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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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from____ to ____
Commission File Number 0-14354
FIRST INDIANA CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1692825
(State 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: $268,782,000 as of February 28,
1998.
On February 28, 1998, the registrant had 12,733,732 shares of
common stock outstanding, $.01 par value (as adjusted for six-for-five stock
dividend paid March 6, 1998).
Documents Incorporated by Reference: See Page 2.
1
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Annual Report to Shareholders for 1997 Part II
Proxy Statement Dated March 12, 1998 Part III
Total Number of Pages in this Report 234
List of Exhibits on Pages 30-31
2
FIRST INDIANA CORPORATION
FORM 10-K
Table of Contents
Page
PART I 4
Item 1. Business 4
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote
of Security Holders 24
PART II 24
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operation 25
Item 7a. Quantitative and Qualitative
Disclosures About Market Risk 25
Item 8. Financial Statements and
Supplementary Data 25
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 25
PART III 26
Item 10. Directors and Executive Officers
of the Registrant 26
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain
Beneficial Owners and Management 27
Item 13. Certain Relationships and
Related Transactions 27
PART IV 28
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 28
SIGNATURES 29
EXHIBIT INDEX 30
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. First Indiana's subsidiaries include One Mortgage
Corporation, a mortgage origination subsidiary, and One Property Corporation,
a real estate investment subsidiary.
First Indiana Bank
First Indiana is a federally chartered stock savings bank whose
depository accounts are insured by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation (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 $1.6 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 and industrial loans, and consumer loans. First Indiana offers a
full range of banking services through 26 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 June 1996, when all three divisions adopted the First Indiana
Bank name. The Bank also originates home equity loans indirectly through a
network of loan originators and loan agents throughout the United States.
First Indiana's subsidiary, One Mortgage Corporation, operates
mortgage origination offices in Florida and North Carolina. First Indiana has
mortgage and consumer loan service offices throughout Indiana, Florida,
Georgia, Illinois, North Carolina, Ohio, and Oregon. First Indiana's
investment and insurance subsidiaries, One Investment Corporation and One
Insurance Agency, Inc., were sold in the second quarter of 1996 to The
Somerset Group, Inc., a publicly held affiliate which owns approximately 22
percent of the Corporation's stock.
The metropolitan area served by First Indiana's flagship division
consists of Indianapolis, the State's largest city and capital, and the
surrounding six-county suburban and agricultural areas in the central part of
the State. The population of the metropolitan Indianapolis area in 1990 was
approximately 1,200,000. Indianapolis' diversified economy includes
manufacturing and service industries, such as Eli Lilly & Company
(pharmaceuticals), the federal and state governments, General Motors
(automotive), and Ameritech (communications).
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. 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 interest rates and meeting and
exceeding customer expectations regarding office locations and flexible hours.
Direct competition for deposits comes from other depository institutions,
money market mutual funds, and other investment products. The primary
factors in competing for loans are
4
interest rates, loan origination fees, and loan product variety.
Competition for origination of loans normally comes from
other depository institutions, lending brokers, and insurance companies.
Lending Activities
General. First Indiana 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, commercial and industrial 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 focus resources toward real estate
lending activities. The Bank also implemented a series of process and
operational enhancements that 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 interest-rate-
sensitive assets and liabilities, First Indiana has a policy of (i) increasing
its portfolio of adjustable-rate and shorter-term mortgage, consumer and
commercial and industrial loans; (ii) selling most fixed-rate, longer-term loans
into the secondary market unless those loans can be funded by liabilities of a
similar maturity; and (iii) increasing transaction accounts, which are less
volatile than certificates of deposit.
Loan Portfolio Composition. The following tables set forth
information concerning the composition of First Indiana's loan portfolio in
dollar amounts and in percentages, by type of security, and by type of loan.
Also presented is a reconciliation of total loans receivable and mortgage-backed
securities ("loans") before net items to loans receivable after net items.
Net items consist of loans in process (undisbursed portion of loan balances),
deferred income, unearned discounts and unamortized premiums, and
allowances for loan losses.
5
Loan Portfolio Composition
(Dollars in Thousands) At December 31,
---------------
1997 1996 1995
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Loans by Type of Security:
First Mortgage Loans Secured by:
Single-Family Units $ 750,619 49.4% $ 640,743 47.3%$ 625,133 45.0%
2-4 Family Units 1,093 0.1% 1,643 0.1% 1,885 0.1%
Over 4 Family Units 9,844 0.6% 9,586 0.7% 18,946 1.4%
Mortgage-Backed Securities 38,081 2.6% 36,152 2.8% 49,089 3.6%
Commercial Real Estate and
Other Mortgage Loans 32,269 2.1% 37,735 2.8% 46,137 3.3%
Consumer Loans 548,016 36.1% 526,769 38.9% 575,009 41.4%
Commercial and Industrial Loans 137,517 9.1% 100,513 7.4% 72,146 5.2%
---------- ------ ---------- ---------------- ------
Total Mortgage-Backed
Securities and Loans Receivable
(Before Net Items) $1,517,439 100.0% $1,353,141 100.0%$1,388,345 100.0%
========== ====== ========== ================ ======
Loans by Type of Loan:
Real Estate:
Conventional:
Loans on Existing Property $ 530,603 35.0% $ 463,211 34.2%$ 464,604 33.5%
Construction Loans:
Commercial Real Estate Loans 0 0.0% 11 0.0% 6,835 0.5%
Commercial and Industrial Loans 13,050 0.9% 7,944 0.6% 0 0.0%
Residential Loans 253,259 16.7% 214,433 15.8% 207,957 15.0%
Insured or Guaranteed:
Mortgage-Backed Securities 38,081 2.6% 36,152 2.8% 49,089 3.5%
FHA and VA Loans 9,963 0.7% 12,052 0.9% 12,705 0.9%
Total Real Estate Loans 844,956 55.8% 733,803 54.3% 741,190 53.4%
Consumer Loans 548,016 36.1 526,769 38.9 575,009 41.4
Commercial and Industrial Loans 124,467 8.2 92,569 6.8 72,146 5.2
---------- ----- ---------- ----- ---------- -----
Total Mortgage-Backed Securities
and Loans Receivable
(Before Net Items) $1,517,439 100.0% $1,353,141 100.0%$1,388,345 100.0%
========== ====== ========== ================ ======
At December 31,
----------------
1994 1993
Amount Percent Amount Percent
------ ------- ------ -------
Loans by Type of Security:
First Mortgage Loans Secured by:
Single-Family Units $ 583,345 47.1% $ 561,413 48.7%
2-4 Family Units 2,173 0.2% 1,909 0.2%
Over 4 Family Units 21,881 1.8% 27,990 2.4%
Mortgage-Backed Securities 69,061 5.6% 100,924 8.7%
Commercial Real Estate and
Other Mortgage Loans 45,647 3.7% 50,294 4.4%
Consumer Loans 474,465 38.3% 382,360 33.1%
Commercial and Industrial Loans 41,770 3.4% 29,308 2.5%
---------- ------ ---------- ------
Total Mortgage-Backed
Securities and Loans Receivable
(Before Net Items) $1,238,342 100.0% $1,154,198 100.0%
========== ====== ========== ======
Loans by Type of Loan:
Real Estate:
Conventional:
Loans on Existing Property $ 450,935 36.4% $ 454,560 39.4%
Construction Loans:
Commercial Real Estate Loans 9,019 0.7% 3,213 0.3%
Commercial and Industrial Loans 0 0.0% 0 0.0%
Residential Loans 186,145 15.0% 167,077 14.5%
Insured or Guaranteed:
Mortgage-Backed Securities 69,061 5.6% 100,924 8.7%
FHA and VA Loans 6,947 0.6% 16,756 1.5%
Total Real Estate Loans 722,107 58.3% 742,530 64.3%
Consumer Loans 474,465 38.3 382,360 33.1
Commercial and Industrial Loans 41,770 3.4 29,308 2.5
-------- ----- ---------- -----
Total Mortgage-Backed Securities
and Loans Receivable
(Before Net Items) $1,238,342 100.0% $1,154,198 100.0%
========== ====== ========== ======
6
Loan Portfolio Composition
(Continued) At December 31,
----------------
1997 1996 1995 1994 1993
(Dollars in Thousands) ---- ---- ---- ---- ----
Total Mortgage-Backed Securities $ 1,517,439 $ 1,353,141 $ 1,388,345 $ 1,238,342 $ 1,154,198
and Loans Receivable
(Before Net Items)
Less:
Undisbursed Portion of Loans 110,629 84,173 72,511 78,588 63,382
Deferred Income, Unearned Discounts,
and Unamortized Premiums (2,412) (1,762) (624) (521) 646
Plus:
Loan Valuation Adjustment
for Acquisitions 0 0 0 341 682
---------- ---------- ---------- --------- ---------
Total Mortgage-Backed Securities and Loans
Receivable Before Allowance for
Loan Losses 1,409,222 1,270,730 1,316,458 1,160,616 1,090,852
Less:
Allowance for Loan Losses 22,414 18,768 16,234 12,525 11,506
----------- ----------- ----------- ----------- -----------
Mortgage-Backed Securities and Loans
Receivable - Net $ 1,386,808 $ 1,251,962 $ 1,300,224 $ 1,148,091 $ 1,079,346
=========== =========== =========== =========== ===========
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,
---------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Residential Mortgage Loans
Fixed Rates $ 189,323 $ 166,968 $ 186,886 $ 157,706 $ 225,305
Adjustable Rates 602,835 512,965 491,681 494,090 440,381
----------- ----------- ----------- ----------- -----------
Total $ 792,158 $ 679,933 $ 678,567 $ 651,796 $ 665,686
=========== =========== =========== =========== ===========
Commercial Real Estate Loans
Fixed Rates $ 6,099 $ 17,213 $ 11,948 $ 15,770 $ 21,835
Adjustable Rates 33,649 28,713 50,676 54,541 55,009
----------- ----------- ----------- ----------- -----------
Total $ 39,748 $ 45,926 $ 62,624 $ 70,311 $ 76,844
=========== =========== =========== =========== ===========
Total Residential Mortgage and
Commercial Real Estate Loans
Fixed Rates $ 195,422 $ 184,181 $ 198,833 $ 173,476 $ 247,140
Adjustable Rates 636,484 541,678 542,357 548,631 495,390
----------- ----------- ----------- ----------- -----------
Total $ 831,906 $ 725,859 $ 741,190 $ 722,107 $ 742,530
=========== =========== =========== =========== ===========
Consumer Loans
(Includes Home Equity Loans)
Fixed Rates $ 395,423 $ 368,697 $ 411,030 $ 307,136 $ 251,297
Adjustable Rates 152,593 158,072 163,980 167,329 131,063
----------- ----------- ----------- ----------- -----------
Total $ 548,016 $ 526,769 $ 575,009 $ 474,465 $ 382,360
=========== =========== =========== =========== ===========
Commercial and Industrial Loans
Fixed Rates $ 47,577 $ 0 $ 5,699 $ 2,028 $ 172
Adjustable Rates 89,940 100,513 66,447 39,742 29,136
----------- ----------- ----------- ----------- -----------
Total $ 137,517 $ 100,513 $ 72,146 $ 41,770 $ 29,308
=========== =========== =========== =========== ===========
Total Mortgage-Backed Securities
and Loans Receivable
Fixed Rates $ 638,422 $ 552,878 $ 615,562 $ 482,640 $ 498,609
Adjustable Rates 879,017 800,263 772,783 755,702 655,589
----------- ----------- ----------- ----------- -----------
Total $ 1,517,439 $ 1,353,141 $ 1,388,345 $ 1,238,342 $ 1,154,198
=========== =========== =========== =========== ===========
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 most 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 $373 million in 1997, a 7.8
percent increase from 1996. Much of this increase resulted from the Bank's
continued efforts to consolidate and centralize origination and servicing
processes in its Commercial and Mortgage Banking Group. In 1997, First
Indiana strengthened its national presence by opening offices in the
southeastern United States and aggressively pursued alternative delivery
channels for its residential loans, including a telemarketing call center and
wholesale alliances. First Indiana sold residential mortgage loans into the
secondary market as part of the Bank's normal mortgage banking activity,
resulting in pre-tax gains of $1.9 million during 1997. This compares with
gains of $1.4 million in 1996.
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, commercial and industrial
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, 1997 and 1996, the Bank's gross construction loans
outstanding equaled $253 million and $214 million, respectively.
Also included in commercial and industrial loans are $18 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 commercial and industrial 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 $ 140,261 $15,419 $ - $155,680 55.6 %
Commercial and Industrial 81,729 26,000 16,738 124,467 44.4
------------- ------- ------- -------- -------
Total $ 221,990 $41,419 $ 16,738 $280,147 100.0 %
============= ======= ======= ======== =======
Rate Sensitivity:
Fixed Rate $ 6,764 $24,831 $ 15,982 $ 47,577 17.0 %
Adjustable Rate 215,226 16,588 756 232,570 83.0
------------- ------- ------- -------- -------
Total $ 221,990 $41,419 $ 16,738 $280,147 100.0 %
============= ======= ======= ======== =======
9
Multi-family and commercial real estate lending was a substantial
part of First Indiana's business activities from the early 1970s until 1991,
when such activity was largely curtailed because of the economic environment.
With the changing economic environment and improved market for commercial real
estate lending, the Bank intends to increase somewhat its volume of these loans
to include permanent financing for selected apartments, office buildings and
warehouses. 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, 1997 and 1996,
outstanding multi-family and commercial real estate loans originated and
purchased by First Indiana.
1997 1996
(Dollars in Millions) Amount Percent Amount Percent
Loans Originated $38.7 97.5 $44.7 97.4
Loans Purchased 1.0 2.5 1.2 2.6
----- ---- ----- ----
$39.7 100.0 $45.9 100.0
===== ===== ===== =====
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, 1997, such loans totaled $548.0 million, or 36.1 percent of total
mortgage-backed securities and loans receivable, compared with $526.8
million, or 38.9 percent of total mortgage-backed securities and loans
receivable, at December 31, 1996. Much of the increase in 1997 occurred as
the Bank aggressively pursued originations of products with loan-to-value
ratios greater than 80 percent for sale into the secondary market. Additionally,
First Indiana capitalized on alternative delivery channels for originations by
utilizing a national network of originators and a telemarketing call center.
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 $548.0 million of consumer loans
outstanding at December 31, 1997, 96.4 percent were secured by first or
second mortgages on real property, 0.6 percent was secured by deposits, and
3.0 percent were secured by personal property or were unsecured.
First Indiana offers revolving lines of credit and loans secured by a
lien on the equity in the borrower's home in amounts up to 100 percent of the
appraised value of the real estate. For lines of credit at or below an 80
percent loan-to-value ("LTV") ratio, the interest rate is typically the Wall
Street Journal prime rate plus one or two percent, depending on the amount of
the loan. The interest rate rises in various increments as the LTV ratio
increases. The highest rate charged is the Wall Street Journal prime rate plus
3.5 percent for lines of credit at a 100 percent LTV. At December 31, 1997,
the Bank had approximately $241.0 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, 1997, First Indiana
had approved $237 million of 80 percent LTV lines of credit, of which $114
million were outstanding, compared with $238 million of such lines which
had been approved at December 31, 1996, $118 million of which were
outstanding.
10
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 real estate
lending activities in which management believes it can differentiate itself from
the competition more effectively. The Bank completed the sale of approximately
$32.8 million of its indirect automobile portfolio during the third quarter of
1996 at a loss of $898,000. The balances of First Indiana's installment loans
were $15 million and $22 million at December 31, 1997 and 1996. This
portfolio is expected to decline further, although First Indiana continues to
offer direct automobile loans through its banking centers as an accommodation
to its customers. These loans will be made generally for terms of one to five
years at variable and fixed rates of interest.
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 $166 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, 1997, however, most of
First Indiana's real estate loans receivable were secured by real estate located
in Indiana. First Indiana also originates mortgage loans in Florida, Georgia,
and North Carolina. The Bank originates home equity loans through consumer
loan offices in those states and in Ohio and Illinois and in approximately 20
other states via an origination network of independent loan agents.
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, 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 used to close loans give First Indiana an
endorsement insuring over any existing environmental liens.
Income from Lending Activities. In making long-term one- to
four-family home mortgage loans, First Indiana generally charges an
origination fee of one percent of the loan amount. As part of the loan
application, the applicant also reimburses First Indiana for its out-of-pocket
costs in reviewing the application, such as the appraisal fee, whether or not
the loan is closed. The interest rate charged is normally the prevailing market
rate at the time the loan application is received. Commitments to home
purchasers generally have a term of 60 days or less from the date First Indiana
issues the loan commitment.
11
In the case of one-to-four-family residential construction loans, First
Indiana charges a one to three percent non-refundable commitment fee.
Interest rates on construction loans are based on the prevailing market rate at
the time the commitment is extended. Commitment fees and other terms of
commercial real estate and commercial and industrial loans are individually
negotiated.
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 second quarter of 1995, First
Indiana purchased servicing rights for approximately $310 million in mortgage
loans.
At December 31, 1997, First Indiana serviced approximately $969
million in loans and loan participations which it had sold. As of December 31,
1997, approximately $16.6 million in loans, or about 1.2 percent of First
Indiana's mortgage-backed securities and loans receivable after net items, were
serviced by others.
Effective January 1, 1996, the Bank adopted Statement of Financial
Accounting Standard No. 122, "Accounting for Mortgage Servicing Rights"
("FAS 122 "). For servicing retained loan sales, FAS 122 requires
capitalization of the cost of mortgage servicing rights, regardless of whether
those rights were acquired through purchase or origination. Prior to adoption
of FAS 122, only purchased and excess loan servicing rights were capitalized.
Beginning in 1996, the total cost of mortgage loans originated with
the intent to sell is allocated between the loan servicing right and the
mortgage loan without servicing based on their relative fair values at the date
of sale. The capitalized cost of loan servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenue. For
this purpose, estimated servicing revenues include late charges and other
ancillary income. Estimated servicing costs include direct costs associated with
performing the servicing function and appropriate allocations of other costs.
Mortgage servicing rights are periodically evaluated for impairment
by stratifying them based on predominant risk characteristics of the underlying
serviced loans. These risk characteristics include loan type (fixed or
adjustable rate), investor type (FHLMC, GNMA, private), term, and note rate.
Impairment represents the excess of cost of an individual mortgage servicing
rights stratum over its estimated fair value, and is recognized through a
valuation allowance.
Fair values for individual strata are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment,
default and interest rates, and other factors which are subject to change over
time. Changes in these underlying assumptions could cause the fair value of
loan servicing rights, and the related valuation allowance, to change
significantly in the future. At December 31, 1997 the balance of originated
mortgage servicing rights included in other assets was $4,522,000, with a fair
market value of $5,867,000. The amounts capitalized in 1997 and 1996 were
$893,000 and $986,000, and the amounts amortized to loan servicing income
were $819,000 and $92,000. There were no valuation allowances at
December 31, 1997, and no activity for the year then ended.
Effective January 1, 1997, the Bank adopted Statement of Financial
Accounting Standard No. 125 , "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("FAS 125"). FAS 125,
which supersedes FAS 122, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial components approach that
focuses on control. Since the Corporation had already adopted FAS 122, this
pronouncement had no material impact on the financial statements of the
Corporation.
Asset Quality
General. First Indiana's asset quality is directly affected by the
credit risk of the assets on its balance sheet. Most of First Indiana's credit
risk is concentrated in its loan portfolios and, to a lesser extent, its real
estate owned ("REO") portfolio. Consequently, First Indiana has established
policies and procedures to ensure accurate and timely assessment of credit risk
from the date the loan is originated.
12
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 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
without loan approval authority. This system provides an independent review
and assessment of management's recommendations about loan and REO
classifications and loss allowances. This entire process is subject to the
continual review and approval by the Board of Directors.
First Indiana 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.
Management believes that First Indiana's current loan and REO loss
allowances are sufficient to absorb potential 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") in their most recent examinations of First
Indiana.
The Bank reviews all loans for evidence of impairment except those
with smaller balances and homogeneous loans. The homogeneous loan
portfolios include residential mortgage loans secured by one- to four-family
dwellings, consumer loans, and certain commercial and industrial and
residential construction loans which do not meet the Bank's parameters for
review. Loans subject to review include commercial real estate loans and
larger commercial and industrial and residential construction loans which,
because of their size, nature and unique characteristics, could negatively
affect 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
management, full collection of the contractual principal and interest is not
probable.
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
13
deficiencies are not corrected. Doubtful assets have the weaknesses of
Substandard assets, with the additional characteristic that the weaknesses
make collection or liquidation in full on the basis of currently existing
facts, conditions and values questionable, and there is a significant
possibility of loss. An asset classified as Loss is considered uncollectible
and of such little value that continuation as an asset of the depository
institution is not warranted.
Assets classified as Substandard or Doubtful require the depository
institution to establish prudent general allowances for loan losses. If an
asset or portion thereof is classified as Loss, the depository institution must
either establish specific allowances for loan losses in the amount of 100
percent of the portion of the asset classified Loss or charge off such amount.
If a depository 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,
1997 on a net basis, First Indiana had classified $33.4 million as Substandard,
compared with $36.7 million and $34.5 million at December 31, 1996 and
1995, respectively. The amount of First Indiana's Doubtful and Loss loans at
each such date was immaterial.
Non-Performing Assets. First Indiana categorizes its non-performing
assets into four categories: Non-Accrual Loans, Impaired Loans,
Restructured Loans, and Real Estate Owned.
First Indiana places loans on non-accrual status when payments of
principal or interest become 90 days or more past due, or earlier when an
analysis of a borrower's creditworthiness indicates that payments could
become past due. Total non-accrual loans were $18.4 million at December 31,
1997, compared with $15.4 and $14.7 million at December 31, 1996 and
1995, respectively.
At December 31, 1995, First Indiana identified an impaired loan
totaling $3,306,000 which had an allocated reserve of $167,000. This loan
was repaid in the first quarter of 1996, and the allocated reserve was absorbed
into the general loan loss allowances of the Bank.
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 $6.9
million at December 31, 1996, compared with $5.9 million at December 31,
1995. 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. These loans were repaid in 1997.
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
depository institutions which have had concentrations in areas of the country
most adversely affected by economic cycles. First Indiana's non-performing
assets fell in 1997 to $22.8 million at December 31, 1997 from $27.1 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 REO. For additional information relating
to the Corporation's loan and REO loss allowances, see the Corporation's
Consolidated Financial Statements, including Note 5 thereto.
14
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
liquidity requirements are satisfied.
At December 31, 1997, First Indiana's investments totaled $111.4
million, or 6.90 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.
First Indiana also purchased mortgage-backed securities available for
sale in 1997. At December 31, 1997, these mortgage-backed securities totaled
$17.1 million, or 1.06 percent of total assets. For additional information
concerning mortgage-backed securities held by the Corporation, see the
Corporation's Consolidated Financial Statements, including Note 3 thereto.
Sources of Funds
General. Deposits are an important source of the Corporation's
funds for use in lending and for other general business purposes. In addition
to deposits, First Indiana derives funds from repayments of loans and
mortgage-backed securities, Federal Home Loan Bank of Indianapolis
("FHLB") advances, repurchase agreements, short-term borrowings, and sales
of loans. Repayments of loans and mortgage-backed securities are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings
may be used to compensate for reductions in normal sources of funds, such as
deposit inflows at less than projected levels, or to support expanded
activities. Historically, First Indiana's borrowings have been primarily from
the FHLB and through repurchase agreements.
Deposits. First Indiana has a wide variety of deposit programs
designed to attract both short-term and long-term deposits from the general
public. These deposit accounts include passbook accounts, non-interest-bearing
consumer and commercial demand accounts, NOW accounts, and
money market checking accounts, as well as fixed-rate certificates and money
market accounts. In 1998, First Indiana plans to increase consumer and
commercial checking accounts and certificates of deposit in an effort to reduce
funding costs and strengthen core deposits.
15
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) 1997 1996 1995
Rate
Under 3.00% $205,265 $259,798 $213,082
3.00 - 5.00 385,859 110,786 177,524
5.01 - 7.00 493,012 689,390 695,103
7.01 - 9.00 23,032 35,156 50,354
9.01 - 11.00 387 356 917
--------- --------- --------
$1,107,555 $1,095,486 $1,136,980
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,
1997 1996 1995
(Dollars in Thousands)
NOW Checking and
Non-Interest-Bearing
Deposits $ 13,342 $ 12,300 $ 18,136
Money Market
Checking (9,106) (2,344) (3,355)
Passbook and
Statement Savings (1,056) 55,252 34,797
Money Market Savings (2,914) (4,495) (8,860)
Jumbo Certificates of
$100 or More 23,358 (23,067) 54,943
Fixed-Rate Certificates (11,555) (79,140) 9,408
-------- -------- --------
Net Increase (Decrease) $ 12,069 $(41,494) $105,069
======== ======== ========
16
First Indiana's jumbo certificates of $100,000 or more at
December 31, 1997, 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
Months or Six Months to Over One Percent of
Less Months One Year Year Total Deposits
(Dollars in Thousands) --------- ---------- --------- ---- ----- --------
Jumbo Certificates of $100
or More $41,658 $25,010 $14,339 $39,749 $120,756 10.90%
Borrowings. The FHLB functions as a central reserve bank
providing credit for depository institutions in Indiana and Michigan. As a
member of the FHLB, First Indiana is required to own capital stock in the
FHLB and is authorized to apply for advances on the security of such stock and
certain of First Indiana's residential mortgage loans and other assets, subject
to credit standards. The FHLB advances are made pursuant to several different
credit programs, each with its own interest rate and range of maturities.
The FHLB prescribes the acceptable uses for advances and imposes
size limits on them. Acceptable uses have included expansion of residential
mortgage lending and short-term liquidity needs. Depending on the program,
limitations on the amount of advances are generally based on the FHLB's
assessment of the institution's creditworthiness. At December 31, 1997, First
Indiana had $257.5 million in FHLB advances (15.96 percent of total assets),
with a weighted average rate of 5.62 percent.
First Indiana also enters into repurchase agreements as a short-term
source of borrowing, but only with registered government securities dealers.
The following table sets forth certain information regarding
repurchase agreements and federal funds purchased (short-term borrowings)
at and for the years ended on the dates indicated.
At December 31,
1997 1996 1995
(Dollars in Thousands)
Highest Month-End Balance of Short-Term Borrowings
During the Year $84,896 $39,651 $61,982
Average Month-End Balance of Short-Term Borrowings
During The Year 38,899 18,133 41,963
Weighted Average Interest Rate of Short-Term Borrowings
During the Year 5.45% 5.41% 6.17%
Weighted Average Interest Rate of Short-Term Borrowings
at End of the Year 5.48 5.19 5.81
Regulatory Capital
Risk-Based Capital. Savings institutions are required to have risk-based
capital of eight percent of risk-weighted assets. At December, 31, 1997,
First Indiana's risk-based capital was $148.4 million, or 11.99 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
17
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, 1997, First Indiana's core
capital and leverage ratio were $135.0 million and 8.37 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, 1997, were $135.0 million
and 8.37 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, 1997 First Indiana was
classified as "well-capitalized."
Effective January 1, 1994, the OTS adopted regulations adding an
interest-rate risk component to the proposed capital regulations. Under this
component, an institution with an "above normal" level of interest-rate risk
exposure is subject to an "add-on" to its risk-based capital requirement.
"Above normal" interest-rate risk is defined as a reduction in "market value
portfolio equity" (as defined) resulting from a 200 basis point increase or
decrease in interest rates, if the decline in value exceeds two percent of the
institution's assets. Institutions failing to meet this test will be required
to add to their risk-based capital.
The OTS issued this final rule to implement the portions of Section
305 of the Federal Deposit Insurance Corporation Improvement Act of 1991,
which requires the agencies to revise their risk-based capital standards for
insured depository institutions to ensure that those standards take adequate
account of concentration of credit risk and the risks of nontraditional
activities. The final rule amends the risk-based capital standards by explicitly
identifying concentration of credit risk and certain risks arising from
nontraditional activities, as well as an institution's ability to manage these
risks, as important factors in assessing an institution's overall capital
adequacy. Based on its interest-rate risk at December 31, 1997, First Indiana
was not required to add to its risk-based capital under the new regulation.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation.
Almost all of the assets and liabilities of a depository institution are
monetary, which limits the usefulness of data derived by adjusting a depository
institution's financial statements for the effects of changing prices.
18
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, 1997, 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 OTS. Under OTS regulations,
First Indiana is required to obtain audits by independent auditors and to be
examined periodically by the Director of OTS. First Indiana is subject to
assessments by OTS and the FDIC to cover the costs of such examinations.
The OTS may revalue assets of First Indiana based upon appraisals and
require the establishment of specified reserves in amounts equal to the
difference between such revaluation and the book value of the assets. The
Director of the OTS also is authorized to promulgate regulations to ensure the
safe and sound operations of savings institutions and may impose various
requirements and restrictions on the activities of savings institutions.
The regulations and policies of the OTS for the safe and sound
operations of savings institutions can be no less stringent than those
established by the OCC for national banks. Additionally, under the FDICIA,
the OTS prescribed safety and soundness regulations in 1995 relating to (I)
internal controls, information systems, and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest-rate exposure; (v) asset
growth; and (vi) compensation and benefit standards for officers, directors,
employees and principal shareholders. These regulations did not have a
material effect on First Indiana.
As a member of SAIF, First Indiana is also subject to regulation and
supervision by the FDIC, in its capacity as administrator of SAIF, to ensure the
safety and soundness of SAIF.
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, 1997, the qualified thrift investment percentage test
for First Indiana was in excess of 86 percent. First Indiana complies with the
new QTL test as revised upon enactment of FDICIA.
19
Liquidity. Under applicable federal regulations, savings institutions
are required to maintain an average daily balance of liquid assets (including
cash, certain time deposits, certain banker's acceptances, certain corporate
debt securities and highly rated commercial paper, securities of certain mutual
funds and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than a specified percentage
of withdrawable deposits plus short-term borrowings. Under HOLA, this
liquidity requirement may be changed from time to time by the Director of the
OTS to any amount within the range of four percent to ten percent, depending
upon economic conditions and the deposit flows of member institutions. The
Bank's liquidity ratio at December 31, 1997 was 7.30 percent. In 1997, the
OTS lowered the liquidity requirement to four percent of net withdrawable
assets, simplified the definition of net withdrawable assets, and eliminated a
separate requirement for short-term liquidity. At December 31, 1997, 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, 1997, First Indiana's loan-
to-one borrower limitation was approximately $22.2 million, and no loans to
a single borrower exceeded that amount.
Commercial Real Property Loans. HOLA limits the aggregate
amount of commercial real estate loans that a federal savings institution may
make to an amount not in excess of 400 percent of the savings institution's
capital. First Indiana was in compliance with the commercial real property
loan limitation at December 31, 1997.
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.
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, 1997, First Indiana was in compliance
with the equity risk investment limitations.
Insurance of Deposits. FDIC-insured institutions pay deposit
insurance premiums depending on their placement within one of nine
categories. The categories are determined by (i) the insured institution's
placement in capital group 1, 2, or 3, depending on its classification as "well-
capitalized," "adequately capitalized," or "undercapitalized," and (ii) its
supervisory rating of A, B, or C. Prior to October 1, 1996, well-capitalized
institutions with a supervisory rating of A paid $.23 per $100 of deposits,
while undercapitalized institutions with a rating of C paid $.31 per $100 of
deposits.
In the third quarter of 1996, the FDIC levied an industry-wide special
assessment to recapitalize the Savings Association Insurance Fund ("SAIF"),
which insures First Indiana Bank's customers' deposits. The Bank incurred
a one-time pre-tax charge to earnings of $6,749,000 to comply with this
assessment. Beginning January 1, 1997, deposit insurance premiums between
$.00 and $.27 per $100 of deposits are in effect, based on the same nine-
category rating system discussed in the previous paragraph. The Deposit
Insurance Funds Act of 1996 ("Funds Act") also separated, effective January
1, 1997, the Financing Corporation ("FICO") assessment to service the
interest on its bond obligations from the SAIF assessment. As part of the
deposit insurance assessments, institutions pay a FICO assessment for debt
service requirements. The FICO assessment rate is subject to change on a
quarterly basis, depending on the debt service requirements. First
20
Indiana most recently paid $.0628 per $100 of deposits to comply with this
assessment.
First Indiana was a well-capitalized institution throughout 1997, and
paid no deposit insurance premiums other than the FICO assessment. Because
it is well-capitalized, First Indiana will continue to pay no deposit insurance
premiums in 1998, but these premiums could increase in the future if the
aggregate SAIF premiums paid by all SAIF-insured institutions do not equal
or exceed 1.25% of insurable deposits.
Community Reinvestment Act. Ratings of 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. At December 31, 1997,
the Corporation's rating was "outstanding". 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 depository institution 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 10 percent
shareholder of a savings institution, or certain affiliated entities of either,
may not exceed the institution's loan-to-one-borrower limit when considered with
all other outstanding loans to such person and affiliated entities. Section
22(h) also prohibits loans above amounts prescribed by the appropriate federal
banking agency to directors, executive officers and greater than 10 percent
shareholders of a savings institution and their respective affiliates, unless
the loan is approved in advance by a majority of the board of directors of the
institution with any interested director not participating in the voting. The
Federal Reserve Board has prescribed the loan amount (which includes all
other outstanding loans to such person) for which such prior board of director
approval is required, as the greater of $25,000 or 5 percent of capital and
surplus (up to $500,000). First Indiana was in compliance with these
regulations at December 31, 1997.
Federal Home Loan Bank System
The Federal Home Loan Bank System ("FHLBanks") consists of 12
regional FHLBanks, each subject to supervision and regulation by the Federal
Housing Finance Board. The FHLBanks provide a central credit facility for
member savings institutions. As a member of the FHLB, First Indiana is
required to own shares of capital stock in the FHLB 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, 1997, First Indiana was in
compliance with this requirement.
21
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, 1997, 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. In August 1996, President Clinton signed the Small Business
Job Protection Act (the "Act") into law. One provision of the Act repealed the
reserve method of accounting for bad debts for savings institutions, effective
for taxable years beginning after 1995. Another provision of the Act disallows
the use of the experience method of accounting for bad debt for "large"
institutions, defined to include institutions with greater than $500 million in
total assets. The Bank therefore is required to use the specific charge-off
method on its tax returns for 1996 and thereafter. The Bank is required to
recapture ratably over six years its "applicable excess reserves," which are its
federal tax bad debt reserves in excess of the base year reserve amount
described in the following paragraph. The Bank has approximately
$1,001,000 of applicable excess reserves and has provided a deferred tax
liability related to this recapture.
In accordance with Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" ("SFAS 109"), a deferred liability has not
been established for the Bank's tax bad debt base year reserves of
$16,586,000. The base year reserves are generally the balance of reserves as
of December 31, 1987, reduced proportionally for reductions in the Bank's
loan portfolio since that date. The base year reserves will continue to be
subject to recapture and the Bank could be required to recognize a tax liability
if: (i) the Bank fails to qualify as a "bank" for federal income tax purposes;
(ii) certain distributions are made with respect to the stock of the Bank; (iii)
the bad debt reserves are used for any purpose other than to absorb bad debt
losses; or (iv) there is a change in tax law. The enactment of this legislation
had no material impact on the Corporation's operations or financial position.
Under SFAS 109, the Corporation may recognize deferred tax assets
for deductible temporary differences based on an evaluation of the likelihood
of realizing the underlying tax benefits. The realization of these benefits
principally depends upon the following sources of taxable income: (i) taxable
income in the current year or prior years that is available through carryback
(potential recovery of taxes paid for the current year or prior years); (ii)
future taxable income that will result from the reversal of existing taxable
temporary differences (potential offsetting of deferred tax liabilities); or
(iii) future taxable income, exclusive of the reversal of existing temporary
differences, that is generated by future operations.
In addition, tax-planning strategies may be available to accelerate
taxable income or deductions, change the character of taxable income or
deductions, or switch from tax-exempt to taxable investments so that there
would be sufficient taxable income of the appropriate character and in the
appropriate periods to allow for realization of the tax benefits.
22
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, 1997, First Indiana met all the above requirements
and had no adjustments to regulatory capital.
As a result of a routine tax audit, the IRS adjusted 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
expense paid on customers' certificate of deposit accounts. First Indiana paid
the taxes and interest and subsequently filed for a refund of these amounts. A
settlement was reached, which the Bank received in 1997. The Internal
Revenue Service has examined the tax returns of First Indiana through 1991.
State. The State of Indiana imposes a franchise tax on the
"adjusted gross income" of depository institutions at a fixed rate of 8.5
percent per year. This franchise tax is imposed in lieu of the gross income
tax, adjusted gross income tax, savings and loan excise tax and supplemental net
income tax otherwise imposed on certain corporate entities and depository
institutions. "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 depository institution's adjusted gross
income for state franchise tax purposes. The Indiana Department of Revenue has
examined the state income tax returns of First Indiana through 1994.
Service Corporation Subsidiaries
OTS regulations permit federal savings institutions to invest in the
capital stock, obligations or specified types of securities of subsidiaries
(referred to as "service corporations") and to make loans to such subsidiaries
and joint ventures in which such subsidiaries are participants in an aggregate
amount not exceeding 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 institu-
tion's regulatory capital is in compliance with applicable regulations. FIRREA
requires a savings institution which acquires a non-savings institution
subsidiary, or which elects to conduct a new activity within a subsidiary, to
give the FDIC and the OTS at least 30 days' advance written notice. The FDIC
may, after consultation with the OTS, prohibit specific activities if it
determines such activities pose a serious threat to the SAIF. Moreover,
savings institutions must deduct from capital, for purposes of meeting the
leverage limit, tangible capital, and risk-based capital requirements, their
entire investment in and loans to a subsidiary engaged in activities permissible
for a national bank (other than exclusively agency activities for its customers
or mortgage banking subsidiaries).
One 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
Orlando, Tampa and West Palm Beach, 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.
23
Pioneer Service Corporation. Pioneer Service Corporation is a
wholly owned subsidiary of the Bank. In April 1990, Pioneer Service
Corporation invested in a limited partnership which was formed to develop
and own a 112-unit apartment complex in Greencastle, Indiana.
Employees
At December 31, 1997, the Corporation and its subsidiaries
employed 625 persons, including part-time employees. Management
considers its relations with its employees to be excellent. None of these
employees is represented by any collective bargaining group.
The Corporation and its subsidiaries currently maintain a
comprehensive employee benefit program providing, among other benefits, a
qualified pension plan, a 401(k) plan, medical reimbursement accounts,
hospitalization and major medical insurance, paid sick leave, long-term
disability insurance, life insurance, an employees' stock purchase plan, and
reduced loan rates for employees who qualify.
Item 2. Properties
At December 31, 1997, the Corporation operated through 26 full-service
banking centers and 14 loan origination offices in addition to its
headquarters and operations locations. The Corporation leases its
headquarters location, 10 of the branches and 13 of the origination offices, and
owns the remaining locations. The aggregate carrying value at December 31,
1997 of the properties owned or leased, including headquarters properties and
leasehold improvements at the leased offices, was $13.9 million. See Note 6
to the Corporation's Consolidated Financial Statements. The carrying value of
First Indiana's data processing equipment at December 31, 1997 was $1.4
million.
Item 3. Legal Proceedings
As a result of a routine tax 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 negotiated a settlement with the United
States Department of Justice - Tax Division and has now received all refunds
required by the settlement.
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 litigation which, in the opinion
of management, is not material to the Corporation's business, operations, or
financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Corporation's security
holders during the three months ended December 31, 1997.
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 43 of the Corporation's 1997 Annual Report under the heading,
"Corporate Information."
For restrictions on the Corporation's present or future ability to pay
dividends, see Note 11 of "Notes to Consolidated Financial Statements" on
page 33 - 35 of the Corporation's 1997 Annual Report, which is incorporated
herein by reference.
24
The Corporation paid a cash dividend of $.10 per share outstanding
in each quarter of 1997 and $.095 per share outstanding in each quarter of
1996, as adjusted for a six-for-five stock dividend on March 6, 1998 and a
five-for-four stock split on March 18, 1997.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to
page 19 of the Corporation's 1997 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 8 - 18 of the Corporation's 1997 Annual Report from the material under
the heading "Financial Review."
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk
The information required by this item is incorporated by reference to page 18
of the Corporation's 1997 Annual Report from the material under the heading
"Disclosures About Market Risk."
Item 8. Financial Statements and Supplementary Data
The Corporation's Consolidated Financial Statements and Notes to
Consolidated Financial Statements at December 31, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997 are
incorporated by reference to pages 20 - 42 of the Corporation's 1997 Annual
Report. The Corporation's unaudited quarterly financial data for the two-year
period ended December 31, 1997 is incorporated by reference to Note 15 of
"Notes to Consolidated Financial Statements" on page 40 of the Corporation's
1997 Annual Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
25
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 4-6 and page 23 of the Corporation's Proxy
Statement dated March 12, 1998 under the heading "Election of Directors,"
and "Section 16(a) Beneficial Ownership Reporting Compliance."
The following table sets forth information about the executive officers
of the Corporation and the Bank who are not directors of the Corporation or
the Bank. All executive officers are appointed by the Board of Directors and
serve at the discretion of the Board of Directors.
Year First
Name Position Age Elected Officer
------------- ------------- ------- ---------------
David L. Gray Vice President and Treasurer 54 1981
of the Corporation; Chief
Financial Officer, Treasurer,
and Senior Vice President,
Internal Support Services
Group of the Bank
David A. Lindsey Senior Vice President, 47 1983
Consumer Finance Group
of the Bank;
Merrill E. Matlock Senior Vice President, 48 1984
Commercial and Mortgage
Banking Group of the Bank
Timothy J. O'Neill Senior Vice President, 50 1972
Correspondent Banking
Group of the Bank
Kenneth L. Turchi Senior Vice President, Retail 39 1987
Banking, Marketing, and Strategic
Planning Group 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 Group. He also serves as the chairman of the Bank's Asset/Liability
Committee.
David A. Lindsey has been with the Bank since January 1983,
serving as the Bank's senior vice president, Consumer Finance Group. He
oversees the Bank's national consumer sales force.
Merrill E. Matlock is senior vice president of the Bank's Commercial
and Mortgage Banking Group. He is responsible for the Bank's residential,
construction, commercial and industrial, and commercial real estate lending.
Mr. Matlock has worked for First Indiana since 1984 and was most recently
first vice president of the construction lending department.
Timothy J. O'Neill has been with the Bank since 1970. He currently
serves as the Bank's senior vice president, Correspondent Banking Group. As
part of his current responsibilities, he develops relationships with smaller
community banks to provide private label products and services to their
customers.
Kenneth L. Turchi joined First Indiana in September 1985 and
currently serves as senior vice president, Retail Banking, Marketing, and
Strategic Planning Group. His duties include strategic planning, marketing,
advertising, market research, investor and public relations, telemarketing, and
supervision of retail banking center sales and operations.
26
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 8-15 of the material under
the heading "Executive Compensation" in the Corporation's Proxy Statement.
During 1997, the Corporation effected change-of-control
arrangements with its key officers. The full text of these arrangements can be
found in Exhibits 10(j) and 10(k) on pages 117 to 156.
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 "Proxy Statement" 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 7 of the material under the heading "Certain Transactions" in the
Corporation's Proxy Statement.
27
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:
1997 Annual
Report
(Exhibit 13)
Financial Statements Page(s)
-------------------- ------------
Consolidated Balance Sheets as of
December 31, 1997 and 1996 20
Consolidated Statements of Earnings
for the Years Ended December 31, 1997, 1996 and 1995 21
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995 22
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997, 1996 and 1995 23
Notes to Consolidated Financial Statements 24-41
Independent Auditors' Report 42
Exhibits
Refer to list of exhibits on pages 30-31
b. Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended
December 31, 1997.
c. The exhibits filed herewith or incorporated by reference herein are
set forth on the Exhibit index on pages 30-31.
d. Financial Statement Schedules required by Regulation S-X.
None
28
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 26, 1998
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 26, 1998 Date: March 26, 1998
Directors
By: /s/Gerald L. Bepko By: /s/Robert H. McKinney
Gerald L. Bepko Robert H. McKinney
Date: March 26, 1998 Date: March 26, 1998
By: /s/Douglas W. Huemme By: /s/Owen B. Melton, Jr.
Douglas W. Huemme Owen B. Melton, Jr.
Date: March 26, 1998 Date: March 26, 1998
By: /s/Marni McKinney By: /s/Phyllis W. Minott
Marni McKinney Phyllis W. Minott
Date: March 26, 1998 Date: March 26, 1998
By: /s/John W. Wynne By: /s/Michael L. Smith
John W. Wynne Michael L. Smith
Date: March 26, 1998 Date: March 26, 1998
By: /s/H.J. Baker By: /s/Andrew Jacobs, Jr.
H.J. Baker Andrew Jacobs, Jr.
Date: March 26, 1998 Date: March 26, 1998
29
Exhibit Index
Page(s)
Exhibit (by Sequential
Number Numbering System)
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.
4(b) Shareholder Rights Agreement between First Indiana Corporation and
Harris Trust and Savings Bank dated November 14, 1997,
incorporated by reference to the Registrant's Form 8-A filed on
December 2, 1997.
10(a) First Indiana Bank 1997 Long-Term Management Performance Incentive
Plan 10-K 32-51
10(b) First Indiana Corporation 1991 Stock Option and Incentive Plan,
incorporated by reference to Exhibit A of the Registrant's March 20,
1991 Proxy Statement, Pages A-1 to A-8.
10(c) First Indiana Corporation 1998 Stock Incentive Plan 10-K 52-76
10(d) First Indiana Corporation 1992 Director Stock Option Plan,
incorporated by reference to Exhibit A of the Registrant's March 13,
1992 Proxy Statement, Pages A-1 to A-3.
10(e) First Indiana Corporation 1992 Stock Option Plan, incorporated by
reference to Exhibit A of the Registrant's March 12, 1993 Proxy
Statement, pages 15 to 19.
10(f) First Indiana Corporation Supplemental Benefit Plan effective May 1,
1997. 10-K 77-95
10(g) First Indiana Corporation Supplemental Benefit Plan Agreement
effective May 1, 1997 between Registrant and Robert H. McKinney. 10-K 96-104
10(h) First Indiana Corporation Supplemental Benefit Plan Agreement
effective May 1, 1997 between Registrant and each of Owen B.
Melton, Jr. and Marni McKinney. 10-K 105-111
10(i) Supplemental Benefit Plan Agreement effective May 1, 1997 between
First Indiana and each of David L. Gray, David A. Lindsey, Merrill E.
Matlock, Timothy J. O'Neill, and Kenneth L. Turchi 10-K 112-116
10(j) Form of Employment Agreement between Registrant and each of
Robert H. McKinney, Owen B. Melton, Jr. and Marni McKinney. 10-K 117-136
10(k) Form of Employment Agreement between First Indiana and each of
David L. Gray, David A. Lindsey, Merrill E. Matlock, Timothy J.
O'Neill and Kenneth L. Turchi. 10-K 137-156
13 1997 Annual Report. 10-K 157-203
30
21 Subsidiaries of First Indiana Corporation and First Indiana Bank. 10-K 204
22 Definitive Proxy Statement relating to the 1998 Annual Meeting of
Shareholders. 10-K 205-232
23 Consent of KPMG Peat Marwick LLP. 10-K 233
27 Financial Data Schedule. 10-K 234
* Previously Filed
31