Item 1. Business
Supervision and Regulation
First Indiana Corporation is a financial holding company and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended (“BHC Act”). The BHC Act requires the prior approval of the Federal Reserve Board for a financial holding company to acquire or hold more than five percent voting interest in any bank and restricts interstate banking activities. The BHC Act allows interstate bank acquisitions anywhere in the country and interstate branching by acquisition and consolidation in those states that had not opted out by January 1, 1997.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (“GLB Act”). The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by repealing certain provisions of the Glass-Steagall Act and revising and expanding the Bank Holding Company Act framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a “Financial Holding Company.” “Financial activities” is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities approved by order or regulation of the Federal Reserve Board. The GLB Act also permits national banks to engage in certain expanded activities through the formation of financial subsidiaries and restricts financial institutions from sharing customer nonpublic personal information with non-affiliated parties unless the customer has had an opportunity to opt out of the disclosure.
The Federal Reserve Board requires that a bank holding company act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each subsidiary bank. In addition, the National Bank Act permits the Office of the Comptroller of the Currency (“OCC”) to order the pro rata assessment of shareholders of a national bank whose capital has become impaired. If a shareholder fails to pay such an assessment, the OCC can order the sale of the shareholder’s stock to cover the deficiency. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment.
The Bank is subject to the provisions of the National Bank Act, is under the supervision of, and is subject to periodic examination by, the OCC, and is subject to the rules and regulations of the OCC, Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (“FDIC”).
Federal law provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against such institution, including federal funds and letters of credit, in the liquidation or other resolution of the institution by any receiver.
Employees
At December 31, 2002, the Corporation and its subsidiaries employed 723 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.
Reports on Corporation Website
Since March 7, 2003, the Corporation’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Section 13(1) or
15(d) of the Exchange Act have been made available free of charge through its website the same day as filed with the SEC. These reports are available by going to the Corporation’s website (www.firstindiana.com) and selecting “About Us,” “Investor Relations,” and then “Sec Filings.”
Other Required Information
References for additional information required by this item are provided on page 2.
Item 2.
Item 2. Properties
At December 31, 2002, the Corporation operated through 26 full-service banking centers and 10 loan origination offices in addition to its headquarters and operations locations. The Corporation leases its headquarters location in downtown Indianapolis and owns its operations facilities in Greenwood, Indiana. The Corporation’s subsidiary, Somerset, and FirstTrust Indiana, the Bank’s investment advisory and trust division, lease their facility on the north side of Indianapolis. The Corporation leases 11 of the branches and 10 of the origination offices and owns the remaining locations. The aggregate carrying value at December 31, 2002 of the properties owned or leased, including headquarters properties and leasehold improvements at the leased offices, was $21,528,000. See Notes 8 and 15 of the Notes to Consolidated Financial Statements.
Item 3.
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Corporation or any subsidiary was a party or to which any of their property is subject other than ordinary routine litigation incidental to its business which, in the opinion of management, is not material to the Corporation’s business, operations, or financial condition.
Item 4.
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, 2002.
PART II
Item 5.
Item 5. Market for the Registrant’s Common Equity and Related Shareholder Matters
The Corporation’s stock is traded on the NASDAQ National Market under the ticker symbol FINB. As of March 4, 2003, there were approximately 1,752 holders of record of the Corporation’s common stock. The following table contains high and low bid information as reported by NASDAQ.
For restrictions on the Corporation’s present or future ability to pay dividends, see Note 14 of the Notes to Consolidated Financial Statements.
For equity compensation plan information, see Note 16 of the Notes to Consolidated Financial Statements.
The Corporation paid a cash dividend of $0.16 per share outstanding in each quarter of 2002 and $0.128 per share outstanding in each quarter of 2001. All share and per share data has been restated to reflect the five-for-four stock split declared on January 16, 2002.
Item 6.
Item 6. Selected Financial Data
The information required by this item is shown under the heading “Five-Year Summary of Selected Financial Data.”
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information required by this item is shown under the following subsections of “Financial Review”:
•
Critical Accounting Policies
•
Statement of Earnings Analysis
•
Financial Condition
•
Asset Quality
•
Liquidity and Market Risk Management
•
Capital
•
Impact of Inflation and Changing Prices
•
Impact of Accounting Standards Not Yet Adopted
•
Fourth Quarter Summary
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is shown under the heading “Liquidity and Market Risk Management.”
Item 8.
Item 8. Financial Statements and Supplementary Data
Information required by this item is shown under the headings “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements.” The Corporation’s unaudited quarterly financial information for each of the years in the two-year period ended December 31, 2002 is shown in Note 20 of “Notes to Consolidated Financial Statements”.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
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 the Corporation’s Proxy Statement under the heading “Election of Directors” and the information relating to compliance by officers and directors with Section 16(a) is incorporated by reference to the Corporation’s Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”
The following table sets forth information about the executive officers of the Corporation, the Bank, and Somerset 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.
William J. Brunner has been with the Bank since May 2000, and currently serves as the Corporation’s chief financial officer, vice president, and treasurer, and the Bank’s chief financial officer and senior vice president, Financial Management Division. He also serves as the chairman of the Bank’s Asset/Liability Committee. Prior to joining First Indiana, Mr. Brunner served in a number of financial positions at commercial banks, including as senior vice president and director of capital and asset/liability management, and director of corporate planning from March 1999 to May 2000 at Citizens Financial Group; vice president of treasury management from November 1996 to March 1999 at Bank One Corporation; and chief financial officer from May 1995 to November 1996 at Bank One, Cincinnati, N.A.
Patrick J. Early has served as president of Somerset Financial Services since the time of the merger with First Indiana Corporation in September 2000. He joined Whipple & Company, the predecessor firm to Somerset Financial Services, in 1979 and served as president from 1989 until the merger with The Somerset Group, Inc. in 1998. From 1998 until September 2000, he was president of Somerset Financial Services, a division of The Somerset Group, Inc. He also served as president of The Somerset Group, Inc. from January 2000 until the merger in September 2000.
David A. Lindsey has been with the Bank since 1983, currently serving as president Consumer Finance Bank division of the Bank. He oversees the Bank’s national consumer lending operations. These include originations, processing and underwriting, secondary marketing, and loan servicing.
Merrill E. Matlock is senior vice president, Community Bank - Commercial Banking division of the Bank. He is responsible for the Bank’s treasury management, 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 commercial lending department.
Ralph G. Nowak has been with the bank since November 1998 serving as president, of FirstTrust Indiana division of First Indiana Bank. Prior to joining First Indiana, Mr. Nowak served in a number of commercial bank trust investment positions since 1973, including that of Chief Investment Officer at NBD Bank for the state of Indiana from 1992 to 1998.
Timothy J. O’Neill has been with the Bank since 1970 and currently serves as senior vice president, Investor Sales and Loan Administration division of the Bank. He is responsible for the servicing of the Bank’s residential and consumer loans, developing relationships with other financial institutions, and selling the Bank’s loans into the secondary market.
Edward E. Pollack has been with the Bank since 1998, and currently serves as senior vice president, Technology and Operations division of the Bank. He leads the Information Technology, Deposit Services, Security, and Administrative Support departments. Prior to joining First Indiana, he served from 1988 to 1998 as Executive Vice President, USA Group, Inc. and from 1993 to 1997 as President and Chief Executive Officer of USA Funds and USA Group Guarantee Services.
Kenneth L. Turchi joined First Indiana in September 1985 and currently serves as senior vice president, Community Bank - Retail Banking division of the Bank. His duties include strategic planning, marketing, advertising, market research, investor and public relations, mortgage lending, the Bank’s call center, retail banking center sales, and First Indiana Investor Services, the Bank’s investment and insurance division.
Item 11.
Item 11. Executive Compensation
The information required by this item with respect to executive compensation is incorporated by reference to the material under the heading “Executive Compensation” in the Corporation’s Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the material under the heading “Proxy Statement” and “Proposal No. 1: Election of Directors” in the Corporation’s Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the material under the heading “Certain Transactions” in the Corporation’s Proxy Statement.
Item 14.
Item 14. Controls and Procedures
Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There were not any significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(2) Financial Statement Schedules Required by Regulation S-X
None
10(j)
Form of Employment Agreement between Registrant and each of Robert H. McKinney, Owen B. Melton, Jr., and Marni McKinney, incorporated by reference to Exhibit 10(j) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997. *B
10(k)
Form of Employment Agreement between Registrant and each of David A. Lindsey, Merrill E. Matlock, Timothy J. O’Neill, Kenneth L. Turchi, Edward E. Pollack, and William J. Brunner, incorporated by reference to Exhibit 10(k) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997. *B
10(l)
Agreement and Plan of Reorganization dated April 19, 2000 between The Somerset Group, Inc. and First Indiana Corporation, incorporated by reference to Annex A to the joint proxy statement and prospectus contained in Registrant’s registration statement on Form S-4, effective August 18, 2000, File No. 333-39926.
10(m)
The Somerset Group, Inc. 1991 Stock Incentive Plan, incorporated by reference to the Registrant’s Form 10-K filed on March 12, 2001. *B
10(n)
The Somerset Group, Inc. 1998 Stock Incentive Plan, incorporated by reference to the Registrant’s Form 10-K filed on March 12, 2001. *B
10(o)
The Somerset Group, Inc. 1991 Directors Stock Option Plan, incorporated by reference to the Registrant’s Form 10-K filed on March 12, 2001. *B
10(p)
The Somerset Group, Inc. Employee Stock Purchase Plan, incorporated by reference to the Registrant’s Form 10-K filed on March 12, 2001. *B
10(q)
Agreement and Plan of Merger dated September 4, 2002, by and among MetroBanCorp, Inc. and MetroBank and First Indiana Corporation, FIC Acquisition Corp. and First Indiana Bank, National Association., incorporated by reference, to the Registrant’s Form 8-K filed on September 6, 2002.
10(r)
Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Junior Subordinated Indenture dated as of October 30, 2002 as an exhibit. The Registrant hereby agrees to furnish a copy of this Indenture to the Commission upon request.
Subsidiaries of First Indiana Corporation and First Indiana Bank. *A
Consent of KPMG LLP.*A
99(a)
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99(b)
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*A
These have been filed as an exhibit to this Form 10-K.
*B
Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K.
(b)
The Corporation filed the following Current Reports on Form 8-K between October 1, 2002 and March 6, 2003:
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following officers and directors on behalf of the Registrant and in the capacities indicated on March 13, 2002.
Officers
By:
By:
Marni McKinney
Vice Chairman and Chief
Executive Officer
(Principal Executive Officer)
William J. Brunner
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Marni McKinney, certify that:
1.
I have reviewed this annual report on Form 10-K of First Indiana Corporation;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.
The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 13, 2003
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, William J. Brunner, certify that:
1.
I have reviewed this annual report on Form 10-K of First Indiana Corporation;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.
The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 13, 2003
William J. Brunner
Vice President, Chief Financial Officer, and Treasurer
SIGNATURES (continued)
Directors