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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, 1995
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. [X]
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: $137,596,000 as of February 29,
1996.
On February 29, 1996, the registrant had 8,277,456 shares of
common stock outstanding, $.01 par value (as adjusted for six-for-five
stock split paid March 1, 1996).
Documents Incorporated by Reference: See Page 2.
1
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Annual Report to Shareholders for 1995 Part II
Proxy Statement Dated March 13, 1996 Part III
Total Number of Pages in this Report 112
List of Exhibits on Pages 35-37
2
FIRST INDIANA CORPORATION
FORM 10-K
Table of Contents
Page
PART I 4
Item 1. Business 4
Item 2. Properties 25
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote
of Security Holders 28
PART II 29
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters 29
Item 6. Selected Financial Data 29
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operation 29
Item 8. Financial Statements and
Supplementary Data 29
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 29
PART III 29
Item 10. Directors and Executive Officers
of the Registrant 29
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain
Beneficial Owners and Management 31
Item 13. Certain Relationships and
Related Transactions 31
PART IV 32
Item 14. Exhibits, Financial Statements
Schedules, and Reports on Form 8-K 32
SIGNATURES 34
EXHIBIT INDEX 35
3
PART I
Item I. Business
First Indiana Corporation
First Indiana Corporation, an Indiana corporation formed
in 1986 (the "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 the
"Bank"), its wholly owned subsidiary. The Corporation has no
separate operations, and its business consists only of First Indiana
and its subsidiaries. These include One Mortgage Corporation, a
mortgage origination subsidiary; One Investment Corporation, an
investment subsidiary; One Insurance Agency, Inc., an insurance
subsidiary; and One Property Corporation, a real estate investment
subsidiary.
First Indiana Bank
First Indiana Bank is a federally chartered stock savings
bank insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation (the "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
$1.5 billion in assets and is the largest publicly held bank based in
Indianapolis.
First Indiana is engaged primarily in the business of
attracting deposits from the general public and originating
residential mortgage loans, commercial loans, and consumer loans.
First Indiana offers a full range of banking services through 28
banking offices located throughout Metropolitan Indianapolis,
Evansville, Franklin, Pendleton, Westfield, Mooresville and
Rushville, Indiana. The Bank's divisions in Evansville,
Mooresville, and Rushville operated under the names Mid-West
Federal Savings Bank, Mooresville Savings Bank, and First
Federal Savings and Loan of Rushville until January 1996, when
all three divisions adopted the First Indiana Bank name.
First Indiana's subsidiary, One Mortgage Corporation,
operates mortgage origination offices in Florida and North
Carolina. First Indiana has four regional mortgage services offices
in Central Indiana. First Indiana's investment and insurance
subsidiaries, One Investment Corporation and One Insurance
Agency, Inc., operate from offices in Indianapolis.
The six-county area served by First Indiana consists of
Indianapolis, the state's largest city and state capital, together with
outlying suburban and agricultural areas in the central part of the
state. The population of the six-county 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 (engines), and Ameritech
(communications).
First Indiana's Evansville Division is based in the third
largest metropolitan area in Indiana, and conducts business through
five offices in Evansville and surrounding communities. The 1990
population of the Evansville metropolitan statistical area was about
280,000. The local economy is primarily agricultural- and
manufacturing-based, with local industries including aluminum,
plastics, health care products, and major household appliances.
Among the largest local employers are Bristol-Myers Squibb
(nutritional and pharmaceutical products), Whirlpool (refrigerators
and freezers), and General Electric Co. (plastics). Evansville is the
regional hub for a tri-state area which includes portions of Indiana,
Kentucky and Illinois.
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
rates and the availability of convenient office locations and flexible
hours. Direct competition for deposits comes from other savings
institutions, commercial banks, 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 banks, brokers, and insurance companies.
4
Lending Activities
General. First Indiana Bank offers a broad range of
lending products to selected segments of the markets it serves. The
Bank has expanded upon its heritage as a single-family mortgage
lender by offering a complete array of loans secured primarily by
real estate. In addition to first mortgage loans, the Bank now has
a substantial market presence in residential construction lending,
commercial real estate lending, business loans to selected segments
of the market, and consumer loans, primarily home equity loans
originated both on a direct and indirect basis.
The Bank's management believes that the surest path for
the Bank's long-term success is to concentrate on selected product
lines sold to certain segments of the market. Accordingly, in 1994
the Bank discontinued its indirect (dealer) auto lending business to
redirect resources toward real estate-focused activities. The Bank
is also implementing a series of process and operational
enhancements that will enable it to act as both a mortgage banker
and portfolio lender with maximum efficiencies as interest rates
cause consumer preferences to shift between these two types of
residential mortgage loan products.
To minimize the mismatch between the duration of its
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 almost all
fixed-rate, longer-term loans to 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.
5
Loan Portfolio Composition
(Dollars in Thousands) At December 31,
---------------
1995 1994 1993
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Loans by Type of Security:
First Mortgage Loans Secured by:
Single-Family Units $ 625,133 45.0% $ 583,345 47.1% $ 561,413 48.7%
2-4 Family Units 1,885 0.1% 2,173 0.2% 1,909 0.2%
Over 4 Family Units 18,946 1.4% 21,881 1.8% 27,990 2.4%
Mortgage-Backed Securities 49,089 3.6% 69,061 5.6% 100,924 8.7%
Commercial Real Estate and
Other Mortgage Loans 46,137 3.3% 45,647 3.7% 50,294 4.4%
Consumer Loans 575,009 41.4% 474,465 38.3% 382,360 33.1%
Business Loans 72,146 5.2% 41,770 3.4% 29,308 2.5%
---------- ------ ---------- ------ ---------- ------
Total Mortgage-Backed
Securities and Loans Receivable
(Before Net Items) $1,388,345 100.0% $1,238,342 100.0% $1,154,198 100.0%
========== ====== ========== ====== ========== ======
Loans by Type of Loan:
Real Estate:
Conventional:
Loans on Existing Property $ 464,604 33.5% $ 450,935 36.4% $ 454,560 39.4%
Construction Loans:
Commercial Real Estate Loans 6,835 0.5% 9,019 0.7% 3,213 0.3%
Residential Loans 207,957 15.0% 186,145 15.0% 167,077 14.5%
Insured or Guaranteed:
Mortgage-Backed Securities 49,089 3.5% 69,061 5.6% 100,924 8.7%
FHA and VA Loans 12,705 0.9% 6,947 0.6% 16,756 1.5%
Total Real Estate Loans 741,190 53.4% 722,107 58.3% 742,530 64.3%
Consumer Loans 575,009 41.4 474,465 38.3 382,360 33.1
Business Loans 72,146 5.2 41,770 3.4 29,308 2.5
---------- ----- -------- ----- ---------- -----
Total Mortgage-Backed Securities
and Loans Receivable
(Before Net Items) $1,388,345 100.0% $1,238,342 100.0% $1,154,198 100.0%
========== ====== ========== ====== ========== ======
At December 31,
----------------
1992 1991
Amount Percent Amount Percent
------ ------- ------ -------
Loans by Type of Security:
First Mortgage Loans Secured by:
Single-Family Units $ 563,783 48.4% $ 557,267 52.7%
2-4 Family Units 4,033 0.3% 1,985 0.2%
Over 4 Family Units 25,166 2.2% 23,694 2.2%
Mortgage-Backed Securities 180,211 15.5% 137,500 13.0%
Commercial Real Estate and
Other Mortgage Loans 77,576 6.7% 96,252 9.1%
Consumer Loans 298,206 25.6% 238,892 22.6%
Business Loans 15,542 1.3% 1,840 0.2%
---------- ------ ---------- ------
Total Mortgage-Backed
Securities and Loans Receivable
(Before Net Items) $1,164,517 100.0% $1,057,430 100.0%
========== ====== ========== ======
Loans by Type of Loan:
Real Estate:
Conventional:
Loans on Existing Property $ 566,445 48.7% $ 584,142 55.2%
Construction Loans:
Commercial Real Estate Loans 5,178 0.4% 4,375 0.4%
Residential Loans 78,435 6.7% 80,001 7.6%
Insured or Guaranteed:
Mortgage-Backed Securities 180,211 15.5% 137,500 13.0%
FHA and VA Loans 20,500 1.8% 10,680 1.0%
Total Real Estate Loans 850,769 73.1% 816,698 77.2%
Consumer Loans 298,206 25.6 238,892 22.6
Business Loans 15,542 1.3 1,840 0.2
---------- ----- ---------- ------
Total Mortgage-Backed Securities
and Loans Receivable
(Before Net Items) $1,164,517 100.0% $1,057,430 100.0%
========== ====== ========== ======
6
Loan Portfolio Composition
(Continued) At December 31,
----------------
1995 1994 1993 1992 1991
(Dollars in Thousands) ---- ---- ---- ---- ----
Total Mortgage-Backed Securities $ 1,388,345 $ 1,238,342 $ 1,154,198 $ 1,164,517 $ 1,057,430
and Loans Receivable
(Before Net Items)
Less:
Undisbursed Portion of Loans 72,511 78,588 63,382 54,482 34,025
Deferred Income, Unearned Discounts,
and Unamortized Premiums (624) (521) 646 2,016 860
Plus:
Loan Valuation Adjustment
for Acquisitions 0 341 682 1,024 0
---------- --------- --------- --------- ---------
Total Mortgage-Backed Securities and Loans
Receivable Before Allowance for
Loan Losses 1,316,458 1,160,616 1,090,852 1,109,043 1,022,545
Less:
Allowance for Loan Losses 16,234 12,525 11,506 8,748 7,797
----------- ----------- ----------- ----------- -----------
Mortgage-Backed Securities and Loans
Receivable - Net $ 1,300,224 $ 1,148,091 $ 1,079,346 $ 1,100,295 $ 1,014,748
=========== =========== =========== =========== ===========
7
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.
At December 31,
---------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands)
Residential Mortgage Loans
Fixed Rates $ 186,886 $ 157,706 $ 225,305 $ 317,808 $ 331,045
Adjustable Rates 491,681 494,090 440,381 424,492 365,772
----------- ----------- ----------- ----------- -----------
Total $ 678,566 $ 651,796 $ 665,686 $ 742,300 $ 696,817
=========== =========== =========== =========== ===========
Commercial Real Estate Loans
Fixed Rates $ 11,948 $ 15,770 $ 21,835 $ 39,434 $ 50,627
Adjustable Rates 50,676 54,541 55,009 69,035 69,254
----------- ----------- ----------- ----------- -----------
Total $ 62,624 $ 70,311 $ 76,844 $ 108,469 $ 119,881
=========== =========== =========== =========== ===========
Total Real Estate Loans
Fixed Rates $ 198,833 $ 173,476 $ 247,140 $ 357,242 $ 381,672
Adjustable Rates 542,357 548,631 495,390 493,527 435,026
----------- ----------- ----------- ----------- -----------
Total $ 741,190 $ 722,107 $ 742,530 $ 850,769 $ 816,698
=========== =========== =========== =========== ===========
Consumer Loans
Fixed Rates $ 411,030 $ 307,136 $ 251,297 $ 189,551 $ 140,905
Adjustable Rates 163,980 167,329 131,063 108,655 97,987
----------- ----------- ----------- ----------- -----------
Total $ 575,009 $ 474,465 $ 382,360 $ 298,206 $ 238,892
=========== =========== =========== =========== ===========
Business Loans
Fixed Rates $ 0 $ 0 $ 0 $ 0 $ 0
Adjustable Rates 72,146 41,770 29,308 15,542 1,840
----------- ----------- ----------- ----------- -----------
Total $ 72,146 $ 41,770 $ 29,308 $ 15,542 $ 1,840
=========== =========== =========== =========== ===========
Total Mortgage-Backed Securites
and Loans Receivable
Fixed Rates $ 609,863 $ 480,612 $ 498,437 $ 546,793 $ 522,577
Adjustable Rates 778,482 757,730 655,761 617,724 534,853
----------- ----------- ----------- ----------- -----------
Total $ 1,388,345 $ 1,238,342 $ 1,154,198 $ 1,164,517 $ 1,057,430
=========== =========== =========== =========== ===========
8
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 almost all fixed-rate residential loans to secondary market
investors, including the Federal Home Loan Mortgage Corporation
("FHLMC") and the Federal National Mortgage Association
("FNMA").
Residential originations amounted to $354 million in
1995, a 3.2 percent increase over 1994. First Indiana enjoyed a
resurgence of residential mortgage loan sales as part of the Bank's
normal mortgage banking activity, resulting in pre-tax gains of
$1.2 million.
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.
Commercial Loans. First Indiana offers a variety of
commercial loans, primarily residential construction loans,
business loans, and commercial real estate loans (including land
development loans).
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 home buyer 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, 1995 and 1994, the Bank's construction
loans outstanding equaled $208 million and $187 million.
Also included in business loans are $13 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.
The following table presents the remaining maturities and
rate sensitivity of residential construction and business loans.
Remaining Maturities
--------------------
One Year Over One Year Over
or Less to Five Years Five Years Total Percent
(Dollars in Thousands) -------- ------------- ---------- ----- -------
Type of Loan:
Residential Construction $ 127,707 $14,224 $368 $142,299 66.3 %
Business 57,271 14,875 - 72,146 33.7
------------- ------- ---- -------- -------
Total $ 184,978 $29,099 $368 $214,445 100.0 %
============= ======= ==== ======== =======
Rate Sensitivity:
Adjustable Rate $ 184,978 $29,099 $368 $214,445 100.0 %
------------- ------- ---- -------- -------
Total $ 184,978 $29,099 $368 $214,445 100.0 %
============= ======= ==== ======== =======
9
Multi-family and commercial real estate lending was a
substantial part of First Indiana's business activities from the early
1970's until 1991, when such activity was largely curtailed because
of the economic environment. With the changing 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. 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, 1995 and
1994, outstanding multi-family and commercial real estate loans
originated and purchased by First Indiana.
1995 1994
(Dollars in Millions) Amount Percent Amount Percent
Loans Originated $54.5 97.7 $59.9 97.9
Loans Purchased 1.3 2.3 1.3 2.1
----- ---- ----- ----
$55.8 100.0 $61.2 100.0
===== ===== ===== =====
Consumer Lending. As part of its strategy for growth
in interest income, First Indiana has increased its origination and
purchase of consumer loans, primarily home equity loans and home
equity lines of credit. At December 31, 1995, such loans totaled
$575.0 million, or 41.4 percent of total loans receivable, compared
with $474.5 million, or 38.3 percent of total loans receivable, at
December 31, 1994.
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 $575.0
million of consumer loans outstanding at December 31, 1995, 84.4
percent were secured by first or second mortgages on real property,
0.5 percent was secured by deposits, and 15.1 percent were
secured by personal property.
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 the Wall Street Journal prime rate plus one
or two percent, depending on the size 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 3.5 percent
for lines of credit at a 100 percent LTV. At December 31, 1995,
the Bank had approximately $204.9 million in loans above 80
percent LTV. Each month, 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. Holders of revolving lines of credit above 85 percent LTV
are required to pay at least two percent of the outstanding loan
balance.
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. At December 31, 1995, First Indiana
had approved $260 million of 80 percent LTV lines of credit, of
which $154 million were outstanding, compared with $245
million of such lines which had been approved at December 31,
1994, $131 million of which were outstanding.
Until August 1994, First Indiana offered indirect auto
lending through a network of dealers throughout the Midwest. The
Bank discontinued this activity as part of its strategic plan to focus
its resources on core real estate businesses in which management
believes it can differentiate itself from the competition more
effectively. First Indiana will continue to offer direct automobile
loans as an accommodation to its customers. These loans will be
made generally for terms of one to five
10
years at variable and fixed rates of interest.
The balances of First Indiana's installment loans,
including the remaining portfolio of automobile loans, were $83
million and $137 million at December 31, 1995 and 1994. The
size of this portfolio will decline as loans made under the
discontinued indirect automobile lending program pay off.
First Indiana makes loans secured by deposits and
overdraft loans in connection with its checking accounts. First
Indiana also offers fixed-rate, fixed-term loans primarily for home
improvement purposes; 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 future loan losses, 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 $446
million below the maximum permitted.
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, 1995, however, most of First Indiana's real estate
loans receivable were secured by real estate located in Indiana.
First Indiana also originates loans through a subsidiary in several
other states, principally Florida and North Carolina.
Interest rates charged by First Indiana on its new 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, commissioned loan
brokers, agents and originators. First Indiana aggressively solicits
residential loans with a sales force that works with real estate
brokers and builders to obtain referrals.
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 the Bank
uses 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 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 lending rates at the time the commitment is
extended. Commitment fees and other terms of commercial real
estate and business loans are individually negotiated.
11
First Indiana earns fees on existing loans, including
prepayment charges, late charges, and assumption fees.
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. In the case of
loans sold with servicing retained where the stated servicing fee
differs materially from a current, normal servicing fee, the sales
price is adjusted to provide a normal servicing fee in each
subsequent year for purposes of determining gain or loss on the
sale. At December 31, 1995, the balance of deferred excess
servicing was approximately $735,000. The resulting deferred
balance is amortized in proportion to the related net servicing
income over the estimated life of the loans.
In the second quarter of 1995, First Indiana purchased
$310 million in mortgage loan servicing rights. The December 31,
1995 balance of $3.5 million will be amortized in proportion to the
related net servicing income over the estimated life of the loans.
At December 31, 1995, First Indiana serviced
approximately $1.1 billion in loans and loan participations which
it had sold. As of December 31, 1995, approximately $26.9
million in loans, or about 2.1 percent of First Indiana's loans
receivable after net items, were serviced by others.
Asset Quality
General. First Indiana's asset quality is directly affected
by the credit risk of the assets on its balance sheet. A significant
portion of First Indiana's credit risk is concentrated in its loan and
real estate owned ("REO") portfolios. Consequently, First Indiana
has established policies and procedures to ensure accurate and
timely assessment of credit risk.
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
Advisory Committee of the Board of Directors, are referred to the
full Board for final approval and ratification.
The other part of First Indiana's asset review system is
managed by an independent credit review officer appointed by the
Board of Directors. The credit review officer makes an
independent evaluation of First Indiana's portfolio and
management's recommendations on allowances for loan and REO
losses. He then regularly reviews these recommendations with
First Indiana's Chairman. These meetings give the credit review
officer a forum for discussing asset quality issues with a member
of the Board of Directors who has no loan approval authority. This
system provides an independent check on 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.
The Board of Directors establishes general allowances as
percentages of loans outstanding. The percentages are based on a
model that incorporates empirical data about loss experience,
credit risk, geographic diversity, general economic trends, and
other factors.
Specified reserves are established through a rating system
based on numerous factors. Certain loans are placed on a watch
list. Management then calculates the value of the collateral (based
upon the ability of the underlying property's cash flow to support
the current loan structure) for all loans on the watch list and
recommends specified reserves as appropriate. Final approval of
the credit review officer's recommendations on general and
specified reserves is subject to review by the chairman and the
Board of Directors as described above.
Management believes that First Indiana's current loan and
REO loss allowances are sufficient to absorb potential
12
future losses; 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 Office of Thrift Supervision (the
"OTS") or the FDIC in their most recent examinations of First
Indiana.
As of January 1, 1995, the Bank adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a
Loan." The Bank reviews all loans except those which are smaller balance
and homogenous in nature. The homogenous loan portfolios include residential
mortgage loans secured by one- to four-family dwellings, consumer loans, and
certain business and residential construction loans which do not meet the
Bank's parameters for review. Loans subject to review under SFAS 114 include
commercial real estate loans and larger business and residential construction
loans which, because of their size, nature and unique characteristics, could
negatively impact the Bank if the borrower experiences credit deterioration.
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. A loan is deemed impaired when, in the opinion of manage-
ment, full collection of the contractual principal and interest is not
probable.
At December 31, 1995, the Bank identified an impaired loan totaling
$3,306,000 with an allocated reserve of $167,000. The interest income
earned on this loan in 1995 was $300,000, only $48,000 below the contractual
interest.
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 dealers
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 continuance as an asset of the institution is not
warranted.
Assets classified as Substandard or Doubtful require the
institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as Loss, the 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 an 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, 1995 on a net basis, First Indiana had classified
$34.5 million as Substandard, compared with $31.2 million and
$35.6 million at December 31, 1994 and 1993. 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.
First Indiana places loans on non-accrual status when
payments of principal or interest become 90 days or more
13
past due, or earlier when an analysis of a borrower's creditworthiness
indicates that payments could become past due. Total non-accrual
loans were $14.7 million at December 31, 1995, compared with
$11.0 and $10.9 million at December 31, 1994 and 1993.
At December 31, 1995, First Indiana identified an
impaired loan totaling $3.4 million which had an allocated reserve
of $167,000.
Loan modifications classified as troubled debt
restructuring as defined in Statement of Financial Accounting
Standard No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructuring," amounted to $5.9 million at
December 31, 1995, compared with $10.7 and $11.3 million at
December 31, 1994 and 1993. Management modified the payment
terms, interest rates, and contractual maturities of these loans with
the objective of improving the likelihood of recovery of First
Indiana's investment.
REO is generally acquired by 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. 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 financial institutions which
have had concentrations in areas of the country hardest hit by
economic cycles. First Indiana's non-performing assets fell seven
percent in 1995 to $27.2 million at December 31, 1995 from $29.1
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 real estate
owned.
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."
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 do not permit investment
purchases in below investment grade corporate bonds (minimum
investment rating of A-) or "junk" bonds. Liquid investments are
managed to ensure that regulatory requirements are satisfied.
At December 31, 1995, First Indiana's investments
totaled $102.7 million, or 6.74 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.
14
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 ("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 demand accounts, NOW
accounts, and money market checking accounts, as well as fixed-rate
certificates and money market accounts. In 1996 First Indiana
intends to increase 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) 1995 1994 1993
Rate
Under 3.00% $195,188 $271,294 $421,825
3.00 - 5.00 177,524 315,168 449,268
5.01 - 7.00 695,103 403,449 93,783
7.01 - 9.00 50,354 26,537 37,499
9.01 - 11.00 917 1,584 10,098
11.01 - 13.00 0 131 2,835
--------- -------- -------
$1,119,086 $1,018,163 $1,015,308
15
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,
1995 1994 1993
(Dollars in Thousands)
NOW Checking and
Non-Interest-Bearing
Deposits $ 13,990 $ (749) $ 19,384
Money Market
Checking (3,355) (10,503) 2,318
Passbook and
Statement Savings 34,797 854 1,191
Money Market Savings (8,860) (8,804) 1,234
Jumbo Certificates of
$100 or More 54,943 7,831 35,112
Fixed-Rate Certificates 9,408 14,226 (85,970)
-------- -------- --------
Total Increase (Decrease) $100,923 $2,855 $(26,731)
======== ======== ========
First Indiana's jumbo certificates of $100,000 or more at
December 31, 1995, the maturities of such deposits, and the
percentage of total deposits represented by these certificates are set
forth in the table below:
Over
Three
Three Months to Over Six % of
Months or Six Months to Over One Total
Less Months One Year Year Total Deposits
(Dollars in Thousands) --------- ---------- --------- ---- ----- --------
Jumbo Certificates of $100
or More $45,170 $17,597 $7,728 $49,970 $120,465 10.76%
Borrowings. The FHLB of Indianapolis functions as a
central reserve bank providing credit for financial institutions in
Indiana and Michigan. As a member of the FHLB of Indianapolis,
First Indiana is required to own capital stock in the FHLB of
Indianapolis 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, provided subject to credit standards. The
FHLB of Indianapolis advances are made pursuant to several
different credit programs, each with its own interest rate and range
of maturities.
The FHLB of Indianapolis 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 of
Indianapolis' assessment of the institution's creditworthiness. At
December 31, 1995, First Indiana had $214.8 million in FHLB of
Indianapolis advances (14.09
16
percent of total assets), with a weighted average rate of 5.97 percent.
First Indiana also enters into repurchase agreements as a
short-term source of borrowing, but only with registered
government securities dealers.
Borrowings Balances. 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,
1995 1994 1993
(Dollars in Thousands)
Highest Month-End Balance of Short-Term Borrowings
During the Year $61,982 $35,922 $29,459
Average Month-End Balance of Short-Term Borrowings
During The Year 41,963 6,137 13,180
Weighted Average Interest Rate of Short-Term Borrowings
During the Year 6.17% 5.23% 3.19%
Weighted Average Interest Rate of Short-Term Borrowings
at End of the Year 5.81 6.14 -
Regulatory Capital
Risk-Based Capital. Savings institutions are required
to have risk-based capital of eight percent of risk-weighted assets.
At December, 31, 1995, First Indiana's risk-based capital was
$141.4 million, or 11.53 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 three percent of total assets, but not less
than the minimum required by the Office of the Comptroller of the
Currency (the "OCC") for national banks, which minimum
currently stands at four 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, 1995, First Indiana's core capital
and leverage ratio were $127.2 million and 8.26 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, 1995, were $127.2 million and 8.26 percent
respectively. Management intends to maintain capital well in
excess of regulatory minimums.
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, 1995 First
Indiana was classified as "well-capitalized."
Effective January 1, 1994, the OTS adopted regulations
adding an interest-rate risk component to the proposed
17
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. Based on its interest-rate
risk at December 31, 1995, First Indiana was not required to
add to its risk-based capital under the new regulation.
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. First Indiana does not expect its required
level of risk-based capital to increase by these rules.
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.
Virtually all of the assets and liabilities of a financial
institution are monetary, which limits the usefulness of data derived
by adjusting a financial 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,
1995, these provisions are not expected to have any significant
impact on its operations.
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.
Savings Institution Regulation
General. As a SAIF-insured savings institution, First
Indiana is subject to supervision and regulation by the Director of
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.
18
The regulations and policies of the Director 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 are not expected to 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.
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, 1995, the qualified thrift investment
percentage test for First Indiana was in excess of 87 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
Untied States government, state or federal agency obligations)
equal to a monthly average of not less than a specified
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, 1995 was 6.50 percent. A savings institution is also
required to maintain an average daily balance of short-term liquid
assets at a specified percentage (currently one percent) of the total
of the average daily balance of its net withdrawable deposits and
short-term borrowing. At December 31, 1995, 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, 1995, First
Indiana's loan-to-one borrower limitation was approximately
$21.6 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 at December 31, 1995.
Limitation on Capital Distributions. Under OTS
regulations, a savings institution is classified as a tier 1 institution,
a tier 2 institution or a tier 3 institution, depending on its level of
regulatory capital both before and after giving effect to a proposed
capital distribution. A tier 1 institution may generally make capital
distributions in any calendar year up to 100 percent of its net
income to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (i.e., the percentage by
which the institution's capital-to-assets ratio exceeds the ratio of its
fully-phased-in capital requirements to its assets) at the beginning
of the calendar year. No regulatory approval of the capital
distribution is required, but prior notice must be given to the OTS.
Restrictions exist on the ability of tier 2 and tier 3 institutions to
make capital distributions. For purposes of these regulations, First
Indiana is a tier 1 institution.
19
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,
1995, First Indiana was in compliance with the equity risk
investment limitations.
Insurance of Deposits. FDIC-insured institutions pay
deposit insurance premiums between $.23 and $.31 per $100 of
their domestic deposits, 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.
Well-capitalized institutions with a supervisory rating of A pay
$.23 per $100 of deposits, while undercapitalized institutions with
a rating of C pay $.31 per $100 of deposits. First Indiana was a
well-capitalized institution at December 31, 1995, and pays $.23
per $100 of deposits.
Legislation pending in Congress proposes a one-time
assessment on all SAIF-insured deposits in the range of $.85 to
$.90 per $100 of domestic deposits. This one-time assessment is
intended to recapitalize the Savings Association Insurance Fund to
the required level of 1.25 percent of insured deposits, and could be
payable in 1996. If the assessment occurs, the effect on First
Indiana would be a pre-tax charge of approximately $8.9 million,
but the Bank's well-capitalized ranking would not be adversely
affected. At the current time, this legislation is awaiting the budget
reconciliation between the Executive Branch and the Congress.
Community Reinvestment Act. Ratings of depository
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. The Corporation 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 23A and 23B of the Federal
Reserve Act. Section 23A of the Federal Reserve Act imposes
both quantitative and qualitative restrictions on transactions
engaged in by a member bank or one of its subsidiaries with an
affiliate, while Section 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 22(h) of the Federal Reserve Act imposes
restrictions on loans to executive officers, directors and principal
shareholders. Under Section 22(h), loans to an executive officer
or to a greater than ten 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 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) as to which
such prior board of director approval is required, as the greater of
$25,000 or 5 percent of capital and surplus (up to $500,000).
Further, the Federal Reserve Board requires that loans to directors,
executive officers and principal shareholders be made on terms
20
substantially the same as offered in comparable transactions to
other persons. First Indiana was in compliance with these
regulations at December 31, 1995.
Federal Home Loan Bank System
The Federal Home Loan Bank System consists of 12
regional FHLBs, each subject to supervision and regulation by the
Federal Housing Finance Board. The FHLBs provide a central
credit facility for member savings institutions. As a member of the
FHLB of Indianapolis, First Indiana is required to own shares of
capital stock in the FHLB in an amount at least equal to one
percent of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. As of December 31, 1995,
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, 1995, 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.
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.
Savings institutions are generally taxed in the same
manner as other corporations. Unlike other corporations, however,
qualifying savings institutions such as First Indiana that meet
certain definitional tests relating to the nature of their supervision,
income, assets and business operations are allowed to establish a
reserve for bad debts. For purposes of the bad debt reserve
deduction, loans are separated into "qualifying real property loans"
and "nonqualifying real property loans." "Qualifying real property
loans" are, in general, loans secured by interests in improved real
property or real property to be improved with the proceeds of the
loan. The addition to the reserve with respect to "qualifying real
property loans" may be based on the more favorable of the
following two alternative methods: (I) a method based on the
institution's actual loss experience (the "experience method") or (ii)
a method based on a specified percentage of the institution's
taxable income (the "percentage of taxable income method"). The
addition to the reserve for nonqualifying real property loans must
be computed under the experience method. First Indiana has
generally computed additions to its reserves for losses on
qualifying real property loans using the experience method.
The amount of the bad debt deduction that a savings
institution may claim with respect to additions to its reserve for bad
debts is subject to certain limitations. First, the bad debt deduction
may be reduced or eliminated entirely (regardless of the method of
computation) unless at least 60 percent of the savings institution's
assets fall within certain designated categories. Second, the bad
debt deduction attributable to "qualifying real property loans"
cannot exceed the greater of (i) the amount deductible under the
experience method or (ii) the amount which, when added to the bad
debt deduction for nonqualifying loans, equals the amount by which
12 percent of the sum of the total deposits and the advance
payments by borrowers for taxes and insurance at the end of the
taxable year exceeds the sum of the surplus, undivided profits and
21
reserves at the beginning of the taxable year. Third, the amount of
the bad debt deduction attributable to qualifying real property loans
computed using the percentage of taxable income method is
permitted only to the extent that the institution's reserve for losses
on qualifying real property loans at the close of the taxable year,
taking into account the addition to that reserve for the taxable year,
does not exceed six percent of such loans outstanding at such time.
Fourth, the amount of the bad debt deduction is reduced,
but not below zero, by the amount of the addition to reserves for
losses on nonqualifying loans for the taxable year. Finally, a
savings institution that computes its bad debt deduction using the
percentage of taxable income method and files its federal income
tax return as part of a consolidated group, as First Indiana does, is
required to reduce proportionally its bad debt deduction for losses
attributable to activities of non-savings institution members of the
consolidated group that are "functionally related" to the savings
institution member. (The savings institution member is permitted,
however, to proportionally increase its bad debt deduction in
subsequent years to recover any such reduction to the extent the
non-savings institution members realize income in subsequent
years from their "functionally related" activities.) First Indiana
does not expect these restrictions will operate to limit the amount
of its otherwise available bad debt deductions in the reasonably
foreseeable future.
To the extent that (i) a savings institution's reserve for
losses on qualifying real property loans exceeds the amount that
would have been allowed under the experience method and (ii) the
savings institution makes distributions to its shareholders that are
considered to result in withdrawals from that excess bad debt
reserve, then the amounts withdrawn will be included in the
savings institution's taxable income. The amount considered to be
withdrawn by such a distribution will be the amount of the
distribution plus the amount necessary to pay the tax with respect
to the withdrawal. Dividends paid out of the savings institution's
current or accumulated earnings and profits as calculated for
federal income tax purposes, however, will not be considered to
result in withdrawals from its bad debt reserves. Distributions in
excess of the savings institution's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions
in partial or complete liquidation of the savings institution will be
considered to result in withdrawals from the savings institution's
bad debt reserve.
Under Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" ("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), or (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, 1995,
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 1991, and the Indiana Department
of Revenue has examined the state income tax returns of First
Indiana through 1991. The State of Indiana is currently conducting
a routine tax audit of First Indiana for the years 1992-1994.
As a result of a routine tax audit, the IRS adjusted the
timing of certain income taxes owed by First Indiana for the years
ended December 31, 1985 and 1986. The adjustments involved
the timing of First Indiana's deduction of interest
22
expense paid on customers' certificate of deposit accounts. First Indiana
paid the taxes and interest and subsequently filed for a refund of these
amounts. The case is still pending, but a tentative settlement has
been reached and the Bank is awaiting final governmental
approval.
State. The State of Indiana imposes a franchise tax on
the "adjusted gross income" of financial 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 financial institutions. "Adjusted gross
income" is computed by making certain modifications to an
institution's federal taxable income. For example, tax-exempt
interest is included in the savings institution's adjusted gross
income, and the bad debt deduction is limited to actual charge-offs
for purposes of this new financial institutions tax.
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
two percent of an institution's assets, plus an additional one percent
of assets if the amount over two 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 ten 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 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 Mortgage Corporation. One Mortgage
Corporation is a wholly owned mortgage banking subsidiary which
originates single-family residential mortgage loans outside of
Indiana for sale to First Indiana or for sale into the secondary
market. It originates loans through offices located in Brandon and
Orlando, Florida, and in Charlotte and Raleigh, North Carolina.
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.
One Investment Corporation. One Investment
Corporation is a wholly owned subsidiary of First Indiana and
currently owns all of the outstanding stock of One Insurance
Agency, Inc. One Investment Corporation also engages in
securities brokerage through City Securities Corporation, an
unaffiliated registered broker/dealer.
One Insurance Agency, Inc. One Insurance Agency,
Inc., a subsidiary of One Investment Corporation, engages in
general insurance agency and insurance brokerage business and
acts as an insurance agent. One Insurance Agency currently
markets various insurance products which are underwritten by
major insurance companies including a tax-deferred annuity.
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.
23
Employees
At December 31, 1995, the Corporation and its
subsidiaries employed 588 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,
hospitalization and major medical insurance, paid sick leave, long-term
disability insurance, life insurance, an employees' stock
purchase plan, and reduced loan rates for employees who qualify.
24
Item 2. Properties
At December 31, 1995, the Corporation operated through
28 full-service banking centers and six loan origination offices.
The aggregate carrying value at December 31, 1995 of the
properties owned or leased, including headquarters of properties
and leasehold improvements at the leased offices, was $13.2
million. See Note 6 to the Corporation's Consolidated Financial
Statements. The carrying value of First Indiana's data processing
equipment at December 31, 1995 was $1.9 million.
The following table sets forth information with respect to
the Corporation's offices and office leases as of December 31,
1995:
Year Owned Expiration
Opened or or Date
Office Location Acquired Leased of Lease
- --------------- --------- ------ ----------
First Indiana
- -------------
Downtown Banking Center 1988 Leased Mar. 1998 (a)
and Corporate Headquarters
135 N. Pennsylvania Street
Indianapolis, Indiana
Eastgate Banking Center 1957 Leased Jan. 1999 (b)
7150 E. Washington Street
Indianapolis, Indiana
West Side Banking Center 1988 Leased Oct. 2003 (c)
925 N. High School Road
Indianapolis, Indiana
Nora Plaza Banking Center 1959 Leased Mar. 1997
1300 E. 86th Street
Indianapolis, Indiana
Southern Plaza Banking Center 1960 Leased Apr. 1999(b)
4200 S. East Street
Indianapolis, Indiana
Esquire Plaza Banking Center 1962 Leased May 2002(b)
8205 Pendleton Pike
Indianapolis, Indiana
Allisonville Banking Center 1972 Leased Sep. 1996(b)
6254 Allisonville Road
Indianapolis, Indiana
Carmel Banking Center 1973 Owned
2138 E. 116th Street
Carmel, Indiana
Zionsville Banking Center 1973 Leased Jun. 1998
75 Boone Village Shopping Center
Zionsville, Indiana
Greenwood Banking Center 1988 Leased Nov. 2008 (c)
8675 U.S. 31 South
Indianapolis, Indiana
Washington Square Banking Center 1988 Owned
10040 E. Washington Street
Indianapolis, Indiana
Brownsburg Banking Center 1979 Leased Dec. 2004 (b)
1073 N. Green Street
Brownsburg, Indiana
West 86th Banking Center 1983 Owned
1180 West 86th Street
Indianapolis, Indiana
Franklin Banking Center 1982 Owned
198 N. Main Street
Franklin, Indiana
East 82nd Banking Center 1981 Leased Mar. 1996 (d)
7320 E. 82nd Street
Indianapolis, Indiana
Westfield Banking Center 1981 Owned
111 E. Main Street
Westfield, Indiana
Pendleton Banking Center 1981 Owned
115 W. State Street
Pendleton, Indiana
Fishers Banking Center 1990 Owned
11991 Fishers Crossing Drive
Fishers, Indiana
North 31 Banking Center 1993 Owned
14811 Greyhound Ct.
Carmel, Indiana
Carmel Mortgage Services Office 1991 Leased Jan. 1999
10401 N. Meridian, Suite 100
Carmel, Indiana
Washington Square Office 1977 Owned
10044 E. Washington Street
Indianapolis, Indiana
Greenwood Mortgage 1984 Leased Jun. 1997
Services Office
720 Fry Road
Indianapolis, Indiana
South Bend Consumer Loan Office 1992 Leased July 1996
6910 N. Gumwood Suite 12H
Box 33
Granger, Indiana
Columbus Consumer Loan Office 1994 Leased Sep. 1996
425 W. Shrock, Suite 102
Westerville, Ohio
Fort Wayne Consumer Loan Office 1995 Leased Sep. 1996
3711 Rupp Drive, Suite 208
Fort Wayne, Indiana
Louisville Consumer Loan Office 1992 Leased Apr. 1996
3303 Plaza Drive, Suite 1
New Albany, Indiana
One Mortgage Corporation 1984 Leased Jun. 1998
2100 Rexford Road, Suite 204
Charlotte, North Carolina
One Mortgage Corporation 1985 Leased Sep. 1997
4700 Homewood Court Suite 100
Raleigh, North Carolina
One Mortgage Corporation 1992 Leased May 1998
445 North Wymore Road,
Suite 201
Winter Park, Florida
One Mortgage Corporation 1990 Leased Jan. 1997
Sable Business Ctrs. V
3922 Coconut Palm Dr., Suite 106
Brandon, Florida
Greenwood Operations Center 1993 Owned
1300 Windhorst Way
Greenwood, Indiana
Land - Outlot #1 1993 Owned
Meridian Oaks Commercial
Subdivision
State Road 135 South
Greenwood, Indiana
Downtown Evansville Banking Center 1977 Owned
123 Main Street
Evansville, Indiana
Mount Vernon Banking Center 1965 Owned
405 E. 4th Street
Mt. Vernon, Indiana
East Side Banking Center 1980 Owned
4720 Lincoln Avenue
Evansville, Indiana
Bell Oaks Banking Center 1980 Owned
8388 Bell Oaks Drive
Newburgh, Indiana
27
North Brook Banking Center 1986 Owned
3540 First Avenue
Evansville, Indiana
Mooresville Banking Center 1952 Owned
24 West Main Street
Mooresville, Indiana
Drive-Up Banking Center 1982 Owned
33 West Main Street
Mooresville, Indiana
Spring Mill Banking Center 1984 Owned
24 Springmill Court
Mooresville, Indiana
Rushville Banking Center 1985 Owned
201 Harcourt Way
Rushville, Indiana
Downtown Rushville Banking Center 1955 Owned
315 North Main Street
Rushville, Indiana
(a) The lease also provides six ten-year renewal options.
(b) The lease also provides a five-year renewal option.
(c) The lease also provides two five-year renewal options.
(d) This banking center is moving to 7652 N. Shadeland Avenue,
Indianapolis, in April 1996.
Item 3. Legal Proceedings
As a result of a routine audit, the Internal Revenue
Service assessed additional income taxes of approximately
$1,500,000 related to the years ended December 31, 1986 and
1985. The assessment involved the timing of First Indiana's
deduction for accrued interest expense relating to customers'
certificate of deposit accounts. The assessed tax and interest were
paid in the tax year ending December 31, 1990 and claim for
refund was subsequently filed. The Corporation is now negotiating
a settlement with the United States Department of Justice - Tax
Division.
Other than the above mentioned item, 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 routine litigation incidental to the Corporation's
business. In the opinion of management, such litigation 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,
1995.
28
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 xiv of the Corporation's 1995 Annual Report
under the heading, "Corporate Profile."
For restrictions on the Corporation's present or future
ability to pay dividends, see Note 11 of "Notes to Consolidated
Financial Statements" on page 24 - 25 of the Corporation's 1995
Annual Report, which is incorporated herein by reference.
The Corporation paid a cash dividend of $.12 per share
outstanding in each quarter of 1995 and $.11 per share outstanding
in each quarter of 1994, as adjusted for stock splits on March 1,
1996 and March 17, 1994.
Item 6. Selected Financial Data
The information required by this item is incorporated by
reference to page 1 of the Corporation's 1995 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 2 - 11 of the Corporation's 1995 Annual Report
from the material under the heading "Financial Review."
Item 8. Financial Statements and Supplementary Data
The Corporation's Consolidated Financial Statements and
Notes to Consolidated Financial Statements at December 31, 1995
and 1994 and for each of the years in the three-year period ended
December 31, 1995 are incorporated by reference to pages 12 - 30
of the Corporation's 1995 Annual Report. The Corporation's
unaudited quarterly financial data for the two-year period ended
December 31, 1995 is incorporated by reference to Note 15 of
"Notes to Consolidated Financial Statements" on page 29 of the
Corporation's 1995 Annual Report.
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 3-5 and page 14 of
the Corporation's Proxy Statement dated March 13, 1996 under the
heading "Election of Directors," and "Compliance with Section
16(a) of the Securities Exchange Act of 1934."
29
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 52 1981
of the Corporation; Chief
Financial Officer, Treasurer,
and Senior Vice President,
Internal Support Services
Division of the Bank
David A. Lindsey Senior Vice President, 45 1983
Consumer Banking Sales
Division of the Bank;
President, One Mortgage Corporation
and One Insurance Agency
Merrill E. Matlock Senior Vice President, 46 1984
Commercial Banking Division
of the Bank
Timothy J. O'Neill Senior Vice President, 48 1972
Consumer Banking Services
Division of the Bank
Kenneth L. Turchi Senior Vice President, 37 1987
Marketing and Strategic
Planning Division of the Bank
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, treasurer, and
senior vice president, Internal Support Services 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
Banking Sales Division. His duties include mortgage and
consumer lending, retail deposit activities, supervision of the
Bank's branches, and customer assistance. He also is responsible
for the management of the Bank's investment, insurance and
mortgage banking subsidiaries.
Merrill E. Matlock is senior vice president of the Bank's
Commercial Banking Division. He is responsible for the Bank's
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, Consumer
Banking Services Division. He is responsible for the
administration of the processing and servicing of the Bank's
lending and deposit products.
Kenneth L. Turchi joined First Indiana in September 1985
and currently serves as senior vice president, Marketing and
Strategic Planning Division. His duties include strategic planning,
marketing, advertising, market research, investor relations, and
public relations.
Item 11. Executive Compensation.
The information required by this item with respect to
executive compensation is incorporated by reference to pages 7-14
of the material under the heading "Executive Compensation" in the
Corporation's Proxy Statement.
30
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The information required by this item is incorporated by
reference to pages 1-6 of the material under the heading "Voting
Securities and Beneficial Owners" and "Proposal No 1: Election of
Directors" in the Corporation's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by
reference to page 6 of the material under the heading "Certain
Transactions" in the Corporation's Proxy Statement.
31
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:
1995 Annual
Report
(Exhibit 13)
Financial Statements Page(s)
-------------------- ------------
Consolidated Balance Sheets as of
December 31, 1995 and 1994 12
Consolidated Statements of Earnings
for the Years Ended December 31, 1995, 1994 and 1993 13
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 14
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993 15
Notes to Consolidated Financial Statements 16-30
Independent Auditors' Report 31
32
Exhibits
Refer to list of exhibits on pages 35-37
b. Reports on Form 8-K
No Reports on Form 8-K were filed during the three
months ended December 31, 1995.
c. The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit index on pages 35-37.
d. Financial Statement Schedules required by Regulation S-X.
None
33
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 21, 1996
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/Robert H. McKinney By: /s/David L. Gray
Robert H. McKinney David L. Gray
Chairman and Chief Vice President and
Executive Officer Treasurer
Date: March 21, 1996 Date: March 21, 1996
Directors
By: /s/Gerald L. Bepko By: /s/Robert H. McKinney
Gerald L. Bepko Robert H. McKinney
Date: March 21, 1996 Date: March 21, 1996
By: /s/Douglas W. Huemme By: /s/Owen B. Melton, Jr.
Douglas W. Huemme Owen B. Melton, Jr.
Date: March 21, 1996 Date: March 21, 1996
By: /s/Marni McKinney By: /s/Phyllis W. Minott
Marni McKinney Phyllis W. Minott
Date: March 21, 1996 Date: March 21, 1996
By: /s/John W. Wynne By: /s/Michael L. Smith
John W. Wynne Michael L. Smith
Date: March 21, 1996 Date: March 21, 1996
By: /s/H.J. Baker
H.J. Baker
Date: March 21, 1996
34
Exhibit Index
Page(s)
Exhibit (by Sequential
Number Numbering System)
2(a) Amended and Restated Merger Agreement, dated as of February 28,
1992 and restated as of September 8, 1992, among Registrant,
Mooresville Savings Bank ("Mooresville"), and First Indiana.*
2(b) Amended and Restated Merger Agreement, dated as of November 8,
1991 and restated as of September 4, 1992, among Registrant, First
Federal Savings and Loan Association of Rushville ("Rushville"), and
First Indiana.*
2(c) Amended and Restated Mooresville Plan of Merger Conversion. *
2(d) Amended and Restated Rushville Plan of Merger Conversion. *
3(a) Articles of Incorporation and Bylaws of First Indiana Corporation,
incorporated by reference to Exhibit 3(a) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
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.
10(a) First Indiana Bank 1983 Stock Option and Incentive Plan,
incorporated by reference to Exhibit 10(a) of the Registrant's statement
on Form S-4 filed as File No. 33-3273 on February 18, 1986, as
amended.
10(b) First Indiana Bank 1988 Management Performance Incentive Plan,
incorporated by reference to Exhibit 10(b) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
10(c) First Indiana Bank 1988 Long-Term Management Performance Plan,
incorporated by reference to Exhibit 10(c) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
10(d) First Indiana Corporation 1987 Stock Option and Incentive Plan,
incorporated by reference to Exhibit 1 of the Registrant's February 27,
1987 Proxy Statement pages E-1 to E-8.
10(e) First Indiana Corporation Directors' Deferred Fee Plan, incorporated
by reference to Exhibit 10(e) of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.
10(f) First Indiana Bank 1990 Management Performance Incentive Plan,
incorporated by reference to Exhibit 10(f) of the Registrant's Annual
Report on From 10-K for the year ended December 31, 1988.
10(g) Form of Employment Agreement between Registrant and Maurice E.
Mobley, incorporated by reference to Exhibit 10(a) of the Registrant's
registration statement on Form S-1, filed as File No. 33-27459 on
March 9, 1989.
35
10(h) Form of Amended and Restated Supplemental Pension Benefits
Agreement between Registrant and Maurice E. Mobley, incorporated
by reference to Exhibit 10(b) of the Registrant's registration statement
on Form S-1, filed as File No. 33-27459 on March 9, 1989.
10(i) First Indiana Corporation 1989 Stock Option Plan, incorporated by
reference to Exhibit 10(i) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989.
10(j) First Indiana Bank 1991 Management Performance Incentive Plan,
incorporated by reference to Exhibit 10(j) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
10(k) First Indiana Bank 1991 Long-Term Management Performance
Incentive Plan, incorporated by reference to Exhibit 10(k) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
10(l) Mid-West Federal Savings Bank Nonqualified Retirement Plan for
Directors, incorporated by reference to Exhibit 10(l) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.
10(m) Nonqualified Deferred Compensation Program for the Directors of
Mid-West Federal Savings Bank, incorporated by reference to Exhibit
10(m) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.
10(n) 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(o) 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(p) Form of Employment Agreement between First Indiana and each of
Boyd C. Head, N. Thomas Lloyd and John D. Ehrhart (included as
Exhibits A, B and C, respectively, to Exhibit 2(a) above).
10(q) Form of Employment Agreement between First Indiana and each of
Eugene Spurlin and Garry E. Cooley (included as Exhibits A and B,
respectively, to Exhibit 2(b) above).
10(r) Form of Executive Supplement Retirement Income Agreement
between First Indiana and each of Boyd C. Head, N. Thomas Lloyd and
John D. Ehrhart (included as Exhibits D, E and F, respectively, to
Exhibit 2(a) above.
10(s) 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.
13 1995 Annual Report. 10-K 38-89
21 Subsidiaries of First Indiana Corporation and First Indiana Bank. 10-K 90
36
22 Definitive Proxy Statement relating to the 1996 Annual Meeting of
Shareholders. 10-K 91-110
23 Consent of KPMG Peat Marwick LLP. 10-K 111
27 Financial Data Schedule. 10-K 112
* Previously Filed
37