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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, 2004



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 No. 0-14354



LOGO

(Exact name of registrant as specified in its charter)



Indiana

(State of Incorporation)



35-1692825

(IRS Employer Identification No.)



135 N. Pennsylvania St.

Indianapolis, Indiana

(Address of
principal executive offices)



46204

(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:



|                                |  |  |  |  |  |  |  | 
|------------------------------- |  |  |  |  |  |  |  | 
|                               
|Title of Each Class             |  |  |  |  |  |  |  | 
|Common Stock, $.01 par value    |  |  |  |  |  |  |  | 
|Preferred Share Purchase Rights |  |  |  |  |  |  |  | 
|                               



Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate 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 is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange
Act).    Yes  x    No ̈



State the aggregate market value of the common stock held by non-affiliates
of the registrant: $247.4 million as of June 30, 2004.



On
February 15, 2005, the registrant had 14,038,031 shares of common stock outstanding, $0.01 par value.



Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2005 Annual Meeting of Shareholders (Part III).



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FIRST INDIANA CORPORATION



Form 10-K



Table of Contents



|           |  |                                                                                                |  |     
|---------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                |  | Page
|Part I     |  |                                                                                                |  |     
|           |  | Financial Review                                                                               |  | 3   
|           |  | Five-Year Summary of Selected Financial Data                                                   |  | 3   
|           |  | Overview                                                                                       |  | 4   
|           |  | Critical Accounting Policies                                                                   |  | 5   
|           |  | Statement of Earnings Analysis                                                                 |  | 6   
|           |  | Financial Condition                                                                            |  | 13  
|           |  | Asset Quality                                                                                  |  | 20  
|           |  | Liquidity and Market Risk Management                                                           |  | 24  
|           |  | Capital                                                                                        |  | 28  
|           |  | Impact of Inflation and Changing Prices                                                        |  | 30  
|           |  | Impact of Accounting Standards Not Yet Adopted                                                 |  | 30  
|           |  | Fourth Quarter Summary                                                                         |  | 31  
|           |  | Managements Responsibility for Financial Statements                                           |  | 32  
|           |  | Managements Report on Internal Control over Financial Reporting                               |  | 32  
|           |  | Report of Independent Registered Public Accounting Firm                                        |  | 33  
|           |  | Report of Independent Registered Public Accounting Firm                                        |  | 34  
|           |  | Consolidated Financial Statements                                                              |  | 35  
|           |  | Notes to Consolidated Financial Statements                                                     |  | 39  
|Item 1.    |  | Business                                                                                       |  | 72  
|Item 2.    |  | Properties                                                                                     |  | 78  
|Item 3.    |  | Legal Proceedings                                                                              |  | 78  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                            |  | 78  
|           |  | Executive Officers of the Registrant                                                           |  | 78  
|Part II    |  |                                                                                                |  |     
|Item 5.    |  | Market for Registrants Common Equity and Related Shareholder Matters                          |  | 80  
|Item 6.    |  | Selected Financial Data                                                                        |  | 81  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 81  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 81  
|Item 8.    |  | Financial Statements and Supplementary Data                                                    |  | 81  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 81  
|Item 9A.   |  | Controls and Procedures                                                                        |  | 81  
|Item 9B.   |  | Other Information                                                                              |  | 82  
|Part III   |  |                                                                                                |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                             |  | 83  
|Item 11.   |  | Executive Compensation                                                                         |  | 83  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |  | 83  
|Item 13.   |  | Certain Relationships and Related Transactions                                                 |  | 83  
|Item 14.   |  | Principal Accountant Fees and Services                                                         |  | 83  
|Part IV    |  |                                                                                                |  |     
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                     |  | 84  
|Signatures |  | 87                                                                                            



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FINANCIAL REVIEW



This Annual Report on Form
10-K contains forward-looking statements that are based on managements current expectations, but actual results may differ materially due to various factors. Forward-looking statements by their nature are subject to assumptions, risks, and
uncertainties. Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors including: changes in interest rates; failure of the Indiana and/or national economies to continue
to improve, which could materially impact credit quality and the ability to generate acceptable loans; failure to attract and retain a sufficient amount of deposits and/or failure to receive a sufficient amount of Federal Home Loan Bank advances,
which could adversely impact the ability to meet customer and regulatory demands for liquidity; failure to achieve sufficient net income, which could adversely impact the ability to declare and/or pay dividends; declines or disruptions in the stock
or bond markets; delay in or inability to execute strategic initiatives designed to grow revenues and/or reduce expenses; inaccurate or erroneous assumptions made in connection with various modeling techniques, which could adversely impact pricing
on deposits and loans and the ability to generate adequate net interest margins; the retention of key employees and customers; new legal obligations or restrictions; and changes in accounting, tax, or regulatory practices or requirements. For
additional information about the factors that affect First Indianas business, please see the periodic filings with the Securities and Exchange Commission. The fact that there are various risks and uncertainties should be considered in
evaluating forward-looking statements, and undue reliance should not be placed on such statements. First Indiana undertakes no duty to update forward-looking statements.



FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA



|                                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|---------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|(Dollars in Thousands, Except Per Share Data)              |  | 2004 |            |   | 2003 |   |            | 2002 |  |   | 2001       |   |  | 2000 |           
|Year-End Balance Sheet Data                                |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total Assets                                               |  | $    | 1,898,263  |   |      | $ | 2,193,137  |      |  | $ | 2,125,590  |   |  | $    | 2,046,657  |   |  | $ | 2,085,997  |  
|Investment Securities                                      |  |      | 243,296    |   |      |   | 240,410    |      |  |   | 161,320    |   |  |      | 170,354    |   |  |   | 180,375    |  
|Loans                                                      |  |      | 1,500,190  |   |      |   | 1,814,991  |      |  |   | 1,837,633  |   |  |      | 1,756,486  |   |  |   | 1,784,475  |  
|Commercial                                                 |  |      | 700,528    |   |      |   | 886,144    |      |  |   | 860,159    |   |  |      | 788,872    |   |  |   | 570,059    |  
|Consumer                                                   |  |      | 520,611    |   |      |   | 612,025    |      |  |   | 666,150    |   |  |      | 675,111    |   |  |   | 748,291    |  
|Residential Mortgage                                       |  |      | 279,051    |   |      |   | 316,822    |      |  |   | 311,324    |   |  |      | 292,503    |   |  |   | 466,125    |  
|Deposits                                                   |  |      | 1,370,697  |   |      |   | 1,489,972  |      |  |   | 1,339,204  |   |  |      | 1,379,478  |   |  |   | 1,399,983  |  
|Non-Interest-Bearing Demand                                |  |      | 265,203    |   |      |   | 235,811    |      |  |   | 180,389    |   |  |      | 165,023    |   |  |   | 123,836    |  
|Interest-Bearing Demand                                    |  |      | 189,911    |   |      |   | 217,353    |      |  |   | 179,751    |   |  |      | 140,175    |   |  |   | 115,651    |  
|Savings                                                    |  |      | 463,679    |   |      |   | 400,804    |      |  |   | 398,752    |   |  |      | 447,832    |   |  |   | 375,331    |  
|Certificates of Deposit                                    |  |      | 451,904    |   |      |   | 636,004    |      |  |   | 580,312    |   |  |      | 626,448    |   |  |   | 785,165    |  
|Short-Term Borrowings                                      |  |      | 162,208    |   |      |   | 147,074    |      |  |   | 170,956    |   |  |      | 121,082    |   |  |   | 117,725    |  
|Federal Home Loan Bank Advances                            |  |      | 114,499    |   |      |   | 265,488    |      |  |   | 346,532    |   |  |      | 296,647    |   |  |   | 336,754    |  
|Subordinated Notes                                         |  |      | 46,657     |   |      |   | 46,534     |      |  |   | 12,169     |   |  |      |           |   |  |   |           |  
|Shareholders Equity                                       |  |      | 172,143    |   |      |   | 208,894    |      |  |   | 221,211    |   |  |      | 209,031    |   |  |   | 198,812    |  
|Selected Operations Data                                   |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net Interest Income                                        |  | $    | 69,441     |   |      | $ | 76,900     |      |  | $ | 73,780     |   |  | $    | 74,049     |   |  | $ | 77,768     |  
|Provision for Loan Losses                                  |  |      | 11,550     |   |      |   | 38,974     |      |  |   | 20,756     |   |  |      | 15,228     |   |  |   | 9,756      |  
|Non-Interest Income                                        |  |      | 40,435     |   |      |   | 37,663     |      |  |   | 36,038     |   |  |      | 34,403     |   |  |   | 23,586     |  
|Non-Interest Expense                                       |  |      | 71,478     |   |      |   | 72,757     |      |  |   | 56,475     |   |  |      | 61,691     |   |  |   | 51,547     |  
|Earnings from Continuing Operations, Net of Taxes          |  |      | 17,183     |   |      |   | 1,952      |      |  |   | 20,829     |   |  |      | 19,728     |   |  |   | 24,947     |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |      | (2,505     | ) |      |   | 577        |      |  |   | 351        |   |  |      | 281        |   |  |   | (130       | )
|Net Earnings                                               |  |      | 14,678     |   |      |   | 2,529      |      |  |   | 21,180     |   |  |      | 20,009     |   |  |   | 24,817     |  
|Basic Earnings (Loss) Per Share                            |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Earnings from Continuing Operations, Net of Taxes          |  |      | 1.10       |   |      |   | 0.12       |      |  |   | 1.34       |   |  |      | 1.27       |   |  |   | 1.59       |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |      | (0.16      | ) |      |   | 0.04       |      |  |   | 0.02       |   |  |      | 0.02       |   |  |   | (0.01      | )
|                                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic Net Earnings Per Share                               |  |      | 0.94       |   |      |   | 0.16       |      |  |   | 1.36       |   |  |      | 1.29       |   |  |   | 1.58       |  
|                                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Diluted Earnings Per Share                                 |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Earnings from Continuing Operations, Net of Taxes          |  |      | 1.09       |   |      |   | 0.12       |      |  |   | 1.32       |   |  |      | 1.23       |   |  |   | 1.56       |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |      | (0.16      | ) |      |   | 0.04       |      |  |   | 0.02       |   |  |      | 0.02       |   |  |   | (0.01      | )
|                                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Diluted Net Earnings Per Share                             |  |      | 0.93       |   |      |   | 0.16       |      |  |   | 1.34       |   |  |      | 1.25       |   |  |   | 1.55       |  
|                                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Dividends Declared Per Common Share                        |  |      | 0.675      |   |      |   | 0.660      |      |  |   | 0.640      |   |  |      | 0.512      |   |  |   | 0.448      |  
|Selected Ratios                                            |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net Interest Margin                                        |  |      | 3.55       | % |      |   | 3.69       | %    |  |   | 3.73       | % |  |      | 3.69       | % |  |   | 3.90       | %
|Return on Average Total Assets                             |  |      | 0.71       |   |      |   | 0.11       |      |  |   | 1.02       |   |  |      | 0.95       |   |  |   | 1.20       |  
|Return on Average Shareholders Equity                     |  |      | 6.94       |   |      |   | 1.15       |      |  |   | 9.66       |   |  |      | 9.60       |   |  |   | 13.28      |  
|Average Shareholders Equity to Average                    |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total Assets                                               |  |      | 10.19      |   |      |   | 9.91       |      |  |   | 10.51      |   |  |      | 9.89       |   |  |   | 9.04       |  
|Dividend Payout Ratio                                      |  |      | 71.81      |   |      |   | 412.50     |      |  |   | 47.06      |   |  |      | 39.69      |   |  |   | 28.35      |  
|Selected Value                                             |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Book Value Per Share                                       |  | $    | 12.28      |   |      | $ | 13.44      |      |  | $ | 14.32      |   |  | $    | 13.54      |   |  | $ | 12.77      |  
|Average Common Shares Outstanding                          |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                      |  |      | 15,587,541 |   |      |   | 15,570,508 |      |  |   | 15,537,186 |   |  |      | 15,569,956 |   |  |   | 15,716,234 |  
|Diluted                                                    |  |      | 15,788,362 |   |      |   | 15,720,691 |      |  |   | 15,809,380 |   |  |      | 15,998,976 |   |  |   | 15,997,179 |  



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OVERVIEW



First Indiana Corporation
(First Indiana or the Corporation) is the holding company for First Indiana Bank, N.A. (the Bank), the largest commercial bank headquartered in Indianapolis. First Indiana Bank is a community bank offering a full
range of banking services in central Indiana. The Bank attracts deposits and originates commercial and consumer loans and offers cash management and trust / investment advisory services through 31 banking centers. Additionally, the Bank originates
home equity loans on a national basis through a network of agents and brokers. These loans are primarily sold to investors.



In October 2004, First Indiana sold substantially all the assets of Somerset Financial Services, LLC (Somerset Financial), an accounting and
consulting firm. Somerset Financials results of operations are reported as discontinued operations, and the results of operations and cash flows have been removed from the Corporations results of continuing operations for all periods
presented in the Consolidated Statements of Earnings, Consolidated Statements of Cash Flows and Notes to Consolidated Financial Statements. Likewise, the assets and liabilities of Somerset Financial have been reclassified to assets and liabilities
of discontinued operations on the Consolidated Balance Sheets.



The Corporations success is largely dependent on its ability to manage credit risk and interest rate risk. Making loans is an essential element of the Banks business, and there is a risk that loans will not be repaid. The risk
of loss on a loan is affected by a number of factors, including credit risks of a particular borrower; changes in economic or industry conditions; the duration of the loan; and, in the case of a collateralized loan, uncertainties about the future
value of the collateral. An economic downturn could contribute to deterioration in the quality of the loan portfolio. Loans made up 79 percent of the Corporations assets at year-end 2004. If an economic downturn occurs in the economy as a
whole, or in Indiana where First Indiana has approximately 61 percent of its loans, borrowers may be unable to repay their loans as scheduled and the value of real estate or other collateral that may secure the loans could be adversely affected.



Interest rate risk is defined as the exposure of net interest
income, net earnings, and equity to changes in interest rates. First Indiana manages risk from changes in market interest rates, in part, by controlling the mix of interest rate-sensitive assets and interest rate-sensitive liabilities. Because the
Corporation is currently in an asset-sensitive position (where assets reprice faster than liabilities), recent rate increases by the Federal Reserve Board have begun to be reflected in an improving net interest margin.



Net interest income is income that remains after deducting the interest
expense attributable to the funds required to support total assets from total interest income generated by earning assets. Income from earning assets includes income from loans, investment securities, and short-term investments. The amount of
interest income is dependent on many factors, including the volume of earning assets, the general level of interest rates, and yields on a variety of earning assets, from investments to loans. The cost of funds varies with the amount of funds
necessary to support total assets, the rates paid to attract and hold deposits, the rates paid on borrowed funds, and the levels of interest-free funds.



In 2004, the Corporation focused on improving credit quality, reducing costs and repositioning the balance sheet, positioning the company for expansion in
2005 and beyond. In the area of credit quality, non-performing assets at December 31, 2004 and net loan charge-offs in 2004 were down from comparable measures in 2003. The cost reduction plan announced in the third quarter of 2004 is expected to
result in improved pre-tax earnings of approximately $4,000,000 annually. In October, the Corporation sold the assets of Somerset Financial Services, LLC and in November completed the sale of the non-Indiana construction loan offices. In December,
the Corporation completed a tender offer and repurchased approximately 11 percent of its outstanding shares. Potential opportunities for revenue growth in 2005 include interest rate increases, increased asset demand by purchasers of consumer finance
bank loans, and increased commercial loan and deposit demand resulting from a recovery in the economy. The risks and challenges that management sees to improved profitability in 2005 include attracting loans in the Banks marketplace; managing
credit risk; yield compression as competition for loan growth intensifies; price and sales competition for deposits; controlling non-interest expense; and profitably deploying the Banks resources.



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CRITICAL ACCOUNTING POLICIES



The
accounting and reporting policies of the Corporation and its subsidiaries conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. A summary of the
Corporations significant accounting policies is contained in Note 1 of the Notes to Consolidated Financial Statements. In fulfilling its responsibilities, the Audit Committee of the Board of Directors has reviewed the accounting and reporting
policies of the Corporation. In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses,
assumptions used to value loan servicing rights, goodwill, and the determination of the valuation allowance for deferred taxes.



Allowance for Loan Losses



The allowance for loan losses is maintained at the level deemed adequate to cover losses inherent in the loan portfolio. The allowance for loan losses is
increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The determination of the adequacy of the allowance for loan losses is based on projections and estimates concerning portfolio trends
and credit losses, national and local economic trends, portfolio management, the assessment of credit risk of performing and non-performing loans, and qualitative management factors. While management uses available information to recognize losses on
loans, future additions to the allowance for loan losses may be necessary based on changes to one or more of the above-noted risk factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically
review this allowance and may require the Corporation to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The allowance for loan losses is included in the community
bank segment.



Loan Servicing Rights



As of December 31, 2004, First Indiana serviced for others a $320,994,000
portfolio of consumer and mortgage loans and has capitalized the associated servicing rights on the majority of these loans. Loan servicing rights represent the present value of the estimated future servicing fees to be collected from the loans
serviced for others. The Corporation accounts for loan servicing rights under the provisions of Financial Accounting Standards Board (FASB) Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Consumer loan servicing rights are stratified based on lien position and year of origination. Mortgage loan servicing rights are stratified based on loan type (fixed or adjustable rate), investor type (FHLMC,
GNMA, private), term, and note rate. 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 rates, servicing cost, ancillary servicing income, conversion costs, float and escrow earnings, delinquency rates, and other factors, which are subject to change over time. Changes in these underlying assumptions could cause the estimated
fair value of loan servicing rights, and the related valuation allowance, to change significantly in the future. The most significant assumptions in the determination of fair value are prepayment speeds and the discount rate. The value of loan
servicing rights is significantly affected by interest rates available in the market which influence loan prepayment speeds. Generally, during periods of declining interest rates, the value of loan servicing rights declines due to increasing
prepayments attributable to increased refinance activity. Conversely, during periods of rising interest rates, the value of loan servicing rights generally increases due to lower prepayments. All loans have been sold servicing released since the
second quarter of 2004 and the Bank expects to continue this practice resulting in a declining servicing rights asset. Capitalized loan servicing rights are included in the consumer finance bank segment.



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Goodwill



The Corporation accounts for goodwill under the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets, which requires
that goodwill and other intangible assets with indefinite useful lives be tested for impairment at least annually. Assets and liabilities, including goodwill, are assigned to reporting units. Reporting units with assigned goodwill are corporate
banking and retail banking. Goodwill formerly assigned to Somerset Financial was reclassified to Assets of Discontinued Operations and later included as part of the October 2004 asset sale. Impairment tests indicated that the fair value of each
reporting unit with assigned goodwill exceeded its recorded investment (thus goodwill was not impaired). Risk factors considered in determining reporting unit fair value include future loan and deposit originations (and related revenues generated
from this activity), future fee revenues and costs associated with the services provided by each reporting unit, and the continued commitment of Corporation resources to each reporting unit. Future tests for impairment will also use this method.
Should any of these risk factors change, the fair value of a reporting unit could deteriorate, resulting in goodwill impairment. Goodwill is included in the community bank segment.



Valuation Allowance for Deferred Taxes



The Corporation accounts for deferred income taxes in accordance with FASB
Statement No. 109, Accounting for Income Taxes. Deferred income tax assets and liabilities result from temporary differences in the recognition of income and expense for income tax and financial reporting purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Corporation will
realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.



STATEMENT OF EARNINGS ANALYSIS



Earnings Summary



First Indiana reported net income of $14,678,000, or
$0.93 per diluted share, in 2004, compared with earnings of $2,529,000, or $0.16 per diluted share, in 2003. Net income in 2002 was $21,180,000, or $1.34 per diluted share. Earnings in 2004 improved over earnings for 2003 largely due to a decrease
of $27,424,000 in the provision for loan losses. Credit quality improved in 2004 with non-performing assets decreasing to $21,445,000 at December 31, 2004, from $38,882,000 at December 31, 2003, and $51,756,000 at December 31, 2002. Net charge-offs
of loans totaled $11,575,000 in 2004, compared to $31,513,000 in 2003 and $13,422,000 in 2002. Earnings in 2003 were affected by an increase of $18,218,000 in the provision for loan losses over 2002. The increase in the provision for loan losses in
2003 reflects an increased level of charge-offs, results from the findings of an independent evaluation of the commercial loan portfolio, the continued evaluation of risks in the portfolio at that time, and the Banks revised approach for
calculating the allowance for loan losses. Earnings in 2002 were affected by an increase of $5,528,000 in the provision for loan losses over 2001 due to increased levels of non-performing loans and charge-offs and the uncertainty of the economic
environment in Indiana.



In October 2004, First Indiana sold
substantially all the assets of Somerset Financial. Somerset Financials results of operations are reported as discontinued operations. Earnings from continuing operations, net of taxes, were $17,183,000, or $1.09 per diluted share, in 2004
compared with $1,952,000, or $0.12 per diluted share, in 2003. Earnings from continuing operations, net of taxes in 2002 were $20,829,000, or $1.32 per diluted share. Loss from discontinued operations, net of taxes, was $2,505,000, or a loss of
$0.16 per diluted share, in 2004 compared with earnings from discontinued operations, net of taxes of $577,000, or $0.04 per diluted share, in 2003. Earnings from discontinued operations, net of taxes in 2002 were $351,000, or $0.02 per diluted
share.



6



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##### Table of Contents

Net Interest Income



Net interest income was $69,441,000 in 2004, compared with $76,900,000 in 2003 and $73,780,000 in 2002. Earning assets averaged $1,955,281,000 in 2004,
compared with $2,083,300,000 in 2003 and $1,976,936,000 in 2002. The decrease in 2004 average earning assets (compared to average earning assets in 2003) primarily consists of reductions in business and consumer loans. Additionally, the sale of the
non-Indiana construction loan offices in November 2004, which included approximately $134,373,000 in construction loans outstanding, reduced average earning assets approximately $22,000,000 for the year. The acquisition of MetroBanCorp in January
2003 added approximately $126,685,000 in earning assets. Net interest margin is calculated as the percentage of net interest income to average earning assets. Net interest margin was 3.55 percent in 2004, compared to 3.69 percent in 2003 and 3.73
percent in 2002. For the fourth quarter of 2004, net interest margin was at 3.66 percent, compared to 3.69 percent for the third quarter and 3.37 percent for the second quarter of 2004. While the recent rate increases by the Federal Reserve Board
are beginning to be reflected in net interest margin, the liquidity created by the sale of the non-Indiana construction loan offices depressed the fourth quarter margin ratio by approximately 10 basis points due to the unusually high level of
short-term investments. Yields on consumer and residential mortgage loans fell in 2004, as well as 2003, due to continued prepayments and repricing of higher coupon loans. Historically low interest rates compressed net interest margin and net
interest income in 2003 and 2002, as deposit rates were unable to fully absorb reductions in market interest rates over those years. Since First Indiana continues to be positioned to benefit from increasing rates, improvement in net interest margin
is likely if market interest rates continue to increase. See Asset/Liability Management for a more detailed discussion of the Corporations management of interest rate risk.



Net interest margin consists of two components: interest rate spread and the
contribution of interest-free funds (primarily non-interest-bearing demand deposits and shareholders equity). Interest rate spread is the difference between the yield on total earning assets and the cost of total interest-bearing liabilities.
The interest rate spread for 2004 was 3.17 percent, compared with 3.36 percent in 2003 and 3.25 percent in 2002. The contribution of interest-free funds to net interest margin varies depending on the level of interest-free funds and the level of
interest rates. Interest-free funds averaged $368,428,000, or 18.8 percent of earning assets, in 2004, $334,547,000, or 16.1 percent of earning assets, in 2003, and $306,678,000, or 15.5 percent of earning assets in 2002. Interest-free funds
provided 38 basis points to the margin in 2004, compared with 33 basis points in 2003 and 48 basis points in 2002. Although the contribution from interest-free funds improved in 2004, net interest margin declined due to the decline in interest rate
spread. The decline in yields on consumer and residential mortgage loans in 2004 discussed above, as well as declines in the yield on securities available for sale, are the principle reasons for this narrowing of interest rate spread.



7



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##### Table of Contents

Net Interest Margin



|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|------------------------------------------ | -------------- | ---- | --------- |  | ----------- | ------- |  | -------------- | - | -------- | - | ----------- |  | - | -------------- |  | -------- | - | ----------- | - | --------- |  | - | ------- |  | ---- | -
|(Dollars in Thousands)                     |                | 2004 |           |  | 2003        |         |  | 2002           |  
|                                           | AverageBalance |      | Interest  |  | Yield /Rate |         |  | AverageBalance |   | Interest |   | Yield /Rate |  |   | AverageBalance |  | Interest |   | Yield /Rate |  
|Assets                                     |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Interest-Bearing Due from Banks            |                | $    | 29,200    |  | $           | 389     |  | 1.33           | % |          | $ | 5,014       |  | $ | 61             |  | 1.21     | % |             | $ |          |  | $ |        |  |     | %
|Federal Funds Sold                         |                |      |          |  |             |        |  |               |   |          |   | 227         |  |   | 3              |  | 1.18     |   |             |   | 1,412     |  |   | 20      |  | 1.41 |  
|Securities Available for Sale              |                |      | 215,159   |  |             | 7,869   |  | 3.66           |   |          |   | 177,898     |  |   | 8,035          |  | 4.52     |   |             |   | 145,172   |  |   | 8,501   |  | 5.86 |  
|Other Investments                          |                |      | 25,573    |  |             | 1,170   |  | 4.57           |   |          |   | 24,194      |  |   | 1,252          |  | 5.18     |   |             |   | 22,523    |  |   | 1,367   |  | 6.07 |  
|Loans (1)                                  |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Business                                   |                |      | 491,490   |  |             | 25,577  |  | 5.20           |   |          |   | 562,138     |  |   | 28,716         |  | 5.11     |   |             |   | 478,151   |  |   | 26,889  |  | 5.62 |  
|Consumer                                   |                |      | 554,570   |  |             | 34,177  |  | 6.16           |   |          |   | 648,890     |  |   | 42,448         |  | 6.54     |   |             |   | 678,640   |  |   | 50,197  |  | 7.40 |  
|Residential Mortgage                       |                |      | 296,232   |  |             | 14,113  |  | 4.76           |   |          |   | 299,519     |  |   | 15,563         |  | 5.20     |   |             |   | 293,316   |  |   | 18,683  |  | 6.37 |  
|Single-Family Construction                 |                |      | 166,416   |  |             | 8,111   |  | 4.87           |   |          |   | 204,068     |  |   | 9,333          |  | 4.57     |   |             |   | 223,567   |  |   | 11,795  |  | 5.28 |  
|Commercial Real Estate                     |                |      | 176,641   |  |             | 10,238  |  | 5.80           |   |          |   | 161,352     |  |   | 8,919          |  | 5.53     |   |             |   | 134,155   |  |   | 8,475   |  | 6.32 |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Total Loans                                |                |      | 1,685,349 |  |             | 92,216  |  | 5.47           |   |          |   | 1,875,967   |  |   | 104,979        |  | 5.60     |   |             |   | 1,807,829 |  |   | 116,039 |  | 6.42 |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Total Earning Assets                       |                |      | 1,955,281 |  |             | 101,644 |  | 5.20           |   |          |   | 2,083,300   |  |   | 114,330        |  | 5.49     |   |             |   | 1,976,936 |  |   | 125,927 |  | 6.37 |  
|Other Assets                               |                |      | 119,780   |  |             |         |  |                |   |          |   | 134,446     |  |   |                |  |          |   |             |   | 107,356   |  |   |         |  |      |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Total Assets                               |                | $    | 2,075,061 |  |             |         |  |                |   |          | $ | 2,217,746   |  |   |                |  |          |   |             | $ | 2,084,292 |  |   |         |  |      |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Liabilities and Shareholders Equity       |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Interest-Bearing Deposits                  |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Demand Deposits                            |                | $    | 185,050   |  | $           | 635     |  | 0.34           | % |          | $ | 210,922     |  | $ | 1,096          |  | 0.52     | % |             | $ | 162,822   |  | $ | 1,319   |  | 0.81 | %
|Savings Deposits                           |                |      | 472,006   |  |             | 3,977   |  | 0.84           |   |          |   | 423,401     |  |   | 3,076          |  | 0.73     |   |             |   | 418,224   |  |   | 5,582   |  | 1.33 |  
|Certificates of Deposit                    |                |      | 565,940   |  |             | 15,821  |  | 2.80           |   |          |   | 697,478     |  |   | 20,992         |  | 3.01     |   |             |   | 658,934   |  |   | 30,075  |  | 4.56 |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Total Interest-Bearing Deposits            |                |      | 1,222,996 |  |             | 20,433  |  | 1.67           |   |          |   | 1,331,801   |  |   | 25,164         |  | 1.89     |   |             |   | 1,239,980 |  |   | 36,976  |  | 2.98 |  
|Short-Term Borrowings                      |                |      | 128,676   |  |             | 1,521   |  | 1.18           |   |          |   | 132,886     |  |   | 1,390          |  | 1.05     |   |             |   | 126,501   |  |   | 2,059   |  | 1.63 |  
|Federal Home Loan Bank Advances            |                |      | 188,581   |  |             | 6,880   |  | 3.65           |   |          |   | 262,666     |  |   | 9,360          |  | 3.56     |   |             |   | 301,710   |  |   | 12,962  |  | 4.30 |  
|Subordinated Notes                         |                |      | 46,600    |  |             | 3,369   |  | 7.23           |   |          |   | 21,400      |  |   | 1,516          |  | 7.08     |   |             |   | 2,067     |  |   | 150     |  | 7.26 |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Total Interest-Bearing Liabilities         |                |      | 1,586,853 |  |             | 32,203  |  | 2.03           |   |          |   | 1,748,753   |  |   | 37,430         |  | 2.13     |   |             |   | 1,670,258 |  |   | 52,147  |  | 3.12 |  
|Non-Interest-Bearing Demand Deposits       |                |      | 241,941   |  |             |         |  |                |   |          |   | 209,126     |  |   |                |  |          |   |             |   | 154,148   |  |   |         |  |      |  
|Other Liabilities                          |                |      | 34,723    |  |             |         |  |                |   |          |   | 40,122      |  |   |                |  |          |   |             |   | 40,738    |  |   |         |  |      |  
|Shareholders Equity                       |                |      | 211,544   |  |             |         |  |                |   |          |   | 219,745     |  |   |                |  |          |   |             |   | 219,148   |  |   |         |  |      |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Total Liabilities and Shareholders Equity |                | $    | 2,075,061 |  |             |         |  |                |   |          | $ | 2,217,746   |  |   |                |  |          |   |             | $ | 2,084,292 |  |   |         |  |      |  
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Net Interest Income/Spread                 |                |      |           |  | $           | 69,441  |  | 3.17           | % |          |   |             |  | $ | 76,900         |  | 3.36     | % |             |   |           |  | $ | 73,780  |  | 3.25 | %
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  
|Net Interest Margin                        |                |      |           |  |             |         |  | 3.55           | % |          |   |             |  |   |                |  | 3.69     | % |             |   |           |  |   |         |  | 3.73 | %
|                                           |                |      |           |  |             |         |  |                |   |          |   |             |  |   |                |  |          |   |             |   |           |  |   |         |  |      |  

---

|(1) | Included in loans are loans held for sale totaling $43.5 million, $68.6 million, and $50.1 million in 2004, 2003, and 2002, respectively, and non-accrual loans.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The following table shows the impact on net interest income of changes in interest rates and volume of
the Corporations assets and liabilities. The change in interest not due solely to rate or volume has been allocated in proportion to the absolute dollar amounts of the change in each.



|                              |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|----------------------------- | ----------------------------------- | ----------------------- | ------ | - | ----------------------- | - | ----------------------------------- | --------- |  | - | ------- | - |  | ------ | ------- | - | --------- | - | ------ | - |  | - | ------- | -
|(Dollars in Thousands)        |                                     | 2004 Compared with 2003 |        |   | 2003 Compared with 2002 |  
|                              | Increase (Decrease)Due to Change in |                         |        |   |                         |   | Increase (Decrease)Due to Change in |           |  |   |        
|                              |                                     | Rate                    |        |   | Volume                  |   |                                     | NetChange |  |   | Rate    |   |  | Volume |         |   | NetChange |  
|Interest Income               |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|Interest-Bearing Deposits     |                                     | $                       | 7      |   |                         | $ | 321                                 |           |  | $ | 328     |   |  | $      |        |   |           | $ | 61     |   |  | $ | 61      |  
|Federal Funds Sold            |                                     |                         |       |   |                         |   | (3                                  | )         |  |   | (3      | ) |  |        | (3      | ) |           |   | (14    | ) |  |   | (17     | )
|Securities Available for Sale |                                     |                         | (1,681 | ) |                         |   | 1,515                               |           |  |   | (166    | ) |  |        | (2,165  | ) |           |   | 1,699  |   |  |   | (466    | )
|Other Investments             |                                     |                         | (151   | ) |                         |   | 69                                  |           |  |   | (82     | ) |  |        | (211    | ) |           |   | 96     |   |  |   | (115    | )
|Loans                         |                                     |                         | (2,290 | ) |                         |   | (10,473                             | )         |  |   | (12,763 | ) |  |        | (15,307 | ) |           |   | 4,247  |   |  |   | (11,060 | )
|                              |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|                              |                                     |                         | (4,115 | ) |                         |   | (8,571                              | )         |  |   | (12,686 | ) |  |        | (17,686 | ) |           |   | 6,089  |   |  |   | (11,597 | )
|                              |                                     |                         |        |   |                         |  
|Interest Expense              |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|Interest-Bearing Deposits     |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|Demand Deposits               |                                     |                         | (339   | ) |                         |   | (122                                | )         |  |   | (461    | ) |  |        | (550    | ) |           |   | 327    |   |  |   | (223    | )
|Savings Deposits              |                                     |                         | 524    |   |                         |   | 377                                 |           |  |   | 901     |   |  |        | (2,574  | ) |           |   | 68     |   |  |   | (2,506  | )
|Certificates of Deposit       |                                     |                         | (1,417 | ) |                         |   | (3,754                              | )         |  |   | (5,171  | ) |  |        | (10,754 | ) |           |   | 1,671  |   |  |   | (9,083  | )
|Short-Term Borrowings         |                                     |                         | 176    |   |                         |   | (45                                 | )         |  |   | 131     |   |  |        | (768    | ) |           |   | 99     |   |  |   | (669    | )
|FHLB Advances                 |                                     |                         | 217    |   |                         |   | (2,697                              | )         |  |   | (2,480  | ) |  |        | (2,048  | ) |           |   | (1,554 | ) |  |   | (3,602  | )
|Subordinated Notes            |                                     |                         | 32     |   |                         |   | 1,821                               |           |  |   | 1,853   |   |  |        | (4      | ) |           |   | 1,370  |   |  |   | 1,366   |  
|                              |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|                              |                                     |                         | (807   | ) |                         |   | (4,420                              | )         |  |   | (5,227  | ) |  |        | (16,698 | ) |           |   | 1,981  |   |  |   | (14,717 | )
|                              |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  
|Net Interest Income           |                                     | $                       | (3,308 | ) |                         | $ | (4,151                              | )         |  | $ | (7,459  | ) |  | $      | (988    | ) |           | $ | 4,108  |   |  | $ | 3,120   |  
|                              |                                     |                         |        |   |                         |   |                                     |           |  |   |         |   |  |        |         |   |           |   |        |   |  |   |         |  



Non-Interest Income



The following table shows First Indianas non-interest income for
the past three years.



|                                      |      |                         |        |                     |  |   |         |   |  |                     |   |  |        |        |   |         |   |        |      |  |        |   |  |   |       
|------------------------------------- | ---- | ----------------------- | ------ | ------------------- |  | - | ------- | - |  | ------------------- | - |  | ------ | ------ | - | ------- | - | ------ | ---- |  | ------ | - |  | - | ------
|(Dollars in Thousands)                |      | Years Ended December 31
|                                      |      |                         |        | Increase (Decrease) |  |   |         |   |  | Increase (Decrease) |   |  |       
|                                      | 2004 |                         |        | Amount              |  |   | Percent |   |  | 2003                |   |  | Amount |        |   | Percent |   |        | 2002
|Deposit Charges                       |      | $                       | 17,246 |                     |  | $ | 351     |   |  | 2.1                 | % |  | $      | 16,895 |   |         | $ | 1,932  |      |  | 12.9   | % |  | $ | 14,963
|Loan Servicing Income (Expense)       |      |                         | (236   | )                   |  |   | 1,843   |   |  | 88.6                |   |  |        | (2,079 | ) |         |   | (2,492 | )    |  | (603.4 | ) |  |   | 413   
|Loan Fees                             |      |                         | 3,039  |                     |  |   | 429     |   |  | 16.4                |   |  |        | 2,610  |   |         |   | (113   | )    |  | (4.1   | ) |  |   | 2,723 
|Trust Fees                            |      |                         | 3,584  |                     |  |   | 556     |   |  | 18.4                |   |  |        | 3,028  |   |         |   | 414    |      |  | 15.8   |   |  |   | 2,614 
|Investment Product Sales Commissions  |      |                         | 1,704  |                     |  |   | (13     | ) |  | (0.8                | ) |  |        | 1,717  |   |         |   | (1,009 | )    |  | (37.0  | ) |  |   | 2,726 
|Sale of Loans                         |      |                         | 11,538 |                     |  |   | 716     |   |  | 6.6                 |   |  |        | 10,822 |   |         |   | 2,391  |      |  | 28.4   |   |  |   | 8,431 
|Net Investment Securities Gain (Loss) |      |                         | (19    | )                   |  |   | (26     | ) |  | (371.4              | ) |  |        | 7      |   |         |   | (305   | )    |  | (97.8  | ) |  |   | 312   
|Other                                 |      |                         | 3,579  |                     |  |   | (1,084  | ) |  | (23.2               | ) |  |        | 4,663  |   |         |   | 807    |      |  | 20.9   |   |  |   | 3,856 
|                                      |      |                         |        |                     |  |   |         |   |  |                     |   |  |        |        |   |         |   |        |      |  |        |   |  |   |       
|                                      |      | $                       | 40,435 |                     |  | $ | 2,772   |   |  | 7.4                 | % |  | $      | 37,663 |   |         | $ | 1,625  |      |  | 4.5    | % |  | $ | 36,038
|                                      |      |                         |        |                     |  |   |         |   |  |                     |   |  |        |        |   |         |   |        |      |  |        |   |  |   |       



Non-interest income
totaled $40,435,000 in 2004, compared with $37,663,000 in 2003 and $36,038,000 in 2002. Included in non-interest income for the twelve months ended December 31, 2003, was $1,149,000 resulting from the acquisition of MetroBanCorp in January 2003.



Deposit charges in 2004 increased 2.1 percent to $17,246,000
following a 12.9 percent increase to $16,895,000 in 2003. Growth in deposit charges in 2004 consists of growth in returned check fees and debit card fees partially offset by a decrease in account analysis fees from business demand accounts. Included
in deposit



9



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##### Table of Contents

charges for the twelve months ended December 31, 2003, was $1,075,000 resulting from the acquisition of MetroBanCorp. The remaining growth in deposit charges
in 2003 was in overdraft protection fees, account analysis fees from business demand accounts, and debit card fees.



Loan servicing expense was $236,000 in 2004, compared with expense of $2,079,000 in 2003 and income of $413,000 in 2002. Loan servicing income consists of
three related elements: fees received from servicing residential mortgage and home equity loans, amortization of capitalized servicing right assets, and changes in the valuation allowance on servicing right assets. In addition, in connection with
the sale of the out-of-state construction loans in November 2004, First Indiana is temporarily servicing these loans. Residential and home equity loans serviced for others were $320,994,000 at December 31, 2004, compared with $432,920,000 at
December 31, 2003, and $622,980,000 at December 31, 2002. All loans have been sold servicing released since the second quarter of 2004 and the Bank expects to continue this practice. Therefore, loans serviced for others will continue to decrease due
to scheduled payments, as well as prepayment activity. Rapid repayments accelerated the amortization of loan servicing rights and increased valuation impairment charges in 2004 and 2003. In addition, fees collected from servicing loans were reduced
in 2004 and 2003 due to the lower loan volume. Valuation impairment charges in 2004 totaled $376,000, compared to $2,386,000 in 2003 and $457,000 in 2002. The valuation impairment loss in 2003 reflects high prepayments and adjustments to certain
assumptions used in determining the estimated market value of the loan servicing rights portfolio. Additional information relating to loan servicing rights can be found in Note 3 of the Notes to the Consolidated Financial Statements.



Loan fees were $3,039,000 in 2004, compared with $2,610,000 in 2003 and
$2,723,000 in 2002. Of the $429,000 loan fee increase in 2004 from 2003, $282,000 consists of additional standby letter of credit fees that were initially deferred under Financial Accounting Standards Board Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, (FIN 45). Upon adoption of FIN 45 in 2003, these deferred fees were accreted into income over
the lives of the underlying letters of credit rather than immediately recognized as was formerly done. As a result, letter of credit fee income was lower in 2003 during the transition to this new recognition method. The remaining increase in loan
fees in 2004 when compared to 2003 and 2002 reflects modest growth in income-producing activities in business lending partially offset by decreases in single-family construction loan fee income caused by the sale of the non-Indiana construction loan
offices in November 2004.



Assets under management by
FirstTrust Indiana, the Banks investment advisory and trust division, were $961,450,000, $867,700,000, and $658,357,000 at year-end 2004, 2003, and 2002, respectively. Trust fees in 2004 were $3,584,000, compared with $3,028,000 in 2003 and
$2,614,000 in 2002. The increase in trust fees and assets under management by FirstTrust for 2004 compared with the same periods of 2003 and 2002, was mainly the result of successful efforts in developing new investment management relationships, as
well as large additions to existing relationships.



Investment
and insurance product sales commissions generated by First Indiana Investor Services, Inc., the Banks investment products and insurance sales subsidiary, ended the year with total fees down slightly compared with the prior year. Fees were
$1,704,000 in 2004, compared with $1,717,000 in 2003 and $2,726,000 in 2002. In the fourth quarter of 2004, annuity sales revenues declined due to the elimination of the existing sales channel. A revised format for delivering investment and
insurance products is being introduced in 2005. Fees fell in 2003 when compared with fees in 2002, largely due to the lower interest rate environment, which caused the Banks insurance carriers to discontinue or offer less attractive products.
Commission revenue also fell due to lower commission rates received on new product sales.



Gain on the sale of loans in 2004 was $11,538,000, an increase of $716,000 or 6.6 percent over comparable revenues in 2003 of $10,822,000 and an increase of $3,107,000 or 36.9 percent over comparable revenues in 2002
of $8,431,000. The sale of the non-Indiana construction loan offices resulted in a net gain of $958,000 in 2004 which is included in the total gain reported. Consumer loan sales revenue in 2004 decreased $330,000 from



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revenue in 2003 primarily due to a lower volume of consumer loan sales. Consumer loans sold were $339,595,000 in 2004, compared with $344,638,000 in 2003 and
$269,534,000 in 2002. The increase in 2003 gains on sale of loans when compared to gains in 2002 reflected the 27.9 percent increase in consumer loan sales. Sales of variable rate home equity lines of credit (HELOCs) grew to $169,251,000
(49.8 percent of consumer loan sales) in 2004 compared with sales of $160,788,000 (46.7 percent of consumer loan sales) in 2003 and sales of $40,158,000 (14.9 percent of consumer loan sales) in 2002. The shift from originations and sales of fixed
rate home equity loans to HELOCs reflects the markets growing preference for this type of product. HELOCs offer an attractive prime-based interest rate, the ability to draw down or pay back principal at any time during the term of the loan,
and the option of an interest-only monthly payment. Residential loans sold were $6,481,000 in 2004, compared with $1,439,000 in 2003 and $314,000 in 2002.



Included in net investment securities losses in 2004 were impairment losses of $299,000 related to the Banks holdings of Fannie Mae and Freddie Mac
preferred stock.



Other non-interest income in 2004 was
$3,579,000, compared with $4,663,000 in 2003 and $3,856,000 in 2002. Customer fee revenue included in other non-interest income decreased $458,000 in 2004 from 2003 primarily due to a slow-down in prepayment activity in consumer loans, both owned by
the Bank and serviced for others. Broker loan fees decreased $266,000 in 2004 due to a slow-down in refinancing activity. Included in 2003 other non-interest income was a one-time gain of $309,000 on the disposition of a key-man life insurance
policy.



Non-Interest Expense



The following table shows First Indianas non-interest expense for the
past three years.



|                                         |      |                         |                     |  |   |         |   |                    |       |    |        |   |        |         |   |        |      |  |       |   |  |   |       
|---------------------------------------- | ---- | ----------------------- | ------------------- |  | - | ------- | - | ------------------ | ----- | -- | ------ | - | ------ | ------- | - | ------ | ---- |  | ----- | - |  | - | ------
|(Dollars in Thousands)                   |      | Years Ended December 31
|                                         |      |                         | Increase (Decrease) |  |   |         |   | Increase(Decrease) |       |    |       
|                                         | 2004 |                         | Amount              |  |   | Percent |   |                    | 2003  |    | Amount |   |        | Percent |   |        | 2002
|Salaries                                 |      | $                       | 31,170              |  | $ | (1,526  | ) |                    | (4.7  | )% |        | $ | 32,696 |         | $ | 9,046  |      |  | 38.2  | % |  | $ | 23,650
|Benefits                                 |      |                         | 9,138               |  |   | 1,233   |   |                    | 15.6  |    |        |   | 7,905  |         |   | 1,569  |      |  | 24.8  |   |  |   | 6,336 
|Net Occupancy                            |      |                         | 4,088               |  |   | (8      | ) |                    | (0.2  | )  |        |   | 4,096  |         |   | 743    |      |  | 22.2  |   |  |   | 3,353 
|Equipment                                |      |                         | 5,997               |  |   | (314    | ) |                    | (5.0  | )  |        |   | 6,311  |         |   | 686    |      |  | 12.2  |   |  |   | 5,625 
|Professional Services                    |      |                         | 5,182               |  |   | (751    | ) |                    | (12.7 | )  |        |   | 5,933  |         |   | 1,190  |      |  | 25.1  |   |  |   | 4,743 
|Marketing                                |      |                         | 2,139               |  |   | (359    | ) |                    | (14.4 | )  |        |   | 2,498  |         |   | 283    |      |  | 12.8  |   |  |   | 2,215 
|Telephone, Supplies, and Postage         |      |                         | 3,475               |  |   | (294    | ) |                    | (7.8  | )  |        |   | 3,769  |         |   | 791    |      |  | 26.6  |   |  |   | 2,978 
|Other Intangible Asset Amortization      |      |                         | 718                 |  |   | (18     | ) |                    | (2.4  | )  |        |   | 736    |         |   | 736    |      |  |      |   |  |   |      
|Other Real Estate Owned Operations  Net |      |                         | 1,215               |  |   | 524     |   |                    | 75.8  |    |        |   | 691    |         |   | 547    |      |  | 379.9 |   |  |   | 144   
|Deposit Insurance                        |      |                         | 221                 |  |   | (15     | ) |                    | (6.4  | )  |        |   | 236    |         |   | (6     | )    |  | (2.5  | ) |  |   | 242   
|Miscellaneous                            |      |                         | 8,135               |  |   | 249     |   |                    | 3.2   |    |        |   | 7,886  |         |   | 697    |      |  | 9.7   |   |  |   | 7,189 
|                                         |      |                         |                     |  |   |         |   |                    |       |    |        |   |        |         |   |        |      |  |       |   |  |   |       
|                                         |      | $                       | 71,478              |  | $ | (1,279  | ) |                    | (1.8  | )% |        | $ | 72,757 |         | $ | 16,282 |      |  | 28.8  | % |  | $ | 56,475
|                                         |      |                         |                     |  |   |         |   |                    |       |    |        |   |        |         |   |        |      |  |       |   |  |   |       



Non-interest expense
in 2004 was $71,478,000, compared with $72,757,000 in 2003. Salary expense in 2004 decreased $1,526,000 or 4.7 percent from salary expense in 2003. Included in 2004 salary expense was severance expense of $932,000 associated with the cost reduction
plan implemented in the third quarter of 2004. Included in 2003 salary expense was a $1,053,000 increase in salary expense resulting from an adjustment in the accrual for salaries and $1,387,000 for expenses associated with the retirement of the
Banks president and chief executive officer. Employee benefits in 2004 increased $1,233,000 or 15.6 percent over comparable expense in 2003 and is explained by higher group medical insurance premiums, increased defined benefit pension plan
expense and higher payroll taxes. The Corporation had 594 full time equivalent employees at year-end 2004,



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compared with 685 full time equivalent employees at the end of 2003. Equipment expense in 2004 was $314,000 lower than equipment expense in 2003. This
decrease primarily reflects one-time expenses incurred in 2003 for the merger with MetroBanCorp. Professional services expense in 2004 decreased 12.7 percent or $751,000 from comparable expense in 2003. During 2003, First Indiana incurred higher
legal expenses associated with loan delinquencies and foreclosures and executive search service fees. Marketing and telephone, supplies and postage expenses in 2004 were lower than comparable expenses in 2003 primarily due to cost reduction efforts
during 2004. Net expense on other real estate owned operations in 2004 increased $524,000 over the comparable expense in 2003. In the third quarter of 2004, First Indiana expensed $1,128,000 as a fair value adjustment on a group of other real estate
owned (OREO) properties associated with one credit relationship. These expenses were partially offset by lower OREO maintenance, taxes, and other operating expenses in 2004. Miscellaneous expense in 2004 increased $249,000 or 3.2 percent
over miscellaneous expense in 2003, primarily due to increased insurance and surety bond premiums.



Included in non-interest expense for the twelve months ended December 31, 2003 was $4,685,000 from the MetroBanCorp acquisition. Of these expenses,
approximately $320,000 were directly associated with the integration of MetroBanCorp. Salary expense was $32,696,000 in 2003, compared with $23,650,000 in 2002. Included in 2003 salary expense was a $1,053,000 increase in salary expense resulting
from an adjustment in the accrual for salaries and $1,387,000 for expenses associated with the retirement of the Banks president and chief executive officer. Management incentive bonus expense, although accrued at a reduced rate in 2003, was
higher than in 2002, when previously accrued incentive awards totaling $1,828,000 were reversed. The MetroBank staff and staffing increases in the community bank and consumer finance bank segments and normal salary increases in 2003 account for the
remainder of the salary expense increase when compared with 2002. Employee benefits in 2003 increased $1,569,000, or 24.8 percent, due to the staffing increases mentioned above, increased medical insurance premiums, and higher pension expense.
Expense categories reflecting the increased 2003 operating expenses of the expanded branch network from the MetroBank merger as well as normal expense increases were net occupancy, equipment, and telephone, supplies, and postage expense. Marketing
expense increased 12.8 percent over 2002 expense. In 2002, marketing expense was reduced as part of an overall expense control effort. Professional services expense in 2003 increased 25.1 percent over 2002 expense due to increased legal and other
professional expenses associated with loan delinquencies and foreclosures and executive search services. Other intangible asset amortization commenced in 2003 reflecting the establishment and amortization of a core deposit intangible and non-compete
agreement intangible related to the purchase of MetroBanCorp.



Income Tax
Expense



The following table shows the Corporations
earnings from continuing operations; as well as applicable income taxes and effective tax rates for each of the past three years.



|                                    |  |      |        |   |      |   |       |      |  |   |        |  
|----------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|(Dollars in Thousands)              |  | 2004 |        |   | 2003 |   |       | 2002 | 
|Earnings from Continuing Operations |  | $    | 26,848 |   |      | $ | 2,832 |      |  | $ | 32,587 |  
|Income Taxes                        |  |      | 9,665  |   |      |   | 880   |      |  |   | 11,758 |  
|Effective Tax Rate                  |  |      | 36.0   | % |      |   | 31.1  | %    |  |   | 36.1   | %



In connection with the
decrease in 2003 earnings and the Corporations state tax profile, First Indiana had a loss for state income tax purposes for 2003 resulting in a decrease in the effective tax rate for that year. Additional data on income taxes can be found in
Note 12 of the Notes to Consolidated Financial Statements.



Discontinued
Operations



On October 25, 2004, First Indiana Corporation
sold substantially all the assets of Somerset Financial Services, LLC to Somerset CPAs, P.C. Somerset Financial Services, LLC, is a subsidiary of the Corporation and represented a majority of the operations of The Somerset Group, Inc., which was
acquired by the Corporation in September 2000. Somerset CPAs was formed by a management group from Somerset Financial and assumed



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substantially all the liabilities of Somerset Financial. The sales price was $6,000,000 excluding $5,405,000 of existing cash at Somerset Financial which was
paid to the Corporation as a distribution before the sale. First Indiana Bank provided the buyers a loan of $6,000,000 to fund the purchase price. Subsequently, the Bank participated $5,500,000 of the loan to a third-party financial institution.
Somerset Financials results of operations are reported as discontinued operations, and the results of operations and cash flows have been removed from the Corporations results of continuing operations for all periods presented in the
Consolidated Statements of Earnings, Consolidated Statements of Cash Flows and Notes to Consolidated Financial Statements. Likewise, the assets and liabilities of Somerset Financial have been reclassified to assets and liabilities of discontinued
operations on the Consolidated Balance Sheets. Prior to the announced sale, Somerset Financial Services, LLC was included in the Somerset Financial operating segment.



Loss from discontinued operations, net of taxes, was $2,505,000, or a loss of $0.16 per diluted share, in 2004 compared with
earnings from discontinued operations, net of taxes, of $577,000, or $0.04 per diluted share, in 2003. Earnings from discontinued operations, net of taxes in 2002 were $351,000, or $0.02 per diluted share. The 2004 pre-tax loss from discontinued
operations of $1,090,000 includes a goodwill impairment loss of $1,852,000 and $300,000 in costs incurred to sell the business. The sale resulted in a taxable gain and no tax benefit was accrued for the goodwill impairment or the costs to sell the
business. Tax expense of $981,000 was recorded in connection with the sale.



FINANCIAL CONDITION



First
Indianas total assets at December 31, 2004, were $1,898,263,000, compared with $2,193,137,000 at December 31, 2003, and $2,125,590,000 at December 31, 2002. Total assets at year-end 2004 decreased $294,874,000 from total assets at year-end
2003. The sale of the non-Indiana construction loan offices in 2004 reduced total assets approximately $134,373,000. The remainder of this decrease consists of decreases in business, consumer and residential mortgage loans. An expected outcome of
the initiatives undertaken in 2004 to improve credit quality and reduce risk was a reduction in the loan portfolio. The acquisition of MetroBanCorp in January 2003 added approximately $196,000,000 to total assets. This increase in assets was
partially offset by the use of cash for the acquisition as well as by prepayment activity in consumer loans.



Loans



Loan
Portfolio Composition.The following table sets forth information concerning the composition of the Banks loan portfolio in dollar amounts and in percentages by type of loan.



|                                 |        |                |           |      |       |        |      |         |           |      |        |   |         |   |           |        |       |         |  |   |           |  |         |   |  |   |           |  |       |  
|-------------------------------- | ------ | -------------- | --------- | ---- | ----- | ------ | ---- | ------- | --------- | ---- | ------ | - | ------- | - | --------- | ------ | ----- | ------- |  | - | --------- |  | ------- | - |  | - | --------- |  | ----- | -
|(Dollars in Thousands)           |        | At December 31 |          
|                                 | 2004   |                |           | 2003 |       |        | 2002 |         |           | 2001 |        |   | 2000    |  
|                                 | Amount |                | Percent   |      |       | Amount |      | Percent |           |      | Amount |   | Percent |   |           | Amount |       | Percent |  |   | Amount    |  | Percent |  
|Commercial Loans                 |        |                |           |      |       |        |      |         |           |      |        |   |         |   |           |        |       |         |  |   |           |  |         |   |  |   |           |  |       |  
|Business Loans                   |        | $              | 466,703   |      | 31.1  | %      |      | $       | 515,316   |      | 28.4   | % |         | $ | 501,213   |        | 27.3  | %       |  | $ | 443,461   |  | 25.2    | % |  | $ | 263,750   |  | 14.8  | %
|Single-Family Construction Loans |        |                | 58,680    |      | 3.9   |        |      |         | 192,450   |      | 10.6   |   |         |   | 212,772   |        | 11.6  |         |  |   | 224,926   |  | 12.8    |   |  |   | 207,569   |  | 11.6  |  
|Commercial Real Estate Loans     |        |                | 175,145   |      | 11.7  |        |      |         | 178,378   |      | 9.8    |   |         |   | 146,174   |        | 8.0   |         |  |   | 120,485   |  | 6.9     |   |  |   | 98,740    |  | 5.5   |  
|Consumer Loans                   |        |                |           |      |       |        |      |         |           |      |        |   |         |   |           |        |       |         |  |   |           |  |         |   |  |   |           |  |       |  
|Home Equity Loans                |        |                | 505,702   |      | 33.7  |        |      |         | 591,565   |      | 32.6   |   |         |   | 654,930   |        | 35.6  |         |  |   | 664,692   |  | 37.8    |   |  |   | 737,371   |  | 41.4  |  
|Other Consumer Loans             |        |                | 14,909    |      | 1.0   |        |      |         | 20,460    |      | 1.1    |   |         |   | 11,220    |        | 0.6   |         |  |   | 10,419    |  | 0.6     |   |  |   | 10,920    |  | 0.6   |  
|Residential Mortgage Loans       |        |                | 279,051   |      | 18.6  |        |      |         | 316,822   |      | 17.5   |   |         |   | 311,324   |        | 16.9  |         |  |   | 292,503   |  | 16.7    |   |  |   | 466,125   |  | 26.1  |  
|                                 |        |                |           |      |       |        |      |         |           |      |        |   |         |   |           |        |       |         |  |   |           |  |         |   |  |   |           |  |       |  
|Total Loans                      |        | $              | 1,500,190 |      | 100.0 | %      |      | $       | 1,814,991 |      | 100.0  | % |         | $ | 1,837,633 |        | 100.0 | %       |  | $ | 1,756,486 |  | 100.0   | % |  | $ | 1,784,475 |  | 100.0 | %
|                                 |        |                |           |      |       |        |      |         |           |      |        |   |         |   |           |        |       |         |  |   |           |  |         |   |  |   |           |  |       |  



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Commercial Loans.The Bank offers a variety of commercial loans, including business loans,
single-family construction loans, and commercial real estate loans. Business loans decreased $48,613,000 from $515,316,000 at December 31, 2003 to $466,703,000 at December 31, 2004. The primary reason for this decrease was an increased focus on
underwriting and portfolio risk management. Management believes that it has identified and adequately reserved for known credit risks in the portfolio. While the Bank anticipates some additional runoff of riskier loans in 2005, it has begun to
concentrate its efforts on business development and expects a modest expansion of the business loan portfolio in 2005.



The majority of business loans include loans to small and middle-market companies in central Indiana. Business loans as a percentage of total loans have
grown from 14.8 percent in 2000 to 31.1 percent in 2004. Strategies for 2005 and beyond call for continued growth in this market segment, as well as an overall increase in the market share of the Indianapolis area.



The majority of First Indianas business loans have variable rates,
which provide immediate adjustments when interest rate changes occur. This portfolio of loans is widely diversified with loans to companies in a variety of industries, including distribution, manufacturing, transportation, finance, and various
services. The Bank had 13.3 percent of business loan commitments to a single industry group (specialty finance) at December 31, 2004. The next highest industry group concentration was 6.5 percent of business loan commitments (mortgage bankers).
At December 31, 2004, the Bank had 116 loan relationships with commitments over $1,000,000.



Single-family construction loans are made both to builders and to individuals. In November 2004, First Indiana sold a portion of its active residential construction loan business to TierOne Bank in Lincoln, Nebraska.
The transaction included $134,373,000 of outstanding residential construction loans with total commitments of $ 264,477,000 and the construction loan offices in Phoenix, Arizona; Orlando, Florida; and Charlotte and Raleigh, North Carolina. The
Bank continues to originate construction loans through its lending office in Indianapolis, Indiana. These loans have terms ranging from six months to one year. At December 31, 2004 and 2003, the Banks construction loans outstanding equaled
$58,680,000 and $192,450,000, respectively.



Commercial real
estate loans were $175,145,000 at December 31, 2004, compared with $178,378,000 one year earlier. Included in commercial real estate loans at December 31, 2004 and 2003, were $73,610,000 and $83,247,000, respectively, in land development loans,
which are for the acquisition and development of building lots for single-family housing units in the metropolitan areas of Indianapolis, Charlotte, Raleigh, Phoenix, and Orlando. The interest rate on land development loans is generally in excess of
the Banks prime rate and the term of these loans is generally 36 months or less. The remainder of the Banks portfolio of commercial real estate loans, an area of anticipated growth for the year 2005, includes office buildings, strip
centers, and multi-family units primarily in the Indianapolis market. The usual term of these loans is three to five years.



The following table presents the remaining maturities and interest rate sensitivity of commercial loans at December 31, 2004.



|                           |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  
|-------------------------- | --------------- | -------------------- | ------------------------- |  | -------------- | ------ | ----- | - | ------- |  | - | ------- |  | ----- | -
|(Dollars in Thousands)     |                 | Remaining Maturities |                           |  |                |        |      
|                           | One Yearor Less |                      | Over OneYear to FiveYears |  | Over FiveYears |        | Total |   | Percent | 
|Type of Loan:              |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  
|Business                   |                 | $                    | 397,464                   |  | $              | 67,406 |       | $ | 1,833   |  | $ | 466,703 |  | 66.6  | %
|Single-Family Construction |                 |                      | 58,680                    |  |                |       |       |   |        |  |   | 58,680  |  | 8.4   |  
|Commercial Real Estate     |                 |                      | 138,823                   |  |                | 20,368 |       |   | 15,954  |  |   | 175,145 |  | 25.0  |  
|                           |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  
|Total                      |                 | $                    | 594,967                   |  | $              | 87,774 |       | $ | 17,787  |  | $ | 700,528 |  | 100.0 | %
|                           |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  
|Rate Sensitivity:          |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  
|Fixed Rate                 |                 | $                    | 34,906                    |  | $              | 75,009 |       | $ | 17,787  |  | $ | 127,702 |  | 18.2  | %
|Adjustable Rate            |                 |                      | 560,061                   |  |                | 12,765 |       |   |        |  |   | 572,826 |  | 81.8  |  
|                           |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  
|Total                      |                 | $                    | 594,967                   |  | $              | 87,774 |       | $ | 17,787  |  | $ | 700,528 |  | 100.0 | %
|                           |                 |                      |                           |  |                |        |       |   |         |  |   |         |  |       |  



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Consumer Loans.First Indiana Banks consumer bank operates both a retail lending network and
a wholesale lending network. The retail network essentially functions through the Banks 31 banking centers scattered throughout the central Indiana market area. The wholesale network originates loans nationally, currently in 47 states.
Consistent with the Banks strategy to become a more focused Indiana community bank, retail loan originations will be emphasized with the intent to increase the retail portfolio. Wholesale loan originations are targeted to increase with a
greater portion sold into the secondary market as has been the trend over the last three years.



The Bank originates a full range of fixed rate and adjustable rate consumer loans with varying levels of credit risk. These range from A to
sub-prime credits. The sub-prime loans typically involve lower credit scores with higher loan-to-value ratios up to 115 percent. Sub-prime loans are sold to investors. A credit quality loans with typically lower loan-to-value ratios may
be retained in the Banks portfolio or sold to investors. Home equity loan originations in 2004 totaled $408,031,000, of which 59.1 percent were HELOCs. This compares with 2003 home equity loan originations of $481,828,000, of which 50.3
percent were HELOCs, and 2002 home equity loan originations of $464,187,000, of which 43.7 percent were HELOCs.



Home equity loans and home equity lines of credit account for 97.1 percent and 96.7 percent of consumer loans at December 31, 2004 and 2003, respectively.
Economic and market conditions coupled with the Banks consumer loan strategies led to several significant trends. As market interest rates decreased, borrowers preferences moved away from closed-end home equity loans to HELOCs. This
product offers an attractive prime-based interest rate, the ability to draw down or pay back principal at any time during the term of the loan, and the option of an interest-only monthly payment. Borrowers took advantage of the lower rate
environment by paying off existing loans and refinancing their debt at lower rates. To take advantage of this demand, the Bank developed and offered customers HELOC products with competitive rates and features through its national network as well as
through the Banks loan originators. The Bank has developed a niche in selling both closed-end and line of credit home equity loans into the secondary market. First Indianas strategies in 2004 call for continued expansion of consumer
originations and sales by maintaining existing relationships and expanding the loan origination network.



During 2004, the Bank sold $339,595,000 in home equity loans, a 1.5 percent decrease from sales of $344,638,000 in 2003 but a 26.0 percent increase from
sales of $269,534,000 in 2002. Of the home equity loans sold in 2004, $169,251,000, or 49.8 percent, consisted of HELOCs compared with $160,788,000, or 46.7 percent of home equity loan sales in 2003, and 2002 sales of $40,158,000, or 14.9 percent.
Home equity loans sold as a percent of home equity loans originated in 2004, 2003 and 2002 were 83.2 percent, 71.5 percent and 58.1 percent, respectively.



At December 31, 2004, consumer loans totaled $520,611,000, compared with $612,025,000 and $666,150,000 at December 31, 2003 and 2002, respectively. The
Bank experienced a decrease in consumer loans outstanding in 2004, 2003 and 2002 as a result of prepayments and increased sales of consumer loan production. Partially offsetting this decrease was approximately $23,714,000 of consumer loans acquired
from MetroBanCorp in 2003. Reflecting the trend previously discussed, HELOC balances at December 31, 2004 totaled $308,272,000, or 59.2 percent, of consumer loans compared with $342,236,000, or 55.9 percent, of consumer loans at December 31, 2003
and $328,796,000, or 49.4 percent, of consumer loans at December 31, 2002. Consumer loans generally have shorter terms and higher interest rates than residential loans, but involve higher credit risk. Of the Banks consumer loans outstanding at
December 31, 2004, 97.1 percent were secured by first or second mortgages on real property. At December 31, 2004, the Bank had $18,139,000 in closed-end consumer loans held for sale and $25,354,000 in home equity lines of credit held for sale. At
December 31, 2003, the Bank had $34,724,000 in closed-end consumer loans held for sale and $33,881,000 in home equity lines of credit held for sale. At December 31, 2002, the Bank had $17,380,000 in closed-end consumer loans held for sale and
$32,692,000 in home equity lines of credit held for sale.



Additionally, the Bank makes loans secured by deposits and overdraft loans in connection with its checking accounts; auto loans; fixed rate and fixed term secured and unsecured loans; and offers Visa credit cards through an agent.



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Residential Mortgage Loans.First Indiana Banks residential loan strategy in 2005 calls for
increased mortgage production with emphasis on the Banks internal referral sources. The retail banking centers will market mortgage purchase and refinance products to the Banks client base. Additionally, mortgages will be originated in
partnership with selected realtor and builder companies. Fixed rate mortgages will continue to be brokered or sold into the secondary market while adjustable rate mortgages will primarily be retained for the Banks portfolio. Purchases of bulk
mortgages will continue to be de-emphasized. The overall strategy is to maintain a low risk mortgage portfolio that helps to diversify the Banks overall asset mix.



Residential mortgage loans outstanding totaled $279,051,000 at December 31, 2004, compared with $316,822,000 and
$311,324,000 at year-end 2003 and 2002, respectively. Due to historically low residential loan interest rates in 2003 and 2002, First Indiana experienced significant loan prepayments in its residential loan portfolio. In 2004, the Bank originated
$16,173,000 and purchased $ 41,814,000 in primarily adjustable rate residential mortgage loans. In 2003, the Bank originated $55,876,000 and purchased $110,747,000 in primarily adjustable rate residential mortgage loans. In 2002, the Bank originated
$14,264,000 and purchased $143,573,000 in primarily adjustable rate residential mortgage loans. While the Bank decided to de-emphasize the traditional mortgage banking business in 1999, there remains a need within the Banks loan portfolio for
credit and yield diversification. Consequently, in light of the strong residential mortgage loan prepayments during 2003 and 2002, the Bank pursued a strategy of maintaining a level of diversification by originating and purchasing residential
mortgage loans. Sales of fixed rate residential mortgage loans into the secondary market in 2004, 2003, and 2002 were $6,481,000, $1,439,000, and $314,000, respectively. Gains on residential loan sales in 2004 were $104,000, compared with $16,000 in
2003 and $40,000 in 2002.



The original contractual loan
payment period for residential mortgage loans originated by the Bank normally ranges from 10 to 30 years. Because borrowers may refinance or prepay their loans, they normally remain outstanding for a substantially shorter period.



As part of its residential loan origination activities, in 2003 First Indiana
developed a network of residential loan correspondents with whom the Bank links prospective borrowers. First Indiana does not fund these mortgages, but collects a fee for this service. In 2004, First Indiana produced $12,458,000 of residential loans
for correspondents and fees of $207,000 were recognized. In 2003, First Indiana produced $29,455,000 of residential loans for correspondents and fees of $473,000 were recognized.



Investments



The relative mix of investment securities and loans in the Bank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. Credit risk is controlled by limiting the number, size, and type of investments and by approving the brokers and agents through which investments are made.



At December 31, 2004, First Indianas investments totaled $243,296,000,
or 12.8 percent of total assets, and consisted of securities available for sale, carried at fair market value, and other investments, carried at cost.



The distribution of securities available for sale is detailed below.



|                                             |      |             |         |  |      |         |  |   |        
|-------------------------------------------- | ---- | ----------- | ------- |  | ---- | ------- |  | - | -------
|(Dollars in Thousands)                       |      | December 31
|                                             | 2004 |             | 2003    |  | 2002
|U.S. Government Treasuries, Agencies & Other |      | $           | 137,268 |  | $    | 130,543 |  | $ | 112,346
|Mortgage-Backed Securities                   |      |             | 80,001  |  |      | 84,910  |  |   | 26,046 
|Other Asset-Backed Securities                |      |             |        |  |      |        |  |   | 65     
|                                             |      |             |         |  |      |         |  |   |        
|Total                                        |      | $           | 217,269 |  | $    | 215,453 |  | $ | 138,457
|                                             |      |             |         |  |      |         |  |   |        



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U.S. Treasuries, Agencies and Other includes $1,165,000 and $1,398,000 of Fannie Mae and Freddie Mac
preferred stock at December 31, 2004 and 2003, respectively. Other-than-temporary impairment losses of $299,000 were recognized in 2004 on the Banks holdings of Fannie Mae and Freddie Mac preferred stock. This preferred stock was sold in the
first quarter of 2005.



At December 31, 2004, securities
available for sale had the following maturity and yield characteristics.



|                                             |           |                        |        |  |                                      |           |  |                                       |        |  |                    |   |       |       |        |           |      |       |  |   |           |  |       |   |  |   |         |  |      |  
|-------------------------------------------- | --------- | ---------------------- | ------ |  | ------------------------------------ | --------- |  | ------------------------------------- | ------ |  | ------------------ | - | ----- | ----- | ------ | --------- | ---- | ----- |  | - | --------- |  | ----- | - |  | - | ------- |  | ---- | -
|(Dollars in Thousands)                       |           | Due in OneYear or Less |        |  | Due after One Yearthrough Five Years |           |  | Due after Five Yearsthrough Ten Years |        |  | Due afterTen Years |   |       | Total |       
|                                             | BookValue |                        | Yield  |  |                                      | BookValue |  | Yield                                 |        |  | BookValue          |   | Yield |       |        | BookValue |      | Yield |  |   | BookValue |  | Yield |  
|U.S. Government Treasuries, Agencies & Other |           | $                      | 70,909 |  | 2.63                                 | %         |  | $                                     | 65,194 |  | 3.52               | % |       | $     |       |           |     | %     |  | $ | 1,165     |  | 4.48  | % |  | $ | 137,268 |  | 3.07 | %
|Mortgage-Backed Securities                   |           |                        | 88     |  | 2.76                                 |           |  |                                       | 3,653  |  | 4.82               |   |       |       | 75,256 |           | 4.30 |       |  |   | 1,004     |  | 6.02  |   |  |   | 80,001  |  | 4.35 |  
|                                             |           |                        |        |  |                                      |           |  |                                       |        |  |                    |   |       |       |        |           |      |       |  |   |           |  |       |   |  |   |         |  |      |  
|Total                                        |           | $                      | 70,997 |  | 2.63                                 | %         |  | $                                     | 68,847 |  | 3.59               | % |       | $     | 75,256 |           | 4.30 | %     |  | $ | 2,169     |  | 5.19  | % |  | $ | 217,269 |  | 3.54 | %
|                                             |           |                        |        |  |                                      |           |  |                                       |        |  |                    |   |       |       |        |           |      |       |  |   |           |  |       |   |  |   |         |  |      |  



For additional
information concerning securities available for sale, see Note 4 of the Corporations Consolidated Financial Statements.



Included in other investments are Federal Reserve Bank Stock, Federal Home Loan Bank Stock, and Common Securities in the Corporations grantor
trusts: First Indiana Capital Trust I and First Indiana Capital Statutory Trust II. The Bank is required by the Federal Reserve Board to own shares of Federal Reserve Bank (FRB) stock. FRB stock, which is a restricted investment
security, is carried at its cost. In addition, as a member of the Federal Home Loan Bank of Indianapolis (FHLB), the Bank is required to own shares of capital stock in the FHLB. FHLB stock is carried at its cost, since it is a restricted
investment security. The Bank is required to hold approximately $6,224,000 of FHLB stock. The Corporations holdings in FHLB stock are redeemable only upon five years notice to the FHLB. In connection with the formation of First Indiana
Capital Trust I (Trust I) and First Indiana Capital Statutory Trust II (Trust II), Trust I and Trust II issued Common Securities to the Corporation. The Common Securities for each trust are carried at their cost since they
are restricted investment securities. The Common Securities are not redeemable until the related subordinated notes are redeemed (according to the subordinated note terms).



The composition of other investments is summarized as follows.



|                                 |      |             |        |  |      |        |  |   |       
|-------------------------------- | ---- | ----------- | ------ |  | ---- | ------ |  | - | ------
|(Dollars in Thousands)           |      | December 31
|                                 | 2004 |             | 2003   |  | 2002
|FRB Stock                        |      | $           | 1,110  |  | $    | 1,110  |  | $ | 900   
|FHLB Stock                       |      |             | 24,173 |  |      | 23,103 |  |   | 21,591
|Capital Trusts Common Securities |      |             | 744    |  |      | 744    |  |   | 372   
|                                 |      |             |        |  |      |        |  |   |       
|                                 |      | $           | 26,027 |  | $    | 24,957 |  | $ | 22,863
|                                 |      |             |        |  |      |        |  |   |       



Sources of Funds



General.Deposits are an important source of the Banks funds
for use in lending and for other general business purposes. In addition to deposits, the Bank derives funds from repayments of loans and mortgage-backed securities, Federal Home Loan Bank 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, the Banks borrowings have been primarily



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from the FHLB and through repurchase agreements. First Indiana Corporations outside sources of funds include a $10,000,000 line of credit with a
commercial bank and subordinated notes.



Deposits.The
Bank continues to pursue its strategy of building core deposits, which include retail and commercial checking and savings accounts. Core deposits totaled $918,793,000 at December 31, 2004, an increase of 7.6 percent over December 31, 2003. Growth in
core deposits has reduced funding costs and improved the liquidity position of the Bank. Certificates of deposit in denominations under $100,000 were $262,168,000 at December 31, 2004, a decrease of 16.0 percent from December 31, 2003, due to
reduced consumer demand for certificates of deposit.



The
following table reflects the increase (decrease) in various types of deposits offered by the Bank for each of the periods indicated.



|                            |  |                            |           |                            |   |          |                            |  |                            |           |                            |   |                            |  |   |           |  |   |         |  
|--------------------------- |  | -------------------------- | --------- | -------------------------- | - | -------- | -------------------------- |  | -------------------------- | --------- | -------------------------- | - | -------------------------- |  | - | --------- |  | - | ------- | -
|(Dollars in Thousands)      |  | Balance atDecember 31,2004 |           | 2004Net Increase(Decrease) |   |          | Balance atDecember 31,2003 |  | 2003Net Increase(Decrease) |           | Balance atDecember 31,2002 |   | 2002Net Increase(Decrease) | 
|Non-Interest-Bearing Demand |  | $                          | 265,203   |                            | $ | 29,392   |                            |  | $                          | 235,811   |                            | $ | 55,422                     |  | $ | 180,389   |  | $ | 15,366  |  
|Interest-Bearing Demand     |  |                            | 189,911   |                            |   | (27,442  | )                          |  |                            | 217,353   |                            |   | 37,602                     |  |   | 179,751   |  |   | 39,576  |  
|Savings                     |  |                            | 463,679   |                            |   | 62,875   |                            |  |                            | 400,804   |                            |   | 2,052                      |  |   | 398,752   |  |   | (49,080 | )
|                            |  |                            |           |                            |   |          |                            |  |                            |           |                            |   |                            |  |   |           |  |   |         |  
|Total Core Deposits         |  |                            | 918,793   |                            |   | 64,825   |                            |  |                            | 853,968   |                            |   | 95,076                     |  |   | 758,892   |  |   | 5,862   |  
|                            |  |                            |           |                            |   |          |                            |  |                            |           |                            |   |                            |  |   |           |  |   |         |  
|CDs under $100,000          |  |                            | 262,168   |                            |   | (49,883  | )                          |  |                            | 312,051   |                            |   | 1,681                      |  |   | 310,370   |  |   | (42,396 | )
|CDs $100,000 and Greater    |  |                            | 189,736   |                            |   | (134,217 | )                          |  |                            | 323,953   |                            |   | 54,011                     |  |   | 269,942   |  |   | (3,740  | )
|                            |  |                            |           |                            |   |          |                            |  |                            |           |                            |   |                            |  |   |           |  |   |         |  
|Total Deposits              |  | $                          | 1,370,697 |                            | $ | (119,275 | )                          |  | $                          | 1,489,972 |                            | $ | 150,768                    |  | $ | 1,339,204 |  | $ | (40,274 | )
|                            |  |                            |           |                            |   |          |                            |  |                            |           |                            |   |                            |  |   |           |  |   |         |  



The Bank currently
issues certificates of deposit in denominations of $100,000 and greater to public entities such as municipalities and to retail customers. Certificates of deposit of $100,000 or more totaled $189,736,000 at December 31, 2004, compared with
$323,953,000 at December 31, 2003. The improved liquidity position allowed the Bank to become less dependent on jumbo certificates of deposit. At December 31, 2004, these certificates of deposit included $19,844,000 in brokered funds, $93,044,000 in
public funds, and $76,848,000 in retail funds. At December 31, 2003, these certificates of deposit included $47,227,000 in brokered funds, $191,201,000 in public funds, and $85,511,000 in retail funds. The Banks certificates of deposit of
$100,000 or more at December 31, 2004, the maturities of such deposits, and the percentage of total deposits represented by these certificates are set forth in the table below.



|                                             |  |                    |         |                               |   |                           |  |              |        |       |   |                    |  |   |         |  |      |  
|-------------------------------------------- |  | ------------------ | ------- | ----------------------------- | - | ------------------------- |  | ------------ | ------ | ----- | - | ------------------ |  | - | ------- |  | ---- | -
|(Dollars in Thousands)                       |  | ThreeMonths orLess |         | Over ThreeMonths to SixMonths |   | Over SixMonths toOne Year |  | Over OneYear |        | Total |   | Percent ofDeposits | 
|Certificates of Deposit $100,000 and Greater |  | $                  | 110,089 |                               | $ | 22,721                    |  | $            | 18,961 |       | $ | 37,965             |  | $ | 189,736 |  | 13.8 | %
|                                             |  |                    |         |                               |   |                           |  |              |        |       |   |                    |  |   |         |  |      |  



Borrowings.The
Federal Home Loan Bank of Indianapolis functions as a central reserve bank providing credit for depository institutions in Indiana and Michigan. As a member of the FHLB, the Bank 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 the Banks residential mortgage loans, low loan-to-value home equity 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. At December 31, 2004, the Bank had $114,499,000 in FHLB advances, with a weighted average interest rate of 5.07 percent. Of these advances, $20,000,000 carried floating
interest rates that reset daily or quarterly. The FHLB had the right to require the Bank to repay $85,000,000 in advances at certain designated dates.



The Bank and approved correspondent banks from time to time enter into short-term borrowing agreements that are classified as federal funds purchased.
These borrowings are not collateralized and generally have maturities from one to 30 days. At December 31, 2004, the Bank did not have federal funds purchased borrowings.



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The Bank enters into repurchase agreements with registered government securities dealers as a short-term
source of borrowing. Additionally, First Indiana has repurchase agreements with several of its depositors, under which clients funds are invested daily into a non-FDIC-insured, interest-bearing account. At December 31, 2004, the Bank had
repurchase agreements totaling $162,208,000, with a weighted average interest rate of 1.68 percent. First Indianas repurchase agreements are collateralized by qualifying investment securities.



In October 2002, the Corporation formed First Indiana Capital Trust I
(Trust I) for the purpose of issuing $12,000,000 of trust preferred securities to the public. This unconsolidated grantor trusts sole assets are junior subordinated notes issued by the Corporation. The notes have a stated term of
30 years (October 30, 2032) but may be redeemed at par in part or in full beginning October 30, 2007, and any calendar quarter end date thereafter, subject to approval by the Federal Reserve Board. The notes have a fixed rate of interest of 6.92
percent through October 30, 2007, and a floating rate of interest, reset quarterly, equal to the London interbank offered rate (LIBOR) plus 3.35 percent thereafter to maturity. Interest is payable quarterly and the distribution rate of
the trust preferred securities is equal to the interest rate of the notes. The balance of the Trust I junior subordinated notes, net of unamortized discount, was $12,253,000 at December 31, 2004, and $12,211,000 at December 31, 2003.



In June 2003, First Indiana formed First Indiana Capital Statutory Trust II
(Trust II) for the purpose of issuing $12,000,000 in trust preferred securities through a private placement. This unconsolidated grantor trusts sole assets are junior subordinated notes issued by the Corporation. The notes have a
stated term of 30 years (June 26, 2033) but may be redeemed at par in part or in full beginning June 26, 2008, and quarterly thereafter, subject to approval by the Federal Reserve Board. The notes have a fixed rate of interest of 5.55 percent
through June 26, 2008, and a floating rate of interest, reset quarterly, equal to LIBOR plus 3.10 percent thereafter to maturity. Interest on the notes is payable quarterly in arrears. The distribution rate on the trust preferred securities equals
the interest rate of the notes. The balance of the Trust II junior subordinated notes, net of unamortized discount, was $12,204,000 at December 31, 2004, and $12,156,000 at December 31, 2003.



In connection with the notes issued to Trust I and Trust II, the Corporation
has the right to defer payment of interest on the notes at any time or from time to time for a period not to exceed five years, provided that no extension period may extend beyond the stated maturity of the notes. During any such extension period,
distributions on the trust preferred securities will also be deferred and First Indianas ability to pay dividends on its common stock will be restricted. With respect to Trust I and Trust II, the trust preferred securities are subject to
mandatory redemption upon repayment of the notes at their stated maturity dates or their earlier redemption at a redemption price equal to their liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any,
paid by the Corporation upon concurrent repayment of the notes. Periodic cash payments and payments upon liquidation or redemption with respect to trust preferred securities are guaranteed by First Indiana to the extent of funds held by the grantor
trust (the Preferred Securities Guarantee). The Preferred Securities Guarantee, when taken together with the Corporations other obligations, including its obligations under the notes, will constitute a full and unconditional
guarantee, on a subordinated basis, by the Corporation of payments due on the trust preferred securities.



In December 2003, FASB issued revised Interpretation No. 46 Consolidation of Variable Interest Entities (FIN 46) that required the
deconsolidation of these statutory trusts. In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in their Tier 1
capital for regulatory capital purposes until notice is given to the contrary. In May 2004, the Federal Reserve issued a proposal to allow the continued inclusion of trust preferred securities in Tier 1 capital. However, there can be no assurance
that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier 1 capital.



In November 2003, the Corporation issued $22,500,000 in ten-year subordinated notes with a 7.50 percent fixed rate of interest. Interest is payable
semi-annually and the notes qualify as Tier 2 capital for regulatory purposes. The balance of these subordinated notes, net of discount, was $22,200,000 at December 31, 2004, and $22,167,000 at December 31, 2003.



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ASSET QUALITY



General.The
Corporations asset quality is directly affected by the credit risk of the assets on the Banks balance sheet. Most of the Banks credit risk is concentrated in its loan portfolios. There are varying degrees of credit risk within each
of the individual loan portfolios. Credit risk is managed through asset selection, focusing on portfolio diversification by loan types, by defining and limiting exposures to a single client or industry, by requiring collateral, and by integrating
consistent lending policies and underwriting criteria throughout the credit process. The accurate and timely identification of credit risk is verified independently from the relationship management and loan operation areas of the Bank through the
Banks loan review process.



Additional information
relating to non-performing assets, loan charge-offs, and impaired loans may be found in Note 1 and Note 6 of the Notes to Consolidated Financial Statements.



Non-Performing Assets. Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and
foreclosed assets, primarily other real estate owned (OREO). At December 31, 2004, non-performing assets were $21,445,000, compared with $38,882,000 at December 31, 2003, and $51,756,000 at December 31, 2002. Non-performing
single-family construction loans totaled $539,000 at December 31, 2004, compared with $7,519,000 at December 31, 2003, a decrease of $6,980,000. The decrease was due to the resolution of several non-performing single-family construction loans in
conjunction with payments received and, in some instances, additional charge-offs due to deterioration of the value of the underlying collateral securing the loans. Net charge-offs of single-family construction loans in 2004 were $1,488,000.
Additionally, a loss of $1,128,000 is reflected in OREO expense as the Corporation positioned certain single-family construction loan properties transferred to OREO for disposal. Consumer and residential mortgage non-performing loans were $6,064,000
at December 31, 2004 compared with $12,304,000 at December 31, 2003, and $14,972,000 at December 31, 2002. The decrease in residential and consumer non-performing loans is largely due to the sale of $7,925,000 in non-performing assets in the third
quarter. Additional sales of non-performing residential and consumer assets will be considered and evaluated in the future as an effective tool to timely resolve these assets. Non-performing commercial real estate loans totaled $2,065,000 at
December 31, 2004, compared with $4,743,000 at December 31, 2003, a decrease of $2,678,000. This reduction in non-performing commercial real estate loans was primarily due to the receipt of payments.



The amount of interest on non-accrual loans that was contractually due in
2004 totaled $1,568,000. Interest recorded on these loans in 2004 totaled $1,431,000.



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Non-Performing Assets



|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------ |  | ----------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                       |  | December 31 |       
|(Dollars in Thousands)                                 |  | 2004        |        |   | 2003 |   |        | 2002 |  |   | 2001   |   |  | 2000 |       
|Non-Performing Loans                                   |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-Accrual Loans                                      |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                               |  | $           | 10,637 |   |      | $ | 9,483  |      |  | $ | 20,234 |   |  | $    | 5,880  |   |  | $ | 1,970  |  
|Consumer                                               |  |             | 3,078  |   |      |   | 7,402  |      |  |   | 9,405  |   |  |      | 13,532 |   |  |   | 9,008  |  
|Residential Mortgage                                   |  |             | 961    |   |      |   | 2,211  |      |  |   | 2,474  |   |  |      | 6,447  |   |  |   | 5,127  |  
|Single-Family Construction                             |  |             | 45     |   |      |   | 7,165  |      |  |   | 4,286  |   |  |      | 8,165  |   |  |   | 3,987  |  
|Commercial Real Estate                                 |  |             | 1,184  |   |      |   | 4,743  |      |  |   | 2,059  |   |  |      | 2,475  |   |  |   | 1,618  |  
|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Accrual Loans                                |  |             | 15,905 |   |      |   | 31,004 |      |  |   | 38,458 |   |  |      | 36,499 |   |  |   | 21,710 |  
|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Accruing Loans                                         |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business - Current as to Interest and Principal        |  |             |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   | 7,118  |  
|Business - Past Due 90 Days or More                    |  |             | 459    |   |      |   | 1,053  |      |  |   | 1,535  |   |  |      | 307    |   |  |   |       |  
|Consumer - Past Due 90 Days or More                    |  |             | 2,025  |   |      |   | 2,691  |      |  |   | 3,093  |   |  |      | 3,005  |   |  |   | 3,720  |  
|Single-Family Construction - Past Due 90 Days or More  |  |             | 494    |   |      |   | 354    |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial Real Estate - Past Due 90 Days or More      |  |             | 881    |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Accruing Loans                                   |  |             | 3,859  |   |      |   | 4,098  |      |  |   | 4,628  |   |  |      | 3,312  |   |  |   | 10,838 |  
|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Performing Loans                             |  |             | 19,764 |   |      |   | 35,102 |      |  |   | 43,086 |   |  |      | 39,811 |   |  |   | 32,548 |  
|Foreclosed Assets                                      |  |             | 1,681  |   |      |   | 3,780  |      |  |   | 8,670  |   |  |      | 6,992  |   |  |   | 2,593  |  
|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Performing Assets                            |  | $           | 21,445 |   |      | $ | 38,882 |      |  | $ | 51,756 |   |  | $    | 46,803 |   |  | $ | 35,141 |  
|                                                       |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-Performing Loans to Loans at End of Year           |  |             | 1.32   | % |      |   | 1.93   | %    |  |   | 2.34   | % |  |      | 2.27   | % |  |   | 1.82   | %
|Non-Performing Assets to Loans and OREO at End of Year |  |             | 1.43   |   |      |   | 2.14   |      |  |   | 2.80   |   |  |      | 2.65   |   |  |   | 1.97   |  



Potential Problem
Assets.Potential problem loans are those loans that are currently performing according to their repayment terms, but the borrowers financial operations or financial condition caused the Banks management to question their ability to
comply with present repayment terms in the future.



The Bank
had $58,768,000 in potential problem loans at December 31, 2004. Of this amount, $55,615,000 represented loans to 44 separate business credits with an average loan amount of $1,264,000. These business loans are collateralized with real estate and
other assets. There are 14 business credits with a current loan amount over $1,000,000. The remaining potential problem loans totaled $3,153,000 and consisted of nine construction and commercial real estate credits. These construction and commercial
real estate loans are collateralized with completed residential and commercial real estate and developed lots or land developments in progress and raw land.



The Banks potential problem loans peaked at June 30, 2004 at $92,592,000. The composition included 42 business credits totaling $70,362,000 and 18
construction and commercial real estate credits totaling $22,229,000. The significant decrease during the third and fourth quarters of 2004 is attributable to the active management of this risk segment of the portfolio.



Allowance for Loan Losses.An analysis of the adequacy of the
allowance is completed each quarter and reviewed and approved by the Investment Committee of the Board of Directors. The allowance for loan losses is maintained at the level deemed adequate to cover losses inherent in the loan portfolio. The
allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. While management uses available information to recognize losses on loans, future additions to the
allowance for loan losses may be necessary based on changes to one or more risk factors. In addition, various



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regulatory agencies, as an integral part of their examination process, periodically review this allowance and may require the Corporation to recognize
additions to the allowance based on their judgment about information available to them at the time of their examination.



An assessment of the credit risk of each loan greater than $250,000 in the commercial portfolio, including business, construction, and commercial real
estate loans, is completed, which results in a risk rating (risk grade). Each relationship manager is responsible and accountable for the timely and accurate risk rating of each credit within his or her loan portfolio. The Bank utilizes a ten grade
risk rating system with six pass grades and four criticized grades which correlate to the banking regulators grades of special mention, substandard, doubtful, and loss. For homogeneous loan portfolios and smaller balance commercial loans,
loans that are current or less than 90 days past due are considered pass loans and loans 90 days or more past due are assigned a risk rating of substandard.



The determination of the adequacy of the allowance for loan losses is based on projections and estimates concerning portfolio trends and credit losses.
However, there are several other factors which impact the projections and estimates, which include national and local economic trends, portfolio management and the assessment of credit risk on performing loans and non-performing loans. Regardless of
the extent of the analysis in determining the adequacy of the allowance for loan losses, certain inherent but undetected losses are probable in the loan portfolio. These undetected losses are due to several factors, including delays in obtaining
information concerning a customers financial condition, interpretation of economic trends and events, the sensitivity of assumptions, and the judgmental nature of loss estimates. Therefore, the analysis incorporates qualitative management
factors to address the external factors that impact credit losses and the level of imprecision in the analysis.



The reserve requirement for each loan portfolio is segmented into four components: (i) the required reserve on pass loans; (ii) the required reserve on
performing criticized loans; (iii) the required reserve on non-performing loans; and (iv) the qualitative management adjustment (Management Factors). The loans and groups of loans in the criticized risk rating categories that are both
performing and non-performing loans inherently have a higher degree of risk and are generally assigned a higher reserve requirement, or in the case of impaired collateral dependent loans, the amount of the impairment may be charged-off. The
allowance is allocated to each portfolio based on the sum of the reserve requirement established for each of the four components.



The assessment of Management Factors is qualitative and their absolute correlation with credit losses cannot be determined. Therefore, the required
reserve is determined based on a range for the Management Factors. An upper limit is calculated based on the assigned weight plus 10.0 percentage points, and a lower limit is established based on the assigned weight less 5.0 percentage points.



Allocation of Allowance for Loan Losses



The following table presents an allocation of the Banks allowance for
loan losses at the dates indicated.



|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|--------------------------------------- |  | ----------- | ------ | -------------------------------- | ----- | - | ------ | ---- | -------------------------------- |  | ----- | ------ |  | -------------------------------- | ------ |  | ------ | - | -------------------------------- | - | ------ | ------ | ----- | -------------------------------- |  | - | ------ |  | ----- | -
|                                        |  | December 31 |       
|                                        |  | 2004        |        |                                  | 2003  |   |        | 2002 |                                  |  | 2001  |        |  | 2000                             |       
|(Dollars in Thousands)                  |  | Amount      |        | Percent ofLoan Typeto TotalLoans |       |   | Amount |      | Percent ofLoan Typeto TotalLoans |  |       | Amount |  | Percent ofLoan Typeto TotalLoans |        |  | Amount |   | Percent ofLoan Typeto TotalLoans |   |        | Amount |       | Percent ofLoan Typeto TotalLoans | 
|Balance at End of Period Applicable to: |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|Business Loans                          |  | $           | 30,287 |                                  | 31.1  | % |        | $    | 30,449                           |  | 28.4  | %      |  | $                                | 15,959 |  | 27.3   | % |                                  | $ | 9,664  |        | 25.2  | %                                |  | $ | 6,830  |  | 14.8  | %
|Consumer Loans                          |  |             | 8,355  |                                  | 34.7  |   |        |      | 10,463                           |  | 33.7  |        |  |                                  | 17,576 |  | 36.2   |   |                                  |   | 19,170 |        | 38.4  |                                  |  |   | 16,212 |  | 42.0  |  
|Residential Mortgage Loans              |  |             | 413    |                                  | 18.6  |   |        |      | 656                              |  | 17.5  |        |  |                                  | 546    |  | 16.9   |   |                                  |   | 1,067  |        | 16.7  |                                  |  |   | 924    |  | 26.1  |  
|Single-Family Construction Loans        |  |             | 616    |                                  | 3.9   |   |        |      | 5,798                            |  | 10.6  |        |  |                                  | 1,797  |  | 11.6   |   |                                  |   | 2,516  |        | 12.8  |                                  |  |   | 2,923  |  | 11.6  |  
|Commercial Real Estate Loans            |  |             | 1,712  |                                  | 11.7  |   |        |      | 1,400                            |  | 9.8   |        |  |                                  | 2,154  |  | 8.0    |   |                                  |   | 2,124  |        | 6.9   |                                  |  |   | 1,209  |  | 5.5   |  
|Unallocated                             |  |             | 11,789 |                                  |      |   |        |      | 4,431                            |  |      |        |  |                                  | 6,437  |  |       |   |                                  |   | 2,594  |        |      |                                  |  |   | 5,480  |  |      |  
|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|                                        |  | $           | 53,172 |                                  | 100.0 | % |        | $    | 53,197                           |  | 100.0 | %      |  | $                                | 44,469 |  | 100.0  | % |                                  | $ | 37,135 |        | 100.0 | %                                |  | $ | 33,578 |  | 100.0 | %
|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  



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Summary of Allowance for Loan Loss Activity.The provision for loan losses was $11,550,000 for
2004, compared with $38,974,000 for 2003 and $20,756,000 for 2002. Net charge-offs for 2004 totaled $11,575,000, compared with $31,513,000 for 2003 and $13,422,000 for 2002. The decreased provision for loan losses in 2004 compared to the prior
periods reflect the improved credit quality of the loan portfolio and lower net loan charge-offs. Throughout 2004, the Bank developed and implemented specific initiatives to actively manage and resolve non-performing loans and improve credit quality
by reducing risk in the loan portfolio through asset selection and management. The provision for loan losses in 2003 reflected the elevated level of net loan charge-offs, risks identified in the loan portfolio by First Indiana and an independent
third party, and the Banks revised approach for calculating the allowance for loan losses.



The unallocated portion of the allowance for loan losses increased to $11,789,000 at December 31, 2004, compared with $4,431,000 at December 31, 2003.
Management believes maintaining an increased level of unallocated reserves is prudent until the level of potential problem loans declines further and the current improvement in credit metrics continues and is sustained.



The allowance for loan losses to loans ratio at December 31, 2004, increased
to 3.54 percent, compared with 2.93 percent and 2.42 percent at December 31, 2003, and 2002. This ratio improved in 2004, compared with the prior periods primarily due to the reduction in the loan portfolio in 2004. Net charge-offs to average loans
in 2004 fell to 0.69 percent when compared to a net charge-off ratio of 1.68 percent in 2003. The significant decrease in this ratio in 2004 is primarily due to the $16,454,000 decrease in business loan net charge-offs. The allowance for loan losses
was $53,172,000 at December 31, 2004, or 269.03 percent of non-performing loans.



Summary of Loan Loss Experience



|                                                          |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|--------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                          |  | Years Ended December 31 |       
|(Dollars in Thousands)                                    |  | 2004                    |        |   | 2003 |   |        | 2002 |  |   | 2001   |   |  | 2000 |       
|Balance of Allowance for Loan Losses at Beginning of Year |  | $                       | 53,197 |   |      | $ | 44,469 |      |  | $ | 37,135 |   |  | $    | 33,578 |   |  | $ | 28,759 |  
|Charge-Offs                                               |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                                  |  |                         | 9,963  |   |      |   | 22,820 |      |  |   | 6,813  |   |  |      | 4,464  |   |  |   | 380    |  
|Consumer                                                  |  |                         | 4,760  |   |      |   | 5,737  |      |  |   | 6,323  |   |  |      | 6,528  |   |  |   | 5,019  |  
|Residential Mortgage                                      |  |                         | 200    |   |      |   | 157    |      |  |   | 150    |   |  |      | 160    |   |  |   | 68     |  
|Single-Family Construction                                |  |                         | 1,973  |   |      |   | 5,026  |      |  |   | 641    |   |  |      | 764    |   |  |   | 477    |  
|Commercial Real Estate                                    |  |                         | 630    |   |      |   | 101    |      |  |   | 729    |   |  |      | 855    |   |  |   |       |  
|                                                          |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Charge-Offs                                         |  |                         | 17,526 |   |      |   | 33,841 |      |  |   | 14,656 |   |  |      | 12,771 |   |  |   | 5,944  |  
|Recoveries                                                |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                                  |  |                         | 4,752  |   |      |   | 1,155  |      |  |   | 293    |   |  |      | 181    |   |  |   | 213    |  
|Consumer                                                  |  |                         | 665    |   |      |   | 878    |      |  |   | 851    |   |  |      | 729    |   |  |   | 662    |  
|Residential Mortgage                                      |  |                         |       |   |      |   | 7      |      |  |   | 3      |   |  |      | 1      |   |  |   | 6      |  
|Single-Family Construction                                |  |                         | 485    |   |      |   | 254    |      |  |   | 72     |   |  |      | 188    |   |  |   | 126    |  
|Commercial Real Estate                                    |  |                         | 49     |   |      |   | 34     |      |  |   | 15     |   |  |      | 1      |   |  |   |       |  
|                                                          |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Recoveries                                          |  |                         | 5,951  |   |      |   | 2,328  |      |  |   | 1,234  |   |  |      | 1,100  |   |  |   | 1,007  |  
|                                                          |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net Charge-Offs                                           |  |                         | 11,575 |   |      |   | 31,513 |      |  |   | 13,422 |   |  |      | 11,671 |   |  |   | 4,937  |  
|Provision for Loan Losses                                 |  |                         | 11,550 |   |      |   | 38,974 |      |  |   | 20,756 |   |  |      | 15,228 |   |  |   | 9,756  |  
|Allowance Related to Bank Acquired                        |  |                         |       |   |      |   | 1,709  |      |  |   |       |   |  |      |       |   |  |   |       |  
|Transfer to Reserve for Letters of Credit                 |  |                         |       |   |      |   | (442   | )    |  |   |       |   |  |      |       |   |  |   |       |  
|                                                          |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Balance of Allowance for Loan Losses at End of Year       |  | $                       | 53,172 |   |      | $ | 53,197 |      |  | $ | 44,469 |   |  | $    | 37,135 |   |  | $ | 33,578 |  
|                                                          |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net Charge-Offs to Average Loans                          |  |                         | 0.69   | % |      |   | 1.68   | %    |  |   | 0.74   | % |  |      | 0.64   | % |  |   | 0.27   | %
|Allowance for Loan Losses to Loans at End of Year         |  |                         | 3.54   |   |      |   | 2.93   |      |  |   | 2.42   |   |  |      | 2.11   |   |  |   | 1.88   |  
|Allowance for Loan Losses to Non-Performing Loans         |  |                         | 269.03 |   |      |   | 151.55 |      |  |   | 103.21 |   |  |      | 93.28  |   |  |   | 103.16 |  



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##### Table of Contents

LIQUIDITY AND MARKET RISK MANAGEMENT



Liquidity
Management



First Indiana Corporation is a financial
holding company and has conducted substantially all of its operations through the Bank and, until the sale in October 2004, Somerset Financial. As a result, the ability to finance the Corporations activities and fund interest on its debt
depends primarily upon the receipt of earnings from the Bank that it pays to the holding company in the form of dividends, management fees and other distributions. In connection with the sale of Somerset Financial, the Corporation received
$5,405,000 in distributions from Somerset Financial in 2004. An additional $6,000,000 in sales proceeds were paid at the completion of the sale in October 2004. The Corporation had no significant assets other than its investment in the Bank and a
receivable of $6,665,000 due from the Bank at December 31, 2004. In October 2002, the Corporation, through an unconsolidated subsidiary, First Indiana Capital Trust I, issued $12,372,000 of subordinated notes to partially fund the purchase of
MetroBanCorp in January 2003. In June 2003, the Corporation, through an unconsolidated subsidiary, First Indiana Capital Statutory Trust II, issued $12,372,000 of subordinated notes to provide liquidity for general operating needs. In November 2003,
the Corporation issued $22,500,000 in ten-year subordinated notes to fund future growth and for other general corporate purposes. For a further description of these notes, see Financial Condition elsewhere in this report. Additionally,
First Indiana Corporation has a $10,000,000 line of credit with a commercial bank.



The Corporation is not subject to any bank regulatory restrictions on the payment of dividends to its shareholders although Federal Reserve Board policy and capital maintenance requirements may impose practical limits
on the amount of dividends that can be paid. See Business  Supervision and Regulation. However, applicable laws and regulations limit the amount of dividends the Bank may pay. Prior regulatory approval is required if dividends to
be declared by the Bank in any year would exceed net earnings of the current year (as defined under the National Bank Act) plus retained net profits for the preceding two years. Due to the payment of an $11,000,000 special dividend in January 2003
(to partially fund the acquisition of MetroBanCorp), the Bank sought and received approval from the Office of the Comptroller of the Currency (OCC) to make its regularly scheduled dividend payments in 2004, not to exceed $19,000,000. The
Bank paid dividends of $16,000,000 to the Corporation in 2004. The Bank sought and received approval from the OCC to make its regularly scheduled dividend payments in 2005, not to exceed $20,000,000. Under federal law, a depository institution is
prohibited from paying a dividend if the depository institution would thereafter be undercapitalized as determined by the federal bank regulatory agencies. While the Bank is currently classified as well-capitalized and should
have sufficient net income to fund projected liquidity needs, any failure by the Bank in the future to generate sufficient net income or maintain sufficient levels of capital to permit payment of dividends would result in its inability to pay
dividends to the Corporation.



The Banks primary source
of funds is deposits, which were $1,370,697,000 at December 31, 2004, and $1,489,972,000 at December 31, 2003. The Bank also relies on advances from the Federal Home Loan Bank of Indianapolis, repurchase agreements, loan payments, loan payoffs, and
sale of loans as sources of funds. Although the Bank continues to rely on core deposits (retail and commercial checking and savings accounts) as its chief source of funds, the use of borrowed funds, including FHLB advances, continues to be an
important component of the Banks liquidity. Scheduled loan payments are a relatively stable source of funds, but loan payoffs, the sale of loans, and deposit inflows and outflows fluctuate, depending on interest rates and economic conditions.
However, management does not expect any of these fluctuations to occur in amounts that would affect the Corporations ability to meet consumer demand for liquidity or regulatory liquidity requirements.



The Banks primary use of funds is loans, which totaled $1,500,190,000
at December 31, 2004, and 1,814,991,000 at December 31, 2003. In addition, the Bank invests in short-term investments and securities available for sale.



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##### Table of Contents

The Corporation and its subsidiaries had the following obligations to make payments under long term debt
(excluding interest), lease agreements, and pension plans at December 31, 2004.



|                                   |  |      |        |            |   |             |  |           |        |       |   |        |  |   |        
|---------------------------------- |  | ---- | ------ | ---------- | - | ----------- |  | --------- | ------ | ----- | - | ------ |  | - | -------
|(Dollars in Thousands)             |  | 2005 |        | 2006 -2007 |   | 2008 - 2009 |  | After2009 |        | Total
|FHLB Advances (1)                  |  | $    | 72,650 |            | $ | 109         |  | $         | 10,000 |       | $ | 31,740 |  | $ | 114,499
|Subordinated Notes                 |  |      |       |            |   |            |  |           |       |       |   | 46,657 |  |   | 46,657 
|Operating Leases                   |  |      | 5,967  |            |   | 7,932       |  |           | 4,210  |       |   | 5,846  |  |   | 23,955 
|Defined Benefit Pension Plan (2)   |  |      | 2,255  |            |   |            |  |           |       |       |   |       |  |   | 2,255  
|Supplemental Pension (3)           |  |      | 976    |            |   | 2,152       |  |           | 2,348  |       |   | 5,541  |  |   | 11,017 
|                                   |  |      |        |            |   |             |  |           |        |       |   |        |  |   |        
|Total Contractual Cash Obligations |  | $    | 81,848 |            | $ | 10,193      |  | $         | 16,558 |       | $ | 89,784 |  | $ | 198,383
|                                   |  |      |        |            |   |             |  |           |        |       |   |        |  |   |        

---

|(1) | The FHLB has the option to require the Bank to repay $85,000,000 at certain designated dates.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Estimated cash contributions for 2005 were based upon actuarial estimates. The Corporation was unable to develop a reasonable estimate for future contributions for years after 2005.
Future contributions are impacted by future levels of interest rates, investment fund performance, and increases in beneficiary compensation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | These calculations assume plan beneficiaries retire upon attaining age 65, or immediately if already over age 65, and elect a lump sum payment. Certain participants have their
benefit defined as a notional account balance that is tracked by the Corporation and paid out over the course of their future life expectancy. The estimated future benefit payments reflect these expected cash flows.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At December 31, 2004, the Bank had the following outstanding commitments to
fund lines of credit, letters of credit, and loans.



|                                     |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        
|------------------------------------ |  | ---------------- | ------- | ------------------------------------------ | - | --------- |  | --------- | ------- | ---------- | - | ------ |  | - | -------
|                                     |  |                  |         | Amount of Commitment Expiration per Period
|(Dollars in Thousands)               |  | TotalCommitments |         | Less thanOne Year                          |   | 1-3 years |  | 3-5 years |         | Thereafter
|Lines of Credit:                     |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        
|Business Loans                       |  | $                | 219,943 |                                            | $ | 148,139   |  | $         | 54,157  |            | $ | 11,027 |  | $ | 6,620  
|Home Equity Loans                    |  |                  | 162,188 |                                            |   | 8,539     |  |           | 5,063   |            |   | 21,955 |  |   | 126,631
|Single-Family Construction Loans     |  |                  | 44,894  |                                            |   | 10,958    |  |           | 33,936  |            |   |       |  |   |       
|Commercial Real Estate Loans         |  |                  | 68,323  |                                            |   | 6,206     |  |           | 39,967  |            |   | 21,130 |  |   | 1,020  
|                                     |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        
|Total Lines of Credit                |  |                  | 495,348 |                                            |   | 173,842   |  |           | 133,123 |            |   | 54,112 |  |   | 134,271
|                                     |  |                  |         |                                            |  
|Standby Letters of Credit            |  |                  | 44,085  |                                            |   | 38,998    |  |           | 4,945   |            |   |       |  |   | 142    
|                                     |  |                  |         |                                            |  
|Commitments to Originate Loans:      |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        
|Business Loans                       |  |                  | 21,828  |                                            |   | 21,828    |  |           |        |            |   |       |  |   |       
|Home Equity Loans                    |  |                  | 13,233  |                                            |   | 13,233    |  |           |        |            |   |       |  |   |       
|Other Consumer Loans                 |  |                  | 1,440   |                                            |   | 5         |  |           | 500     |            |   | 935    |  |   |       
|Commercial Real Estate Loans         |  |                  | 19,805  |                                            |   | 19,805    |  |           |        |            |   |       |  |   |       
|                                     |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        
|Total Commitments to Originate Loans |  |                  | 56,306  |                                            |   | 54,871    |  |           | 500     |            |   | 935    |  |   |       
|                                     |  |                  |         |                                            |  
|Mortgage Repurchase Obligation       |  |                  | 5,637   |                                            |   |          |  |           |        |            |   |       |  |   | 5,637  
|                                     |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        
|Total Commercial Commitments         |  | $                | 601,376 |                                            | $ | 267,711   |  | $         | 138,568 |            | $ | 55,047 |  | $ | 140,050
|                                     |  |                  |         |                                            |   |           |  |           |         |            |   |        |  |   |        



Of the lines of credit
and commitments to fund loans at December 31, 2004, substantially all are variable interest rate products.



Standby letters of credit are contingent commitments issued by the Corporation to support the obligations of a customer to a third party. Standby letters
of credit are issued to support public and private financing, and other



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financial or performance obligations of customers. The credit risk involved in issuing standby letters of credit is the same as that involved in extending
loans to customers and, as such, is collateralized when necessary. Standby letters of credit are generally collateralized by assets of the borrower. Evaluation of the credit risk associated with these letters of credit is part of the Banks
commercial loan review process.



The Bank maintains back-up
letter of credit facility agreements with rated financial institutions covering certain of the Banks letters of credit. Due to a return on asset performance target in the back-up facilities not being met throughout 2004, the Bank has pledged
collateral totaling $24,849,000 at December 31, 2004.



At
December 31, 2004, the Bank had approximately $5,637,000 in commitments to repurchase convertible adjustable rate mortgage loans from third-party investors. If the borrower under any of these loans elects to convert the loan to a fixed rate loan,
the investor has the option to require the Bank to repurchase the loan. If the investor exercises this option, the Bank sets a purchase price for the loan which equals its market value, and immediately sells the loan in the secondary market. Thus,
the Bank incurs minimal interest rate risk upon repurchase because of the immediate resale.



Asset/Liability Management



First Indiana engages in formal asset/liability management with objectives to manage interest rate risk, ensure adequate liquidity, and coordinate sources and uses of funds. The management of interest rate risk entails the control, within
acceptable limits, of the impact on earnings caused by fluctuating interest rates and changing rate relationships. In this process, management uses an earnings simulation model to identify and measure interest rate sensitivity. The Asset/Liability
Committee (ALCO) reviews the earnings impact of various changes in interest rates each month and manages the risk to maintain an acceptable level of change in net interest income. The Board of Directors also reviews this information
every quarter.



The Corporation uses a model that measures
interest rate sensitivity to determine the impact on net interest income of immediate and sustained upward and downward movements in interest rates. Incorporated into the model are assumptions regarding the current and anticipated interest rate
environment, estimated prepayment rates of certain assets and liabilities, forecasted loan and deposit originations, contractual maturities and renewal rates on certificates of deposit, estimated borrowing needs, expected repricing spreads on
variable-rate products, and contractual maturities and repayments on lending and investment products. The model incorporates interest rate sensitive instruments that are held to maturity or available for sale. The Corporation has no trading assets.
Based on the information and assumptions in effect at December 31, 2004, the model forecasts that a 100 basis point increase in interest rates over a 12-month period would result in a 4.9 percent increase in net interest income while a 100 basis
point decrease in interest rates would result in a 6.0 percent decrease in net interest income. Because of the numerous assumptions used in the computation of interest rate sensitivity, and the fact that the model does not assume any actions ALCO
could take in response to the change in interest rates, the model forecasts may not be indicative of actual results. Since First Indiana is in an asset-sensitive position, net interest income and net interest margin are expected to improve with
rising interest rates.



The Corporation also monitors interest
rate sensitivity using traditional gap analysis. Gap analysis is a static management tool used to identify mismatches in the repricing of assets and liabilities within specified periods of time. Since it is a static indicator it does not attempt to
predict the net interest income of a dynamic business in a rapidly changing environment. Significant adjustments may be made when the rate outlook changes. At December 31, 2004, First Indianas six-month and one-year cumulative gap stood at a
positive 12.37 percent and a positive 17.17 percent of total interest-earning assets. This means that 12.37 and 17.17 percent of First Indianas assets will reprice within six months and one year without a corresponding repricing of funding
liabilities. This compares with a positive six-month gap of 10.93 percent and a positive one-year gap of 13.54 percent at December 31, 2003.



26



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##### Table of Contents

Interest Rate Sensitivity



The following table shows First Indianas interest rate sensitivity at December 31, 2004 and 2003.



|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|--------------------------------------------------- |  | ---- | - |  | ------- | --------- | --------------- | ------ | - | -------------- | - | --------- | ----------------------- |  | - | ------------------------- | - |  | -------------- | ------- | - |  | - | -------- | -
|(Dollars in Thousands)                              |  | Rate |   |  | Balance |           | Percentof Total |        |   | Within180 Days |   |           | Over180 Daysto One Year |  |   | OverOne Yearto Five Years |   |  | OverFive Years |        
|Interest-Earning Assets                             |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Interest-Bearing Due from Banks                     |  | 2.00 | % |  | $       | 42,540    |                 | 2.38   | % |                | $ | 42,540    |                         |  | $ |                          |   |  | $              |        |   |  | $ |         |  
|Federal Funds Sold                                  |  |     |   |  |         |          |                 |       |   |                |   |          |                         |  |   |                          |   |  |                |        |   |  |   |         |  
|Securities Available for Sale                       |  | 3.54 |   |  |         | 217,269   |                 | 12.16  |   |                |   | 26,863    |                         |  |   | 56,688                    |   |  |                | 99,287  |   |  |   | 34,431   |  
|Other Investments                                   |  | 4.50 |   |  |         | 26,027    |                 | 1.46   |   |                |   |          |                         |  |   |                          |   |  |                |        |   |  |   | 26,027   |  
|Loans (1)                                           |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Business                                            |  | 5.99 |   |  |         | 466,703   |                 | 26.13  |   |                |   | 388,873   |                         |  |   | 8,591                     |   |  |                | 67,406  |   |  |   | 1,833    |  
|Consumer                                            |  | 6.41 |   |  |         | 520,611   |                 | 29.15  |   |                |   | 365,107   |                         |  |   | 31,009                    |   |  |                | 114,485 |   |  |   | 10,010   |  
|Residential Mortgage                                |  | 4.70 |   |  |         | 279,051   |                 | 15.62  |   |                |   | 82,241    |                         |  |   | 65,003                    |   |  |                | 109,881 |   |  |   | 21,926   |  
|Single-Family Construction                          |  | 5.70 |   |  |         | 58,680    |                 | 3.29   |   |                |   | 58,680    |                         |  |   |                          |   |  |                |        |   |  |   |         |  
|Commercial Real Estate                              |  | 6.17 |   |  |         | 175,145   |                 | 9.81   |   |                |   | 135,578   |                         |  |   | 3,244                     |   |  |                | 20,367  |   |  |   | 15,956   |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  | 5.46 |   |  | $       | 1,786,026 |                 | 100.00 | % |                |   | 1,099,882 |                         |  |   | 164,535                   |   |  |                | 411,426 |   |  |   | 110,183  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Interest-Bearing Liabilities                        |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Deposits                                            |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Demand Deposits (2)                                 |  | 0.35 |   |  | $       | 189,911   |                 | 13.29  | % |                |   | 17,516    |                         |  |   |                          |   |  |                |        |   |  |   | 172,395  |  
|Savings Deposits (2)                                |  | 1.26 |   |  |         | 463,679   |                 | 32.45  |   |                |   | 406,935   |                         |  |   | 1,455                     |   |  |                | 11,640  |   |  |   | 43,649   |  
|Certificates of Deposit under $100,000              |  | 3.10 |   |  |         | 262,168   |                 | 18.35  |   |                |   | 88,419    |                         |  |   | 56,746                    |   |  |                | 117,003 |   |  |   |         |  
|Certificates of Deposit $100,000 or Greater         |  | 2.72 |   |  |         | 189,736   |                 | 13.28  |   |                |   | 131,793   |                         |  |   | 19,978                    |   |  |                | 37,823  |   |  |   | 142      |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  | 1.79 |   |  |         | 1,105,494 |                 | 77.37  |   |                |   | 644,663   |                         |  |   | 78,179                    |   |  |                | 166,466 |   |  |   | 216,186  |  
|Borrowings                                          |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Short-Term Borrowings                               |  | 1.68 |   |  |         | 162,208   |                 | 11.35  |   |                |   | 162,208   |                         |  |   |                          |   |  |                |        |   |  |   |         |  
|FHLB Advances                                       |  | 5.07 |   |  |         | 114,499   |                 | 8.01   |   |                |   | 72,000    |                         |  |   | 670                       |   |  |                | 10,090  |   |  |   | 31,739   |  
|Subordinated Notes                                  |  | 7.28 |   |  |         | 46,657    |                 | 3.27   |   |                |   |          |                         |  |   |                          |   |  |                | 24,457  |   |  |   | 22,200   |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  | 2.24 |   |  |         | 1,428,858 |                 | 100.00 | % |                |   | 878,871   |                         |  |   | 78,849                    |   |  |                | 201,013 |   |  |   | 270,125  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Net  Other (3)                                     |  |      |   |  |         | 357,168   |                 |        |   |                |   |          |                         |  |   |                          |   |  |                |        |   |  |   | 357,168  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Total                                               |  |      |   |  | $       | 1,786,026 |                 |        |   |                |   | 878,871   |                         |  |   | 78,849                    |   |  |                | 201,013 |   |  |   | 627,293  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Rate Sensitivity Gap                                |  |      |   |  |         |           |                 |        |   |                | $ | 221,011   |                         |  | $ | 85,686                    |   |  | $              | 210,413 |   |  | $ | (517,110 | )
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|December 31, 2004  Cumulative Rate Sensitivity Gap |  |      |   |  |         |           |                 |        |   |                | $ | 221,011   |                         |  | $ | 306,697                   |   |  | $              | 517,110 |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Percent of Total Interest-Earning Assets            |  |      |   |  |         |           |                 |        |   |                |   | 12.37     | %                       |  |   | 17.17                     | % |  |                | 28.95   | % |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|December 31, 2003  Cumulative Rate Sensitivity Gap |  |      |   |  |         |           |                 |        |   |                | $ | 224,777   |                         |  | $ | 278,539                   |   |  | $              | 489,295 |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Percent of Total Interest-Earning Assets            |  |      |   |  |         |           |                 |        |   |                |   | 10.93     | %                       |  |   | 13.54                     | % |  |                | 23.79   | % |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  

---

|(1) | The distribution of fixed rate loans and mortgage-backed securities is based upon contractual maturity and scheduled contractual repayments adjusted for estimated prepayments. The
distribution of adjustable rate loans is based upon the earliest repricing date for each loan. Included in consumer loans are $43.5 million of home equity loans held for sale.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | A portion of these deposits has been included in the Over Five Years category to reflect managements assumption that these accounts are not rate-sensitive. This assumption is
based upon the historic trends on these types of deposits experienced through periods of significant increases and decreases in interest rates with minimal changes in rates paid on these deposits. The rates represent a blended rate on all deposit
types in the category.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Net  Other is the excess of non-interest-bearing liabilities and capital over non-interest-bearing assets.
|--- | -----------------------------------------------------------------------------------------------------------



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##### Table of Contents

CAPITAL



At December 31, 2004,
shareholders equity was $172,143,000, or 9.07 percent of total assets, compared with $208,894,000, or 9.52 percent of total assets, at December 31, 2003. At December 31, 2004, the Corporations tangible capital (shareholders equity
minus the sum of goodwill and other intangible assets) was $137,559,000, or 7.38 percent of tangible assets (total assets minus the sum of goodwill and other intangible assets), compared to $173,591,000 or 8.04 percent of tangible assets at December
31, 2003. Shareholders equity decreased in 2004 primarily due to the fourth quarter repurchase of 1,730,000 shares of common stock through a self-tender offer which reduced shareholders equity by $40,901,000. The decrease in the equity
ratios due to the stock repurchase was partially offset by the reduction in total assets in 2004.



First Indiana paid a dividend of $0.165 per common share in each of the first three quarters in 2004 and increased the dividend 9.1 percent to $0.18 per
common share in the fourth quarter of 2004. On January 19, 2005, the Board of Directors approved a quarterly dividend of $0.18 per common share payable March 16, 2005, to shareholders of record as of March 4, 2005. This will be the 73rd consecutive
quarter First Indiana has paid a cash dividend.



See Part II,
Item 5. Market for the Registrants Common Equity and Related Shareholder Matters and Note 13 of the Notes to Consolidated Financial Statements for additional information on the Corporations repurchases of its common stock and
its shareholder rights agreement.



Regulatory Capital Requirements



First Indiana Corporation is subject to capital
requirements and guidelines imposed on bank holding companies and financial holding companies by the Federal Reserve Board. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC) impose similar
requirements on First Indiana Bank. The Federal Deposit Insurance Corporation Improvement Act of 1999 (FDICIA) established ratios and guidelines for banks to be considered well-capitalized. These capital requirements
establish higher capital standards for banks and bank holding companies that assume greater risks. For this purpose, a bank holding companys or banks assets and certain off-balance sheet commitments are assigned to four risk categories,
each weighted differently based on credit risk. Total capital, in turn, is divided into two tiers:



| |  |  | Tier 1 capital, which includes common equity, certain qualifying cumulative and noncumulative perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tier 2 capital, which includes perpetual preferred stock, and related surplus not meeting the Tier 1 definition, hybrid capital instruments, perpetual debt and mandatory convertible
securities, certain term subordinated debt, intermediate-term preferred stock, and allowances for loan and lease losses (subject to certain limitations).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Goodwill, certain intangible assets, and certain other assets must be deducted in calculating the sum of the capital
elements.



The Federal Reserve Board, the FDIC, and the OCC
have incorporated market and interest rate risk components into their risk-based capital standards. Under these market risk requirements, capital is allocated to support the amount of market risk related to a financial institutions ongoing
trading activities. The Federal Reserve Board also requires a minimum leverage ratio (Tier 1 capital to adjusted average assets) of 3 percent for bank holding companies that have the highest regulatory rating or have implemented the
risk-based capital measures for market risk, or 4 percent for holding companies that do not meet either of these requirements. The Bank is subject to similar requirements adopted by the OCC.



While the federal regulators may set capital requirements higher than the
minimums noted above if circumstances warrant it, no federal banking regulator has imposed any such capital requirements on the Corporation or the Bank.



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##### Table of Contents

Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial
strength to its subsidiary bank and to stand prepared to commit resources to support it (known as the Source of Strength Doctrine). There are no specific quantitative rules on the holding companys potential liability. If the Bank were to
encounter financial difficulty, the Federal Reserve Board could invoke the doctrine and require a capital contribution from the Corporation.



The Corporation formed statutory trusts for the purpose of issuing trust preferred securities. These trust preferred securities are included in the
Corporations Tier 1 capital and total capital at December 31, 2004. In December 2003, FASB issued a revision of FIN 46 that required the deconsolidation of these statutory trusts. In July 2003, the Board of Governors of the Federal Reserve
System issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the contrary. In May 2004, the Federal
Reserve issued a proposal to allow the continued inclusion of trust preferred securities in Tier 1 capital. There can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier 1
capital for regulatory capital purposes. At December 31, 2004 and 2003, the balance of trust preferred securities, net of discount was $24,457,000 and $24,367,000, respectively.



The following table shows the Corporations and the Banks capital levels and compliance with all capital
requirements at December 31, 2004. Additionally, the Bank exceeds the capital levels set by FDICIA for a bank to be considered well-capitalized.



|                                            |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|------------------------------------------- |  | ----------------- | ------- | ----- | ----------------------- | - | ------ | --------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                            |  | December 31, 2004 |        
|                                            |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|(Dollars in Thousands)                      |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 162,670 |       | 8.47                    | % |        | $                     | 76,854  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 175,910 |       | 9.17                    |   |        |                       | 76,689  |  | 4.00 |        |  | $     | 95,861  |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 162,670 |       | 10.79                   | % |        | $                     | 60,295  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 175,910 |       | 11.69                   |   |        |                       | 60,193  |  | 4.00 |        |  | $     | 90,289  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 204,141 |       | 13.54                   | % |        | $                     | 120,589 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 195,150 |       | 12.97                   |   |        |                       | 120,386 |  | 8.00 |        |  | $     | 150,482 |  | 10.00 | %
|                                            | 
|                                            |  | December 31, 2003 |        
|                                            |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|                                            |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 189,034 |       | 8.71                    | % |        | $                     | 86,848  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 172,184 |       | 8.06                    |   |        |                       | 85,442  |  | 4.00 |        |  | $     | 106,803 |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 189,034 |       | 10.15                   | % |        | $                     | 74,462  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 172,184 |       | 9.29                    |   |        |                       | 74,113  |  | 4.00 |        |  | $     | 111,169 |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 234,845 |       | 12.62                   | % |        | $                     | 148,924 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 195,721 |       | 10.56                   |   |        |                       | 148,226 |  | 8.00 |        |  | $     | 185,282 |  | 10.00 | %



The decrease in the
Corporations regulatory capital ratios from December 31, 2003, to December 31, 2004, is due primarily to the retirement of common stock via the tender offer that decreased capital by $40,901,000. Partially offsetting this decrease, capital
increased by a net $4,109,000 representing excess net earnings over dividends paid to shareholders in 2004 and total assets decreased in 2004 in comparison to 2003.



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##### Table of Contents

IMPACT OF INFLATION AND CHANGING PRICES



The consolidated financial statements and related data presented herein have been prepared to conform to accounting principles generally accepted in the United States of America, which generally 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 bank are monetary, which limits the usefulness of data derived by adjusting a banks financial
statements for the effects of changing prices.



IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED



In December 2004, The Financial Accounting Standards Board (FASB) issued a revised SFAS No. 123 Share-Based Payment (SFAS 123 (R)). This Statement is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123 (R) requires an entity to measure
the cost of employee services received in exchange for an award of equity instruments (e.g., stock options, stock grants) based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is
required to provide service in exchange for the award  the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. SFAS 123 (R)
eliminates the alternative use of Opinion No. 25s intrinsic value method of accounting that was provided in the original SFAS 123. Under Opinion No. 25, issuing stock options to employees generally resulted in recognition of no compensation
cost. The Statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. SFAS 123 (R) applies to all awards granted after the required effective date and to awards modified, repurchased,
or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date. As of the required effective date, entities that use the fair-value-based method for either
recognition or disclosure under SFAS 123 will apply this Statement using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of
outstanding awards for which requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosures. For periods before the required effective date,
those entities may elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. First
Indiana currently accounts for stock-based compensation under the recognition and measurement principles of Opinion No. 25. Upon adoption of SFAS 123 (R), First Indianas results of operations will reflect compensation from
stock-based payments consistent with the pro forma results currently disclosed under SFAS 123 in Note 1 of the Notes to Consolidated Financial Statements.



In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No.
03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), to address accounting for differences between the contractual cash flows of certain loans and debt securities and the cash flows
expected to be collected when loans or debt securities are acquired in a transfer when those cash flow differences are attributable, at least in part, to credit quality. As such, SOP 03-3 applies to such loans and debt securities acquired in
purchase business combinations and does not apply to originated loans. The application of SOP 03-3 limits the interest income, including accretion of purchase price discounts that may be recognized for certain loans and debt securities.
Additionally, SOP 03-3 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield or valuation allowance, such as the allowance for credit
losses. Subsequent to the initial investment, increases in expected cash flows generally should be recognized prospectively through adjustment of the yield on the loan or debt security over its remaining life. Decreases in expected cash flows should
be recognized as impairment. SOP 03-3 is effective for loans and debt securities acquired in fiscal years beginning after December 15, 2004, with early application encouraged. The impact of this new pronouncement is not expected to be material to
First Indianas financial condition, results of operations, or cash flows.



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##### Table of Contents

FOURTH QUARTER SUMMARY



First
Indiana posted net earnings of $5,489,000, or $0.35 per diluted share, in the fourth quarter of 2004, compared with earnings of $1,972,000, or $0.13 per diluted share, for the same period of 2003. Fourth quarter earnings in 2004 were affected by two
non-recurring items which were previously disclosed. First Indiana recognized a $958,000 pre-tax gain on the sale of non-Indiana construction loan offices as announced in September 2004. The October 2004 sale of Somerset Financial Services, LLC
resulted in an after-tax net loss of $1,068,000 for the fourth quarter of 2004. Earnings for the fourth quarter of 2003 were affected by a loan servicing impairment charge and costs associated with the retirement of the Banks president and
chief executive officer.



Net interest income for the fourth
quarter of 2004 was $16,919,000, with a net interest margin of 3.66 percent, compared with fourth quarter 2003 net interest income of $18,330,000 and a net interest margin of 3.55 percent. Due to the Corporations asset-sensitive position, rate
increases by the Federal Reserve Board during 2004 are reflected in an increase in the net interest margin in the fourth quarter of 2004 when compared with the same period of 2003. However, net interest income in the fourth quarter of 2004 was
$1,411,000 lower than net interest income for the same period of 2003, primarily due to a lower level of average earning assets when comparing the quarters. Loans outstanding averaged $1,549,426,000 for the fourth quarter of 2004, compared with
$1,819,469,000 for the fourth quarter of 2003. The decrease was due in part to the sale of the construction loan offices in November 2004. In addition, First Indiana continued to experience rapid prepayments on consumer and residential loans
combined with a decrease in consumer loan originations. As a result of credit quality initiatives, business loans also contracted during 2004. Average interest-bearing liabilities in the fourth quarter of 2004 decreased $255,517,000 from average
interest-bearing liabilities in the fourth quarter of 2003. Average core deposits (demand and savings) in the fourth quarter of 2004 grew 6.4 percent or $54,446,000 over the same quarter of 2003. The increase in core deposits is the result of the
Banks ongoing initiatives to develop relationships with business and consumer clients as well as improve the Banks liquidity through a stable source of low cost funding. The growth in core deposits and the contraction of loans allowed
First Indiana to reduce levels of certificates of deposit and Federal Home Loan Bank advances.



Loan charge-offs and recoveries for the fourth quarter of 2004 resulted in net recoveries of $661,000 compared to net charge-offs of $6,957,000 for the fourth quarter of 2003. Non-performing assets decreased to
$21,445,000 at December 31, 2004, from $28,565,000 at September 30, 2004 and $38,882,000 at December 31, 2003. As a result of the improved credit situation, no additional loan loss provision was recorded for the fourth quarter of 2004. A loan loss
provision of $3,098,000 was recorded in the fourth quarter of 2003.



Non-interest income for the fourth quarter of 2004 was $9,027,000, compared with $8,176,000 for the same period in 2003. Gain on sale of loans was $3,032,000 for the fourth quarter of 2004, an increase of $443,000 over the same quarter of
2003. A gain of $958,000 from the sale of the non-Indiana construction loan offices is included in gain on sale of loans in the fourth quarter of 2004. In the fourth quarter of 2004, the Corporation recorded an impairment charge of $299,000 related
to its holdings of Fannie Mae and Freddie Mac preferred stock. Net loan servicing loss was $347,000 in the fourth quarter of 2004, compared to a loss of $1,760,000 in the fourth quarter of 2003. The fourth quarter 2003 loss reflected high
prepayments and adjustments to certain assumptions used in determining the estimated market value of the loan servicing rights portfolio. Loan servicing rights valuation impairment charges totaled $1,835,000 in the fourth quarter of 2003.



Non-interest expense for the fourth quarter of 2004 was
$15,667,000, compared with $20,094,000 for the fourth quarter of 2003; a decrease of $4,427,000. The quarter to quarter decrease reflects in part the implementation of the cost reduction plan announced in September 2004, and the reduction in
operating expenses after the sale of the non-Indiana construction loan offices. In addition, in the fourth quarter 2003, the Corporation recorded $1,387,000 for expenses associated with the retirement of the Banks president and chief executive
officer. Reflecting the improvement in credit quality, OREO expense and related legal and professional expenses decreased $942,000 in the fourth quarter of 2004 from the comparable period of 2003.



Additional information relating to the fourth quarter of 2004 and 2003 can be
found in Note 19 of the Notes to the Consolidated Financial Statements.



31



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##### Table of Contents

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS



Management of First Indiana Corporation has prepared and is responsible for the financial statements and for the integrity and consistency of other related information contained in this Annual Report. In the opinion
of management, the financial statements, which necessarily include amounts based on managements estimates and judgments, fairly reflect the form and substance of transactions and the financial statements reasonably present the
Corporations financial position and results of operations in conformity with accounting principles generally accepted in the United States of America.



The Corporation, through the auspices of the Audit Committee of the Corporations Board of Directors, engaged the firm of KPMG LLP, an independent
registered public accounting firm, to render an opinion on the financial statements. The accountants have advised management that they were provided with access to all information and records necessary to render their opinion.



The Board of Directors exercises its responsibility for the financial
statements and related information through the Audit Committee, which is composed entirely of independent directors. The Audit Committee meets regularly with management, the auditor of the Corporation, and KPMG LLP to assess the scope of the annual
audit plan, to review the status and results of audits, to review the Annual Report on Form 10-K, including major changes in accounting policies and reporting practices, to review earnings reports and the preparation of the Form 10-Q prior to their
release to the general public, and to approve non-audit services rendered by the independent auditors.



KPMG LLP, the Audit Committee, and the Corporations internal auditors have direct and confidential access to each other at all times to discuss the
adequacy of compliance with established corporate policies and procedures and the quality of financial reporting.



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



Management of First Indiana Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control
 Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2004. KPMG LLP, an independent registered public accounting firm, audited the Corporations financial
statements included in this annual report and has issued an attestation report on managements assessment of our internal control over financial reporting as of December 31, 2004, as stated in their report which is included herein.



32



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Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

First Indiana Corporation:



We have audited managements assessment, included in the accompanying Managements Report on Internal Control over Financial
Reporting, that First Indiana Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). First Indiana Corporations management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Corporations internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because managements assessment and our audit were conducted to also meet the reporting requirements of Section 112 of the
Federal Deposit Insurance Corporation Improvement Act (FDICIA), managements assessment and our audit of First Indiana Corporations internal control over financial reporting included controls over the preparation of the schedules
equivalent to the basic financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9 C). A companys internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.



In our opinion, managements
assessment that First Indiana Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, First Indiana Corporation maintained, in all material respects, effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of First Indiana Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, shareholders equity, and cash flows for each of the years in the three-year period ended
December 31, 2004, and our report dated March 11, 2005 expressed an unqualified opinion on those consolidated financial statements.



LOGO

Indianapolis, Indiana

March 11,
2005



33



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

First Indiana Corporation:



We have audited the accompanying consolidated balance sheets of First Indiana Corporation and subsidiaries as of December 31, 2004 and 2003,
and the related consolidated statements of earnings, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Indiana Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of First Indiana Corporations internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2005 expressed an unqualified
opinion on managements assessment of, and the effective operation of, internal control over financial reporting.



LOGO

Indianapolis, Indiana

March 11,
2005



34



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##### Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS



FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                       |  |             |           |   |      |   |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | - | ---- | - | --------- | -
|                                                                                                                       |  | December 31 |          
|(Dollars in Thousands, Except Per Share Data)                                                                          |  | 2004        |           |   | 2003 |  
|Assets                                                                                                                 |  |             |           |   |      |   |           |  
|Cash                                                                                                                   |  | $           | 52,611    |   |      | $ | 58,589    |  
|Interest-Bearing Due from Banks                                                                                        |  |             | 42,540    |   |      |   | 1,715     |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Cash and Cash Equivalents                                                                                              |  |             | 95,151    |   |      |   | 60,304    |  
|Securities Available for Sale                                                                                          |  |             | 217,269   |   |      |   | 215,453   |  
|Other Investments                                                                                                      |  |             | 26,027    |   |      |   | 24,957    |  
|Loans                                                                                                                  |  |             |           |   |      |   |           |  
|Business                                                                                                               |  |             | 466,703   |   |      |   | 515,316   |  
|Consumer                                                                                                               |  |             | 520,611   |   |      |   | 612,025   |  
|Residential Mortgage                                                                                                   |  |             | 279,051   |   |      |   | 316,822   |  
|Single-Family Construction                                                                                             |  |             | 58,680    |   |      |   | 192,450   |  
|Commercial Real Estate                                                                                                 |  |             | 175,145   |   |      |   | 178,378   |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Loans                                                                                                            |  |             | 1,500,190 |   |      |   | 1,814,991 |  
|Allowance for Loan Losses                                                                                              |  |             | (53,172   | ) |      |   | (53,197   | )
|                                                                                                                       |  |             |           |   |      |   |           |  
|Net Loans                                                                                                              |  |             | 1,447,018 |   |      |   | 1,761,794 |  
|Premises and Equipment                                                                                                 |  |             | 24,954    |   |      |   | 24,732    |  
|Accrued Interest Receivable                                                                                            |  |             | 8,194     |   |      |   | 9,353     |  
|Loan Servicing Rights                                                                                                  |  |             | 4,260     |   |      |   | 5,985     |  
|Goodwill                                                                                                               |  |             | 30,682    |   |      |   | 30,682    |  
|Other Intangible Assets                                                                                                |  |             | 3,902     |   |      |   | 4,621     |  
|Assets of Discontinued Operations                                                                                      |  |             |          |   |      |   | 9,579     |  
|Other Assets                                                                                                           |  |             | 40,806    |   |      |   | 45,677    |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Assets                                                                                                           |  | $           | 1,898,263 |   |      | $ | 2,193,137 |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|                                                                                                                       |  |            
|Liabilities                                                                                                            |  |             |           |   |      |   |           |  
|Non-Interest-Bearing Deposits                                                                                          |  | $           | 265,203   |   |      | $ | 235,811   |  
|Interest-Bearing Deposits                                                                                              |  |             |           |   |      |   |           |  
|Demand Deposits                                                                                                        |  |             | 189,911   |   |      |   | 217,353   |  
|Savings Deposits                                                                                                       |  |             | 463,679   |   |      |   | 400,804   |  
|Certificates of Deposit                                                                                                |  |             | 451,904   |   |      |   | 636,004   |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Interest-Bearing Deposits                                                                                        |  |             | 1,105,494 |   |      |   | 1,254,161 |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Deposits                                                                                                         |  |             | 1,370,697 |   |      |   | 1,489,972 |  
|Short-Term Borrowings                                                                                                  |  |             | 162,208   |   |      |   | 147,074   |  
|Federal Home Loan Bank Advances                                                                                        |  |             | 114,499   |   |      |   | 265,488   |  
|Subordinated Notes                                                                                                     |  |             | 46,657    |   |      |   | 46,534    |  
|Accrued Interest Payable                                                                                               |  |             | 1,818     |   |      |   | 2,156     |  
|Advances by Borrowers for Taxes and Insurance                                                                          |  |             | 1,175     |   |      |   | 1,533     |  
|Liabilities of Discontinued Operations                                                                                 |  |             |          |   |      |   | 2,602     |  
|Other Liabilities                                                                                                      |  |             | 29,066    |   |      |   | 28,884    |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Liabilities                                                                                                      |  |             | 1,726,120 |   |      |   | 1,984,243 |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Shareholders Equity                                                                                                   |  |             |           |   |      |   |           |  
|Preferred Stock, $.01 Par Value: 2,000,000 Shares Authorized; None Issued                                              |  |             |          |   |      |   |          |  
|Common Stock, $.01 Par Value: 33,000,000 Shares Authorized; Issued: 2004  15,971,870 Shares; 2003  17,473,764
Shares |  |             | 160       |   |      |   | 175       |  
|Capital Surplus                                                                                                        |  |             | 10,048    |   |      |   | 46,595    |  
|Retained Earnings                                                                                                      |  |             | 188,424   |   |      |   | 185,012   |  
|Accumulated Other Comprehensive Income (Loss)                                                                          |  |             | (1,398    | ) |      |   | 1,756     |  
|Treasury Stock at Cost: 2004  1,949,087 Shares; 2003  1,927,017 Shares                                               |  |             | (25,091   | ) |      |   | (24,644   | )
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Shareholders Equity                                                                                             |  |             | 172,143   |   |      |   | 208,894   |  
|                                                                                                                       |  |             |           |   |      |   |           |  
|Total Liabilities and Shareholders Equity                                                                             |  | $           | 1,898,263 |   |      | $ | 2,193,137 |  
|                                                                                                                       |  |             |           |   |      |   |           |  



See Notes to
Consolidated Financial Statements



35



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF EARNINGS



|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|---------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------
|                                                           |  | Years Ended December 31
|(Dollars in Thousands, Except Per Share Data)              |  | 2004                    |         |   | 2003 |   |         | 2002
|Interest Income                                            |  |                         |         |   |      |   |         |      |  |   |        
|Loans                                                      |  | $                       | 92,216  |   |      | $ | 104,979 |      |  | $ | 116,039
|Securities Available for Sale                              |  |                         | 7,869   |   |      |   | 8,035   |      |  |   | 8,501  
|Dividends on Other Investments                             |  |                         | 1,170   |   |      |   | 1,252   |      |  |   | 1,367  
|Federal Funds Sold                                         |  |                         |        |   |      |   | 3       |      |  |   | 20     
|Interest-Bearing Due from Banks                            |  |                         | 389     |   |      |   | 61      |      |  |   |       
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Total Interest Income                                      |  |                         | 101,644 |   |      |   | 114,330 |      |  |   | 125,927
|Interest Expense                                           |  |                         |         |   |      |   |         |      |  |   |        
|Deposits                                                   |  |                         | 20,433  |   |      |   | 25,164  |      |  |   | 36,976 
|Short-Term Borrowings                                      |  |                         | 1,521   |   |      |   | 1,390   |      |  |   | 2,059  
|Federal Home Loan Bank Advances                            |  |                         | 6,880   |   |      |   | 9,360   |      |  |   | 12,962 
|Subordinated Notes                                         |  |                         | 3,369   |   |      |   | 1,516   |      |  |   | 150    
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Total Interest Expense                                     |  |                         | 32,203  |   |      |   | 37,430  |      |  |   | 52,147 
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Net Interest Income                                        |  |                         | 69,441  |   |      |   | 76,900  |      |  |   | 73,780 
|Provision for Loan Losses                                  |  |                         | 11,550  |   |      |   | 38,974  |      |  |   | 20,756 
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Net Interest Income after Provision for Loan Losses        |  |                         | 57,891  |   |      |   | 37,926  |      |  |   | 53,024 
|Non-Interest Income                                        |  |                         |         |   |      |   |         |      |  |   |        
|Deposit Charges                                            |  |                         | 17,246  |   |      |   | 16,895  |      |  |   | 14,963 
|Loan Servicing Income (Expense)                            |  |                         | (236    | ) |      |   | (2,079  | )    |  |   | 413    
|Loan Fees                                                  |  |                         | 3,039   |   |      |   | 2,610   |      |  |   | 2,723  
|Trust Fees                                                 |  |                         | 3,584   |   |      |   | 3,028   |      |  |   | 2,614  
|Investment Product Sales Commissions                       |  |                         | 1,704   |   |      |   | 1,717   |      |  |   | 2,726  
|Sale of Loans                                              |  |                         | 11,538  |   |      |   | 10,822  |      |  |   | 8,431  
|Net Investment Securities Gain (Loss)                      |  |                         | (19     | ) |      |   | 7       |      |  |   | 312    
|Other                                                      |  |                         | 3,579   |   |      |   | 4,663   |      |  |   | 3,856  
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Total Non-Interest Income                                  |  |                         | 40,435  |   |      |   | 37,663  |      |  |   | 36,038 
|Non-Interest Expense                                       |  |                         |         |   |      |   |         |      |  |   |        
|Salaries and Benefits                                      |  |                         | 40,308  |   |      |   | 40,601  |      |  |   | 29,986 
|Net Occupancy                                              |  |                         | 4,088   |   |      |   | 4,096   |      |  |   | 3,353  
|Equipment                                                  |  |                         | 5,997   |   |      |   | 6,311   |      |  |   | 5,625  
|Professional Services                                      |  |                         | 5,182   |   |      |   | 5,933   |      |  |   | 4,743  
|Marketing                                                  |  |                         | 2,139   |   |      |   | 2,498   |      |  |   | 2,215  
|Telephone, Supplies, and Postage                           |  |                         | 3,475   |   |      |   | 3,769   |      |  |   | 2,978  
|Other Intangible Asset Amortization                        |  |                         | 718     |   |      |   | 736     |      |  |   |       
|OREO Expenses                                              |  |                         | 1,215   |   |      |   | 691     |      |  |   | 144    
|Other                                                      |  |                         | 8,356   |   |      |   | 8,122   |      |  |   | 7,431  
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Total Non-Interest Expense                                 |  |                         | 71,478  |   |      |   | 72,757  |      |  |   | 56,475 
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Earnings from Continuing Operations                        |  |                         | 26,848  |   |      |   | 2,832   |      |  |   | 32,587 
|Income Taxes                                               |  |                         | 9,665   |   |      |   | 880     |      |  |   | 11,758 
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Earnings from Continuing Operations, Net of Taxes          |  |                         | 17,183  |   |      |   | 1,952   |      |  |   | 20,829 
|Discontinued Operations                                    |  |                         |         |   |      |   |         |      |  |   |        
|Earnings (Loss) from Discontinued Operations               |  |                         | (1,090  | ) |      |   | 1,020   |      |  |   | 700    
|Income Taxes                                               |  |                         | 1,415   |   |      |   | 443     |      |  |   | 349    
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | (2,505  | ) |      |   | 577     |      |  |   | 351    
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Net Earnings                                               |  | $                       | 14,678  |   |      | $ | 2,529   |      |  | $ | 21,180 
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Basic Earnings (Loss) Per Share                            |  |                         |         |   |      |   |         |      |  |   |        
|Earnings from Continuing Operations, Net of Taxes          |  | $                       | 1.10    |   |      | $ | 0.12    |      |  | $ | 1.34   
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | (0.16   | ) |      |   | 0.04    |      |  |   | 0.02   
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Basic Net Earnings Per Share                               |  | $                       | 0.94    |   |      | $ | 0.16    |      |  | $ | 1.36   
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Diluted Earnings (Loss) Per Share                          |  |                         |         |   |      |   |         |      |  |   |        
|Earnings from Continuing Operations, Net of Taxes          |  | $                       | 1.09    |   |      | $ | 0.12    |      |  | $ | 1.32   
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | (0.16   | ) |      |   | 0.04    |      |  |   | 0.02   
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Diluted Net Earnings Per Share                             |  | $                       | 0.93    |   |      | $ | 0.16    |      |  | $ | 1.34   
|                                                           |  |                         |         |   |      |   |         |      |  |   |        
|Dividends Per Common Share                                 |  | $                       | 0.675   |   |      | $ | 0.660   |      |  | $ | 0.640  
|                                                           |  |                         |         |   |      |   |         |      |  |   |        



See Notes to
Consolidated Financial Statements



36



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | -------------- | --- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ------------- | - |  | ------------------------ | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                              |  | Common Stock      |   |  | CapitalSurplus |     |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TreasuryStock |   |  | TotalShareholdersEquity |       
|(Dollars in Thousands, Except Per Share Data)                                                                                                 |  | OutstandingShares |   |  | Amount         |     |   |                  |   |         |                                           
|Balance at December 31, 2001                                                                                                                  |  | 15,443,294        |   |  | $              | 171 |   |                  | $ | 41,837  |                                            |  | $ | 183,196       |   |  | $                        | 4,084  |   |  | $ | (20,257 | ) |  | $ | 209,031 |  
|Comprehensive Income:                                                                                                                         |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Net Earnings                                                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 21,180        |   |  |                          |       |   |  |   |        |   |  |   | 21,180  |  
|Unrealized Gain on Securities Available for Sale of $1,114, Net of Income Taxes and Reclassification Adjustment of $189, Net of Income
Taxes  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | 560    |   |  |   |        |   |  |   | 560     |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income                                                                                                                    |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   | 21,740  |  
|Dividends on Common Stock$0.640 per share                                                                                                    |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (9,956        | ) |  |                          |       |   |  |   |        |   |  |   | (9,956  | )
|Exercise of Stock Options                                                                                                                     |  | 233,773           |   |  |                | 2   |   |                  |   | 2,103   |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 2,105   |  
|Redemption of Common Stock                                                                                                                    |  | (19,655           | ) |  |                |    |   |                  |   | (377    | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (377    | )
|Payment for Fractional Shares                                                                                                                 |  | (529              | ) |  |                |    |   |                  |   | (11     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (11     | )
|Tax Benefit of Option Compensation                                                                                                            |  |                  |   |  |                |    |   |                  |   | 641     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 641     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                          |  |                  |   |  |                |    |   |                  |   | (17     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (17     | )
|Amortization of Restricted Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (603          | ) |  |                          |       |   |  |   |        |   |  |   | (603    | )
|Forfeiture of Restricted Common Stock                                                                                                         |  | (46,009           | ) |  |                |    |   |                  |   | (921    | )                                          |  |   | 921           |   |  |                          |       |   |  |   |        |   |  |   |        |  
|Purchase of Treasury Stock                                                                                                                    |  | (74,165           | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   | (1,407  | ) |  |   | (1,407  | )
|Reissuance of Treasury Stock                                                                                                                  |  | 3,751             |   |  |                |    |   |                  |   | 41      |                                            |  |   |              |   |  |                          |       |   |  |   | 24      |   |  |   | 65      |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                                                                                                                  |  | 15,540,460        |   |  |                | 173 |   |                  |   | 43,296  |                                            |  |   | 194,738       |   |  |                          | 4,644  |   |  |   | (21,640 | ) |  |   | 221,211 |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|                                                                                                                                              |  |                   |   |  |                |     |  
|Comprehensive Income:                                                                                                                         |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Net Earnings                                                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 2,529         |   |  |                          |       |   |  |   |        |   |  |   | 2,529   |  
|Unrealized Loss on Securities Available for Sale of $4,772, Net of Income Taxes and Reclassification Adjustment of $4, Net of Income
Taxes    |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | (2,888 | ) |  |   |        |   |  |   | (2,888  | )
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income (Loss)                                                                                                             |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   | (359    | )
|Dividends on Common Stock  $0.660 per share                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (10,277       | ) |  |                          |       |   |  |   |        |   |  |   | (10,277 | )
|Exercise of Stock Options                                                                                                                     |  | 82,902            |   |  |                | 1   |   |                  |   | 897     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 898     |  
|Redemption of Common Stock                                                                                                                    |  | (19,398           | ) |  |                |    |   |                  |   | (356    | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (356    | )
|Tax Benefit of Option Compensation                                                                                                            |  |                  |   |  |                |    |   |                  |   | 103     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 103     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                          |  |                  |   |  |                |    |   |                  |   | (35     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (35     | )
|Option Consideration Related to Executive Retirement                                                                                          |  |                  |   |  |                |    |   |                  |   | 324     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 324     |  
|Common Stock Issued under Restricted Stock Plans                                                                                              |  | 126,909           |   |  |                | 1   |   |                  |   | 3,447   |                                            |  |   | (3,448        | ) |  |                          |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 321           |   |  |                          |       |   |  |   |        |   |  |   | 321     |  
|Forfeiture of Restricted Common Stock                                                                                                         |  | (12,000           | ) |  |                |    |   |                  |   | (1,149  | )                                          |  |   | 1,149         |   |  |                          |       |   |  |   |        |   |  |   |        |  
|Purchase of Treasury Stock                                                                                                                    |  | (176,975          | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   | (3,036  | ) |  |   | (3,036  | )
|Reissuance of Treasury Stock                                                                                                                  |  | 4,849             |   |  |                |    |   |                  |   | 68      |                                            |  |   |              |   |  |                          |       |   |  |   | 32      |   |  |   | 100     |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                                                                                                                  |  | 15,546,747        |   |  |                | 175 |   |                  |   | 46,595  |                                            |  |   | 185,012       |   |  |                          | 1,756  |   |  |   | (24,644 | ) |  |   | 208,894 |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|                                                                                                                                              |  |                   |   |  |                |     |  
|Comprehensive Income:                                                                                                                         |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Net Earnings                                                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 14,678        |   |  |                          |       |   |  |   |        |   |  |   | 14,678  |  
|Unrealized Loss on Securities Available for Sale of $5,202, Net of Income Taxes and Reclassification Adjustment of $(12), Net of Income
Taxes |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | (3,154 | ) |  |   |        |   |  |   | (3,154  | )
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income                                                                                                                    |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   | 11,524  |  
|Dividends on Common Stock  $0.675 per share                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (10,569       | ) |  |                          |       |   |  |   |        |   |  |   | (10,569 | )
|Exercise of Stock Options                                                                                                                     |  | 172,915           |   |  |                | 1   |   |                  |   | 2,326   |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 2,327   |  
|Redemption of Common Stock                                                                                                                    |  | (16,432           | ) |  |                |    |   |                  |   | (339    | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (339    | )
|Tax Benefit of Option Compensation                                                                                                            |  |                  |   |  |                |    |   |                  |   | 398     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 398     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                          |  |                  |   |  |                |    |   |                  |   | (58     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (58     | )
|Common Stock Issued under Stock Incentive Plan                                                                                                |  | 2,785             |   |  |                |    |   |                  |   | 49      |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 49      |  
|Common Stock under Stock Incentive Plan                                                                                                       |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 70            |   |  |                          |       |   |  |   |        |   |  |   | 70      |  
|Common Stock to Be Issued under Restricted Stock Plans                                                                                        |  | 93,750            |   |  |                | 1   |   |                  |   | 2,411   |                                            |  |   | (2,412        | ) |  |                          |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 1,147         |   |  |                          |       |   |  |   |        |   |  |   | 1,147   |  
|Forfeiture of Restricted Common Stock                                                                                                         |  | (24,912           | ) |  |                |    |   |                  |   | (498    | )                                          |  |   | 498           |   |  |                          |       |   |  |   |        |   |  |   |        |  
|Purchase and Retirement of Common Stock                                                                                                       |  | (1,730,000        | ) |  |                | (17 | ) |                  |   | (40,884 | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (40,901 | )
|Purchase of Treasury Stock                                                                                                                    |  | (25,900           | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   | (472    | ) |  |   | (472    | )
|Reissuance of Treasury Stock                                                                                                                  |  | 3,830             |   |  |                |    |   |                  |   | 48      |                                            |  |   |              |   |  |                          |       |   |  |   | 25      |   |  |   | 73      |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2004                                                                                                                  |  | 14,022,783        |   |  | $              | 160 |   |                  | $ | 10,048  |                                            |  | $ | 188,424       |   |  | $                        | (1,398 | ) |  | $ | (25,091 | ) |  | $ | 172,143 |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  



See Notes to
Consolidated Financial Statements



37



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                   |  | Years Ended December 31 |         
|(Dollars in Thousands)                                                             |  | 2004                    |          |   | 2003 |   |          | 2002 | 
|Cash Flows from Operating Activities                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Earnings                                                                       |  | $                       | 14,678   |   |      | $ | 2,529    |      |  | $ | 21,180   |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes                         |  |                         | (2,505   | ) |      |   | 577      |      |  |   | 351      |  
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Earnings from Continuing Operations, Net of Taxes                                  |  |                         | 17,183   |   |      |   | 1,952    |      |  |   | 20,829   |  
|Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities |  |                         |          |   |      |   |          |      |  |   |          |  
|Gain on Sale of Loans, Investments, and Fixed Assets, Net                          |  |                         | (11,943  | ) |      |   | (10,829  | )    |  |   | (8,743   | )
|Amortization of Premium, Discount, and Intangibles, Net                            |  |                         | 2,982    |   |      |   | 4,628    |      |  |   | 1,552    |  
|Depreciation and Amortization of Premises and Equipment                            |  |                         | 2,700    |   |      |   | 2,631    |      |  |   | 2,404    |  
|Amortization of Net Deferred Loan Fees                                             |  |                         | 1,737    |   |      |   | 1,573    |      |  |   | 976      |  
|Provision for Loan Losses                                                          |  |                         | 11,550   |   |      |   | 38,974   |      |  |   | 20,756   |  
|Origination of Loans Held for Sale, Net of Principal Collected                     |  |                         | (322,393 | ) |      |   | (364,610 | )    |  |   | (251,472 | )
|Proceeds from Sale of Loans Held for Sale                                          |  |                         | 493,416  |   |      |   | 356,899  |      |  |   | 243,867  |  
|Tax Benefit of Option Compensation                                                 |  |                         | 398      |   |      |   | 103      |      |  |   | 641      |  
|Stock Compensation                                                                 |  |                         | 119      |   |      |   | 324      |      |  |   |         |  
|Change in:                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Accrued Interest Receivable                                                        |  |                         | 1,159    |   |      |   | 2,086    |      |  |   | 4,475    |  
|Other Assets                                                                       |  |                         | 14,132   |   |      |   | (15,929  | )    |  |   | (10,616  | )
|Accrued Interest Payable                                                           |  |                         | (338     | ) |      |   | (766     | )    |  |   | (1,514   | )
|Other Liabilities                                                                  |  |                         | (3,829   | ) |      |   | (3,448   | )    |  |   | (2,383   | )
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided by Operating Activities                                          |  |                         | 206,873  |   |      |   | 13,588   |      |  |   | 20,772   |  
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash Flows from Investing Activities                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from Sale of Securities Available for Sale                                |  |                         | 20,280   |   |      |   | 12,650   |      |  |   | 20,312   |  
|Proceeds from Maturities of Securities Available for Sale                          |  |                         | 38,029   |   |      |   | 24,708   |      |  |   | 21,231   |  
|Purchase of Securities Available for Sale                                          |  |                         | (65,000  | ) |      |   | (92,044  | )    |  |   | (30,000  | )
|Purchase of Other Investments                                                      |  |                         |         |   |      |   | (582     | )    |  |   | (372     | )
|Principal Collected on Loans, Net of Originations                                  |  |                         | 166,865  |   |      |   | 234,477  |      |  |   | 29,652   |  
|Proceeds from Sale of Loans and OREO                                               |  |                         | 18,071   |   |      |   | 4,667    |      |  |   | 38,684   |  
|Purchase of Loans                                                                  |  |                         | (41,813  | ) |      |   | (110,747 | )    |  |   | (143,573 | )
|Acquisition of MetroBanCorp, Net of Cash Acquired                                  |  |                         | (8       | ) |      |   | 14,691   |      |  |   |         |  
|Acquisition of Somerset, Net of Cash Acquired                                      |  |                         |         |   |      |   | (7       | )    |  |   | (127     | )
|Investment in Limited Partnership                                                  |  |                         | (572     | ) |      |   |         |      |  |   |         |  
|Purchase of Premises and Equipment                                                 |  |                         | (3,596   | ) |      |   | (5,399   | )    |  |   | (3,522   | )
|Proceeds from Sale of Premises and Equipment                                       |  |                         | 799      |   |      |   | 337      |      |  |   | 23       |  
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Investing Activities                                   |  |                         | 133,055  |   |      |   | 82,751   |      |  |   | (67,692  | )
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash Flows from Financing Activities                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Change in Deposits                                                             |  |                         | (118,988 | ) |      |   | (11,733  | )    |  |   | (40,274  | )
|Net Change in Short-Term Borrowings                                                |  |                         | 15,134   |   |      |   | (31,526  | )    |  |   | 49,874   |  
|Net Change in Advances by Borrowers for Taxes and Insurance                        |  |                         | (358     | ) |      |   | (292     | )    |  |   | (1,227   | )
|Repayment of Federal Home Loan Bank Advances                                       |  |                         | (563,130 | ) |      |   | (822,122 | )    |  |   | (610,115 | )
|Borrowings of Federal Home Loan Bank Advances                                      |  |                         | 412,200  |   |      |   | 732,000  |      |  |   | 660,000  |  
|Issuance of Subordinated Notes                                                     |  |                         |         |   |      |   | 34,295   |      |  |   | 12,162   |  
|Stock Option Proceeds                                                              |  |                         | 1,988    |   |      |   | 542      |      |  |   | 1,728    |  
|Fractional Shares                                                                  |  |                         |         |   |      |   |         |      |  |   | (11      | )
|Deferred Compensation                                                              |  |                         | (58      | ) |      |   | (35      | )    |  |   | (17      | )
|Purchase of Common Stock                                                           |  |                         | (40,901  | ) |      |   |         |      |  |   |         |  
|Purchase of Treasury Stock                                                         |  |                         | (472     | ) |      |   | (3,036   | )    |  |   | (1,407   | )
|Reissuance of Treasury Stock                                                       |  |                         | 73       |   |      |   | 100      |      |  |   | 65       |  
|Dividends Paid                                                                     |  |                         | (10,569  | ) |      |   | (10,277  | )    |  |   | (9,956   | )
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Financing Activities                                   |  |                         | (305,081 | ) |      |   | (112,084 | )    |  |   | 60,822   |  
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Change in Cash and Cash Equivalents                                            |  |                         | 34,847   |   |      |   | (15,745  | )    |  |   | 13,902   |  
|Cash and Cash Equivalents at Beginning of Year                                     |  |                         | 60,304   |   |      |   | 76,049   |      |  |   | 62,147   |  
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and Cash Equivalents at End of Year                                           |  | $                       | 95,151   |   |      | $ | 60,304   |      |  | $ | 76,049   |  
|                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  



See Notes to
Consolidated Financial Statements



38



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) Nature of
Operations and Summary of Significant Accounting Policies



First Indiana Corporation (First Indiana or the Corporation) is a bank holding company, which has elected to be a financial holding company. First Indiana Bank, N.A. and its subsidiaries (collectively the
Bank), the principal asset of the Corporation, is a federally chartered national bank insured by the Federal Deposit Insurance Corporation. First Indiana is the largest commercial bank or bank holding company based in Indianapolis. The
Bank is engaged primarily in the business of attracting deposits from the general public and originating commercial and consumer loans. The Bank offers a full range of banking services from 31 banking centers located throughout central Indiana. In
addition, the Bank has consumer loan offices in Indiana, Florida, Illinois, and Ohio.



Somerset Financial Services, LLC (Somerset Financial), a subsidiary of the Corporation, was acquired in September 2000 when The Somerset Group, Inc. merged with the Corporation. On October 25, 2004 First
Indiana Corporation sold substantially all the assets of Somerset Financial. A description of the sale and the related accounting for Somerset Financial are more fully described in Note 2.



The accounting and reporting policies of the Corporation and its subsidiaries
conform to accounting principles generally accepted in the United States of America. The more significant policies are summarized below.



(A) Basis of Financial Statement PresentationThe Consolidated Financial Statements include the accounts of the Corporation, the Bank, and
Somerset Financial. All significant intercompany balances and transactions have been eliminated in consolidation. In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the amounts
reported for assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates
that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, assumptions used to value the loan servicing assets, goodwill, and the determination of the valuation allowance
for deferred taxes.



(B) ReclassificationCertain
amounts in the 2003 and 2002 Consolidated Financial Statements have been reclassified to conform to the current year presentation.



(C) Investment SecuritiesThe Bank classifies investments in debt and equity securities (investment securities) as trading, held
to maturity, or available for sale. Investment securities classified as held to maturity are stated at cost, as adjusted for amortization of premiums and accretion of discounts using the level yield method. The Bank has the ability and positive
intent to hold these securities to maturity. Investment securities classified as available for sale are stated at fair value, based on quoted market prices, with unrealized holding gains and losses excluded from earnings and reported net of related
income taxes as a separate component of shareholders equity until realized. A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings, resulting in
the establishment of a new cost basis for the security. The Corporation has no assets classified as trading.



As a member of the Federal Home Loan Bank of Indianapolis (FHLB) and the Federal Reserve Bank (FRB), the Bank is required to own
shares of capital stock in the FHLB and the FRB. FHLB stock and FRB stock are carried at their cost since they are restricted investment securities. In connection with the formation of First Indiana Capital Trust I (Trust I) and First
Indiana Capital Statutory Trust II (Trust II), Trust I and Trust II issued Common Securities to the Corporation. The Common Securities are carried at their cost since they are restricted investment securities.



39



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Dividend and interest income is recognized when earned. Realized gains and losses for securities
classified as available for sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold.



(D) LoansLoans originated for portfolio are recorded at cost, with any discount or premium amortized to maturity using the level-yield
method. Loans are placed 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, unless the loan
is in process of collection and secured. Interest income on such loans is recognized only to the extent that cash is received and where future collection of principal is probable. Interest accruals are resumed on such loans only when they are
brought current with respect to interest and principal and when, in the opinion of management, the loans are estimated to be fully collectible.



(E) Home Equity and Mortgage Loan Origination ActivitiesThe Bank originates fixed and adjustable rate residential mortgage loans and fixed
and adjustable rate home equity loans. Throughout the year, the Banks Asset/Liability Committee designates a portion of these loans to be held for investment purposes, with the intent of holding them to maturity. The remainder of these loans
is identified as held for sale into the secondary market.



Loans held for sale are carried at the lower of cost or estimated market value in the aggregate. The Bank continuously monitors its loan pipeline and manages it through limits on market exposure. The total cost of home equity loans and
residential mortgages originated with the intent to sell is allocated between the loan servicing right and the 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 allocations of other costs.



Loan
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, note rate, lien position, and year of origination. Impairment represents the excess of cost of an individual loan 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 that 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.



(F) Loan FeesNon-refundable loan fees and certain direct costs are deferred and the net amount amortized over
the contractual life of the related loan, adjusted for prepayments, as an adjustment of the yield.



(G) Discounts, Premiums, and Prepaid FeesDiscounts and premiums on the purchase of loans and prepaid fees are amortized to interest income on
a level-yield basis over their estimated lives.



(H)
Other Real Estate OwnedOther real estate owned (OREO) is generally acquired by deed in lieu of foreclosure and is initially recorded at the lower of cost or fair market value less estimated costs to sell at the date of
foreclosure, establishing a new cost basis. Subsequent to foreclosure, OREO is carried at the lower of cost or fair value. The initial OREO write-down, if required, is charged against the allowance for loan losses, with subsequent write-downs
charged to OREO expense. A review of OREO properties occurs in conjunction with the review of the loan portfolios. As of December 31, 2004 and 2003, the balance of OREO included in other assets was $1,673,000 and $3,780,000, respectively.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(I) Allowance for Loan LossesAn allowance has been established for managements
estimate of probable loan losses. The provision for loan losses charged to operations is based on managements judgment of current economic conditions and the credit risk of the loan portfolio. The allowance for loan losses is maintained at the
level deemed adequate to cover losses inherent in the loan portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in risk factors. In addition, various
regulatory agencies, as an integral part of their examination process, periodically review this allowance and may require the Corporation to recognize additions to the allowance based on their judgment about information available to them at the time
of their examination.



(J) Income TaxesThe
Corporation uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recognized subject to managements judgment that realization is
more likely than not. First Indiana files a consolidated income tax return.



(K) Earnings Per ShareBasic earnings per share for 2004, 2003, and 2002 were computed by dividing net earnings by the weighted average shares of common stock outstanding (15,587,541, 15,570,508, and
15,537,186, respectively). Diluted earnings per share for 2004, 2003, and 2002 were computed by dividing net earnings by the weighted average shares of common stock and common stock that would have been outstanding assuming the issuance of all
dilutive potential common shares outstanding (15,788,362, 15,720,691, and 15,809,380, respectively). Dilution of the per-share calculation relates to stock options.



(L) Premises and EquipmentPremises and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the various classes of assets. Estimated useful lives for the various asset classes are as follows: buildings, 40 years; leasehold
improvements, the lesser of the remaining lease term or 10 years; furniture, fixtures and equipment, 10 years; computer equipment, 3 years; and computer software, 3 years.



(M) Cash and Cash EquivalentsFor purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, interest-bearing deposits with banks, and federal funds sold. Generally, federal funds are sold for one-day periods. All cash and cash equivalents mature within 90 days.



(N) Comprehensive IncomeComprehensive income is the total of net
income and all non-owner changes in shareholders equity.



(O) Goodwill and Other Intangible AssetsGoodwill is not amortized but is tested for impairment at the reporting unit level at least annually. Intangible assets with finite useful lives are amortized over their useful lives to
their residual values in proportion to the economic benefits consumed. Intangible assets with indefinite useful lives are not amortized until their useful lives are determined to be no longer indefinite. Intangible assets are tested for impairment
at least annually or when events may indicate goodwill is impaired.



(P) Recent Accounting PronouncementsOn March 9, 2004, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments, (SAB
105). SAB 105 provides recognition guidance for entities that issue loan commitments that are required to be accounted for as derivative instruments. SAB 105 indicates that expected future cash flows related to the associated servicing of the
loan and any other internally-developed intangible assets should not be considered



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



when recognizing a loan commitment at inception or through its life. SAB 105 also discusses disclosure requirements for loan commitments and is effective for
loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004.



First Indiana Bank issues commitments to originate residential mortgage loans for sale into the secondary market. These commitments are designated as free-standing derivatives and net changes in their fair value are
recorded as either assets or liabilities on the balance sheet and income or expense in current earnings. At the time the Bank issues these commitments, it enters into a mandatory agreement to sell residential mortgage loans of similar interest rates
and loan terms. These mandatory agreements to sell are also designated as free-standing derivatives and are accounted for as described above. In accordance with SAB 105, the Bank does not include the expected future cash flows related to the
associated servicing of the loan nor does it consider any other internally-developed intangible assets in accounting for these derivatives. While the Banks objective for entering into these two types of derivatives is to lock in a gain on the
sale of the resulting residential loans, there is no attempt by the Bank to qualify these derivatives for hedge accounting treatment. At December 31, 2004, First Indiana had no commitments to originate residential mortgage loans for sale and held no
mandatory commitments to sell residential mortgage loans. The adoption of SAB 105 did not have a material effect on the Corporations financial condition or results of operations.



In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. The EITF reached a consensus on an other-than-temporary impairment model for debt and equity securities accounted for under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and cost method investments. The new guidance prescribes a three-step process to identify impairment of investment securities, classify impairment as either temporary or other-than-temporary, and
recognize loss in the case of other-than-temporary impairment of investment securities. In September 2004, FASB issued a proposed FASB Staff Position, FSP EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The proposed FSP would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates
and/or sector spreads and analyzed for other-than-temporary impairment under paragraph 16 of EITF Issue 03-1. FASB has delayed the effective date for the measurement and recognition guidance contained in paragraphs 10 through 20 of EITF Issue 03-1.
This delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The delay of the effective date for paragraphs 10 through 20 of EITF Issue 03-1 will be superceded concurrent
with the final issuance of FSP EITF Issue 03-1-a. The disclosure guidance in paragraphs 21 and 22 of EITF Issue 03-1 remains effective. The amount of any other-than-temporary impairment that may need to be recognized in the future will be dependent
on market conditions, the occurrence of certain events or changes in circumstances relative to an investee and the Corporations intent to hold the impaired investments at the time of the valuation.



(Q) Stock-Based CompensationAt December 31, 2004, First Indiana
had stock-based employee compensation plans, which are described more fully in Note 15. First Indiana accounts for those plans under recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related Interpretations. No stock-based employee compensation cost has been recognized in respect to stock option grants under the plans, except for deferred compensation expense in connection with certain Somerset
Financial options that were being amortized over the life of the respective options and compensation expense recognized in 2003 in connection with the retirement of an executive officer of the Corporation. Amortization expense relating to restricted
stock grants has been recognized in each period presented as the restricted stock grants vest. The following table illustrates the effect on net earnings and earnings per share if the Corporation had applied the fair value recognition provisions of
Statement of Financial



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                            |  | Years Ended December 31 |       
|(Dollars in Thousands, Except Per Share Data)                                                                                               |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|Net Earnings, As Reported                                                                                                                   |  | $                       | 14,678 |   |      | $ | 2,529  |      |  | $ | 21,180 |  
|                                                                                                                                            |  |                         |       
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                         | 650    |   |      |   | 524    |      |  |   | (588   | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                         | (454   | ) |      |   | (1,310 | )    |  |   | (279   | )
|                                                                                                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|Pro Forma Net Earnings                                                                                                                      |  | $                       | 14,874 |   |      | $ | 1,743  |      |  | $ | 20,313 |  
|                                                                                                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|Basic Earnings Per Share                                                                                                                    |  |                         |        |   |      |   |        |      |  |   |        |  
|As Reported                                                                                                                                 |  | $                       | 0.94   |   |      | $ | 0.16   |      |  | $ | 1.36   |  
|Pro Forma                                                                                                                                   |  |                         | 0.95   |   |      |   | 0.11   |      |  |   | 1.31   |  
|Diluted Earnings Per Share                                                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|As Reported                                                                                                                                 |  | $                       | 0.93   |   |      | $ | 0.16   |      |  | $ | 1.34   |  
|Pro Forma                                                                                                                                   |  |                         | 0.94   |   |      |   | 0.11   |      |  |   | 1.28   |  



Pro forma net earnings
for 2004 increased over reported net earnings primarily due to the reversal of stock option compensation associated with the forfeiture of stock options resulting from the sale of Somerset Financial assets.



The fair value of each option at the date of grant is estimated using the
Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2004, 2003, and 2002, respectively: dividend yield of 3.0 percent for all years; expected volatility of 23.0 percent, 20.0 percent, and 33.0
percent; weighted average risk-free interest rates of 4.4 percent, 3.9 percent, and 4.5 percent; and expected lives of seven years for all years.



(2) Business Combinations and Discontinued Operations



On October 25, 2004, First Indiana Corporation sold substantially all the assets of Somerset Financial Services, LLC (Somerset Financial), to
Somerset CPAs, P.C. Somerset Financial is a subsidiary of the Corporation and represented a majority of the operations of The Somerset Group, Inc., which was acquired by the Corporation in September, 2000. Somerset CPAs was formed by a management
group from Somerset Financial and assumed substantially all the liabilities of Somerset Financial. The sales price was $6,000,000 excluding $5,405,000 of existing cash at Somerset Financial which was paid to the Corporation as a distribution before
the sale. First Indiana Bank provided the buyers a loan of $6,000,000 to fund the purchase price. Subsequently, the Bank participated $5,500,000 of the loan to a third-party financial institution on a non-recourse basis. Somerset Financial has been
presented as discontinued operations, and the results of operations and cash flows have been removed from the Corporations results of continuing operations for all periods presented in the Consolidated Statements of Earnings, Consolidated
Statements of Cash Flows and Notes to Consolidated Financial Statements. Likewise, the assets and liabilities of Somerset Financial have been reclassified to assets and liabilities of discontinued operations on the Consolidated Balance Sheets. The
2004 net of tax loss of $2,505,000 from discontinued operations includes a $1,852,000 goodwill impairment loss and $300,000 in costs incurred to sell the business. As the original acquisition of the Somerset Group, Inc. was a tax-free exchange, the
goodwill resulting from the transaction was assigned a tax-basis of zero. As the sale resulted in a taxable gain, the Corporation did not record a tax benefit for the goodwill impairment charge. The Corporation recorded tax expense associated with
the sale of approximately $981,000 when the transaction closed. Prior to the announced sale, Somerset Financial Services, LLC was included in the Somerset Financial operating segment.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Results of operations for Somerset Financial Services, LLC were as follows:



|                                    |  |                         |        |   |      |   |        |  |   |        |  
|----------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ |  | - | ------ | -
|                                    |  | Years Ended December 31 |       
|(Dollars in Thousands)              |  | 2004                    |        |   | 2003 |   | 2002   | 
|Non-Interest Income                 |  |                         |        |   |      |   |        |  |   |        |  
|Somerset Fees                       |  | $                       | 10,408 |   |      | $ | 11,900 |  | $ | 10,798 |  
|Gain (Loss) on Sale of Fixed Assets |  |                         | (2     | ) |      |   |       |  |   | (72    | )
|                                    |  |                         |        |   |      |   |        |  |   |        |  
|Total Non-Interest Income           |  |                         | 10,406 |   |      |   | 11,900 |  |   | 10,726 |  
|                                    |  |                         |        |   |      |   |        |  |   |        |  
|Non-Interest Expense                |  |                         |        |   |      |   |        |  |   |        |  
|Salaries and Benefits               |  |                         | 7,342  |   |      |   | 8,717  |  |   | 7,818  |  
|Net Occupancy                       |  |                         | 610    |   |      |   | 734    |  |   | 717    |  
|Equipment                           |  |                         | 375    |   |      |   | 440    |  |   | 414    |  
|Professional Services               |  |                         | 528    |   |      |   | 93     |  |   | 21     |  
|Marketing                           |  |                         | 139    |   |      |   | 132    |  |   | 136    |  
|Telephone, Supplies, and Postage    |  |                         | 234    |   |      |   | 265    |  |   | 244    |  
|Goodwill Impairment Loss            |  |                         | 1,852  |   |      |   |       |  |   |       |  
|Other                               |  |                         | 416    |   |      |   | 499    |  |   | 676    |  
|                                    |  |                         |        |   |      |   |        |  |   |        |  
|Total Non-Interest Expense          |  |                         | 11,496 |   |      |   | 10,880 |  |   | 10,026 |  
|                                    |  |                         |        |   |      |   |        |  |   |        |  
|Earnings (Loss) before Tax          |  |                         | (1,090 | ) |      |   | 1,020  |  |   | 700    |  
|                                    |  |                         |       
|Income Tax                          |  |                         | 1,415  |   |      |   | 443    |  |   | 349    |  
|                                    |  |                         |        |   |      |   |        |  |   |        |  
|Net Earnings (Loss)                 |  | $                       | (2,505 | ) |      | $ | 577    |  | $ | 351    |  
|                                    |  |                         |        |   |      |   |        |  |   |        |  



The following is
condensed balance sheet information for Somerset Financial Services, LLC:



|                       |  |                  |      
|---------------------- |  | ---------------- | -----
|(Dollars in Thousands) |  | December 31,2003
|Assets                 |  |                  |      
|Cash                   |  | $                | 1    
|Premises and Equipment |  |                  | 941  
|Goodwill               |  |                  | 6,360
|Other Assets           |  |                  | 2,277
|                       |  |                  |      
|Total Assets           |  | $                | 9,579
|                       |  |                  |      
|Liabilities            |  |                  |      
|Other Liabilities      |  | $                | 2,602
|                       |  |                  |      
|Total Liabilities      |  | $                | 2,602
|                       |  |                  |      



On January 13, 2003,
First Indiana acquired Carmel, Indiana-based MetroBanCorp through a merger. MetroBanCorp was the holding company for MetroBank, with assets of $196,000,000 and seven offices in Carmel, Fishers, and Noblesville, Indiana. The acquisition was accounted
for using the purchase method of accounting, and accordingly, the financial results of the acquired entity were included in First Indianas consolidated financial statements from the January 13, 2003, acquisition date. In the merger,
MetroBanCorp shareholders received $17.00 in cash in exchange for each share of MetroBanCorp stock. The cost of the acquisition was approximately $37,500,000. Goodwill of $23,997,000, a core deposit intangible of $4,357,000, and a non-compete
agreement intangible of $1,000,000 were recorded in connection with the merger. The



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



goodwill has been assigned to the community bank segment. The weighted average life of the core deposit intangible and the non-compete agreement intangible
were 7.2 years and 1.5 years, respectively. The weighted average life of these intangible assets in total was 6.1 years.



(3) Loan Servicing Rights, Goodwill, and Other Intangible Assets



The following table shows the change in the carrying amount of capitalized loan servicing rights.



|                                 |  |                         |        |   |      |   |        |      |  |   |        |  
|-------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                 |  | Years Ended December 31 |       
|(Dollars in Thousands)           |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|Balance at Beginning of Period   |  | $                       | 5,985  |   |      | $ | 9,065  |      |  | $ | 9,819  |  
|Additions                        |  |                         | 431    |   |      |   | 1,612  |      |  |   | 2,288  |  
|Amortization of Servicing Rights |  |                         | (1,780 | ) |      |   | (2,306 | )    |  |   | (2,585 | )
|Change in Valuation Reserves     |  |                         | (376   | ) |      |   | (2,386 | )    |  |   | (457   | )
|                                 |  |                         |        |   |      |   |        |      |  |   |        |  
|Balance at End of Period         |  | $                       | 4,260  |   |      | $ | 5,985  |      |  | $ | 9,065  |  
|                                 |  |                         |        |   |      |   |        |      |  |   |        |  



The following table
shows the changes in the valuation allowance for loan servicing rights in 2004, 2003, and 2002.



|                               |  |                         |       |      |   |       |  |   |    
|------------------------------ |  | ----------------------- | ----- | ---- | - | ----- |  | - | ---
|                               |  | Years Ended December 31
|(Dollars in Thousands)         |  | 2004                    |       | 2003 |   | 2002 
|Balance at Beginning of Period |  | $                       | 2,915 |      | $ | 529   |  | $ | 72 
|Net Additions                  |  |                         | 376   |      |   | 2,386 |  |   | 457
|                               |  |                         |       |      |   |       |  |   |    
|Balance at End of Period       |  | $                       | 3,291 |      | $ | 2,915 |  | $ | 529
|                               |  |                         |       |      |   |       |  |   |    



Consumer loans
serviced for others amounted to $225,467,000 and $298,699,000 at December 31, 2004 and 2003, respectively. Residential loans serviced for others amounted to $95,527,000 and $134,221,000 at December 31, 2004 and 2003, respectively.



The estimated fair value of loan servicing rights was $4,931,000 and
$6,786,000 at December 31, 2004 and 2003, respectively. Projected annual servicing rights amortization for the years 2005 through 2009 is $1,402,000, $1,165,000, $949,000, $775,000, and $634,000, respectively.



The following table shows changes in the carrying amount of goodwill
(excluding the Somerset Financial goodwill which was reclassified in assets of discontinued operations) for the years ended December 31, 2004 and 2003 all of which is assigned to the community bank segment.



|                                         |  |          |       
|---------------------------------------- |  | -------- | ------
|(Dollars in Thousands)                   |  | Goodwill
|Balance as of January 1, 2003            |  | $        | 6,685 
|Addition Due to MetroBanCorp Acquisition |  |          | 23,997
|                                         |  |          |       
|Balance as of December 31, 2003          |  |          | 30,682
|Changes during the year                  |  |          |      
|                                         |  |          |       
|Balance as of December 31, 2004          |  | $        | 30,682
|                                         |  |          |       



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following tables summarize the carrying amount of other intangible assets at December 31, 2004
and 2003.



|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|------------------------------------------- |  | --------------------- | ----- | - | ------------------------------ | - | ----- | ----- |  | - | ------ | -
|(Dollars in Thousands)                      |  | CoreDepositIntangible |       |   | Non-competeAgreementIntangible |   |       | Total | 
|Gross Carrying Amount                       |  | $                     | 4,357 |   |                                | $ | 1,000 |       |  | $ | 5,357  |  
|Less: Accumulated Amortization              |  |                       | (788  | ) |                                |   | (667  | )     |  |   | (1,455 | )
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|Net Carrying Amount as of December 31, 2004 |  | $                     | 3,569 |   |                                | $ | 333   |       |  | $ | 3,902  |  
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|Amortization recognized in 2004             |  | $                     | 385   |   |                                | $ | 333   |       |  | $ | 718    |  
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|Gross Carrying Amount                       |  | $                     | 4,357 |   |                                | $ | 1,000 |       |  | $ | 5,357  |  
|Less: Accumulated Amortization              |  |                       | (403  | ) |                                |   | (333  | )     |  |   | (736   | )
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|Net Carrying Amount as of December 31, 2003 |  | $                     | 3,954 |   |                                | $ | 667   |       |  | $ | 4,621  |  
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  
|Amortization recognized in 2003             |  | $                     | 403   |   |                                | $ | 333   |       |  | $ | 736    |  
|                                            |  |                       |       |   |                                |   |       |       |  |   |        |  



Projected annual
intangible amortization for the years 2005 through 2009 is $696,000, $342,000, $321,000, $300,000, and $280,000, respectively.



(4) Securities Available for Sale



The amortized cost and estimated fair value of securities available for sale and the related unrealized gains and losses were as follows.



|                                             |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |       |  |   |       |  |   |        
|-------------------------------------------- |  | ----------------- | ------- | ----------------- | ------ | ----------------------- |  | -------------- | ----- | ---------------- | ------ | ----------------------- |  | - | ------- |  | - | ----- |  | - | ----- |  | - | -------
|                                             |  | December 31, 2004 |         | December 31, 2003
|                                             |  | Amortized Cost    |         | Gross Unrealized  |        | Fair Value (Book Value) |  | Amortized Cost |       | Gross Unrealized |        | Fair Value (Book Value)
|(Dollars in Thousands)                       |  |                   | Gains   |                   | Losses |                         |  |                | Gains |                  | Losses |                        
|U.S. Government Treasuries, Agencies & Other |  | $                 | 137,702 |                   | $      | 579                     |  | $              | 1,013 |                  | $      | 137,268                 |  | $ | 127,533 |  | $ | 3,466 |  | $ | 456   |  | $ | 130,543
|Mortgage-Backed Securities                   |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |       |  |   |       |  |   |        
|FHLMC                                        |  |                   | 57,575  |                   |        | 190                     |  |                | 1,614 |                  |        | 56,151                  |  |   | 53,148  |  |   | 307   |  |   | 547   |  |   | 52,908 
|FNMA                                         |  |                   | 24,307  |                   |        | 121                     |  |                | 578   |                  |        | 23,850                  |  |   | 31,872  |  |   | 309   |  |   | 179   |  |   | 32,002 
|                                             |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |       |  |   |       |  |   |        
|Total                                        |  | $                 | 219,584 |                   | $      | 890                     |  | $              | 3,205 |                  | $      | 217,269                 |  | $ | 212,553 |  | $ | 4,082 |  | $ | 1,182 |  | $ | 215,453
|                                             |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |       |  |   |       |  |   |        



U.S. Government
Treasuries, Agencies and Other includes $1,165,000 and $1,398,000 of Fannie Mae and Freddie Mac preferred stock at December 31, 2004 and 2003, respectively.



Securities totaling $206,076,000 were pledged as collateral for repurchase agreements, letters of credit, the Federal Reserve Bank discount window line of
credit and the treasury, tax, and loan account on December 31, 2004.



The maturity distribution of debt securities is shown below. The distribution of mortgage-backed securities is based on average expected maturities. Actual maturities might differ because issuers may have the right to call or prepay
obligations.



|                                       |  |                   |         |           |   |        
|-------------------------------------- |  | ----------------- | ------- | --------- | - | -------
|                                       |  | December 31, 2004
|(Dollars in Thousands)                 |  | AmortizedCost     |         | FairValue
|Due in one year or less                |  | $                 | 70,457  |           | $ | 70,997 
|Due after one year through five years  |  |                   | 69,739  |           |   | 68,847 
|Due after five years through ten years |  |                   | 77,218  |           |   | 75,256 
|Due after ten years                    |  |                   | 2,170   |           |   | 2,169  
|                                       |  |                   |         |           |   |        
|Total                                  |  | $                 | 219,584 |           | $ | 217,269
|                                       |  |                   |         |           |   |        



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Realized gains and losses related to securities available for sale for each of the three years ended
December 31 were as follows.



|                                         |  |      |      |   |      |   |      |  |   |    
|---------------------------------------- |  | ---- | ---- | - | ---- | - | ---- |  | - | ---
|(Dollars in Thousands)                   |  | 2004 |      |   | 2003 |   | 2002
|Realized Gains                           |  | $    | 280  |   |      | $ | 7    |  | $ | 312
|Realized Losses                          |  |      |     |   |      |   |     |  |   |   
|Other-Than-Temporary Impairment Losses   |  |      | (299 | ) |      |   |     |  |   |   
|                                         |  |      |      |   |      |   |      |  |   |    
|Net Investment Securities Gains (Losses) |  | $    | (19  | ) |      | $ | 7    |  | $ | 312
|                                         |  |      |      |   |      |   |      |  |   |    



Other-than-temporary
impairment losses of $299,000 were recognized in 2004 on the Banks holdings of Fannie Mae and Freddie Mac preferred stock. This preferred stock was sold in the first quarter of 2005.



For securities with unrealized losses at December 31, 2004 and December 31,
2003, the following schedules identify the length of time (in consecutive months) these securities fair values have been below their amortized cost.



|                                             |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|-------------------------------------------- |  | ------------------- | ------- | ------------------- | - | --------- |  | ---------------- | ------ | --------- | - | ---------------- |  | - | ------- |  | - | -----
|                                             |  | Less than 12 Months |         | 12 Months or Longer |   | Total    
|December 31, 2004 (Dollars in
Thousands)     |  | FairValue           |         | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |        | FairValue |   | UnrealizedLosses
|U.S. Government Treasuries, Agencies & Other |  | $                   | 80,513  |                     | $ | 681       |  | $                | 14,750 |           | $ | 332              |  |   | 95,263  |  | $ | 1,013
|Mortgage-Backed Securities                   |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|FHLMC                                        |  |                     | 35,675  |                     |   | 1,051     |  |                  | 12,013 |           |   | 563              |  |   | 47,688  |  |   | 1,614
|FNMA                                         |  |                     | 12,900  |                     |   | 257       |  |                  | 6,585  |           |   | 321              |  |   | 19,485  |  |   | 578  
|                                             |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|Total                                        |  | $                   | 129,088 |                     | $ | 1,989     |  | $                | 33,348 |           | $ | 1,216            |  | $ | 162,436 |  | $ | 3,205
|                                             |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|                                             |  |                     |        
|                                             |  | Less than 12 Months |         | 12 Months or Longer |   | Total    
|December 31, 2003 (Dollars in
Thousands)     |  | FairValue           |         | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |        | FairValue |   | UnrealizedLosses
|U.S. Government Treasuries, Agencies & Other |  | $                   | 26,052  |                     | $ | 456       |  | $                |       |           | $ |                 |  |   | 26,052  |  | $ | 456  
|Mortgage-Backed Securities                   |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|FHLMC                                        |  |                     | 14,920  |                     |   | 547       |  |                  |       |           |   |                 |  |   | 14,920  |  |   | 547  
|FNMA                                         |  |                     | 8,781   |                     |   | 179       |  |                  |       |           |   |                 |  |   | 8,781   |  |   | 179  
|                                             |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|Total                                        |  | $                   | 49,753  |                     | $ | 1,182     |  | $                |       |           | $ |                 |  | $ | 49,753  |  | $ | 1,182
|                                             |  |                     |         |                     |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      



U.S. Government
Treasuries, Agencies & Other. The unrealized losses on the Corporations investments in U.S. Treasury obligations and direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of
these investments do not permit the issuer to settle these securities at a price less than the face amount of the investment. Because the Corporation has the ability and intent to hold these investments until a recovery of fair value, which may be
maturity, the Corporation does not consider these investments to be other-than-temporarily impaired at December 31, 2004.



Federal Agency Mortgage-Backed Securities. The unrealized losses on the Corporations investments in federal agency mortgage-backed securities
were caused by interest rate increases. The Corporation purchased these investments at both premiums and discounts relative to their face amount, and the contractual cash flows of these investments are guaranteed by an agency of the U.S. government.
Accordingly, it is expected that the securities would not be settled at a price less than the face amount of the Corporations investment. Because the decline in market value is attributable to changes in interest rates and not credit quality
and because the Corporation has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Corporation does not consider these investments to be other-than-temporarily impaired at December 31,
2004.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(5) Other Investments



Included in other investments are Federal Reserve Bank Stock, Federal Home Loan Bank Stock, and Common Securities in the
Corporations grantor trusts: First Indiana Capital Trust I and First Indiana Capital Statutory Trust II. The Bank is required by the Federal Reserve Board to own shares of FRB stock. FRB stock, which is a restricted investment security, is
carried at its cost. In addition, as a member of the Federal Home Loan Bank of Indianapolis, the Bank is required to own shares of capital stock in the FHLB. FHLB stock is carried at its cost, since it is a restricted investment security. The Bank
is required to hold approximately $6,224,000 of FHLB stock. The Corporations holdings in FHLB stock are redeemable only upon five years notice to the FHLB. In connection with the formation of the capital trusts, Trust I and Trust II
issued Common Securities to the Corporation. The Common Securities for each trust are carried at their cost since they are restricted investment securities. The Common Securities are not redeemable until the related subordinated notes are redeemed
(according to the subordinated note terms).



The composition of
other investments is summarized as follows.



|                                 |  |             |        |      |   |       
|-------------------------------- |  | ----------- | ------ | ---- | - | ------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2004        |        | 2003
|FRB Stock                        |  | $           | 1,110  |      | $ | 1,110 
|FHLB Stock                       |  |             | 24,173 |      |   | 23,103
|Capital Trusts Common Securities |  |             | 744    |      |   | 744   
|                                 |  |             |        |      |   |       
|                                 |  | $           | 26,027 |      | $ | 24,957
|                                 |  |             |        |      |   |       



(6) Loans



The composition of loans is summarized as follows.



|                                 |  |             |           |      |   |          
|-------------------------------- |  | ----------- | --------- | ---- | - | ---------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2004        |           | 2003
|Commercial Loans                 |  |             |           |      |   |          
|Business Loans                   |  | $           | 466,703   |      | $ | 515,316  
|Single-Family Construction Loans |  |             | 58,680    |      |   | 192,450  
|Commercial Real Estate Loans     |  |             | 175,145   |      |   | 178,378  
|Consumer Loans                   |  |             |           |      |   |          
|Home Equity Loans                |  |             | 505,702   |      |   | 591,565  
|Other Consumer Loans             |  |             | 14,909    |      |   | 20,460   
|Residential Mortgage Loans       |  |             | 279,051   |      |   | 316,822  
|                                 |  |             |           |      |   |          
|                                 |  | $           | 1,500,190 |      | $ | 1,814,991
|                                 |  |             |           |      |   |          



Loans are net of
deferred costs and net unearned discounts of $7,353,000 and $8,591,000 at December 31, 2004 and 2003, respectively.



The weighted average yield on loans was 5.91 percent and 5.37 percent at December 31, 2004 and 2003, respectively.



Home equity loans totaling $339,595,000, $344,638,000, and $269,534,000 were
sold in 2004, 2003, and 2002, respectively. The Bank had $43,493,000, $68,605,000, and $50,072,000 in home equity loans held for sale at December 31, 2004, 2003, and 2002, respectively. The Bank sold $6,481,000, $1,439,000, and $314,000 of
residential loans in 2004, 2003, and 2002, respectively. In addition, the Corporation sold $7,285,000 of non-performing residential and home equity loans in the third quarter of 2004 and sold $134,373,000 of residential construction loans in the
fourth quarter of 2004.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During 2004, 2003, and 2002, the Bank transferred $9,749,000, $6,783,000, and $15,980,000,
respectively, from loans to other real estate owned.



The
geographic distribution of loans at December 31, 2004, is presented below.



|                            |  |         |  
|--------------------------- |  | ------- | -
|Location                    |  | Percent |  
|Indiana                     |  | 61      | %
|Contiguous States           |  | 7       |  
|California                  |  | 5       |  
|Florida                     |  | 5       |  
|Arizona                     |  | 3       |  
|Other States (less than 3%) |  | 19      |  
|                            |  |         |  
|Total                       |  | 100     | %
|                            |  |         |  



A loan is considered
impaired when it is probable that all principal and interest amounts due will not be collected in accordance with the loans contractual terms. Certain loans, such as small-balance homogeneous loans (e.g., consumer and residential mortgage
loans), are exempt from impairment determinations for disclosure purposes. Impairment is recognized to the extent that the recorded investment of an impaired loan exceeds its value. A loans value is based on the loans underlying
collateral value or the calculated present value of projected cash flows discounted at the contractual interest rate. The recorded investment in impaired loans is periodically adjusted to reflect cash payments, revised estimates of future cash
flows, and increases in the present value of expected cash flows due to the passage of time.



Information relating to the Banks impaired loans is outlined in the tables below.



|                                                  |  |             |        |      |   |       
|------------------------------------------------- |  | ----------- | ------ | ---- | - | ------
|                                                  |  | December 31
|(Dollars in Thousands)                            |  | 2004        |        | 2003
|Impaired Loans with Related Specific Allowance    |  | $           | 7,520  |      | $ | 493   
|Impaired Loans with No Related Specific Allowance |  |             | 3,647  |      |   | 20,056
|                                                  |  |             |        |      |   |       
|Total Impaired Loans                              |  | $           | 11,167 |      | $ | 20,549
|                                                  |  |             |        |      |   |       
|                                                  |  |             |        |      |   |       
|Specific Allowance on Impaired Loans              |  | $           | 5,045  |      | $ | 493   
|                                                  |  |             |        |      |   |       



|                                             |  |                         |        |      |   |        |  |   |      
|-------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | -----
|                                             |  | Years Ended December 31
|                                             |  | 2004                    |        | 2003 |   | 2002  
|Average Balance of Impaired Loans            |  | $                       | 14,648 |      | $ | 22,857 |  | $ | 8,941
|Interest Income Recognized on Impaired Loans |  |                         | 1,200  |      |   | 102    |  |   | 1,131



Non-accrual loans
totaled $15,905,000 on December 31, 2004, and $31,004,000 on December 31, 2003. Loans past due 90 days or more and still accruing interest totaled $3,859,000 on December 31, 2004, and $4,098,000 on December 31, 2003.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(7) Allowance for Loan Losses



A summary of activity in the allowance for loan losses for the three years ended December 31, 2004, follows.





|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(Dollars in Thousands)                    |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Balance at Beginning of Year              |  | $    | 53,197  |   |      | $ | 44,469  |      |  | $ | 37,135  |  
|Charge-Offs                               |  |      | (17,526 | ) |      |   | (33,841 | )    |  |   | (14,656 | )
|Recoveries                                |  |      | 5,951   |   |      |   | 2,328   |      |  |   | 1,234   |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net Charge-Offs                           |  |      | (11,575 | ) |      |   | (31,513 | )    |  |   | (13,422 | )
|Provision for Loan Losses                 |  |      | 11,550  |   |      |   | 38,974  |      |  |   | 20,756  |  
|Addition Related to Bank Acquired         |  |      |        |   |      |   | 1,709   |      |  |   |        |  
|Transfer to Reserve for Letters of Credit |  |      |        |   |      |   | (442    | )    |  |   |        |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Balance at End of Year                    |  | $    | 53,172  |   |      | $ | 53,197  |      |  | $ | 44,469  |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  



(8) Premises and Equipment



|                         |  |             |         |   |      |   |         |  
|------------------------ |  | ----------- | ------- | - | ---- | - | ------- | -
|                         |  | December 31 |        
|(Dollars in Thousands)   |  | 2004        |         |   | 2003 |  
|Land                     |  | $           | 5,706   |   |      | $ | 6,117   |  
|Buildings                |  |             | 13,700  |   |      |   | 12,470  |  
|Leasehold Improvements   |  |             | 1,386   |   |      |   | 1,611   |  
|Furniture and Equipment  |  |             | 21,904  |   |      |   | 21,411  |  
|                         |  |             |         |   |      |   |         |  
|                         |  |             | 42,696  |   |      |   | 41,609  |  
|Accumulated Depreciation |  |             | (17,742 | ) |      |   | (16,877 | )
|                         |  |             |         |   |      |   |         |  
|                         |  | $           | 24,954  |   |      | $ | 24,732  |  
|                         |  |             |         |   |      |   |         |  



(9) Interest-Bearing Deposits



|                                            |  |             |           |      |   |          
|------------------------------------------- |  | ----------- | --------- | ---- | - | ---------
|                                            |  | December 31
|(Dollars in Thousands)                      |  | 2004        |           | 2003
|Interest-Bearing Demand                     |  | $           | 189,911   |      | $ | 217,353  
|Savings                                     |  |             | 463,679   |      |   | 400,804  
|Certificates of Deposit under $100,000      |  |             | 262,168   |      |   | 312,051  
|Certificates of Deposit $100,000 or Greater |  |             | 189,736   |      |   | 323,953  
|                                            |  |             |           |      |   |          
|                                            |  | $           | 1,105,494 |      | $ | 1,254,161
|                                            |  |             |           |      |   |          



Following is a table
of maturities for certificates of deposit outstanding at December 31, 2004.



|                       |  |        |        
|---------------------- |  | ------ | -------
|(Dollars in Thousands) |  | Amount
|2005                   |  | $      | 291,941
|2006                   |  |        | 70,367 
|2007                   |  |        | 64,458 
|2008                   |  |        | 21,581 
|2009                   |  |        | 3,414  
|Thereafter             |  |        | 143    
|                       |  |        |        
|                       |  | $      | 451,904
|                       |  |        |        



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Cash paid during the year for interest on deposits, advances, and other borrowed money was
$32,541,000, $37,563,000, and $53,658,000 for 2004, 2003, and 2002, respectively.



(10) Short-Term Borrowings



Federal funds
purchased and securities sold under agreements to repurchase are classified as short-term borrowings. Repurchase agreements represent an indebtedness of the Bank secured by securities available for sale issued by (or fully guaranteed as to principal
and interest by) the United States or an agency of the United States. All agreements represent obligations to repurchase the same securities at maturity. These securities are under the Banks control.



Following is a summary of short-term borrowings for each of the three years
ended December 31.



|                                      |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(Dollars in Thousands)                |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Balance at Year-End                   |  | $    | 162,208 |   |      | $ | 147,074 |      |  | $ | 170,956 |  
|Average during the Year               |  |      | 128,676 |   |      |   | 132,886 |      |  |   | 126,501 |  
|Maximum Month-End Balance             |  |      | 162,208 |   |      |   | 156,912 |      |  |   | 175,114 |  
|Weighted Average Rate during the Year |  |      | 1.18    | % |      |   | 1.05    | %    |  |   | 1.63    | %
|Weighted Average Rate at Year-End     |  |      | 1.68    |   |      |   | 0.85    |      |  |   | 1.16    |  



At December 31, 2004,
the Bank had $80,000,000 in unused lines of credit available from local financial institutions for borrowing federal funds. There are no fees associated with these lines. In addition, at December 31, 2004, the Corporation had a $10,000,000 unused
revolving line of credit on which it paid $25,000 in fees in 2004.



(11)
Federal Home Loan Bank Advances and Subordinated Debt



Each Federal Home Loan Bank is authorized to make advances to its member institutions, subject to their regulations and limitations. Scheduled principal repayments of FHLB advances outstanding at December 31, 2004, were as follows.



|                       |  |        |        
|---------------------- |  | ------ | -------
|(Dollars in Thousands) |  | Amount
|2005                   |  | $      | 72,650 
|2006                   |  |        | 109    
|2007                   |  |        |       
|2008                   |  |        | 10,000 
|2009                   |  |        |       
|Thereafter             |  |        | 31,740 
|                       |  |        |        
|                       |  | $      | 114,499
|                       |  |        |        



FHLB advances
outstanding at December 31, 2004, mature from January 2005 through January 2020. Of the $114,499,000 in advances, the FHLB has the option to require the Bank to repay $85,000,000 at certain designated dates. The advances bear fixed or floating rates
ranging from 2.46 percent to 8.57 percent. The weighted average interest rate at December 31, 2004 and 2003, was 5.07 percent and 3.30 percent, respectively. The FHLB advances are collateralized with FHLB stock and other qualifying assets totaling
$425,183,000. As of December 31, 2004 and 2003, the Banks FHLB advances were backed by sufficient collateral. Additionally, the Bank maintains an unused $10,000,000 line of credit with the FHLB.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table is a summary of subordinated debt at December 31.



|                                     |  |      |        |      |   |       
|------------------------------------ |  | ---- | ------ | ---- | - | ------
|(Dollars in Thousands)               |  | 2004 |        | 2003
|Subordinated Notes due November 2013 |  | $    | 22,200 |      | $ | 22,167
|Subordinated Notes due October 2032  |  |      | 12,253 |      |   | 12,211
|Subordinated Notes due June 2033     |  |      | 12,204 |      |   | 12,156
|                                     |  |      |        |      |   |       
|                                     |  | $    | 46,657 |      | $ | 46,534
|                                     |  |      |        |      |   |       



In November 2003, the
Corporation issued $22,500,000 in ten-year subordinated notes with a 7.50 percent fixed rate of interest. Interest is payable semi-annually and the notes qualify as Tier 2 capital for regulatory purposes.



In October 2002, the Corporation formed First Indiana Capital Trust I for the
purpose of issuing $12,000,000 of trust preferred securities through a private placement. This unconsolidated grantor trusts sole assets are junior subordinated notes issued by the Corporation. The notes have a stated term of 30 years
(October 30, 2032) but may be redeemed at par in part or in full beginning October 30, 2007, and any calendar quarter end date thereafter, subject to approval by the Federal Reserve Board. The notes have a fixed rate of interest of 6.92 percent
through October 30, 2007, and a floating rate of interest, reset quarterly, equal to the London interbank offered rate (LIBOR) plus 3.35 percent thereafter to maturity. Interest is payable quarterly and the distribution rate of the trust
preferred securities is equal to the interest rate of the notes.



In June 2003, First Indiana formed First Indiana Capital Statutory Trust II for the purpose of issuing $12,000,000 in trust preferred securities through a private placement. This unconsolidated grantor trusts sole assets are junior
subordinated notes issued by the Corporation. The notes have a stated term of 30 years (June 26, 2033) but may be redeemed at par in part or in full beginning June 26, 2008, and quarterly thereafter subject to approval by the Federal Reserve Board.
The notes have a fixed rate of interest of 5.55 percent through June 26, 2008, and a floating rate of interest, reset quarterly, equal to LIBOR plus 3.10 percent thereafter to maturity. Interest on the notes is payable quarterly in arrears. The
distribution rate on the trust preferred securities equals the interest rate of the notes.



In connection with the notes issued to Trust I and Trust II, the Corporation has the right to defer payment of interest on the notes at any time or from time-to-time for a period not to exceed five years provided that
no extension period may extend beyond the stated maturity of the notes. During any such extension period, distributions on the trust preferred securities will also be deferred and First Indianas ability to pay dividends on its Common Stock
will be restricted. With respect to Trust I and Trust II, the trust preferred securities are subject to mandatory redemption upon repayment of the notes at their stated maturity dates or their earlier redemption at a redemption price equal to their
liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any, paid by the Corporation upon concurrent repayment of the notes. Periodic cash payments and payments upon liquidation or redemption with respect
to trust preferred securities are guaranteed by First Indiana to the extent of funds held by the grantor trust (the Preferred Securities Guarantee). The Preferred Securities Guarantee, when taken together with the Corporations
other obligations, including its obligations under the notes, will constitute a full and unconditional guarantee, on a subordinated basis, by the Corporation of payments due on the trust preferred securities.



The trust preferred securities qualify as Tier 1 capital of the Corporation
for regulatory capital purposes. The Corporation formed statutory trusts for the purpose of issuing trust preferred securities. In December 2003, FASB issued a revision of FIN 46 that required the deconsolidation of these statutory trusts. In July
2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



companies to continue to include the trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the
contrary. In May 2004, the Federal Reserve issued a proposal to allow the continued inclusion of trust preferred securities in Tier 1 capital. However, there can be no assurance that the Federal Reserve will continue to allow institutions to
continue to include trust preferred securities in Tier 1 capital. At December 31, 2004 and 2003, the balance of trust preferred securities, net of discount was $24,457,000 and $24,367,000, respectively.



(12) Income Taxes



Income tax expense attributable to earnings from continuing operations consists of the following.



|                             |  |         |        |          |   |        |       |  |   |        |  
|---------------------------- |  | ------- | ------ | -------- | - | ------ | ----- |  | - | ------ | -
|(Dollars in Thousands)       |  | Current |        | Deferred |   |        | Total | 
|Year Ended December 31, 2004 |  |         |        |          |   |        |       |  |   |        |  
|Federal                      |  | $       | 9,888  |          | $ | (862   | )     |  | $ | 9,026  |  
|State and Local              |  |         | 578    |          |   | 61     |       |  |   | 639    |  
|                             |  |         |        |          |   |        |       |  |   |        |  
|                             |  | $       | 10,466 |          | $ | (801   | )     |  | $ | 9,665  |  
|                             |  |         |        |          |   |        |       |  |   |        |  
|                             |  |         |       
|Year Ended December 31, 2003 |  |         |        |          |   |        |       |  |   |        |  
|Federal                      |  | $       | 6,085  |          | $ | (4,943 | )     |  | $ | 1,142  |  
|State and Local              |  |         | 586    |          |   | (848   | )     |  |   | (262   | )
|                             |  |         |        |          |   |        |       |  |   |        |  
|                             |  | $       | 6,671  |          | $ | (5,791 | )     |  | $ | 880    |  
|                             |  |         |        |          |   |        |       |  |   |        |  
|                             |  |         |       
|Year Ended December 31, 2002 |  |         |        |          |   |        |       |  |   |        |  
|Federal                      |  | $       | 14,663 |          | $ | (3,610 | )     |  | $ | 11,053 |  
|State and Local              |  |         | 749    |          |   | (44    | )     |  |   | 705    |  
|                             |  |         |        |          |   |        |       |  |   |        |  
|                             |  | $       | 15,412 |          | $ | (3,654 | )     |  | $ | 11,758 |  
|                             |  |         |        |          |   |        |       |  |   |        |  



The effective income
tax rate for continuing operations differs from the statutory federal corporate tax rate as follows.



|                       |  |                         |   |  |      |   |  |      |  
|---------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                       |  | Years Ended December 31 |  
|                       |  | 2004                    |   |  | 2003 |   |  | 2002 |  
|Statutory Rate         |  | 35.0                    | % |  | 35.0 | % |  | 35.0 | %
|State Income Taxes     |  | 1.8                     |   |  | (5.0 | ) |  | 1.6  |  
|Nondeductible Expenses |  | 0.4                     |   |  | 4.0  |   |  | 0.6  |  
|Tax Credits            |  | (1.2                    | ) |  |     |   |  | (0.4 | )
|Net Other              |  |                        |   |  | (2.9 | ) |  | (0.7 | )
|                       |  |                         |   |  |      |   |  |      |  
|Effective Rate         |  | 36.0                    | % |  | 31.1 | % |  | 36.1 | %
|                       |  |                         |   |  |      |   |  |      |  



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Deferred income tax assets and liabilities result from temporary differences in the recognition of
income and expense for income tax and financial reporting purposes. The tax effects of temporary differences that give rise to significant portions of net deferred tax assets included in other assets are presented below.



|                                         |  |             |        |      |   |       
|---------------------------------------- |  | ----------- | ------ | ---- | - | ------
|                                         |  | December 31
|(Dollars in Thousands)                   |  | 2004        |        | 2003
|Deferred Tax Assets                      |  |             |        |      |   |       
|Allowance for Loan Losses                |  | $           | 20,340 |      | $ | 21,046
|Pension and Retirement Benefits          |  |             | 4,430  |      |   | 4,174 
|Interest Credited                        |  |             | 718    |      |   | 772   
|Premises and Equipment                   |  |             |       |      |   | 385   
|Accrued Compensation                     |  |             | 906    |      |   | 653   
|Loans Held for Sale                      |  |             | 2,431  |      |   | 1,805 
|Non-Accrual of Interest                  |  |             | 1,145  |      |   | 1,028 
|Deposits                                 |  |             | 116    |      |   | 232   
|Unrealized Loss on Investments           |  |             | 916    |      |   |      
|Indiana Net Operating Loss Carry Forward |  |             | 453    |      |   | 620   
|Other                                    |  |             | 103    |      |   | 118   
|                                         |  |             |        |      |   |       
|                                         |  |             | 31,558 |      |   | 30,833
|                                         |  |             |        |      |   |       
|Deferred Tax Liabilities                 |  |             |        |      |   |       
|Loan Servicing Rights                    |  |             | 1,607  |      |   | 2,335 
|FHLB Stock Dividends                     |  |             | 1,257  |      |   | 889   
|Net Deferred Loan Fees                   |  |             | 2,876  |      |   | 3,647 
|Unrealized Gain on Investments           |  |             |       |      |   | 1,143 
|Core Deposit Intangible                  |  |             | 1,346  |      |   | 1,543 
|Premises and Equipment                   |  |             | 256    |      |   |      
|Other                                    |  |             | 231    |      |   | 153   
|                                         |  |             |        |      |   |       
|                                         |  |             | 7,573  |      |   | 9,710 
|                                         |  |             |        |      |   |       
|Net Deferred Tax Assets                  |  | $           | 23,985 |      | $ | 21,123
|                                         |  |             |        |      |   |       



In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Corporation will realize the
benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. Included in the deferred tax asset as of
December 31, 2004, are Indiana net operating loss carry forwards that will expire in 2018.



In accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes, 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 (1) the Bank fails to qualify as a bank for federal income tax purposes, (2) certain distributions are
made with respect to the stock of the Bank, (3) the



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bad debt reserves are used for any purpose other than to absorb bad debt losses, or (4) there is a change in tax law.



Cash paid during the year for income taxes was $5,470,000, $7,173,000, and
$14,402,000 for 2004, 2003, and 2002, respectively.



(13) Shareholders
Equity, Regulatory Capital, and Dividend Restrictions



In
April 2003, the Corporations Board of Directors authorized the repurchase from time-to-time of up to $10,000,000 in the Corporations outstanding common stock. At December 31, 2004, $2,510,000 of outstanding common stock had been
repurchased under this authorization.



In December 2004, the
Corporation purchased and retired 1,730,000 of its common shares, or approximately 11.0 percent of shares outstanding, at $23.50 per share pursuant to a self-tender offer, reducing shareholders equity by $40,901,000.



The Corporation has a shareholder rights agreement, whereby each common
shareholder is entitled to one preferred stock right for each share of common stock owned. The rights flip in upon the acquisition of 20 percent of the Corporations outstanding common stock in a takeover attempt, and offer current
shareholders a measure of protection for their investment in First Indiana.



First Indiana Corporation is subject to capital requirements and guidelines imposed on holding companies by the Federal Reserve Board. First Indiana Bank is subject to capital requirements and guidelines imposed on
national banks by the Office of the Comptroller of the Currency (OCC). The Corporation and the Bank are required by their respective regulators to maintain minimum capital ratios. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators which, if undertaken, could have a direct material effect on the Corporations or the Banks financial statements.



Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, First Indiana and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. First
Indianas and the Banks capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure
capital adequacy require First Indiana and the Bank to maintain minimum amounts and ratios (set forth in the table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to
average assets (as defined).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Federal Deposit Insurance Corporation Improvement Act of 1999 (FDICIA) established
ratios and guidelines for banks to be considered well-capitalized. The Bank exceeds the capital levels set by FDICIA to be considered well-capitalized. The following tables show the Corporations and the Banks compliance with
all capital requirements at December 31, 2004, and December 31, 2003.



|                                            |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|------------------------------------------- | ------ | ----------------- | ------- |  | ----------------------- | ------ |  | --------------------- | ------- |  | ------ | - | ----- | - | ------- |  | ----- | -
|                                            |        | December 31, 2004 |        
|(Dollars in Thousands)                      |        | Actual            |         |  | MinimumCapital Adequacy |        |  | To beWell-Capitalized |        
|                                            | Amount |                   | Ratio   |  |                         | Amount |  | Ratio                 |         |  | Amount |   | Ratio |  
|Leverage (Tier 1 Capital to Average Assets) |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|First Indiana Corporation                   |        | $                 | 162,670 |  | 8.47                    | %      |  | $                     | 76,854  |  | 4.00   | % |       |   | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |        |                   | 175,910 |  | 9.17                    |        |  |                       | 76,689  |  | 4.00   |   |       | $ | 95,861  |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|First Indiana Corporation                   |        | $                 | 162,670 |  | 10.79                   | %      |  | $                     | 60,295  |  | 4.00   | % |       |   | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |        |                   | 175,910 |  | 11.69                   |        |  |                       | 60,193  |  | 4.00   |   |       | $ | 90,289  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|First Indiana Corporation                   |        | $                 | 204,141 |  | 13.54                   | %      |  | $                     | 120,589 |  | 8.00   | % |       |   | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |        |                   | 195,150 |  | 12.97                   |        |  |                       | 120,386 |  | 8.00   |   |       | $ | 150,482 |  | 10.00 | %
|                                            |       
|                                            |        | December 31, 2003 |        
|                                            |        | Actual            |         |  | MinimumCapital Adequacy |        |  | To beWell-Capitalized |        
|                                            | Amount |                   | Ratio   |  |                         | Amount |  | Ratio                 |         |  | Amount |   | Ratio |  
|Leverage (Tier 1 Capital to Average Assets) |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|First Indiana Corporation                   |        | $                 | 189,034 |  | 8.71                    | %      |  | $                     | 86,848  |  | 4.00   | % |       |   | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |        |                   | 172,184 |  | 8.06                    |        |  |                       | 85,442  |  | 4.00   |   |       | $ | 106,803 |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|First Indiana Corporation                   |        | $                 | 189,034 |  | 10.15                   | %      |  | $                     | 74,462  |  | 4.00   | % |       |   | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |        |                   | 172,184 |  | 9.29                    |        |  |                       | 74,113  |  | 4.00   |   |       | $ | 111,169 |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |        |                   |         |  |                         |        |  |                       |         |  |        |   |       |   |         |  |       |  
|First Indiana Corporation                   |        | $                 | 234,845 |  | 12.62                   | %      |  | $                     | 148,924 |  | 8.00   | % |       |   | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |        |                   | 195,721 |  | 10.56                   |        |  |                       | 148,226 |  | 8.00   |   |       | $ | 185,282 |  | 10.00 | %



The Corporation is not
subject to any bank regulatory restrictions on the payment of dividends to its shareholders although Federal Reserve Board policy and capital maintenance requirements may impose practical limits on the amount of dividends that can be paid. However,
applicable laws and regulations limit the amount of dividends the Bank may pay. Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year (as defined under the National Bank Act) plus
retained net profits for the preceding two years. Due to the payment of an $11,000,000 special dividend in January 2003 (to partially fund the acquisition of MetroBanCorp), the Bank sought and received approval from the OCC to make its regularly
scheduled dividend payments in 2004, not to exceed $19,000,000. The Bank paid dividends of $16,000,000 to the Corporation in 2004. The Bank sought and received approval from the OCC to make its regularly scheduled dividend payments in 2003, not to
exceed $28,571,000. The Bank paid dividends of $21,440,000 to the Corporation in 2003. The Bank sought and received approval from the OCC to make its regularly scheduled dividend payments in 2005, not to exceed $20,000,000.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(14) Commitments and Contingencies



At December 31, 2004 and 2003, the Bank had the following outstanding commitments to fund loans.



|                                 |  |             |         |      |   |        
|-------------------------------- |  | ----------- | ------- | ---- | - | -------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2004        |         | 2003
|Commitments to Fund:             |  |             |         |      |   |        
|Business Loans                   |  | $           | 241,771 |      | $ | 165,278
|Consumer Loans                   |  |             |         |      |   |        
|Home Equity Loans                |  |             | 175,421 |      |   | 183,105
|Other                            |  |             | 1,440   |      |   | 1,350  
|Residential Mortgage Loans       |  |             |        |      |   | 1,548  
|Single-Family Construction Loans |  |             | 44,894  |      |   | 182,580
|Commercial Real Estate Loans     |  |             | 88,128  |      |   | 89,228 
|                                 |  |             |         |      |   |        
|                                 |  | $           | 551,654 |      | $ | 623,089
|                                 |  |             |         |      |   |        



Of the commitments to
fund loans at December 31, 2004, substantially all are commitments to fund variable-rate products.



At December 31, 2004, the Bank had approximately $5,637,000 in commitments to repurchase convertible adjustable rate mortgage loans from third-party
investors. If the borrower under any of these loans elects to convert the loan to a fixed rate loan, the investor has the option to require the Bank to repurchase the loan. If the investor exercises this option, the Bank sets a purchase price for
the loan which equals its market value, and immediately sells the loan in the secondary market. Thus, the Bank incurs minimal interest rate risk upon repurchase because of the immediate resale.



In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which requires additional disclosures by a guarantor about its obligations under
certain guarantees that it has issued. FIN 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The most significant
instruments impacted for the Corporation are standby letters of credit. Standby letters of credit are contingent commitments issued by the Corporation to support the obligations of a customer to a third party. Standby letters of credit are issued to
support public and private financing, and other financial or performance obligations of customers. The credit risk involved in issuing standby letters of credit is the same as that involved in extending loans to customers and, as such, is
collateralized when necessary. As of December 31, 2004 and December 31, 2003, the Corporation had issued $44,085,000 and $51,284,000, respectively, in standby letters of credit, predominately with remaining terms of three years or less. In
accordance with FIN 45, the Corporation has recognized a liability at December 31, 2004 and December 31, 2003, of $337,000 and $216,000 respectively, relating to these commitments. At December 31, 2004 and December 31, 2003, the Corporation had a
reserve of $442,000 for standby letters of credit. Prior to the adoption of FIN 45, commitments related to standby letters of credit were considered by the Corporation in determining the adequacy of the allowance for loan losses.



The Bank maintains back up letter of credit facility agreements with rated
financial institutions covering certain of the Banks letters of credit. Due to a return on asset performance target in the back up facilities not being met at December 31, 2004, the Bank has pledged collateral totaling $24,849,000 at December
31, 2004.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



First Indiana Corporation is the guarantor on a lease of Somerset CPAs, P.C. dated November, 2000 for
its office space. First Indiana had been the guarantor on this lease for its subsidiary, Somerset Financial Services, LLC. On October 25, 2004, First Indiana Corporation sold substantially all of the assets of Somerset Financial Services to Somerset
CPAs pursuant to an Asset Purchase Agreement. As part of this agreement, Somerset CPAs assumed liability for the office lease. However, First Indiana remains the guarantor until the lease expires in 2012. The maximum potential future lease payments
the Corporation could be required to pay under the guarantee are $5,777,000.



The Corporation is a limited partner in three low income housing developments that are not consolidated into these financial statements. As of December 31, 2004, the Corporations investment in these partnerships
was $1,222,000 with a future funding commitment of $773,000. The maximum risk of loss is equal to the Corporations recorded investment in these partnerships plus the future funding commitment.



Rental ObligationsObligations under non-cancelable operating
leases (excluding the guarantee on the Somerset CPAs lease) at December 31, 2004, require minimum future payments of $5,967,000 in 2005, $5,129,000 in 2006, $2,803,000 in 2007, $2,399,000 in 2008, $1,811,000 in 2009, and $5,846,000 thereafter.
Minimum future payments have not been reduced by minimum sublease rental income of $45,000 receivable in the future under non-cancelable subleases. Operating lease expenses were $6,426,000, $6,397,000, and $5,471,000 for 2004, 2003, and 2002,
respectively.



Other ContingenciesLawsuits and
claims are pending in the ordinary course of business on behalf of and against First Indiana. In the opinion of management, adequate provision has been made for these items in the Consolidated Financial Statements.



(15) Employee Benefit Plans



Retirement PlansFirst Indiana is a participant in the Financial
Institutions Retirement Fund (FIRF). This is a multi-employer defined benefit pension plan; separate actuarial valuations are not made with respect to each participating employer. According to FIRF administrators, plan contributions of
$2,255,000 and $1,793,000 are required for the plan years beginning July 1, 2004, and July 1, 2003, respectively. The accrued contribution liability was $430,000 and $115,000 at December 31, 2004, and December 31, 2003, respectively. First
Indianas pension expense under this plan was $1,992,000, $1,437,000, and $537,000 for 2004, 2003, and 2002, respectively.



First Indiana has a voluntary savings plan for eligible employees which qualifies under Section 401(k) of the Internal Revenue Code. Employees can
participate by designating a portion of their compensation to be contributed to the plan. First Indiana in turn matches employee contributions in such uniform amounts or percentages as annually determined by the employer. The Corporations
expenses under its plan for matching contributions in 2004, 2003, and 2002 were $277,000, $259,000, and $254,000, respectively.



The Corporation and the Bank maintain supplemental pension benefit plans covering certain of their senior officers and certain senior officers of the
Banks Mooresville and Rushville divisions. These supplemental benefit plans provide benefits for their participants that normally would be paid under FIRF but are precluded from being so paid by limitations under the Internal Revenue Code. In
the case of some participants, benefits are provided in excess of those that normally would be paid under FIRF. All supplemental pension benefit plans use a December 31 measurement date. Unrecognized prior service amounts and unrecognized net gains
or losses are amortized using the straight-line method. The funded status of these non-qualified retirement plans and



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



supplemental benefit plans and the amounts relating thereto reflected in the accompanying consolidated balance sheets are as follows.



|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                               |  | Years Ended December 31 |        
|(Dollars in Thousands)                                                                         |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|Change in Projected Benefit Obligation                                                         |  |                         |         |   |      |   |         |      |  |   |        |  
|Projected Benefit Obligation at the Beginning of the Year                                      |  | $                       | 10,744  |   |      | $ | 9,921   |      |  | $ | 9,434  |  
|Service Cost                                                                                   |  |                         | 208     |   |      |   | 285     |      |  |   | 236    |  
|Interest Cost                                                                                  |  |                         | 623     |   |      |   | 613     |      |  |   | 622    |  
|Actuarial (Gain) or Loss                                                                       |  |                         | (299    | ) |      |   | 413     |      |  |   | (162   | )
|Benefits Paid                                                                                  |  |                         | (237    | ) |      |   | (488    | )    |  |   | (209   | )
|Change in Plan Provisions                                                                      |  |                         | 467     |   |      |   |        |      |  |   |       |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|Projected Benefit Obligation at the End of the Year                                            |  | $                       | 11,506  |   |      | $ | 10,744  |      |  | $ | 9,921  |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|Accumulated Benefit Obligation at the End of the Year                                          |  | $                       | 10,263  |   |      | $ | 8,444   |      |  | $ | 8,143  |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                                                               |  |                         |        
|Change in Plan Assets                                                                          |  |                         |         |   |      |   |         |      |  |   |        |  
|Fair Value of Plan Assets at the Beginning of the Year                                         |  | $                       |        |   |      | $ |        |      |  | $ |       |  
|Benefits Paid                                                                                  |  |                         | (237    | ) |      |   | (488    | )    |  |   | (209   | )
|Employer Contributions                                                                         |  |                         | 237     |   |      |   | 488     |      |  |   | 209    |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|Fair Value of Assets at the End of the Year                                                    |  | $                       |        |   |      | $ |        |      |  | $ |       |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                                                               |  |                         |        
|Net Amount Recognized                                                                          |  |                         |         |   |      |   |         |      |  |   |        |  
|Funded Status                                                                                  |  | $                       | (11,506 | ) |      | $ | (10,744 | )    |  | $ | (9,921 | )
|Unrecognized Transition Obligation (Asset)                                                     |  |                         | 97      |   |      |   | 110     |      |  |   | 122    |  
|Unrecognized Prior Service Cost                                                                |  |                         | 431     |   |      |   |        |      |  |   |       |  
|Unrecognized Net (Gain) or Loss                                                                |  |                         | 1,005   |   |      |   | 1,303   |      |  |   | 890    |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|Net Amount Recognized                                                                          |  | $                       | (9,973  | ) |      | $ | (9,331  | )    |  | $ | (8,909 | )
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                                                               |  |                         |        
|Amounts Recognized in the Statement of Financial Position                                      |  |                         |         |   |      |   |         |      |  |   |        |  
|Accrued Benefit Cost                                                                           |  | $                       | (10,263 | ) |      | $ | (9,331  | )    |  | $ | (8,909 | )
|Intangible Asset                                                                               |  |                         | 290     |   |      |   |        |      |  |   |       |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|Accrued Benefit Cost                                                                           |  | $                       | (9,973  | ) |      | $ | (9,331  | )    |  | $ | (8,909 | )
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                                                               |  |                         |        
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets: |  |                         |         |   |      |   |         |      |  |   |        |  
|Projected Benefit Obligation                                                                   |  | $                       | 11,506  |   |      | $ | 10,744  |      |  | $ | 9,921  |  
|Accumulated Benefit Obligation                                                                 |  |                         | 10,263  |   |      |   | 8,444   |      |  |   | 8,143  |  
|Fair Value of Plan Assets                                                                      |  |                         |        |   |      |   |        |      |  |   |       |  
|                                                                                               |  |                         |        
|Weighted Average Assumptions at the End of the Year                                            |  |                         |         |   |      |   |         |      |  |   |        |  
|Discount Rate                                                                                  |  |                         | 5.75    | % |      |   | 6.00    | %    |  |   | 6.50   | %
|Rate of Compensation Increase                                                                  |  |                         | 5.00    | % |      |   | 5.00    | %    |  |   | 5.00   | %



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Net periodic pension cost included in the results of operations is as follows.



|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|-------------------------------------------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                     |  | Years Ended December 31 |     
|(Dollars in Thousands)                                               |  | 2004                    |      |   | 2003 |   |      | 2002 | 
|Service Cost                                                         |  | $                       | 208  |   |      | $ | 285  |      |  | $ | 236  |  
|Interest Cost                                                        |  |                         | 623  |   |      |   | 613  |      |  |   | 622  |  
|Expected Return on Plan Assets                                       |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Net (Gain) or Loss                                   |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Prior Service Cost                                   |  |                         | 36   |   |      |   |     |      |  |   |     |  
|Amortization of Transition Obligation (Asset)                        |  |                         | 12   |   |      |   | 12   |      |  |   | 12   |  
|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|Total FAS 87 Net Periodic Pension Cost                               |  | $                       | 879  |   |      | $ | 910  |      |  | $ | 870  |  
|FAS 88 Charges (Credits)                                             |  |                         |      |   |      |   |      |      |  |   |      |  
|Settlement                                                           |  |                         |     |   |      |   |     |      |  |   |     |  
|Curtailment                                                          |  |                         |     |   |      |   |     |      |  |   |     |  
|Special Termination Benefits                                         |  |                         |     |   |      |   |     |      |  |   |     |  
|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|Total                                                                |  |                         |     |   |      |   |     |      |  |   |     |  
|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|Total Net Periodic Pension Cost                                      |  | $                       | 879  |   |      | $ | 910  |      |  | $ | 870  |  
|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|Additional Information                                               |  |                         |      |   |      |   |      |      |  |   |      |  
|Increase in Minimum Liability Included in Other Comprehensive Income |  | $                       |     |   |      | $ |     |      |  | $ |     |  
|                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|Weighted Average Assumptions                                         |  |                         |      |   |      |   |      |      |  |   |      |  
|Discount Rate                                                        |  |                         | 6.00 | % |      |   | 6.50 | %    |  |   | 7.00 | %
|Expected Return on Plan Assets                                       |  |                         | N/A  |   |      |   | N/A  |      |  |   | N/A  |  
|Rate of Compensation Increase                                        |  |                         | 5.00 | % |      |   | 5.00 | %    |  |   | 5.00 | %



The estimated future
pension contributions and pension benefit payments are as follows.



|                                                                                                  |  |   |      
|------------------------------------------------------------------------------------------------- |  | - | -----
|(Dollars in Thousands)                                                                            |  |  
|Expected Contributions for Fiscal Year Ending December 31, 2005                                   |  |   |      
|Expected Employer Contributions                                                                   |  | $ | 976  
|Expected Employee Contributions                                                                   |  |   |     
|                                                                                                  | 
|Estimated Future Benefit Payments Reflecting Expected Future Service for the Fiscal Years Ending: |  |   |      
|December 31, 2005                                                                                 |  | $ | 976  
|December 31, 2006                                                                                 |  |   | 977  
|December 31, 2007                                                                                 |  |   | 1,175
|December 31, 2008                                                                                 |  |   | 1,175
|December 31, 2009                                                                                 |  |   | 1,173
|December 31, 2010 through December 31, 2014                                                       |  |   | 5,541



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Postretirement Benefits Other Than PensionThe projected benefit obligations for
postretirement medical, dental, and life insurance programs for Board members and certain officers of acquired institutions are as follows.



|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                           |  | Years Ended December 31 |       
|(Dollars in Thousands)                                                     |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|Change in Accumulated Benefit Obligation                                   |  |                         |        |   |      |   |        |      |  |   |        |  
|Accumulated Postretirement Benefit Obligation at the Beginning of the Year |  | $                       | 1,041  |   |      | $ | 937    |      |  | $ | 842    |  
|Service Cost                                                               |  |                         | 16     |   |      |   | 12     |      |  |   | 11     |  
|Interest Cost                                                              |  |                         | 74     |   |      |   | 59     |      |  |   | 57     |  
|Actuarial (Gain) or Loss                                                   |  |                         | 205    |   |      |   | 33     |      |  |   | 27     |  
|Benefits Paid                                                              |  |                         |       |   |      |   |       |      |  |   |       |  
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Accumulated Benefit Obligation at the End of the Year                      |  | $                       | 1,336  |   |      | $ | 1,041  |      |  | $ | 937    |  
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Net Amount Recognized                                                      |  |                         |        |   |      |   |        |      |  |   |        |  
|Funded Status                                                              |  | $                       | (1,336 | ) |      | $ | (1,041 | )    |  | $ | (937   | )
|Unrecognized Transition Obligation (Asset)                                 |  |                         |       |   |      |   |       |      |  |   |       |  
|Unrecognized Prior Service Cost                                            |  |                         |       |   |      |   |       |      |  |   |       |  
|Unrecognized Net (Gain) or Loss                                            |  |                         | (5     | ) |      |   | (210   | )    |  |   | (271   | )
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Net Amount Recognized                                                      |  | $                       | (1,341 | ) |      | $ | (1,251 | )    |  | $ | (1,208 | )
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Amounts Recognized in the Statement of Financial Position                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Accrued Benefit Cost                                                       |  | $                       | (1,341 | ) |      | $ | (1,251 | )    |  | $ | (1,208 | )
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Weighted Average Assumptions at the End of the Year                        |  |                         |        |   |      |   |        |      |  |   |        |  
|Discount Rate                                                              |  |                         | 5.75   | % |      |   | 6.00   | %    |  |   | 6.50   | %
|Rate of Compensation Increase                                              |  |                         | N/A    |   |      |   | N/A    |      |  |   | N/A    |  
|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Assumed Health Care Cost Trend Rates                                       |  |                         |        |   |      |   |        |      |  |   |        |  
|Health Care Trend Rate Assumed for Next Year                               |  |                         | 9.00   | % |      |   | 5.50   | %    |  |   | 5.50   | %
|Ultimate Rate                                                              |  |                         | 5.50   | % |      |   | 5.50   | %    |  |   | 5.50   | %
|Year that the Ultimate Rate is Reached                                     |  |                         | 2011   |   |      |   | 2003   |      |  |   | 2002   |  



In May 2004, Financial
Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. This
FSP provides guidance on accounting for the effects of the Medicare prescription drug legislation by employers whose prescription drug benefits are actuarially equivalent to the drug benefit under Medicare Part D, and the subsidy is expected to
offset or reduce the Companys costs for prescription drug coverage. The FSP is effective for the first interim period beginning after June 15, 2004. The FSP also provides guidance for disclosures concerning the effects of the subsidy for
employers when the employer has not yet determined actuarial equivalency. Because of the limited number of persons provided postretirement medical coverage by the Corporation, the impact of this FSP on the Corporations financial condition or
results of operations is not material. Unrecognized prior service amounts and unrecognized net gains or losses are amortized using the straight-line method.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The components of the net periodic benefit cost of postretirement plans are as follows.



|                                                |  |                         |      |   |      |   |      |      |  |   |      |  
|----------------------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                |  | Years Ended December 31 |     
|(Dollars in Thousands)                          |  | 2004                    |      |   | 2003 |   |      | 2002 | 
|Service Cost                                    |  | $                       | 16   |   |      | $ | 12   |      |  | $ | 11   |  
|Interest Cost                                   |  |                         | 74   |   |      |   | 59   |      |  |   | 57   |  
|Expected Return on Plan Assets                  |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Net (Gain) or Loss              |  |                         |     |   |      |   | (28  | )    |  |   | (35  | )
|Amortization of Prior Service Cost              |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Transition Obligation (Asset)   |  |                         |     |   |      |   |     |      |  |   |     |  
|                                                |  |                         |      |   |      |   |      |      |  |   |      |  
|Total Net Periodic Benefit Cost                 |  | $                       | 90   |   |      | $ | 43   |      |  | $ | 33   |  
|                                                |  |                         |      |   |      |   |      |      |  |   |      |  
|Weighted Average Assumptions                    |  |                         |      |   |      |   |      |      |  |   |      |  
|Discount Rate                                   |  |                         | 6.00 | % |      |   | 6.50 | %    |  |   | 7.00 | %
|Expected Return on Plan Assets                  |  |                         | N/A  |   |      |   | N/A  |      |  |   | N/A  |  
|Rate of Compensation Increase                   |  |                         | N/A  |   |      |   | N/A  |      |  |   | N/A  |  
|                                                |  |                         |     
|Assumed Health Care Cost Trend Rates            |  |                         |      |   |      |   |      |      |  |   |      |  
|Health Care Trend Rate Assumed for Current Year |  |                         | 9.00 | % |      |   | 5.50 | %    |  |   | 5.50 | %
|Ultimate Rate                                   |  |                         | 5.50 | % |      |   | 5.50 | %    |  |   | 5.50 | %
|Year that the Ultimate Rate is Reached          |  |                         | 2011 |   |      |   | 2003 |      |  |   | 2002 |  



Assumed health care
cost trend rates affect amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects.



|                                                        |  |                      |     |          |   |      |  
|------------------------------------------------------- |  | -------------------- | --- | -------- | - | ---- | -
|                                                        |  | One Percentage Point |    
|(Dollars in Thousands)                                  |  | Increase             |     | Decrease |  
|Effect on total of service and interest cost components |  | $                    | 11  |          | $ | (10  | )
|Effect on postretirement benefit obligation             |  |                      | 147 |          |   | (127 | )



The estimated future
postretirement medical, dental, and life insurance programs contributions and benefit payments are as follows.



|                                                                                                  |  |   |    
|------------------------------------------------------------------------------------------------- |  | - | ---
|(Dollars in Thousands)                                                                            |  |  
|Expected Contributions for Fiscal Year Ending December 31, 2005                                   |  |   |    
|Expected Employer Contributions                                                                   |  | $ | 71 
|Expected Employee Contributions                                                                   |  |   |   
|                                                                                                  | 
|Estimated Future Benefit Payments Reflecting Expected Future Service for the Fiscal Years Ending: |  |   |    
|December 31, 2005                                                                                 |  | $ | 71 
|December 31, 2006                                                                                 |  |   | 74 
|December 31, 2007                                                                                 |  |   | 87 
|December 31, 2008                                                                                 |  |   | 89 
|December 31, 2009                                                                                 |  |   | 91 
|December 31, 2010 through December 31, 2014                                                       |  |   | 485



Fixed Stock Option
PlansUnder the 2002 Stock Incentive Plan, First Indiana is authorized to grant awards (which may be options, restricted stock, or specified other stock-based awards) to its employees, directors, and consultants for up to 2,625,000 shares
of common stock. This includes 1,649,771 shares which may be issued only to the extent they are not issued pursuant to grants made before April 30, 2002, under the following plans



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



that were discontinued on that date: the 1991 First Indiana Stock Option and Incentive Plan, the First Indiana 1992 Directors Stock Option Plan, the
First Indiana Corporation 1998 Stock Incentive Plan, and the Somerset Group, Inc. 1991 and 1998 Stock Incentive Plans. In the case of all options heretofore granted under the 2002 Plan and the prior plans, the options maximum term has been
five years or ten years and each option has fully vested at the end of a period ranging from one to five years from the date of grant. The 2002 Plan authorizes the issuance of stock options for an exercise price which is less than the market value
of the option stock on the date of grant. Under the 2002 Plan and the prior plans, optionees may elect to fund their option exercises with stock they currently own. In that event, the Corporation either cancels the stock certificates received from
the optionee in the stock swap transaction or issues a new certificate for the net number of additional shares. Shares exchanged in the swap transaction must have been held by the optionee for a period of at least six months before the swap
transaction. In addition to the options outstanding at December 31, 2004, 881,696 shares of common stock were available for future grants or awards under the 2002 Plan.



The following table summarizes information about stock options outstanding at December 31, 2004.



|                        |  |                                |  |                                          |  |                              |       |                                |         |                              |   |      
|----------------------- |  | ------------------------------ |  | ---------------------------------------- |  | ---------------------------- | ----- | ------------------------------ | ------- | ---------------------------- | - | -----
|                        |  | Options Outstanding            |  | Options Exercisable                     
|Range of ExercisePrices |  | Outstandingat December 31,2004 |  | WeightedRemainingContractualLife (Years) |  | WeightedAverageExercisePrice |       | Exercisable atDecember 31,2004 |         | WeightedAverageExercisePrice
|$ 0.00  $ 5.00         |  |                               |  |                                         |  | $                            |      |                                |        |                              | $ |     
|5.01   10.00           |  | 31,813                         |  | 0.67                                     |  |                              | 8.52  |                                | 31,813  |                              |   | 8.52 
|10.01   15.00          |  | 174,378                        |  | 2.49                                     |  |                              | 12.85 |                                | 171,253 |                              |   | 12.82
|15.01   20.00          |  | 832,253                        |  | 6.60                                     |  |                              | 18.20 |                                | 411,164 |                              |   | 17.98
|20.01   22.00          |  | 36,296                         |  | 6.55                                     |  |                              | 20.98 |                                | 18,796  |                              |   | 21.32
|                        |  |                                |  |                                          |  |                              |       |                                |         |                              |   |      
|5.01   22.00           |  | 1,074,740                      |  | 5.76                                     |  |                              | 17.14 |                                | 633,026 |                              |   | 16.21
|                        |  |                                |  |                                          |  |                              |       |                                |         |                              |   |      



A summary of the
status of First Indianas fixed stock option plans as of December 31, 2004, 2003, and 2002, and changes during the years then ended is presented below.



|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      
|-------------------------------------------------------------- |  | ------ | --------- | ---- | ---------------------------- | ---- | ------ |  | - | ---------------------------- | - | ------ | - | ----- | ---------------------------- | - | --------- | - |  | - | -----
|                                                               |  | 2004   |           | 2003 |                              | 2002
|                                                               |  | Shares |           |      | WeightedAverageExercisePrice |      | Shares |  |   | WeightedAverageExercisePrice |   | Shares |   |       | WeightedAverageExercisePrice
|Outstanding at Beginning of Year                               |  |        | 1,436,269 |      |                              | $    | 16.74  |  |   | 1,495,738                    |   |        | $ | 16.43 |                              |   | 1,276,769 |   |  | $ | 14.36
|Granted                                                        |  |        | 123,750   |      |                              |      | 19.71  |  |   | 180,600                      |   |        |   | 18.14 |                              |   | 488,208   |   |  |   | 18.38
|Exercised                                                      |  |        | (172,915  | )    |                              |      | 13.46  |  |   | (82,902                      | ) |        |   | 10.84 |                              |   | (233,773  | ) |  |   | 9.01 
|Surrendered                                                    |  |        | (312,364  | )    |                              |      | 18.36  |  |   | (157,167                     | ) |        |   | 18.49 |                              |   | (35,466   | ) |  |   | 17.81
|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      
|Outstanding at End of Year                                     |  |        | 1,074,740 |      |                              |      | 17.14  |  |   | 1,436,269                    |   |        |   | 16.74 |                              |   | 1,495,738 |   |  |   | 16.43
|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      
|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      
|Options Exercisable at Year-End                                |  |        | 633,026   |      |                              |      |        |  |   | 759,190                      |   |        |   |       |                              |   | 715,869   |   |  |   |      
|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      
|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      
|Weighted Average Fair Value of Options Granted During the Year |  | $      | 4.30      |      |                              |      |        |  | $ | 3.38                         |   |        |   |       |                              | $ | 5.54      |   |  |   |      
|                                                               |  |        |           |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |           |   |  |   |      



Of the 312,364 stock
options surrendered in 2004, 217,581 were related to the sale of Somerset Financial assets.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Performance-Based Stock PlansUnder the 2002 Stock Incentive Plan, First Indiana is
authorized to grant awards which may be options, restricted stock, or specified other stock-based awards to employees, directors, and consultants. The Corporation adopted the 2004 Executive Compensation Plan subject to shareholder approval which, if
approved, will replace the 2002 Stock Incentive Plan. Restricted stock awards are subject to forfeiture upon either failure to meet certain specified performance objectives or continuous employment is interrupted or terminated within the vesting
period of the award. These awards vest over terms ranging from three to eight years. A summary of the status of First Indianas restricted stock awards as of December 31, 2004, 2003, and 2002, and changes during the years ended on those dates
is presented below.



|                                 |  |      |           |   |      |   |         |      |  |   |            |  
|-------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ---------- | -
|                                 |  | 2004 |           |   | 2003 |   |         | 2002 | 
|Outstanding at Beginning of Year |  |      | 114,909   |   |      |   |        |      |  |   | 46,009     |  
|Granted                          |  |      | 93,750    |   |      |   | 126,909 |      |  |   |           |  
|Forfeited                        |  |      | (24,912   | ) |      |   | (12,000 | )    |  |   | (46,009    | )
|                                 |  |      |           |   |      |   |         |      |  |   |            |  
|Outstanding at End of Year       |  |      | 183,747   |   |      |   | 114,909 |      |  |   |           |  
|                                 |  |      |           |   |      |   |         |      |  |   |            |  
|                                 |  |      |           |   |      |   |         |      |  |   |            |  
|Award Expense                    |  | $    | 1,015,000 |   |      | $ | 453,000 |      |  | $ | (1,095,000 | )
|                                 |  |      |           |   |      |   |         |      |  |   |            |  



In October 2004, the
Compensation Committee of the Board of Directors entered into deferred shares agreements with an officer of First Indiana. Under the 2002 Stock Incentive Plan, these agreements awarded 20,000 deferred shares of First Indiana common stock. These
deferred shares will vest and become issuable at the expiration of restricted periods ending December 31, 2006, the achievement of specified performance objectives, and the completion of continuous employment during the restricted periods. No
expense was recognized for these awards in 2004.



Employees Stock Purchase Plans Under the Corporations Employees Stock Purchase Plan, all full-time employees and directors are eligible to participate after satisfying the applicable employment period.
Approximately 38 percent of eligible employees participated in the plan in 2004. Under the terms of the Plan, employees and directors can choose to have up to 10 percent of their annual base earnings or directors fees withheld to purchase the
Corporations common stock. The Corporation matches the employee contribution at a ratio of either one to four (25 percent) or one to three (33 percent) according to the criteria specified within the plan. The contributions are paid to a
trustee, who purchases the Corporations stock bi-weekly at the then prevailing market price. This plan is not a compensatory plan. First Indianas matching contributions were $182,000, $165,000, and $184,000 for the years ended 2004,
2003, and 2002, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(16) Parent Company Only Statements



Condensed Balance Sheets



|                                           |  |             |         |      |   |        
|------------------------------------------ |  | ----------- | ------- | ---- | - | -------
|                                           |  | December 31
|(Dollars in Thousands)                     |  | 2004        |         | 2003
|Assets                                     |  |             |         |      |   |        
|Cash and Due from Banks                    |  | $           | 1       |      | $ | 2      
|Certificate of Deposit with the Bank       |  |             | 500     |      |   | 500    
|Due from the Bank                          |  |             | 6,665   |      |   | 30,012 
|Investment in the Bank                     |  |             | 209,096 |      |   | 209,308
|Investment in Somerset Financial           |  |             | 1       |      |   | 12,572 
|Investment in Grantor Trusts               |  |             | 744     |      |   | 744    
|Other Assets                               |  |             | 3,327   |      |   | 4,265  
|                                           |  |             |         |      |   |        
|Total Assets                               |  | $           | 220,334 |      | $ | 257,403
|                                           |  |             |         |      |   |        
|                                           |  |            
|Liabilities                                |  |             |         |      |   |        
|Subordinated Notes                         |  | $           | 46,657  |      | $ | 46,534 
|Other Liabilities                          |  |             | 1,534   |      |   | 1,975  
|                                           |  |             |         |      |   |        
|Total Liabilities                          |  |             | 48,191  |      |   | 48,509 
|Shareholders Equity                       |  |             | 172,143 |      |   | 208,894
|                                           |  |             |         |      |   |        
|Total Liabilities and Shareholders Equity |  | $           | 220,334 |      | $ | 257,403
|                                           |  |             |         |      |   |        



Condensed Statements of Earnings



|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  
|-------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                     |  | Years Ended December 31 |       
|(Dollars in Thousands)                                               |  | 2004                    |        |   | 2003 |   |         | 2002 | 
|Income                                                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Dividends from the Bank                                              |  | $                       | 16,000 |   |      | $ | 21,440  |      |  | $ | 22,400 |  
|Distributions from Somerset Financial                                |  |                         | 5,405  |   |      |   |        |      |  |   |       |  
|Income from Investments                                              |  |                         | 53     |   |      |   | 47      |      |  |   | 13     |  
|Non-Interest Income                                                  |  |                         | 3,277  |   |      |   | 285     |      |  |   | 82     |  
|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  
|Total Income                                                         |  |                         | 24,735 |   |      |   | 21,772  |      |  |   | 22,495 |  
|Expense                                                              |  |                         |        |   |      |   |         |      |  |   |        |  
|Interest Expense                                                     |  |                         | 3,369  |   |      |   | 1,532   |      |  |   | 150    |  
|Non-Interest Expense                                                 |  |                         | 3,064  |   |      |   | 4,392   |      |  |   | 1,390  |  
|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  
|Total Expense                                                        |  |                         | 6,433  |   |      |   | 5,924   |      |  |   | 1,540  |  
|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  
|Earnings before Income Taxes                                         |  |                         | 18,302 |   |      |   | 15,848  |      |  |   | 20,955 |  
|Income Tax Benefit                                                   |  |                         | (1,287 | ) |      |   | (2,106  | )    |  |   | (481   | )
|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  
|Earnings before Equity in Undistributed Net Earnings of Subsidiaries |  |                         | 19,589 |   |      |   | 17,954  |      |  |   | 21,436 |  
|Equity in Undistributed Net Earnings of the Bank                     |  |                         | 2,942  |   |      |   | (16,126 | )    |  |   | (698   | )
|Equity in Undistributed Net Earnings of Somerset Financial           |  |                         | (7,853 | ) |      |   | 701     |      |  |   | 442    |  
|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  
|Net Earnings                                                         |  | $                       | 14,678 |   |      | $ | 2,529   |      |  | $ | 21,180 |  
|                                                                     |  |                         |        |   |      |   |         |      |  |   |        |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Condensed Statements of Cash Flows



|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                          |  | Years Ended December 31 |        
|(Dollars in Thousands)                                                                    |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|Cash Flows from Operating Activities                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Earnings                                                                              |  | $                       | 14,678  |   |      | $ | 2,529   |      |  | $ | 21,180  |  
|Adjustments to Reconcile Net Earnings to Net Cash (Used) Provided by Operating Activities |  |                         |         |   |      |   |         |      |  |   |         |  
|Equity in Undistributed Earnings                                                          |  |                         | 4,911   |   |      |   | 15,425  |      |  |   | 256     |  
|Amortization of Stock Plans                                                               |  |                         | 1,147   |   |      |   | 321     |      |  |   | (603    | )
|Tax Benefit of Option Compensation                                                        |  |                         | 398     |   |      |   | 103     |      |  |   | 641     |  
|Stock Compensation                                                                        |  |                         | 119     |   |      |   | 324     |      |  |   |        |  
|Change in Other Liabilities                                                               |  |                         | 100     |   |      |   | 1,649   |      |  |   | 44      |  
|Change in Due from the Bank and Other Assets                                              |  |                         | 23,165  |   |      |   | (4,755  | )    |  |   | (23,583 | )
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash (Used) Provided by Operating Activities                                          |  |                         | 44,518  |   |      |   | 15,596  |      |  |   | (2,065  | )
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                                          |  |                         |        
|Cash Flows from Investing Activities                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Investment in Equity Security                                                             |  |                         |        |   |      |   | (372    | )    |  |   | (372    | )
|Investment in Limited Partnership                                                         |  |                         | (572    | ) |      |   |        |      |  |   |        |  
|Acquisition of MetroBanCorp                                                               |  |                         | (8      | ) |      |   | (36,805 | )    |  |   |        |  
|Acquisition of Somerset Financial                                                         |  |                         |        |   |      |   | (7      | )    |  |   | (127    | )
|Disposition of Somerset Financial                                                         |  |                         | 6,000   |   |      |   |        |      |  |   |        |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash Used by Investing Activities                                                     |  |                         | 5,420   |   |      |   | (37,184 | )    |  |   | (499    | )
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                                          |  |                         |        
|Cash Flows from Financing Activities                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Issuance of Subordinated Notes                                                            |  |                         |        |   |      |   | 34,295  |      |  |   | 12,162  |  
|Stock Option Proceeds                                                                     |  |                         | 1,988   |   |      |   | 542     |      |  |   | 1,728   |  
|Purchase of Treasury Stock - Net                                                          |  |                         | (399    | ) |      |   | (2,936  | )    |  |   | (1,342  | )
|Payment for Fractional Shares                                                             |  |                         |        |   |      |   |        |      |  |   | (11     | )
|Common Stock Issued under Deferred Compensation Plan                                      |  |                         | (58     | ) |      |   | (35     | )    |  |   | (17     | )
|Purchase of Common Stock                                                                  |  |                         | (40,901 | ) |      |   |        |      |  |   |        |  
|Dividends Paid                                                                            |  |                         | (10,569 | ) |      |   | (10,277 | )    |  |   | (9,956  | )
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash (Used) Provided by Financing Activities                                          |  |                         | (49,939 | ) |      |   | 21,589  |      |  |   | 2,564   |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                                          |  |                         |        
|Net Change in Cash and Cash Equivalents                                                   |  |                         | (1      | ) |      |   | 1       |      |  |   |        |  
|Cash and Cash Equivalents at the Beginning of the Year                                    |  |                         | 502     |   |      |   | 501     |      |  |   | 501     |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and Cash Equivalents at the End of the Year                                          |  | $                       | 501     |   |      | $ | 502     |      |  | $ | 501     |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  



(17) Estimated Fair Value of
Financial Instruments



The following table discloses the
estimated fair value of financial instruments and is made in accordance with the requirements of Statement of Financial Accounting Standard No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts
have been determined by the Corporation using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the
estimates herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value
amount.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Cash and Cash EquivalentsFor cash and equivalents, the carrying amount is a reasonable
estimate of fair value.



Securities Available for
SaleFor securities, fair values are based on quoted market prices or dealer quotes.



Other InvestmentsFederal Home Loan Bank (FHLB) stock is valued at its cost because it is a restricted investment security that can only be sold to other FHLB member institutions or redeemed by
the FHLB. Federal Reserve Bank stock is also valued at its cost because it is a restricted investment security that can only be sold to other FRB member institutions or redeemed by the FRB. Capital securities issued by Trust I and Trust II are
valued at cost since they may only be redeemed by the grantor trust that issued them.



Loans ReceivableFor certain homogeneous categories of loans, such as some residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same
remaining maturities. Interest rates on such loans approximate current lending rates.



DepositsThe fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of similar remaining maturities, but not less than the carrying amount.



BorrowingsRates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate fair value
of existing debt.



Commitments to Extend Credit and Standby
Letters of CreditThe fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also includes the difference between current levels of interest rates and the committed rates. The fair value of guaranties and standby letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Estimated Fair Value of Financial Instruments



|                                                                                        |  |                   |         |                     |   |                |  |                     |         |  |   |        
|--------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                                                                        |  | December 31, 2004 |         | December 31, 2003  
|(Dollars in Thousands)                                                                  |  | CarryingAmount    |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Assets                                                                                  |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Cash and Cash Equivalents                                                               |  | $                 | 95,151  |                     | $ | 95,151         |  | $                   | 60,304  |  | $ | 60,304 
|Securities Available for Sale                                                           |  |                   | 217,269 |                     |   | 217,269        |  |                     | 215,453 |  |   | 215,453
|Other Investments                                                                       |  |                   | 26,027  |                     |   | 26,027         |  |                     | 24,957  |  |   | 24,957 
|Loans                                                                                   |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Business                                                                                |  |                   | 436,416 |                     |   | 436,382        |  |                     | 484,867 |  |   | 486,678
|Consumer                                                                                |  |                   | 512,256 |                     |   | 513,329        |  |                     | 601,562 |  |   | 605,912
|Residential Mortgage                                                                    |  |                   | 278,638 |                     |   | 281,213        |  |                     | 316,166 |  |   | 318,898
|Single-Family Construction                                                              |  |                   | 58,064  |                     |   | 58,064         |  |                     | 186,652 |  |   | 186,652
|Commercial Real Estate                                                                  |  |                   | 173,433 |                     |   | 174,490        |  |                     | 176,978 |  |   | 179,703
|                                                                                        |  |                   |         |                    
|Liabilities                                                                             |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Deposits                                                                                |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Non-Interest-Bearing Demand Deposits                                                    |  |                   | 265,203 |                     |   | 265,203        |  |                     | 235,811 |  |   | 235,811
|Interest-Bearing Demand Deposits                                                        |  |                   | 189,911 |                     |   | 189,911        |  |                     | 217,353 |  |   | 217,353
|Savings                                                                                 |  |                   | 463,679 |                     |   | 463,679        |  |                     | 400,804 |  |   | 400,804
|Certificates of Deposit under $100,000                                                  |  |                   | 262,168 |                     |   | 264,512        |  |                     | 312,051 |  |   | 323,625
|Certificates of Deposit $100,000 or Greater                                             |  |                   | 189,736 |                     |   | 190,051        |  |                     | 323,953 |  |   | 326,125
|                                                                                        |  |                   |         |                    
|Borrowings                                                                              |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Short-Term Borrowings                                                                   |  |                   | 162,208 |                     |   | 162,208        |  |                     | 147,074 |  |   | 147,074
|FHLB Advances                                                                           |  |                   | 114,499 |                     |   | 116,989        |  |                     | 265,488 |  |   | 271,144
|Subordinated Notes                                                                      |  |                   | 46,657  |                     |   | 48,698         |  |                     | 46,534  |  |   | 50,190 
|                                                                                        |  |                   |         |                    
|Off-Balance-Sheet InstrumentsCommitments to Extend Credit and Standby Letters of Credit |  |                   | 337     |                     |   | 1,226          |  |                     | 216     |  |   | 3,554  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(18) Segment Reporting



In 2004, the Corporation changed its segment presentation. Prior period segment information has been reclassified to conform
to this new presentation. The Corporations allocation methodology was expanded to a more robust model and loan and deposit operations were centralized in non-segment. Prior to its classification as discontinued operations, Somerset Financial
was disclosed as a separate segment. The Corporations business units are primarily organized to operate in the financial services industry and are determined by the products and services offered. The community bank segment includes the
Banks branch network, investment and insurance subsidiary, the trust division, and home equity, installment, and residential loans originated and purchased for the Banks portfolio. The community bank segment also includes business,
single-family construction, and commercial real estate loans, and traditional cash management services for business customers. The consumer finance bank segment originates and sells home equity loans and holds home equity loans originated for sale.
Non-segment includes investment portfolio management, the servicing of all loans and deposits, the parent company activities and other items not directly attributable to a specific segment. Revenues in the Corporations segments are generated
from loans, loan sales, and fee income. There are no foreign operations.



The following segment financial information is based on the internal management reporting used by the Corporation to monitor and manage financial performance. The Corporation evaluates segment performance based on
average assets and profit or loss before income taxes and indirect expenses. Indirect expenses include the Corporations overhead and support expenses. The Corporation attempts to match fund each business unit by reviewing the earning assets
and interest-bearing liabilities held by each unit and assigning an appropriate expense or income offset based on the external cost of funds. The Corporation accounts for intersegment revenues, expenses, and transfers based on estimates of the
actual costs to perform the intersegment services.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Segment Reporting(1)



|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  
|-------------------------------------------------------------- |  | ------------- | --------- | - | ------------------- | - | ------ | ----------- |  | - | ---------------------- | - |  | - | --------- | -
|(Dollars in Thousands)                                         |  | CommunityBank |           |   | ConsumerFinanceBank |   |        | Non-Segment |  |   | 2004ConsolidatedTotals |  
|Average Segment Assets                                         |  | $             | 1,633,142 |   |                     | $ | 62,351 |             |  | $ | 379,568                |   |  | $ | 2,075,061 |  
|Net Interest Income (Expense) (2)                              |  |               | 69,170    |   |                     |   | 3,206  |             |  |   | (2,935                 | ) |  |   | 69,441    |  
|Provision for Loan Losses                                      |  |               | (11,550   | ) |                     |   |       |             |  |   |                       |   |  |   | (11,550   | )
|Non-Interest Income                                            |  |               | 27,612    |   |                     |   | 10,500 |             |  |   | 2,323                  |   |  |   | 40,435    |  
|Intangible Amortization                                        |  |               | (718      | ) |                     |   |       |             |  |   |                       |   |  |   | (718      | )
|Other Non-Interest Expense                                     |  |               | (31,685   | ) |                     |   | (3,693 | )           |  |   | (35,382                | ) |  |   | (70,760   | )
|Intersegment Income (Expense) (3)                              |  |               | (18,452   | ) |                     |   | 596    |             |  |   | 17,856                 |   |  |   |          |  
|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  
|Earnings (Loss) from Continuing Operations before Income Taxes |  | $             | 34,377    |   |                     | $ | 10,609 |             |  | $ | (18,138                | ) |  | $ | 26,848    |  
|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  
|                                                               |  |               |           |  
|                                                               |  | CommunityBank |           |   | ConsumerFinanceBank |   |        | Non-Segment |  |   | 2003ConsolidatedTotals |  
|Average Segment Assets                                         |  | $             | 1,811,187 |   |                     | $ | 83,965 |             |  | $ | 322,594                |   |  | $ | 2,217,746 |  
|Net Interest Income (Expense) (2)                              |  |               | 86,345    |   |                     |   | 3,998  |             |  |   | (13,443                | ) |  |   | 76,900    |  
|Provision for Loan Losses                                      |  |               | (38,974   | ) |                     |   |       |             |  |   |                       |   |  |   | (38,974   | )
|Non-Interest Income                                            |  |               | 24,830    |   |                     |   | 10,537 |             |  |   | 2,296                  |   |  |   | 37,663    |  
|Intangible Amortization                                        |  |               | (736      | ) |                     |   |       |             |  |   |                       |   |  |   | (736      | )
|Other Non-Interest Expense                                     |  |               | (29,592   | ) |                     |   | (3,659 | )           |  |   | (38,770                | ) |  |   | (72,021   | )
|Intersegment Income (Expense) (3)                              |  |               | (14,489   | ) |                     |   | (1,174 | )           |  |   | 15,663                 |   |  |   |          |  
|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  
|Earnings (Loss) from Continuing Operations before Income Taxes |  | $             | 27,384    |   |                     | $ | 9,702  |             |  | $ | (34,254                | ) |  | $ | 2,832     |  
|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  
|                                                               |  |               |           |  
|                                                               |  | CommunityBank |           |   | ConsumerFinanceBank |   |        | Non-Segment |  |   | 2002ConsolidatedTotals |  
|Average Segment Assets                                         |  | $             | 1,783,524 |   |                     | $ | 19,028 |             |  | $ | 281,740                |   |  | $ | 2,084,292 |  
|Net Interest Income (Expense) (2)                              |  |               | 92,974    |   |                     |   | 1,079  |             |  |   | (20,273                | ) |  |   | 73,780    |  
|Provision for Loan Losses                                      |  |               | (20,756   | ) |                     |   |       |             |  |   |                       |   |  |   | (20,756   | )
|Non-Interest Income                                            |  |               | 24,029    |   |                     |   | 7,453  |             |  |   | 4,556                  |   |  |   | 36,038    |  
|Intangible Amortization                                        |  |               |          |   |                     |   |       |             |  |   |                       |   |  |   |          |  
|Other Non-Interest Expense                                     |  |               | (23,511   | ) |                     |   | (3,327 | )           |  |   | (29,637                | ) |  |   | (56,475   | )
|Intersegment Income (Expense) (3)                              |  |               | (15,128   | ) |                     |   | (1,125 | )           |  |   | 16,253                 |   |  |   |          |  
|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  
|Earnings (Loss) from Continuing Operations before Income Taxes |  | $             | 57,608    |   |                     | $ | 4,080  |             |  | $ | (29,101                | ) |  | $ | 32,587    |  
|                                                               |  |               |           |   |                     |   |        |             |  |   |                        |   |  |   |           |  

---

|(1) | In 2004, the Corporation changed its segment presentation. The allocation methodology was expanded to a more robust model and loan and deposit operations were centralized in
non-segment. Prior period segment information has been reclassified to conform to this new presentation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The net interest income amounts in the segment results reflect the actual interest income and expense from segment activities and amounts for transfer income and expense to match
fund each segment. Transfer income and expense is assigned to assets and liabilities based on the cost of funds.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Intersegment revenues are received by one segment for performing a service for another segment. In the case of residential and consumer portfolios, the amount paid to the consumer
loan processing office is capitalized and amortized over a four-year period. These entries are eliminated from the Corporations actual results.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(19) Interim Quarterly Results (Unaudited)



|                                                           |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|---------------------------------------------------------- |  | ------------ | ------ | ------------- | - | ------ | ------------ |  | - | ------------- | - |  | - | ------ | -
|(Dollars in Thousands, Except Per Share Data)              |  | FirstQuarter |        | SecondQuarter |   |        | ThirdQuarter |  |   | FourthQuarter |  
|2004                                                       |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|Total Interest Income                                      |  | $            | 26,116 |               | $ | 25,077 |              |  | $ | 25,592        |   |  | $ | 24,859 |  
|Net Interest Income                                        |  |              | 17,626 |               |   | 17,127 |              |  |   | 17,769        |   |  |   | 16,919 |  
|Provision for Loan Losses                                  |  |              | 3,000  |               |   | 3,250  |              |  |   | 5,300         |   |  |   |       |  
|Non-Interest Income                                        |  |              | 9,870  |               |   | 11,691 |              |  |   | 9,847         |   |  |   | 9,027  |  
|Non-Interest Expense                                       |  |              | 17,826 |               |   | 17,606 |              |  |   | 20,379        |   |  |   | 15,667 |  
|Earnings from Continuing Operations, Net of Taxes          |  |              | 4,254  |               |   | 5,065  |              |  |   | 1,307         |   |  |   | 6,557  |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |              | 1,151  |               |   | (62    | )            |  |   | (2,526        | ) |  |   | (1,068 | )
|Net Earnings (Loss)                                        |  |              | 5,405  |               |   | 5,003  |              |  |   | (1,219        | ) |  |   | 5,489  |  
|Basic Earnings (Loss) Per Share                            |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|Earnings from Continuing Operations, Net of Taxes          |  |              | 0.28   |               |   | 0.32   |              |  |   | 0.08          |   |  |   | 0.42   |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |              | 0.07   |               |   |       |              |  |   | (0.16         | ) |  |   | (0.07  | )
|Net Earnings (Loss)                                        |  |              | 0.35   |               |   | 0.32   |              |  |   | (0.08         | ) |  |   | 0.35   |  
|Diluted Earnings (Loss) Per Share                          |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|Earnings from Continuing Operations, Net of Taxes          |  |              | 0.27   |               |   | 0.32   |              |  |   | 0.08          |   |  |   | 0.42   |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |              | 0.07   |               |   |       |              |  |   | (0.16         | ) |  |   | (0.07  | )
|Net Earnings (Loss)                                        |  |              | 0.34   |               |   | 0.32   |              |  |   | (0.08         | ) |  |   | 0.35   |  
|                                                           |  |              |        |              
|2003                                                       |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|Total Interest Income                                      |  | $            | 30,148 |               | $ | 29,533 |              |  | $ | 27,651        |   |  | $ | 26,998 |  
|Net Interest Income                                        |  |              | 19,541 |               |   | 20,250 |              |  |   | 18,779        |   |  |   | 18,330 |  
|Provision for Loan Losses                                  |  |              | 6,237  |               |   | 16,091 |              |  |   | 13,548        |   |  |   | 3,098  |  
|Non-Interest Income                                        |  |              | 9,221  |               |   | 10,003 |              |  |   | 10,263        |   |  |   | 8,176  |  
|Non-Interest Expense                                       |  |              | 17,031 |               |   | 16,990 |              |  |   | 18,642        |   |  |   | 20,094 |  
|Earnings (Loss) from Continuing Operations, Net of Taxes   |  |              | 3,507  |               |   | (1,610 | )            |  |   | (2,122        | ) |  |   | 2,177  |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |              | 1,221  |               |   | (113   | )            |  |   | (326          | ) |  |   | (205   | )
|Net Earnings (Loss)                                        |  |              | 4,728  |               |   | (1,723 | )            |  |   | (2,448        | ) |  |   | 1,972  |  
|Basic Earnings (Loss) Per Share                            |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|Earnings (Loss) from Continuing Operations, Net of Taxes   |  |              | 0.22   |               |   | (0.10  | )            |  |   | (0.14         | ) |  |   | 0.14   |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |              | 0.08   |               |   | (0.01  | )            |  |   | (0.02         | ) |  |   | (0.01  | )
|Net Earnings (Loss)                                        |  |              | 0.30   |               |   | (0.11  | )            |  |   | (0.16         | ) |  |   | 0.13   |  
|Diluted Earnings (Loss) Per Share                          |  |              |        |               |   |        |              |  |   |               |   |  |   |        |  
|Earnings (Loss) from Continuing Operations, Net of Taxes   |  |              | 0.22   |               |   | (0.10  | )            |  |   | (0.14         | ) |  |   | 0.14   |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |              | 0.08   |               |   | (0.01  | )            |  |   | (0.02         | ) |  |   | (0.01  | )
|Net Earnings (Loss)                                        |  |              | 0.30   |               |   | (0.11  | )            |  |   | (0.16         | ) |  |   | 0.13   |  



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PART I



|Item 1. | Business
|------- | --------



Description of Business



First Indiana Corporation (First Indiana or the Corporation) is an Indiana corporation formed in 1986. It is the holding company for First Indiana Bank, N.A. (the Bank), the largest commercial bank
headquartered in Indianapolis. Somerset Financial Services, LLC (Somerset Financial), an accounting and consulting firm, was acquired in September 2000 when The Somerset Group, Inc. merged with the Corporation. On October 25, 2004, First
Indiana Corporation sold substantially all of the assets of Somerset Financial.



The Corporation had total assets of $1.90 billion at December 31, 2004, a decrease of $294.9 million from $2.19 billion at December 31, 2003. Loans outstanding were $1.50 billion and deposits were $1.37 billion at
December 31, 2004.



Effective August 1, 2001, the Bank
converted from a federal savings bank to a national bank and First Indiana became a bank holding company registered with the Federal Reserve Board. Effective September 25, 2001, the Federal Reserve Board approved the Corporations election to
become a financial holding company. As a financial holding company, the Corporation may engage in activities that are financial in nature or incidental to a financial activity. Approximately five years prior to becoming a national bank, the
Corporation had begun shifting its business plan and asset management, moving away from emphasizing consumer and mortgage lending to a greater emphasis on commercial lending.



The Bank is engaged primarily in the business of attracting deposits from the general public and originating commercial and
consumer loans. The Bank offers a full range of banking services through its offices in central Indiana. The Bank also originates home equity loans in 47 states through Bank loan officers and an independent agent network. The Bank has consumer loan
service offices in Indiana, Florida, Illinois, and Ohio. One Investment Partners, a subsidiary of the Bank, holds loans originated outside of Indiana.



On January 13, 2003, the Corporation acquired Carmel, Indiana-based MetroBanCorp through a merger. MetroBanCorp was the holding company for MetroBank,
with assets of approximately $196 million and seven offices in Carmel, Fishers, and Noblesville, Indiana. The acquisition was accounted for using the purchase method of accounting, and accordingly, the financial results of the acquired entity are
included in the consolidated financial statements from the acquisition date.



First Indiana Corporation common stock is traded on the Nasdaq National Market under the ticker symbol FINB. The principal executive offices are located at 135 North Pennsylvania Street, Suite 2800, Indianapolis,
Indiana 46204, and the telephone number is (317) 269-1200. The website address is www.firstindiana.com. The information on the website does not constitute part of this Form 10-K.



Additional information about the Corporations business is set forth above under the heading Financial Review
 Overview.



Business Segments



Information about the Corporations business segments is contained in
Note 18 of the Notes to the Consolidated Financial Statements under the heading Financial Review.



Competition



The Bank
faces substantial competition in originating both commercial and consumer loans. This competition comes principally from other banks, savings institutions, mortgage banking companies, and other



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lenders. Many of these competitors have competitive advantages, including greater financial resources and higher lending limits, a wider geographic presence,
more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce the Corporations net income by
decreasing the number and size of loans that the Bank originates and the interest rates it may charge on these loans.



In attracting business and consumer deposits, the Bank faces substantial competition from other insured depository institutions such as banks, savings
institutions, and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of these competitors enjoy advantages, including greater financial resources, more aggressive marketing
campaigns, better brand recognition, and more branch locations. These competitors may offer higher interest rates than the Bank, which could decrease the deposits that it attracts or require the Bank to increase its rates to retain existing deposits
or attract new deposits. Increased deposit competition could adversely affect the Corporations ability to generate the funds necessary for lending operations, which could increase the cost of funds.



The Bank also competes with nonbank providers of financial services, such as
brokerage firms, consumer finance companies, credit unions, insurance companies, and governmental organizations, which may offer more favorable terms. Some of these nonbank competitors are not subject to the same extensive regulations that govern
banks and bank holding companies. As a result, such nonbank competitors may have advantages over the Bank in providing certain products and services. This competition may reduce or limit margins on banking services, reduce First Indianas
market share, and adversely affect the Corporations earnings and financial condition.



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 Bank, the Corporations principal subsidiary, is a national bank and is subject to the provisions of the National Bank Act. The Bank is under the
supervision of, and subject to periodic examination by, the Office of the Comptroller of the Currency (OCC), and is subject to the rules and regulations of the OCC, the Federal Reserve Board, and the Federal Deposit Insurance Corporation
(FDIC). The Bank is subject to supervision and examination by the FDIC because the FDIC insures its deposits to the extent provided by law.



Regulations governing First Indiana and the Bank restrict extensions of credit by the Bank to First Indiana Corporation and, with some exceptions, other
affiliates of the Corporation. For these purposes, extensions of credit include loans and advances to and guarantees and letters of credit on behalf of First Indiana and such affiliates. These regulations also restrict investments by the Bank in the
stock or other securities of First Indiana and the covered affiliates, as well as the acceptance of such stock or other securities as collateral for loans to any borrower, whether or not related to First Indiana.



The Bank is subject to comprehensive federal regulations dealing with a wide
variety of subjects, including reserve requirements, loan limitations, restrictions as to interest rates on loans and deposits, restrictions as to dividend payments, requirements governing the establishment of branches, and numerous other aspects of
its operations. These regulations generally have been adopted to protect depositors and creditors rather than shareholders or holders of subordinated debt.



Payment of Dividends



Federal Reserve Board policy provides that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends
unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the holding companys capital needs, asset quality, and overall
financial condition.



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There are various statutory restrictions on the ability of the Bank to pay dividends or make other
payments to First Indiana Corporation, which are described below. Prior regulatory approval is required if dividends to be declared by the Bank in any year would exceed net earnings of the current year (as defined under the National Bank Act) plus
retained net profits for the preceding two years. Due to the payment of an $11,000,000 special dividend in January 2003 (to partially fund the acquisition of MetroBanCorp), the Bank sought and received approval from the OCC to make its regularly
scheduled dividend payments in 2004, not to exceed $19,000,000. The Bank paid dividends of $16,000,000 to the Corporation in 2004. The Bank sought and received approval from the OCC to make its regularly scheduled dividend payments in 2005, not to
exceed $20,000,000.



Under federal law, a depository
institution is prohibited from paying a dividend if the depository institution would thereafter be undercapitalized as determined by the federal bank regulatory agencies. The relevant federal agencies also have the authority to prohibit
a bank from engaging in what agencies determine are unsafe or unsound practices in conducting its business. The payment of dividends could, depending upon the financial condition of a bank, be deemed to constitute an unsafe or unsound practice.



Capital Requirements



First Indiana is subject to capital requirements and guidelines imposed on
bank holding companies and financial holding companies by the Federal Reserve Board. The OCC and the FDIC impose similar requirements on the Bank. These capital requirements establish higher capital standards for banks and bank holding companies
that assume greater risks. For this purpose, a bank holding companys or banks assets and certain off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the credit risk. Total capital, in
turn, is divided into two tiers:



| |  |  | Tier 1 capital, which includes common equity, certain qualifying cumulative and noncumulative perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tier 2 capital, which includes perpetual preferred stock, and related surplus not meeting the Tier 1 definition, hybrid capital instruments, perpetual debt and mandatory convertible
securities, certain term subordinated debt, intermediate-term preferred stock, and allowances for loan and lease losses (subject to certain limitations).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Goodwill, certain intangible assets, and certain other assets must be deducted in calculating the sum of the capital
elements.



First Indiana, like other bank holding companies, is
required to maintain Tier 1 capital and total capital equal to at least 4 percent and 8 percent, respectively, of total risk-weighted assets. As of December 31, 2004, the Corporation met both requirements, with Tier 1 and total capital equal to
10.79 percent and 13.54 percent, respectively, of total risk-weighted assets. The Bank was also in compliance with its applicable minimum capital requirement at December 31, 2004, with Tier 1 capital and total capital equal to 11.69 percent and
12.97 percent, respectively, of its total risk-weighted assets.



The Federal Reserve Board, the FDIC, and the OCC have incorporated market and interest rate risk components into their risk-based capital standards. Under these market risk requirements, capital is allocated to support the amount of market
risk related to a financial institutions ongoing trading activities. The Federal Reserve Board also requires a minimum leverage ratio (Tier 1 capital to adjusted average assets) of 3 percent for bank holding companies that have the
highest regulatory rating or have implemented the risk-based capital measures for market risk, or 4 percent for holding companies that do not meet either of these requirements. The Bank is subject to similar requirements adopted by the OCC. As of
December 31, 2004, the Corporations leverage ratio was 8.47 percent, and the Banks was 9.17 percent.



While federal regulators may set capital requirements higher than the minimums noted above if circumstances warrant it, no federal banking regulator has
imposed any such special capital requirement on the Corporation or the Bank.



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Source of Strength Doctrine



Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to its
subsidiary bank and to stand prepared to commit resources to support its subsidiary bank. There are no specific quantitative rules on the holding companys potential liability. If the Bank were to encounter financial difficulty, the Federal
Reserve Board could invoke the doctrine and require a capital contribution. In addition, and as a separate legal matter, a holding company is required to guarantee the capital plan of an undercapitalized subsidiary bank. See FDICIA
below.



FDICIA



The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) requires federal regulators to take prompt corrective action against any undercapitalized institution. FDICIA establishes five capital categories: well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Well-capitalized institutions significantly exceed the required minimum level for each capital measure (currently, risk-based and leverage). Adequately capitalized
institutions include depository institutions that meet the required minimum level for each capital measure. Undercapitalized institutions consist of those that fail to meet the required minimum level for one or more relevant capital
measures. Significantly undercapitalized characterizes depository institutions with capital levels significantly below the minimum requirements. Critically undercapitalized refers to depository institutions with minimal
capital and at serious risk for government seizure.



Under
certain circumstances, a well-capitalized, adequately capitalized, or undercapitalized institution may be treated as if the institution were in the next lower capital category. A depository institution is generally prohibited from making capital
distributions, including paying dividends or paying management fees to a holding company, if the institution would thereafter be undercapitalized. Institutions that are adequately but not well-capitalized cannot accept, renew, or rollover brokered
deposits except with a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew, or rollover brokered deposits.



The banking regulatory agencies are permitted or, in certain cases, required
to take certain actions with respect to institutions falling within one of the three undercapitalized categories. Depending on the level of an institutions capital, the agencys corrective powers include, among other things:



| |  |  | prohibiting the payment of principal and interest on subordinated debt;
| | - |  | -----------------------------------------------------------------------



| |  |  | prohibiting the holding company from making distributions without prior regulatory approval;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | placing limits on asset growth and restrictions on activities;
| | - |  | --------------------------------------------------------------



| |  |  | placing additional restrictions on transactions with affiliates;
| | - |  | ----------------------------------------------------------------



| |  |  | restricting the interest rate the institution may pay on deposits;
| | - |  | ------------------------------------------------------------------



| |  |  | prohibiting the institution from accepting deposits from correspondent banks; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | in the most severe cases, appointing a conservator or receiver for the institution.
| | - |  | -----------------------------------------------------------------------------------



A banking institution that is undercapitalized is required to submit a capital restoration plan, and such a plan will not be
accepted unless, among other things, the banking institutions holding company guarantees the plan up to a certain specified amount. Any such guarantee from a depository institutions holding company is entitled to a priority of payment in
bankruptcy.



FDICIA also contains a variety of other provisions
that may affect First Indianas operations, including reporting requirements, regulatory standards for real estate lending, truth in savings provisions, and the requirement that a depository institution give notice to customers and
regulatory authorities before closing any branch. As of December 31, 2004, the Bank exceeded the required capital ratios for classification as well-capitalized.



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FDIC Insurance and Financing Corporation Assessments



The FDICs deposit insurance assessments currently are calculated under
a risk-based system. The risk-based system places a bank in one of nine risk categories, principally on the basis of its capital level and an evaluation of the banks risk to the relevant deposit insurance fund, and bases premiums on the
probability of loss to the FDIC with respect to each individual bank. Under the Federal Deposit Insurance Act, a depository institution may not pay interest on indebtedness, if such interest is required to be paid out of net profits, or distribute
any of its capital assets while it remains in default on any assessment due to the FDIC.



In accordance with the Deposit Insurance Funds Act of 1996, the Financing Corporation (FICO) debt service assessment became applicable to all insured institutions as of January 1, 1997. The FICO debt
service assessment due is based upon a quarterly multiplier which is not tied to the FDIC risk classification. The FICO rates for the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) are determined
quarterly.



Transactions with Affiliates



Transactions between the Bank and its affiliates are governed by Sections
23A and 23B of the Federal Reserve Act. The affiliates of the Bank include First Indiana Corporation and any entity controlled by First Indiana Corporation. Generally, Sections 23A and 23B (1) limit the extent to which the Bank may engage in
covered transactions with any one affiliate to an amount equal to 10 percent of the Banks capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20 percent of the
Banks capital stock and surplus, (2) require that the Banks extensions of credit to such affiliates be fully collateralized (with 100 percent to 130 percent collateral coverage, depending on the type of collateral), (3) prohibit the Bank
from purchasing or accepting as collateral from an affiliate any low quality assets (including non-performing loans), and (4) require that all covered transactions be on terms substantially the same, or at least as favorable,
to the Bank or its subsidiary as those provided to a non-affiliate. The term covered transaction includes the making of loans, purchase of assets, issuance of a guarantee, and other similar types of transactions.



Loans to Insiders



The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers, and
principal stockholders of banks. Under Section 22(h) of the Federal Reserve Act and its implementing regulations, loans to a director, an executive officer, or a principal stockholder of a bank, and some affiliated entities of any of the foregoing,
may not exceed, together with all other outstanding loans to such person and affiliated entities, the banks loan-to-one-borrower limit. Loans in the aggregate to insiders and their related interests as a class may not exceed the banks
unimpaired capital and unimpaired surplus. Section 22(h) and its implementing regulations also prohibit loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal stockholders of a bank
or bank holding company, and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the bank with any interested director not participating in the voting. Section 22(h) generally
requires that loans to directors, executive officers, and principal stockholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.



Community Reinvestment Act



Under the Community Reinvestment Act and related regulations, depository
institutions have an affirmative obligation to assist in meeting the credit needs of their market areas, including low and moderate income areas, consistent with safe and sound banking practices. The Community Reinvestment Act requires the adoption
by each institution of a Community Reinvestment Act statement for each of its market areas describing the depository institutions efforts to assist in its communitys credit needs. Depository institutions are periodically examined for
compliance with the Community Reinvestment Act and are periodically assigned ratings in this



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regard. Banking regulators consider a depository institutions Community Reinvestment Act rating when reviewing applications to establish new branches,
undertake new lines of business, and/or acquire part or all of another depository institution. An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its
depository institution subsidiary. The most recent Community Reinvestment Act rating the Bank has received was satisfactory.



Fair Lending; Consumer Laws



In addition to the Community Reinvestment Act, other federal and state laws regulate various lending and consumer aspects of the banking business.
Governmental agencies, including the Department of Housing and Urban Development, the Federal Trade Commission, and the Department of Justice, have become concerned that in some cases prospective borrowers experience unlawful discrimination in their
efforts to obtain loans from depository and other lending institutions. These agencies have brought litigation against some depository institutions alleging discrimination against borrowers. Many of these suits have been settled, in some cases for
material sums, short of a full trial.



Recently, these
governmental agencies have clarified what they consider to be lending discrimination and have specified various factors that they will use to determine the existence of lending discrimination under the Equal Credit Opportunity Act and the Fair
Housing Act. These factors include evidence that a lender discriminated on a prohibited basis, evidence that a lender treated applicants differently based on prohibited factors in the absence of evidence that the treatment was the result of
prejudice or a conscious intention to discriminate, and evidence that a lender applied an otherwise neutral non-discriminatory policy uniformly to all applicants, but the practice had a discriminatory effect, unless the practice could be justified
as a business necessity.



Banks and other depository
institutions also are subject to numerous consumer-oriented laws and regulations. These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal
Credit Opportunity Act, the privacy provisions of the Gramm-Leach-Bliley Act, The Fair and Accurate Credit Transactions Act, and the Fair Housing Act, and regulations of the Office of the Comptroller of the Currency. These laws and regulations
require compliance by depository institutions with various disclosure requirements and requirements regulating the availability of funds after deposit or the making of certain loans to customers.



Future Legislation



Because federal and state regulation of financial institutions changes regularly and is the subject of constant legislative
debate, we cannot forecast how federal and state regulation of financial institutions may change in the future and impact the Corporations operations. Although Congress in recent years has sought to reduce the regulatory burden on financial
institutions with respect to the approval of specific transactions, First Indiana fully expects that the financial services industry will remain heavily regulated in the near future and that additional laws or regulations may be adopted further
regulating specific banking practices.



Employees



At December 31, 2004, the Corporation and its subsidiaries employed 617
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



First Indiana Corporation makes available free of charge through its Internet website 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 as soon as reasonably practicable after they are electronically filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act. These reports are available by
going to the Corporations website (www.firstindiana.com) and selecting Investor Relations and then SEC Filings.



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|Item 2. | Properties
|------- | ----------



At December 31, 2004, the Corporation operated through 31 full-service banking centers and three loan origination offices in addition to its headquarters
and operations locations. The Corporation leases its headquarters location in downtown Indianapolis and owns the Banks operations facilities in Greenwood, Indiana. FirstTrust Indiana, the Banks investment advisory and trust division,
leases its facility on the north side of Indianapolis. The Corporation leases 16 of the branches and the three origination offices and owns the remaining locations. The aggregate carrying value at December 31, 2004, of the properties owned or
leased, including headquarters properties and leasehold improvements at the leased offices, was $16,592,000. See Notes 8 and 14 of the Notes to Consolidated Financial Statements.



|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. | 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, 2004.



Executive Officers of the Registrant



Information about executive officers who are also directors is incorporated by reference to the Corporations Proxy Statement under the heading Proposal No. 1: Election of Directors.



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.



|                   |  |                                                                                                                                                                        |  |     |  |                           
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | --------------------------
|Name               |  | Position                                                                                                                                                               |  | Age |  | Year First Elected Officer
|William J. Brunner |  | Vice President, Chief Financial Officer and Treasurer of the Corporation; Chief Financial Officer and Senior Vice President, Financial Management Division of the Bank |  | 45  |  | 2000                      
|                   |  |                                                                                                                                                                        | 
|David A. Lindsey   |  | President, Consumer Finance Bank Division of the Bank                                                                                                                  |  | 55  |  | 1983                      
|                   |  |                                                                                                                                                                        | 
|David L. Maraman   |  | Chief Credit Officer and Senior Vice President                                                                                                                         |  | 57  |  | 2003                      
|                   |  |                                                                                                                                                                        | 
|Reagan K. Rick     |  | First Vice President, Legal Counsel and Manager Commercial Banking                                                                                                     |  | 43  |  | 2004                      



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.



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David A. Lindsey has been with the Bank since 1983, and is 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. In addition, Mr. Lindsey is responsible for the
retail branch bank network and the marketing departments of the Bank.



David L. Maraman joined the Bank in July 2003 and serves as the Banks chief credit officer. Prior to joining First Indiana, Mr. Maraman served as chairman and chief executive officer of CIB Bank in Indianapolis, Indiana, since March
1998.



Reagan K. Rick joined the Bank in September 2004 and
currently serves as legal counsel and manager of commercial banking, which includes commercial lending and treasury management. Previously, he practiced law in Indiana for seven years with a concentration in commercial transactions and served in
various lending related capacities at commercial banks for fourteen years.



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PART II



|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 February 10, 2005,
there were approximately 1,581 holders of record of the Corporations common stock. The following table contains high and low bid information as reported by Nasdaq.



|               |  |      |       |      |   |            |  |      |       |     |   |            |  |   |       |  |   |      
|-------------- |  | ---- | ----- | ---- | - | ---------- |  | ---- | ----- | --- | - | ---------- |  | - | ----- |  | - | -----
|               |  | 2004 |       | 2003
|               |  | High |       | Low  |   | Book Value |  | High |       | Low |   | Book Value
|First Quarter  |  | $    | 22.19 |      | $ | 18.65      |  | $    | 13.60 |     | $ | 20.37      |  | $ | 15.32 |  | $ | 14.30
|Second Quarter |  |      | 20.60 |      |   | 17.51      |  |      | 13.55 |     |   | 18.45      |  |   | 15.70 |  |   | 13.99
|Third Quarter  |  |      | 20.72 |      |   | 18.00      |  |      | 13.39 |     |   | 20.16      |  |   | 17.40 |  |   | 13.51
|Fourth Quarter |  |      | 23.85 |      |   | 19.88      |  |      | 12.28 |     |   | 19.94      |  |   | 17.74 |  |   | 13.44



For restrictions on
the Corporations and the Banks present or future ability to pay dividends, see Liquidity and Market Risk Management  Liquidity Management and Note 13 of the Notes to the Consolidated Financial Statements,
both under the heading Financial Review and Part I, Item 1. Business, Supervision and Regulation.



For equity compensation plan information, see Note 15 of the Notes to Consolidated Financial Statements under the heading Financial
Review.



The Corporation paid a cash dividend of $0.165
per share outstanding in each of the first three quarters of 2004, $0.18 per share outstanding for the fourth quarter of 2004, and $0.165 per share outstanding in each quarter of 2003. All share and per share data has been restated to reflect the
five-for-four stock split declared on January 16, 2002.



ISSUER PURCHASES OF FIRST INDIANA COMMON STOCK



|                                      |  |                                               |  |                                      |       |                                                                                                |           |                                                                                                                       |   |          
|------------------------------------- |  | --------------------------------------------- |  | ------------------------------------ | ----- | ---------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------------------------------- | - | ---------
|Period                                |  | Total Number ofShares (or Units)Purchased (1) |  | Average PricePaid per Share(or Unit) |       | Total Number ofShares (or Units)Purchased as Partof PubliclyAnnounced
Plansor Programs (2) (3) |           | Maximum Number(or ApproximateDollar Value) ofShares (or Units) thatMay Yet BePurchased Under
thePlans or Programs (2)
|October 1, 2004 to October 31, 2004   |  | 640                                           |  | $                                    | 20.45 |                                                                                                |          |                                                                                                                       | $ | 7,490,000
|November 1, 2004 to November 30, 2004 |  | 630                                           |  | $                                    | 22.34 |                                                                                                |          |                                                                                                                       | $ | 7,490,000
|December 1, 2004 to December 31, 2004 |  | 275                                           |  | $                                    | 23.50 |                                                                                                | 1,730,000 |                                                                                                                       | $ | 7,490,000
|                                      |  |                                               |  |                                      |       |                                                                                                |           |                                                                                                                       |   |          
|Total                                 |  | 1,545                                         |  | $                                    | 23.50 |                                                                                                | 1,730,000 |                                                                                                                       | $ | 7,490,000
|                                      |  |                                               |  |                                      |       |                                                                                                |           |                                                                                                                       |   |          

---

|(1) | Shares of common stock are purchased by the Corporation in the open market and held in trust for certain of the Corporations Directors under the Directors Deferred Fee
Plan described in the Corporations Proxy Statement. In the fourth quarter of 2004, 1,545 shares were purchased under this plan. At December 31, 2004, $110,000 of outstanding common stock had been repurchased under this plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The Board of Directors has authorized the repurchase from time-to-time of the Corporations common stock. The program currently provides for the repurchase of up to $10,000,000
of the Corporations common stock. The Boards authorization has no expiration date. No shares were purchased under this plan in the fourth quarter of 2004. At December 31, 2004, $2,510,000 of common stock had been repurchased under this
authorization.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | On October 27, 2004, the Corporation publicly announced a self-tender offer to purchase shares of its common stock, which commenced on November 1, 2004, and expired on December 13,
2004. In connection with this offer, the Corporation purchased 1,730,000 shares of common stock at a price of $23.50 per share.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 6. | Selected Financial Data
|------- | -----------------------



The information required by this item is shown under the heading Financial Review - 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 shown under the following subheadings of Financial Review:



| |  |  | Overview
| | - |  | --------



| |  |  | 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. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------



The information required by this item is shown under the heading Financial Review - Liquidity and Market Risk Management.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



Information required by this item is shown in Financial Review under the headings Consolidated Financial Statements, Notes
to Consolidated Financial Statements, and Report of Independent Public Accounting Firm, and is incorporated by reference to the Corporations Proxy Statement under the heading Compensation Committee Interlocks and
Insider Participation. The Corporations unaudited quarterly financial information for each of the years in the two-year period ended December 31, 2004 is shown in Note 19 of Notes to Consolidated Financial Statements under
the heading Financial Review.



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



None.



|Item 9A. | Controls and Procedures
|-------- | -----------------------



Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in the
Corporations reports filed under the Securities Exchange Act of 1934, such as this Annual Report, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.



As of the end of the
period covered by this Report on Form 10-K, First Indiana evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision and with the participation of management, including its chief executive
officer and chief financial officer. The evaluation of



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First Indianas disclosure controls and procedures included a review of the controls objectives and design, First Indianas implementation of
the controls and the effect of the controls on the information generated for use in this Annual Report. Included as exhibits to this Annual Report are Certifications of First Indianas chief executive officer and chief financial
officer in accordance with Rule 13a-14 of the Securities Exchange Act of 1934. This Controls and Procedures section of the Annual Report includes the information concerning the controls evaluation referred to in Rule 13a-15, and it should be read in
conjunction with the Rule 13a-14 Certifications for a more complete understanding of the topics presented.



First Indianas management, including the chief executive officer and chief financial officer, does not expect that the Corporations disclosure
controls and procedures will prevent all errors. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met.



During the fourth quarter of 2004, First Indiana became aware of a material
weakness in its internal control over financial reporting related to income tax accounting for an unusual transaction. Consequently, in that quarter First Indiana strengthened its internal controls by hiring a more experienced tax manager and
increasing oversight of the tax accounting function. First Indiana is in the process of implementing additional control procedures which include written documentation of tax accounting policies, procedures and controls and the installation of a new
tax software system. Management has concluded that with the changes in internal controls made during the quarter there was not a material weakness in internal controls at December 31, 2004.



Based upon their evaluation as of the end of the period covered by this
Report on Form 10-K, First Indianas chief executive officer and chief financial officer have concluded that the Corporations disclosure controls and procedures are effective to ensure that material information relating to the Corporation
is made known to management, including the chief executive officer and chief financial officer, particularly during the period when the Corporations periodic reports are being prepared.



Managements report on internal control over financial reporting appears
under the heading Managements Report on Internal Control over Financial Reporting under the heading Financial Review.



The attestation report of KPMG, an independent registered public accounting firm, on managements assessment of the Corporations internal
control over financial reporting appears under the heading Report of Independent Registered Public Accounting Firm immediately following Managements Report on Internal Control over Financial Reporting under the heading
Financial Review.



|Item 9B. | Other Information.
|-------- | ------------------



None.



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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 the Corporations Proxy Statement under the
heading Proposal No. 1: 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 information required by this item with respect to the Corporations Audit Committee and Audit Committee financial experts is incorporated by reference to the Corporations Proxy
Statement under the headings Proposal No. 1: Election of Directors and Corporate Governance  Audit Committee. Additional information about the Companys executive officers is included in Part I under the heading
Executive Officers of the Registrant.



The
Corporations code of ethics that applies to its principal executive officer, principal accounting officer or controller, or persons performing similar functions, and others is posted on its Internet website (www.firstindiana.com) under
Investor Relations, Governance. Disclosures pertaining to amendments to, or waivers from, a provision of this code of ethics will be posted on the Corporations Internet website (www.firstindiana.com) under
Investor Relations, Governance.



There
were no material changes to the procedures by which security holders of the Corporation may recommend nominees to the Board of Directors since the Corporations proxy statement with respect to its 2004 annual meeting of shareholders.



|Item 11. | Executive Compensation
|-------- | ----------------------



The information required by this item is incorporated by reference to the material under the headings Executive Compensation  Summary, - Stock
Options, - Long-Term Plan, - Pension Plans, - Employment Agreements and Other Arrangements and Corporate Governance  Compensation of Directors in the Corporations Proxy Statement.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|-------- | ----------------------------------------------------------------------------------------------



The information required by this item is incorporated by reference to the material under the heading Stock Ownership
by Directors, Officers and Certain Shareholders in the Corporations Proxy Statement and is shown in Note 15 of the Notes to the Consolidated Financial Statements under the heading Financial Review.



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



The information required by this item is incorporated by reference to the material under the heading Corporate Governance  Certain
Transactions in the Corporations Proxy Statement.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



The information required by this item is incorporated by reference to the material under the headings Fees to Independent Auditors for 2003 and
2004 and Engagement of the Independent Auditors and Approval of Services in the Corporations Proxy Statement.



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PART IV



|I
tem 15. | Exhibits and Financial Statement Schedules
|--------- | ------------------------------------------



|                                                                                            |  |      
|------------------------------------------------------------------------------------------- |  | -----
|                                                                                            |  | Pages
|(a) (1) Financial Statements                                                                |  |      
|Report of Independent Registered Public Accounting Firm                                     |  | 34   
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                |  | 35   
|Consolidated Statements of Earnings for the Three Years Ended December 31, 2004             |  | 36   
|Consolidated Statements of Shareholders Equity for the Three Years Ended December 31, 2004 |  | 37   
|Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2004           |  | 38   
|Notes to the Consolidated Financial Statements                                              |  | 39-71



(2) Financial Statement Schedules Required by Regulation S-X



None.



(3) Exhibits



|   |     |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3  | (a) |  | Articles of Incorporation of First Indiana Corporation, incorporated by reference to Exhibit 3(a) of the Registrants Form 10-K filed on March 12, 2001.                                                                                                                                                                                                                                           
|   |    
|3  | (b) |  | Amended and Restated Bylaws of First Indiana Corporation, as amended by amendment adopted January 21, 2004, and incorporated by reference to Exhibit 3(b) of the Registrants Form 10-K
filed on March 3, 2004.                                                                                                                                                                                    
|   |    
|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) |  | Rights Agreement dated as of November 14, 1997, incorporated by reference to Exhibit 4 of the Registrants Form 8-A filed December 2, 1997, and Amendment to Rights Agreement,
incorporated by reference to Exhibit 4 of the Registrants Form 10-Q filed on May 13, 2002.                                                                                                                         
|   |    
|10 | (a) |  | First Indiana Bank 1997 Long-Term Management Performance Incentive Plan, incorporated by reference to Exhibit 10(a) of the Registrants Annual Report on Form 10-K for the year ended
December 31, 1997. *B                                                                                                                                                                                        
|   |    
|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.
*B                                                                                                                                                                                                                    
|   |    
|10 | (c) |  | First Indiana Corporation 1998 Stock Incentive Plan, incorporated by reference to Exhibit 10(c) of the Registrants Annual Report on Form 10-K for the year ended December 31,
1997. *B                                                                                                                                                                                                            
|   |    
|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.
*B                                                                                                                                                                                                                         
|   |    
|10 | (e) |  | First Indiana Corporation Supplemental Benefit Plan effective May 1, 1997, incorporated by Reference to Exhibit 10(f) of the Registrants Annual Report on Form 10-K for the year ended
December 31, 1997. *B                                                                                                                                                                                      
|   |    
|10 | (f) |  | First Indiana Corporation Supplemental Benefit Plan Agreement effective May 1, 1997 between the Registrant and Robert H. McKinney, incorporated by reference to Exhibit 10(g) of the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 as amended October 20, 2004 and incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K filed October 22, 2004. *B



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|   |     |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10 | (g) |  | Form of First Indiana Corporation Supplemental Benefit Plan Agreement effective May 1, 1997 between the Registrant and Marni McKinney, incorporated by reference to Exhibit 10(h) of the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 as amended October 20, 2004 and incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K dated October 20, 2004. *B
|10 | (h) |  | Form of Supplemental Benefit Plan Agreement effective May 1, 1997 between the Registrant and David A. Lindsey; effective May 6, 2000 between the Registrant and William J. Brunner; and
effective July 23, 2003 between the Registrant and David L. Maraman, incorporated by reference to Exhibit 10(i) of the Registrants Annual Report on Form 10-K for the year ended December 31, 1997. *B        
|10 | (i) |  | Form of Employment Agreement between the Registrant and each of Robert H. McKinney and Marni McKinney, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed
October 22, 2004. *B                                                                                                                                                                                               
|10 | (j) |  | Form of Employment Agreement between First Indiana Bank and each of William J. Brunner, David A. Lindsey, and David L. Maraman, incorporated by reference to Exhibit 10.3 of the
Registrants Form 8-K filed October 22, 2004. *B                                                                                                                                                                      
|10 | (k) |  | 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 | (l) |  | 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 | (m) |  | 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 | (n) |  | 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 | (o) |  | Employment Continuation Agreement dated as of December 29, 2003, between the Registrant and Owen B. Melton, Jr., incorporated by reference to Exhibit 10(o) of the Registrants Form 10-K
filed on March 3, 2004. *B                                                                                                                                                                                   
|10 | (p) |  | 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.                                                                                                                                      
|10 | (q) |  | Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Junior Subordinated Indenture dated as of June 26, 2003 as an exhibit. The Registrant hereby agrees to
furnish a copy of this Indenture to the Commission upon request.                                                                                                                                         
|10 | (r) |  | Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Subordinated Indenture dated as of November 14, 2003 as an exhibit. The Registrant hereby agrees to
furnish a copy of this Indenture to the Commission upon request.                                                                                                                                            
|10 | (s) |  | Form of Employment Agreement between the Registrant and Robert H. Warrington, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated October 20, 2004.
*B                                                                                                                                                                                                                        
|10 | (t) |  | Form of First Indiana Corporation Supplemental Benefit Plan Agreement between Registrant and Robert H. Warrington, incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K
filed October 22, 2004. *B                                                                                                                                                                                   
|10 | (u) |  | First Indiana Corporation 2004 Executive Compensation Plan, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed February 17, 2005. *B                                                                                                                                                                                                                                         
|10 | (v) |  | Form of Revised 2003-2005 Incentive Program, incorporated by reference to Exhibit 10.7 of the Registrants Form 8-K filed October 22, 2004. *B                                                                                                                                                                                                                                                         



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|   |      |  |                                                                                                                                                                                                           
|-- | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |     
|10 | (w)  |  | Form of 2004-2006 Incentive Program for Robert H. Warrington, incorporated by reference to Exhibit 10.8 of the Registrants Form 8-K filed October 22, 2004. *B                                           
|   |     
|10 | (x)  |  | Form of Restricted Stock Agreement for Revised 2003-2005 Incentive Program, incorporated by reference to Exhibit 10.9 of the Registrants Form 8-K filed October 22, 2004.
*B                             
|   |     
|10 | (y)  |  | Form of Deferred Stock Agreement, incorporated by reference to Exhibit 10.10 of the Registrants Form 8-K filed October 22, 2004. *B                                                                      
|   |     
|10 | (z)  |  | Form of Restricted Stock Agreement for 2004-2006 Incentive Program, incorporated by reference to Exhibit 10.11 of the Registrants Form 8-K filed October 22, 2004. *B                                    
|   |     
|10 | (aa) |  | Asset Purchase Agreement between Registrant and Somerset CPAs, P.C., incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated October 25, 2004.                                       
|   |     
|10 | (ab) |  | Asset Purchase Agreement between Registrant and TierOne Bank, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated November 1, 2004.                                              
|   |     
|10 | (ac) |  | Form of Restricted Stock Agreement with William J. Brunner, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated December 22, 2004. *B                                            
|   |     
|10 | (ad) |  | Form of Restricted Stock Agreement with Robert H. Warrington, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated December 22, 2004. *B                                          
|   |     
|10 | (ae) |  | Form of Restricted Stock Agreement with Marni McKinney, incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K dated December 22, 2004. *B                                                
|   |     
|10 | (af) |  | Form of Restricted Stock Agreement with David A. Lindsey, incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K dated December 22, 2004. *B                                              
|   |     
|10 | (ag) |  | Form of First Amendment to Restricted Stock Agreements by and between the Registrant and David L. Maraman incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated
January 3, 2005. *B
|   |     
|21 |      |  | Subsidiaries of First Indiana Corporation and First Indiana Bank. *A                                                                                                                                      
|   |     
|23 |      |  | Consent of KPMG LLP. *A                                                                                                                                                                                   
|   |     
|31 | (a)  |  | Rule 13a-14(a) Certification of Principal Executive Officer. *A                                                                                                                                           
|   |     
|31 | (b)  |  | Rule 13a-14(a) Certification of Principal Financial Officer. *A                                                                                                                                           
|   |     
|32 | (a)  |  | Section 1350 Certification of Chief Executive Officer. *A                                                                                                                                                 
|   |     
|32 | (b)  |  | Section 1350 Certification of Chief Financial Officer. *A                                                                                                                                                 
|  
|  
|   |     
|*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.                                                                                             



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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.



FIRST INDIANA CORPORATIONBy:

/s/    MARNI
MCKINNEYMarni McKinney Vice Chairman and Chief Executive Officer (Principal Executive Officer) Date: March 11, 2005




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 11, 2005.



Officers



|    |  |                                                                                        |  |  |  |     |  |                                                                                                          
|--- |  | -------------------------------------------------------------------------------------- |  |  |  | --- |  | ---------------------------------------------------------------------------------------------------------
|    |  |                                                                                        |  | 
|By: |  | /s/    MARNI
MCKINNEY                                                                  |  |  |  | By: |  | /s/    WILLIAM J.
BRUNNER                                                                                
|    |  | Marni McKinney Vice Chairman and Chief Executive Officer (Principal Executive Officer) |  |  |  |     |  | William J. Brunner Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)



Directors



|    |  |                            |  |  |  |     |  |                            
|--- |  | -------------------------- |  |  |  | --- |  | ---------------------------
|    |  |                            |  | 
|By: |  | /s/    GERALD L. BEPKO     |  |  |  | By: |  | /s/    ROBERT H.
MCKINNEY  
|    |  | Gerald L. Bepko            |  |  |  |     |  | Robert H. McKinney         
|    |  |                            |  | 
|By: |  | /s/    ANAT BIRD           |  |  |  | By: |  | /s/    PHYLLIS W. MINOTT   
|    |  | Anat Bird                  |  |  |  |     |  | Phyllis W. Minott          
|    |  |                            |  | 
|By: |  | /s/    PEDRO P. GRANADILLO |  |  |  | By: |  | /s/    MICHAEL L. SMITH    
|    |  | Pedro P. Granadillo        |  |  |  |     |  | Michael L. Smith           
|    |  |                            |  | 
|By: |  | /s/    WILLIAM G. MAYS     |  |  |  | By: |  | /s/    ROBERT H.
WARRINGTON
|    |  | William G. Mays            |  |  |  |     |  | Robert H. Warrington       
|    |  |                            |  | 
|By: |  | /s/    MARNI
MCKINNEY      |  |  |  |     |  |                            
|    |  | Marni McKinney             |  |  |  |     |  |                            



87