as Eli Lilly & Company (pharmaceuticals), the federal and
state governments, General Motors (automotive), and Ameritech (communications).
5
First Indiana experiences substantial competition in attracting and
retaining deposits and in lending funds. The primary factors in competing for
deposits are the ability to offer attractive interest rates and products, and
meeting and exceeding customer expectations regarding office locations and
flexible hours. Direct competition for deposits comes from other depository
institutions, money market mutual funds, and other investment products. The
primary factors in competing for loans are interest rates, loan origination
fees, and loan product variety. Competition for origination of loans normally
comes from other depository institutions, lending brokers, and insurance
companies.
Lending Activities
General. First Indiana has a substantial market presence in residential
construction lending, commercial real estate lending, business loans, and
consumer loans, primarily home equity loans originated both on a direct and
indirect basis.
To minimize the mismatch between the duration of its interest-rate-sensitive
assets and liabilities, First Indiana has a policy of (i) increasing its
portfolio of adjustable-rate and shorter-term mortgage, consumer, and business
loans; (ii) selling most fixed-rate, longer-term loans into the secondary
market unless those loans can be funded by liabilities of a similar maturity;
and (iii) increasing transaction accounts, which are less volatile than
certificates of deposit.
Loan Portfolio Composition. The following tables set forth information
concerning the composition of First Indiana's loan portfolio in dollar amounts
and in percentages, by type of security, and by type of loan. Also presented
is a reconciliation of total loans receivable and mortgage-backed securities
("loans") before net items to loans receivable after net items. Net items
consist of loans in process (undisbursed portion of loan balances), deferred
income, unearned discounts and unamortized premiums, and allowances for loan
losses.
4
Loan Portfolio Composition
(Dollars in Thousands)
At December 31,
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------------------------------------
Loans by Type of Security
First Mortgage Loans
Secured by:
Single-Family Units $ 930,204 47.6% $ 937,321 52.9% $ 750,619 49.5% $ 640,743 47.4% $ 625,133 45.1%
2-4 Family Units 1,398 0.1% 1,489 0.1% 1,093 0.1% 1,643 0.1% 1,885 0.1%
Over 4 Family Units 8,645 0.4% 7,365 0.4% 9,844 0.6% 9,586 0.7% 18,946 1.4%
Mortgage-Backed
Securities 54,734 2.8% 29,680 1.7% 38,081 2.5% 36,152 2.7% 49,089 3.5%
Commercial Real Estate
and Other Mortgage
Loans 25,654 1.4% 25,411 1.4% 32,269 2.1% 37,735 2.8% 46,137 3.3%
Consumer Loans 675,763 34.6% 580,525 32.8% 548,016 36.1% 526,769 38.9% 575,009 41.4%
Business Loans 255,199 13.1% 189,074 10.7% 137,517 9.1% 100,513 7.4% 72,146 5.2%
-------------------------------------------------------------------------------------------------------
Total Mortgage-Backed
Securities and Loans
Receivable (Before Net
Items) $1,951,597 100.0% $1,770,865 100.0% $1,517,439 100.0% $1,353,141 100.0% $1,388,345 100.0%
=======================================================================================================
Loans by Type of Loan
Real Estate:
Conventional:
Loans on Existing
Property $ 509,214 26.1% $ 551,641 31.2% $ 530,603 35.0% $ 463,211 34.2% $ 464,604 33.5%
Construction Loans:
Commercial Real
Estate Loans - 0.0% - 0.0% - 0.0% 11 0.0% 6,835 0.5%
Residential Loans 453,384 23.2% 406,650 23.0% 253,259 16.7% 214,433 15.8% 207,957 15.0%
Insured or Guaranteed:
Mortgage-Backed
Securities 54,734 2.8% 29,680 1.7% 38,081 2.5% 36,152 2.7% 49,089 3.5%
FHA and VA Loans 3,303 0.2% 13,295 0.8% 9,963 0.7% 12,052 0.9% 12,705 0.9%
-------------------------------------------------------------------------------------------------------
Total Real Estate Loans 1,020,635 52.3% 1,001,266 56.5% 831,906 54.8% 725,859 53.6% 741,190 53.4%
Consumer Loans 675,763 34.6% 580,525 32.8% 548,016 36.1% 526,769 38.9% 575,009 41.4%
Business Loans 255,199 13.1% 189,074 10.7% 137,517 9.1% 100,513 7.4% 72,146 5.2%
-------------------------------------------------------------------------------------------------------
Total Mortgage-Backed
Securities and Loans
Receivable (Before Net
Items) $1,951,597 100.0% $1,770,865 100.0% $1,517,439 100.0% $1,353,141 100.0% $1,388,345 100.0%
=======================================================================================================
7
Loan Portfolio Composition - Continued At December 31,
--------------------------------------------------------------
(Dollars in Thousands) 1999 1998 1997 1996 1995
--------------------------------------------------------------
Total Loans Receivable (Before Net Items) $1,896,863 $1,741,185 $1,479,358 $1,316,989 $1,339,256
Less:
Undisbursed Portion of Loans 198,632 200,732 110,629 84,173 72,511
Deferred Income, Unearned Discounts,
and Unamortized Premiums (3,950) (3,790) (2,412) (1,762) (624)
Allowance for Loan Losses 28,759 25,700 22,414 18,768 16,234
--------------------------------------------------------------
Total Loans Receivable Before Mortgage Backed
Securities 1,673,422 1,518,543 1,348,727 1,215,810 1,251,135
Plus:
Mortgage Backed Securities 54,734 29,680 38,081 36,152 49,089
--------------------------------------------------------------
Mortgage Backed Securities and Loans
Receivable - Net $1,728,156 $1,548,223 $1,386,808 $1,251,962 $1,300,224
==============================================================
8
Adjustable- and Fixed-Rate Loans. The following table sets forth the
balances at the dates indicated of all loans receivable and mortgage-backed
securities before net items which have fixed interest rates and adjustable
interest rates. Adjustable-rate loans include all loans with original
maturities of five years or less.
(Dollars in Thousands) At December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
Residential Mortgage Loans
Fixed Rates $ 183,341 $ 230,955 $ 189,323 $ 166,968 $ 186,885
Adjustable Rates 801,597 737,500 602,835 512,965 491,681
--------------------------------------------------------------
Total $ 984,938 $ 968,455 $ 792,158 $ 679,933 $ 678,566
==============================================================
Commercial Real Estate Loans
Fixed Rates $ 9,134 $ 6,855 $ 6,099 $ 17,213 $ 11,948
Adjustable Rates 26,563 25,956 33,649 28,713 50,676
--------------------------------------------------------------
Total $ 35,697 $ 32,811 $ 39,748 $ 45,926 $ 62,624
==============================================================
Total Residential Mortgage and
Commercial Real Estate Loans
Fixed Rates $ 192,475 $ 237,810 $ 195,422 $ 184,181 $ 198,833
Adjustable Rates 828,160 763,456 636,484 541,678 542,357
--------------------------------------------------------------
Total $1,020,635 $1,001,266 $ 831,906 $ 725,859 $ 741,190
==============================================================
Consumer Loans
Fixed Rates $ 480,489 $ 437,267 $ 395,423 $ 368,697 $ 411,030
Adjustable Rates 195,274 143,258 152,593 158,072 163,979
--------------------------------------------------------------
Total $ 675,763 $ 580,525 $ 548,016 $ 526,769 $ 575,009
==============================================================
Business Loans
Fixed Rates $ 70,923 $ 61,272 $ 47,577 $ - $ 5,699
Adjustable Rates 184,276 127,802 89,940 100,513 66,447
--------------------------------------------------------------
Total $ 255,199 $ 189,074 $ 137,517 $ 100,513 $ 72,146
==============================================================
Total Mortgage Backed Securities
and Loans Receivable
Fixed Rates $ 743,888 $ 736,349 $ 638,422 $ 552,878 $ 615,562
Adjustable Rates 1,207,710 1,034,516 879,017 800,263 772,783
--------------------------------------------------------------
Total $1,951,597 $1,770,865 $1,517,439 $1,353,141 $1,388,345
==============================================================
Residential Mortgage Loans. The original contractual loan payment period
for residential loans originated by First Indiana normally ranges from 10 to 30
years. Because borrowers may refinance or prepay their loans, however, such
loans normally remain outstanding for a substantially shorter period. First
Indiana sells most fixed-rate residential loans to secondary market investors,
including the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA").
9
During the third quarter of 1999, the Bank exited the traditional mortgage
banking business in favor of originating mortgages for relationship customers.
Mortgage lending has become a commodity business, where the only
differentiating factor for most customers is a low rate; consequently, First
Indiana shifted its emphasis onto products and services where the Bank can add
value in other ways. The initial result of this change in strategy was a
decrease in residential loan originations. Residential mortgage loan
originations amounted to $494 million in 1999, compared with $744 million in
1998. Another result was a reduction in the sales of residential mortgage
loans into the secondary market as part of the Bank's normal mortgage banking
activity. This resulted in pre-tax gains of $1.3 million during 1999, compared
with gains of $3.0 million in 1998.
First Indiana's fixed-rate mortgage loans include a due-on-sale clause,
which gives the Bank the right to declare a loan immediately due and payable
if, among other things, the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid. Due-on-sale
clauses are generally considered important tools to prevent both the
unrestricted transfer of low interest-rate loans in high interest-rate
environments and the corresponding increase in the average life of such loans.
First Indiana's policy is to enforce these clauses in its loan contracts.
First Indiana's construction loans are made both to individuals and
builders. These loans have terms ranging from six months to one year and
include options for the homebuyer to convert the loan to fixed- or
adjustable-rate permanent financing. The interest rate on construction loans
is generally one percent over the Bank's prime rate and adjusts upon changes
in the prime rate. At December 31, 1999 and 1998, the Bank's gross
construction loans outstanding equaled $453 million and $407 million,
respectively.
Commercial Loans. First Indiana offers a variety of commercial loans,
primarily business loans and commercial real estate loans (including land
development loans).
Included in business loans at December 31, 1999 are $25 million in land
development loans, which are exclusively for the acquisition and development
of land into individual single-family building lots. The interest rate on
land development loans is generally one and one-quarter percent over the
Bank's prime rate, which adjusts upon changes in the prime rate, and the term
of these loans is generally 36 months.
10
The following table presents the remaining maturities and rate sensitivity
of residential construction and business loans.
Remaining Maturities
-------------------------------------
(Dollars in Thousands) One Year Over One Year Over
or Less to Five Years Five Years Total Percent
----------------------------------------------------------
Type of Loan:
Residential Construction - Net $260,417 $13,593 $ - $274,010 53.7%
Business - Net 180,276 46,463 9,202 235,941 46.3%
----------------------------------------------------------
Total $440,693 $60,056 $9,202 $509,951 100.0%
==========================================================
Rate Sensitivity:
Fixed Rate $ 19,979 $42,547 $8,397 $ 70,923 13.9%
Adjustable Rate 420,714 17,509 805 439,028 86.1%
----------------------------------------------------------
Total $440,693 $60,056 $9,202 $509,951 100.0%
==========================================================
Multi-family and commercial real estate lending was a substantial part of
First Indiana's business activities from the early 1970s until 1991, when such
activity was largely curtailed because of the economic environment. With the
changing economic environment and improved market for commercial real estate
lending, the Bank intends to increase somewhat its volume of these loans to
include permanent financing for selected apartments, office buildings, and
warehouses, though much of this additional volume will be sold. The Bank's
management continues to monitor the credit quality of these loans aggressively,
both with respect to new originations and loans already in the portfolio.
The following table shows, as of December 31, 1999 and 1998, outstanding
multi-family and commercial real estate loans originated and purchased by
First Indiana.
1999 1998
---------------------------------------
(Dollars in Thousands) Amount Percent Amount Percent
---------------------------------------
Loans Originated $35,225 98.7% $32,036 97.6%
Loans Purchased 472 1.3% 778 2.4%
---------------------------------------
$35,697 100.0% $32,814 100.0%
=======================================
Consumer Lending. As part of its strategy for growth, First Indiana has
increased its origination and purchase of consumer loans, primarily home equity
loans and home equity lines of credit. At December 31, 1999, such loans
totaled $675.8 million, of which $26.6 million were held for sale, compared
with $580.5 million, of which $45.9 million were held for sale, at December
31, 1998. Much of the increase in 1999 occurred as First Indiana capitalized
on alternative delivery channels for originations by utilizing a national
network of originators and a telemarketing call center.
11
Consumer loans generally have shorter terms and higher interest rates than
residential loans but involve somewhat higher credit risks, particularly for
unsecured lending. Of the $675.8 million of consumer loans outstanding at
December 31, 1999, 98.4 percent were secured by first or second mortgages on
real property, 0.2 percent was secured by deposits, and 1.4 percent were
secured by personal property or were unsecured.
First Indiana offers revolving lines of credit and loans secured by a lien
on the equity in the borrower's home in amounts up to 100 percent of the
appraised value of the real estate. For lines of credit at or below an 80
percent loan-to-value ("LTV") ratio, the interest rate is typically the Wall
Street Journal prime rate plus one or two percent, depending on the amount of
the loan. The interest rate rises in various increments as the LTV ratio
increases. The highest rate charged is the Wall Street Journal prime rate plus
4.5 percent for lines of credit at a 100 percent LTV. At December 31, 1999,
the Bank had approximately $364.2 million in home equity loans above 80 percent
LTV. Holders of revolving lines of credit with up to an 80 percent LTV ratio
are billed monthly for interest at the daily periodic rate due on the daily
loan balances for the billing cycle. Generally, holders of revolving lines of
credit above 85 percent LTV are required to pay all interest due, with a
minimum payment of $50. At December 31, 1999, First Indiana had approved $286
million of 80 percent LTV lines of credit, of which $133 million were
outstanding, compared with $252 million of such lines which had been approved
at December 31, 1998, $110 million of which were outstanding.
First Indiana also offers variable- and fixed-rate term home equity loans
with up to a 100 percent LTV ratio. Borrowers of fixed-rate term loans make
fixed payments over a term ranging from one to 15 years. Variable-rate term
loans in excess of 80 percent LTV feature monthly payments equal to two percent
of the outstanding loan balance.
First Indiana makes loans secured by deposits and overdraft loans in
connection with its checking accounts. First Indiana also offers auto loans;
fixed-rate, fixed-term unsecured loans; and Visa credit cards through an agent.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. First Indiana has endeavored
to reduce certain of these risks by, among other things, employing individuals
experienced in this type of lending and emphasizing prompt collection efforts.
In addition, First Indiana adds general provisions to its loan loss allowance,
in amounts determined to be adequate to cover loan losses inherent in the
portfolio, at the time the loans are originated.
Federal regulations limit the amount of consumer loans that savings
institutions are able to originate and hold in their loan portfolios. First
Indiana complies with such regulations, and the amount of its consumer loan
portfolio is approximately $514 million below the maximum permitted at
December 31, 1999.
12
Origination, Purchase, and Sale of Loans. As a federally chartered
savings bank, First Indiana has general authority to make real estate
loans throughout the United States. At December 31, 1999, however, over
45% of First Indiana's real estate loans receivable were secured by real
estate located in Indiana. The Bank originates home equity loans through
a national network of consumer lending offices, which has expanded to
include 45 states.
Interest rates charged by First Indiana on its loans are affected
primarily by the demand for such loans and the supply of money available for
lending purposes. These factors are in turn affected by general economic
conditions and such other factors as monetary policies of the federal
government, including the Federal Reserve Board, the general supply of money
in the economy, legislative tax policies, and governmental budgetary matters.
Loan originations come from a number of sources. Residential loan
originations are attributable primarily to referrals from real estate brokers,
builders, and walk-in customers. Construction loan originations are obtained
primarily by direct solicitation of builders and repeat business from builders.
Multi-family and commercial real estate loan originations are obtained from
previous borrowers and direct contacts with First Indiana. Consumer loans come
from walk-in customers, loan brokers, agents, and originators.
First Indiana obtains title insurance on secured properties and requires
borrowers to obtain hazard insurance and, if applicable, flood insurance.
First Indiana's appraisers note any obvious environmental problems, and the
title companies used to close loans give First Indiana an endorsement insuring
over any existing environmental liens.
Income from Lending Activities. In making long-term one- to four-family
home mortgage loans, First Indiana generally charges an origination fee of one
percent of the loan amount. As part of the loan application, the applicant
also reimburses First Indiana for its out-of-pocket costs in reviewing the
application, such as the appraisal fee, whether or not the loan is closed.
The interest rate charged is normally the prevailing market rate at the time
the loan application is received. Commitments to home purchasers generally
have a term of 60 days or less from the date First Indiana issues the loan
commitment.
In the case of one-to-four-family residential construction loans, First
Indiana charges a one to three percent non-refundable commitment fee. Interest
rates on construction loans are based on the prevailing market rate at the time
the commitment is extended. Commitment fees and other terms of commercial real
estate and business loans are individually negotiated.
First Indiana earns fees on existing loans, including prepayment charges,
late charges, and assumption fees.
13
Servicing Activity. First Indiana's sale of whole loans and loan
participations in the secondary market generates income and provides
additional funds for loan originations. During 1999, the Bank identified
and sold $148 million in out-of-market loan servicing at a gain of $905,000.
At December 31, 1999, First Indiana serviced approximately $1,104 million
in loans and loan participations which it had sold. As of December 31, 1999,
approximately $7.5 million in loans, or about 0.4 percent of First Indiana's
mortgage-backed securities and loans receivable after net items, were serviced
by others.
The total cost of mortgage loans originated with the intent to sell is
allocated between the loan servicing right and the mortgage loan without
servicing based on their relative fair values at the date of sale. The
capitalized cost of loan servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenue. For this purpose,
estimated servicing revenues include late charges and other ancillary income.
Estimated servicing costs include direct costs associated with performing the
servicing function and appropriate allocations of other costs.
Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the underlying
serviced loans. These risk characteristics include loan type (fixed or
adjustable rate), investor type (FHLMC, GNMA, private), term, and note rate.
Impairment represents the excess of carrying value of an individual mortgage
servicing rights stratum over its estimated fair value, and is recognized
through a valuation allowance.
Fair values for individual strata are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment,
default and interest rates, and other factors which are subject to change over
time. Changes in these underlying assumptions could cause the fair value of
loan servicing rights, and the related valuation allowance, to change
significantly in the future. At December 31, 1999 and 1998, the balance of
capitalized loan servicing rights included in other assets was $8,759,000 and
$5,770,000, with a fair market value of $11,405,000 and $6,865,000. The
amounts capitalized in 1999, 1998, and 1997 were $6,040,000, $3,891,00 and
$893,000, and the amounts amortized to loan servicing income were $1,919,000,
$1,823,000 and $819,000.
Asset Quality
General. First Indiana's asset quality is directly affected by the credit
risk of the assets on its balance sheet. Most of First Indiana's credit risk
is concentrated in its loan portfolios and, to a lesser extent, its real estate
owned ("REO") portfolio. Consequently, First Indiana has established policies
and procedures to ensure accurate and timely assessment of credit risk from the
date the loan is originated or purchased.
14
The procedures for reviewing the quality of First Indiana's loans, the
appropriateness of loan and REO classifications, and the adequacy of loan and
REO loss allowances fall within the purview of First Indiana's Board of
Directors. To manage these tasks, the Board of Directors has established a
two-tiered asset review system. Under this system, standing management
committees regularly discuss and review potential losses on all loans and REO
and the adequacy of First Indiana's loan and REO loss allowances.
Recommendations on the allowances are forwarded to the Investment Committee of
First Indiana's Board of Directors for approval each quarter, then presented to
the full Board of Directors for approval and ratification. Management
committees also recommend loan and REO classifications which, if approved by
the Investment Committee of the Board of Directors, are referred to the full
Board for final approval and ratification.
The second part of First Indiana's asset review system is managed by an
independent chief credit officer appointed by the Board of Directors. The
chief credit officer makes an independent evaluation of First Indiana's
portfolio and management's recommendations on allowances for loan and REO
losses. He regularly reviews these recommendations with the Corporation's
Chairman and the Chairman of the Executive Committee of the Board of Directors.
These meetings give the chief credit officer a forum for discussing asset
quality issues with members of the Board of Directors. This system provides an
independent review and assessment of management's recommendations about loan
and REO classifications and loss allowances. This entire process is subject to
the continual review and approval by the Board of Directors.
An allowance for loan and lease losses ("ALLL") is established for each
significant loan portfolio of the Bank in an amount adequate to absorb the
losses inherent within each loan portfolio. The ALLL is segmented into three
major components based on the credit characteristics of the underlying loans
within each loan portfolio: Special Mention Loans, Classified Loans and Pass
Loans (loans not rated Special Mention or Classified).
A Risk Rating Analysis (loan grade) is completed on all loans that exceed a
minimum loan amount threshold for the asset specific loan portfolios, namely,
construction, business, commercial real estate and land development lending.
The Risk Rating Analysis is an eight grade system with five pass grades. The
final three grades, Special Mention, Substandard and Doubtful correlate to the
Office of Thrift Supervision's criticized assets. The loans with a grade of
Special Mention or worse exhibit or may exhibit certain defined weaknesses
which, if left uncorrected, may jeopardize the full repayment of the loan.
These loans pose a higher level of risk to the Bank than the loans in a Pass
grade. Therefore, loans with a grade of Special Mention, Substandard or
Doubtful are assigned a Target Reserve within the ranges established by the
Office of Thrift Supervision ("OTS").
15
For the homogeneous loan portfolios and the asset specific loan portfolios
where the loan amount is less than the minimum threshold established for that
portfolio, when a loan becomes contractually delinquent 90 days in either
interest or principal, the loan is considered non-accrual and is classified as
Substandard. All other loans within these portfolio segments are considered
pass loans. For the asset specific loan portfolios, a loan is considered
non-accrual based on the specific circumstances but in no event later than a
contractual delinquency of 90 days in either interest or principal.
The determination of the required ALLL ("Target Reserve") for Pass Loans is
based on two different analyses of the empirical data for each loan portfolio
over the preceding 36 months. The first analysis, the Trend Forecast, consists
of linear and non-linear regression analysis of the loans outstanding, the
level and trend of delinquencies and the level and trend of net charge-offs for
the portfolio. The second analysis, the Formula Calculation, is completed for
each loan portfolio and is based on the correlation of the level of loans
delinquent 60 days or more to the level of net charge-offs. The result of each
analysis is the projected level of net charge-offs for the next twelve months
for the individual loan portfolio.
Due to the potentially positive impact to net charge-offs of other factors
specific to a loan portfolio's performance and for new loan products within a
loan portfolio, a Policy Limit is established for each loan portfolio. The
Policy Limit represents the minimum level of loss established for each
portfolio and is based on historical losses for the Bank's loan portfolios in
conjunction with expected losses for similar loan types within the Bank's
loan portfolio.
The greater of the Policy Limit, Trend Forecast or Formula Ratio for each
loan portfolio is set as the Base Reserve for that portfolio. The Base
Reserve is then adjusted for factors that may influence the loan portfolio's
actual net charge-offs. The final adjusted Base Reserve is equal to the Target
Reserve for the Pass Loans for an individual loan portfolio.
The regulatory classification of loans and determination of non-accrual
status is completed each month. The determination of the Target Reserve for
the pass portfolio using the analyses discussed above is completed on a
quarterly basis and the Target Reserve adjusted accordingly.
In addition to the ALLL established for each loan portfolio, the Bank
maintains an unallocated ALLL to cover the residual losses inherent in the loan
portfolio. As discussed above, the Target Reserve for the Pass Loans is
established for a 12-month period. A residual loss is the inherent loss within
the loan portfolio over the life of the loans in the portfolio.
16
Management believes that First Indiana's current loan and REO loss
allowances are sufficient to absorb potential losses which are inherent in the
loan portfolio; however, there can be no assurance that additional allowances
will not be required or that the amount of any such allowances will not be
significant. In addition, various regulatory agencies, as an integral part of
their examinations, periodically review these allowances and may require First
Indiana to recognize additions to the allowances based on their judgment about
information available at the time of their examination. No such additions were
required by the OTS in their most recent examinations of First Indiana.
The Investment Committee of First Indiana's Board of Directors is
responsible for monitoring and reviewing First Indiana's liquidity and
investments. The Investment Committee approves investment policies and meets
quarterly to review transactions. Credit risk is controlled by limiting the
number and size of investments and by approving the brokers and agents through
which investments are made.
Regulatory Classification of Assets. Federal regulations require that each
savings institution regularly classify its own assets. In addition, in
connection with examinations of savings institutions, the OTS and the FDIC
examiners have authority to identify problem assets and, if appropriate, to
require them to be classified.
There are three classifications for problem assets: Substandard, Doubtful
and Loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of Substandard assets, with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a significant
possibility of loss. An asset classified as Loss is considered uncollectible
and of such little value that continuation as an asset of the savings
institution is not warranted.
Assets classified as Substandard or Doubtful require the savings institution
to establish prudent general allowances for loan losses. If an asset or
portion thereof is classified as Loss, the savings institution must either
establish specific allowances for loan losses in the amount of 100 percent of
the portion of the asset classified Loss or charge off such amount. If a
savings institution does not agree with an examiner's classification of an
asset, it may appeal this determination to the District Director of the OTS.
On the basis of management's review of its assets as of December 31, 1999 on
a net basis, First Indiana had classified $40.3 million as Substandard,
compared with $31.8 million and $33.4 million at December 31, 1998 and 1997,
respectively. The amount of First Indiana's Doubtful and Loss loans at each
such date was immaterial.
Non-Performing Assets. First Indiana categorizes its non-performing assets
into four categories: Non-Accrual Loans, Impaired Loans, Restructured Loans,
and Real Estate Owned.
17
First Indiana places loans on non-accrual status when payments of principal
or interest become 90 days or more past due, or earlier when an analysis of a
borrower's creditworthiness indicates that payments could become past due.
Total non-accrual loans were $16.0 million at December 31, 1999, compared with
$17.2 and $18.4 million at December 31, 1998 and 1997, respectively.
Loans are classified as impaired when an analysis of a borrower's
creditworthiness indicates it is unlikely that the borrower can meet
contractual obligations for principal and interest repayments. At December
31, 1999, First Indiana had identified one impaired loan, totaling $1.72
million, which had an allocated reserve of $0.71 million.
REO is generally acquired by foreclosure or deed in lieu of foreclosure
and is carried at the lower of cost (the unpaid balance at the date of
acquisition plus foreclosure and other related costs) or fair market value
less reasonable disposal costs to sell. A review of REO properties,
including the adequacy of the loss allowance and decisions whether to charge
off REO, occurs in conjunction with the review of the loan portfolios.
First Indiana has carefully managed its loan portfolio, including its
non-performing assets, to reduce exposure to the commercial real estate loan
sector and to diversify its assets geographically and by type of loan.
Accordingly, First Indiana has not experienced the difficulties faced by
savings institutions which have had concentrations in areas of the country
most adversely affected by economic cycles. First Indiana's non-performing
assets fell in 1999 to $19.4 million at December 31, 1999 from $19.9 million
one year earlier.
Summary of Loan Loss Experience. First Indiana regularly reviews the
status of all non-performing assets to evaluate the adequacy of the allowances
for losses on loans and REO. For additional information relating to the
Corporation's loan and REO loss allowances, see the Corporation's Consolidated
Financial Statements, including Note 5 thereto.
Investment Activities
Federally chartered savings institutions have authority to invest in various
types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposits of
insured banks and savings institutions, certain bankers' acceptances, and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest a portion of their assets in commercial paper and
corporate debt securities and in mutual funds whose assets conform to the
investments a federally chartered savings institution is otherwise authorized
to make directly.
As an Indiana corporation, the Corporation has authority to invest in any
type of investment permitted under Indiana law. As a savings and loan holding
company, however, its investments are subject to certain regulatory
restrictions described under "Savings Institution Regulation."
18
The relative mix of investment securities and loans in First Indiana's
portfolio is dependent upon management's evaluation of the yields available on
loans compared to investment securities. The Board of Directors has
established an investment policy, and the Investment Committee of the Board
meets quarterly with management to establish more specific investment
guidelines about types of investments, relative amounts, and maturities. First
Indiana's current investment guidelines limit purchases of corporate bonds to
an investment rating of A- or greater. Liquid investments are managed to
ensure that regulatory liquidity requirements are satisfied.
As required by SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, First Indiana continually reassesses the classification of
securities as either available-for-sale or held-to-maturity. During the third
quarter of 1998, management changed its positive intent to hold
held-to-maturity investments and mortgage-backed securities. Accordingly, the
entire portfolios of mortgage-backed securities with an amortized cost of
$19,274,000 and investment securities with an amortized cost of $5,243,000 were
transferred from held-to-maturity to available-for-sale. At the time of the
transfer, these mortgage-backed securities and investment securities had
unrecognized gains of $374,000 and $86,000, respectively, which were recognized
as a separate component of accumulated other comprehensive income. Management
elected to transfer these securities which had been previously designated as
held-to-maturity.
At December 31, 1999, First Indiana's investments totaled $103.2 million, or
5.21 percent of total assets, and consisted primarily of U.S. Treasury and
agency obligations, corporate debt securities and asset-backed securities. For
additional information concerning investments held by the Corporation at
certain dates, see the Corporation's Consolidated Financial Statements,
including Note 2 thereto.
At December 31, 1999, First Indiana also had mortgage-backed securities
classified as available for sale. At December 31, 1999, these mortgage-backed
securities totaled $54.7 million, or 2.76 percent of total assets. For
additional information concerning mortgage-backed securities held by the
Corporation, see the Corporation's Consolidated Financial Statements, including
Notes 2 and 3 thereto.
19
Sources of Funds
General. Deposits are an important source of the Corporation's funds for
use in lending and for other general business purposes. In addition to
deposits, First Indiana derives funds from repayments of loans and
mortgage-backed securities, Federal Home Loan Bank of Indianapolis ("FHLB")
advances, repurchase agreements, short-term borrowings, and sales of loans.
Repayments of loans and mortgage-backed securities are a relatively stable
source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings
may be used to compensate for reductions in normal sources of funds, such as
deposit inflows at less than projected levels, or to support expanded
activities. Historically, First Indiana's borrowings have been primarily from
the FHLB and through repurchase agreements.
Deposits. First Indiana has a wide variety of deposit programs designed to
attract both short-term and long-term deposits from the general public. These
deposit accounts include passbook accounts, non-interest-bearing consumer and
commercial demand accounts, NOW accounts, and money market checking accounts,
as well as fixed-rate certificates and money market accounts. In 2000, First
Indiana plans to continue to increase consumer and commercial checking
accounts and certificates of deposit in an effort to reduce funding costs and
strengthen core deposits.
The following table shows the distribution of First Indiana's deposits by
interest-rate categories at each of the dates indicated:
At December 31,
------------------------------------
(Dollars in Thousands) 1999 1998 1997
------------------------------------
Rate:
Under 3.00% $ 278,429 $ 551,421 $ 205,265
3.00 - 5.00 509,556 217,244 385,859
5.01 - 7.00 524,079 457,988 493,012
7.01 - 9.00 51 756 23,032
9.01 - 11.00 - 509 387
------------------------------------
$1,312,115 $1,227,918 $1,107,555
====================================
The following table reflects the increase (decrease) in deposits for
various types of deposit programs offered by First Indiana for each of the
periods indicated:
At December 31,
--------------------------------
1999 1998 1997
(Dollars in Thousands) --------------------------------
NOW Checking and Non-Interest-Bearing Deposits $ (8,714) $ 41,210 $ 13,342
Money Market Checking (49) (1,858) (9,106)
Passbook and Statement Savings (21,793) 63,052 (1,056)
Money Market Savings 15,113 (661) (2,914)
Jumbo Certificates of $100 or More 136,926 49,232 23,358
Fixed-Rate Certificates (37,286) (30,612) (11,555)
(Dollars in Thousands) --------------------------------
Net Increase (Decrease) $ 84,197 $120,363 $ 12,069
================================
20
First Indiana's jumbo certificates of $100,000 or more at December 31, 1999,
the maturities of such deposits, and the percentage of total deposits
represented by these certificates are set forth in the table below:
Three Over Three Over Six
Months or Months to Months to Over One Percent of
Less Six Months One Year Year Total Deposits
(Dollars in Thousands) ---------------------------------------------------------------------
Jumbo Certificates of
$100 or More $104,527 $34,849 $40,291 $127,247 $306,914 23.39%
=====================================================================
Borrowings. The FHLB of Indianapolis functions as a central reserve bank
providing credit for depository institutions in Indiana and Michigan. As a
member of the FHLB, First Indiana is required to own capital stock in the FHLB
and is authorized to apply for advances on the security of such stock and
certain of First Indiana's residential mortgage loans and other assets, subject
to credit standards. The FHLB advances are made pursuant to several different
credit programs, each with its own interest rate and range of maturities.
The FHLB prescribes the acceptable uses for advances and imposes size limits
on them. Acceptable uses have included expansion of residential mortgage
lending and short-term liquidity needs. Depending on the program, limitations
on the amount of advances are generally based on the FHLB's assessment of the
institution's creditworthiness. At December 31, 1999, First Indiana had $366.9
million in FHLB advances (18.53 percent of total assets), with a weighted
average interest rate of 5.75 percent.
First Indiana also enters into repurchase agreements as a short-term source
of borrowing, but only with registered government securities dealers.
The following table sets forth certain information regarding repurchase
agreements and federal funds purchased (short-term borrowings) at and for the
years ended on the dates indicated.
At December 31,
----------------------------
1999 1998 1997
----------------------------
(Dollars in Thousands)
Highest Month-End Balance of Short-Term
Borrowings During the Year $98,754 $62,620 $84,896
Average Month-End Balance of Short-Term
Borrowings During The Year 54,578 51,166 38,899
Weighted Average Interest Rate of Short-Term
Borrowings During the Year 5.0% 5.3% 5.5%
Weighted Average Interest Rate of Short-Term
Borrowings at End of the Year 5.4% 4.8% 5.5%
21
Regulatory Capital
Risk-Based Capital. Savings institutions are required to have risk-based
capital of eight percent of risk-weighted assets. At December 31, 1999, First
Indiana's risk-based capital was $176.1 million, or 11.10 percent of
risk-weighted assets. Risk-based capital is defined as common equity, less
goodwill, the excess portion of land loans with a loan-to-value ratio of
greater than 80 percent, and investments in non-mortgage-lending-related
subsidiaries, plus general allowances for loan losses. Risk-weighting of
assets is derived from assigning one of four risk-weighted categories to an
institution's assets, based on the degree of credit risk associated with the
asset. The categories range from zero percent for low-risk assets (such as
United States Treasury securities) to 100 percent for high-risk assets (such
as real estate owned). The carrying value of each asset is then multiplied by
the risk-weighting applicable to the asset category. The sum of the products
of the calculation equals total risk-weighted assets.
Core Capital. Savings institutions are also required to maintain a minimum
leverage ratio, under which core (Tier One) capital must equal at least 4
percent of total assets, but not less than the minimum required by the Office
of the Comptroller of the Currency ("OCC") for national banks, which minimum
currently stands at 4 percent. First Indiana's primary regulator, the OTS, is
expected to adopt the OCC minimum. The components of core capital are the same
as those set by the OCC for national banks, and consist of common equity, plus
non-cumulative preferred stock and minority interest in consolidated
subsidiaries, minus certain intangible assets, including purchased loan
servicing. At December 31, 1999, First Indiana's core capital and leverage
ratio were $157.7 million and 7.98 percent.
Tangible Capital. Savings institutions must also maintain minimum tangible
capital of 1.5 percent of total assets. First Indiana's tangible capital and
tangible capital ratio at December 31, 1999, were $157.7 million and 7.98
percent, respectively.
Capital Regulations. The OTS has minimum capital standards that place
savings institutions into one of five categories, from "critically
undercapitalized" to "well-capitalized," depending on levels of three measures
of capital. A well-capitalized institution as defined by the regulations has a
total risk-based capital ratio of at least ten percent, a Tier One (core)
risk-based capital ratio of at least six percent, and a leverage (core)
risk-based capital ratio of at least five percent. At December 31, 1999 First
Indiana was classified as "well-capitalized."
The OTS adopted regulations adding an interest-rate risk component to the
proposed capital regulations. Under this component, an institution with an
"above normal" level of interest-rate risk exposure is subject to an "add-on"
to its risk-based capital requirement. "Above normal" interest-rate risk is
defined as a reduction in "market value portfolio equity" (as defined)
resulting from a 200 basis point increase or decrease in interest rates, if
the decline in value exceeds two percent of the institution's assets.
Institutions failing to meet this test will be required to add to their
risk-based capital.
22
The OTS issued this final rule to implement the portions of Section 305 of
the Federal Deposit Insurance Corporation Improvement Act of 1991, which
requires the agencies to revise their risk-based capital standards for insured
depository institutions to ensure that those standards take adequate account
of concentration of credit risk and the risks of nontraditional activities.
The final rule amends the risk-based capital standards by explicitly
identifying concentration of credit risk and certain risks arising from
nontraditional activities, as well as an institution's ability to manage
these risks, as important factors in assessing an institution's overall
capital adequacy. Based on its interest-rate risk at December 31, 1999,
First Indiana was not required to add to its risk-based capital under this
regulation.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation.
Almost all of the assets and liabilities of a savings institution are
monetary, which limits the usefulness of data derived by adjusting a savings
institution's financial statements for the effects of changing prices.
Regulation
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), contains various provisions intended to recapitalize the Bank
Insurance Fund and enacts a number of regulatory reforms that affect all
insured depository institutions, regardless of the insurance fund in which
they participate. Among other things, FDICIA grants the OTS broader
regulatory authority to take prompt corrective action against insured
institutions that do not meet capital requirements, including placing severely
under-capitalized institutions into conservatorship or receivership. Since
First Indiana exceeded all capital requirements at December 31, 1999, these
provisions are not expected to have an impact on its operations.
23
Gramm-Leach-Bliley Act of 1999
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act ("GLB Act"). The general effect of the law is to
establish a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers by repealing certain provisions of the Glass-Steagall Act and
revising and expanding the Bank Holding Company Act framework to permit a
holding company system to engage in a full range of financial activities
through a new entity known as a "Financial Holding Company." "Financial
activities" is broadly defined to include not only banking, insurance and
securities activities, but also merchant banking and additional activities
approved by order or regulation of the Federal Reserve Board. The GLB Act also
permits national banks to engage in certain expanded activities through the
formation of financial subsidiaries and restricts financial institutions from
sharing customer nonpublic personal information with non-affiliated parties
unless the customer has had an opportunity to opt out of the disclosure.
In addition, the GLB Act provides that no company may acquire control of an
insured savings association after May 4, 1999, unless that company either (i)
engages only in the financial activities permissible for a Financial Holding
Company or (ii) is a grandfathered, unitary savings and loan holding company.
The GLB Act generally grandfathers any company that was a unitary savings and
loan holding company on May 4, 1999. Such a company may continue to operate
under present law as long as (i) the company continues to control only one
savings institution or its successor (excluding supervisory acquisitions) that
it controlled on May 4, 1999 and (ii) each controlled institution meets the
qualified thrift lender test. The Corporation is a grandfathered unitary
savings and loan holding company.
The Corporation does not believe that the GLB Act will have any immediate,
material impact on its operations. However, to the extent that the GLB Act
permits commercial banks, securities firms and insurance companies to
affiliate, the Act may have the effect of increasing the amount of competition
that the Corporation faces from other companies offering financial products,
many of which may have substantially more financial resources.
Savings and Loan Holding Company Regulations
General. Under the Home Owner's Loan Act ("HOLA"), as amended, the Director
of the OTS has regulatory jurisdiction over savings and loan holding companies.
The Corporation, as a savings and loan holding company within the meaning of
HOLA, is subject to regulation, supervision and examination by and the
reporting requirements of the Director of OTS.
24
Savings Institution Regulation
General. As a SAIF-insured savings institution, First Indiana is subject
to supervision and regulation by the OTS. Under OTS regulations, First
Indiana is required to obtain audits by independent auditors and to be
examined periodically by the Director of OTS. First Indiana is subject to
assessments by OTS and the FDIC to cover the costs of such examinations. The
OTS may revalue assets of First Indiana based upon appraisals and require the
establishment of specified reserves in amounts equal to the difference between
such revaluation and the book value of the assets. The Director of the OTS
also is authorized to promulgate regulations to ensure the safe and sound
operations of savings institutions and may impose various requirements and
restrictions on the activities of savings institutions.
The regulations and policies of the OTS for the safe and sound operations
of savings institutions can be no less stringent than those established by the
OCC for national banks. Additionally, under the FDICIA, the OTS prescribed
safety and soundness regulations in 1995 relating to (i) internal controls,
information systems, and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest-rate exposure; (v) asset growth; and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. These regulations did not have a material effect on
First Indiana.
As a member of SAIF, First Indiana is also subject to regulation and
supervision by the FDIC, in its capacity as administrator of SAIF, to ensure
the safety and soundness of SAIF.
During the most recent trust examination, the OTS examiners verbally
informed the Bank that a federal savings bank rendering investment advice for
a fee may be required to file Form ADV with the Securities and Exchange
Commission ("SEC") as a "registered investment advisor" under the Investment
Advisors Act of 1940. While national and state "banks" are specifically
exempted from this requirement, it is unclear whether federal savings banks
are included in the definition for this purpose.
First Indiana Bank is currently compiling the data necessary to complete
the SEC filing and take any other actions that may be required for full
compliance with the Investment Advisors Act, if necessary, but is concurrently
seeking advice of legal counsel for clarification of the responsibilities of a
federal savings bank under the Act.
25
Qualified Thrift Lender Requirement. In order for First Indiana to exercise
the powers granted to federally chartered savings institutions and maintain
full access to FHLB advances, it must be a "qualified thrift lender" ("QTL").
A savings institution is a QTL if its qualified thrift investments equal or
exceed 65 percent of the savings institution's portfolio assets on a monthly
average basis in nine out of 12 months. As amended by the FDICIA, qualified
thrift investments generally consist of (i) various housing related loans and
investments (such as residential construction and mortgage loans, home
improvement loans, mobile home loans, home equity loans, and mortgage-backed
securities); (ii) certain obligations of the FDIC, the Federal Savings and Loan
Insurance Corporation Resolution Fund and the Resolution Trust Corporation (for
limited periods); and (iii) shares of stock issued by any Federal Home Loan
Bank, the Federal Home Loan Mortgage Corporation, or the Federal National
Mortgage Association.
At December 31, 1999, the qualified thrift investment percentage test for
First Indiana was near 83 percent. First Indiana complies with the new QTL
test as revised upon enactment of FDICIA.
Liquidity. Under applicable federal regulations, savings institutions are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, certain banker's acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual
funds and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than a specified percentage
of withdrawable deposits plus short-term borrowings. Under HOLA, this
liquidity requirement may be changed from time to time by the Director of the
OTS to any amount within the range of four percent to ten percent, depending
upon economic conditions and the deposit flows of member institutions. The
Bank's liquidity ratio at December 31, 1999 was 6.80 percent. In 1997, the
OTS lowered the liquidity requirement to four percent of net withdrawable
assets, simplified the definition of net withdrawable assets, and eliminated
a separate requirement for short-term liquidity. At December 31, 1999, First
Indiana was in compliance with these liquidity requirements.
Loans-to-One-Borrower Limitations. HOLA generally requires savings
institutions to comply with the loans-to-one-borrower limitations applicable
to national banks. In general, national banks may make loans to one borrower
in amounts up to 15 percent of the bank's unimpaired capital and surplus, plus
an additional 10 percent of capital and surplus for loans secured by readily
marketable collateral. At December 31, 1999, First Indiana's loan-to-one
borrower limitation was approximately $27.7 million, and no loans to a single
borrower exceeded that amount.
Commercial Real Property Loans. HOLA limits the aggregate amount of
commercial real estate loans that a federal savings institution may make to
an amount not in excess of 400 percent of the savings institution's capital.
First Indiana was in compliance with the commercial real property loan
limitation at December 31, 1999.
26
Limitation on Capital Distributions. Under OTS regulations, a savings
institution has no restrictions on capital distributions as long as, after the
distribution, it is still classified as "adequately capitalized." An
adequately capitalized savings association is one with a total risk-based
capital ratio of 8 percent or greater, a Tier 1 risk-based capital ratio of 4
percent or greater, and a leverage ratio of 4 percent or greater. No
regulatory approval of the capital distribution is required, but prior notice
must be given to the OTS.
Limitation of Equity Risk Investments. Under applicable regulations, First
Indiana is generally prohibited from investing directly in equity securities
and real estate (other than that used for offices and related facilities or
acquired through, or in lieu of, foreclosure or on which a contract purchaser
has defaulted). In addition, OTS regulations limit the aggregate investment by
savings institutions in certain equity risk investments including equity
securities, real estate, service corporations and operating subsidiaries and
loans for the purchase of land and construction loans made after February 27,
1987 on non-residential properties with loan-to-value ratios exceeding 80
percent. At December 31, 1999, First Indiana was in compliance with the equity
risk investment limitations.
Insurance of Deposits. FDIC-insured institutions pay deposit insurance
premiums depending on their placement within one of nine categories. The
categories are determined by (i) the insured institution's placement in capital
group 1, 2, or 3, depending on its classification as "well-capitalized,"
"adequately capitalized," or "undercapitalized," and (ii) its supervisory
rating of A, B, or C. Prior to October 1, 1996, well-capitalized
institutions with a supervisory rating of A paid $.23 per $100 of deposits,
while undercapitalized institutions with a rating of C paid $.31 per $100 of
deposits.
In the third quarter of 1996, the FDIC levied an industry-wide special
assessment to recapitalize the Savings Association Insurance Fund ("SAIF"),
which insures First Indiana's customers' deposits. The Bank incurred a
one-time pre-tax charge to earnings of $6,749,000 to comply with this
assessment. Beginning January 1, 1997, deposit insurance premiums between $.00
and $.27 per $100 of deposits are in effect, based on the same nine-category
rating system discussed in the previous paragraph. The Deposit Insurance Funds
Act of 1996 ("Funds Act") also separated, effective January 1, 1997, the
Financing Corporation ("FICO") assessment to service the interest on its bond
obligations from the SAIF assessment. As part of the deposit insurance
assessments, institutions pay a FICO assessment for debt service requirements.
The FICO assessment rate is subject to change on a quarterly basis, depending
on the debt service requirements. In January 2000, First Indiana paid $.0212
per $100 of deposits to comply with this assessment. The total deposit
insurance expense paid was $712,000, $691,000, and $693,000 for 1999, 1998, and
1997, respectively.
27
First Indiana was a well-capitalized institution throughout 1999, and paid
no deposit insurance premiums other than the FICO assessment. Because it is
well-capitalized, First Indiana will continue to pay no deposit insurance
premiums in 1999, but these premiums could increase in the future if the
aggregate SAIF premiums paid by all SAIF-insured institutions do not equal or
exceed 1.25% of insurable deposits.
Community Reinvestment Act. Ratings of savings institutions under the
Community Reinvestment Act of 1977 ("CRA") must be disclosed. The disclosure
includes both a four-tier descriptive rating using terms such as satisfactory
and unsatisfactory and a written evaluation of each institution's performance.
Also, the FHLB is required to adopt regulations establishing standards of
community investment and service for members of the FHLB System to meet to be
eligible for long-term advances. Those regulations are required to take into
account a savings institution's CRA record and the member's record of lending
to first-time home buyers. At December 31, 1999, the Bank's rating was
"satisfactory." The Bank intends to maintain its long-standing record of
community lending and to meet or exceed the CRA standards under FIRREA.
Transactions with Affiliates
Pursuant to HOLA, transactions engaged in by a savings institution or one of
its subsidiaries with affiliates of the savings institution generally are
subject to the affiliate transaction restrictions contained in Sections
371c (23) and 371c-1 (23B) of the Federal Reserve Act. Section 371c (23) of
the Federal Reserve Act imposes both quantitative and qualitative restrictions
on transactions engaged in by a member depository institution or one of its
subsidiaries with an affiliate, while Section 371c-1 (23B) of the Federal
Reserve Act requires, among other things, that all transactions with affiliates
be on terms substantially the same as and at least as favorable to the member
bank or its subsidiary as the terms that would apply to or would be offered in
a comparable transaction with an unaffiliated party.
Section 375b (22(h)) of the Federal Reserve Act imposes restrictions on
loans to executive officers, directors, and principal shareholders. Under
Section 375b (22(h)), loans to an executive officer or to a greater than 10
percent shareholder of a savings institution, or certain affiliated entities
of either, may not exceed the institution's loan-to-one-borrower limit when
considered with all other outstanding loans to such person and affiliated
entities. Section 375b (22(h)) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive officers, and
greater than 10 percent shareholders of a savings institution and their
respective affiliates, unless the loan is approved in advance by a majority of
the board of directors of the institution, with any interested director not
participating in the voting. The Federal Reserve Board has prescribed the loan
amount (which includes all other outstanding loans to such person) for which
such prior board of director approval is required, as the greater of $25,000 or
5 percent of capital and surplus. Prior board of director approval is also
required if an amount is requested that, when aggregated with all other
extensions of credit to that person, and all related interests of that person,
exceeds $500,000. First Indiana is in compliance with these regulations.
28
Federal Home Loan Bank System
The Federal Home Loan Bank System ("FHLB") consists of 12 regional Banks,
each subject to supervision and regulation by the Federal Housing Finance
Board. The FHLB provides a central credit facility for member savings
institutions. As a member of the FHLB, First Indiana is required to own
shares of capital stock in the FHLB. The calculation of the required stock
amount is the greater of one percent of the aggregate unpaid mortgage loan,
.3 percent of total assets, or 1/20 of its advances from the FHLB. As of
December 31, 1999, First Indiana was in compliance with this requirement.
Federal Reserve System
The Federal Reserve Board has adopted regulations that require savings
institutions to maintain non-earning reserves against their transaction
accounts (primarily NOW and regular checking accounts) and non-personal time
deposits (those which are transferable or held by a person other than a
natural person) with an original maturity of less than one and one-half
years. At December 31, 1999, First Indiana was in compliance with these
requirements. These reserves may be used to satisfy liquidity requirements
imposed by the Director of the OTS. Because required reserves must be
maintained in the form of vault cash or non-interest-bearing account at a
Federal Reserve Bank, the effect of this reserve requirement is to reduce the
amount of the institution's interest-earning assets.
Savings institutions also have the authority to borrow from the Federal
Reserve discount window. Federal Reserve Board regulations, however, require
savings institutions to exhaust all the FHLB sources before borrowing from a
Federal Reserve Bank. The FDICIA places limitations upon a Federal Reserve
Bank's ability to extend advances to under-capitalized and critically
under-capitalized depository institutions. The FDICIA provides that a Federal
Reserve bank generally may not have advances outstanding to an
under-capitalized institution for more than 60 days in any 120-day period.
Federal Securities Law
The stock of the Corporation is registered with the SEC under the Securities
Exchange Act of 1934 ("Exchange Act"). The Corporation will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Corporation stock held by persons who are affiliates (generally officers,
directors, and principal stockholders) of the Corporation may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Corporation meets specified current public information
requirements, each affiliate of the Corporation is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
29
Taxation
Federal. The Corporation, on behalf of itself, First Indiana and its
subsidiaries, files a calendar tax year consolidated federal income tax return
and reports items of income and expense using the accrual method of accounting.
In accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109"), a deferred liability has not been
established for the Bank's tax bad debt base year reserves of $16,586,000.
The base year reserves are generally the balance of reserves as of December
31, 1987, reduced proportionally for reductions in the Bank's loan portfolio
since that date. The base year reserves will continue to be subject to
recapture and the Bank could be required to recognize a tax liability if: (i)
the Bank fails to qualify as a "bank" for federal income tax purposes; (ii)
certain distributions are made with respect to the stock of the Bank; (iii)
the bad debt reserves are used for any purpose other than to absorb bad debt
losses; or (iv) there is a change in tax law. The enactment of this
legislation had no material impact on the Corporation's operations or financial
position.
Under SFAS 109, the Corporation may recognize deferred tax assets for
deductible temporary differences based on an evaluation of the likelihood of
realizing the underlying tax benefits. The realization of these benefits
principally depends upon the following sources of taxable income: (i) taxable
income in the current year or prior years that is available through carryback
(potential recovery of taxes paid for the current year or prior years); (ii)
future taxable income that will result from the reversal of existing taxable
temporary differences (potential offsetting of deferred tax liabilities); or
(iii) future taxable income, exclusive of the reversal of existing temporary
differences, that is generated by future operations.
In addition, tax-planning strategies may be available to accelerate taxable
income or deductions, change the character of taxable income or deductions, or
switch from tax-exempt to taxable investments so that there would be sufficient
taxable income of the appropriate character and in the appropriate periods to
allow for realization of the tax benefits.
The Federal Financial Institutions Examination Council (the "FFIEC") has
adopted all provisions of SFAS 109 for regulatory reporting purposes, including
those provisions related to deferred tax assets. However, the FFIEC agencies
have imposed a limitation on the amount of net deferred tax assets that may be
included in the calculation of regulatory capital. The limitation requires an
institution to deduct from capital, when computing its regulatory capital
ratios, any amount of net deferred tax asset that is not supported by the sum
of the carryback potential of the institution plus the lower of the next twelve
months' estimated earnings or ten percent of Tier 1 capital. At December 31,
1999, First Indiana met all the above requirements and had no adjustments to
regulatory capital.
The Internal Revenue Service has examined the tax returns of First Indiana
through 1996.
30
State. Effective January 1, 1999, the State of Indiana imposes a franchise
tax on the "apportioned income" of depository institutions at a fixed rate of
8.5 percent per year. This franchise tax is imposed in lieu of the gross
income tax, adjusted gross income tax, savings and loan excise tax and
supplemental net income tax otherwise imposed on certain corporate entities
and depository institutions. "Apportioned income" consists of the taxpayer's
"adjusted gross income" multiplied by the depository institution's total
receipts attributable to transacting business in Indiana divided by total
receipts attributable to transacting business everywhere. For example,
tax-exempt interest is included in the depository institution's adjusted gross
income for state franchise tax purposes. The Indiana Department of Revenue has
examined the state income tax returns of First Indiana through 1994.
Service Corporation Subsidiaries
OTS regulations permit federal savings institutions to invest in the capital
stock, obligations, or specified types of securities of subsidiaries (referred
to as "service corporations") and to make loans to such subsidiaries and joint
ventures in which such subsidiaries are participants in an aggregate amount not
exceeding 2 percent of an institution's assets, plus an additional one percent
of assets if the amount over 2 percent is used for specified community or
inner-city development purposes. In addition, federal regulations permit
institutions to make specified types of loans to such subsidiaries (other than
special-purpose finance subsidiaries), in which the institution owns more than
10 percent of the stock, in an aggregate amount not exceeding 50 percent of the
institution's regulatory capital if the institution's regulatory capital is in
compliance with applicable regulations. FIRREA requires a savings institution
which acquires a non-savings institution subsidiary, or which elects to conduct
a new activity within a subsidiary, to give the FDIC and the OTS at least 30
days' advance written notice. The FDIC may, after consultation with the OTS,
prohibit specific activities if it determines such activities pose a serious
threat to the SAIF. Moreover, savings institutions must deduct from capital,
for purposes of meeting the leverage limit, tangible capital, and risk-based
capital requirements, their entire investment in and loans to a subsidiary
engaged in activities permissible for a national bank (other than exclusively
agency activities for its customers or mortgage banking subsidiaries).
One Investment Corporation. One Investment Corporation is a wholly owned
subsidiary formed in January 1999 to engage in the purchase and sale of loan
participations originated both by First Indiana and by others in the secondary
market.
One Mortgage Corporation. One Mortgage Corporation is a wholly owned
subsidiary formed in 1983 to originate single-family residential mortgage loans
outside of Indiana for sale to First Indiana or for sale into the secondary
market. Since the third quarter of 1999, when the Bank exited the traditional
mortgage banking business in favor of originating mortgages for our
relationship customers, One Mortgage Corporation has not engaged in any such
activities.
31
One Property Corporation. One Property Corporation is a wholly owned
subsidiary formed in 1985 to engage in commercial real estate investment
activities. To date, One Property Corporation has not engaged in any such
activities.
Pioneer Service Corporation. Pioneer Service Corporation is a wholly owned
subsidiary of the Bank. In April 1990, Pioneer Service Corporation invested in
a limited partnership which was formed to develop and own a 112-unit apartment
complex in Greencastle, Indiana.
Employees
At December 31, 1999, the Corporation and its subsidiaries employed 577
persons, including part-time employees. Management considers its relations
with its employees to be excellent. None of these employees is represented by
any collective bargaining group.
The Corporation and its subsidiaries currently maintain a comprehensive
employee benefit program providing, among other benefits, a qualified pension
plan, a 401(k) plan, medical reimbursement accounts, hospitalization and major
medical insurance, paid sick leave, short-term and long-term disability
insurance, life insurance, an employees' stock purchase plan, tuition
reimbursement, and reduced loan rates for employees who qualify.
Item 2. Properties
At December 31, 1999, the Corporation operated through 23 full-service
banking centers and 15 loan origination offices in addition to its headquarters
and operations locations. The Corporation leases its headquarters location,
11 of the branches and 14 of the origination offices, and owns the remaining
locations. The aggregate carrying value at December 31, 1999 of the properties
owned or leased, including headquarters properties and leasehold improvements
at the leased offices, was $17.1 million. See Notes 6 and 12 to the
Corporation's Consolidated Financial Statements. The carrying value of First
Indiana's data processing equipment at December 31, 1999 was $1.8 million.
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Corporation or any
subsidiary was a party or to which any of their property is subject other than
litigation which, in the opinion of management, is not material to the
Corporation's business, operations, or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Corporation's security holders
during the three months ended December 31, 1999.
32
Part II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The information required by this item is incorporated by reference from
page 46 of the Corporation's 1999 Annual Report under the heading, "Corporate
Information."
For restrictions on the Corporation's present or future ability to pay
dividends, see Note 11 of "Notes to Consolidated Financial Statements" on page
36 - 37 of the Corporation's 1999 Annual Report, which is incorporated herein
by reference.
The Corporation paid a cash dividend of $.13 per share outstanding in each
quarter of 1999 and $.12 per share outstanding in each quarter of 1998, as
adjusted for a six-for-five stock dividend on March 6, 1998.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to page
23 of the Corporation's 1999 Annual Report from the material under the heading
"Five-Year Summary of Selected Financial Data."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated by reference to pages
12 - 22 of the Corporation's 1999 Annual Report from the material under the
heading "Financial Review."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to page
22 of the Corporation's 1999 Annual Report from the material under the heading
"Asset/Liability Management and Market Risk."
Item 8. Financial Statements and Supplementary Data
The Corporation's Consolidated Financial Statements and Notes to
Consolidated Financial Statements at December 31, 1999 and 1998 and for each of
the years in the three-year period ended December 31, 1999 are incorporated by
reference to pages 24 - 44 of the Corporation's 1999 Annual Report. The
Corporation's unaudited quarterly financial data for each of the years in the
two-year period ended December 31, 1999 is incorporated by reference to Note 15
of "Notes to Consolidated Financial Statements" on page 43 of the Corporation's
1999 Annual Report.
33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to the directors is
incorporated by reference to pages 5-7 and page 19 of the Corporation's Proxy
Statement dated March 14, 2000 under the heading "Election of Directors," and
"Section 16(a) Beneficial Ownership Reporting Compliance."
The following table sets forth information about the executive officers of
the Corporation and the Bank who are not directors of the Corporation or the
Bank. All executive officers are appointed by the Board of Directors and
serve at the discretion of the Board of Directors.
Year First
Name Position Age Elected Officer
- ---------------------------------------------------------------------------------------
David L. Gray Vice President and Treasurer of the 56 1981
Corporation; Chief Financial Officer and
Senior Vice President, Financial
Management Division of the Bank
David A. Lindsey Senior Vice President, Consumer Finance 49 1983
Division of the Bank
Merrill E. Matlock Senior Vice President, Commercial and 50 1984
Mortgage Banking Division of the Bank
Timothy J. O'Neill Senior Vice President, Correspondent 52 1972
Banking Services Division of the Bank
Edward E. Pollack Senior Vice President, Technology and 51 1998
Operations Division of the Bank
Kenneth L. Turchi Senior Vice President, Retail Banking, 41 1987
Marketing, and Strategic Planning Division
of the Bank
34
David L. Gray has been with the Bank since July 1981, and currently serves
as the Corporation's vice president and treasurer, and the Bank's chief
financial officer and senior vice president, Financial Management Division.
He also serves as the chairman of the Bank's Asset/Liability Committee.
David A. Lindsey has been with the Bank since January 1983, serving as the
Bank's senior vice president, Consumer Finance Division. He oversees the
Bank's national consumer sales force.
Merrill E. Matlock is senior vice president of the Bank's Commercial and
Mortgage Banking Division. He is responsible for the Bank's residential,
construction, business, and commercial real estate lending. Mr. Matlock has
worked for First Indiana since 1984 and was most recently first vice president
of the construction lending department.
Timothy J. O'Neill has been with the Bank since 1970. He currently serves
as the Bank's senior vice president, Correspondent Banking Services Division.
As part of his current responsibilities, he develops relationships with smaller
community banks to provide private label products and services to their
customers.
Edward E. Pollack joined the Bank in 1998, and offers many years of
experience in operations and technology at the nation's largest guarantor of
student loans. He is serving as senior vice president, Technology and
Operations Division.
Kenneth L. Turchi joined First Indiana in September 1985 and currently
serves as senior vice president, Retail Banking, Marketing, and Strategic
Planning Division. His duties include strategic planning, marketing,
advertising, market research, investor and public relations, telemarketing, and
supervision of retail banking center sales and operations.
Item 11. Executive Compensation.
The information required by this item with respect to executive compensation
is incorporated by reference to pages 9-18 of the material under the heading
"Executive Compensation" in the Corporation's Proxy Statement.
During 1997, the Corporation effected change-of-control arrangements with
its key officers. The full text of these arrangements can be found in Exhibits
10(j) and 10(k) of the 1997 Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to pages
1-8 of the material under the heading "Proxy Statement" and "Proposal No 1:
Election of Directors" in the Corporation's Proxy Statement.
35
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to pages
8-9 of the material under the heading "Certain Transactions" in the
Corporation's Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. The following documents are filed as part of this report:
1999 Annual Report
(Exhibit 13)
Financial Statements Page(s)
Consolidated Balance Sheets as of December 31, 1999 and 1998 24
Consolidated Statements of Earnings for the Years Ended December 31,
1999, 1998, and 1997 25
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997 26
Consolidated Statements of Cash Flows for the Years Ended December
31, 1999, 1998, and 1997 27
Notes to Consolidated Financial Statements 28-43
Independent Auditors' Report 44
Exhibits
Refer to list of exhibits on pages 38-39
b. Reports on Form 8-K
No Reports on Form 8-K were filed during the three months
ended December 31, 1999.
c. The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit index on pages 38-39.
d. Financial Statement Schedules required by Regulation S-X.
None
36
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIRST INDIANA CORPORATION
By:/s/ Owen B. Melton, Jr.
Owen B. Melton, Jr.
President and Chief Operating Officer
Date: March 16, 2000
Pursuant to the requirements of the Securities and Exchange Act of
1934, this annual report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Officers
By: /s/Marni McKinney By: /s/David L. Gray
Marni McKinney David L. Gray
Vice Chairman and Chief Vice President and
Executive Officer Treasurer
Date: March 16, 2000 Date: March 16, 2000
Directors
By: /s/Gerald L. Bepko By: /s/Robert H. McKinney
Gerald L. Bepko Robert H. McKinney
Date: March 16, 2000 Date: March 16, 2000
By: /s/Andrew Jacobs, Jr. By: /s/Owen B. Melton, Jr.
Andrew Jacobs, Jr. Owen B. Melton, Jr.
Date: March 16, 2000 Date: March 16, 2000
By: /s/Robert H. McKinney By: /s/Phyllis W. Minott
Robert H. McKinney Phyllis W. Minott
Date: March 16, 2000 Date: March 16, 2000
By: /s/John W. Wynne By: /s/Michael L. Smith
John W. Wynne Michael L. Smith
Date: March 16, 2000 Date: March 16, 2000
By: /s/Robert J. Laikin
Robert J. Laikin
Date: March 16, 2000
37
Exhibit Index
Page(s) (by
Exhibit Sequential
Number Numbering
System)
3(a) Articles of Incorporation and Bylaws of First Indiana Corporation 10-K 39
4(a) Form of Certificate of Common Stock of Registrant, incorporated by
reference to Exhibit 4(c) of the Registrant's registration statement on
Form S-1, filed as No. 33-46547 on March 20, 1992.
4(b) Shareholder Rights Agreement between First Indiana Corporation and
Harris Trust and Savings Bank dated November 14, 1997, incorporated
by reference to the Registrant's Form 8-A filed on December 2, 1997.
10(a) First Indiana Bank 1997 Long-Term Management Performance
Incentive Plan, incorporated by reference to Exhibit 10(a) of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997.
10(b) First Indiana Corporation 1991 Stock Option and Incentive Plan,
incorporated by reference to Exhibit A of the Registrant's March 20,
1991 Proxy Statement, Pages A-1 to A-8.
10(c) First Indiana Corporation 1998 Stock Incentive Plan, incorporated by
reference to Exhibit 10(c) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997
10(d) First Indiana Corporation 1992 Director Stock Option Plan,
incorporated by reference to Exhibit A of the Registrant's March 13,
1992 Proxy Statement, Pages A-1 to A-3.
10(e) First Indiana Corporation 1992 Stock Option Plan, incorporated by
reference to Exhibit A of the Registrant's March 12, 1993 Proxy
Statement, pages 15 to 19.
10(f) First Indiana Corporation Supplemental Benefit Plan effective May 1,
1997, incorporated by reference to Exhibit 10(f) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997.
29
10(g) First Indiana Corporation Supplemental Benefit Plan Agreement
effective May 1, 1997 between Registrant and Robert H. McKinney,
incorporated by reference to Exhibit 10(g) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
10(h) First Indiana Corporation Supplemental Benefit Plan Agreement
effective May 1, 1997 between Registrant and each of Owen B. Melton,
Jr. and Marni McKinney, incorporated by reference to Exhibit 10(h) of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.
10(i) Supplemental Benefit Plan Agreement effective May 1, 1997 between
First Indiana and each of David L. Gray, David A. Lindsey, Merrill E.
Matlock, Timothy J. O'Neill, and Kenneth L. Turchi, and effective
January 4, 1999 between First Indiana and Edward E. Pollack,
incorporated by reference to Exhibit 10(i) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
10(j) Form of Employment Agreement between Registrant and each of
Robert H. McKinney, Owen B. Melton, Jr. and Marni McKinney,
incorporated by reference to Exhibit 10(j) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
10(k) Form of Employment Agreement between First Indiana and each of
David L. Gray, David A. Lindsey, Merrill E. Matlock, Timothy J.
O'Neill, Kenneth L. Turchi, and Edward E. Pollack, incorporated by
reference to Exhibit 10(k) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997.
13 1999 Annual Report. 10-K 60
21 Subsidiaries of First Indiana Corporation and First Indiana Bank. 10-K 116
22 Definitive Proxy Statement relating to the 2000 Annual Meeting of
Shareholders. 10-K 117
23 Consent of KPMG LLP. 10-K 141
27 Financial Data Schedule. 10-K 143