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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



(Mark One)



xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2002



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                  |  | 35-1692825                       
|------------------------ |  | ---------------------------------
|(State of Incorporation) |  | (IRS Employer Identification No.)



|135 N. Pennsylvania St. Indianapolis, Indiana |  | 46204     
|--------------------------------------------- |  | ----------
|(Address of principal executive offices)      |  | (Zip Code)



Registrants telephone number, including area code:

(317) 269-1200



Securities Registered Pursuant to Section 12(b) of the Act:

NONE



Securities Registered Pursuant to Section 12(g) of the Act:



Title of Each Class

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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. ̈



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: $196,934,000 as of March 4, 2003.



On March 4, 2003, the registrant had 15,598,480
shares of common stock outstanding, $0.01 par value.



Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2003 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   
|           |  | Description of Business                                                               |  | 4   
|           |  | Critical Accounting Policies                                                          |  | 4   
|           |  | Statement of Earnings Analysis                                                        |  | 6   
|           |  | Financial Condition                                                                   |  | 11  
|           |  | Asset Quality                                                                         |  | 18  
|           |  | Liquidity and Market Risk Management                                                  |  | 22  
|           |  | Capital                                                                               |  | 26  
|           |  | Impact of Inflation and Changing Prices                                               |  | 27  
|           |  | Impact of Accounting Standards Not Yet Adopted                                        |  | 27  
|           |  | Fourth Quarter Summary                                                                |  | 28  
|           |  | Consolidated Financial Statements                                                     |  | 29  
|           |  | Notes to Consolidated Financial Statements                                            |  | 33  
|           |  | Independent Auditors Report                                                          |  | 58  
|           |  | Statement of Management Responsibility                                                |  | 59  
|Item 1.    |  | Business                                                                              |  | 60  
|           |  | Description of Business                                                               |  | 4   
|           |  | Business Segments                                                                     |  | 55  
|           |  | Competition                                                                           |  | 33  
|           |  | Supervision and Regulation                                                            |  | 60  
|           |  | Employees                                                                             |  | 60  
|           |  | Reports on Corporation Website                                                        |  | 60  
|           |  | Liquidity and Market Risk Management                                                  |  | 22  
|           |  | Financial Review                                                                      |  | 3   
|Item 2.    |  | Properties                                                                            |  | 61  
|Item 3.    |  | Legal Proceedings                                                                     |  | 61  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 61  
|          
|Part II    |  |                                                                                       |  |     
|Item 5.    |  | Market for Registrants Common Equity and Related Shareholder Matters                 |  | 61  
|Item 6.    |  | Selected Financial Data                                                               |  | 62  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 62  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 62  
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 62  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 62  
|          
|Part III   |  |                                                                                       |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 63  
|Item 11.   |  | Executive Compensation                                                                |  | 64  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 64  
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 64  
|Item 14.   |  | Controls and Procedures                                                               |  | 64  
|          
|Part IV    |  |                                                                                       |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 65  
|Signatures |  | 67                                                                                   





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FINANCIAL REVIEW



Statements contained in this Annual Report on Form 10-K that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) which involve
significant risks and uncertainties. First Indiana Corporation intends such forward-looking statements to be covered by the safe-harbor provisions in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes
of invoking these safe-harbor provisions. First Indianas ability to predict results or the actual effect of future plans or strategies is inherently uncertain, and involves a number of risks and uncertainties. In particular, among the factors
that could cause actual results to differ materially are changes in interest rates, loss of deposits and loan demand to other financial institutions, substantial changes in financial markets in general or the loan market in particular, changes in
the real estate market, statutory or regulatory changes, or unanticipated results in pending legal proceedings. 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.



FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA



|(Dollars in Thousands, Except Per Share Data)        |  | 2002 |            |   | 2001 |   |            | 2000 |  |   | 1999       |   |  | 1998 |           
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ----------
|Year-End Balance Sheet Data                          |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Total Assets                                         |  | $    | 2,125,214  |   |      | $ | 2,046,657  |      |  | $ | 2,085,997  |   |  | $    | 1,979,774 
|Investment Securities                                |  |      | 160,948    |   |      |   | 170,354    |      |  |   | 180,375    |   |  |      | 178,246   
|Loans                                                |  |      | 1,837,633  |   |      |   | 1,756,486  |      |  |   | 1,784,475  |   |  |      | 1,702,181 
|Business                                             |  |      | 501,213    |   |      |   | 443,461    |      |  |   | 263,750    |   |  |      | 211,005   
|Residential                                          |  |      | 311,324    |   |      |   | 292,503    |      |  |   | 466,125    |   |  |      | 481,034   
|Other                                                |  |      | 1,025,096  |   |      |   | 1,020,522  |      |  |   | 1,054,600  |   |  |      | 1,010,142 
|Deposits                                             |  |      | 1,339,204  |   |      |   | 1,379,478  |      |  |   | 1,399,983  |   |  |      | 1,312,115 
|Non-Interest-Bearing Demand                          |  |      | 180,389    |   |      |   | 165,023    |      |  |   | 123,836    |   |  |      | 113,780   
|Interest-Bearing Demand                              |  |      | 179,751    |   |      |   | 140,175    |      |  |   | 115,651    |   |  |      | 117,674   
|Savings                                              |  |      | 398,752    |   |      |   | 447,832    |      |  |   | 375,331    |   |  |      | 361,179   
|Certificates of Deposit                              |  |      | 580,312    |   |      |   | 626,448    |      |  |   | 785,165    |   |  |      | 719,482   
|Short-Term Borrowings                                |  |      | 170,956    |   |      |   | 121,082    |      |  |   | 117,725    |   |  |      | 98,754    
|Federal Home Loan Bank Advances                      |  |      | 346,532    |   |      |   | 296,647    |      |  |   | 336,754    |   |  |      | 366,854   
|Trust Preferred Securities                           |  |      | 11,797     |   |      |   |           |      |  |   |           |   |  |      |          
|Shareholders Equity                                 |  |      | 221,211    |   |      |   | 209,031    |      |  |   | 198,812    |   |  |      | 177,103   
|Selected Operations Data                             |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Net Interest Income                                  |  | $    | 73,780     |   |      | $ | 74,049     |      |  | $ | 77,768     |   |  | $    | 70,851    
|Provision for Losses on Loans                        |  |      | 20,756     |   |      |   | 15,228     |      |  |   | 9,756      |   |  |      | 9,410     
|Non-Interest Income                                  |  |      | 46,765     |   |      |   | 43,963     |      |  |   | 25,638     |   |  |      | 26,958    
|Non-Interest Expense                                 |  |      | 66,502     |   |      |   | 70,501     |      |  |   | 53,728     |   |  |      | 52,346    
|Net Earnings                                         |  |      | 21,180     |   |      |   | 20,009     |      |  |   | 24,817     |   |  |      | 22,733    
|Basic Earnings Per Common Share                      |  |      | 1.36       |   |      |   | 1.29       |      |  |   | 1.58       |   |  |      | 1.45      
|Diluted Earnings Per Common Share                    |  |      | 1.34       |   |      |   | 1.25       |      |  |   | 1.55       |   |  |      | 1.42      
|Dividends Declared Per Common Share                  |  |      | 0.640      |   |      |   | 0.512      |      |  |   | 0.448      |   |  |      | 0.416     
|Selected Ratios                                      |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Net Interest Margin                                  |  |      | 3.73       | % |      |   | 3.69       | %    |  |   | 3.90       | % |  |      | 3.92      
|Return on Average Total Assets                       |  |      | 1.02       |   |      |   | 0.95       |      |  |   | 1.20       |   |  |      | 1.20      
|Return on Average Shareholders Equity               |  |      | 9.66       |   |      |   | 9.60       |      |  |   | 13.28      |   |  |      | 13.37     
|Average Shareholders Equity to Average Total Assets |  |      | 10.51      |   |      |   | 9.89       |      |  |   | 9.04       |   |  |      | 9.00      
|Book Value per Share                                 |  |      | 14.23      |   |      |   | 13.54      |      |  |   | 12.77      |   |  |      | 11.31     
|Dividend Payout Ratio                                |  |      | 47.06      |   |      |   | 39.69      |      |  |   | 28.35      |   |  |      | 28.69     
|Average Common Shares Outstanding                    |  |      |            |   |      |   |            |      |  |   |            |   |  |      |           
|Basic                                                |  |      | 15,537,186 |   |      |   | 15,569,956 |      |  |   | 15,716,234 |   |  |      | 15,722,681
|Diluted                                              |  |      | 15,809,380 |   |      |   | 15,998,976 |      |  |   | 15,997,179 |   |  |      | 16,049,598



All
share and per share data has been restated to reflect the five-for-four stock split declared on January 16, 2002.





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DESCRIPTION OF BUSINESS



First Indiana Corporation (First Indiana or the Corporation) is an Indiana corporation formed in 1986. The Corporation is the holding company for First Indiana Bank, N.A. (the Bank), the largest
bank headquartered in Indianapolis; and Somerset Financial Services, LLC (Somerset), an accounting and consulting firm. The Somerset Group, Inc. (the parent of Somerset) was acquired by the Corporation in a merger completed on September
29, 2000.



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. The acquisition will be accounted for using the
purchase method of accounting, and, accordingly, the financial results of the acquired entity will be 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 purchase price was approximately $38,000,000. Upon completion of the merger, First Indiana had approximately $2,300,000,000 in assets and 33 banking centers
in Central Indiana. The merger gives First Indiana the largest market share of deposits in Hamilton County, which is the fastest growing county in the Midwest.



In the third quarter of 2001, the Federal Reserve Board approved the Corporations bank holding company application, and the
Comptroller of the Currency approved the conversion of First Indiana Bank from a federal savings bank to a national bank. Effective August 1, 2001, First Indiana Bank became a national bank and the thrift charter was surrendered. 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 or incidental to a financial activity.



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 33 offices in central Indiana. The Bank also originates home equity loans in 46 states through Bank
loan officers and an independent agent network. The Bank has construction and consumer loan service offices in Indiana, Arizona, Florida, Illinois, North Carolina, Oregon, and Ohio. One Investment Partners, a subsidiary of the Bank, purchases and
sells loan participations originated outside of Indiana by the Bank and others in the secondary market.



Through Somerset and a division of First Indiana Bank, FirstTrust Indiana, First Indiana offers a full array of financial services,
including tax planning and preparation, accounting services, retirement and estate planning, and investment advisory and trust services. Somerset also has an extensive consulting practice spanning construction services, health care, entrepreneurial
activities, real estate, information technology, and risk management.



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. 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



An allowance has been established for 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.



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Management believes that this allowance is adequate for the 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 economic conditions. 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.



Loan Servicing Rights



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. 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 carrying value 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, which are subject to change over time. Changes in these underlying assumptions
could cause the fair value of loan servicing rights, and the related valuation allowance, to change significantly in the future.



Goodwill



On January 1, 2002, the Corporation adopted the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets.
Statement No. 142, which requires that goodwill and other intangible assets with indefinite useful lives be tested for impairment at least annually in accordance with the provisions of the Statement. When the Corporation adopted Statement No. 142,
the Corporation assigned assets and liabilities, including goodwill, to each business segment to determine its fair value. Business segments assigned goodwill were Commercial, Retail Banking, and Somerset. This initial test indicated that the fair
value of each segment assigned goodwill exceeded its recorded investment (thus goodwill was not impaired). Risk factors considered in determining segment fair value included future loan and deposit originations (and related revenues generated from
this activity), future fee revenues and costs associated with the services provided by each segment, and the continued commitment of Corporation resources to each segment. Future tests for impairment will also use this method. Should any of these
risk factors change, the fair value of a segment could deteriorate, resulting in goodwill impairment and the write down of goodwill.



Valuation Allowance for Deferred 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.



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STATEMENT OF EARNINGS ANALYSIS



Earnings Summary



First
Indiana reported net income of $21,180,000, or $1.34 per diluted share, in 2002, compared to $20,009,000, or $1.25 per diluted share, in 2001. Net income in 2000 was $24,817,000, or $1.55 per diluted share. 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 which surfaced in the fourth quarter and the uncertainty of the economic environment in Indiana, which has continued to
experience a deeper economic slowdown than most of the United States. Earnings in 2001 were unfavorably affected by an increase of $5,472,000 in the provision for loan losses over 2000 and the charge-off of $4,066,000 of overdrafts by a construction
loan client. The results of Somerset have been included in the Corporations results since its merger on September 29, 2000.



Returns on average common equity and average assets for 2002 were 9.66 percent and 1.02 percent, respectively, compared to 9.60 percent
and 0.95 percent in 2001 and 13.28 percent and 1.20 percent in 2000.



On January 16, 2002, the Board of Directors approved a five-for-four stock split to be effected on February 27, 2002, to shareholders of record as of February 13, 2002. All share and per share information has been restated
to reflect the stock split.



Net Interest Income



Net interest income is the principal source
of First Indianas earnings. Net interest income is interest income on earning assets less interest expense on interest-bearing liabilities. Net interest income is affected by several factors, including the volume, pricing, mix and maturity of
earning assets and interest-bearing liabilities, interest rate fluctuations, and asset quality.



Net interest income was $73,780,000 in 2002, compared with $74,049,000 in 2001 and $77,768,000 in 2000. Earning assets averaged $1,976,904,000 in 2002 compared to $2,006,008,000 in 2001 and
$1,994,909,000 in 2000. Strategic growth in business and commercial real estate loans in 2002 was offset by heavy prepayments in both residential mortgage and consumer loans. Net interest margin is calculated as the percentage of net interest income
to average earning assets. Net interest margin was 3.73 percent in 2002, compared to 3.69 percent in 2001 and 3.90 percent in 2000. Net interest margin improved during each of the first three quarters of 2002 due to a relatively stable interest rate
environment which allowed the repricing of funding liabilities downward to catch up with the earning asset repricing. The 50 basis point rate cut by the Federal Reserve Board in the fourth quarter of 2002 placed additional pressure on the
Corporations net interest margin due to the Banks net asset-sensitive position within a one-year time period. If the Federal Reserve Board maintains its current rate structure or increases rates, First Indianas net interest margin
should improve in 2003. See Asset/Liability Management for a more detailed discussion of the Corporations management of interest rate risk.



The Federal Reserve Open Market Committee reduced interest rates 11 times in 2001 and rapidly falling interest rates, combined with a net
asset-sensitive position within a one-year time period, put downward pressure on net interest income and net interest margin in 2001. An 11 percent increase in lower-cost demand and savings deposits on average in 2001 helped to partially offset the
impact of the rate reductions on net interest margin.



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 2002 was 3.25 percent, compared with 3.02 percent in 2001 and 3.18 percent in 2000.



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. Average interest-free funds provided 48 basis points to the margin in 2002, compared with 67 basis points in 2001 and 72 basis points in 2000. Although
interest-free funds increased on average in 2002, their impact declined compared to 2001 and 2000 due to the relatively lower interest rate environment.





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Net Interest Margin



|                                                      |  | 2002            |           |          | 2001 |             |  | 2000 |                
|----------------------------------------------------- |  | --------------- | --------- | -------- | ---- | ----------- |  | ---- | ---------------
|(Dollars in Thousands)                                |  | Average Balance |           | Interest |      | Yield/ Rate |  |      | Average Balance
|Assets                                                |  |                 |           |          |      |             |  |      |                
|Federal Funds Sold                                    |  | $               | 1,412     |          | $    | 20          |  | 1.41 | %              
|Securities Available for Sale                         |  |                 | 145,172   |          |      | 8,501       |  | 5.86 |                
|Federal Home Loan Bank and Federal Reserve Bank Stock |  |                 | 22,491    |          |      | 1,363       |  | 6.06 |                
|Loans (1)                                             |  |                 |           |          |      |             |  |      |                
|Business                                              |  |                 | 478,151   |          |      | 26,889      |  | 5.62 |                
|Consumer                                              |  |                 | 678,640   |          |      | 50,197      |  | 7.40 |                
|Residential Mortgage                                  |  |                 | 293,316   |          |      | 18,683      |  | 6.37 |                
|Single-Family Construction                            |  |                 | 223,567   |          |      | 11,795      |  | 5.28 |                
|Commercial Real Estate                                |  |                 | 134,155   |          |      | 8,475       |  | 6.32 |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Total Loans                                           |  |                 | 1,807,829 |          |      | 116,039     |  | 6.42 |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Total Earning Assets                                  |  |                 | 1,976,904 |          |      | 125,923     |  | 6.37 |                
|Other Assets                                          |  |                 | 107,356   |          |      |             |  |      |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Total Assets                                          |  | $               | 2,084,260 |          |      |             |  |      |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Liabilities and Shareholders Equity                  |  |                 |           |          |      |             |  |      |                
|Interest-Bearing Deposits                             |  |                 |           |          |      |             |  |      |                
|Demand Deposits                                       |  | $               | 162,822   |          | $    | 1,319       |  | 0.81 | %              
|Savings Deposits                                      |  |                 | 418,224   |          |      | 5,582       |  | 1.33 |                
|Certificates of Deposit                               |  |                 | 658,934   |          |      | 30,075      |  | 4.56 |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Total Interest-Bearing Deposits                       |  |                 | 1,239,980 |          |      | 36,976      |  | 2.98 |                
|Short-Term Borrowings                                 |  |                 | 126,501   |          |      | 2,059       |  | 1.63 |                
|Federal Home Loan Bank Advances                       |  |                 | 301,710   |          |      | 12,962      |  | 4.30 |                
|Trust Preferred Securities                            |  |                 | 2,036     |          |      | 146         |  | 7.16 |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Total Interest-Bearing Liabilities                    |  |                 | 1,670,227 |          |      | 52,143      |  | 3.12 |                
|Non-Interest-Bearing Demand Deposits                  |  |                 | 154,148   |          |      |             |  |      |                
|Other Liabilities                                     |  |                 | 40,737    |          |      |             |  |      |                
|Shareholders Equity                                  |  |                 | 219,148   |          |      |             |  |      |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Total Liabilities and Shareholders Equity            |  | $               | 2,084,260 |          |      |             |  |      |                
|                                                      |  |                 |           |          |      |             |  |      |                
|Net Interest Income/Spread                            |  |                 |           |          | $    | 73,780      |  | 3.25 | %              
|                                                      |  |                 |           |          |      |             |  |      |                
|Net Interest Margin                                   |  |                 |           |          |      |             |  | 3.73 | %              
|                                                      |  |                 |           |          |      |             |  |      |                

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|(1) |  | Included in loans are loans held for sale totaling $50.1 million, $34.9 million, and $49.2 million in 2002, 2001, and 2000, and non-accrual loans.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|
|





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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.



|                              |  | 2002 Compared with 2001              |         |   | 2001 Compared with 2000 |  
|----------------------------- |  | ------------------------------------ | ------- | - | ----------------------- | -
|                              |  | Increase (Decrease) Due to Change in |         |   | Net Change              |  
|(Dollars in Thousands)        |  | Rate                                 |         |   | Volume                  |  
|Interest Income               |  |                                      |         |   |                         |  
|Federal Funds Sold            |  | $                                    | (184    | ) |                         | $
|Securities Available for Sale |  |                                      | (731    | ) |                         |  
|FHLB and FRB Stock            |  |                                      | (302    | ) |                         |  
|Loans                         |  |                                      | (28,548 | ) |                         |  
|                              |  |                                      |         |   |                         |  
|                              |  |                                      | (29,765 | ) |                         |  
|                              |  |                                      |         |   |                         |  
|Interest Expense              |  |                                      |         |   |                         |  
|Interest-Bearing Deposits     |  |                                      |         |   |                         |  
|Demand Deposits               |  |                                      | (719    | ) |                         |  
|Savings Deposits              |  |                                      | (8,100  | ) |                         |  
|Certificates of Deposit       |  |                                      | (9,975  | ) |                         |  
|Short-Term Borrowings         |  |                                      | (2,705  | ) |                         |  
|FHLB Advances                 |  |                                      | (4,317  | ) |                         |  
|Trust Preferred Securities    |  |                                      |        |   |                         |  
|                              |  |                                      |         |   |                         |  
|                              |  |                                      | (25,816 | ) |                         |  
|                              |  |                                      |         |   |                         |  
|Net Interest Income           |  | $                                    | (3,949  | ) |                         | $
|                              |  |                                      |         |   |                         |  



Non-Interest Income



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



|                                     |  | Years Ended December 31 |       
|------------------------------------ |  | ----------------------- | ------
|                                     |  | 2002                    |       
|(Dollars in Thousands)               |  |                         | Amount
|Loan and Deposit Charges             |  | $                       | 15,917
|Loan Servicing Income                |  |                         | 413   
|Loan Fees                            |  |                         | 2,723 
|Trust Fees                           |  |                         | 2,614 
|Somerset Fees                        |  |                         | 10,798
|Investment Product Sales Commissions |  |                         | 2,726 
|Sale of Loans                        |  |                         | 8,431 
|Sale of Loan Servicing               |  |                         |      
|Sale of Investment Securities        |  |                         | 312   
|Other                                |  |                         | 2,831 
|                                     |  |                         |       
|                                     |  | $                       | 46,765
|                                     |  |                         |       



Non-interest income totaled $46,765,000 in 2002, compared with $43,963,000 in 2001 and $25,638,000 in 2000. The increase in non-interest income over the three year period is evidence of the Corporations continuing success in
its strategy of expanding client relationships by offering a wide variety of financial products and services.



Loan and deposit charges in 2002 increased 25.9 percent to $15,917,000 following a 73.6 percent increase to $12,643,000 in 2001. The
growth in 2002 and 2001 was in the categories of returned check charges, account analysis fees from business demand accounts, and debit card fees.



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Loan servicing
income was $413,000 in 2002 compared to $962,000 in 2001 and $1,259,000 in 2000. The decrease in loan servicing income is primarily due to increasing residential and home equity prepayment speeds which reduced loan servicing fees and increased
impairment in capitalized loan servicing rights when compared to the prior years. The Corporations residential loans serviced for others decreased to $261,463,000 at December 31, 2002 from $446,268,000 at December 31, 2001 and $611,227,000 at
December 31, 2000. Consumer loans serviced for others were $361,517,000 at year-end 2002, compared to $387,068,000 at year-end 2001 and $368,783,000 at year-end 2000.



Loan fees were $2,723,000 in 2002, down from $3,736,000 in 2001 and $3,367,000 in 2000. The economic slowdown
in 2002 resulted in significantly lower fee income producing activities in business and single-family construction lending when compared to 2001 and 2000.



FirstTrust Indiana, the Banks investment advisory and trust division, completed its fourth full year of operations in 2002. Trust
fees were $2,614,000 in 2002, $2,284,000 in 2001, and $1,727,000 in 2000. Trust fees were up 14.4 percent in 2002 over 2001, following an increase of 32.3 percent in 2001 over 2000. Because a portion of First Trusts fees is based on investment
valuation, fee income growth slowed in 2002 as the market value of managed investments declined. Assets under management by FirstTrust were $658,357,000, $673,668,000, and $593,563,000 at year-end 2002, 2001, and 2000, respectively.



Somerset fees totaled $10,798,000 in 2002, up 13.0 percent
from $9,561,000 in 2001. Somerset fees for 2000 were $2,052,000. Investment and insurance product sales commissions generated by First Indiana Investor Services, the Banks investment and insurance sales subsidiary, were $2,726,000 in 2002,
$1,945,000 in 2001, and $551,000 in 2000. Significant growth in this revenue source in 2002 reflects the higher volume of sales of alternative investment products; a renewed marketing and training emphasis centered on a holistic approach to the
Banks retail clients needs; and the presence of a full-time licensed investment sales representative in most of First Indianas banking centers. Somerset fees and investment product sales commissions were new sources of revenue for
the Corporation resulting from the merger on September 29, 2000.



Gain on the sale of loans totaled $8,431,000 in 2002, compared to $9,240,000 in 2001and $5,050,000 in 2000. Although the volume of loans sold in 2002 increased from 2001, the gain on sale of loans decreased, primarily due to lower
sales prices and profit margins. Although the volume of loans sold in 2001 declined from 2000, the gain on sale of loans increased, primarily due to improved sales prices resulting from declining interest rates. The gain on the sale of loans in 2002
and 2001 consists primarily of gains on the sale of fixed rate home equity loans. Consumer loans sold were $269,534,000 in 2002, compared with $257,698,000 in 2001 and $270,191,000 in 2000. Residential loans sold were $314,000 in 2002, compared with
$2,395,000 in 2001 and $88,053,000 in 2000. The decrease in residential loan sales is consistent with the Banks strategy to de-emphasize the residential mortgage banking business, which resulted in fewer residential loan originations.



During 2000, the Bank sold $216,227,000 in
out-of-market loan servicing at a gain of $1,251,000.



The Corporation recorded a gain on the sale of investment securities of $312,000 in 2002, compared to $543,000 in 2001 and a loss of $168,000 in 2000.



Other non-interest income totaled $2,831,000 in 2002, compared to $3,049,000 in 2001 and $3,267,000 in 2000.
Other non-interest income included a gain on the sale of a former branch building totaling $561,000 in 2001. Amortization of negative goodwill was $1,895,000 for 2000. Negative goodwill was fully amortized by year-end 2000. Customer fee revenue
included in other non-interest income increased over the three-year period as a result of prepayment fees on consumer loans, increased fees, an expanded customer base, and new products.





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Non-Interest Expense



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



|                                           |  | Years Ended December 31 |       
|------------------------------------------ |  | ----------------------- | ------
|                                           |  | 2002                    |       
|(Dollars in Thousands)                     |  |                         | Amount
|Salaries                                   |  | $                       | 30,642
|Benefits                                   |  |                         | 7,162 
|Net Occupancy                              |  |                         | 4,071 
|Equipment                                  |  |                         | 6,040 
|Professional Services                      |  |                         | 4,763 
|Marketing                                  |  |                         | 2,351 
|Telephone, Supplies, and Postage           |  |                         | 3,222 
|Goodwill Amortization                      |  |                         |      
|Other Real Estate Owned OperationsNet     |  |                         | 144   
|Deposit Insurance                          |  |                         | 242   
|Miscellaneous                              |  |                         | 7,865 
|                                           |  |                         |       
|                                           |  | $                       | 66,502
|                                           |  |                         |       
|Full Time Equivalent Staff at Year-End     |  |                         | 723   
|Efficiency RatioFirst Indiana Corporation |  |                         | 55.17 
|Efficiency RatioFirst Indiana Bank        |  |                         | 50.24 



Non-interest expense in 2002 was $66,502,000, compared to $70,501,000 in 2001. Included in 2001 miscellaneous non-interest expense was the write-off of $4,066,000 in overdrafts by a construction loan client. Salary expense was
$30,642,000 in 2002 compared to $30,630,000 in 2001. The challenges facing the Corporation in 2002 and late 2001 resulted in the elimination of the payment of a management incentive bonus in both years. In 2002, multi-year incentive awards and
restricted stock awards were forfeited and the compensation expense associated with these awards which began accruing in 2000 was reversed. Excluding the impact of management incentive and restricted stock awards and the reversal of such accruals in
2002, salary expense was $31,662,000 in 2002 compared to $29,461,000 in 2001, an increase of 7.5 percent. This increase consisted of salaries for new associates in strategically targeted business segments including commercial, retail banking, and
Somerset. Employee benefits in 2002 increased $1,072,000, or 17.6 percent, due to the staffing increases mentioned above, increased medical insurance premiums, and higher pension expense. Expense categories benefiting from expense control efforts in
2002 (when compared to 2001) were equipment expense, marketing, and telephone, supplies, and postage expense. These categories saw a total decrease of $1,382,000 in 2002. Due to the adoption of a new accounting standard, First Indiana ceased
amortization of goodwill in 2002. Goodwill amortization in 2001 was $920,000.



Non-interest expense in 2001 was $70,501,000, compared to $53,728,000 in 2000. The inclusion of The Somerset Group following the merger on September 29, 2000 increased non-interest expense in 2001 by
$10,647,000. The increase in salaries and benefits, net occupancy, equipment, and goodwill amortization expense in 2001 over 2000 is primarily due to the addition of The Somerset Groups operations. Professional services expense increased in
2001, primarily due to expenses associated with legal fees incurred for new loans and problem loans and expenses incurred to change the Banks charter from a thrift to a national bank and for acquisition initiatives. Marketing expense was
$2,424,000 in 2001, compared to $2,910,000 in 2000. Miscellaneous non-interest expense totaled $11,352,000 in 2001 compared to $6,207,000 in the prior year. The write-off of $4,066,000 in overdrafts by a construction loan client is included in
miscellaneous non-interest



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expense in 2001. Other factors influencing the increase in miscellaneous non-interest expense include expenses associated with a new retail
product offering, new selective insurance coverage relating to high loan-to-value loans, and price increases in general insurance.



The Corporations efficiency ratio for the year 2002 was 55.17 percent, compared to 59.74 percent in 2001 and 51.96 percent in 2000.
Excluding the impact of the write-off of the overdrafts from a construction loan client, the efficiency ratio would have been 56.30 percent for 2001. In 2002, the efficiency ratio decreased from the 2001 adjusted efficiency ratio due in large part
to the increased level of non-interest income and the expense control reflected in lower non-interest expense. In 2001, the efficiency ratio increased from its historical levels due to the merger of The Somerset Group, which by the nature of its
business has a higher level of non-interest expense as a percentage of revenue. Additionally, the decrease in net interest income in 2001 compared to 2000 had a negative impact on the efficiency ratio. The efficiency ratio of First Indiana Bank,
N.A. for the year 2002 was 50.24 percent, compared to 53.61 percent in 2001 and 48.03 percent in 2000. The overdraft write-off of $4,066,000 had the effect of increasing the Banks efficiency ratio 375 basis points in 2001.



Income Tax Expense



The following table shows the Corporations income
before income taxes, as well as applicable income taxes and effective tax rates for each of the past three years.



|(Dollars in Thousands)     |  | 2002 |        |   | 2001 |   |        | 2000 | 
|-------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|Income Before Income Taxes |  | $    | 33,287 |   |      | $ | 32,283 |      | 
|Income Taxes               |  |      | 12,107 |   |      |   | 12,274 |      | 
|Effective Tax Rate         |  |      | 36.4   | % |      |   | 38.0   | %    | 



The
Corporations effective tax rate has remained relatively stable over the past three years. Additional data on income taxes can be found in Note 13 of the Notes to Consolidated Financial Statements.



FINANCIAL CONDITION



First Indianas total assets at December 31, 2002 were $2,125,214,000, compared to $2,046,657,000 at December 31, 2001.



Loans



General.Loans outstanding totaled $1,837,633,000 at year-end 2002, a 4.6 percent increase from $1,756,486,000 one year earlier.
Growth occurred in the targeted portfolios of business and commercial real estate loans, while consumer and residential mortgage loans outstanding held steady as loan originations and purchases were offset by prepayments due to the lower interest
rate environment in 2002.



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.



|                                 |  | At December 31 |          
|-------------------------------- |  | -------------- | ---------
|                                 |  | 2002           |          
|(Dollars in Thousands)           |  | Amount         |          
|Commercial Loans                 |  |                |          
|Business Loans                   |  | $              | 501,213  
|Single-Family Construction Loans |  |                | 212,772  
|Commercial Real Estate Loans     |  |                | 146,174  
|Consumer Loans                   |  |                |          
|Home Equity Loans                |  |                | 654,930  
|Other Consumer Loans             |  |                | 11,220   
|Residential Mortgage Loans       |  |                | 311,324  
|                                 |  |                |          
|Total Loans                      |  | $              | 1,837,633
|                                 |  |                |          



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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. Over the past four years, First Indiana has expanded its efforts in commercial lending and
treasury management services. Rather than concentrating exclusively on lending transactions, First Indianas sales force seeks to be its clients Trusted Advisor by taking a holistic approach to its customers, with the goal of learning
about all of their business and personal needs and recommending a comprehensive solution, including treasury management services, benefits consulting, and tax and estate planning. First Indianas merger with The Somerset Group was designed to
facilitate this holistic approach.



The
commercial segment of the loan portfolio is diversified by industry and by relative size of loan relationships. The average outstanding balance of all commercial loans was $267,000 at December 31, 2002.



Business loans include loans to small and middle-market
companies in central Indiana. As reflected in the table above, First Indianas strategies have resulted in significant growth in business loans in each of the last four years. Business loans increased 13.0 percent to $501,213,000 at December
31, 2002, compared with $443,461,000 one year earlier. Business loans as a percentage of total loans have grown from 9.1 percent in 1998 to 27.3 percent in 2002. Strategies for 2003 and beyond call for continued growth in this market segment.



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. This diversification minimizes industry concentration risks and allows for management of risks due to changing economic conditions. The Bank had 12.0 percent of business loan commitments to a single industry group
(specialty finance) at December 31, 2002. The next highest industry group concentration was 10.0 percent of business loan commitments (real estate). The Bank has 122 loan relationships with commitments over $1,000,000.



Single-family construction loans are made both to builders and
to individuals. The Bank originates construction loans through its lending offices in Indianapolis, Indiana; Charlotte and Raleigh, North Carolina; Phoenix, Arizona; and Orlando, Florida. These loans have terms ranging from six months to one year.
At December 31, 2002 and 2001, the Banks construction loans outstanding equaled $212,772,000 and $224,926,000, respectively.



Commercial real estate loans were $146,174,000 at December 31, 2002, compared to $120,485,000 one year earlier. Included in commercial
real estate loans at December 31, 2002 and 2001, are $76,988,000 and $69,277,000 in land development loans, which are exclusively for the acquisition and development of land into individual single-family building lots in Indianapolis, Indiana;
Charlotte and Raleigh, North Carolina; Phoenix, Arizona; and Orlando, Florida. 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 includes office buildings, strip centers, and multi-family units primarily in the Indianapolis market area. The usual term of these loans is three to five years.



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The following
table presents the remaining maturities and interest rate sensitivity of business and single-family construction loans at December 31, 2002.



|                           |  | Remaining Maturities |         |                             |   |                 | 
|-------------------------- |  | -------------------- | ------- | --------------------------- | - | --------------- | 
|(Dollars in Thousands)     |  | One Year or Less     |         | Over One Year to Five Years |   | Over Five Years | 
|Type of Loan:              |  |                      |         |                             |   |                 | 
|Business                   |  | $                    | 423,739 |                             | $ | 70,994          | 
|Single-Family Construction |  |                      | 202,133 |                             |   | 10,639          | 
|                           |  |                      |         |                             |   |                 | 
|Total                      |  | $                    | 625,872 |                             | $ | 81,633          | 
|                           |  |                      |         |                             |   |                 | 
|Rate Sensitivity:          |  |                      |         |                             |   |                 | 
|Fixed-Rate                 |  | $                    | 21,936  |                             | $ | 70,994          | 
|Adjustable-Rate            |  |                      | 603,936 |                             |   | 10,639          | 
|                           |  |                      |         |                             |   |                 | 
|Total                      |  | $                    | 625,872 |                             | $ | 81,633          | 
|                           |  |                      |         |                             |   |                 | 



Consumer Loans.At December 31, 2002, consumer loans totaled $666,150,000 compared with $675,111,000 and $748,290,000 at December 31, 2001 and 2000, respectively. Consumer loans primarily include home equity loans and home
equity lines of credit. The Bank experienced a decrease in consumer loans outstanding in 2002 and 2001 as a result of prepayments. Additionally, the balance of consumer loans held for sale was lower at year-end 2001 than year-end 2000. 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, 2002, 98.3 percent were secured by first or second mortgages on real
property. In connection with an expanded strategy to begin selling home equity lines of credit into the secondary market, during 2002 the Bank sold $33,584,000 of these variable rate loans out of its portfolio. 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. At December 31, 2001 and 2000, the Bank had $34,756,000 and $48,882,000 in home equity loans held for sale, respectively, which did
not include any home equity lines of credit.



The
Bank originates a full range of fixed rate and adjustable rate consumer loans with varying levels of credit risk. These range from A credits to the Banks retail customers, which may be kept in the portfolio, to sub-prime credits,
which are originated for sale. The sub-prime loans carry a loan-to-value ratio of up to 115 percent. The Bank typically retains the lower loan-to-value loans in its portfolio and sells the higher credit risk and/or higher loan-to-value loans. The
Bank has a group of investors that regularly purchase these loans. During 2002, the Bank sold $269,534,000 in consumer loans, compared to $257,698,000 in 2001 and $270,191,000 in 2000. Additionally, the Bank makes loans secured by deposits and
overdraft loans in connection with its checking accounts; auto loans; fixed-rate, fixed-term secured and unsecured loans; and Visa credit cards through an agent.



Residential Mortgage Loans.Residential mortgage loans outstanding totaled $311,324,000 at
December 31, 2002, compared to $292,503,000 and $466,125,000 at year-end 2001 and 2000, respectively. Due to historically low residential loan interest rates in 2002, First Indiana experienced significant loan prepayments in its residential
loan portfolio. In 2002, the Bank originated $14,264,000 and purchased $142,492,000 in primarily adjustable rate residential mortgage loans. This compares to loan originations of $771,000 in 2001 and $42,821,000 in 2000. The Bank did not purchase
residential mortgage loans in 2001 or 2000. 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 2002, the Bank pursued a strategy of maintaining a level of diversification by originating and purchasing these loans. Sales of residential mortgage loans into the secondary market in
2002, 2001, and 2000 were $314,000, $2,395,000, and $88,053,000, respectively. Sales in 2000 included $76,121,000 of low-yielding residential loans, which were sold in order to free up liquidity to originate business and consumer loans. Gains on
residential loan sales in 2002 were $40,000 compared to $63,000 in 2001 and losses of $1,234,000 during 2000.





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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.



Origination of Loans.Loan originations
come from a number of sources. Business loans are originated through Bank loan officers and banking center managers. Construction loan originations are obtained primarily by direct solicitation of builders and repeat business from builders.
Multi-family and commercial real estate loan originations are obtained from previous borrowers and direct contacts with the Bank. Consumer loans are obtained directly through retail clients and from loan brokers through the Banks loan
originators. The Bank originates home equity and residential mortgage loans through a national network of loan originators in 46 states and through the Banks loan originators. Home equity and residential mortgage loan originations are brokered
into the secondary market or retained in the Banks portfolio.



The Bank obtains title insurance on many secured properties and requires borrowers to obtain hazard insurance and, if applicable, flood insurance. First Indianas appraisers note any obvious environmental problems, and
the title companies used to close loans give the Bank an endorsement insuring over any existing environmental liens.



Interest rates charged by the Bank on its loans are affected primarily by the demand for such loans and the supply of money available for
lending purposes. These factors are in turn affected by general economic conditions and such other factors as monetary policies of the federal government, including the Federal Reserve Board; the general supply of money in the economy; legislative
tax policies; and governmental budgetary matters.



Servicing Activity.At December 31, 2002, First Indiana serviced approximately $361,517,000 in consumer loans and $261,463,000 in residential loans that had been sold to other investors. As of December 31, 2002, approximately
$120,826,000 in loans, or about 6.6 percent of First Indianas loans receivable, were serviced by others. The total cost of home equity and residential mortgage loans 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 carrying value 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, which are subject to change
over time. Changes in these underlying assumptions could cause the fair value of loan servicing rights, and the related valuation allowance, to change significantly in the future.



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



|                                 |  | Year Ended December 31 |       
|-------------------------------- |  | ---------------------- | ------
|(Dollars in Thousands)           |  | 2002                   |       
|Balance at Beginning of Period   |  | $                      | 9,819 
|Additions                        |  |                        | 2,288 
|Amortization of Servicing Rights |  |                        | (2,585
|Sale of Servicing Rights         |  |                        |      
|Change in Valuation Reserves     |  |                        | (457  
|                                 |  |                        |       
|Balance at End of Period         |  | $                      | 9,065 
|                                 |  |                        |       



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Valuation
allowances were $529,000 and $72,000 at December 31, 2002 and 2001, respectively, with no valuation allowance at December 31, 2000.



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. The Banks current
investment guidelines limit purchases of corporate bonds to an investment rating of A or better.



At December 31, 2002, First Indianas investments totaled $160,948,000, or 7.6 percent of total assets, and consisted primarily of
U.S. government agency securities, mortgage-backed securities, Federal Reserve Bank (FRB) stock, and Federal Home Loan Bank of Indianapolis (FHLB) stock. 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. The balance at December 31, 2002 and 2001, was $900,000. 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. First Indianas investment in FHLB stock was $21,591,000 at December 31, 2002 and 2001. The Bank is required to hold approximately
$17,827,000 of FHLB stock. The Corporations holdings in FHLB stock are redeemable only upon five years notice to the FHLB. For additional information concerning investments held by the Corporation, see the Corporations Consolidated
Financial Statements, including Notes 4 and 5.



The distribution of securities available for sale is detailed below.



|                              |  | December 31
|----------------------------- |  | -----------
|(Dollars in Thousands)        |  | 2002       
|U.S. Government Agencies      |  | $          
|Mortgage-Backed Securities    |  |            
|Other Asset-Backed Securities |  |            
|Corporate Debt Securities     |  |            
|Other Debt Securities         |  |            
|                              |  |            
|Total                         |  | $          
|                              |  |            



At
December 31, 2002, securities available for sale had the following maturity and yield characteristics.



|                              |  | Due in One Year or Less |        |       | Due after One Year through Five Years |   |            | Due after Five Years through Ten Years |         |  | Due after Ten Years |            |  | Total |       
|----------------------------- |  | ----------------------- | ------ | ----- | ------------------------------------- | - | ---------- | -------------------------------------- | ------- |  | ------------------- | ---------- |  | ----- | ------
|(Dollars in Thousands)        |  | Book Value              |        | Yield |                                       |   | Book Value |                                        | Yield   |  |                     | Book Value |  | Yield |       
|U.S. Government Agencies      |  | $                       | 15,305 |       | 6.21                                  | % |            | $                                      | 97,041  |  | 5.49                | %          |  | $     |      
|Mortgage-Backed Securities    |  |                         |       |       |                                      |   |            |                                        | 3,636   |  | 7.15                |            |  |       | 15,930
|Other Asset-Backed Securities |  |                         |       |       |                                      |   |            |                                        | 65      |  | 6.37                |            |  |       |      
|                              |  |                         |        |       |                                       |   |            |                                        |         |  |                     |            |  |       |       
|Total                         |  | $                       | 15,305 |       | 6.21                                  | % |            | $                                      | 100,742 |  | 5.55                | %          |  | $     | 15,930
|                              |  |                         |        |       |                                       |   |            |                                        |         |  |                     |            |  |       |       



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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
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 trust preferred securities.



Deposits.The Bank has a wide variety of deposit
programs designed to attract both short-term and long-term deposits from the general public. These deposit accounts include non-interest-bearing retail and business demand accounts, money market checking accounts, savings accounts, money market
savings accounts, and fixed-rate certificates of deposit. Throughout 2001 and 2002, the Bank has pursued a strategy of building core deposits (primarily demand and savings deposits) while de-emphasizing use of brokered and negotiable certificates of
deposit, FHLB advances, and other wholesale funding sources. Savings account balances declined in 2002 following an unusual increase in 2001 precipitated by the stock market decline and the aftermath of September 11. Nevertheless, as a percentage of
total deposits, demand and savings deposits increased to 56.7 percent at December 31, 2002 compared to 54.6 percent at December 31, 2001 and 43.9 percent at December 31, 2000. In 2003, the Bank plans to continue to increase checking and savings
accounts in an effort to reduce funding costs and strengthen core deposits, which furthers the Banks Trusted Advisor strategy by forming the basis of long-term relationships.



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 at December 31, 2002 |           | 2002 Net Increase (Decrease) |   |         | Balance at December 31, 2001 |  | 2001 Net Increase (Decrease) |           |  | Balance at December 31, 2000 |          | 2000 Net Increase (Decrease) |  |   | Balance at December 31, 1999
|--------------------------- |  | ---------------------------- | --------- | ---------------------------- | - | ------- | ---------------------------- |  | ---------------------------- | --------- |  | ---------------------------- | -------- | ---------------------------- |  | - | ----------------------------
|Non-Interest-Bearing Demand |  | $                            | 180,389   |                              | $ | 15,366  |                              |  | $                            | 165,023   |  | $                            | 41,187   |                              |  | $ | 123,836                     
|Interest-Bearing Demand     |  |                              | 179,751   |                              |   | 39,576  |                              |  |                              | 140,175   |  |                              | 24,524   |                              |  |   | 115,651                     
|Savings                     |  |                              | 398,752   |                              |   | (49,080 | )                            |  |                              | 447,832   |  |                              | 72,501   |                              |  |   | 375,331                     
|CDs Under $100,000          |  |                              | 310,370   |                              |   | (42,396 | )                            |  |                              | 352,766   |  |                              | (48,955  | )                            |  |   | 401,721                     
|CDs $100,000 and Greater    |  |                              | 269,942   |                              |   | (3,740  | )                            |  |                              | 273,682   |  |                              | (109,762 | )                            |  |   | 383,444                     
|                            |  |                              |           |                              |   |         |                              |  |                              |           |  |                              |          |                              |  |   |                             
|Totals                      |  | $                            | 1,339,204 |                              | $ | (40,274 | )                            |  | $                            | 1,379,478 |  | $                            | (20,505  | )                            |  | $ | 1,399,983                   
|                            |  |                              |           |                              |   |         |                              |  |                              |           |  |                              |          |                              |  |   |                             



The Bank
issues certificates of deposit in denominations of $100,000 and greater through brokers as well as directly to public entities such as municipalities and to retail customers through the branches, the Internet, and the Banks Call Center. At
December 31, 2002, these certificates of deposit included $102,192,000 in brokered funds, $93,101,000 in public funds, and $74,649,000 in retail funds. The Banks certificates of deposit of $100,000 or more at December 31, 2002, 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)                       |  | Three Months or Less |         | Over Three Months to Six Months |   | Over Six Months to One Year |  | Over One Year |        | Total |   | Percent of Deposits | 
|-------------------------------------------- |  | -------------------- | ------- | ------------------------------- | - | --------------------------- |  | ------------- | ------ | ----- | - | ------------------- | 
|Certificates of Deposit $100,000 and Greater |  | $                    | 113,567 |                                 | $ | 33,505                      |  | $             | 38,748 |       | $ | 84,122              | 
|                                             |  |                      |         |                                 |   |                             |  |               |        |       |   |                     | 



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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, 2002, the Bank had $346,532,000 in FHLB advances, 16.3 percent of total assets, with a weighted average interest rate of 3.13 percent. Of these
advances, $215,000,000 carried floating interest rates that reset daily or quarterly. The FHLB had the right to require the Bank to repay $110,000,000 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, 2002 federal funds purchased totaled $40,000,000
with a weighted average interest rate of 2.47 percent.



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, 2002, the Bank had repurchase agreements totaling $130,956,000, 6.2 percent of total assets, with a weighted average interest rate of 1.08
percent. First Indianas repurchase agreements are collateralized by qualifying investment securities.



Trust Preferred Securities.On October 30, 2002, First Indiana formed First Indiana Capital Trust I, a wholly owned grantor trust
(grantor trust), to issue $12,000,000 in trust preferred securities to the public. The grantor trust invested the proceeds of such trust preferred securities in junior subordinated notes (Notes) of the Corporation. These
trust preferred securities were issued at a discount of $210,000. The sole assets of the grantor trust are the Notes held by the grantor trust. 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 thereafter. The Notes have a fixed rate of interest of 6.92% through October 30, 2007 and a floating rate of interest, reset quarterly, equal to the London interbank offered rate
(LIBOR) plus 3.35% thereafter to maturity. Interest on the Notes is payable at the end of each calendar quarter. The distribution rate on the trust preferred securities equals the interest rate of the Notes. 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.



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 used the proceeds from the sales of the trust preferred securities to partially fund the purchase of MetroBanCorp in January 2003.



At December 31, 2002, the balance of the trust preferred
securities, net of discount, was $11,797,000 with an aggregate principal amount of $12,000,000.



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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 and, to a lesser
extent, its other real estate owned (OREO) portfolio. There are varying degrees of credit risk within each of the individual loan portfolios. The credit risk is managed through asset selection focusing on portfolio diversification by
loan types and geography, 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 loan review process implemented by the Bank and reporting to the Banks Chief Credit Officer, who reports
directly to the Corporations Chairman and Vice Chairman.



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 OREO. (In addition, at December 31, 2000, non-performing assets included one impaired loan in the amount of $7,118,000 that was current as to interest and principal.)
At December 31, 2002, non-performing assets were $51,756,000 compared to $46,803,000 at December 31, 2001 and $35,141,000 at December 31, 2000. The aggregate credit facilities of the two business banking clients involved in the construction-related
industry totaling $11,378,000 were classified as impaired during the fourth quarter 2002 and $3,000,000 relating to these loans was charged off. Including these two loans, business non-performing assets increased $15,581,000 in 2002. Conversely, the
aggregate of non-performing assets secured by residential real estate decreased $11,458,000 in 2002. At December 31, 2001, non-performing assets increased to $46,803,000 from $35,141,000 one year earlier. During 2001, one loan totaling $7,118,000
that was included in non-performing loans at December 31, 2000 was partially repaid and partially charged off, and the remaining balance of $1,458,000 was included in non-performing loans at December 31, 2001. The charge-off related to this loan was
$2,428,000, for which $1,711,000 had previously been specifically reserved. A commercial clients loans with an aggregate balance of $6,526,000 were classified as impaired during the fourth quarter of 2001 and were carried at the net realizable
value of the collateral pledged to secure the loans. The remainder of the increase in 2001 is principally due to increased defaults in loans secured by residential real estate. These loans are typically charged down to the lower of cost or net
realizable value of the underlying collateral during the period in which they reach 120 days past due.



The amount of interest on non-performing loans that was contractually due in 2002 totaled $4,355,000. Of this amount, $1,721,000 was
actually recorded in 2002.



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##### Table of Contents



Non-Performing Assets



|                                                       |  | December 31 |       
|------------------------------------------------------ |  | ----------- | ------
|                                                       |  | 2002        |       
|(Dollars in Thousands)                                 |  |             |       
|Non-Performing Loans                                   |  |             |       
|Non-Accrual Loans                                      |  |             |       
|Business                                               |  | $           | 20,234
|Consumer                                               |  |             | 9,405 
|Residential Mortgage                                   |  |             | 2,474 
|Single-Family Construction                             |  |             | 4,286 
|Commercial Real Estate                                 |  |             | 2,059 
|                                                       |  |             |       
|Total Non-Accrual Loans                                |  |             | 38,458
|Accruing Loans                                         |  |             |       
|BusinessCurrent as to Interest and Principal          |  |             |      
|BusinessPast Due 90 Days or More                      |  |             | 1,535 
|ConsumerPast Due 90 Days or More                      |  |             | 3,093 
|                                                       |  |             |       
|Total Accruing Loans                                   |  |             | 4,628 
|                                                       |  |             |       
|Total Non-Performing Loans                             |  |             | 43,086
|Other Real Estate Owned, Net                           |  |             | 8,670 
|                                                       |  |             |       
|Total Non-Performing Assets                            |  | $           | 51,756
|                                                       |  |             |       
|Non-Performing Loans to Loans at End of Year           |  |             | 2.34  
|Non-Performing Assets to Loans and OREO at End of Year |  |             | 2.80  



Potential Problem Assets. The Bank had $24,783,000 in potential problem loans at December 31, 2002. Of this amount, $22,514,000 represented loans to business borrowers and $2,269,000 represented loans to land development
borrowers. These loans are currently performing according to their loan agreements, but the borrowers financial operations and financial condition caused the Banks management to question their ability to comply with present repayment
terms in the future. The business loans are collateralized with non-residential real estate and other assets. The land development loans are collateralized with developed lots or land developments in progress and raw land.



Allowance for Loan Losses. The Bank maintains an
allowance for loan losses in an amount adequate to absorb the probable losses inherent in the loan portfolio. 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.



An assessment of the credit risk
of each loan greater than $500,000 in the commercial portfolio, including business, construction, and commercial real estate loans, is completed which results in a risk rating (risk grade). 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.



A target reserve is established for each loan portfolio based on the analysis of the current risk characteristics of each portfolio and
sub-segments of the portfolio. This includes an analysis of empirical data of each portfolios credit performance and portfolio growth and trends, which results in estimated levels of future net charge-offs and delinquencies. These estimates
are then adjusted based on managements judgment regarding specific economic trends and events, other risk factors and general economic conditions affecting individual



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loans, and portfolio performance. The target reserve determined in this analysis for each loan portfolio is applied to the pass loans. A
separate target reserve is established for each portfolio segment of loans that has a risk rating in any of the criticized risk grades. Loans and groups of loans in these risk rating categories pose higher levels of risk to the Bank and are assigned
higher target reserves. The allowance is allocated to each portfolio based on the sum of the target reserves established for the pass and criticized risk rating for each loan portfolio.



In addition to the allowance established for each loan portfolio, the Bank maintains an unallocated allowance
due to the residual losses embedded in the loan portfolios. As discussed above, the target reserve for pass loans and criticized loans is based on the inherent losses in the loan portfolio and on the existing facts and circumstances and
managements judgment thereof. A residual loss is the loss embedded within the loan portfolio and not specifically identified.



Management believes that the Banks allowance is adequate based on information currently available. However, there can be no
assurances that an addition to the allowance will not be required or that the amount of any such addition will not be significant. In addition, various regulatory agencies, as an integral part of their examinations, periodically review the allowance
and may require the Bank to recognize an increase to the allowance based on their judgment about information available at the time of the examination.



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 |       
|--------------------------------------- |  | ----------- | ------
|                                        |  | 2002        |       
|(Dollars in Thousands)                  |  | Amount      |       
|Balance at End of Period Applicable to: |  |             |       
|Business Loans                          |  | $           | 15,959
|Consumer Loans                          |  |             | 17,576
|Residential Mortgage Loans              |  |             | 546   
|Single-Family Construction Loans        |  |             | 1,797 
|Commercial Real Estate Loans            |  |             | 2,154 
|Unallocated                             |  |             | 6,437 
|                                        |  |             |       
|                                        |  | $           | 44,469
|                                        |  |             |       

Summary of Allowance for Loan Loss Activity. The provision for loan losses
was $20,756,000 for 2002, compared to $15,228,000 for 2001 and $9,756,000 for 2000. The increase in the provision in 2002 and 2001 reflects the higher level of non-performing loans and charge-offs and the uncertainty of the economic environment in
Indiana. Net charge-offs for 2002 totaled $13,422,000, compared to $11,671,000 for 2001 and $4,937,000 for 2000. The aggregate credit facilities of two business banking clients involved in the construction-related industry totaling $11,378,000 were
added to non-performing loans in the fourth quarter of 2002, and $3,000,000 relating to these two clients loans was charged off. The increased level of charge-offs in 2001 compared to 2000 primarily resulted from several construction and
business loan relationships. The largest charge-off in 2001 was $2,428,000, which was on a loan previously classified as impaired with a specific reserve of $1,711,000 established. The balance of the charge-offs covered several loan relationships,
the largest of which was $784,000.



The allowance
for loan losses was $44,469,000 at December 31, 2002, or 103.21 percent of non-performing loans.



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While the
allowance for loan losses to loans ratio at December 31, 2002 improved to 2.42 percent (compared to 2.11 percent and 1.88 percent at December 31, 2001 and 2000), charge-offs to average loans deteriorated when compared to prior years. Business loan
charge-offs in 2002 increased significantly from comparable charge-offs in 2001 and 2000 and were the principal reason for the increase in the charge-off ratio. Non-performing loans were $43,086,000 at December 31, 2002 compared to $39,811,000 at
December 31, 2001 and $32,548,000 at December 31, 2000.



Summary of Loan Loss Experience





|                                                          |  | Years Ended December 31 |       
|--------------------------------------------------------- |  | ----------------------- | ------
|(Dollars in Thousands)                                    |  | 2002                    |       
|Balance of Allowance for Loan Losses at Beginning of Year |  | $                       | 37,135
|Charge-Offs                                               |  |                         |       
|Business                                                  |  |                         | 6,813 
|Consumer                                                  |  |                         | 6,323 
|Residential Mortgage                                      |  |                         | 150   
|Single-Family Construction                                |  |                         | 641   
|Commercial Real Estate                                    |  |                         | 729   
|                                                          |  |                         |       
|Total Charge-Offs                                         |  |                         | 14,656
|Recoveries                                                |  |                         |       
|Business                                                  |  |                         | 293   
|Consumer                                                  |  |                         | 851   
|Residential Mortgage                                      |  |                         | 3     
|Single-Family Construction                                |  |                         | 72    
|Commercial Real Estate                                    |  |                         | 15    
|                                                          |  |                         |       
|Total Recoveries                                          |  |                         | 1,234 
|                                                          |  |                         |       
|Net Charge-Offs                                           |  |                         | 13,422
|Provision for Loan Losses                                 |  |                         | 20,756
|                                                          |  |                         |       
|Balance of Allowance for Loan Losses at End of Year       |  | $                       | 44,469
|                                                          |  |                         |       
|Net Charge-Offs to Average Loans                          |  |                         | 0.74  
|Allowance for Loan Losses to Loans at End of Year         |  |                         | 2.42  
|Allowance for Loan Losses to Non-Performing Loans         |  |                         | 103.21



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LIQUIDITY AND MARKET RISK MANAGEMENT



Liquidity Management



First Indiana Corporation conducts its business through subsidiaries. The main sources of funds for the Corporation are dividends from the Bank and a $10,000,000 line of credit with a commercial bank. The Corporation has no
significant assets other than its investments in the Bank and Somerset. In October 2002, the Corporation, through a wholly owned subsidiary First Indiana Capital Trust I, issued $12,000,000 of trust preferred securities to help fund the purchase of
MetroBanCorp in January 2003. For a further description of these securities, see Financial Condition elsewhere in this report.



The Banks primary source of funds is deposits, which were $1,339,204,000 at December 31, 2002 and $1,379,478,000 at December 31,
2001. 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 retail deposits 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 $1,837,633,000 at December 31, 2002 and $1,756,486,000 at December 31, 2001. In addition, the Bank invests in federal funds sold and securities available for sale.



The Corporation had the following obligations to
make payments under long term debt and lease agreements at December 31, 2002.



|(Dollars in Thousands)             |  | 2003 |         | 2004-2005 |   | 2006-2007 |  | After 2007 |       | Total
|---------------------------------- |  | ---- | ------- | --------- | - | --------- |  | ---------- | ----- | -----
|FHLB Advances(1)                   |  | $    | 230,000 |           | $ | 75,650    |  | $          | 173   |      
|Trust Preferred Securities         |  |      |        |           |   |          |  |            |      |      
|Operating Leases                   |  |      | 2,412   |           |   | 4,147     |  |            | 4,069 |      
|                                   |  |      |         |           |   |           |  |            |       |      
|Total Contractual Cash Obligations |  | $    | 232,412 |           | $ | 79,797    |  | $          | 4,242 |      
|                                   |  |      |         |           |   |           |  |            |       |      

---

|(1) |  | The FHLB has the option to require the Bank to repay $110,000,000 at certain designated dates.
|--- |  | ----------------------------------------------------------------------------------------------



At December 31, 2002, the Bank had the following outstanding
commitments to fund loans:



|(Dollars in Thousands)           |  | December 31, 2002
|-------------------------------- |  | -----------------
|Commitments to Fund:             |  |                  
|Business Loans                   |  | $                
|Consumer Loans                   |  |                  
|Home Equity Loans                |  |                  
|Other                            |  |                  
|Residential Mortgage Loans       |  |                  
|Single-Family Construction Loans |  |                  
|Commercial Real Estate Loans     |  |                  
|                                 |  |                  
|                                 |  | $                
|                                 |  |                  



Of the
commitments to fund loans at December 31, 2002, nearly all are commitments to fund variable-rate products.



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At December
31, 2002, the Bank had approximately $15,478,000 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.



The Bank issues commercial letters of credit on behalf of its commercial loan customers in exchange for a fee. At December 31, 2002, outstanding letters of credit totaled $38,630,000. Standby letters
of credit issued to enhance the bond rating of economic development bonds totaled $5,049,000 at December 31, 2002. Should these letters be submitted for payment, the Banks collateral policy requires the assignment of the underlying commercial
real estate. To ensure the completion of infrastructure improvements (sewers, streets, sidewalks, underground utilities, etc.), the Bank had outstanding $1,492,000 of standby letters of credit. These letters were issued to municipal authorities and
utility companies on behalf of the Banks commercial real estate borrowers. The commercial and standby letters of credit are collateralized by all assets of the borrower. Evaluation of the credit risk associated with these letters of credit is
part of the Banks commercial loan review procedures.



Asset/Liability Management



First Indiana engages in rigorous, 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 internal 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s success is largely dependent upon its ability to manage interest rate risk, which is defined as the exposure of the Corporations net interest income and net earnings to changes in interest rates. ALCO is responsible for
managing interest rate risk, and the Corporation has established acceptable limits for interest rate exposure, which are reviewed monthly. 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, 2002, the model forecasts that a 100 basis
point increase in interest rates over a 12-month period would result in a 5.0 percent increase in net interest income while a 100 basis point decrease in interest rates would result in a 5.0 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.



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. It is a static indicator and does not attempt to
predict the net interest income of a dynamic business in a rapidly changing environment. Significant adjustments are made when the rate outlook changes.



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The Federal
Reserve Open Market Committee lowered the federal funds target rate 11 times in 2001. The federal funds target rate on January 1, 2001 was 6.50 percent. At December 31, 2001, the target rate was 1.75 percent, reflecting a 475 basis point decrease.
Rapidly falling interest rates, combined with a net asset-sensitive position within a one-year time period, put downward pressure on net interest income and net interest margin in 2001. In 2002, interest rates remained relatively stable, with only
one 50 basis point federal funds target rate reduction in the fourth quarter. Consequently, First Indianas net interest margin improved in each of the first three quarters of 2002 as liabilities repriced downward. The 50 basis point rate cut
by the Federal Reserve Board in the fourth quarter of 2002 placed additional pressure on the Corporations net interest margin.



At December 31, 2002, First Indianas six-month and one-year cumulative gap stood at a positive 12.11 percent and a positive 17.30
percent of total interest-earning assets. This compares with a positive 5.43 percent and a positive 3.30 percent at December 31, 2001. This means that 12.11 and 17.30 percent of First Indianas assets will reprice within six months and one year
without a corresponding repricing of funding liabilities. The increase in percentage of assets repricing within 180 days is a result of market conditions. In 2002, as rates fell, prepayments on assets increased and the mix of earning assets changed
as loans with fixed terms were replaced by loans that reprice with changes in the prime rate.



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Interest Rate Sensitivity



The following table shows First
Indianas interest rate sensitivity at December 31, 2002 and 2001.



|                                                  |  |                       |   |  | Rate Sensitivity by Period of Maturity or Rate Change at December 31,
2002 |          
|------------------------------------------------- |  | --------------------- | - |  | -------------------------------------------------------------------------- | ---------
|(Dollars in Thousands)                            |  | Weighted Average Rate |   |  | Balance                                                                    |          
|Interest-Earning Assets                           |  |                       |   |  |                                                                            |          
|Securities Available for Sale                     |  | 5.70                  | % |  | $                                                                          | 138,457  
|FHLB and FRB Stock                                |  | 5.80                  |   |  |                                                                            | 22,491   
|Loans (1)                                         |  |                       |   |  |                                                                            |          
|Business Loans                                    |  | 5.11                  |   |  |                                                                            | 501,213  
|Consumer Loans                                    |  | 6.72                  |   |  |                                                                            | 666,150  
|Residential Mortgage Loans                        |  | 5.90                  |   |  |                                                                            | 311,324  
|Single-Family Construction Loans                  |  | 4.85                  |   |  |                                                                            | 212,772  
|Commercial Real Estate Loans                      |  | 5.88                  |   |  |                                                                            | 146,174  
|                                                  |  |                       |   |  |                                                                            |          
|                                                  |  | 5.85                  |   |  | $                                                                          | 1,998,581
|                                                  |  |                       |   |  |                                                                            |          
|Interest-Bearing Liabilities                      |  |                       |   |  |                                                                            |          
|Deposits                                          |  |                       |   |  |                                                                            |          
|Demand Deposits (2)                               |  | 0.61                  |   |  | $                                                                          | 179,751  
|Savings Deposits (2)                              |  | 1.14                  |   |  |                                                                            | 398,752  
|Certificates of Deposit Under $100,000            |  | 3.80                  |   |  |                                                                            | 310,370  
|Certificates of Deposit $100,000 or Greater       |  | 4.08                  |   |  |                                                                            | 269,942  
|                                                  |  |                       |   |  |                                                                            |          
|                                                  |  | 2.46                  |   |  |                                                                            | 1,158,815
|Borrowings                                        |  |                       |   |  |                                                                            |          
|Short-Term Borrowings                             |  | 1.16                  |   |  |                                                                            | 170,956  
|FHLB Advances                                     |  | 3.13                  |   |  |                                                                            | 346,532  
|Trust Preferred Securities                        |  | 7.28                  |   |  |                                                                            | 11,797   
|                                                  |  |                       |   |  |                                                                            |          
|                                                  |  | 2.45                  |   |  |                                                                            | 1,688,100
|                                                  |  |                       |   |  |                                                                            |          
|NetOther(3)                                      |  |                       |   |  |                                                                            | 310,481  
|                                                  |  |                       |   |  |                                                                            |          
|Total                                             |  |                       |   |  | $                                                                          | 1,998,581
|                                                  |  |                       |   |  |                                                                            |          
|Rate-Sensitivity Gap                              |  |                       |   |  |                                                                            |          
|                                                  |  |                       |   |  |                                                                            |          
|December 31, 2002 Cumulative Rate-Sensitivity Gap |  |                       |   |  |                                                                            |          
|                                                  |  |                       |   |  |                                                                            |          
|Percent of Total Interest-Earning Assets          |  |                       |   |  |                                                                            |          
|                                                  |  |                       |   |  |                                                                            |          
|December 31, 2001 Cumulative Rate-Sensitivity Gap |  |                       |   |  |                                                                            |          
|                                                  |  |                       |   |  |                                                                            |          
|Percent of Total Interest-Earning Assets          |  |                       |   |  |                                                                            |          
|                                                  |  |                       |   |  |                                                                            |          

---

|(1) |  | The distribution of fixed-rate loans 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 $50.1 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 without 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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CAPITAL



At December
31, 2002, First Indianas shareholders equity was $221,211,000, or 10.41 percent of total assets, compared with $209,031,000, or 10.21 percent of total assets, at December 31, 2001.



First Indiana paid a quarterly dividend of $0.16 per common
share in 2002. This reflects an increase from a quarterly dividend of $0.128 per share in 2001. On January 16, 2002, the Board of Directors approved a five-for-four stock split. All share and per share information herein has been restated to reflect
the stock split. On January 23, 2003, the Board of Directors approved a three percent quarterly dividend increase from $0.16 per common share to $0.165 per common share. The cash dividend is payable March 14, 2003, to shareholders of record as
of March 5, 2003. This is the 64thconsecutive quarter First Indiana has paid a cash dividend.



See Note 14 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 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. The Corporation and the Bank are required by their respective regulators to maintain minimum capital
ratios. 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, assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk ascribed
to such assets or commitments. The Corporations trust preferred securities are included in its Tier 1 capital and total capital at December 31, 2002.



The following table shows the Corporations and the Banks capital levels and compliance with all capital requirements at
December 31, 2002. Additionally, the Bank exceeds the capital levels set by FDICIA for a bank to be considered well-capitalized.



|                                            |  | December 31, 2002 |        
|------------------------------------------- |  | ----------------- | -------
|                                            |  | Actual            |        
|(Dollars in Thousands)                      |  | Amount            |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |        
|First Indiana Corporation                   |  | $                 | 215,243
|First Indiana Bank                          |  |                   | 176,597
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |        
|First Indiana Corporation                   |  | $                 | 215,243
|First Indiana Bank                          |  |                   | 176,597
|Total Capital to Risk-Weighted Assets       |  |                   |        
|First Indiana Corporation                   |  | $                 | 239,394
|First Indiana Bank                          |  |                   | 200,670



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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 November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantors of Indebtedness of
Others (the Interpretation), which addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. These required disclosures are included in Note 15 of the
Notes to the Consolidated Financial Statements. The Interpretation also requires the recognition of a liability by a guarantor at the inception of certain guarantees.



The Interpretation requires the guarantor to recognize a liability for the non-contingent component of the
guarantee. This is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the
liability is required even if it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements.



As noted above the Corporation has adopted the disclosure
requirements of the Interpretation (see Note 15) and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002.



27



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##### Table of Contents



FOURTH QUARTER SUMMARY



First Indiana posted net earnings of $1,059,000, or $0.07 per diluted share, in the fourth quarter of 2002, compared to a net loss of $372,000, or $0.02 per diluted share, for the same period of 2001. In 2002, fourth quarter earnings
were affected by an increase in the provision for loan losses when compared to prior quarters in 2002 due to increased levels of non-performing loans and loan charge-offs and the uncertainty of the economic situation in Indiana. In 2001, an
increased provision for loan losses and the charge-off of overdrafts by a commercial banking customer led to the net loss for the quarter.



Net Interest Income



Net interest income for the fourth quarter of 2002 was $18,712,000, with a net interest margin of 3.68 percent compared to third quarter
2002 net interest income of $19,401,000 and a net interest margin of 3.88 percent. For the fourth quarter of 2001, net interest income was $17,203,000, with a net interest margin of 3.46 percent. The rapid decline in interest rates in 2001 put
downward pressure on the net interest margin. During 2002, net interest margin improved in each of the first three quarters as funding liability rates decreased. The 50 basis point rate cut by the Federal Reserve Open Market Committee in the fourth
quarter of 2002 placed additional pressure on the Corporations net interest margin due to its net asset-sensitive position within a one-year time period and rapid prepayment speeds on consumer and residential loans. Earning assets averaged
$2,031,823,000 in the fourth quarter of 2002, compared to $1,992,465,000 in the fourth quarter of 2001.



Provision for Loan Losses



The provision for loan losses was $11,005,000 for the fourth quarter of 2002, compared to $2,982,000 for the third quarter of 2002 and $7,875,000 for the fourth quarter of 2001. The provision for loan
losses increased in the fourth quarter of 2002 because of the higher levels of non-performing loans and charge-offs and the uncertainty of the current economic situation. Net charge-offs for the fourth quarter of 2002 were $4,885,000, compared to
$1,986,000 in the third quarter of 2002 and $7,182,000 in the fourth quarter of 2001. The aggregate credit facilities of two business banking clients involved in the construction-related industry totaling $11,378,000 were added to non-performing
loans in the fourth quarter of 2002 and $3,000,000 relating to these two clients loans was charged off during the quarter. The fourth quarter of 2001 included charge-offs from several construction and business loan relationships, the largest
of which had previously been classified as impaired with a specific reserve established. Non-performing loans at December 31, 2002 were $43,086,000 compared to non-performing loans of $31,947,000 at September 30, 2002 and $39,811,000 at December 31,
2001.



Non-Interest Income



Non-interest income for the fourth quarter of 2002 was
$11,205,000, compared to $9,847,000 for the same period in 2001. The increase in non-interest income is primarily the result of returned check charges, gain on the sale of loans, Somerset fees, and consumer loan prepayment and other fees. This
revenue was partially offset by reductions in loan servicing income.



Non-Interest Expense



Non-interest expense for the fourth quarter of 2002 was $17,352,000, compared to $19,764,000 for the fourth quarter of 2001. Included in non-interest expense in the fourth quarter of 2001 is $4,066,000 for the write-off of overdrafts
by a construction loan client. Salaries and benefits in the fourth quarter of 2002 increased $1,405,000 over the comparable 2001 expense and reflect increased staffing in targeted business segments and increased medical insurance premiums and
pension expense and the reversal of the one-year management incentive accrual in the fourth quarter of 2001. Other professional services in the fourth quarter of 2002 were $368,000 higher than expenses in the fourth quarter of 2001 and were
associated with the administration of non-performing loans. Offsetting these increases were decreases in equipment expense and telephone, supplies, and postage expense which were the result of expense control efforts throughout the Corporation. Due
to the adoption of a new accounting standard, the Corporation ceased amortizing goodwill in 2002. The Corporation had goodwill amortization of $228,000 in the fourth quarter of 2001.



28



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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)                                                                      |  | 2002        |          
|Assets                                                                                                             |  |             |          
|Cash                                                                                                               |  | $           | 76,050   
|Securities Available for Sale                                                                                      |  |             | 138,457  
|Federal Home Loan Bank and Federal Reserve Bank Stock                                                              |  |             | 22,491   
|Loans                                                                                                              |  |             | 1,837,633
|Allowance for Loan Losses                                                                                          |  |             | (44,469  
|                                                                                                                   |  |             |          
|Net Loans                                                                                                          |  |             | 1,793,164
|Premises and Equipment                                                                                             |  |             | 21,528   
|Accrued Interest Receivable                                                                                        |  |             | 10,771   
|Goodwill                                                                                                           |  |             | 13,045   
|Other Assets                                                                                                       |  |             | 49,708   
|                                                                                                                   |  |             |          
|Total Assets                                                                                                       |  | $           | 2,125,214
|                                                                                                                   |  |             |          
|Liabilities                                                                                                        |  |             |          
|Non-Interest-Bearing Deposits                                                                                      |  | $           | 180,389  
|Interest-Bearing Deposits                                                                                          |  |             | 1,158,815
|                                                                                                                   |  |             |          
|Total Deposits                                                                                                     |  |             | 1,339,204
|Short-Term Borrowings                                                                                              |  |             | 170,956  
|Federal Home Loan Bank Advances                                                                                    |  |             | 346,532  
|Trust Preferred Securities                                                                                         |  |             | 11,797   
|Accrued Interest Payable                                                                                           |  |             | 2,290    
|Advances by Borrowers for Taxes and Insurance                                                                      |  |             | 1,820    
|Other Liabilities                                                                                                  |  |             | 31,404   
|                                                                                                                   |  |             |          
|Total Liabilities                                                                                                  |  |             | 1,904,003
|                                                                                                                  
|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: 200217,295,351
Shares; 200117,127,770 Shares |  |             | 173      
|Capital Surplus                                                                                                    |  |             | 43,296   
|Retained Earnings                                                                                                  |  |             | 194,738  
|Accumulated Other Comprehensive Income                                                                             |  |             | 4,644    
|Treasury Stock at Cost: 20021,754,891 Shares; 20011,684,476
Shares                                               |  |             | (21,640  
|                                                                                                                   |  |             |          
|Total Shareholders Equity                                                                                         |  |             | 221,211  
|                                                                                                                   |  |             |          
|Total Liabilities and Shareholders Equity                                                                         |  | $           | 2,125,214
|                                                                                                                   |  |             |          



See Notes
to Consolidated Financial Statements



29



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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)       |  | 2002                    |        
|Interest Income                                     |  |                         |        
|Loans                                               |  | $                       | 116,039
|Securities Available for Sale                       |  |                         | 8,501  
|Dividends on FRB and FHLB Stock                     |  |                         | 1,363  
|Federal Funds Sold                                  |  |                         | 20     
|                                                    |  |                         |        
|Total Interest Income                               |  |                         | 125,923
|Interest Expense                                    |  |                         |        
|Deposits                                            |  |                         | 36,976 
|Short-Term Borrowings                               |  |                         | 2,059  
|Federal Home Loan Bank Advances                     |  |                         | 12,962 
|Trust Preferred Securities                          |  |                         | 146    
|                                                    |  |                         |        
|Total Interest Expense                              |  |                         | 52,143 
|                                                    |  |                         |        
|Net Interest Income                                 |  |                         | 73,780 
|Provision for Loan Losses                           |  |                         | 20,756 
|                                                    |  |                         |        
|Net Interest Income After Provision for Loan Losses |  |                         | 53,024 
|Non-Interest Income                                 |  |                         |        
|Loan and Deposit Charges                            |  |                         | 15,917 
|Loan Servicing Income                               |  |                         | 413    
|Loan Fees                                           |  |                         | 2,723  
|Trust Fees                                          |  |                         | 2,614  
|Somerset Fees                                       |  |                         | 10,798 
|Investment Product Sales Commissions                |  |                         | 2,726  
|Sale of Loans                                       |  |                         | 8,431  
|Sale of Loan Servicing                              |  |                         |       
|Sale of Investment Securities                       |  |                         | 312    
|Other                                               |  |                         | 2,831  
|                                                    |  |                         |        
|Total Non-Interest Income                           |  |                         | 46,765 
|Non-Interest Expense                                |  |                         |        
|Salaries and Benefits                               |  |                         | 37,804 
|Net Occupancy                                       |  |                         | 4,071  
|Equipment                                           |  |                         | 6,040  
|Professional Services                               |  |                         | 4,763  
|Marketing                                           |  |                         | 2,351  
|Telephone, Supplies, and Postage                    |  |                         | 3,222  
|Goodwill Amortization                               |  |                         |       
|Other                                               |  |                         | 8,251  
|                                                    |  |                         |        
|Total Non-Interest Expense                          |  |                         | 66,502 
|                                                    |  |                         |        
|Earnings Before Income Taxes                        |  |                         | 33,287 
|Income Taxes                                        |  |                         | 12,107 
|                                                    |  |                         |        
|Net Earnings                                        |  | $                       | 21,180 
|                                                    |  |                         |        
|Basic Earnings Per Share                            |  | $                       | 1.36   
|                                                    |  |                         |        
|Diluted Earnings Per Share                          |  | $                       | 1.34   
|                                                    |  |                         |        
|Dividends Per Common Share                          |  | $                       | 0.640  
|                                                    |  |                         |        



See Notes
to Consolidated Financial Statements



30



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##### Table of Contents



FIRST
INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                                                                               |  | Common Stock |   |  | Capital Surplus |     |   | Retained Earnings |   |         | Accumulated Other Comprehensive Income (Loss) |  |   | Treasury Stock |   |  | Total Shareholders Equity |      
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | --------------- | --- | - | ----------------- | - | ------- | --------------------------------------------- |  | - | -------------- | - |  | -------------------------- | -----
|(Dollars in Thousands, Except Per Share Data)                                                                                                  |  | Shares       |   |  | Amount          |     |   |                   |   |         |                                              
|Balance at December 31, 1999                                                                                                                   |  | 15,653,940   |   |  | $               | 171 |   |                   | $ | 37,927  |                                               |  | $ | 153,710        |   |  | $                          | (724 
|Comprehensive Income:                                                                                                                          |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Net Earnings                                                                                                                                   |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   | 24,817         |   |  |                            |     
|Unrealized Gain on Securities Available for Sale of $4,388, Net of Income Taxes and
Reclassification Adjustment of $(105), Net of Income Taxes |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   |               |   |  |                            | 2,770
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Total Comprehensive Income                                                                                                                     |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Dividends on Common Stock$0.448 per share                                                                                                     |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   | (7,045         | ) |  |                            |     
|Exercise of Stock Options                                                                                                                      |  | 118,259      |   |  |                 | 1   |   |                   |   | 779     |                                               |  |   |                |   |  |                            |     
|Common Stock Issued under Restricted Stock PlansNet of
Amortization                                                                           |  | 45,000       |   |  |                 |    |   |                   |   | 792     |                                               |  |   | (528           | ) |  |                            |     
|Redemption of Common Stock Related to Somerset Merger                                                                                          |  | (3,448,084   | ) |  |                 | (34 | ) |                   |   | (48,929 | )                                             |  |   |               |   |  |                            |     
|Issuance of Common Stock Related to Somerset Merger                                                                                            |  | 3,224,539    |   |  |                 | 32  |   |                   |   | 45,757  |                                               |  |   |               |   |  |                            |     
|Purchase of Treasury Stock                                                                                                                     |  | (18,750      | ) |  |                 |    |   |                   |   |        |                                               |  |   |               |   |  |                            |     
|Reissuance of Treasury Stock                                                                                                                   |  | 2,678        |   |  |                 |    |   |                   |   | 28      |                                               |  |   |               |   |  |                            |     
|Option Consideration Related to Somerset Merger                                                                                                |  |             |   |  |                 |    |   |                   |   | 3,327   |                                               |  |   |               |   |  |                            |     
|Redemption of Common Stock                                                                                                                     |  | (3,314       | ) |  |                 |    |   |                   |   | (56     | )                                             |  |   |               |   |  |                            |     
|Tax Benefit of Option Compensation                                                                                                             |  |             |   |  |                 |    |   |                   |   | 263     |                                               |  |   |               |   |  |                            |     
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Balance at December 31, 2000                                                                                                                   |  | 15,574,268   |   |  |                 | 170 |   |                   |   | 39,888  |                                               |  |   | 170,954        |   |  |                            | 2,046
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Comprehensive Income:                                                                                                                          |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Net Earnings                                                                                                                                   |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   | 20,009         |   |  |                            |     
|Unrealized Gain on Securities Available for Sale of $3,571, Net of Income Taxes and
Reclassification Adjustment of $309, Net of Income Taxes   |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   |               |   |  |                            | 2,038
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Total Comprehensive Income                                                                                                                     |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Dividends on Common Stock$0.512 per share                                                                                                     |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   | (7,977         | ) |  |                            |     
|Exercise of Stock Options                                                                                                                      |  | 197,043      |   |  |                 | 1   |   |                   |   | 1,685   |                                               |  |   |               |   |  |                            |     
|Common Stock Issued under Restricted Stock PlansNet of
Amortization                                                                           |  | 1,009        |   |  |                 |    |   |                   |   | 129     |                                               |  |   | 210            |   |  |                            |     
|Purchase of Treasury Stock                                                                                                                     |  | (307,388     | ) |  |                 |    |   |                   |   |        |                                               |  |   |               |   |  |                            |     
|Option Consideration Related to Somerset Merger                                                                                                |  |             |   |  |                 |    |   |                   |   | (113    | )                                             |  |   |               |   |  |                            |     
|Redemption of Common Stock                                                                                                                     |  | (21,638      | ) |  |                 |    |   |                   |   | (404    | )                                             |  |   |               |   |  |                            |     
|Tax Benefit of Option Compensation                                                                                                             |  |             |   |  |                 |    |   |                   |   | 652     |                                               |  |   |               |   |  |                            |     
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Balance at December 31, 2001                                                                                                                   |  | 15,443,294   |   |  |                 | 171 |   |                   |   | 41,837  |                                               |  |   | 183,196        |   |  |                            | 4,084
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Comprehensive Income:                                                                                                                          |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Net Earnings                                                                                                                                   |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   | 21,180         |   |  |                            |     
|Unrealized Gain on Securities Available for Sale of $925, Net of Income Taxes and
Reclassification Adjustment of $189, Net of Income Taxes     |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   |               |   |  |                            | 560  
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Total Comprehensive Income                                                                                                                     |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Dividends on Common Stock$0.640 per share                                                                                                     |  |             |   |  |                 |    |   |                   |   |        |                                               |  |   | (9,956         | ) |  |                            |     
|Exercise of Stock Options                                                                                                                      |  | 233,773      |   |  |                 | 2   |   |                   |   | 2,103   |                                               |  |   |               |   |  |                            |     
|Forfeiture of Restricted Common Stock                                                                                                          |  | (46,009      | ) |  |                 |    |   |                   |   | (921    | )                                             |  |   | 318            |   |  |                            |     
|Common Stock Issued under Deferred Compensation Plan                                                                                           |  |             |   |  |                 |    |   |                   |   | (17     | )                                             |  |   |               |   |  |                            |     
|Purchase of Treasury Stock                                                                                                                     |  | (74,165      | ) |  |                 |    |   |                   |   |        |                                               |  |   |               |   |  |                            |     
|Reissuance of Treasury Stock                                                                                                                   |  | 3,751        |   |  |                 |    |   |                   |   | 41      |                                               |  |   |               |   |  |                            |     
|Payment for Fractional Shares                                                                                                                  |  | (529         | ) |  |                 |    |   |                   |   | (11     | )                                             |  |   |               |   |  |                            |     
|Redemption of Common Stock                                                                                                                     |  | (19,655      | ) |  |                 |    |   |                   |   | (377    | )                                             |  |   |               |   |  |                            |     
|Tax Benefit of Option Compensation                                                                                                             |  |             |   |  |                 |    |   |                   |   | 641     |                                               |  |   |               |   |  |                            |     
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      
|Balance at December 31, 2002                                                                                                                   |  | 15,540,460   |   |  | $               | 173 |   |                   | $ | 43,296  |                                               |  | $ | 194,738        |   |  | $                          | 4,644
|                                                                                                                                               |  |              |   |  |                 |     |   |                   |   |         |                                               |  |   |                |   |  |                            |      



See Notes
to Consolidated Financial Statements



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                   |  | Years Ended December 31 |         
|---------------------------------------------------------------------------------- |  | ----------------------- | --------
|(Dollars in Thousands)                                                             |  | 2002                    |         
|Cash Flows from Operating Activities                                               |  |                         |         
|Net Earnings                                                                       |  | $                       | 21,180  
|Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating
Activities |  |                         |         
|Gain on Sale of Assets, Net                                                        |  |                         | (8,743  
|Amortization of Premium, Discount, and Intangibles, Net                            |  |                         | 1,545   
|Depreciation and Amortization of Premises and Equipment                            |  |                         | 2,718   
|Amortization of Net Deferred Loan Fees                                             |  |                         | 976     
|Provision for Loan Losses                                                          |  |                         | 20,756  
|Origination of Loans Held For Sale, Net of Principal Collected                     |  |                         | (251,472
|Proceeds from Sale of Loans Held for Sale                                          |  |                         | 243,867 
|Tax Benefit of Option Compensation                                                 |  |                         | 641     
|Change In:                                                                         |  |                         |         
|Accrued Interest Receivable                                                        |  |                         | 4,475   
|Other Assets                                                                       |  |                         | (7,109  
|Accrued Interest Payable                                                           |  |                         | (1,514  
|Other Liabilities                                                                  |  |                         | (2,037  
|                                                                                   |  |                         |         
|Net Cash Provided by Operating Activities                                          |  |                         | 25,283  
|                                                                                   |  |                         |         
|Cash Flows from Investing Activities                                               |  |                         |         
|Proceeds from Sale of Securities Available for Sale                                |  |                         | 20,312  
|Proceeds from Maturities of Securities Available for Sale                          |  |                         | 21,231  
|Purchase of Securities Available for Sale                                          |  |                         | (30,000 
|Purchase of FHLB and FRB Stock                                                     |  |                         |        
|Originations of Loans Net of Principal Collected                                   |  |                         | 29,652  
|Proceeds from Sale of Loans                                                        |  |                         | 34,412  
|Purchase of Loans                                                                  |  |                         | (143,573
|Purchase of Premises and Equipment                                                 |  |                         | (3,784  
|Acquisition of Somerset, Net of Cash Acquired                                      |  |                         | (127    
|Proceeds from Sale of Premises and Equipment                                       |  |                         | 40      
|                                                                                   |  |                         |         
|Net Cash Provided (Used) by Investing Activities                                   |  |                         | (71,837 
|                                                                                   |  |                         |         
|Cash Flows from Financing Activities                                               |  |                         |         
|Net Change in Deposits                                                             |  |                         | (40,274 
|Repayment of Federal Home Loan Bank Advances                                       |  |                         | (610,115
|Borrowings of Federal Home Loan Bank Advances                                      |  |                         | 660,000 
|Issuance of Trust Preferred Securities                                             |  |                         | 11,797  
|Net Change in Short-Term Borrowings                                                |  |                         | 49,874  
|Net Change in Advances by Borrowers for Taxes and Insurance                        |  |                         | (1,227  
|Stock Option Proceeds                                                              |  |                         | 1,728   
|Fractional Shares                                                                  |  |                         | (11     
|Deferred Compensation                                                              |  |                         | (17     
|Purchase of Treasury Stock                                                         |  |                         | (1,407  
|Reissuance of Treasury Stock                                                       |  |                         | 65      
|Dividends Paid                                                                     |  |                         | (9,956  
|                                                                                   |  |                         |         
|Net Cash Provided (Used) by Financing Activities                                   |  |                         | 60,457  
|                                                                                   |  |                         |         
|Net Change in Cash and Cash Equivalents                                            |  |                         | 13,903  
|Cash and Cash Equivalents at Beginning of Year                                     |  |                         | 62,147  
|                                                                                   |  |                         |         
|Cash and Cash Equivalents at End of Year                                           |  | $                       | 76,050  
|                                                                                   |  |                         |         



See Notes
to Consolidated Financial Statements



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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
become a financial holding company. First Indiana Bank 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 bank or bank holding company based in Indianapolis.



Somerset Financial Services, LLC (Somerset), also a subsidiary of the Corporation, was acquired in September 2000 when The Somerset Group, Inc. merged with the Corporation. Somerset is a
comprehensive financial services company offering businesses and their owners a wide variety of financial services, including tax planning and preparation, accounting services, retirement and estate planning, and investment management services.
Somerset also has an extensive consulting practice spanning construction services, health care, entrepreneurial activities, real estate, information technology, and risk management.



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 33 banking centers located throughout Metropolitan Indianapolis, Franklin, Mooresville, Noblesville, Pendleton, Rushville, and Westfield, Indiana. In addition, the
Bank has construction and consumer loan offices in Indiana, Arizona, Florida, Illinois, North Carolina, Ohio, and Oregon.



The Bank experiences substantial competition in attracting and retaining deposits and in lending funds. The primary factors in competing
for deposits are the ability to offer attractive rates and the availability of convenient access. Direct competition for deposits comes from other depository institutions, money market mutual funds, corporate and government securities, and other
non-insured investments. The primary factors in competing for loans are interest rates, loan origination fees, and loan product variety. Competition for origination of loans normally comes from other depository institutions, lending brokers, and
insurance companies.



The majority of the
Banks assets and liabilities consists of financial instruments (investments, loans, deposits, and borrowings). Each of these financial instruments earns or pays interest for a given term at a negotiated rate of interest. The Banks
Asset/Liability Committee manages these financial instruments for the dual objectives of maximizing net interest income (the difference between interest income and interest expense) while limiting interest rate risk. The Bank manages interest rate
risk by closely matching both the maturities and interest rate repricing dates of its assets and liabilities. Should this matching objective not be achieved, significant, rapid, and sustained changes in market interest rates will significantly
increase or decrease net interest income. Because of this risk, the Asset/Liability Committee continuously monitors its financial instruments to ensure that these dual objectives are achieved.



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. 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, and the determination of
the valuation allowance for deferred taxes.



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





All share and per share data has been restated to reflect the five-for-four stock split declared on January 16, 2002.



(B)    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.



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.



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.



(C)    Federal Home Loan Bank and Federal Reserve Bank StockAs members 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 of $100 and $50 par values per
share since they are restricted investment securities. Investment in FHLB stock was $21,591,000 at December 31, 2002 and 2001. The Banks investment in FRB stock was $900,000 at December 31, 2002 and 2001.



(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 91 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.



34



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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 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.



(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 at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, OREO is carried at the
lower of cost or fair value, less estimated costs to sell. 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, 2002 and 2001, the balance of OREO included in other assets was $8,670,000 and $6,992,000.



(I)    Allowance for Loan LossesAn allowance has been established for
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. Management believes that this allowance is adequate for the 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 economic conditions. 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. First Indiana files a consolidated income tax return.



(K)    Earnings Per
ShareBasic earnings per share for 2002, 2001, and 2000 were computed by dividing net earnings by the weighted average shares of common stock outstanding (15,537,186, 15,569,956, and 15,716,234). Diluted earnings per share for 2002,
2001, and 2000 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 (15,809,380, 15,998,976,
and 15,997,179). 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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





(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)    ReclassificationCertain amounts in the 2001 and 2000 Consolidated Financial Statements have
been reclassified to conform to the current year presentation.



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



(P)    Goodwill and Other Intangible AssetsEffective January 1, 2002, the
Corporation adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). In accordance with the new standard, goodwill and intangible assets with indefinite lives are no longer
amortized, but are subject to impairment tests at least annually.



(Q)    Long-Lived AssetsEffective January 1, 2002, the Corporation adopted Statement of Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Since SFAS 144 maintains many of the fundamental provisions of current accounting pronouncements, the
adoption of this standard did not have a material impact on the financial condition or results of operations of the Corporation.



(R)    Recent Accounting PronouncementsIn December 2002, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosure an Amendment of FASB Statement No. 123 (SFAS 148). SFAS 148 amends Statement of Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net earnings of an entitys accounting policy decisions with respect to stock-based compensation. Finally, SFAS 148 amends APB
Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information.



Currently, the Corporation applies APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in
accounting for stock-based compensation plans. Using the intrinsic value method of accounting, the Corporation has not recognized compensation cost in respect of stock option grants under these plans. Under SFAS 123 (as amended by SFAS 148), the
Corporation may elect to continue following APB Opinion No. 25 or may voluntarily change to the fair value based method of accounting for stock-based compensation, which would result in the Corporation recognizing compensation expense for stock
options granted under these plans.



As amended,
SFAS 123 provides for three transition methods for adopting fair value accounting for stock-based compensation:



| | 1. |  | Prospectiverecognize stock-based compensation cost for awards granted, modified, or settled after the beginning of the fiscal year in which SFAS 123 is
adopted,
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | Modified Prospectiverecognize stock-based compensation cost for the year of adoption equal to that which would have been recognized had the recognition
provisions of SFAS 123 been applied from its original effective date, or
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





| | 3. |  | Retroactive Restatementrecognize stock-based compensation cost for the year of change and restate financial statements for all prior periods presented as
though the fair value recognition provisions of SFAS 123 had been applied as of the original effective date of SFAS 123. Restatement of years prior to the earliest period presented would be permitted but not required.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The transition provisions of SFAS 123 and the requirements for
prominent disclosure shall be effective for financial statements for fiscal years ending after December 15, 2002. The interim period disclosure provisions shall be effective for financial reports containing condensed financial statements for interim
periods beginning after December 15, 2002 with earlier application encouraged.



The Corporation follows APB Opinion No. 25 in accounting for stock-based compensation, which continues to be allowed under SFAS 123, as amended by SFAS 148. The Corporation has made the required
prominent disclosure with respect to stock-based compensation in Note 1 (S) of the Notes to the Consolidated Financial Statements and will include the additional required disclosures in all future interim financial statements.



(S)    Stock-based
CompensationAt December 31, 2002, First Indiana had three stock-based employee compensation plans, which are described more fully in Note 16. 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 of stock option grants under the plans, except for deferred
compensation expense in connection with certain Somerset options that is being amortized over the life of the respective options. The following table illustrates the effect on net earnings and earnings per share if the Corporation had applied the
fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                    |  | Years Ended December 31 |       
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------
|(Dollars in Thousands, Except Per Share Data)                                                                                       |  | 2002                    |       
|Net Earnings, As Reported                                                                                                           |  | $                       | 21,180
|Total stock-based employee compensation expense determined under fair value based method
for all awards, net of related tax effects |  |                         | (867  
|                                                                                                                                    |  |                         |       
|Pro Forma Net Earnings                                                                                                              |  | $                       | 20,313
|                                                                                                                                    |  |                         |       
|Basic Earnings Per Share                                                                                                            |  |                         |       
|As Reported                                                                                                                         |  | $                       | 1.36  
|Pro Forma                                                                                                                           |  |                         | 1.31  
|Diluted Earnings Per Share                                                                                                          |  |                         |       
|As Reported                                                                                                                         |  | $                       | 1.34  
|Pro Forma                                                                                                                           |  |                         | 1.28  



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 2002, 2001, and 2000: dividend yield of 3.0 percent for all years; expected
volatility of 33 percent for 2002, 41 percent for 2001, and 35 percent for 2000; weighted average risk-free interest rates of 4.45 percent, 5.11 percent, and 6.73 percent, respectively; and expected lives of seven years for all years.



(2)    Business Combinations



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. The acquisition will be accounted for using the purchase method of
accounting,



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



and accordingly, the financial results of the acquired entity will be 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 purchase price was approximately $38,000,000. Upon completion of the merger, First Indiana
had approximately $2,300,000,000 in assets and 33 banking centers in Central Indiana.



In the fourth quarter of 2002, the Corporation issued $12,000,000 in Trust Preferred Securities (see Note 12). Proceeds from the issuance of these securities were used to partially fund the purchase of
MetroBanCorp. Under regulatory capital guidelines, the Corporation may include these securities as Tier 1 Capital, subject to certain limitations. Upon completion of this acquisition, the Corporations regulatory capital ratios remained in
compliance with all capital requirements. Existing liquidity within the Corporation, including preexisting funding sources, provided the remaining funding for this transaction.



On September 29, 2000, First Indiana acquired The Somerset Group, Inc. (Somerset Group) by
merger. Somerset Group, based in Indianapolis, Indiana, was a comprehensive financial services company offering a full array of tax planning, consulting, accounting, wealth management, investment advisory services, and investment and insurance
products to the general public. Somerset Group owned 22 percent of the outstanding common stock of First Indiana prior to the acquisition. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the financial
results of Somerset have been included in First Indianas consolidated financial statements from the September 29, 2000 acquisition date. The purchase price of $67,213,000 included the cancellation of 3,448,084 of First Indianas common
shares held by Somerset Group with a value of $48,963,000. Somerset Groups common shares were exchanged for a combination of 3,224,539 First Indiana common shares and $17,228,000 in cash. The excess of purchase price over the fair value of the
net identifiable assets acquired of $12,358,000 was recorded as goodwill.



(3)    Goodwill and Other Intangible Assets



Effective January 1, 2002, the Corporation adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, resulting in no goodwill impairment. In
accordance with the new standard, goodwill and intangible assets with indefinite lives are no longer amortized, but are subject to impairment tests at least annually. The Corporation had no existing intangible assets acquired in prior purchase
business combinations and recognized no impairment loss relating to intangible assets upon adoption of SFAS 142.



The following table shows information relating to the adoption of SFAS 142.



|                                              |  | Years Ended December 31
|--------------------------------------------- |  | -----------------------
|(Dollars in Thousands, Except Per Share Data) |  | 2002                   
|Net Earnings                                  |  | $                      
|Add back: Goodwill Amortization               |  |                        
|                                              |  |                        
|Adjusted Net Earnings                         |  | $                      
|                                              |  |                        
|Basic Earnings Per Share                      |  | $                      
|Add back: Goodwill Amortization               |  |                        
|                                              |  |                        
|Adjusted Basic Earnings Per Share             |  | $                      
|                                              |  |                        
|Diluted Earnings Per Share                    |  | $                      
|Add back: Goodwill Amortization               |  |                        
|                                              |  |                        
|Adjusted Diluted Earnings Per Share           |  | $                      
|                                              |  |                        



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The following table shows changes in the carrying amount of goodwill for the year ended December 31, 2002.



|(Dollars in Thousands)          |  | Commercial Segment |       | Retail Banking Segment |   | Somerset Segment |  | Total
|------------------------------- |  | ------------------ | ----- | ---------------------- | - | ---------------- |  | -----
|Balance as of January 1, 2002   |  | $                  | 4,108 |                        | $ | 2,578            |  | $    
|Changes during the year         |  |                    |      |                        |   |                 |  |      
|                                |  |                    |       |                        |   |                  |  |      
|Balance as of December 31, 2002 |  | $                  | 4,108 |                        | $ | 2,578            |  | $    
|                                |  |                    |       |                        |   |                  |  |      



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



|                                 |  | Year Ended December 31 |       
|-------------------------------- |  | ---------------------- | ------
|(Dollars in Thousands)           |  | 2002                   |       
|Balance at Beginning of Period   |  | $                      | 9,819 
|Additions                        |  |                        | 2,288 
|Amortization of Servicing Rights |  |                        | (2,585
|Sale of Servicing Rights         |  |                        |      
|Change in Valuation Reserves     |  |                        | (457  
|                                 |  |                        |       
|Balance at End of Period         |  | $                      | 9,065 
|                                 |  |                        |       



Consumer
loans serviced for others amounted to $361,517,000 and $387,068,000 at December 31, 2002 and 2001, respectively. Residential loans serviced for others amounted to $261,463,000 and $446,268,000 at December 31, 2002 and 2001, respectively.



During 2000, the Bank sold $216,227,000 in
out-of-market loan servicing at a gain of $1,251,000.



The estimated fair value of loan servicing rights was $9,988,000 and $11,491,000 at December 31, 2002 and 2001, 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, 2002 |         | December 31, 2001
|----------------------------- |  | ----------------- | ------- | -----------------
|                              |  | Amortized Cost    |         | Gross Unrealized 
|(Dollars in Thousands)        |  |                   | Gains   |                  
|U.S. Government Agencies      |  | $                 | 105,894 |                  
|Mortgage-Backed Securities    |  |                   |         |                  
|FHLMC                         |  |                   | 10,052  |                  
|FNMA                          |  |                   | 14,770  |                  
|Participation Certificates    |  |                   |        |                  
|Other Asset-Backed Securities |  |                   | 65      |                  
|Corporate Debt Securities     |  |                   |        |                  
|                              |  |                   |         |                  
|Total                         |  | $                 | 130,781 |                  
|                              |  |                   |         |                  



Securities totaling $138,457,000 were pledged as collateral for repurchase agreements on December 31, 2002.



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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, 2002
|-------------------------------------- |  | -----------------
|(Dollars in Thousands)                 |  | Amortized Cost   
|Due in one year or less                |  | $                
|Due after one year through five years  |  |                  
|Due after five years through ten years |  |                  
|Due after ten years                    |  |                  
|                                       |  |                  
|Total                                  |  | $                
|                                       |  |                  



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) |  | 2002 |     | 2001 |   | 2000 | 
|---------------------- |  | ---- | --- | ---- | - | ---- | 
|Realized Gains         |  | $    | 312 |      | $ | 543  | 
|Realized Losses        |  |      |    |      |   |     | 
|                       |  |      |     |      |   |      | 
|Net Gains (Losses)     |  | $    | 312 |      | $ | 543  | 
|                       |  |      |     |      |   |      | 



(5)    Federal Home Loan Bank and Federal Reserve Bank Stock



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. The balance at December 31, 2002 and December 31, 2001, was $900,000. 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. First Indianas investment in FHLB stock was $21,591,000 at December 31, 2002 and December 31, 2001. The Bank is required to hold approximately $17,827,000 of FHLB stock. The
Corporations holdings in FHLB stock are redeemable only upon five years notice to the FHLB.



(6)    Loans



The composition of loans is summarized as follows:



|                                 |  | December 31
|-------------------------------- |  | -----------
|(Dollars in Thousands)           |  | 2002       
|Business Loans                   |  | $          
|Consumer Loans                   |  |            
|Home Equity Loans                |  |            
|Other Consumer Loans             |  |            
|Residential Mortgage Loans       |  |            
|Single-Family Construction Loans |  |            
|Commercial Real Estate Loans     |  |            
|                                 |  |            
|                                 |  | $          
|                                 |  |            



Loans
are net of deferred costs and net unearned discounts of $8,886,000 and $9,013,000 at December 31, 2002 and 2001.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The weighted average yield on loans was 5.86 percent and 6.88 percent at December 31, 2002 and 2001.



Fixed rate loans totaling $229,376,000, $275,698,000, and $270,191,000 were sold in 2002, 2001, and 2000, respectively. In connection with
a new strategy to initiate the sale of home equity lines of credit into the secondary market, during 2002 the Bank sold $33,584,000 of these variable rate loans out of its portfolio. At December 31, 2002, the Bank had $17,380,000 in closed end home
equity loans held for sale and $32,692,000 in home equity lines of credit held for sale. At December 31, 2001 and 2000, the Bank had $34,756,000 and $48,882,000 in consumer loans held for sale, respectively, which did not include any home equity
lines of credit. The Bank had $108,000 of residential mortgage loans classified as held for sale at December 31, 2001.



During 2002, 2001, and 2000, the Bank transferred $15,980,000, $14,450,000, and $8,776,000 from loans to other real estate owned.



The geographic distribution of loans at December
31, 2002, is presented below:



|Location          |  | Percent |  
|----------------- |  | ------- | -
|Indiana           |  | 50      | %
|Contiguous States |  | 8       |  
|North Carolina    |  | 8       |  
|Florida           |  | 7       |  
|Arizona           |  | 6       |  
|California        |  | 6       |  
|Other             |  | 15      |  
|                  |  |         |  
|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)                            |  | 2002       
|Impaired Loans with Related Specific Allowance    |  | $          
|Impaired Loans with No Related Specific Allowance |  |            
|                                                  |  |            
|Total Impaired Loans                              |  | $          
|                                                  |  |            
|Specific Allowance on Impaired Loans              |  | $          



|                                            
|--------------------------------------------
|                                            
|                                            
|Average Balance of Impaired Loans           
|Interest Income Recognized on Impaired Loans



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Non-accrual loans totaled $38,458,000 on December 31, 2002 and $36,499,000 on December 31, 2001. Loans past due 90 days or more and still accruing interest totaled $4,628,000 on December 31, 2002 and
$3,312,000 on December 31, 2001.



(7)    Allowance for Loan Losses



A summary of activity in the allowance for loan losses for the three years ended December 31, 2002 follows:



|(Dollars in Thousands)       |  | 2002 |         |   | 2001 |   |         | 2000 | 
|---------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Balance at Beginning of Year |  | $    | 37,135  |   |      | $ | 33,578  |      | 
|Charge-Offs                  |  |      | (14,656 | ) |      |   | (12,771 | )    | 
|Recoveries                   |  |      | 1,234   |   |      |   | 1,100   |      | 
|                             |  |      |         |   |      |   |         |      | 
|Net Charge-Offs              |  |      | (13,422 | ) |      |   | (11,671 | )    | 
|Provision for Loan Losses    |  |      | 20,756  |   |      |   | 15,228  |      | 
|                             |  |      |         |   |      |   |         |      | 
|Balance at End of Year       |  | $    | 44,469  |   |      | $ | 37,135  |      | 
|                             |  |      |         |   |      |   |         |      | 



(8)    Premises and Equipment



|                         |  | December 31 |        
|------------------------ |  | ----------- | -------
|(Dollars in Thousands)   |  | 2002        |        
|Land                     |  | $           | 4,753  
|Buildings                |  |             | 9,749  
|Leasehold Improvements   |  |             | 1,558  
|Furniture and Equipment  |  |             | 29,246 
|Accumulated Depreciation |  |             | (23,778
|                         |  |             |        
|                         |  | $           | 21,528 
|                         |  |             |        



(9)    Interest-Bearing Deposits



|                                            |  | December 31
|------------------------------------------- |  | -----------
|(Dollars in Thousands)                      |  | 2002       
|Interest-Bearing Demand                     |  | $          
|Savings                                     |  |            
|Certificates of Deposit Under $100,000      |  |            
|Certificates of Deposit $100,000 or Greater |  |            
|                                            |  |            
|                                            |  | $          
|                                            |  |            



Following is a table of maturities for certificates of deposit outstanding at December 31, 2002.



|(Dollars in Thousands) |  | Amount
|---------------------- |  | ------
|2003                   |  | $     
|2004                   |  |       
|2005                   |  |       
|2006                   |  |       
|2007                   |  |       
|Thereafter             |  |       
|                       |  |       
|                       |  | $     
|                       |  |       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Cash paid during the year for interest on deposits, advances, and other borrowed money was $53,658,000, $86,027,000, and $93,895,000 for 2002, 2001, and 2000, 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)                |  | 2002 |         |   | 2001 |   |         | 2000 | 
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Balance at Year-End                   |  | $    | 170,956 |   |      | $ | 121,082 |      | 
|Average During the Year               |  |      | 126,501 |   |      |   | 112,991 |      | 
|Maximum Month-End Balance             |  |      | 175,114 |   |      |   | 132,740 |      | 
|Weighted Average Rate During the Year |  |      | 1.72    | % |      |   | 3.81    | %    | 
|Weighted Average Rate at Year-End     |  |      | 1.16    |   |      |   | 1.77    |      | 



At
December 31, 2002, the Bank had $40,000,000 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, 2002, the Corporation had
a $10,000,000 unused revolving line of credit on which it paid $23,000 in fees in 2002.



(11)    Federal Home Loan Bank Advances



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, 2002, were:



|(Dollars in Thousands) |  | Amount
|---------------------- |  | ------
|2003                   |  | $     
|2004                   |  |       
|2005                   |  |       
|2006                   |  |       
|2007                   |  |       
|Thereafter             |  |       
|                       |  |       
|                       |  | $     
|                       |  |       



FHLB
advances outstanding at December 31, 2002 mature from January 2003 through May 2019. Of the $346,532,000 in advances, the FHLB has the option to require the Bank to repay $110,000,000 at certain designated dates. The advances bear fixed or floating
rates ranging from 1.38 percent to 8.57 percent. The weighted average interest rate at December 31, 2002 and 2001 was 3.13 percent and 5.28 percent, respectively. The FHLB advances are collateralized with FHLB stock and other qualifying assets. As
of December 31, 2002 and 2001, 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)





(12)     Trust Preferred Securities



On October 30, 2002, First Indiana formed First Indiana Capital Trust I, a wholly owned grantor trust (grantor trust), to issue $12,000,000 in trust preferred securities to the public. The
grantor trust invested the proceeds of such trust preferred securities in junior subordinated notes (Notes) of the Corporation. These trust preferred securities were issued at a discount of $210,000. The sole assets of the grantor trust
are the Notes held by the grantor trust. 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. 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 LIBOR plus 3.35 percent thereafter to maturity. Interest on the Notes is payable at the end of each calendar quarter. The distribution
rate on the trust preferred securities equals the interest rate of the Notes. 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.



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 used the proceeds from the sales of the trust preferred securities to
partially fund the purchase of MetroBanCorp.



At
December 31, 2002, the balance of the trust preferred securities, net of discount was $11,797,000, with an aggregate principal balance of $12,000,000. The face amount of the junior subordinated notes owned by the grantor trust was $12,372,000 at
December 31, 2002.



(13)    Income Taxes



Income tax expense attributable to earnings
before income taxes consists of:



|(Dollars in Thousands)       |  | Current |        | Deferred |   |        | Total
|---------------------------- |  | ------- | ------ | -------- | - | ------ | -----
|Year Ended December 31, 2002 |  |         |        |          |   |        |      
|Federal                      |  | $       | 14,975 |          | $ | (3,610 | )    
|State and Local              |  |         | 786    |          |   | (44    | )    
|                             |  |         |        |          |   |        |      
|                             |  | $       | 15,761 |          | $ | (3,654 | )    
|                             |  |         |        |          |   |        |      
|Year Ended December 31, 2001 |  |         |        |          |   |        |      
|Federal                      |  | $       | 12,839 |          | $ | (1,582 | )    
|State and Local              |  |         | 1,606  |          |   | (589   | )    
|                             |  |         |        |          |   |        |      
|                             |  | $       | 14,445 |          | $ | (2,171 | )    
|                             |  |         |        |          |   |        |      
|Year Ended December 31, 2000 |  |         |        |          |   |        |      
|Federal                      |  | $       | 15,381 |          | $ | (2,795 | )    
|State and Local              |  |         | 2,499  |          |   | 20     |      
|                             |  |         |        |          |   |        |      
|                             |  | $       | 17,880 |          | $ | (2,775 | )    
|                             |  |         |        |          |   |        |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The effective income tax rate differs from the statutory federal corporate tax rate as follows:



|                   |  | Years Ended December 31 |  
|------------------ |  | ----------------------- | -
|                   |  | 2002                    |  
|Statutory Rate     |  | 35.0                    | %
|State Income Taxes |  | 1.5                     |  
|Goodwill           |  |                        |  
|Negative Goodwill  |  |                        |  
|Other              |  | (0.1                    | )
|                   |  |                         |  
|Effective Rate     |  | 36.4                    | %
|                   |  |                         |  



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)          |  | 2002       
|Deferred Tax Assets             |  |            
|Allowance for Loan Losses       |  | $          
|Pension and Retirement Benefits |  |            
|Interest Credited               |  |            
|Premises and Equipment          |  |            
|Accrued Compensation            |  |            
|Other                           |  |            
|                                |  |            
|                                |  |            
|                                |  |            
|Deferred Tax Liabilities        |  |            
|Loan Servicing Rights           |  |            
|FHLB Stock Dividends            |  |            
|Net Deferred Loan Fees          |  |            
|Unrealized Gain on Investments  |  |            
|Other                           |  |            
|                                |  |            
|                                |  |            
|                                |  |            
|Net Deferred Tax Assets         |  | $          
|                                |  |            



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 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.



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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 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 $14,402,000,
$13,725,000, and $15,619,000 for 2002, 2001, and 2000, respectively.



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



In September 2001, the Corporations Board of Directors authorized the repurchase from time to time of up to $5,000,000 in the
Corporations outstanding common stock. At December 31, 2002, $1,407,000 of outstanding common stock had been repurchased under this authorization.



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.



On January 16, 2002, the
Corporation declared a five-for-four stock split. All share and per-share amounts have been adjusted to reflect this stock split.



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. 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 table shows the Corporations and the Banks compliance with all capital requirements at December 31, 2002 and December 31, 2001.



|                                            |  | December 31, 2002 |        
|------------------------------------------- |  | ----------------- | -------
|                                            |  | Actual            |        
|(Dollars in Thousands)                      |  | Amount            |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |        
|First Indiana Corporation                   |  | $                 | 215,243
|First Indiana Bank                          |  |                   | 176,597
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |        
|First Indiana Corporation                   |  | $                 | 215,243
|First Indiana Bank                          |  |                   | 176,597
|Total Capital to Risk-Weighted Assets       |  |                   |        
|First Indiana Corporation                   |  | $                 | 239,394
|First Indiana Bank                          |  |                   | 200,670
|                                           
|                                            |  | December 31, 2001 |        
|                                            |  | Actual            |        
|                                            |  | Amount            |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |        
|First Indiana Corporation                   |  | $                 | 191,903
|First Indiana Bank                          |  |                   | 177,371
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |        
|First Indiana Corporation                   |  | $                 | 191,903
|First Indiana Bank                          |  |                   | 177,371
|Total Capital to Risk-Weighted Assets       |  |                   |        
|First Indiana Corporation                   |  | $                 | 214,672
|First Indiana Bank                          |  |                   | 200,094



The
Corporation is not subject to any bank regulatory restrictions on the payment of dividends to its shareholders. 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. At January 1, 2003, the Bank could have paid dividends to the
Corporation of approximately $3,475,000 without prior regulatory approval. Future dividends will be dependent on the level of earnings and capital and liquidity considerations of the Bank.



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(15)    Commitments and Contingencies



At December 31, 2002 and 2001, the Bank had the following outstanding commitments to fund loans:



|                                 |  | December 31
|-------------------------------- |  | -----------
|(Dollars in Thousands)           |  | 2002       
|Commitments to Fund:             |  |            
|Business Loans                   |  | $          
|Consumer Loans                   |  |            
|Home Equity Loans                |  |            
|Other                            |  |            
|Residential Mortgage Loans       |  |            
|Single-Family Construction Loans |  |            
|Commercial Real Estate Loans     |  |            
|                                 |  |            
|                                 |  | $          
|                                 |  |            



Of the
commitments to fund loans at December 31, 2002, nearly all are commitments to fund variable-rate products.



At December 31, 2002, the Bank had approximately $15,478,000 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.



The Bank issues commercial letters of credit on behalf of its
commercial loan customers in exchange for a fee. At December 31, 2002, outstanding letters of credit totaled $38,630,000. Standby letters of credit issued to enhance the bond rating of economic development bonds totaled $5,049,000 at December 31,
2002. Should these letters be submitted for payment, the Banks collateral policy requires the assignment of the underlying commercial real estate. To ensure the completion of infrastructure improvements (sewers, streets, sidewalks, underground
utilities, etc.), the Bank had outstanding $1,492,000 of standby letters of credit. These letters were issued to municipal authorities and utility companies on behalf of the Banks commercial real estate borrowers. The commercial and standby
letters of credit are collateralized by all assets of the borrower. Evaluation of the credit risk associated with these letters of credit is part of the Banks commercial loan review procedures.



At December 31, 2002, the Corporation had no liability
recognized for its standby letters of credit. The Corporation will apply the recognition and measurement provisions of the Financial Accounting Standards Board Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantors of Indebtedness of Others, for all standby letters of credit entered into or modified after December 31, 2002.



Rental ObligationsObligations under non-cancelable operating leases for office space at December 31, 2002, require minimum
future payments of $2,412,000 in 2003, $2,133,000 in 2004, $2,014,000 in 2005, $2,050,000 in 2006, $2,019,000 in 2007, and $8,338,000 thereafter. Minimum future payments have not been reduced by minimum sublease rental income of $127,000 receivable
in the future non-cancelable subleases. Rental expense on office buildings was $2,501,000, $2,384,000, and $1,770,000 for 2002, 2001, and 2000.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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.



(16)    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. Employees of Somerset are excluded from participation in this plan. According to FIRF administrators, plan contributions of $1,068,000 are required for the plan year beginning July
1, 2002. At December 31, 2002, the accrued contribution liability was $530,000. First Indianas pension expense under this plan was $537,000, $15,000, and $16,000 for 2002, 2001, and 2000.



First Indiana has voluntary savings plans for eligible
employees which qualify under Section 401(k) of the Internal Revenue Code. The Corporation has one such plan for its employees and the employees of its subsidiaries other than Somerset. Somerset has one such plan for its employees. Employees can
participate by designating a portion of their compensation to be contributed to the plan. Their employers in turn match employee contributions in such uniform amounts or percentages as annually determined by the employer. The Corporations
expenses under both plans for matching contributions in 2002, 2001, and 2000 were $500,000, $463,000, and $248,000, respectively. In addition, Somerset made discretionary contributions to its plan for the calendar years 2002 and 2001 of $216,000 and
$185,000 (equal to three percent of each participants compensation up to $200,000 in 2002 and $170,000 in 2001).



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. Additionally, the Bank maintains non-qualified retirement plans for the advisory directors of its Mooresville and
Rushville divisions. Net periodic pension expense for the foregoing non-qualified retirement plans and supplemental benefit plans were $870,000, $863,000, and $756,000 in 2002, 2001, and 2000. In determining these expenses, the unrecognized net
transition obligation in respect of acquired institutions is being amortized over 15 years. The projected benefit obligations were determined using an assumed discount rate of 6.50 percent, 7.00 percent, and 7.50 percent at December 31, 2002, 2001,
and 2000, respectively. The assumed long-term salary increases were 5.00 percent at December 31, 2002 and 2001, compounded annually. The funded status of these non-qualified retirement plans and supplemental benefit plans and the amounts relating
thereto reflected in the accompanying consolidated balance sheets are as follows:



|                                                                      |  | December 31 |      
|--------------------------------------------------------------------- |  | ----------- | -----
|(Dollars in Thousands)                                                |  | 2002        |      
|Projected Benefit Obligation                                          |  | $           | 9,921
|Fair Value of Plan Assets                                             |  |             |     
|                                                                      |  |             |      
|Excess of Projected Benefit Obligation Over Fair Value of Plan Assets |  |             | 9,921
|Unrecognized Net Transition Obligation                                |  |             | (122 
|Unrecognized Loss                                                     |  |             | (890 
|                                                                      |  |             |      
|Accrued Pension Cost                                                  |  | $           | 8,909
|                                                                      |  |             |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Post-Retirement Benefits Other Than PensionThe projected benefit obligation for post-retirement medical, dental, and life insurance programs for Board members and certain officers of
acquired institutions was $938,000 and $842,000, and the accrued liability under such programs was $1,208,000 and $1,175,000 at December 31, 2002 and 2001. Expenses under the programs were $34,000, $26,000, and $29,000 in 2002, 2001, and 2000,
respectively. The accumulated post-retirement benefit obligation was determined using an assumed discount rate of 6.50 percent, 7.00 percent, and 7.50 percent at December 31, 2002, 2001, and 2000. The assumed long-term salary increase was 5.00
percent for 2002, 2001, and 2000. The assumed health care cost trend rates used were 5.50 percent for 2000 and later years.



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             |   
|Effect on total of service and interest cost components |  | $                    | 5 
|Effect on post-retirement benefit obligation            |  |                      | 61



Stock-Based CompensationFirst Indiana has stock-based compensation plans which are described below. First Indiana applies Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to Employees
and related Interpretations in accounting for these plans. Accordingly, no compensation cost has been recognized in respect of stock option grants under the plans, except for deferred compensation expense in connection with certain Somerset options
that is being amortized over the life of the respective options. The compensation cost charged against income for performance-based restricted stock grants under the plans was $(1,095,000), $615,000, and $480,000, in 2002, 2001, and 2000. The
compensation cost charged against income for the Employees Stock Purchase Plans was $209,000, $261,000, and $252,000 in 2002, 2001, and 2000.



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 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 1992
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, 2002, 895,689 shares of common stock were available for future grants or awards under the 2002 Plan.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The following table summarizes information about stock options outstanding at December 31, 2002:



|Range of Exercise Prices |                                  | Options Outstanding |                                             | Options Exercisable
|------------------------ | -------------------------------- | ------------------- | ------------------------------------------- | -------------------
|                         | Outstanding at December 31, 2002 |                     | Weighted Remaining Contractual Life (Years) |                    
|$  5.01$10.00           |                                  | 84,647              |                                             | 1.52               
|10.01  15.00            |                                  | 355,244             |                                             | 3.77               
|15.01  20.00            |                                  | 1,018,279           |                                             | 7.91               
|20.01  22.30            |                                  | 37,368              |                                             | 5.99               
|                         |                                  |                     |                                             |                    
|5.01  22.30             |                                  | 1,495,538           |                                             | 6.52               
|                         |                                  |                     |                                             |                    



A
summary of the status of First Indianas fixed stock option plans as of December 31, 2002, 2001, and 2000, and changes during the years then ended is presented below.



|                                                               |  | 2002   |           | 2001 |                                 | 2000
|-------------------------------------------------------------- |  | ------ | --------- | ---- | ------------------------------- | ----
|                                                               |  | Shares |           |      | Weighted Average Exercise Price |     
|Outstanding at Beginning of Year                               |  |        | 1,276,769 |      |                                 | $   
|Granted                                                        |  |        | 488,008   |      |                                 |     
|Somerset Replacement Options                                   |  |        |          |      |                                 |     
|Exercised                                                      |  |        | (233,773  | )    |                                 |     
|Surrendered                                                    |  |        | (35,466   | )    |                                 |     
|                                                               |  |        |           |      |                                 |     
|Outstanding at End of Year                                     |  |        | 1,495,538 |      |                                 |     
|                                                               |  |        |           |      |                                 |     
|Options Exercisable at Year-End                                |  |        | 715,869   |      |                                 |     
|                                                               |  |        |           |      |                                 |     
|Weighted Average Fair Value of Options Granted During the Year |  | $      | 5.54      |      |                                 |     
|                                                               |  |        |           |      |                                 |     



The
following table summarizes stock options by plan category:



|                                                           |  | (a)                                                                                          |  | (b)                                                                          |       | (c)                                                                                                                                        
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------------------------------
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants, and
rights |  | Weighted-average exercise price of outstanding options, warrants, and
rights |       | Number of securities remaining available for future issuance under equity compensation
plans (excluding securities reflected in column (a))
|Equity compensation plans approved by security holders     |  | 1,495,538                                                                                    |  | $                                                                            | 16.43 |                                                                                                                                            
|Equity compensation plans not approved by security holders |  |                                                                                             |  |                                                                              |      |                                                                                                                                            
|                                                           |  |                                                                                              |  |                                                                              |       |                                                                                                                                            
|Total                                                      |  | 1,495,538                                                                                    |  | $                                                                            | 16.43 |                                                                                                                                            
|                                                           |  |                                                                                              |  |                                                                              |       |                                                                                                                                            



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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. On January 20, 2000, First Indiana awarded 45,000 shares of restricted stock among three executive officers. On April 1, 2001, First Indiana awarded 1,009 shares of restricted stock to an officer. All of
these shares were subject to forfeiture in the event certain specified performance objectives were not met by December 31, 2002 and March 31, 2006, respectively. At December 31, 2002, the officer awarded 1,009 shares of restricted stock was no
longer employed by First Indiana and the December 31, 2002 performance measures restricting the 45,000 share grants were not met. Consequently 46,009 shares of restricted stock were forfeited and compensation expense in 2002 was reduced by
$1,095,000. First Indiana expensed $615,000 and $480,000 in 2001 and 2000, respectively, in connection with these awards.



Employees Stock Purchase PlansUnder the Corporations Employees Stock Purchase Plans, all full-time
employees and directors are eligible to participate after six months employment. Approximately 44 percent of eligible employees participated in the plan in 2002. Under the terms of the Plans, employees and directors can choose to have up to 10
percent of their annual base earnings or all of their directors fees withheld to purchase the Corporations common stock. The Corporation matches the employee contribution at rates ranging from 20 percent to 50 percent according to the
criteria specified within the plan. The contributions are then paid to a trustee, who purchases the Corporations stock bi-weekly at the then prevailing market price. First Indianas matching contributions were $209,000, $261,000, and
$252,000 for the years ended 2002, 2001, and 2000, respectively.



(17)    Parent Company Only Statements



|Condensed Balance Sheets                                  |  | December 31
|--------------------------------------------------------- |  | -----------
|(Dollars in Thousands)                                    |  | 2002       
|Assets                                                    |  |            
|Certificate of Deposit and Checking Account with the Bank |  | $          
|Due from the Bank                                         |  |            
|Investment in the Bank                                    |  |            
|Investment in Somerset                                    |  |            
|Investment in Grantor Trust                               |  |            
|Goodwill                                                  |  |            
|Other Assets                                              |  |            
|                                                          |  |            
|Total Assets                                              |  | $          
|                                                          |  |            
|Liabilities                                               |  |            
|Junior Subordinated Notes                                 |  | $          
|Other Liabilities                                         |  |            
|                                                          |  |            
|Total Liabilities                                         |  |            
|Shareholders Equity                                      |  |            
|                                                          |  |            
|Total Liabilities and Shareholders Equity                |  | $          
|                                                          |  |            



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|Condensed Statements of Earnings                                     |  | Years Ended December 31 |       
|-------------------------------------------------------------------- |  | ----------------------- | ------
|(Dollars in Thousands)                                               |  | 2002                    |       
|Income                                                               |  |                         |       
|Dividends from the Bank                                              |  | $                       | 22,400
|Interest Income                                                      |  |                         | 13    
|Non-Interest Income                                                  |  |                         | 82    
|                                                                     |  |                         |       
|Total Income                                                         |  |                         | 22,495
|Expense                                                              |  |                         |       
|Interest Expense                                                     |  |                         | 150   
|Non-Interest Expense                                                 |  |                         | 1,390 
|                                                                     |  |                         |       
|Total Expense                                                        |  |                         | 1,540 
|                                                                     |  |                         |       
|Earnings Before Income Taxes                                         |  |                         | 20,955
|Income Tax Benefit                                                   |  |                         | (481  
|                                                                     |  |                         |       
|Earnings Before Equity in Undistributed Net Earnings of Subsidiaries |  |                         | 21,436
|Equity in Undistributed Net Earnings of the Bank                     |  |                         | (698  
|Equity in Undistributed Net Earnings (Loss) of Somerset              |  |                         | 442   
|                                                                     |  |                         |       
|Net Earnings                                                         |  | $                       | 21,180
|                                                                     |  |                         |       



|Condensed Statements of Cash Flows                                                        |  | Years Ended December 31 |        
|----------------------------------------------------------------------------------------- |  | ----------------------- | -------
|(Dollars in Thousands)                                                                    |  | 2002                    |        
|Cash Flows from Operating Activities                                                      |  |                         |        
|Net Earnings                                                                              |  | $                       | 21,180 
|Adjustments to Reconcile Net Earnings to Net Cash (Used) Provided by Operating
Activities |  |                         |        
|Equity in Undistributed Earnings                                                          |  |                         | 256    
|Amortization of Restricted Stock Plan                                                     |  |                         |       
|Forfeiture of Restricted Common Stock                                                     |  |                         | (603   
|Tax Benefit of Option Compensation                                                        |  |                         | 641    
|Change in Other Liabilities                                                               |  |                         | 409    
|Change in Due from the Bank and Other Assets                                              |  |                         | (23,914
|                                                                                          |  |                         |        
|Net Cash (Used) Provided by Operating Activities                                          |  |                         | (2,031 
|                                                                                          |  |                         |        
|Cash Flows from Investing Activities                                                      |  |                         |        
|Investment in Equity Security                                                             |  |                         | (372   
|Acquisition of Somerset                                                                   |  |                         | (127   
|                                                                                          |  |                         |        
|Net Cash Used by Investing Activities                                                     |  |                         | (499   
|                                                                                          |  |                         |        
|Cash Flows from Financing Activities                                                      |  |                         |        
|Issuance of Junior Subordinated Notes                                                     |  |                         | 12,169 
|Stock Option Proceeds                                                                     |  |                         | 1,728  
|Purchase of Treasury Stock                                                                |  |                         | (1,383 
|Payment for Fractional Shares                                                             |  |                         | (11    
|Common Stock Issued under Deferred Compensation Plan                                      |  |                         | (17    
|Dividends Paid                                                                            |  |                         | (9,956 
|                                                                                          |  |                         |        
|Net Cash (Used) Provided by Financing Activities                                          |  |                         | 2,530  
|                                                                                          |  |                         |        
|Net Change in Cash and Cash Equivalents                                                   |  |                         |       
|Cash and Cash Equivalents at the Beginning of the Year                                    |  |                         | 501    
|                                                                                          |  |                         |        
|Cash and Cash Equivalents at the End of the Year                                          |  | $                       | 501    
|                                                                                          |  |                         |        



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





(18)    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.



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.



Federal Home Loan Bank Stock and Federal Reserve Bank StockFederal Home Loan Bank 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.



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 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 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.



Accrued Interest Receivable and Accrued Interest PayableThe estimated fair value of these financial instruments approximates
their carrying value.



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Estimated Fair Value of Financial Instruments



|                                                      |  | December 31, 2002 |         |                      | December 31, 2001 |        
|----------------------------------------------------- |  | ----------------- | ------- | -------------------- | ----------------- | -------
|(Dollars in Thousands)                                |  | Carrying Amount   |         | Estimated Fair Value |                   |        
|Assets                                                |  |                   |         |                      |                   |        
|Cash and Cash Equivalents                             |  | $                 | 76,050  |                      | $                 | 76,050 
|Securities Available for Sale                         |  |                   | 138,457 |                      |                   | 138,457
|Federal Home Loan Bank and Federal Reserve Bank Stock |  |                   | 22,491  |                      |                   | 22,491 
|Loans                                                 |  |                   |         |                      |                   |        
|Business                                              |  |                   | 484,947 |                      |                   | 485,527
|Consumer                                              |  |                   | 648,257 |                      |                   | 648,420
|Residential Mortgage                                  |  |                   | 310,768 |                      |                   | 314,704
|Single-Family Construction                            |  |                   | 210,942 |                      |                   | 210,942
|Commercial Real Estate                                |  |                   | 145,542 |                      |                   | 147,229
|Accrued Interest Receivable                           |  |                   | 10,771  |                      |                   | 10,771 
|Liabilities                                           |  |                   |         |                      |                   |        
|Deposits                                              |  |                   |         |                      |                   |        
|Non-Interest-Bearing Demand Deposits                  |  |                   | 180,389 |                      |                   | 180,389
|Interest-Bearing Demand Deposits                      |  |                   | 179,751 |                      |                   | 179,751
|Savings                                               |  |                   | 398,752 |                      |                   | 398,752
|Certificates of Deposit Under $100,000                |  |                   | 269,942 |                      |                   | 273,671
|Certificates of Deposit $100,000 or Greater           |  |                   | 310,370 |                      |                   | 319,393
|Borrowings                                            |  |                   |         |                      |                   |        
|Short-Term Borrowings                                 |  |                   | 170,956 |                      |                   | 170,968
|FHLB Advances                                         |  |                   | 346,532 |                      |                   | 357,875
|Trust Preferred Securities                            |  |                   | 11,797  |                      |                   | 11,797 
|Accrued Interest Payable                              |  |                   | 2,290   |                      |                   | 2,290  
|Off-Balance-Sheet Instruments                         |  |                   |         |                      |                   |        
|Commitments to Extend Credit                          |  |                   |        |                      |                   | (912   



(19) Segment Reporting



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 commercial segment originates business, single-family
construction, and commercial real estate loans, encompasses the portfolio of Community Reinvestment Act loans, and provides traditional cash management services to business customers. The consumer segment includes the origination, sale, and
portfolio activities of both home equity and installment loans, and the residential segment encompasses the portfolio of residential first mortgage loans. Investment portfolio management is included in the treasury segment. The retail segment
includes the Banks branch network and investment and insurance subsidiary. FirstTrust Indiana includes the services, fees, and costs of the trust segment. The Somerset segment includes all activities of the Corporations Somerset
Financial Services subsidiary. Revenues in the Corporations segments are generated from loans, deposits, investments, servicing fees, 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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



reviewing the earning assets and costing liabilities held by each unit and assigning an appropriate expense or income offset based on the
Treasury yield curve. The Corporation accounts for intersegment revenues, expenses, and transfers based on estimates of the actual costs to perform the intersegment services.



Beginning in 2003, the Corporation will change segment definitions to conform to new internal management
reporting used to monitor and manage financial performance.



Segment Reporting(1)



|(Dollars in Thousands)            |  | Commercial |         | Consumer |   | Residential |  |   | Treasury |   |  | Retail Banking |         | FirstTrust |  | Somerset |        |  | Non-Segment |       |  | 2002 Consolidated Totals
|--------------------------------- |  | ---------- | ------- | -------- | - | ----------- |  | - | -------- | - |  | -------------- | ------- | ---------- |  | -------- | ------ |  | ----------- | ----- |  | ------------------------
|Average Segment Assets            |  | $          | 826,567 |          | $ | 666,339     |  | $ | 295,372  |   |  | $              | 217,308 |            |  | $        | 21,167 |  | $           | 528   |  | $                       
|Net Interest Income(2)            |  |            | 30,562  |          |   | 22,544      |  |   | 4,313    |   |  |                | 8,580   |            |  |          | 7,865  |  |             |      |  |                         
|Non-Interest Income               |  |            | 4,487   |          |   | 6,964       |  |   |         |   |  |                | 404     |            |  |          | 16,477 |  |             | 2,613 |  |                         
|Intersegment Income (Expense)(3)  |  |            |        |          |   | 434         |  |   | (434     | ) |  |                |        |            |  |          |       |  |             |      |  |                         
|Significant Noncash Items:        |  |            |         |          |   |             |  |   |          |   |  |                |         |            |  |          |        |  |             |       |  |                         
|Provision for Loan Losses         |  |            | 13,785  |          |   | 6,777       |  |   | 194      |   |  |                |        |            |  |          |       |  |             |      |  |                         
|Earnings before Income Tax        |  |            | 10,218  |          |   | 15,676      |  |   | 3,161    |   |  |                | 6,810   |            |  |          | 6,355  |  |             | 765   |  |                         
|                                 
|                                  |  | Commercial |         | Consumer |   | Residential |  |   | Treasury |   |  | Retail Banking |         | FirstTrust |  | Somerset |        |  | Non-Segment |       |  | 2001 Consolidated Totals
|Average Segment Assets            |  | $          | 689,490 |          | $ | 708,948     |  | $ | 395,689  |   |  | $              | 234,568 |            |  | $        | 18,718 |  | $           | 714   |  | $                       
|Net Interest Income(2)            |  |            | 28,030  |          |   | 21,584      |  |   | 2,993    |   |  |                | 10,361  |            |  |          | 10,204 |  |             |      |  |                         
|Non-Interest Income               |  |            | 5,242   |          |   | 7,810       |  |   |         |   |  |                | 597     |            |  |          | 13,098 |  |             | 2,284 |  |                         
|Intersegment Income (Expense)(3)  |  |            |        |          |   | 433         |  |   | (433     | ) |  |                |        |            |  |          |       |  |             |      |  |                         
|Significant Noncash Items:        |  |            |         |          |   |             |  |   |          |   |  |                |         |            |  |          |        |  |             |       |  |                         
|Provision for Loan Losses         |  |            | 8,481   |          |   | 6,662       |  |   | 85       |   |  |                |        |            |  |          |       |  |             |      |  |                         
|Goodwill Amortization             |  |            |        |          |   |            |  |   |         |   |  |                |        |            |  |          | 121    |  |             |      |  |                         
|Earnings before Income Tax        |  |            | 14,176  |          |   | 15,665      |  |   | 855      |   |  |                | 8,300   |            |  |          | 3,249  |  |             | 480   |  |                         
|                                 
|                                  |  | Commercial |         | Consumer |   | Residential |  |   | Treasury |   |  | Retail Banking |         | FirstTrust |  | Somerset |        |  | Non-Segment |       |  | 2000 Consolidated Totals
|Average Segment Assets            |  | $          | 563,265 |          | $ | 744,710     |  | $ | 516,697  |   |  | $              | 219,185 |            |  | $        | 22,347 |  | $           | 1,219 |  | $                       
|Net Interest Income(2)            |  |            | 21,793  |          |   | 24,478      |  |   | 7,236    |   |  |                | 6,559   |            |  |          | 14,453 |  |             |      |  |                         
|Non-Interest Income               |  |            | 4,171   |          |   | 7,240       |  |   | 699      |   |  |                | (158    | )          |  |          | 6,169  |  |             | 1,727 |  |                         
|Intersegment Income (Expense)(3)  |  |            |        |          |   | 266         |  |   | (266     | ) |  |                |        |            |  |          |       |  |             |      |  |                         
|Significant Noncash Items:        |  |            |         |          |   |             |  |   |          |   |  |                |         |            |  |          |        |  |             |       |  |                         
|Provision for Loan Losses         |  |            | 3,991   |          |   | 5,639       |  |   | 126      |   |  |                |        |            |  |          |       |  |             |      |  |                         
|Goodwill Amortization             |  |            |        |          |   |            |  |   |         |   |  |                |        |            |  |          | 83     |  |             |      |  |                         
|Earnings (Loss) before Income Tax |  |            | 14,128  |          |   | 20,587      |  |   | 5,648    |   |  |                | 5,476   |            |  |          | 6,675  |  |             | 280   |  |                         

---

|(1) |  | First Indiana implemented a new management reporting system in the first quarter of 2002, including a new transfer pricing methodology for funds used or provided by
the various segments. Amounts shown for 2001 and 2000 have been reclassified to reflect the change in management reporting format.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The net interest income amounts in the segment results reflect not only the actual interest income and expense from segment activities, but also 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 not included in the Corporations actual results.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





(20)    Interim Quarterly Results (Unaudited)



|(Dollars in Thousands, Except Per Share Data) |  | First Quarter |        | Second Quarter |   | Third Quarter |  | Fourth Quarter |       
|--------------------------------------------- |  | ------------- | ------ | -------------- | - | ------------- |  | -------------- | ------
|2002                                          |  |               |        |                |   |               |  |                |       
|Total Interest Income                         |  | $             | 31,615 |                | $ | 31,869        |  | $              | 32,009
|Net Interest Income                           |  |               | 17,194 |                |   | 18,473        |  |                | 19,401
|Provision for Loan Losses                     |  |               | 2,610  |                |   | 4,159         |  |                | 2,982 
|Earnings Before Income Taxes                  |  |               | 9,988  |                |   | 10,976        |  |                | 10,763
|Net Earnings                                  |  |               | 6,383  |                |   | 6,896         |  |                | 6,842 
|Basic Earnings Per Share                      |  |               | 0.41   |                |   | 0.44          |  |                | 0.44  
|Diluted Earnings Per Share                    |  |               | 0.41   |                |   | 0.43          |  |                | 0.43  
|2001                                          |  |               |        |                |   |               |  |                |       
|Total Interest Income                         |  | $             | 42,603 |                | $ | 40,877        |  | $              | 39,192
|Net Interest Income                           |  |               | 19,126 |                |   | 18,880        |  |                | 18,840
|Provision for Loan Losses                     |  |               | 2,439  |                |   | 2,439         |  |                | 2,475 
|Earnings (Loss) Before Income Taxes           |  |               | 10,815 |                |   | 11,151        |  |                | 10,906
|Net Earnings (Loss)                           |  |               | 6,690  |                |   | 6,843         |  |                | 6,848 
|Basic Earnings (Loss) Per Share               |  |               | 0.43   |                |   | 0.44          |  |                | 0.44  
|Diluted Earnings (Loss) Per Share             |  |               | 0.42   |                |   | 0.42          |  |                | 0.43  







57



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INDEPENDENT AUDITORS REPORT



The
Board of Directors and Shareholders

of First Indiana Corporation:



We have audited the accompanying Consolidated Balance Sheets of First Indiana Corporation and Subsidiaries as
of December 31, 2002 and 2001 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, 2002. 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 auditing standards generally accepted in the United States of
America. 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, 2002 and 2001 and the results
of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note 3 to the consolidated financial
statements, effective January 1, 2002, the Corporation adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.



LOGO



Indianapolis, Indiana

January 23, 2003



58



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STATEMENT OF MANAGEMENT RESPONSIBILITY



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 the Annual Report. In the opinion of
management, the financial statements, which necessarily include amounts based on managements estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.



The Corporation maintains a system of internal accounting
controls designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with the Corporations authorizations and policies, and that transactions are properly recorded so as to permit
preparation of financial statements that fairly present the financial position and results of operations in conformity with accounting principles generally accepted in the United States of America. Internal accounting controls are augmented by
written policies covering standards of personal and business conduct and an organizational structure providing for division of responsibility and authority.



The effectiveness of and compliance with established control systems is monitored through a continuous program of internal audit and
credit examinations. In recognition of cost-benefit relationships and inherent control limitations, some features of the control systems are designed to detect rather than prevent errors, irregularities, and departures from approved policies and
practices. Management takes action to correct potential deficiencies in internal controls as they are identified.



The Corporation, through the auspices of the Audit Committee of the Corporations Board of Directors, engaged the firm of KPMG LLP,
independent certified public accountants, 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 outside 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.



LOGO



Marni McKinney

Vice Chairman and Chief Executive Officer



LOGO



Owen B. Melton,
Jr.

President and Chief Operating Officer



LOGO



William J.
Brunner

Chief Financial Officer



January 23, 2003



59



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##### Table of Contents



PART I



Item 1.
Business



Supervision and Regulation



First Indiana Corporation is a financial holding company and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended (BHC Act). The BHC Act requires the prior approval of the Federal
Reserve Board for a financial holding company to acquire or hold more than five percent voting interest in any bank and restricts interstate banking activities. The BHC Act allows interstate bank acquisitions anywhere in the country and interstate
branching by acquisition and consolidation in those states that had not opted out by January 1, 1997.



On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (GLB Act). The general effect of the law is
to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by repealing certain provisions of the Glass-Steagall Act and revising and expanding
the Bank Holding Company Act framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company. Financial activities is broadly defined to
include not only banking, insurance, and securities activities, but also merchant banking and additional activities approved by order or regulation of the Federal Reserve Board. The GLB Act also permits national banks to engage in certain expanded
activities through the formation of financial subsidiaries and restricts financial institutions from sharing customer nonpublic personal information with non-affiliated parties unless the customer has had an opportunity to opt out of the disclosure.



The Federal Reserve Board requires that a bank
holding company act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each subsidiary bank. In addition, the National Bank Act permits the Office of the Comptroller of the
Currency (OCC) to order the pro rata assessment of shareholders of a national bank whose capital has become impaired. If a shareholder fails to pay such an assessment, the OCC can order the sale of the shareholders stock to cover
the deficiency. In the event of a bank holding companys bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and
entitled to priority of payment.



The Bank is
subject to the provisions of the National Bank Act, is under the supervision of, and is subject to periodic examination by, the OCC, and is subject to the rules and regulations of the OCC, Board of Governors of the Federal Reserve System, and the
Federal Deposit Insurance Corporation (FDIC).



Federal law provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against such
institution, including federal funds and letters of credit, in the liquidation or other resolution of the institution by any receiver.



Employees



At
December 31, 2002, the Corporation and its subsidiaries employed 723 persons, including part-time employees. Management considers its relations with its employees to be excellent. None of these employees is represented by any collective bargaining
group.



Reports on Corporation Website



Since March 7, 2003, the Corporations annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Section 13(1) or



60



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15(d) of the Exchange Act have been made available free of charge through its website the same day as filed with the SEC. These reports are
available by going to the Corporations website (www.firstindiana.com) and selecting About Us, Investor Relations, and then Sec Filings.



Other Required Information



References for additional information required by this item are provided on page 2.





Item 2.
Properties



At
December 31, 2002, the Corporation operated through 26 full-service banking centers and 10 loan origination offices in addition to its headquarters and operations locations. The Corporation leases its headquarters location in downtown Indianapolis
and owns its operations facilities in Greenwood, Indiana. The Corporations subsidiary, Somerset, and FirstTrust Indiana, the Banks investment advisory and trust division, lease their facility on the north side of Indianapolis. The
Corporation leases 11 of the branches and 10 of the origination offices and owns the remaining locations. The aggregate carrying value at December 31, 2002 of the properties owned or leased, including headquarters properties and leasehold
improvements at the leased offices, was $21,528,000. See Notes 8 and 15 of the Notes to Consolidated Financial Statements.



Item 3.
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, 2002.



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 March 4, 2003, there were
approximately 1,752 holders of record of the Corporations common stock. The following table contains high and low bid information as reported by NASDAQ.



|               |  | 2002 |       | 2001
|-------------- |  | ---- | ----- | ----
|               |  | High |       | Low 
|First Quarter  |  | $    | 22.68 |     
|Second Quarter |  |      | 22.48 |     
|Third Quarter  |  |      | 23.20 |     
|Fourth Quarter |  |      | 20.99 |     



For
restrictions on the Corporations present or future ability to pay dividends, see Note 14 of the Notes to Consolidated Financial Statements.



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For equity
compensation plan information, see Note 16 of the Notes to Consolidated Financial Statements.



The Corporation paid a cash dividend of $0.16 per share outstanding in each quarter of 2002 and $0.128 per share outstanding in each quarter of 2001. All share and per share data has been restated to
reflect the five-for-four stock split declared on January 16, 2002.



Item 6.
Selected Financial Data



The information required by this item is shown under the heading Five-Year Summary of Selected Financial Data.



Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations



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



| |  |  | Critical Accounting Policies
| | - |  | ----------------------------



| |  |  | Statement of Earnings Analysis
| | - |  | ------------------------------



| |  |  | Financial Condition
| | - |  | -------------------



| |  |  | Asset Quality
| | - |  | -------------



| |  |  | Liquidity and Market Risk Management
| | - |  | ------------------------------------



| |  |  | Capital
| | - |  | -------



| |  |  | Impact of Inflation and Changing Prices
| | - |  | ---------------------------------------



| |  |  | Impact of Accounting Standards Not Yet Adopted
| | - |  | ----------------------------------------------



| |  |  | Fourth Quarter Summary
| | - |  | ----------------------



Item 7A.
Quantitative and Qualitative Disclosures About Market Risk



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



Item 8.
Financial Statements and Supplementary Data



Information required by this item is shown under the headings Consolidated Financial Statements and Notes to Consolidated Financial Statements. The Corporations unaudited quarterly financial
information for each of the years in the two-year period ended December 31, 2002 is shown in Note 20 of Notes to Consolidated Financial Statements.



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



None.





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##### Table of Contents

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 Election of Directors and the
information relating to compliance by officers and directors with Section 16(a) is incorporated by reference to the Corporations Proxy Statement under the heading Section 16(a) Beneficial Ownership Reporting Compliance.



The following table sets forth information about
the executive officers of the Corporation, the Bank, and Somerset who are not directors of the Corporation or the Bank. All executive officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors.



|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 |  | 43  |  | 2000                      
|Patrick J. Early   |  | President, Somerset                                                                                                                                                    |  | 45  |  | 2000                      
|David A. Lindsey   |  | President, Consumer Finance Bank Division of the Bank                                                                                                                  |  | 52  |  | 1983                      
|Merrill E. Matlock |  | Senior Vice President, Community Bank  Commercial Banking Division of the Bank                                                                                        |  | 53  |  | 1984                      
|Ralph G. Nowak     |  | President, FirstTrust Division of the Bank                                                                                                                             |  | 51  |  | 1998                      
|Timothy J. ONeill |  | Senior Vice President, Investor Sales and Loan Administration Division of the Bank                                                                                     |  | 55  |  | 1972                      
|Edward E. Pollack  |  | Senior Vice President, Technology and Operations Division of the Bank                                                                                                  |  | 54  |  | 1998                      
|Kenneth L. Turchi  |  | Senior Vice President, Community Bank  Retail Banking Division of the Bank                                                                                            |  | 44  |  | 1987                      



William
J. Brunner has been with the Bank since May 2000, and currently serves as the Corporations chief financial officer, vice president, and treasurer, and the Banks chief financial officer and senior vice president, Financial Management
Division. He also serves as the chairman of the Banks Asset/Liability Committee. Prior to joining First Indiana, Mr. Brunner served in a number of financial positions at commercial banks, including as senior vice president and director of
capital and asset/liability management, and director of corporate planning from March 1999 to May 2000 at Citizens Financial Group; vice president of treasury management from November 1996 to March 1999 at Bank One Corporation; and chief financial
officer from May 1995 to November 1996 at Bank One, Cincinnati, N.A.



Patrick J. Early has served as president of Somerset Financial Services since the time of the merger with First Indiana Corporation in September 2000. He joined Whipple & Company, the predecessor firm to Somerset
Financial Services, in 1979 and served as president from 1989 until the merger with The Somerset Group, Inc. in 1998. From 1998 until September 2000, he was president of Somerset Financial Services, a division of The Somerset Group, Inc. He also
served as president of The Somerset Group, Inc. from January 2000 until the merger in September 2000.



David A. Lindsey has been with the Bank since 1983, currently serving as president Consumer Finance Bank division of the Bank. He oversees
the Banks national consumer lending operations. These include originations, processing and underwriting, secondary marketing, and loan servicing.



Merrill E. Matlock is senior vice president, Community Bank  Commercial Banking division of the Bank. He is responsible for the
Banks treasury management, construction, business, and commercial real estate lending. Mr. Matlock has worked for First Indiana since 1984 and was most recently first vice president of the commercial lending department.



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Ralph G. Nowak
has been with the bank since November 1998 serving as president, of FirstTrust Indiana division of First Indiana Bank. Prior to joining First Indiana, Mr. Nowak served in a number of commercial bank trust investment positions since 1973, including
that of Chief Investment Officer at NBD Bank for the state of Indiana from 1992 to 1998.



Timothy J. ONeill has been with the Bank since 1970 and currently serves as senior vice president, Investor Sales and Loan Administration division of the Bank. He is responsible for the servicing
of the Banks residential and consumer loans, developing relationships with other financial institutions, and selling the Banks loans into the secondary market.



Edward E. Pollack has been with the Bank since 1998, and currently serves as senior vice president,
Technology and Operations division of the Bank. He leads the Information Technology, Deposit Services, Security, and Administrative Support departments. Prior to joining First Indiana, he served from 1988 to 1998 as Executive Vice President, USA
Group, Inc. and from 1993 to 1997 as President and Chief Executive Officer of USA Funds and USA Group Guarantee Services.



Kenneth L. Turchi joined First Indiana in September 1985 and currently serves as senior vice president, Community Bank  Retail
Banking division of the Bank. His duties include strategic planning, marketing, advertising, market research, investor and public relations, mortgage lending, the Banks call center, retail banking center sales, and First Indiana Investor
Services, the Banks investment and insurance division.



Item 11.
Executive Compensation



The information required by this item with respect to executive compensation is incorporated by reference to the material under the heading Executive Compensation in the Corporations Proxy Statement.



Item 12.
Security Ownership of Certain Beneficial Owners and Management



The information required by this item is incorporated by reference to the material under the heading Proxy Statement and Proposal No. 1: Election of Directors in the
Corporations Proxy Statement.



Item 13.
Certain Relationships and Related Transactions



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



Item 14.
Controls and Procedures



Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-K, the Companys Chief Executive Officer and Chief Financial Officer believe the Companys disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There were not any significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.





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PART IV



Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K



|                                                                                            |  | Pages
|------------------------------------------------------------------------------------------- |  | -----
|(a) (1) Financial Statements                                                                |  |      
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                |  | 29   
|Consolidated Statements of Earnings for the Three Years Ended December 31,
2002             |  | 30   
|Consolidated Statements of Shareholders Equity for the Three Years Ended December
31, 2002 |  | 31   
|Consolidated Statements of Cash Flows for the Three Years Ended December 31,
2002           |  | 32   
|Notes to the Consolidated Financial Statements                                              |  | 33-57
|Independent Auditors Report                                                                |  | 58   



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



None



|(3) Exhibits
|------------
|            
|3(a)        
|3(b)        
|4(a)        
|4(b)        
|10(a)       
|10(b)       
|10(c)       
|10(d)       
|10(e)       
|10(f)       
|10(g)       
|10(h)       
|10(i)       



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|10(j) |  | Form of Employment Agreement between Registrant and each of Robert H. McKinney, Owen B. Melton, Jr., and Marni
McKinney, incorporated by reference to Exhibit 10(j) of the Registrants Annual Report on Form 10-K for the year ended December 31, 1997. *B                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10(k) |  | Form of Employment Agreement between Registrant and each of David A. Lindsey, Merrill E. Matlock, Timothy J.
ONeill, Kenneth L. Turchi, Edward E. Pollack, and William J. Brunner, incorporated by reference to Exhibit 10(k) of the Registrants Annual Report on Form 10-K for the year ended December 31, 1997. *B 
|10(l) |  | Agreement and Plan of Reorganization dated April 19, 2000 between The Somerset Group, Inc. and First Indiana
Corporation, incorporated by reference to Annex A to the joint proxy statement and prospectus contained in Registrants registration statement on Form S-4, effective August 18, 2000, File No. 333-39926.
|10(m) |  | The Somerset Group, Inc. 1991 Stock Incentive Plan, incorporated by reference to the Registrants Form 10-K filed
on March 12, 2001. *B                                                                                                                                                                                
|10(n) |  | The Somerset Group, Inc. 1998 Stock Incentive Plan, incorporated by reference to the Registrants Form 10-K filed
on March 12, 2001. *B                                                                                                                                                                                
|10(o) |  | The Somerset Group, Inc. 1991 Directors Stock Option Plan, incorporated by reference to the Registrants Form
10-K filed on March 12, 2001. *B                                                                                                                                                                         
|10(p) |  | The Somerset Group, Inc. Employee Stock Purchase Plan, incorporated by reference to the Registrants Form 10-K
filed on March 12, 2001. *B                                                                                                                                                                             
|10(q) |  | Agreement and Plan of Merger dated September 4, 2002, by and among MetroBanCorp, Inc. and MetroBank and First Indiana
Corporation, FIC Acquisition Corp. and First Indiana Bank, National Association., incorporated by reference, to the Registrants Form 8-K filed on September 6, 2002.                            
|10(r) |  | Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Junior Subordinated Indenture
dated as of October 30, 2002 as an exhibit. The Registrant hereby agrees to furnish a copy of this Indenture to the Commission upon request.                                                      
|21    |  | Subsidiaries of First Indiana Corporation and First Indiana Bank. *A                                                                                                                                                                                                                                                   
|23    |  | Consent of KPMG LLP.*A                                                                                                                                                                                                                                                                                                 
|99(a) |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                
|99(b) |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                

---

|*A |  | These have been filed as an exhibit to this Form 10-K.
|-- |  | ------------------------------------------------------

|*B |  | Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K.
|-- |  | -------------------------------------------------------------------------------------------------------------



|(b) |  | The Corporation filed the following Current Reports on Form 8-K between October 1, 2002 and March 6, 2003:
|--- |  | ----------------------------------------------------------------------------------------------------------



|Date             |  | Item Reported                                                                                                                                 
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|October 11, 2002 |  | On October 11, 2002, a Form 8-K/A was filed related to a slide presentation given to various investor groups on August
8, 2002.               
|October 17, 2002 |  | On October 17, 2002, a Form 8-K was filed related to the October 16, 2002 third quarter 2002 earnings
release.                                
|October 23, 2002 |  | On October 23, 2002, a Form 8-K was filed related to the October 23, 2002 declaration of a quarterly cash
dividend.                           
|January 10, 2003 |  | On January 10, 2003, a form 8-K was filed related to the January 10, 2003 announcement of conference call to be held
on January 24, 2003.     
|January 14, 2003 |  | On January 14, 2003, a form 8-K was filed related to the January 13, 2003 announcement of the consummation of the
acquisition of MetroBanCorp.
|January 24, 2003 |  | On January 24, 2003, a form 8-K was filed related to the January 23, 2003 fourth quarter 2002 earnings
release.                               
|January 24, 2003 |  | On January 24, 2003, a form 8-K was filed related to the January 24, 2003 declaration of a quarterly cash
dividend.                           



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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:

LOGOOwen B. Melton, Jr. President and Chief Operating Officer Date:
March 13, 2003




Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following officers and directors on behalf of the Registrant and in the capacities indicated on March 13, 2002.



Officers



|    |  |                                                                                        |  | 
|--- |  | -------------------------------------------------------------------------------------- |  | 
|   
|By: |  | LOGO                                                                                   |  | 
|    |  | Marni McKinney Vice Chairman and Chief Executive
Officer (Principal Executive Officer) |  | 





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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER



I, Marni McKinney, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of First Indiana Corporation;
| | -- |  | -----------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 13, 2003



LOGOMarni McKinney Vice Chairman and Chief Executive
Officer




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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER



I, William J. Brunner, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of First Indiana Corporation;
| | -- |  | -----------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 13, 2003



LOGOWilliam J. Brunner Vice President, Chief Financial Officer, and Treasurer




69



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##### Table of Contents



SIGNATURES
(continued)



Directors



|By: |  |                 |  | By:
|--- |  | --------------- |  | ---
|   
|    |  | LOGO            |  |    
|    |  | Gerald L. Bepko |  |    



|By: |  |           |  | By:
|--- |  | --------- |  | ---
|   
|    |  | LOGO      |  |    
|    |  | Anat Bird |  |    



|By: |  |                     |  | By:
|--- |  | ------------------- |  | ---
|   
|    |  | LOGO                |  |    
|    |  | Pedro P. Granadillo |  |    



|By: |  |                    |  | By:
|--- |  | ------------------ |  | ---
|   
|    |  | LOGO               |  |    
|    |  | Andrew Jacobs, Jr. |  |    



|By: |  |                |  | By:
|--- |  | -------------- |  | ---
|   
|    |  | LOGO           |  |    
|    |  | Marni McKinney |  |    



70