FIRST INDIANA CORP, 424B3, 2000-08-24

FIRST INDIANA CORP
424B3, 2000-08-24
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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TO THE SHAREHOLDERS OF FIRST INDIANA CORPORATION AND THE SOMERSET GROUP, INC.:

The boards of directors of First Indiana Corporation and The Somerset
Group, Inc. have unanimously approved an agreement to merge Somerset with and
into First Indiana. Somerset currently owns approximately 22% of the outstanding
common stock of First Indiana.

If we complete the merger, each shareholder of Somerset will have the option
of receiving 1.21 shares of First Indiana common stock per Somerset share, or
$24.70 in cash per Somerset share, or a combination of each, for shares of
Somerset stock owned as of the effective date of the merger. However, the number
of shares that can be exchanged for cash will be limited to no more than 35% of
Somerset's shares outstanding as of the effective date.

First Indiana common stock is traded on the Nasdaq National Market System
under the symbol "FISB." The closing price of First Indiana common stock on
August 18, 2000, was $20.56 per share.

Somerset common stock is traded on the Nasdaq National Market System under
the symbol "SOMR." The closing price of Somerset common stock on August 18,
2000, was $24.38 per share.

This document gives you detailed information about the merger and includes a
copy of the merger agreement. You should read it carefully. It is a joint proxy
statement that both companies are using to solicit proxies for use at their
special shareholder meetings. It is also a prospectus relating to First
Indiana's issuance of up to 3,716,733 shares of common stock in connection with
the merger. Before you make a decision on how to vote on the merger, you should
consider the "Risk Factors" beginning on page 12 of the attached joint proxy
statement and prospectus.

We are enthusiastic about the merger and the strengths and capabilities we
will have as a combined company. I join all of the other members of each
company's board of directors in recommending that you vote in favor of the
merger.

[SIGNATURE]
Robert H. McKinney
Chairman of First Indiana Corporation
and The Somerset Group, Inc.
------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

Joint proxy statement and prospectus dated August 18, 2000
and first mailed to shareholders on August 25, 2000

MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
THE BOARDS OF DIRECTORS HAVE APPROVED THE MERGER OF THE SOMERSET
GROUP, INC. INTO A SUBSIDIARY OF FIRST INDIANA CORPORATION AND RECOMMEND
THAT SHAREHOLDERS VOTE IN FAVOR OF THE MERGER. WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON, WHICH WILL REVOKE A SIGNED PROXY IF YOU HAVE ALREADY
SENT ONE IN. YOU MAY ALSO REVOKE YOUR PROXY AT ANY TIME BEFORE THE MEETING
EITHER IN WRITING OR BY NOTIFYING US.
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FIRST INDIANA CORPORATION

----------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

---------------------

A special meeting of the shareholders of First Indiana Corporation will be
held at First Indiana Plaza, 135 North Pennsylvania Street, Seventh Floor,
Indianapolis, Indiana on September 26, 2000 at 2:00 p.m., local time, to
consider and take action on the following matters:

1. MERGER PROPOSAL. To consider and vote upon a proposal to approve the
merger of The Somerset Group, Inc., an Indiana corporation and the owner
of approximately 22% of the outstanding common stock of First Indiana,
with and into First Indiana, and to approve the Agreement and Plan of
Reorganization by and between First Indiana and Somerset dated as of
April 19, 2000 (a copy of which is attached as Annex A to the
accompanying joint proxy statement and prospectus).

2. OTHER BUSINESS. To transact such other business as may properly come
before the meeting and any adjournments of the meeting.

Only shareholders of record at the close of business on August 11, 2000 are
entitled to notice of and to vote at this meeting and any adjournments of this
meeting.

By order of the Board of Directors

[SIGNATURE]

David A. Butcher
SECRETARY
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THE SOMERSET GROUP, INC.

----------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

---------------------

A special meeting of the shareholders of The Somerset Group, Inc. will be
held at First Indiana Plaza, 135 North Pennsylvania Street, Seventh Floor,
Indianapolis, Indiana, on September 26, 2000 at 10:00 a.m., local time, to
consider and take action on the following matters:

1. MERGER PROPOSAL. To consider and vote upon a proposal to approve the
merger of The Somerset Group, Inc. with and into First Indiana
Corporation, an Indiana corporation of which Somerset owns approximately
22% of the outstanding common stock, and to approve the Agreement and
Plan of Reorganization by and between First Indiana and Somerset dated as
of April 19, 2000 (a copy of which is attached as Annex A to the
accompanying joint proxy statement and prospectus).

2. OTHER BUSINESS. To transact such other business as may properly come
before the meeting and any adjournments of the meeting.

Only shareholders of record at the close of business on August 11, 2000 are
entitled to notice of and to vote at this meeting and any adjournments of this
meeting.

By order of the Board of Directors

[SIGNATURE]

Sharon J. Sanford
SECRETARY
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TABLE OF CONTENTS

<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1

SUMMARY..................................................... 5
First Indiana and Somerset................................ 5
Relationship Between First Indiana and Somerset........... 5
The Somerset Shareholder Meeting.......................... 5
The First Indiana Shareholder Meeting..................... 6
Recommendation of the Somerset Special Committee and the
Somerset Board of Directors............................. 6
Recommendation of the First Indiana Special Committee and
the First Indiana Board of Directors.................... 6
The Merger................................................ 6
Voting Agreements......................................... 7
Summary Historical Consolidated Financial Data of First
Indiana................................................. 8
Summary Historical Consolidated Financial Data of
Somerset................................................ 9
Summary Pro Forma Condensed Consolidated Financial Data... 10
Comparative Per Share Data................................ 11

RISK FACTORS................................................ 12

FIRST INDIANA AND SOMERSET.................................. 15

ABOUT THIS JOINT PROXY STATEMENT AND PROSPECTUS............. 15

RELATIONSHIP BETWEEN FIRST INDIANA AND SOMERSET............. 15

THE SOMERSET SPECIAL MEETING................................ 16
Time and Place; Purpose................................... 16
Proxies and Solicitation of Proxies....................... 16
Record Date and Voting Rights............................. 16
Vote Required for Approval................................ 17
Voting Agreements......................................... 17

THE FIRST INDIANA SPECIAL MEETING........................... 17
Time and Place; Purpose................................... 17
Proxies and Solicitation of Proxies....................... 17
Record Date and Voting Rights............................. 18
Vote Required for Approval................................ 18

THE MERGER AND THE MERGER AGREEMENT......................... 19
Description of the Merger................................. 19
Background of the Merger.................................. 19
Somerset's Reasons for the Merger......................... 23
Recommendation of the Somerset Board of Directors......... 24
First Indiana's Reasons for the Merger.................... 24
Recommendation of the First Indiana Board of Directors.... 25
Opinion of Financial Advisor to Somerset.................. 25
Opinion of Financial Advisor to First Indiana............. 31
Effective Time............................................ 36
Election and Allocation Procedures........................ 36
Exchange and Payment Procedures; Fractional Shares........ 37
Treatment of Somerset Stock Options....................... 37
Unclaimed Merger Consideration............................ 38
No Dissenters' Rights..................................... 38
Accounting Treatment...................................... 38
</TABLE>

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<TABLE>
<S> <C>
Representations and Warranties............................ 38
No Solicitation of Transactions........................... 39
Conditions to the Completion of the Merger................ 39
Amendment, Waiver and Termination......................... 40
Indemnification and Insurance of Directors and Officers... 41
Material U.S. Federal Income Tax Consequences of the
Merger.................................................. 41
Regulatory Matters........................................ 45
Resales of First Indiana Common Stock..................... 45

FIRST INDIANA SELECTED FINANCIAL DATA....................... 46

FIRST INDIANA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 47
Results of Operations..................................... 47
Capital Resources and Liquidity........................... 58
Capital Requirements...................................... 59
Information Regarding Operating Segments.................. 59
Impact of Accounting Standards Not Yet Adopted............ 60
Year 2000 Compliance...................................... 60
Financial Condition....................................... 61
Asset/Liability Management and Market Risk................ 65

PRICE RANGE OF FIRST INDIANA COMMON STOCK AND DIVIDEND
HISTORY................................................... 67

HOLDERS OF FIRST INDIANA COMMON STOCK....................... 68

FIRST INDIANA'S BUSINESS.................................... 70
First Indiana Corporation................................. 70
First Indiana Bank........................................ 70
Lending Activities........................................ 71
Asset Quality............................................. 77
Investment Activities..................................... 80
Sources of Funds.......................................... 80
Regulatory Capital........................................ 82
Impact of Inflation and Changing Prices................... 83
Regulation................................................ 83
Employees................................................. 89

FIRST INDIANA'S MANAGEMENT.................................. 90
Directors................................................. 90
Certain Committees of the Boards of Directors of the
Corporation and the Bank................................ 91
Compensation of Directors................................. 91
Executive Officers........................................ 92
Certain Transactions...................................... 93
Executive Compensation.................................... 94
Pension Plans............................................. 96
Employment Agreements and Other Arrangements.............. 97

SOMERSET SELECTED FINANCIAL DATA............................ 98

SOMERSET MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 99
Results of Operations for Year Ended December 31, 1999
Compared to Years Ended December 31, 1998 and
December 31, 1997....................................... 99
Results of Operations for Six Months Ended June 30, 2000
Compared to Six Months Ended June 30, 1999.............. 102
</TABLE>

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<TABLE>
<S> <C>
Financial Condition and Liquidity......................... 103
Information Regarding Operating Segments.................. 105
Impact of Accounting Standards Not Yet Adopted............ 105
Year 2000 Readiness....................................... 105
Information on Forward-Looking Statements................. 106

PRICE RANGE OF SOMERSET COMMON STOCK AND DIVIDEND HISTORY... 107

COMPARISON OF SHAREHOLDER RIGHTS............................ 108
Authorized Capital........................................ 108
Voting.................................................... 108
Board of Directors........................................ 108
Removal of Directors...................................... 108
Special Meetings of Shareholders.......................... 109
Power to Adopt, Amend or Repeal Bylaws.................... 109
Amendment of Articles of Incorporation.................... 109
Anti-takeover Provisions.................................. 109
Shareholder Rights Agreement.............................. 111

LEGAL MATTERS............................................... 112

INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS.................. 112

WHERE YOU CAN FIND MORE INFORMATION......................... 112

INDEX TO FINANCIAL STATEMENTS............................... F-1

Agreement and Plan of Reorganization.................. Annex A
Opinion of McDonald Investments Inc.................. Annex B
Opinion of Keefe, Bruyette & Woods, Inc.............. Annex C
</TABLE>

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHEN AND WHERE ARE THE SHAREHOLDER MEETINGS?

A: The Somerset special shareholder meeting will be held on September 26, 2000
at 10:00 a.m., local time. The First Indiana special shareholder meeting
will be held on September 26, 2000 at 2:00 p.m., local time. Both meetings
will be held at First Indiana Plaza, 7th Floor, 135 North Pennsylvania
Street, Indianapolis, Indiana.

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: For each share of Somerset common stock you own before the merger, you will
have the right to elect, on a share-by-share basis, to receive:

- 1.21 shares of First Indiana common stock; or

- $24.70 in cash.

Somerset shareholders may elect to receive First Indiana common stock for
some of their Somerset shares and cash for the balance of their Somerset
shares. The merger agreement provides that First Indiana common stock must
be issued for at least 65% of the total Somerset shares. If Somerset
shareholders elect to receive First Indiana common stock representing less
than 65% of the total Somerset shares, your election may be subject to
proration as described on pages 36 to 37. As a result of the proration, you
may not receive cash to the full extent that you elect that form of merger
consideration.

The following table illustrates the approximate value of what a holder of
100 shares of Somerset common stock will receive in the merger, assuming
varying final First Indiana stock prices and different percentages of cash
and First Indiana common stock. You should bear in mind that the value of
First Indiana common stock is subject to market fluctuations and, therefore,
the value of a share of First Indiana common stock as of the effective date
of the merger and after the merger may well differ from the value of such
stock set forth below. This table uses hypothetical final First Indiana
stock prices.

<TABLE>
<CAPTION>
IF YOU HOLD 100 SHARES OF
SOMERSET COMMON
STOCK AND THE FINAL FIRST
INDIANA STOCK PRICE IS:
------------------------------
AND YOU RECEIVE: $15.00 $17.75 $22.00
---------------- -------- -------- --------
<S> <C> <C> <C>
100% cash................................................... $2,470 $2,470 $2,470
75% cash and 25% First Indiana common stock................. 2,306 2,389 2,518
50% cash and 50% First Indiana common stock................. 2,143 2,309 2,566
25% cash and 75% First Indiana common stock................. 1,979 2,228 2,614
100% First Indiana common stock............................. 1,815 2,148 2,662
</TABLE>

Q: WILL FIRST INDIANA SHAREHOLDERS RECEIVE ANY SHARES OR CASH AS A RESULT OF THE
MERGER?

A: No. First Indiana shareholders will continue to own the same number of First
Indiana shares they owned before the effectiveness of the merger.

Q: WHY ARE THE BOARDS OF DIRECTORS OF SOMERSET AND FIRST INDIANA RECOMMENDING
THAT I VOTE FOR THE MERGER?

A: A special committee comprised of independent directors of Somerset
unanimously recommended that the Somerset board of directors approve and
adopt the merger and the merger agreement.

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Similarly, a special committee comprised of independent directors of First
Indiana has unanimously recommended that the First Indiana board of
directors approve and adopt the merger and the merger agreement.

After receiving the unanimous recommendations of their respective
special committees, the boards of directors of Somerset and First Indiana
determined that the approval and adoption of the merger and the merger
agreement are in the best interests of their respective shareholders. Each
board of directors unanimously approved and adopted the merger and the
merger agreement and recommends that you approve the merger and the merger
agreement. To review the background and reasons for the merger in greater
detail, see the sections entitled "The Merger and the Merger
Agreement--Background of the Merger," "The Merger and the Merger
Agreement--Somerset's Reasons for the Merger" and "The Merger and the Merger
Agreement--First Indiana's Reasons for the Merger."

The Somerset special committee and board of directors were advised by
McDonald Investments Inc., which delivered a fairness opinion with respect
to Somerset shareholders in connection with the merger. The First Indiana
special committee and board of directors were advised by Keefe, Bruyette &
Woods, Inc., which delivered a fairness opinion with respect to First
Indiana shareholders in connection with the merger. For more detailed
descriptions of these fairness opinions, see the sections entitled "The
Merger and the Merger Agreement--Opinion of Financial Advisor to Somerset"
and "The Merger and the Merger Agreement--Opinion of Financial Advisor to
First Indiana."

Q: WILL I HAVE DISSENTER'S RIGHTS?

A: No. Under the law of Indiana, the state of incorporation for both Somerset
and First Indiana, neither Somerset shareholders nor First Indiana
shareholders have any dissenters' rights or other rights to demand fair
value in cash as a result of the merger.

Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?

A: We are working to complete the merger as quickly as possible. We expect that
the merger will become effective after approval by the shareholders of
Somerset and First Indiana at the special meetings and after other
conditions to the merger have been satisfied. We currently believe that the
merger will be completed in the third quarter or early in the fourth quarter
of 2000.

Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?

A: We have structured the merger so that First Indiana, Somerset and our
respective shareholders will not recognize any gain or loss for federal
income tax purposes on the exchange of Somerset shares for First Indiana
shares in the merger. Taxable income will result, however, to the extent a
Somerset shareholder elects to receive cash instead of First Indiana stock
or receives cash in lieu of First Indiana fractional shares and the cash
received exceeds the shareholder's adjusted basis. As part of the closing,
each company will receive opinions confirming these tax consequences. See
"The Merger and the Merger Agreement--Material U.S. Federal Income Tax
Consequences of the Merger."

Q: WHAT DO I NEED TO DO NOW?

A: After reading this joint proxy statement and prospectus, just mail your
signed proxy card in the enclosed return envelope as soon as possible, so
that your shares can be voted at the September 26, 2000 Somerset shareholder
meeting, if you are a Somerset shareholder, or at the September 26, 2000
First Indiana shareholder meeting, if you are a First Indiana shareholder.
If you are a Somerset shareholder, you should also complete your election
form to specify the type of merger consideration you prefer (or provide
instructions to your broker if you hold your shares in

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"street name"). You should follow the instructions on the election form to
submit your stock certificates.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?

A: Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should contact your broker and ask what
directions your broker will need from you. Your broker will not be able to
vote your shares without instructions from you.

Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. You can change your vote at any time before your proxy is voted at the
applicable shareholder meeting. You can do this in one of three ways. First,
you can send a written notice stating that you revoke your proxy. Second,
you can complete and submit a new proxy card, dated a later date than the
first proxy card. Third, you can attend the appropriate meeting and vote in
person. Your attendance at the shareholder meeting will not, however, by
itself revoke your proxy. If you hold your shares in "street name" and have
instructed your broker to vote your shares, you must follow directions
received from your broker to change those instructions.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: If you are a Somerset shareholder, written instructions are enclosed for
electing your preferred form of merger consideration and exchanging your
Somerset common shares for First Indiana common shares and any cash payments
you may be entitled to receive. If you are a First Indiana shareholder, you
should retain your certificates, as you will continue to hold the First
Indiana shares you currently own.

Q: HOW DO I ELECT THE FORM OF PAYMENT THAT I PREFER?

A: Forms of election are enclosed with this proxy statement and prospectus. If
you wish to make an election, you should complete this form and send it in
the envelope provided with the form of election to the exchange agent,
Harris Trust Company of New York. For you to make an effective election,
your properly executed election form must be received by the exchange agent
before the election deadline specified in the election form. You must
include your Somerset stock certificates with your election form. If you
hold your shares in street name with a broker, you should ask your broker
for instructions on tendering your Somerset shares. Please read the
instructions to the election form for information on completing the form.
These instructions will also inform you what to do if your stock
certificates have been lost, stolen or destroyed.

Q: WHICH FORM OF PAYMENT SHOULD I CHOOSE? WHY?

A: The form of payment you should elect will depend upon your personal financial
and tax circumstances. We urge you to consult your financial or tax advisor
if you have questions about the form of payment you should elect.

Q: WHAT WILL HAPPEN IF I DON'T MAKE AN ELECTION AS TO ALL OF MY SOMERSET SHARES?

A: If elections for 65% or more of the outstanding Somerset shares have been
made to receive First Indiana common stock, you will receive cash for your
Somerset shares for which you made no election. However, if elections for
less than 65% of the outstanding Somerset shares have been made to receive
First Indiana common stock, the exchange agent will allocate First Indiana
common stock pro rata among Somerset shares as to which no election has been
made in order to cause at least 65% of the outstanding Somerset shares to be
exchanged for First Indiana common stock.

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Q: IF I AM VOTING AGAINST THE MERGER, SHOULD I STILL MAKE AN ELECTION?

A: Yes. If the merger is approved by the First Indiana and Somerset shareholders
and becomes effective, you will receive payment based on the election form
you submit. If you fail to submit an election form, your Somerset shares
will be treated as described in the preceding answer.

Q: CAN I CHANGE MY ELECTION?

A: Yes. You can change your election by submitting a new election form to the
exchange agent so it is received prior to the election deadline set forth on
the election form. After the election deadline, no changes may be made.

Q: WHOM SHOULD I CALL IF I HAVE OTHER QUESTIONS?

A: If you are a Somerset shareholder and you have more questions about the
merger, you should contact Morrow & Co., Inc., the Information Agent for the
merger, at (800) 566-9061. Banks and brokerage firms should call
Morrow & Co. at (800) 662-5200. Somerset shareholders can also contact:

Investor Relations Department
Attention: Joseph M. Richter
The Somerset Group, Inc.
135 North Pennsylvania Street, Suite 2800
Indianapolis, Indiana 46204
Tel: (317) 269-1328
[email protected]

If you are a First Indiana shareholder and you have more questions about the
merger, you should contact:

Investor Relations Department
Attention: William J. Brunner
First Indiana Corporation
135 North Pennsylvania Street, Suite 2800
Indianapolis, Indiana 46204
Tel: (317) 269-1614
[email protected]

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SUMMARY
FIRST INDIANA AND SOMERSET

First Indiana is a nondiversified, unitary savings and loan holding company
whose principal asset is the outstanding stock of First Indiana Bank, which
offers a full range of banking services in metropolitan Indianapolis and other
parts of Central Indiana, and also originates home equity loans indirectly
throughout the United States. First Indiana has approximately $2.1 billion in
assets at June 30, 2000 and is the largest publicly held bank based in
Indianapolis.

Somerset is a comprehensive financial services company offering a number of
specialty consulting and advisory services and investment and insurance products
to the general public. It operates an insurance and investment products
division, a financial services division offering a variety of financial
consulting services and an information technology subsidiary which provides
information technology consulting to the general public. Somerset also owns
approximately 22% of the outstanding common stock of First Indiana.

RELATIONSHIP BETWEEN FIRST INDIANA AND SOMERSET

In addition to Somerset's ownership of First Indiana common stock, First
Indiana and Somerset currently share certain officers, directors and major
shareholders, including:

- Robert H. McKinney is the Chairman of both First Indiana and Somerset, and
his daughter, Marni McKinney, is the Vice Chairman and Chief Executive
officer of both First Indiana and Somerset;

- Robert H. McKinney, Marni McKinney and Michael L. Smith are directors of
both First Indiana and Somerset; and

- Robert H. McKinney, Marni McKinney and various trusts for the benefit of
the McKinney family beneficially own approximately 5.6% of First Indiana's
outstanding common stock (not including common stock owned by Somerset)
and approximately 43.6% of Somerset's outstanding common stock.

To address these conflicts of interest, the boards of directors of First Indiana
and Somerset appointed special committees of independent directors to consider
and make a recommendation on the merger proposal. For information regarding the
effect of the proposed merger on the ownership of First Indiana common stock by
First Indiana and Somerset officers and directors, see "Holders of First Indiana
Securities."

THE SOMERSET SHAREHOLDER MEETING

- Somerset's special meeting of shareholders is scheduled to be held at
10:00 a.m., local time, on September 26, 2000 at First Indiana Plaza,
7th Floor, 135 North Pennsylvania Street, Indianapolis, Indiana.

- Somerset's board of directors has fixed the close of business on
August 11, 2000 as the record date for the determination of Somerset
shareholders entitled to notice of and to vote at Somerset's special
meeting of shareholders.

- The affirmative vote of at least a majority of the issued and outstanding
Somerset common shares is required to approve the merger and the merger
agreement. The members of the Somerset board of directors, who hold
approximately 50.2% of the outstanding shares of Somerset common stock,
have agreed to vote their shares in favor of the merger and the merger
agreement.

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THE FIRST INDIANA SHAREHOLDER MEETING

- First Indiana's special meeting of shareholders is scheduled to be held at
2:00 p.m., local time, on September 26, 2000 at First Indiana Plaza,
7th Floor, 135 North Pennsylvania Street, Indianapolis, Indiana.

- First Indiana's board of directors has fixed the close of business on
August 11, 2000 as the record date for the determination of First Indiana
shareholders entitled to notice of and to vote at First Indiana's special
meeting of shareholders.

- The affirmative vote of at least a majority of the votes cast by the
holders of First Indiana common stock at the special meeting is required
to approve the merger and the merger agreement.

RECOMMENDATION OF THE SOMERSET SPECIAL COMMITTEE AND
THE SOMERSET BOARD OF DIRECTORS

SOMERSET'S SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, AS WELL AS THE ENTIRE
BOARD OF DIRECTORS, BELIEVES THAT THE MERGER IS IN YOUR BEST INTEREST AND
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AND APPROVE
AND ADOPT THE MERGER AGREEMENT.

RECOMMENDATION OF THE FIRST INDIANA SPECIAL COMMITTEE AND
THE FIRST INDIANA BOARD OF DIRECTORS

FIRST INDIANA'S SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, AS WELL AS THE
ENTIRE BOARD OF DIRECTORS, BELIEVES THAT THE MERGER IS IN YOUR BEST INTEREST AND
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AND APPROVE
AND ADOPT THE MERGER AGREEMENT.

THE MERGER

STRUCTURE OF THE MERGER. The merger agreement provides for a transaction in
which Somerset will merge into First Indiana. First Indiana's current intention
is to then transfer the assets of Somerset into a wholly owned subsidiary of
First Indiana.

MERGER CONSIDERATION. At the effective time of the merger, each share of
issued and outstanding Somerset common stock will be converted into the right to
receive, at the election of each Somerset shareholder, either

- 1.21 shares of First Indiana common stock (sometimes referred to as the
"exchange ratio"); or

- $24.70 in cash.

Somerset shareholders may also elect a combination of First Indiana common stock
and cash for their shares. First Indiana and Somerset have agreed that, in the
aggregate, no less than 65% of the outstanding shares of Somerset common stock
will be converted into First Indiana common stock and no more than 35% of the
outstanding shares of Somerset common stock will be converted into cash. If
Somerset shareholders request cash for more than 35% of the outstanding Somerset
shares, their requests will be subject to proration. See "The Merger and the
Merger Agreement--Election and Allocation Procedures."

OPINIONS OF FINANCIAL ADVISORS. Somerset was advised by McDonald
Investments Inc., which delivered a fairness opinion with respect to Somerset
shareholders in connection with the merger. First Indiana was advised by Keefe,
Bruyette & Woods, Inc., which delivered a fairness opinion with respect to First
Indiana shareholders in connection with the merger. Copies of these fairness
opinions appear as annexes to this proxy statement and prospectus.

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APPRAISAL RIGHTS. No dissenters' or appraisal rights are available with
respect to the merger.

REGULATORY NOTICES AND APPROVALS. First Indiana and Somerset are both
registered savings and loan holding companies. First Indiana and Somerset have
requested approval of the merger from the Office of Thrift Supervision. These
approvals require consideration of the competitive effect of the merger, the
managerial and financial resources and future prospects of the resulting
organization and various other factors. The Office of Thrift Supervision
approved the merger on August 9, 2000.

VOTING AGREEMENTS

At the same time the merger agreement was signed, the members of the
Somerset board of directors, who hold approximately 51.9% of the outstanding
Somerset common shares, entered into voting agreements with First Indiana in
which the holders agreed to vote their shares (and to use their best efforts to
cause jointly held shares or other shares as to which he or she has voting
control to be voted) in favor of the merger and the merger agreement.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF FIRST INDIANA

We are providing the following financial information of First Indiana to aid
you in your analysis of the financial aspects of the merger. We derived this
information from audited consolidated financial statements for the years ended
December 31, 1995 through 1999 and from unaudited consolidated financial
statements for the six months ended June 30, 1999 and 2000. Information with
respect to per share data for all periods reflects a six-for-five stock split
effected March 1, 1996, a five-for-four stock split effected March 18, 1997 and
a six-for-five stock split effected March 6, 1998. This information is only a
summary, and you should read it together with First Indiana's historical
consolidated financial statements, and related notes, which appear elsewhere in
this proxy statement and prospectus.

<TABLE>
<CAPTION>
AT AT DECEMBER 31,
JUNE 30, --------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 1995
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Total assets............................... $2,119,047 $1,979,774 $1,795,990 $1,613,405 $1,496,421 $1,541,843
Loans receivable--net...................... 1,816,887 1,673,422 1,518,543 1,348,529 1,215,550 1,250,726
Mortgage-backed securities................. 51,066 54,734 29,680 38,279 36,412 49,498
Investments................................ 100,429 103,169 113,291 111,400 106,895 102,656
Total deposits............................. 1,376,203 1,312,115 1,227,918 1,107,555 1,095,486 1,136,980
Federal Home Loan Bank advances............ 421,759 366,854 327,247 257,458 215,466 214,781
Short term borrowings...................... 111,177 98,754 54,219 75,751 30,055 38,642
Shareholders' equity....................... 185,058 177,103 165,970 153,036 138,658 129,297
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------- YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Interest income.......................... $83,440 $70,300 $146,426 $136,931 $128,385 $126,501 $125,057
Interest expense......................... 44,918 36,226 75,575 73,080 64,351 63,785 66,017
Provision for losses on loans and real
estate owned, net.................... 4,878 4,920 9,410 9,780 10,700 10,794 7,900
Net earnings............................. 11,696 9,651 22,733 19,147 17,744 13,704 17,267
Net interest margin(1)................... 3.91% 3.87% 3.92% 3.88% 4.39% 4.40% 4.15%
Basic earnings per common share.......... $ 0.93 $ 0.76 $ 1.81 $ 1.50 $ 1.40 $ 1.10 $ 1.39
Diluted earnings per common share........ 0.91 0.75 1.77 1.44 1.36 1.06 1.34
Dividends declared per common share...... 0.28 0.26 0.52 0.48 0.40 0.38 0.32

OTHER DATA
Net earnings to average total
assets(1).............................. 1.15% 1.05% 1.20% 1.12% 1.17% 0.92% 1.16%
Net earnings to average shareholders'
equity(1).............................. 12.90 11.54 13.37 11.96 12.16 10.15 14.03
Average shareholders' equity to average
total assets........................... 8.91 9.07 9.00 9.33 9.66 9.09 8.28
Dividend payout ratio.................... 30.11 34.21 28.73 32.00 28.57 34.55 23.02
</TABLE>

------------------------------

(1) Interim calculations have been annualized for comparative purposes.

8
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF SOMERSET

We are providing the following financial information of Somerset to aid you
in your analysis of the financial aspects of the merger. We derived this
information from audited consolidated financial statements for the years ended
December 31, 1995 through 1999 and from unaudited consolidated financial
statements for the six months ended June 30, 1999 and 2000. Information with
respect to per share data for all periods reflects the five for four stock
splits effected February 29, 1996 and February 26, 1997. All historical amounts
have also been restated to reflect a merger that occurred January 20, 1998. This
information is only a summary, and you should read it together with Somerset's
historical consolidated financial statements, and related notes, contained
elsewhere in this proxy statement and prospectus and in the annual reports and
other information that Somerset files with the Securities and Exchange
Commission. See "Where You Can Find More Information."

<TABLE>
<CAPTION>
AT AT DECEMBER 31,
JUNE 30, ----------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 1995
--------------------------------------------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Working capital.......................................... $ 3,851 $ 2,804 $ 5,795 $ 6,251 $ 5,998 $ 9,146
Carrying value--investment in First Indiana.............. 40,529 39,010 36,104 32,406 29,746 27,549
Market value--investment in First Indiana................ 54,825 59,997 55,169 68,515 48,470 38,882
Total assets............................................. 50,114 47,309 44,773 42,460 39,718 40,188
Long-term debt........................................... -- -- -- 30 44 2,500
Total liabilities........................................ 11,617 10,938 9,310 9,000 8,121 10,429
Shareholders' equity..................................... 38,497 36,371 35,463 33,460 31,597 29,759
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
JUNE 30, JUNE 30,
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Fees, commissions and investment income........... $6,997 $5,670 $10,317 $7,656 $7,242 $6,532 $5,099
Equity in earnings of First Indiana............... 2,559 2,101 4,986 4,130 3,883 3,003 3,938
Gross profit of construction operations(1)........ -- -- -- -- -- -- 1,649
Income from operations before income taxes........ 3,731 2,921 5,141 4,001 3,567 3,123 5,571
Net income(2)..................................... 2,517 1,885 3,392 2,865 2,536 2,145 3,355
Basic earnings per common share................... 0.90 0.66 1.20 0.99 0.87 0.75 1.16
Diluted earnings per common share................. 0.88 0.65 1.18 0.97 0.86 0.73 1.15
Dividends declared per common share
(semi-annual)(3)................................ 0.11 0.10 0.20 0.18 0.18 0.16 0.128
</TABLE>

------------------------------

(1) The construction operations were sold in June 1995.

(2) Net income for the six months ended June 30, 1999 and the year ended
December 31, 1999 was reduced $115 for the cumulative effect of a change in
accounting principle.

(3) Somerset's policy has been to declare semi-annual dividends in the first and
third quarters.

9
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined selected financial data present
unaudited pro forma operating data for the six months ended June 30, 2000 and
the year ended December 31, 1999, giving effect to the merger as if the merger
had been consummated on January 1, 2000 and January 1, 1999, and unaudited pro
forma balance sheet data at June 30, 2000 and December 31, 1999, giving effect
to the merger as if the merger had been consummated on these dates. The pro
forma information reflects the purchase method of accounting. See Pro Forma
Condensed Combined Financial Statements which appear elsewhere in this proxy
statement and prospectus.

The following unaudited pro forma financial data are based on certain
assumptions and are not indicative of the results which actually would have
occurred if the merger had been consummated on the dates indicated or which may
be obtained in the future.

The following table compares selected pro forma combined data assuming stock
and cash combinations of 80%-20%, 90%-10%, and 65%-35% at and for the periods
ended June 30, 2000 and December 31, 1999.

You should read this summary pro forma data in conjunction with the
historical financial information which appears elsewhere in this proxy statement
and prospectus.

<TABLE>
<CAPTION>
ASSUMPTION: ASSUMPTION: ASSUMPTION:
80% STOCK AND 20% CASH 90% STOCK AND 10% CASH 65% STOCK AND 35% CASH
--------------------------- --------------------------- ---------------------------
FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS FOR THE YEAR MONTHS FOR THE YEAR MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
DATA) 2000 1999 2000 1999 2000 1999
--------------------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Combined Income Statement
Data:
Net Earnings before Cumulative Effect
of Change in Accounting Principle... $12,068 $22,127 $12,257 $22,326 $11,787 $21,577
Earnings per Share:
Basic............................... $ 0.96 $ 1.76 $ 0.93 $ 1.73 $ 1.00 $ 1.79
Diluted............................. 0.95 1.72 0.92 1.69 0.99 1.74
</TABLE>

<TABLE>
<CAPTION>
ASSUMPTION: ASSUMPTION: ASSUMPTION:
80% STOCK AND 90% STOCK AND 65% STOCK AND
20% CASH 10% CASH 35% CASH
----------------------- ----------------------- -----------------------
AT AT AT AT AT AT
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 2000 1999 2000 1999
-------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Combined Balance Sheet Data:
Goodwill...................................... $ 11,436 $ 12,734 $ 10,530 $ 11,831 $ 12,795 $ 14,090
Total Stockholders' Equity.................... 185,617 177,991 191,652 184,013 176,563 168,958
</TABLE>

10
<PAGE>
COMPARATIVE PER SHARE DATA

Summarized below is the historical per share information for First Indiana
and Somerset, as well as per share information on a combined pro forma basis and
combined equivalent pro forma basis. The combined pro forma summary amounts are
based on the purchase method of accounting. The Somerset per share combined pro
forma equivalents are calculated by multiplying the combined pro forma per share
amounts by 1.21. Somerset shareholders who so elect will receive 1.21 First
Indiana common shares in exchange for each Somerset common share. These amounts
also assume that 80% of Somerset's common shares are exchanged for First Indiana
shares and 20% of Somerset's common shares are exchanged for $24.70 in cash. The
following information should be read together with the historical and pro forma
condensed combined financial statements included in this joint proxy statement
and prospectus.

On April 18, 2000, the last trading day prior to the announcement of the
signing of the merger agreement, the closing price of a First Indiana common
share was $17.75. On the same day, the closing price of a Somerset common share
was $17.50. The equivalent per share value of a Somerset common share on that
date, applying the exchange ratio per share, was $21.48.

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 1999
------------------------ -------------------------
FIRST INDIANA SOMERSET FIRST INDIANA SOMERSET
------------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Net income per diluted common share:
Historical....................................... $ 0.91 $ 0.88 $ 1.77 $ 1.22
Combined pro forma............................... 0.95 N/A 1.72 N/A
1.21 Pro forma equivalents....................... N/A 1.15 N/A 2.08
Dividends per common share:
Historical....................................... $ 0.28 $ 0.11 $ 0.52 $ 0.20
Combined pro forma............................... 0.28 N/A 0.52 N/A
1.21 Pro forma equivalents....................... N/A 0.34 N/A 0.63
Book value per common share (at end of period):
Historical....................................... $14.67 $13.70 $14.14 $12.97
Combined pro forma............................... 15.33 N/A 14.11 N/A
1.21 Pro forma equivalents....................... N/A 18.55 N/A 17.08
</TABLE>

11
<PAGE>
RISK FACTORS

DUE TO CHANGES IN THE MARKET PRICE OF FIRST INDIANA COMMON STOCK, SOMERSET
SHAREHOLDERS WHO ELECT TO RECEIVE FIRST INDIANA COMMON STOCK CANNOT BE SURE OF
THE VALUE OF THE COMMON STOCK THEY WILL RECEIVE.

The value of First Indiana common shares and Somerset common shares at the
effective time of the merger may be different from the price and value of these
securities on the date the merger consideration was determined or on the date of
the special shareholder meetings. This difference could be caused by changes in
the operations and prospects of First Indiana or Somerset, general market and
economic conditions or other factors which are beyond the control of either
party.

We urge you to obtain current market quotations for First Indiana common
shares and Somerset common shares.

SOME OF THE DIRECTORS AND EXECUTIVE OFFICERS OF FIRST INDIANA AND SOMERSET HAVE
A CONFLICT OF INTEREST IN CONSIDERING THE MERGER.

In considering the recommendations of the boards of directors of First
Indiana and Somerset, shareholders should be aware that Robert H. McKinney,
Marni McKinney and Michael Smith, who are members of the board of directors of
Somerset, are also members of the board of directors of First Indiana and these
directors and other Somerset directors own stock in First Indiana. In addition,
Robert H. McKinney and Marni McKinney are executive officers of both Somerset
and First Indiana. Persons who are members of the boards of directors of both
companies, own stock in both companies or hold executive offices in both
companies may have interests that differ from the interests of First Indiana and
Somerset shareholders generally. In their capacities as directors and executive
officers of First Indiana and Somerset, each of these persons has a fiduciary
duty to represent the best interests of the shareholders of the respective
companies.

THE FAIRNESS OPINIONS OBTAINED BY FIRST INDIANA AND SOMERSET WILL NOT REFLECT
CHANGES IN THE RELATIVE VALUES OF THE COMPANIES SINCE THEY WERE OBTAINED.

First Indiana does not intend to obtain an updated fairness opinion of
Keefe, Bruyette & Woods, Inc., and Somerset does not intend to obtain an updated
fairness opinion of McDonald Investments Inc. Changes in the operations and
prospects of First Indiana and Somerset, general market and economic conditions
and other factors which are beyond the control of First Indiana or Somerset, on
which the opinions of Keefe, Bruyette & Woods and McDonald Investments are
based, may have altered the relative value of the companies. Therefore, the
opinions of Keefe, Bruyette & Woods and McDonald Investments do not address the
fairness of the merger consideration at the time the merger will be completed.

REGULATORY AGENCIES MAY IMPOSE CONDITIONS ON APPROVALS RELATING TO THE MERGER.

A condition to First Indiana's and Somerset's obligations to complete the
merger is that First Indiana receives, without any restrictions or conditions,
all required regulatory consents and approvals. Additionally, First Indiana and
Somerset have agreed to cooperate with each other and use their reasonable best
efforts to obtain all such regulatory consents and approvals.

12
<PAGE>
EITHER FIRST INDIANA OR SOMERSET MAY WAIVE CONDITIONS TO COMPLETION OF THE
MERGER, OR THEY MAY JOINTLY AMEND OR TERMINATE THE MERGER AGREEMENT.

First Indiana and Somerset may jointly amend the merger agreement, and
either of them may waive its right to require the other party to adhere to the
terms and conditions of the agreement. However, they may not do so without
additional approval of Somerset shareholders if Indiana law requires the
particular amendment or waiver to obtain further approval of the Somerset
shareholders.

It is a condition to completion of the transactions that First Indiana and
Somerset receive an opinion or opinions that the transactions constitutes a
"reorganization" within the meaning of the Internal Revenue Code, and, in the
case of Somerset, that no gain or loss will be recognized by Somerset
shareholders with respect to the First Indiana common stock received in exchange
for their shares. The parties have received such opinions, which they expect to
be updated and issued again at the time they complete the merger. The parties
will not waive this condition.

First Indiana and Somerset can agree at any time to terminate the merger
without completing the transaction. Also, either of First Indiana or Somerset
can decide to terminate the agreement without the consent of the other in
circumstances specified in the merger agreement. In the event that First Indiana
or Somerset terminates the merger as a result of withdrawal or adverse
modification of the recommendation of the other party's board of directors that
the merger be approved, or in the event Somerset terminates the merger due to
its acceptance of an acquisition proposal which its board of directors considers
to be superior, the terminating party must pay a termination fee of $1,000,000
to the other party.

CHANGES IN INTEREST RATES MAY REDUCE FIRST INDIANA'S NET INTEREST INCOME.

First Indiana realizes a major part of its income from the differential or
"spread" between the interest it earns on its assets, such as loans and
investments, and the interest it pays on its liabilities, such as deposits and
borrowings. Differences between the maturity and repricing terms of these assets
and liabilities affect the size of the spread. In general, First Indiana's
interest-bearing liabilities reprice or mature sooner than its interest-earning
assets. This means that higher interest rates may decrease the spread and reduce
First Indiana's net interest income. If interest rates decline, however, First
Indiana's loans and investments may, on average, reprice sooner than its
deposits or be prepaid earlier than expected, which may also decrease the spread
and lower First Indiana's net interest income. In addition, changes in the
relationship between long-term and short-term interest rates (known as the
"yield curve") or changes in the relationship between First Indiana's funding
costs and the return on its loans and other investments can adversely impact
First Indiana's net interest spread and net interest income.

First Indiana uses a variety of techniques to try to reduce its exposure to
interest rate fluctuations, but it cannot eliminate this risk.

FIRST INDIANA'S SHAREHOLDER RIGHTS PLAN AND ANTI-TAKEOVER PROVISIONS IN FIRST
INDIANA'S ARTICLES OF INCORPORATION AND BY-LAWS MAY DISCOURAGE A THIRD PARTY
FROM OFFERING TO ACQUIRE FIRST INDIANA'S SHARES AT A PREMIUM.

Certain provisions of First Indiana's articles of incorporation and bylaws
could have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from acquiring, a majority of First Indiana's
outstanding capital stock and could make it more difficult to consummate certain
types of transactions involving an actual or potential change of control in
First Indiana, such as a merger, tender offer or proxy contest. Shares of First
Indiana's preferred stock may be issued in the future without further
shareholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as First Indiana's board of directors may determine.
First Indiana's board of directors may create and issue a series of preferred
stock with rights, privileges or preferences

13
<PAGE>
that have the effect of discriminating against an existing or prospective
shareholder if that shareholder owns or commences a tender offer for a
substantial amount of First Indiana's common stock. This action may, in turn,
delay, discourage or prevent a change of control of First Indiana without any
action by First Indiana's shareholders. In addition, First Indiana has a
shareholder rights plan which may result in substantial dilution to a person or
group that acquires 20% or more of the outstanding First Indiana common stock or
commences a tender or exchange offer unless the rights issued under the
shareholder rights plan are first redeemed by the First Indiana board of
directors. As a result of the shareholder rights plan and the provisions
mentioned above, First Indiana's shareholders may fail to receive any premium
above the market price of First Indiana's stock offered by a third party
attempting to acquire control of First Indiana.

FORWARD-LOOKING STATEMENTS COULD PROVE TO BE INACCURATE.

This proxy statement and prospectus contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of First Indiana and the effects of the proposed merger. These
statements may be made directly in this document or may be incorporated in this
document by reference to other documents and may include statements for the
period following the consummation of the merger. You can find many of these
statements by looking for words such as "believes," "expects," "anticipates,"
"estimates" or similar expressions. These forward-looking statements involve
substantial risks and uncertainties. Some of the factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include the following possibilities:

- combining the businesses of First Indiana and Somerset may cost more than
we expect;

- integrating the businesses of First Indiana and Somerset and retaining key
personnel may be more difficult than we expect;

- our revenues after the merger may be lower than we anticipate;

- there may be increases in competitive pressure among financial
institutions;

- changes in the interest rate environment may reduce interest margins;

- general economic conditions, either nationally or locally, or conditions
in securities markets, may be less favorable than we currently anticipate;
or

- legislation or regulatory changes may adversely affect our business.

14
<PAGE>
FIRST INDIANA AND SOMERSET

First Indiana is a nondiversified, unitary savings and loan holding company
whose principal asset is the outstanding stock of First Indiana Bank, its wholly
owned subsidiary. First Indiana Bank is a federally chartered stock savings bank
whose depositary accounts are insured by the Savings Association Insurance Fund
of the Federal Deposit Insurance Corporation. First Indiana Bank offers a full
range of banking services through 23 banking offices located throughout
metropolitan Indianapolis and in other parts of central Indiana, and also
originates home equity loans indirectly through a network of loan originators
and loan agents throughout the United States. First Indiana has approximately
$2.1 billion in assets and is the largest publicly held bank based in
Indianapolis.

Somerset is a comprehensive financial services company offering a number of
specialty consulting and advisory services and investment and insurance products
to the general public. In its insurance and investment products division,
Somerset markets tax-deferred fixed-rate annuities, life insurance, property and
casualty insurance, mutual funds, variable annuities and equity and fixed income
securities. In its financial services division, Somerset offers a variety of
financial consulting services including tax planning and preparation, accounting
services, retirement and estate planning, investment and wealth management and
health care and management consulting. In its information technology subsidiary,
Paradym Technologies, Inc., Somerset provides information technology consulting
to the general public, including network design and support, corporate Internet
access and design of web-based processing systems. Somerset also owns
approximately 22% of the outstanding common stock of First Indiana.

ABOUT THIS JOINT PROXY STATEMENT AND PROSPECTUS

This joint proxy statement and prospectus is part of a registration
statement that First Indiana filed with the Securities and Exchange Commission
relating to the First Indiana common shares being issued in the merger. This
joint proxy statement and prospectus provides you with a general description of
the common shares First Indiana will offer. You should read this joint proxy
statement and prospectus together with the additional information described
under the heading "Where You Can Find More Information."

RELATIONSHIP BETWEEN FIRST INDIANA AND SOMERSET

In addition to Somerset's ownership of First Indiana common stock, First
Indiana and Somerset currently share certain officers, directors and major
shareholders, including:

- Robert H. McKinney is the Chairman of both First Indiana and Somerset, and
his daughter, Marni McKinney, is the Vice Chairman and Chief Executive
officer of both First Indiana and Somerset;

- Robert H. McKinney, Marni McKinney and Michael L. Smith are directors of
both First Indiana and Somerset; and

- Robert H. McKinney, Marni McKinney and various trusts for the benefit of
the McKinney family beneficially own approximately 5.9% of First Indiana's
outstanding common stock (not including common stock owned by Somerset)
and approximately 42.4% of Somerset's outstanding common stock.

For information regarding the effect of the proposed merger on the ownership of
First Indiana common stock by First Indiana and Somerset officers and directors,
see "Holders of First Indiana Securities."

In addition, in 1996 First Indiana Bank sold its insurance and
non-FDIC-insured investment sales business to Somerset. At the same time, the
two companies entered into a multi-year operating

15
<PAGE>
agreement under which Somerset provides insurance and non-FDIC-insured
investment products and services to the bank's customers and pays the bank a
portion of the commissions received by Somerset on such sales. During the year
ended December 31, 1999, Somerset paid to the bank $113,350 in accordance with
the terms of the purchase agreement and the operating agreement.

THE SOMERSET SPECIAL MEETING

TIME AND PLACE; PURPOSE

The Somerset special shareholder meeting will be held at First Indiana
Plaza, 7th Floor, 135 North Pennsylvania Street, Indianapolis, Indiana, on
September 26, 2000 at 10:00 a.m., local time. At the Somerset special meeting,
the shareholders of Somerset will be asked to consider and approve the merger
proposal and the merger agreement.

PROXIES AND SOLICITATION OF PROXIES

A form of proxy is enclosed with this document. Shares of Somerset common
stock represented by a properly executed proxy will, unless the proxy has been
previously revoked, be voted at the special meeting as specified in the proxy.
If no instructions are indicated, these shares will be voted FOR approval of the
merger proposal and the merger agreement and in the discretion of the proxy
holder as to any other matter which may properly come before the meeting.

Somerset shareholders are requested to vote by completing, dating and
signing the accompanying proxy card and returning it promptly to Somerset in the
enclosed, postage-paid envelope. Somerset shareholders should not send their
stock certificates with their proxy card. Instead, they should follow the
instructions on the enclosed election form and send their certificates to the
exchange agent with that form.

If you are a Somerset shareholder and you have previously delivered a
properly executed proxy, you may revoke it at any time before its exercise. You
may revoke a proxy either by:

- filing with the Secretary of Somerset prior to the special meeting, at
Somerset's principal executive offices, either a written revocation of the
proxy or a duly executed proxy bearing a later date; or

- attending the meeting and voting in person. Your presence at the meeting
will not revoke your proxy unless you vote in person.

Somerset is soliciting proxies for use at its special meeting. Somerset will
bear the cost of solicitation of proxies from its own shareholders. Somerset and
First Indiana will share equally the cost of printing and mailing this document
to Somerset shareholders and the associated SEC registration fees. In addition
to solicitation by mail, Somerset directors, officers and employees may solicit
proxies from shareholders by telephone, in person or through other means. These
persons will not receive additional compensation, but they will be reimbursed
for the reasonable out-of-pocket expenses they incur in connection with this
solicitation. In addition, Morrow & Co., Inc. has been engaged to assist with
the solicitation of proxies and the return of election forms and will receive
fees estimated at $6,500, plus reimbursement of out-of-pocket expenses. Somerset
will also make arrangements with brokerage firms, fiduciaries and other
custodians who hold shares of record to forward solicitation materials to the
beneficial owner of these shares. Somerset will reimburse these brokerage firms,
fiduciaries and other custodians for their reasonable out-of-pocket expenses in
connection with this solicitation.

16
<PAGE>
RECORD DATE AND VOTING RIGHTS

Somerset's board of directors has fixed the close of business on August 11,
2000 as the record date for the determination of Somerset shareholders entitled
to notice of and to vote at Somerset's special meeting of shareholders. Brokers
who hold shares of Somerset common stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners. Proxies submitted by brokers that do not indicate a vote for the merger
proposal because the holders do not have discretionary voting authority and have
not received instructions from the beneficial owners on how to vote on those
proposals are called "broker non-votes." Abstentions and broker non-votes will
be counted for purposes of determining whether a quorum is present but will not
be voted for or against the proposals and will therefore have the same effect as
a vote against the merger proposal because a majority of the outstanding
Somerset common shares must approve the merger.

VOTE REQUIRED FOR APPROVAL

The affirmative vote of at least a majority of the issued and outstanding
Somerset common shares is required to approve the merger and the merger
agreement. As of July 31, 2000, Somerset officers and directors beneficially
owned approximately 51.9% of the outstanding Somerset common shares.

VOTING AGREEMENTS

As a condition and an inducement to First Indiana to enter into the merger
agreement, the directors of Somerset, who are entitled to vote approximately
50.8% of the outstanding shares of Somerset common stock, have agreed to vote
their shares (and to use their best efforts to cause shares jointly held by them
or as to which they having voting control to be voted) in favor of approval of
the merger agreement. These persons have also agreed not to sell or otherwise
transfer any Somerset shares owned by them with the purpose of avoiding this
agreement.

THE FIRST INDIANA SPECIAL MEETING

TIME AND PLACE; PURPOSE

The First Indiana special shareholder meeting will be held at First Indiana
Plaza, 7th Floor, 135 North Pennsylvania Street, Indianapolis, Indiana, on
September 26, 2000 at 2:00 p.m., local time. At the First Indiana special
meeting, the shareholders of First Indiana will be asked to consider and approve
the merger proposal and the merger agreement.

PROXIES AND SOLICITATION OF PROXIES

A form of proxy is enclosed with this document. Shares of First Indiana
common stock represented by a properly executed proxy will, unless the proxy has
been previously revoked, be voted at the special meeting as specified in the
proxy. If no instructions are indicated, these shares will be voted FOR approval
of the merger proposal and the merger agreement and in the discretion of the
proxy holder as to any other matter which may properly come before the meeting.

First Indiana shareholders are requested to vote by completing, dating and
signing the accompanying proxy card and returning it promptly to First Indiana
in the enclosed, postage-paid envelope. First Indiana shareholders should not
send their stock certificates with their proxy card.

17
<PAGE>
If you are a First Indiana shareholder and you have previously delivered a
properly executed proxy, you may revoke it at any time before its exercise. You
may revoke a proxy either by:

- filing with the Secretary of First Indiana prior to the special meeting,
at First Indiana's principal executive offices, either a written
revocation of the proxy or a duly executed proxy bearing a later date; or

- attending the meeting and voting in person. Your presence at the meeting
will not revoke your proxy unless you vote in person.

First Indiana is soliciting proxies for use at its special meeting. First
Indiana will bear the cost of solicitation of proxies from its own shareholders.
First Indiana and Somerset will share equally the cost of printing and mailing
this document to Somerset shareholders and associated SEC registration fees. In
addition to solicitation by mail, First Indiana directors, officers and
employees may solicit proxies from shareholders by telephone, in person or
through other means. These persons will not receive additional compensation, but
they will be reimbursed for the reasonable out-of-pocket expenses they incur in
connection with this solicitation. First Indiana will also make arrangements
with brokerage firms, fiduciaries and other custodians who hold shares of record
to forward solicitation materials to the beneficial owner of these shares. First
Indiana will reimburse these brokerage firms, fiduciaries and other custodians
for their reasonable out-of-pocket expenses in connection with this
solicitation.

RECORD DATE AND VOTING RIGHTS

First Indiana's board of directors has fixed the close of business on August
11, 2000 as the record date for the determination of First Indiana shareholders
entitled to notice of and to vote at First Indiana's special meeting of
shareholders. Brokers who hold shares of First Indiana common stock as nominees
will not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners. Abstentions and broker non-votes will
be counted for purposes of determining whether a quorum is present but will not
be voted for or against the proposals.

VOTE REQUIRED FOR APPROVAL

The affirmative vote of at least a majority of the votes cast by the holders
of First Indiana common stock at the special meeting is required to approve the
merger and the merger agreement. As of June 30, 2000, First Indiana officers and
directors beneficially owned approximately 33.1% of the outstanding First
Indiana common shares.

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<PAGE>
THE MERGER AND THE MERGER AGREEMENT

DESCRIPTION OF THE MERGER

The merger agreement provides for a transaction in which Somerset will merge
into First Indiana. First Indiana will be the surviving corporation of the
merger. At the effective time of the merger (as described below), each share of
issued and outstanding Somerset common stock will cease to be outstanding and
(excluding any shares held by Somerset or First Indiana or their subsidiaries
except shares held by First Indiana in a fiduciary capacity or in satisfaction
of a debt) will be converted into the right to receive, at the election of each
Somerset shareholder, either (1) 1.21 (the "Exchange Ratio") shares of First
Indiana common stock (the "Per Share Stock Consideration") or (2) $24.70 in cash
(the "Per Share Cash Consideration"). Somerset shareholders may also elect a
combination of First Indiana common stock and cash for their shares. First
Indiana and Somerset have agreed that, in the aggregate, at least 65% of the
outstanding shares of Somerset common stock will be converted into First Indiana
common stock and no more than 35% of the outstanding shares of Somerset common
stock will be converted into cash. Therefore, Somerset shareholders who elect
cash for some or all of their shares may receive a different combination of cash
and First Indiana common stock for their shares than they elected based on the
choices made by the other Somerset shareholders. First Indiana currently intends
to transfer the business of Somerset into a wholly owned subsidiary of First
Indiana following the effectiveness of the merger.

BACKGROUND OF THE MERGER

Over the past 15 years, Somerset has at various times purchased the common
stock of First Indiana and now owns approximately 22% of the outstanding First
Indiana common stock. The chairman and the vice chairman/chief executive officer
of Somerset are also the chairman and vice chairman/chief executive officer,
respectively, of First Indiana. Beginning in the fourth quarter of 1999, the
management of First Indiana and Somerset began an informal evaluation of the
financial and competitive status of First Indiana and Somerset and Somerset's
interest in First Indiana. Based on this evaluation, senior management of First
Indiana and Somerset concluded that operational efficiencies and other savings
could be obtained by operating as a single public company instead of as two
separate public companies. In addition, with the passage in 1999 of the
Gramm-Leach-Bliley Act, which repealed the historic separation between
commercial banks and securities firms and liberalized the rules on bank holding
company activities, management of First Indiana concluded that First Indiana
could be at a competitive disadvantage as other financial institutions began
offering customers a broad array of financial products and services, including
products and services of the type that Somerset currently offers.

On January 12, 2000, Robert H. McKinney, the chairman of both First Indiana
and Somerset, presented to the First Indiana board of directors the possibility
of a merger of Somerset with and into First Indiana. The board of directors
appointed Gerald L. Bepko, Phyllis W. Minott and John W. Wynne as a special
committee of independent directors to represent the interests of the
shareholders of First Indiana other than Somerset, Mr. McKinney and his family
and their affiliates in the proposed transaction. The board of directors
authorized the special committee to:

- investigate the desirability of a transaction in which Somerset would
merge with and into First Indiana or a subsidiary of First Indiana for
cash, First Indiana common stock or a combination of cash and stock;

- retain an independent financial advisor to assist it in its deliberations;

- establish the price to be paid in cash and the exchange ratio for any
exchange of stock to be delivered to Somerset shareholders in any
transaction that the special committee might recommend;

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<PAGE>
- make a recommendation to the full board of directors of First Indiana
regarding the advisability of a transaction, the form of the transaction
and the amount and form of consideration to be paid to Somerset
shareholders in the transaction; and

- take such other actions as might be necessary.

The special committee was authorized to negotiate a fair price and other terms
in relation to the proposed merger of Somerset and First Indiana. It was not
specifically authorized to pursue alternatives to the proposed merger.
Ms. Minott agreed to serve as the chairman of the First Indiana special
committee.

Similarly, at a special meeting of the board of directors held on
January 12, 2000, Mr. McKinney presented the merger proposal to the Somerset
board of directors. The Somerset board of directors appointed Gary L. Light,
Douglas W. Huemme and Malcolm A. Leslie as a special committee of independent
directors to represent the interests of the shareholders of Somerset other than
Mr. McKinney, his family and their affiliates in the proposed transaction. The
board of directors authorized the special committee to:

- evaluate on behalf of the Somerset shareholders a proposal expected from
First Indiana concerning a merger of Somerset with and into First Indiana
or a subsidiary of First Indiana for cash, First Indiana common stock or a
combination of cash and stock;

- employ independent counsel and an independent financial advisor to assist
it in its deliberations;

- investigate relevant facts relating to the proposal and to consider
whether alternative steps should be taken by Somerset to maximize
shareholder value;

- report its recommendations to the full board of directors of Somerset; and

- take such other actions as might be necessary.

Mr. Light agreed to serve as the chairman of the Somerset special committee.

On January 21, 2000 and January 26, 2000, the Somerset special committee
employed Barnes & Thornburg and McDonald Investments as its legal and financial
advisors and met with McDonald Investments and legal counsel to discuss
procedures to be followed by the special committee in carrying out its
responsibilities, appropriate actions to be taken by that committee and the
terms of the engagement of McDonald Investments and Barnes & Thornburg. The
special committee also discussed with McDonald Investments McDonald's proposed
valuation methodologies.

Over the course of the following three months, the First Indiana special
committee and management of First Indiana supplied information to Keefe,
Bruyette in order to obtain a valuation of Somerset which the First Indiana
special committee could use as a basis for proposing terms of a merger to
Somerset. At the same time, the Somerset special committee and management of
Somerset supplied information to McDonald Investments in order to obtain a
valuation of Somerset which the Somerset special committee could use to evaluate
any merger proposal from First Indiana.

In early April, 2000, Somerset's legal counsel and McDonald Investments were
provided with drafts of a proposed merger agreement containing provisions other
than the consideration to be paid to Somerset shareholders, and discussions were
held between representatives of Somerset and First Indiana regarding the
non-economic terms of the proposed transaction.

On April 11, 2000, the First Indiana special committee met to hear a report
from Keefe, Bruyette and to review a draft of a merger agreement prepared by
First Indiana's legal counsel. Keefe, Bruyette reviewed First Indiana's business
operations, financial statements and financial projections and continued with a
financial analysis, including stock price performance and comparisons, market
valuations and a peer group analysis for Somerset. Keefe, Bruyette explained
that it had employed two methods for its valuation, a valuation based on
revenues and a valuation as a multiple of net earnings.

20
<PAGE>
Based on an accretion/dilution analysis using projected earnings per share for
2000, Keefe, Bruyette recommended a transaction structure of 80% stock and 20%
cash, with a 10% fixed cash premium in order to achieve a 20% cash election, and
a fixed exchange ratio of 1.180 First Indiana shares per Somerset share. After a
discussion of the presentation, the special committee requested Keefe, Bruyette
to consider the effect of fixed exchange ratios of 1.180, 1.190 and 1.200, and a
floating exchange ratio, in light of projected earnings per share for 2001. The
special committee then reviewed a draft of the merger agreement submitted by
legal counsel.

Between April 11 and 13, representatives of McDonald Investments, Keefe,
Bruyette, Somerset and First Indiana had general discussions concerning
valuation methodology being considered by both parties and non-economic terms of
the merger agreement.

On April 13, 2000, the First Indiana special committee met to consider
information prepared by Keefe, Bruyette. Keefe, Bruyette presented an
earnings-per-share accretion/dilution analysis based on various assumed exchange
ratios with a 10% premium for those Somerset shareholders electing to receive
cash instead of First Indiana shares. Following discussions with Keefe,
Bruyette, the special committee:

- approved the submission of a merger proposal to the Somerset special
committee involving a merger between First Indiana and Somerset, with
First Indiana or a subsidiary of First Indiana as the surviving entity;

- established an exchange ratio of 1.20 shares of First Indiana common stock
for each Somerset share and a 10% cash premium over the market price of
1.20 shares of First Indiana common stock on the date preceding the date
of announcement of the merger, with a maximum of 35% of the total Somerset
shares to be exchanged for cash; and

- authorized Owen B. Melton, Jr., president of First Indiana, to continue
discussions with Somerset on terms of the merger agreement and other
documents with the understanding that he would advise the special
committee of the status of such discussions.

On April 13, 2000, Somerset's legal counsel and McDonald Investments were
provided with a written proposal from First Indiana reflecting these actions by
its special committee, accompanied by a complete draft merger agreement. This
material, along with a detailed financial analysis of the proposal prepared by
McDonald Investments, was provided to the Somerset special committee members and
to the directors of Somerset who had not already received the materials as a
result of their position as directors of First Indiana.

On April 17, 2000, the Somerset special committee met and reviewed the
proposed merger agreement at length. Representatives of McDonald Investments
discussed at length their financial analysis of the proposal. The Somerset
special committee determined to make a counteroffer to First Indiana containing,
among other things, the following positions:

- the exchange ratio should be higher than 1.20 shares of First Indiana
common stock for each Somerset share;

- the cash premium over the market price of 1.20 shares of First Indiana
common stock on the date preceding the date of announcement of the merger
should be 15%, rather than 10%;

- a walk-away provision should be included if First Indiana's stock price
drops 15% or more; and

- the vesting of nonvested stock options should be accelerated for directors
and employees terminated as a result of the merger and those persons
should have six months following their termination to exercise such
accelerated options.

On April 18, 2000, the First Indiana special committee met to consider
negotiation points on the merger and the merger agreement which had been
presented to Mr. Melton by Somerset, its legal

21
<PAGE>
counsel and McDonald Investments. The special committee also considered proposed
responses to the negotiating points suggested by Mr. Melton, Keefe, Bruyette and
legal counsel. Following a discussion of the negotiating points and the proposed
responses, the First Indiana special committee determined to make a counteroffer
to Somerset on the following basis:

- a merger between First Indiana and Somerset, with First Indiana or a
subsidiary of First Indiana as the surviving entity;

- an exchange ratio of 1.20 shares of First Indiana common stock for each
Somerset share and a 15% cash premium over the market price of 1.20 shares
of First Indiana common stock on the date preceding the date of
announcement of the merger, with a maximum of 35% of Somerset's
outstanding shares to receive cash consideration; and

- a walk-away provision if First Indiana stock drops 20% or more.

Later in the afternoon of April 18, 2000, the First Indiana board of
directors held a special meeting at which its legal counsel and Keefe, Bruyette
were present. Keefe, Bruyette made a presentation including an overview of
Somerset, including business operations, a financial summary as of December 31,
1999 and financial projections through the year 2004, together with the benefits
to First Indiana of an acquisition of Somerset. Keefe, Bruyette then presented a
financial and valuation analysis and recommended a structure for the proposed
transaction. Ms. Minott then presented the report of the First Indiana special
committee and recommended a merger on the basis established in the special
committee's meeting earlier in the day. Following these presentations, and after
extensive discussion of the advantages and potential risks of the proposed
merger as described under the heading "--First Indiana's Reasons for the Merger"
below, the First Indiana board of directors unanimously approved the merger, the
merger agreement and the transactions contemplated by the merger agreement.

Also on April 18, 2000, the Somerset special committee met with its legal
counsel and McDonald Investments to consider the proposal submitted by the First
Indiana special committee. Following review of the proposal and an analysis by
McDonald Investments, the Somerset special committee instructed McDonald
Investments to propose an increase in the exchange ratio to 1.21 shares of First
Indiana stock per Somerset share.

On April 19, 2000, the First Indiana special committee met to consider
changes in the merger agreement proposed by Somerset. Legal counsel and Keefe,
Bruyette were again present for this meeting. Keefe, Bruyette presented an
analysis of Somerset's proposal to increase the exchange ratio to 1.21 shares of
First Indiana stock per Somerset share, with the cash premium to remain at 15%,
and concluded that this consideration to be provided to the shareholders of
Somerset would be fair to First Indiana shareholders from a financial point of
view. Following a discussion of the Keefe, Bruyette presentation as well as
Somerset's request to permit extension to six months of stock option exercise
periods and accelerate vesting of any non-vested options for Somerset officers
and directors terminated as a result of the merger, the special committee agreed
with Somerset's proposal and recommended that the entire First Indiana board of
directors amend its approval of the merger and the merger agreement accordingly.

After receipt of the First Indiana special committee's report, the First
Indiana board of directors by unanimous written consent dated April 19, 2000
concurred in the special committee's recommendation.

The Somerset board of directors met on April 19, 2000, to consider the
merger proposal of First Indiana and to learn of the special committee's
deliberations and conclusions. The board was advised of all developments
relating to the proposed merger since January, 2000. The merger agreement
delivered by First Indiana was discussed in detail. Representatives of McDonald
Investments provided their financial analysis of the merger proposal, and
McDonald Investments concluded that the

22
<PAGE>
consideration to be provided to the shareholders of Somerset would be fair to
Somerset shareholders from a financial point of view. After clarification was
received on certain provisions in the merger agreement and the directors were
advised that First Indiana had agreed to increase the exchange ratio to 1.21
shares of First Indiana stock per Somerset share, the meeting was adjourned so
that the special committee could meet to take final action on the proposal. The
special committee met and adopted a resolution recommending that the full board
of Somerset approve the merger on the terms set forth in the merger agreement as
presented to the board. The full board then recommended and approved the merger
agreement and recommended its approval to the Somerset shareholders.

SOMERSET'S REASONS FOR THE MERGER

The Somerset board of directors believes that the merger and the merger
agreement are in the best interests of Somerset and its shareholders.
Accordingly, the Somerset board of directors has unanimously approved and
adopted the merger agreement and recommends approval of the merger agreement and
the merger by the Somerset shareholders. In reaching its conclusion, the special
committee of the board of directors and the board of directors considered a
number of factors, including the following:

- the review by the board of directors of Somerset, based in part on the
advice of McDonald Investments, of the range of possible values of
Somerset, including the timing and likelihood of actually receiving such
value from a party other than First Indiana and of the possible values of
First Indiana;

- the opinion of McDonald Investments as to the fairness of the merger
consideration from a financial point of view as of the date of the
opinion;

- the opportunity to capitalize on revenue enhancement opportunities
existing between the businesses of First Indiana and Somerset, and the
resulting potential for accretion to Somerset's book value and earnings
per share as a result of the merger;

- the ability for those Somerset shareholders electing stock to benefit from
an increase in the liquidity of First Indiana's trading market due to
increased float and trading volume of First Indiana shares compared to
Somerset shares and to receive higher cash dividends per share, assuming
First Indiana maintains its current dividend policy;

- the fact that all Somerset shareholders would be permitted to elect to
receive First Indiana common stock in the merger, and that the merger
would be tax-free to Somerset and its shareholders to the extent they
receive stock in the merger;

- the ability for those Somerset shareholders who elect cash to receive a
15% premium above the nominal value of the stock election based on the
1.21 per share exchange ratio times the market value of First Indiana
stock as of the date the merger was announced;

- the anticipated cost savings and operating efficiencies available to the
combined institution from the merger and, in particular, the elimination
of the expenses associated with status as a publicly held company;

- the ability to eliminate the division of time and energy of management
between two different corporate entities;

- the ability to eliminate customer and marketplace confusion about the
relationship between Somerset and First Indiana;

- the opportunity the merger creates to make more services available to
customers and thereby meet increased customer expectations of financial
services firms following passage of the Gramm-Leach-Bliley Act;

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<PAGE>
- the fact that the unrealized gain on the First Indiana common stock held
by it might make Somerset less attractive to a third party acquiror; and

- the effect of the merger on Somerset's other constituencies, including its
management, employees, customers and the communities it serves.

The foregoing discussion of the information and factors considered by the
special committee and the board of directors of Somerset is not intended to be
exhaustive but is believed to include all material factors considered by the
Somerset board of directors. In reaching its determination to approve the merger
the Somerset board of directors did not assign any relative or specific weights
to the foregoing factors, and individual directors may have given differing
weights to different factors.

RECOMMENDATION OF THE SOMERSET BOARD OF DIRECTORS

The board of directors of Somerset has unanimously approved the merger
agreement and the merger provided for therein. It has also unanimously
recommended to the Somerset shareholders that they approve and adopt the merger
agreement and the transactions contemplated thereby.

FIRST INDIANA'S REASONS FOR THE MERGER

The First Indiana special committee and board of directors considered a
number of factors in reaching their respective determinations that the merger is
fair to and in the best interests of the public shareholders of First Indiana,
without regard to Somerset's interests and in making their recommendations that
the merger be approved by First Indiana shareholders. The special committee and
the First Indiana board of directors did not consider it practicable to, and did
not attempt to, quantify, rank or otherwise assign relative weights to the
specific factors they considered in reaching their respective determinations and
recommendations. The factors considered included:

- the potential for an increase in First Indiana's fee-based revenues along
with a diversification of First Indiana's revenue base;

- the opportunity to make more services available to customers and thereby
meet increased customer expectations of financial services firms following
passage of the Gramm-Leach-Bliley Act;

- the opportunity to capitalize on revenue enhancement opportunities
existing between the businesses of First Indiana and Somerset;

- the elimination of duplicate expenses associated with operating First
Indiana and Somerset as separate publicly held companies;

- the ability to eliminate the division of time and energy of management
between two different corporate entities;

- the ability to eliminate customer and marketplace confusion about the
relationship between Somerset and First Indiana;

- the potential of accretion to First Indiana's earnings per share;

- an increase in the liquidity of First Indiana's trading market due to
increased float and trading volume of First Indiana shares;

- the review by the board of directors of First Indiana, based in part on
the advice of Keefe, Bruyette & Woods and on management's internal
projections, of the range of possible values of Somerset and First
Indiana;

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<PAGE>
- the presentations of Keefe, Bruyette and the fact that Keefe, Bruyette
would render an opinion that the consideration to be paid to Somerset
shareholders in the merger was fair to First Indiana shareholders from a
financial point of view; and

- the effect of the merger on First Indiana's other constituencies,
including its management, employees, and the communities it serves.

RECOMMENDATION OF THE FIRST INDIANA BOARD OF DIRECTORS

At a meeting of the First Indiana board of directors held on April 18, 2000,
after due consideration, the board of directors unanimously:

- determined that the merger is fair to and in the best interests of the
public shareholders of First Indiana, without regard to Somerset's
interests;

- approved and adopted the merger and the merger agreement; and

- recommended that First Indiana shareholders approve and adopt the merger
and the merger agreement.

OPINION OF FINANCIAL ADVISOR TO SOMERSET

MERGER--GENERAL. Pursuant to an engagement letter dated January 12, 2000
between the special committee of the board of directors of Somerset and McDonald
Investments, the special committee retained McDonald Investments to act as its
sole financial advisor in connection with the merger. McDonald Investments'
engagement was limited to providing financial advice to the special committee of
the board of directors of Somerset in connection with the merger and advice on
various strategic alternatives. McDonald Investments was not requested by
Somerset to, and did not, solicit indications of interest from any other
potential acquirors. As part of its engagement, McDonald Investments agreed, if
requested by Somerset, to render an opinion with respect to the fairness, from a
financial point of view, to the holders of Somerset common stock, of the
consideration as set forth in the merger agreement. McDonald Investments is a
nationally recognized specialist in the financial services industry, in general,
and in Midwestern banks and thrifts in particular. McDonald Investments is
regularly engaged in evaluations of similar businesses and in advising
institutions with regard to mergers and acquisitions, as well as raising debt
and equity capital for such institutions. Somerset's special committee selected
McDonald Investments as its financial advisor based upon McDonald Investments'
qualifications, expertise and reputation in such capacity.

On April 19, 2000, McDonald Investments delivered to the Somerset board of
directors its oral opinion, which McDonald Investments subsequently confirmed in
writing, that the consideration payable in the merger was fair to Somerset
shareholders, from a financial point of view, as of the date of such opinion.
McDonald Investments has also delivered to the Somerset board of directors a
written opinion as of the date of this document, which is substantially similar
to the opinion delivered on April 19, 2000. No limitations were imposed by
Somerset on McDonald Investments with respect to the investigations made or the
procedures followed in rendering its opinion.

THE FULL TEXT OF THE MCDONALD INVESTMENTS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND EXTENT OF REVIEW BY MCDONALD
INVESTMENTS, IS ATTACHED AS ANNEX B TO THIS DOCUMENT AND IS INCORPORATED HEREIN
BY REFERENCE. IT SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION
WITH THIS DOCUMENT. THE FOLLOWING SUMMARY OF THE MCDONALD INVESTMENTS OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MCDONALD
INVESTMENTS OPINION. THE MCDONALD INVESTMENTS OPINION IS ADDRESSED TO THE
SOMERSET BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF
SOMERSET AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SOMERSET SPECIAL MEETING
DESCRIBED IN THIS DOCUMENT.

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<PAGE>
McDonald Investments has acted as Somerset's financial advisor in connection
with, and has participated in certain negotiations leading to, the Agreement. In
connection with rendering our opinion set forth herein, McDonald Investments has
among other things:

- Reviewed Somerset's Annual Reports to Shareholders and Annual Reports on
Form 10-K for each of the years ended December 31, 1999, December 31, 1998
and December 31, 1997, including the audited financial statements
contained therein;

- Reviewed First Indiana's Annual Reports to Shareholders and Annual Reports
on Form 10-K for each of the years ended December 31, 1999, December 31,
1998 and December 31, 1997, including the audited financial statements
contained therein;

- Reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Somerset and First Indiana provided to McDonald
Investments or publicly available;

- Participated in meetings and telephone conferences with members of senior
management of Somerset and First Indiana concerning the financial
condition, business, assets, financial forecasts and prospects of the
respective companies, as well as other matters McDonald Investments
believed relevant to its inquiry;

- Reviewed certain stock market information for Somerset common stock and
First Indiana common stock, and compared it with similar information for
certain companies, the securities of which are publicly traded;

- Compared the results of operations and financial condition of Somerset and
First Indiana with that of certain companies, which McDonald Investments
deemed to be relevant for purposes of this opinion;

- Reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions, which McDonald Investments deemed to be relevant
for purposes of this opinion;

- Reviewed the merger agreement dated April 19, 2000 and certain related
documents; and

- Performed such other reviews and analyses as McDonald Investments has
deemed appropriate.

The oral and written opinions provided by McDonald Investments to Somerset
were necessarily based upon economic, monetary, financial market and other
relevant conditions as of the dates thereof.

In connection with its review and arriving at its opinion, McDonald
Investments relied upon the accuracy and completeness of the financial
information and other pertinent information provided by First Indiana and
Somerset to McDonald Investments for purposes of rendering its opinion. McDonald
Investments did not assume any obligation to independently verify any of the
information provided as being complete and accurate in all material respects.
With regard to the financial forecasts established and developed for Somerset
and First Indiana with the input of the respective managements, as well as
projections of cost savings, revenue enhancements and operating synergies,
McDonald Investments assumed that these materials had been reasonably prepared
on bases reflecting the best available estimates and judgments of Somerset and
First Indiana as to the future performance of the separate and combined entities
and that the projections provided a reasonable basis upon which McDonald
Investments could formulate its opinion. Somerset and First Indiana do not
publicly disclose such internal management projections of the type utilized by
McDonald Investments in connection with McDonald Investments' role as financial
advisor to Somerset's special committee with respect to its review of the
merger. Therefore, such projections cannot be assumed to have been prepared with
a view towards public disclosure. The projections were based upon numerous
variables and assumptions that are inherently uncertain, including, among
others, factors relative to the general economic and

26
<PAGE>
competitive conditions facing Somerset and First Indiana. Accordingly, actual
results could vary significantly from those set forth in the respective
projections.

McDonald Investments does not claim to be an expert in the evaluation of
loan portfolios or the allowance for loan losses with respect thereto and
therefore assumes that such allowances for First Indiana are adequate to cover
such losses. In addition, McDonald Investments does not assume responsibility
for the review of individual credit files, did not make an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of Somerset or First Indiana, nor was McDonald Investments provided
with such appraisals. Furthermore, McDonald Investments assumed that the merger
would be consummated in accordance with the terms set forth in the merger
agreement, including the tax-free treatment of the merger to the holders of
Somerset common stock who elect to receive payment for their shares in shares of
First Indiana common stock and without any waiver of any material terms or
conditions by Somerset, and that obtaining the necessary regulatory approvals
for the merger will not have an adverse effect on either separate institution or
the combined entity. Moreover, in each analysis that involves per share data for
Somerset, McDonald Investments adjusted the data to reflect full dilution, I.E.,
the effect of the exercise of outstanding options and/or warrants utilizing the
treasury stock method. In particular, McDonald Investments assumed that the
merger would be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles.

In connection with rendering its opinion to the Somerset board of directors,
McDonald Investments performed a variety of financial and comparative analyses
which are briefly summarized below. Such summary of analyses does not purport to
be a complete description of the analyses performed by McDonald Investments.
Moreover, McDonald Investments believes that these analyses must be considered
as a whole and that selecting portions of such analyses and the factors
considered by it, without considering all such analyses and factors, could
create an incomplete understanding of the scope of the process underlying the
analyses and, more importantly, the opinion derived from them. The preparation
of a financial advisor's opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analyses or a summary
description of such analyses. In its full analysis, McDonald Investments also
included assumptions with respect to general economic, financial market and
other financial conditions. Furthermore, McDonald Investments drew from its past
experience in similar transactions, as well as its experience in the valuation
of securities and its general knowledge of the banking industry as a whole. Any
estimates in McDonald Investments' analyses were not necessarily indicative of
actual future results or values, which may significantly diverge favorably or
adversely from such estimates. Estimates of company valuations do not purport to
be appraisals nor to necessarily reflect the prices at which companies or their
respective securities actually may be sold. None of the analyses performed by
McDonald Investments were assigned a greater significance by McDonald
Investments than any other in deriving its opinion.

COMPARABLE COMPANY ANALYSIS: McDonald Investments reviewed and compared
actual stock market data and actual and estimated selected financial information
for First Indiana with corresponding information for 24 publicly traded thrifts
with assets between $1.0 billion and $5.0 billion, equity to assets between 5.0%
and 10.0% and ROAA greater than 0.75% (the "First Indiana Peer Group"). Somerset
owns approximately 22% of the outstanding common stock of First Indiana. This
holding represents the vast majority of Somerset's assets, revenues and net
income. The balance of Somerset's assets, revenues and net income is derived
from a group of business services

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<PAGE>
divisions and a subsidiary collectively referred to as the Somerset Operating
Companies. The First Indiana Peer Group is listed below (ranked by asset size):

<S> <C>
1. MAF Bancorp Inc. Clarendon Hills, IL
2. Westcorp Irvine, CA
3. FirstFed Financial Corp. Santa Monica, CA
4. PBOC Holdings Inc. Los Angeles, CA
5. PFF Bancorp Inc. Pomona, CA
6. InterWest Bancorp Inc. Oak Harbor, WA
7. Dime Community Bancshares Inc. Brooklyn, NY
8. First Financial Holdings Inc. Charleston, SC
9. First Federal Capital Corp. La Crosse, WI
10. Alliance Bancorp Hinsdale, IL
11. Queens County Bancorp Inc. Flushing, NY
12. First Washington Bancorp Inc. Walla Walla, WA
13. WSFS Financial Corp. Wilmington, DE
14. PennFed Financial Services Inc. West Orange, NJ
15. Superior Financial Corp. Fort Smith, AR
16. Hawthorne Financial Corp. El Segundo, CA
17. Andover Bancorp Inc. Andover, MA
18. First Essex Bancorp Inc. Andover, MA
19. Flushing Financial Corp. Flushing, NY
20. Medford Bancorp Inc. Medford, MA
21. Parkvale Financial Corp. Monroeville, PA
22. Provident Financial Holdings Riverside, CA
23. Quaker City Bancorp Inc. Whittier, CA
24. Ottawa Financial Corp. Holland, MI
</TABLE>

The table below represents a summary analysis of the First Indiana Peer
Group based on market prices as of April 18, 2000 and the latest publicly
available financial data as of or for the year ended December 31, 1999:

<TABLE>
<CAPTION>
MEAN MEDIAN FIRST INDIANA
-------- -------- -------------
<S> <C> <C> <C>
Price to Last Twelve Months Earnings Per Share.............. 8.5x 8.9x 11.9x
Price to 2000 Estimated Earnings Per Share.................. 8.0x 8.1x 9.2x*
Price to 2001 Estimated Earnings Per Share.................. 7.4x 7.1x 8.4x*
Price to Book Value Per Share............................... 114.6% 109.0% 125.5%
Price to Tangible Book Value Per Share...................... 129.2% 124.3% 126.7%
Dividend Yield.............................................. 2.41% 2.80% 3.15%
Return on Average Assets.................................... 1.04% 0.98% 1.01%
Return on Average Equity.................................... 14.05% 13.48% 11.27%
Leverage Ratio.............................................. 6.53% 6.46% 8.87%
Efficiency Ratio............................................ 52.59% 52.17% 57.29%
</TABLE>

------------------------

* First Indiana's estimated earnings per share for 2000 and 2001 are based on
First Indiana's management's projections.

The 20-day average closing price per share for the period ending April 18,
2000 for First Indiana common stock was $18.00. The market value of Somerset's
approximately 22% ownership of First Indiana common stock assuming a price of
$18.00 per share was $49.7 million.

28
<PAGE>
COMPARABLE TRANSACTION ANALYSIS. McDonald Investments and Somerset
segregated the Somerset Operating Companies into four lines of business; namely:
Accounting and Audit Services, Financial Consulting Services, Information
Technology Services, and Investor Services. McDonald Investments reviewed and
compared actual information for the Somerset Operating Companies with
corresponding information for selected transactions announced after January 1,
1992 for each of the four lines of business.

The following is a list of Accounting and Audit Services Transactions:

<TABLE>
<CAPTION>
RANGE OF PRICE TO
BUYER SELLER REVENUE MULTIPLIER
----- ------ ------------------
<S> <C> <C>
Century Business Services Inc Dwyer Group Inc 1.04x
International Alliance Services Inc Zelenkofske-Axelrod & Co 1.01x
</TABLE>

The following is a list of Financial Consulting Services Transactions:

<TABLE>
<CAPTION>
RANGE OF PRICE TO
BUYER SELLER REVENUE MULTIPLIER
----- ------ ------------------
<S> <C> <C>
Legg Mason Inc Johnson Fry Holdings PLC 1.28x
CCC Franchising Corp RadNet Management Inc 1.65x
</TABLE>

The following is a list of Information Technology Transactions:

<TABLE>
<CAPTION>
RANGE OF PRICE TO
BUYER SELLER REVENUE MULTIPLIER
----- ------ ------------------
<S> <C> <C>
Convergent Communications Inc Choice Solutions Inc 0.17x
FutureLink Distribution Corp Executive LAN Management Inc 5.79x
International FiberCom Inc All Star Telecom Inc 1.35x
Vianet Technologies Inc Develcon Electronics Ltd 0.92x
Loch Exploration Inc COAD Solutions Inc 1.32x
Information Handling Services Group International CompuTex Inc 6.10x
Inc
Mean: 2.61x
Median: 1.34x
</TABLE>

The following is a list of Investor Services Transactions:

<TABLE>
<CAPTION>
RANGE OF PRICE TO
BUYER SELLER REVENUE MULTIPLIER
----- ------ ------------------
<S> <C> <C>
Private Group RISCORP Inc 1.03x
First Defiance Financial Corp Insurance & Risk Management 1.50x
Hub Group Ltd Mack & Parker Inc 1.34x
Nationwide Mutual Insurance Co Allied Group Inc 2.39x
Willis Corroon Group PLC Marquis & Associates Inc 2.19x
Private Group Anthem Inc 1.21x
Anthem Inc Acordia Inc 0.85x
Marsh & McLennan Cos Inc Cie Europeenne De Courtage 1.48x
d'Assurances
Aon Corp Alexander & Alexander Services Inc 0.61x
Aon Corp Inchcape PLC 0.72x
Mean: 1.33x
Median: 1.27x
</TABLE>

29
<PAGE>
The result of applying the price to revenue multiplier for each line of
business to the revenues generated from the corresponding Somerset Operating
Companies lines of business yielded a valuation range of $12.9 million to
$16.4 million for the Somerset Operating Companies as a whole.

No other company used as a comparison in the above analyses is identical to
Somerset, Somerset Operating Companies or First Indiana or the combined entity
and no other transaction is identical to the merger. Accordingly, an analysis of
the results of the foregoing is not purely mathematical; rather, such analyses
involves complex considerations and judgements concerning differences in
financial market and operating characteristics of the companies and other
factors that could affect the public trading volume of the companies to which
Somerset, First Indiana and the combined entity are being compared.

ACCRETION/DILUTION ANALYSIS: On the basis of financial projections and
estimates of on-going cost savings accruing to the pro forma company provided to
McDonald Investments by Somerset and First Indiana, as well as estimated
one-time costs related to the merger, McDonald Investments compared pro forma
equivalent per share calculations with respect to earnings, cash dividends, book
value and tangible book value to the stand-alone per share projections for
Somerset.

The accretion/dilution analysis demonstrated, among other things, that for
Somerset shareholders receiving stock in the merger, the merger would result in:

- accretion to earnings per share for Somerset's shareholders over the
period of the analysis;

- significantly higher cash dividends per share for Somerset's shareholders
over the period of the analysis, assuming First Indiana maintained its
dividend policy; and

- accretion to both book value per share and tangible book value per share
for Somerset's shareholders over the period of the analysis.

DISCOUNTED CASH FLOW ANALYSIS. McDonald Investments performed a discounted
cash flow analysis of Somerset on a stand alone basis and, because its 22%
ownership interest in First Indiana represented most of Somerset's assets,
revenues and net income, McDonald Investments also performed a discounted cash
flow analysis of First Indiana on a stand-alone basis. Both analyses used
discount rates ranging from 13.5% to 16.5% and terminal multiples of earnings
ranging from 10.0x to 15.0x. McDonald Investments' discounted cash flow analysis
of Somerset resulted in present values ranging from $66.9 million to
$101.0 million. McDonald Investments' discounted cash flow analysis of First
Indiana resulted in a range of present values of $253.4 million to
$380.7 million.

In order to derive a range of values for Somerset's operating companies,
McDonald Investments multiplied the present values that it derived for First
Indiana by 22%, which represents the percentage of outstanding First Indiana
common stock owned by Somerset. This resulted in values ranging from
$55.7 million to $83.8 million. McDonald Investments then subtracted these
amounts from the ranges of values that it derived for Somerset on a stand-alone
basis. This analysis suggested that the cash flows attributable to Somerset's
Operating Companies had a value of between $11.2 million to $17.2 million.
McDonald Investments noted that, at an assumed market price of $18.00 per share
of First Indiana common stock, the portion of the consideration in excess of the
market price of the First Indiana common stock ranged from $11.9 million to
$15.1 million, which is within the range of values for the operating companies
suggested by its discounted cash flow analysis.

As indicated above, this analysis was based on Somerset's senior management
estimates and First Indiana's senior management estimates. It is not necessarily
indicative of actual values or actual future results, and does not purport to
reflect the prices at which any securities may trade at the present or at any
time in the future. McDonald Investments noted that the discounted cash flow
analysis was included because it is a widely used valuation methodology, but
noted that the results of such

30
<PAGE>
methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, terminal values and discount rates.

OTHER ANALYSES: McDonald Investments also reviewed certain other
information including pro forma estimated balance sheet composition and pro
forma financial performance.

IN CONNECTION WITH RENDERING THE MCDONALD INVESTMENTS OPINION, MCDONALD
INVESTMENTS PERFORMED PROCEDURES TO UPDATE, AS NECESSARY, CERTAIN OF THE
ANALYSES DESCRIBED ABOVE AND REVIEWED THE ASSUMPTIONS ON WHICH SUCH ANALYSES
DESCRIBED ABOVE WERE BASED AND THE FACTORS CONSIDERED IN CONNECTION THEREWITH.
MCDONALD INVESTMENTS DID NOT PERFORM ANY ANALYSES IN ADDITION TO THOSE DESCRIBED
ABOVE IN CONNECTION WITH RENDERING THE MCDONALD INVESTMENTS OPINION.

McDonald Investments has in the past provided certain other investment
banking services to First Indiana and has received compensation for such
services. McDonald Investments is a member of all principal securities exchanges
in the United States and in the conduct of its broker-dealer activities has from
time to time purchased securities from, and sold securities to, Somerset and/or
First Indiana. As a market maker, McDonald Investments may also have purchased
and sold the securities of Somerset and/or First Indiana for McDonald
Investments' own account and for the accounts of its customers.

Somerset paid McDonald Investments a $50,000 retainer at the time McDonald
Investments was engaged to serve as Somerset's financial advisor and a $50,000
fee for its services in rendering the fairness opinion delivered on April 19,
2000. Somerset has also agreed to pay McDonald Investments a $50,000 fee for its
services in rendering the McDonald Investments opinion and a transaction fee at
the closing of the merger of 0.375% of the total aggregate fair market value of
the merger at the time of closing, but not less than $300,000. The unpaid
balance of this transaction fee is contingent upon consummation of the merger.
Fees previously paid to McDonald Investments by Somerset in connection with its
engagement will be credited against the amount of the transaction fee payable to
McDonald Investments at closing. Assuming that the transaction had closed on
May 19, 2000, the amount of the total fee payable to McDonald Investments would
have been $300,000. Somerset has also agreed to reimburse McDonald Investments
for up to $10,000 in reasonable out of pocket expenses incurred in connection
with its engagement, and to indemnify McDonald Investments against certain
liabilities, including liabilities under the federal securities laws.

OPINION OF FINANCIAL ADVISOR TO FIRST INDIANA

First Indiana engaged Keefe, Bruyette & Woods, Inc. to act as financial
advisor to the First Indiana special committee and board of directors in
connection with a transaction with Somerset and to evaluate the fairness to
First Indiana shareholders from a financial point of view of the consideration
to be received by Somerset shareholders in any proposed transaction. First
Indiana selected Keefe, Bruyette because Keefe, Bruyette is a nationally
recognized investment-banking firm with substantial experience in transactions
similar to the merger and is familiar with First Indiana and its business. As
part of its investment banking business, Keefe, Bruyette is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions.

As part of its engagement, representatives of Keefe, Bruyette attended the
meetings of the First Indiana special committee and board of directors held on
April 18, 2000, at which the First Indiana special committee and board of
directors considered and approved the merger agreement. Keefe, Bruyette also
attended the special committee meeting held on April 19, 2000, at which the
special committee recommended changes to the merger agreement. At the April 18,
2000 meetings, and again at the April 19, 2000 meeting, Keefe, Bruyette rendered
an oral opinion (subsequently confirmed in writing) that, as of April 19, 2000,
the consideration to be received by Somerset shareholders in the merger was
fair, from a financial point of view, to the shareholders of First Indiana. That
opinion was reconfirmed in writing as of the date of this proxy statement and
prospectus.

31
<PAGE>
THE FULL TEXT OF THE KEEFE, BRUYETTE OPINION, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS OF REVIEW UNDERTAKEN, IS ATTACHED TO THIS
JOINT PROXY STATEMENT AND PROSPECTUS AS ANNEX C. FIRST INDIANA SHAREHOLDERS ARE
URGED TO READ THE OPINION IN ITS ENTIRETY. THE DESCRIPTION OF THE KEEFE,
BRUYETTE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE KEEFE, BRUYETTE OPINION. THE KEEFE, BRUYETTE OPINION IS
ADDRESSED TO THE FIRST INDIANA BOARD OF DIRECTORS AND ADDRESSES ONLY THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO FIRST INDIANA SHAREHOLDERS OF THE
MERGER CONSIDERATION, DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY
FIRST INDIANA TO ENGAGE IN THE TRANSACTION AND DOES NOT CONSTITUTE, NOR SHOULD
IT BE CONSTRUED AS, A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE FIRST INDIANA SPECIAL MEETING. THE KEEFE,
BRUYETTE OPINION DOES NOT CONSTITUTE AN OPINION OR IMPLY ANY CONCLUSION OF
KEEFE, BRUYETTE AS TO THE LIKELY TRADING RANGE FOR THE FIRST INDIANA COMMON
SHARES OR THE SOMERSET COMMON SHARES FOLLOWING THE ANNOUNCEMENT OR CONSUMMATION
OF THE MERGER.

In connection with the preparation of its opinion, Keefe, Bruyette reviewed,
among other things: the merger agreement; annual reports to shareholders and
annual report on Form 10-K, as amended, of First Indiana; annual reports to
shareholders and annual reports on Form 10-K of Somerset; the quarterly reports
on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000 of First
Indiana; the quarterly reports on Form 10-Q for the quarters ended March 31,
2000 and June 30, 2000 of Somerset; and certain internal financial analyses and
forecasts for First Indiana and Somerset prepared by management; held
discussions with members of senior management of First Indiana and Somerset
regarding: past and current business operations; regulatory relationships;
financial condition; and future prospects of the respective companies; compared
certain financial and stock market information for First Indiana and Somerset
with similar information for certain other companies with publicly traded
securities; reviewed the financial terms of certain recent business combinations
in the banking industry; and performed other studies and analyses that it
considered appropriate.

The projections furnished to Keefe, Bruyette and used by it in certain of
its analyses were prepared by the senior management of First Indiana and
Somerset. First Indiana and Somerset do not publicly disclose internal
management projections of the type provided to Keefe, Bruyette in connection
with its review of the merger. As a result, such projections were not prepared
with a view towards public disclosure. The projections were based on numerous
variables and assumptions which are inherently uncertain, including factors
related to general economic and competitive conditions. Accordingly, actual
results could vary significantly from those set forth in the projections.

The following is a summary of the material analyses that Keefe, Bruyette
presented to the First Indiana special committee and board of directors on
April 18 and 19, 2000 in connection with its opinion:

TRANSACTION SUMMARY. Under terms of the proposed merger, First Indiana is
offering Somerset shareholders 1.21 shares of First Indiana stock or $24.70 each
or a combination of shares and stock with a maximum of 35% of Somerset's
outstanding shares to receive cash consideration. Keefe, Bruyette's merger
analysis assumed that 20% of Somerset shareholders would elect to receive $24.70
in cash and 80% of Somerset shareholders would elect to receive the exchange
ratio of 1.21 shares of First Indiana valued at $21.48 (based on First Indiana's
share price of $17.75 per share) for each share of Somerset for a total
consideration of $62.1 million based upon 2,804,000 Somerset shares outstanding.
The $62.1 million total consideration or an average price of $22.12 per share
(assuming elections of 80% stock and 20% cash) represents 1.7 times Somerset's
book value per share of $12.97 as of December 31, 1999 and 18.4 times 1999
earnings per share of $1.20.

MERGER ANALYSIS. Keefe, Bruyette's analysis of the transaction assumed a
purchase accounting transaction whereby the 2,758,000 shares of First Indiana
owned by Somerset would be retired by First Indiana at $17.75 per share into
authorized but unissued stock at closing. Keefe, Bruyette assigned a value to
Somerset's fee-based business of $13.1 million or $62.1 million less the
$49.0 million market

32
<PAGE>
value of the 2,758,000 shares to be retired. The $13.1 million value assigned to
Somerset's fee-based services represented 1.2 times 1999 revenues of
$10.9 million, 23.2 times 1999 operating earnings of $565,000 and 21.3 times
projected 2000 earnings of $613,000. The valuation analysis of Somerset and
pro-forma merger analysis of First Indiana and Somerset focused on Somerset's
fee based businesses in accounting and tax services, wealth management and
investor services, and computer consulting. First Indiana and Somerset developed
revenue and net income projections for Somerset as well as cost savings from the
combination. These projections became the basis of the merger analysis below.

COMPARABLE TRANSACTIONS. Typically, Keefe, Bruyette's merger analysis would
include a comparison of the consideration offered for Somerset's fee-based
businesses to premiums paid in similar transactions. However, comparable
transactions involving acquisitions of public companies with a similar business
mix were not available for analysis.

PEER GROUP ANALYSIS FOR SOMERSET. Keefe, Bruyette reviewed the market
valuation and stock price performance of publicly traded fee service companies
including H&R Block Inc., Century Business Services, Gilman & Ciocia, Inc.,
Clarke Bardes Holdings, Inc. and HD Vest Inc. Keefe, Bruyette used financial
information as of and for the year ended December 31, 1999 (except for H&R
Block, as of and for the year ended January 31, 2000), and Institutional Brokers
Estimate System ("IBES") estimates of 2000 earnings per share and market price
information as of April 17, 2000. The average market capitalization to revenues
of these companies was 1.0 times with a range of .2 to 2.2. The average price to
2000 estimated earnings per share was 11.3 times with a range of 8.4 to 15.2. In
comparison, Somerset's market capitalization of $51.6 million represented 3.4
times 1999 revenues of $15.4 million which included Somerset's equity in the
earnings of First Indiana, and 11.6 times projected 2000 earnings of $1.53 per
share.

PEER GROUP ANALYSIS FOR FIRST INDIANA. Keefe, Bruyette compared the
financial performance and market performance of First Indiana to a group of
Indiana based financial institutions ranging in asset size from $791 million to
$7 billion. The group included the following companies: Old National Bancorp,
1st Source Corporation, National City Bancshares, Inc., First Financial
Corporation, Irwin Financial Corporation, CFS Bancorp, Inc., First Merchants
Corporation, Lakeland Financial Corporation, Indiana United Bancorp, German
American Bancorp, and Home Federal Bancorp. Keefe, Bruyette used financial
information as of and for the year ended December 31, 1999, IBES estimates for
2000 earnings per share (except for First Indiana, Old National, 1st Source
Corporation, National City Bancshares and Irwin Financial where Keefe,
Bruyette's Research Department estimates were used), and market price
information was as of April 17, 2000.

Keefe, Bruyette compared the financial performance and market performance of
First Indiana on various financial measures, including: earnings performance;
operating efficiency; capital adequacy; and asset quality; and various measures
of market performance, including: market/book values; price to earnings; and
dividend yields.

33
<PAGE>
Keefe, Bruyette's analysis showed the following concerning First Indiana's
financial performance:

<TABLE>
<CAPTION>
PEER GROUP
FIRST INDIANA AVERAGE PEER GROUP MEDIAN
------------- ---------- -----------------
<S> <C> <C> <C>
Return on Average Assets............................. 1.33% 1.15% 1.17%
Return on Average Equity............................. 14.71% 13.51% 13.47%
Net Interest Margin.................................. 3.98% 3.98% 3.91%
Efficiency Ratio..................................... 51.60% 61.01% 60.34%
Non-interest Income/Revenues......................... 27.29% 26.08% 21.30%
Equity / Assets...................................... 8.95% 8.51% 8.57%
Tangible Equity / Tangible Assets.................... 8.87% 7.94% 8.39%
Loan Loss Reserves / Non-performing Loans............ 158% 292% 270%
Non-performing Assets / Loans and Other Real Estate
Owned.............................................. 1.16% 0.73% 0.68%
Net Charge Offs / Average Loans...................... 0.63% 0.35% 0.32%
Stock Price / Book Value............................. 1.26x 1.63x 1.52x
Stock Price / Tangible Book Value.................... 1.27x 1.81x 1.76x
Stock Price / 2000 Earnings per Share................ 9.86x 10.90x 10.64x
Stock Price / 2001 Earnings per Share................ 8.88x 9.95x 9.65x
Dividend Yield....................................... 3.15% 3.17% 3.38%
</TABLE>

Keefe, Bruyette's discussion of First Indiana's peer group included an
analysis of First Indiana's 27.29% non-interest income to total revenues
compared to the peer group average of 26.08%. Pro forma for the merger with
Somerset, non-interest income to total revenues would increase to 34.8%.

PRO FORMA MERGER ANALYSIS. In order to calculate the Somerset merger pro
forma effect on book value per share and tangible common equity to assets,
Keefe, Bruyette assumed an election of 20% cash and 80% stock, a December 31,
1999 closing date and the balance sheets of First Indiana and Somerset as of
December 31, 1999. Keefe, Bruyette calculated that pro forma book value per
share would decline to $13.77 from First Indiana's stand-alone book value of
$13.83. Keefe, Bruyette also calculated that pro forma tangible common equity to
total assets would decline to 8.24% from 8.86%.

Assuming elections of 80% stock and 20% cash, Keefe, Bruyette analyzed the
pro forma impact of the Somerset merger on First Indiana's projected earnings
per share and cash earnings per share using both First Indiana's management
projections and Keefe, Bruyette's Research Department estimates. In its analysis
of First Indiana's final merger proposal of 1.21 shares of First Indiana stock
or $24.70 in cash, Keefe, Bruyette used its Research Department's estimates of
$1.80 per share or $23.0 million in 2000 and $2.00 per share or $25.6 million in
2001 and assumed an 11% growth rate in years 2002 to 2004 or $2.22 in 2002,
$2.47 in 2003 and $2.74 in 2004, respectively. Keefe, Bruyette also assumed the
same projections for First Indiana's cash earnings per share in 2000 through
2004. In calculating the pro forma impact of the Somerset merger in 2000, Keefe,
Bruyette assumed Somerset's fee based services earnings of $613,100, after-tax
cost savings of $435,500, amortization of goodwill of $628,300 and after-tax
interest costs of $608,300 (based on a 7.2% borrowing rate) to finance the
$13.9 million cash portion of the merger. For 2000, the pro forma net income of
$22, 850,000 and shares outstanding of 12.8 million would result in a pro forma
earnings per share $1.79 versus $1.80 stand alone and pro forma cash earnings
per share of $1.83 versus $1.80 stand alone. Using similar analysis for 2001 to
2004, Keefe, Bruyette calculated pro forma earnings per share of $1.99, $2.23,
$2.49 and $2.78, respectively, compared to the stand alone earnings per share
projections of $2.00, $2.22, $2.47 and $2.74, respectively. For the same 2001 to
2004 period, Keefe Bruyette calculated pro forma cash earnings per share of
$2.04, $2.28, $2.54 and $2.83, respectively, compared to stand-alone earnings
per share projections of $2.00, $2.22, $2.47 and $2.74, respectively. Keefe,
Bruyette's analysis of the pro forma impact of the merger on First Indiana's
projected earnings per share and cash earnings per share

34
<PAGE>
for the years 2000 through 2004 did not take into account revenue enhancement
opportunities existing between the businesses of First Indiana and Somerset that
would generate increased pro forma net income and accretion to earnings per
share beginning in 2001 and add to the accretion in cash earnings per share
beginning in 2000.

DISCOUNTED CASH FLOW ANALYSIS. Keefe, Bruyette estimated the present value
of future cash flows from Somerset's fee based businesses that would accrue to a
holder of a share of Somerset common stock assuming that the shareholder held
the stock for five years and then sold it. The analysis was based on earnings
forecasts prepared by management on a stand-alone, independent basis for 2000
excluding the impact of Somerset's First Indiana investment and annual net
income growth rates of 12% for the years 2001 through 2004. A 20% dividend
payout ratio was assumed for Somerset through the year 2004. Somerset's value in
the event of a sale was determined by using terminal price/earnings multiples
from 10 times to 16 times. The terminal value and the dividends received were
discounted at a rate of 12.0%. This rate was selected because, in Keefe,
Bruyette's experience, it represents the risk-adjusted rates of return that
investors in securities such as the Somerset common stock would require. On the
basis of these assumptions, Keefe, Bruyette calculated a range of present values
ranging from $10.3 million to $13.4 million.

Keefe, Bruyette also calculated a net present value sensitivity table with
discount rates ranging from 10% to 16% in increments of 2% and terminal
multiples from 10.0 to 16.0 in increments of 2.0. Based on these assumptions,
Keefe, Bruyette calculated net present values ranging from $8.7 million to
$17.7 million.

Keefe, Bruyette stated that the discounted cash flow present value analysis
is a widely used valuation methodology but noted that it relies on numerous
assumptions, including asset and earnings growth rates, terminal values and
discount rates. The analysis did not purport to be indicative of the actual
values or expected values of Somerset common stock.

In connection with its opinion dated as of the date of this proxy statement
and prospectus, Keefe, Bruyette performed procedures to update, as necessary,
certain of the analyses described above. Keefe, Bruyette reviewed the
assumptions on which the analyses described above were based and the factors
considered in connection therewith. Keefe, Bruyette did not perform any analyses
in addition to those described above in updating its April 18 and 19, 2000
opinions.

Keefe, Bruyette has not independently verified the information described
above and for purposes of its opinion has assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of
Somerset and First Indiana, Keefe, Bruyette has assumed that such information
reflects the best currently available estimates and judgments of the managements
of Somerset and First Indiana, respectively, as to the likely future financial
performance of Somerset and First Indiana. Keefe, Bruyette also assumed, without
independent verification, that the aggregate allowances for loan losses for
First Indiana are adequate to cover those losses. Keefe, Bruyette did not make
or obtain any evaluations or appraisals of the property of First Indiana or
Somerset, and Keefe, Bruyette did not examine any individual credit or other
files.

First Indiana has retained Keefe, Bruyette as an independent contractor to
act as financial advisor to First Indiana regarding the merger. As part of its
investment banking business, Keefe, Bruyette is continually engaged in the
valuation of banking and other financial businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. As
specialists in the securities of banking and financial companies, Keefe,
Bruyette has experience in, and knowledge of, the valuation of banking and other
financial enterprises. In the ordinary course of its business as a
broker-dealer, Keefe, Bruyette may, from time to time, purchase securities from,
and sell securities to, Somerset and First Indiana. As a market maker in
securities, Keefe, Bruyette may from time to time have a long or short position
in, and buy or sell, debt or equity

35
<PAGE>
securities of Somerset and First Indiana for Keefe, Bruyette's own account and
for the accounts of its customers.

First Indiana and Keefe, Bruyette have entered into an agreement relating to
the services to be provided by Keefe, Bruyette in connection with the merger.
First Indiana has agreed to pay Keefe, Bruyette a total fee of up to $400,000,
consisting of a $50,000 retainer paid at the time Keefe, Bruyette was engaged to
serve as First Indiana's financial advisor, a $100,000 incentive fee paid at the
time the merger agreement was entered into, a $100,000 incentive fee at the time
of mailing of this proxy statement and prospectus and a $150,000 incentive fee
upon closing of the merger. Pursuant to the Keefe, Bruyette engagement
agreement, First Indiana also agreed to reimburse Keefe, Bruyette for up to
$10,000 in reasonable out-of-pocket expenses and disbursements incurred in
connection with its retention and to indemnify against certain liabilities,
including liabilities under the federal securities laws.

EFFECTIVE TIME

The merger will be consummated if the merger agreement is approved by the
Somerset and First Indiana shareholders, First Indiana and Somerset obtain all
required consents and approvals and all other conditions to the merger are
either satisfied or waived. The merger will become effective on the date and at
the time (referred to in this proxy statement and prospectus as the "effective
time of the merger") that articles of merger are filed with the Secretary of
State of the State of Indiana, or such later date or time as may be indicated in
such articles. First Indiana and Somerset have generally agreed to cause the
merger to become effective on the fifth Nasdaq trading day to occur after the
last of the conditions to the consummation of the merger have been satisfied or
waived (or on any other date as First Indiana and Somerset agree in writing). It
is currently anticipated that the merger will occur in the third quarter or
early in the fourth quarter of 2000. First Indiana and Somerset each has the
right to terminate the merger agreement if the merger is not completed by
December 31, 2000. See "The Merger and the Merger Agreement--Amendment, Waiver
and Termination."

ELECTION AND ALLOCATION PROCEDURES

Each record holder of shares of Somerset common stock will be entitled
(1) to elect to receive First Indiana common stock for all or some of the
holder's shares ("Stock Election Shares"), (2) to elect to receive cash for all
or some of the holder's shares ("Cash Election Shares") or (3) to make no
election for all or some of its shares ("No-Election Shares"). Any shares of
Somerset common stock for which the record holder has not submitted a properly
completed election form to Harris Trust Company of New York, the exchange agent
chosen by First Indiana, by the election deadline (as defined in the merger
agreement) will be treated as No-Election Shares.

No later than the fifteenth day following the election deadline, First
Indiana will cause the exchange agent to allocate among the holders of Somerset
common stock rights to receive First Indiana common stock, cash or both in
exchange for their shares.

If the number of Stock Election Shares is less than 65% of the number of
shares of Somerset common stock outstanding at the effective time of the merger
(the "Stock Number"), then (1) all Stock Election Shares will be converted into
the right to receive First Indiana common stock, (2) the exchange agent will
allocate pro rata from among the No-Election Shares a sufficient number of
No-Election Shares so that the sum of such number and the number of Stock
Election Shares is equal as closely as practicable to the Stock Number, (3) if
the sum of the number of Stock Election Shares and No-Election Shares is less
than the Stock Number, the exchange agent will allocate pro rata from among the
Cash Election Shares a sufficient number of Cash Election Shares such that the
sum of such number and the number of Stock Election Shares and No-Election
Shares is as equal as practicable to the Stock Number, and all such shares will
be converted into the right to receive the Per Share Stock

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Consideration, and (4) any remaining No-Election Shares and Cash Election Shares
will be converted into the right to receive the Per Share Cash Consideration.

If the number of Stock Election Shares is greater than the Stock Number,
then (1) all Cash Election Shares and No-Election Shares will be converted into
the right to receive the Per Share Cash Consideration and (2) the Stock Election
Shares will be converted into the right to receive the Per Share Stock
Consideration.

EXCHANGE AND PAYMENT PROCEDURES; FRACTIONAL SHARES

Enclosed with this proxy statement and prospectus are transmittal materials
for each Somerset shareholder for use in making the election described above and
for exchanging his or her certificates representing shares of Somerset common
stock for shares of First Indiana common stock and/or cash. Somerset
shareholders should surrender their certificates for exchange using the
procedures described in the letter of transmittal and instructions. The exchange
agent will deliver certificates for First Indiana common stock and/or a check
for any cash consideration (or fractional share interests or dividends or
distributions) once it receives the certificates representing a holder's shares
of Somerset common stock. No party will be liable to any shareholder for any
property delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.

First Indiana will not pay any dividends or other distributions with respect
to First Indiana common stock with a record date occurring after the effective
time of the merger to any former Somerset shareholder who has not exchanged his
or her certificates representing Somerset common stock. After exchanging his or
her certificates for First Indiana stock certificates, all paid dividends and
other distributions and, if applicable, a check for the amount to be paid for
any fractional shares will be delivered to such shareholder, in each case
without interest.

After the effective time of the merger, there will be no transfers of shares
of Somerset common stock on Somerset's stock transfer books. If certificates
representing shares of Somerset common stock are presented for transfer after
the effective time of the merger, the exchange agent or First Indiana will
cancel and exchange them for certificates representing shares of First Indiana
common stock and a check for the amount to be paid for fractional shares of
First Indiana common stock, if any, or cash, or a combination of First Indiana
stock and cash as provided in the merger agreement.

First Indiana will not issue any fractional shares of First Indiana common
stock. Instead, a Somerset shareholder who would otherwise have received a
fraction of a share of First Indiana common stock will receive cash (without
interest). The amount of cash received will be determined by multiplying the
fraction of First Indiana common stock the shareholder would have been entitled
to receive by the Per Share Cash Consideration. Holders will not be entitled to
dividends, voting rights or any other rights as a shareholder with respect to
any fractional shares.

TREATMENT OF SOMERSET STOCK OPTIONS

As of the effective time, each outstanding Somerset stock option will be
assumed by First Indiana and will be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Somerset stock
option, the same number of First Indiana common shares as the holder of such
Somerset stock option would have been entitled to receive pursuant to the merger
had the holder exercised the Somerset stock option in full immediately prior to
the effective time and elected to receive only First Indiana common shares in
the merger. The price per share for each option will be adjusted so that the
difference between the aggregate option price and the market value immediately
prior to the merger of the number of shares of First Indiana common stock
represented by the option will be equal to the difference between the aggregate
option price prior to the merger and the market value (based on the last closing
price prior to the merger) of the number of shares of Somerset common stock
represented by the option.

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UNCLAIMED MERGER CONSIDERATION

Any merger consideration which is delivered to the exchange agent and is
unclaimed for six months will be returned to First Indiana, and any holders of
Somerset certificates will after that date only look to First Indiana for the
merger consideration, subject to applicable abandoned property or similar laws.

NO DISSENTERS' RIGHTS

Under Indiana law, there are no dissenter's rights for shareholders of a
company which has shares registered on a national securities exchange or traded
through the Nasdaq National Market System. Accordingly, neither Somerset
shareholders nor First Indiana shareholders have any dissenters' rights or other
rights to demand fair value in cash as a result of the merger.

ACCOUNTING TREATMENT

First Indiana will account for the merger as a "purchase," as that term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes. Under purchase accounting, the assets and
liabilities of Somerset as of the effective time of the merger will be recorded
at their respective fair values and added to those of First Indiana. Any excess
of purchase price over the fair values is recognized as goodwill. Financial
statements of First Indiana issued after the effective time of the merger would
reflect such values and would not be restated retroactively to reflect the
historical financial position or results of operations of Somerset.

REPRESENTATIONS AND WARRANTIES

The merger agreement contains various customary representations and
warranties relating to, among other things:

- the due organization, power, authority and standing of First Indiana and
Somerset and similar corporate matters;

- the capital structure of First Indiana and Somerset;

- the authorization of the merger agreement by each party, the absence of
any violations caused by the merger, and the required consents and
approvals in connection with the execution of the merger;

- the availability and accuracy of the documents filed by First Indiana and
Somerset with the Securities and Exchange Commission;

- the absence of changes or events since information was most recently filed
by each party with the Securities and Exchange Commission;

- the absence of undisclosed violations of or defaults under contracts and
debt instruments of either party;

- compliance with applicable laws;

- the absence of material adverse litigation;

- tax matters;

- the absence of changes in benefit plans of each party and compliance with
the Employee Retirement Income Security Act of 1974, as amended;

- compliance with environmental laws and other environmental matters;

- title to property; and

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- the absence of broker's fees except for fees owed to Keefe, Bruyette &
Woods, Inc., which provided financial advisory services to First Indiana,
and McDonald Investments Inc., which provided financial advisory services
to Somerset.

NO SOLICITATION OF TRANSACTIONS

In the merger agreement, Somerset has agreed that it will not, and will
cause its subsidiaries and Somerset's and its subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to any:

- tender or exchange offer;

- proposal for a merger, consolidation or other business combination
involving Somerset or any of its subsidiaries, other than the transactions
contemplated by this Agreement; or

- proposal or offer to acquire in any manner a substantial equity interest
in, or a substantial portion of the assets or deposits of, Somerset or any
of its subsidiaries.

However, if Somerset is not otherwise in violation of this provision, the
Somerset board may provide information to, and may engage in such negotiations
or discussions with, a person with respect to such a proposal, directly or
through representatives, if the Somerset board of directors, after consultation
with its outside counsel and McDonald Investments Inc., determines in good faith
that its failure to engage in any such negotiations or discussions would
constitute a failure to discharge properly the fiduciary duties of such
directors in accordance with Indiana law.

Somerset must within 24 hours advise First Indiana following the receipt by
it of any such proposal and the substance of the proposal and advise First
Indiana of any developments with respect to such proposal immediately when they
occur.

CONDITIONS TO THE COMPLETION OF THE MERGER

The obligations of Somerset and First Indiana to consummate the merger are
subject to the satisfaction or written waiver prior to the effective time of the
merger of the following conditions:

- the merger agreement is approved by the shareholders of Somerset and First
Indiana;

- the required regulatory approvals described below under "Regulatory
Approvals" are received, without any conditions, restrictions or
requirements that the First Indiana board of directors reasonably
determines would, following the effective time of the merger, have a
material adverse effect on First Indiana or reduce the benefits of the
merger to such a degree that First Indiana would not have entered into the
merger agreement had such conditions, restrictions or requirements been
known as of the date of the merger agreement;

- all third party consents are obtained, without any conditions,
restrictions or requirements that the First Indiana board reasonably
determines would, following the effective time of the merger, have a
material adverse effect on First Indiana or reduce the benefits of the
merger to such a degree that First Indiana would not have entered into the
merger agreement had such conditions, restrictions or requirements been
known as of the date of the merger agreement;

- no court or regulatory authority has taken any action prohibiting the
consummation of the merger;

- the Registration Statement of which this proxy statement/prospectus
constitutes a part is declared effective by the Securities and Exchange
Commission (the "SEC") and is not subject to a stop order or any
threatened stop order;

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- all permits or authorizations necessary to consummate the merger are
received;

- the shares of First Indiana common stock issuable in the merger are
approved for listing on the Nasdaq National Market System;

- the representations and warranties of each party are true and correct, and
each party has performed in all material respects all of the obligations
required to be performed by it pursuant to the merger agreement, and shall
have delivered certificates confirming satisfaction of the foregoing
requirements;

- Somerset receives an opinion of its counsel for the merger, Barnes &
Thornburg, as to certain tax and other matters;

- First Indiana receives an opinion of its counsel for the merger, Bose
McKinney & Evans LLP, as to certain tax matters;

- First Indiana receives an opinion of Bose McKinney & Evans LLP that the
shares of First Indiana common stock to be issued as consideration, when
issued in accordance with the terms of the merger agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and regarding
certain other matters; and

- Somerset and First Indiana receive "comfort" letters from KPMG LLP,
Somerset's and First Indiana's independent public accountants, in
accordance with the Statement of Auditing Standards Nos. 72, 76 and 86
issued by the American Institute of Certified Public Accountants.

No assurances can be provided as to when or if all of the conditions to the
merger can or will be satisfied or waived by the appropriate party. As of the
date of this proxy statement/prospectus, the parties have no reason to believe
that any of these conditions will not be satisfied.

AMENDMENT, WAIVER AND TERMINATION

Prior to the effective time of the merger, certain provisions of the merger
agreement may be waived by the party benefitted by such provision or may be
amended or modified, by written agreement between First Indiana and Somerset.
However, after the Somerset special meeting the merger agreement may not be
amended if under Indiana law the amendment requires further approval of the
Somerset shareholders and such approval is not obtained.

The merger agreement may be terminated, and the merger abandoned, at any
time prior to the effective time of the merger by mutual consent of Somerset and
First Indiana. In addition, the merger agreement may be terminated, and the
merger abandoned, prior to the effective time of the merger by either First
Indiana or Somerset if:

- the other party breaches (1) a representation or warranty contained in the
merger agreement, or (2) a covenant or other agreement contained in the
merger agreement, which is reasonably likely, individually or in the
aggregate, to have a material adverse effect on the breaching party, and
in either case, which cannot be or has not been cured within 30 days after
giving written notice to the breaching party;

- the merger is not completed by December 31, 2000;

- the approval of a governmental authority required for consummation of the
merger and the other transactions contemplated by the merger agreement is
denied by final, nonappealable action of such authority; or

- either the Somerset shareholders or the First Indiana shareholders fail to
approve the merger agreement at their special meetings.

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In addition, First Indiana may terminate the merger agreement if the
Somerset board of directors withdraws or materially changes its recommendation
to approve the merger agreement. Somerset may terminate the merger agreement if
(1) the First Indiana board of directors withdraws or materially changes its
recommendation to approve the merger agreement, or (2) Somerset simultaneously
enters into a definitive agreement with a third party that has made a Superior
Proposal (as defined in the merger agreement), but if Somerset terminates for
this reason it must deliver written notice of its intention to terminate at
least five days in advance. In addition, if either Somerset or First Indiana
terminates the merger agreement for any of the reasons described in this
paragraph, it must pay to the other party a termination fee of $1,000,000.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

First Indiana has agreed to indemnify and hold harmless each director and
officer of Somerset and any subsidiary of Somerset for six years after the
effective time of the merger in connection with any threatened or actual claim,
action or investigation arising out of the fact that such person is or was a
director or officer of Somerset or any Somerset subsidiary at or prior to the
effective time, including all indemnified liabilities based on, or arising out
of, or pertaining to the merger agreement, the merger or the transactions
contemplated by the merger agreement, to the full extent of Indiana law and
First Indiana's articles of incorporation.

In addition, First Indiana has agreed to use its reasonable best efforts to
include Somerset's directors and officers on its existing insurance, or to
obtain directors' and officers' liability insurance "tail" policy coverage for
Somerset's directors and executive officers for a period of two years, which
will provide the directors and officers with coverage on substantially similar
terms as currently provided by Somerset to such directors and officers for
claims based on activity prior to the effective time. However, First Indiana has
no obligation to pay more than $48,750 per year in premiums for the coverage.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following is a summary of the material U.S. federal income tax
consequences to holders of Somerset common stock who hold such stock as a
"capital asset" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). Special tax consequences may be applicable to
particular classes of taxpayers, such as financial institutions, insurance
companies, tax-exempt organizations, broker-dealers, traders in securities that
elect to mark to market, persons that hold Somerset common stock as part of a
straddle or conversion transaction, persons who are not citizens or residents of
the United States and shareholders who acquired their shares of Somerset common
stock through the exercise of an employee stock option or otherwise as
compensation. The following represents general information only and is based
upon the Code, its legislative history, existing and proposed regulations
thereunder, published rulings and decisions, all as currently in effect as of
the date hereof, and all of which are subject to change, possibly with
retroactive effect. Tax considerations under state, local and foreign laws are
not addressed in this proxy statement/prospectus. ALL SHAREHOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX
AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN SUCH
TAX LAWS.

It is a condition to the merger that First Indiana receive an opinion of its
counsel for the merger, Bose McKinney & Evans LLP, that the merger will
constitute a "reorganization" within the meaning of Section 368(a)(1)(A) of the
Code and that Somerset receive an opinion of its counsel for the merger,
Barnes & Thornburg, that (1) the merger will constitute a "reorganization"
within the meaning of Section 368(a)(1)(A) of the Code and (2) no gain or loss
will be recognized by Somerset shareholders to the extent they receive First
Indiana common stock as consideration in exchange for shares of

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Somerset common stock. In rendering such opinions, counsel may require and rely
upon representations contained in letters to be received from Somerset, First
Indiana and others. Neither of these tax opinions will be binding on the
Internal Revenue Service, but neither First Indiana nor Somerset intends to
request any ruling from the Internal Revenue Service as to the U.S. federal
income tax consequences of the merger.

TAX CONSEQUENCES OF THE MERGER GENERALLY. Based on the above assumptions
and qualifications, for U.S. federal income tax purposes (1) no gain or loss
generally will be recognized by First Indiana or Somerset pursuant to the
merger, (2) a shareholder of Somerset who exchanges all of its Somerset common
stock solely for cash in the merger will recognize gain or loss in an amount
equal to the difference between the cash received and such shareholder's
adjusted tax basis in the shares surrendered, (3) a shareholder of Somerset who
receives solely First Indiana common stock in exchange for its shares in the
merger will not recognize any gain or loss (except, as discussed below, to the
extent the shareholder receives cash in exchange for fractional shares) and
(4) a shareholder of Somerset who receives a combination of cash and First
Indiana common stock in the merger will not recognize loss but will recognize
gain, if any, on the shares so exchanged to the extent of any cash received.

TAX FREE REORGANIZATION. Neither First Indiana nor Somerset will recognize
any gain or loss with respect to the merger and the exchange of common stock and
securities made thereto, because the merger, if and when consummated in
accordance with the merger agreement, will constitute a tax-free reorganization
for Federal income tax purposes within the meaning of Section 368(a)(1)(A) of
the Code.

EXCHANGE OF SOMERSET COMMON STOCK SOLELY FOR FIRST INDIANA COMMON STOCK. A
shareholder of Somerset who receives solely First Indiana common stock in
exchange for its shares in the merger will not recognize any gain or loss upon
such exchange, except to the extent that cash is received in lieu of a
fractional share of Somerset common stock, as discussed below. The aggregate
adjusted tax basis of the shares of First Indiana common stock received in such
exchange will be equal to the aggregate adjusted tax basis of the shares
surrendered therefor, and the holding period of the First Indiana common stock
will include the holding period of the shares of Somerset common stock
surrendered therefor, provided that the Somerset common stock was held as a
capital asset as of the merger.

EXCHANGE OF SOMERSET COMMON STOCK FOR FIRST INDIANA COMMON STOCK AND
CASH. A shareholder of Somerset who receives a combination of cash and shares
of First Indiana common stock in the merger will not recognize loss, but to the
extent cash is received will recognize gain, if any, on the shares so exchanged
to the extent of any cash received equal to the excess of the cash and the fair
market value of the First Indiana common stock received by the shareholder over
such shareholder's adjusted tax basis on the Somerset common stock exchanged
therefor. Any such recognized gain will be treated as capital gain unless the
receipt of the cash has the effect of the distribution of a dividend pursuant to
Section 356(a)(2) of the Code, in which case such gain will be treated as
ordinary dividend income to the extent of such shareholder's ratable share of
Somerset's accumulated earnings and profits. Any capital gain will be long-term
capital gain if, as of the date of the exchange, the holding period for such
shares is greater than one year. The following is a brief discussion of such
potential tax treatment; however, Somerset shareholders should consult their own
tax advisors as to the possibility that all or a portion of any cash received in
exchange for their Somerset common stock will be treated as a dividend.

The stock redemption provisions of Section 302 of the Code apply in
determining whether cash received by a shareholder of Somerset pursuant to the
merger has the effect of a distribution of a dividend under Section 356(a)(2) of
the Code. Under this analysis (called the "hypothetical redemption analysis"), a
shareholder of Somerset will be treated as if the portion of the shares of
Somerset common stock exchanged for cash in the merger had been instead
exchanged for shares of First

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Indiana common stock (the "hypothetical shares"), followed immediately by a
redemption of the hypothetical shares by First Indiana for cash. See Clark v.
Commissioner, 489 U.S. 726 (1989). Under the principles of Section 302 of the
Code, a shareholder of Somerset will recognize capital gain rather than dividend
income with respect to the cash received if the hypothetical redemption is
(1) "substantially disproportionate" with respect to such shareholder or
(2) "not essentially equivalent to a dividend."

In applying the "substantially disproportionate" and "not essentially
equivalent to a dividend" tests, the constructive ownership rules of
Section 318 of the Code will apply in comparing the shareholder's ownership
interest in First Indiana both immediately after the merger (but before the
hypothetical redemption) and after the hypothetical redemption. The constructive
ownership rules of Section 318 fall into four categories. First, under the
family attribution category, an individual Somerset shareholder will be treated
as constructively owning Somerset common stock actually or constructively owned
by his or her spouse, children, grandchildren, and parents. There is no
attribution between siblings or from a grandparent to a grandchild. Second,
under the entity to beneficiary category, Somerset common stock that is actually
owned by a trust, estate, corporation, partnership, or limited liability company
is treated as being constructively owned by the beneficiaries, shareholders,
partners, and/or members in proportion to their interests in the trust, estate,
corporation, partnership, or limited liability company; PROVIDED, HOWEVER, that
this rule does not apply to a shareholder who owns less than 50% of a
corporation that is a Somerset shareholder. Third, pursuant to the beneficiary
to entity category, all Somerset common stock that is actually owned by an
individual who is a beneficiary, shareholder, partner, or member of a trust,
estate, corporation, partnership, or limited liability company is treated as
being constructively owned by such trust, estate, corporation, partnership, or
limited liability company; PROVIDED, HOWEVER, that this rule does not apply to a
shareholder who owns less than 50% of a corporation and to a trust beneficiary
whose interest is a "remote contingent interest" (an interest whose actuarial
value is 5% or less of the trust property). Finally, under the option category,
a Somerset shareholder who holds an option to acquire Somerset common stock is
treated as constructively owning the underlying stock. Somerset common stock
that is attributed from one family member to another family member cannot be
reattributed to a third family member and stock that is attributed from a
beneficiary to an entity cannot be reattributed from the entity to another
beneficiary. Further, S corporations are treated as partnerships for purposes of
Section 318 of the Code.

The hypothetical redemption would be "substantially disproportionate" if the
percentage of First Indiana common stock actually and constructively owned by
such shareholder immediately after the hypothetical redemption is less than 80%
of the percentage of First Indiana common stock actually and constructively
owned by such shareholder immediately before the hypothetical redemption if only
First Indiana common stock had been distributed in the merger.

Even if the hypothetical redemption does not satisfy the "substantially
disproportionate" test, such hypothetical redemption may be "not essentially
equivalent to a dividend." Whether the hypothetical redemption by First Indiana
of the hypothetical shares for cash is "not essentially equivalent to a
dividend" with respect to a shareholder of Somerset will depend upon such
shareholder's particular circumstances. However, the hypothetical redemption
must, in any event, result in a "meaningful reduction" in such shareholder's
percentage ownership of First Indiana stock in order to qualify as "not
essentially equivalent to a dividend." In making such a determination, a
shareholder of Somerset should compare his or her share interest in First
Indiana (including interests owned actually, hypothetically and constructively)
immediately after the merger (but before the hypothetical redemption) to his or
her interest after the hypothetical redemption. Whether a "meaningful reduction"
occurs varies depending on the facts and circumstances of each shareholder. The
Internal Revenue Service has indicated in published rulings that a critical
factor in whether a reduction is meaningful is whether the holder has no actual
or constructive control (50% ownership) over corporate affairs immediately after
the exchange. Any shareholder whose relative stock interest in First Indiana

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before the hypothetical redemption is minimal and who exercises no "control"
over corporate affairs is generally treated as having had a "meaningful
reduction" in his or her stock after the hypothetical redemption transaction if
his or her percentage stock ownership in First Indiana has been reduced to any
extent, taking into account the shareholder's actual and constructive ownership
before and after the hypothetical redemption.

The aggregated adjusted tax basis of the shares of First Indiana common
stock received in such exchange will be equal to the aggregate tax basis of the
shares surrendered therefor, decreased by the cash received and increased by the
amount of gain recognized, if any. The holding period of First Indiana common
stock will include the holding period of the shares of Somerset common stock
surrendered therefor.

EXCHANGE OF SOMERSET COMMON STOCK SOLELY FOR CASH. In general, in the case
of a shareholder of Somerset who exchanges all of its Somerset common stock for
cash in the merger, the cash will be treated as received by the shareholder as a
distribution in redemption of the shareholder's shares, subject to the
provisions and limitations of Section 302 of the Code. Where, after such
redemption, such shareholder does not own shares of Somerset common stock
actually or constructively through the constructive ownership rules of
Section 318(a) of the Code, the redemption will be treated as a complete
termination of interest within the meaning of Section 302(b)(3) of the Code.
Accordingly, such Somerset shareholder will recognize capital gain or loss equal
to the difference between the amount of cash received and such shareholder's
adjusted tax basis in the shares of Somerset common stock surrendered. The gain
or loss will be long-term capital gain or loss if, as of the date of the
exchange, the holding period for such shares is greater than one year.

CASH RECEIVED IN LIEU OF A FRACTIONAL INTEREST OF FIRST INDIANA COMMON
STOCK. A shareholder of Somerset who receives cash in lieu of a fractional
share of First Indiana common stock will be treated as having received such
fractional share pursuant to the merger and then as having exchanged such
fractional share for cash in a redemption by First Indiana subject to
Section 302 of the Code. Such a deemed redemption will be treated as a sale of
the fractional share, provided that it is not "essentially equivalent to a
dividend" or is "substantially disproportionate" with respect to the Somerset
shareholder. (See above.) If the deemed redemption is treated as a sale of a
fractional share, a Somerset shareholder will recognize gain or loss equal to
the difference between the amount of cash received and the portion of the basis
of the shares of First Indiana common stock allocable to such fractional
interest. Such gain or loss will be capital gain or loss if, as of the date of
the exchange, the holding period for such shares is greater than one year.

EXCHANGE OF SOMERSET OPTIONS FOR FIRST INDIANA OPTIONS. A Somerset
shareholder who exchanges his or her options to acquire Somerset common stock
for like options to acquire First Indiana common stock will recognize no gain or
loss on the exchange to the extent that the options constitute securities. SEE
Rev. Rul. 70-269, 1970-1 C.B. 82, AS MODIFIED BY Rev. Rul. 98-10, 1998-1 C B
643. The term "securities" includes rights (options) issued by a party to a
reorganization to acquire its stock. SEE Treas. Reg. Section 1.354-1(e).

BACKUP WITHHOLDING AND INFORMATION REPORTING. Payments of cash to a holder
surrendering shares of Somerset common stock will be subject to information
reporting and "backup" withholding (whether or not the holder also receives
First Indiana common stock) at a rate of 31% of the cash payable to the holder,
unless the holder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and meets
certain other conditions. Any amounts withheld from payments to a holder under
the backup withholding rules will be allowed as a refund or credit against the
holder's U.S. federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.

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REGULATORY MATTERS

OFFICE OF THRIFT SUPERVISION. First Indiana and Somerset are both
registered savings and loan holding companies. The merger is subject to receipt
of approval from the Office of Thrift Supervision (the "OTS") under the Home
Owners' Loan Act and the Federal Deposit Insurance Act and related OTS
regulations. This approval requires consideration of various factors, including
assessments of the competitive effect of the proposed merger and the managerial
and financial resources and future prospects of the resulting organization. The
Community Reinvestment Act of 1977 also requires that the OTS, in deciding
whether to approve the merger, must assess the record of First Indiana Bank in
meeting the credit needs of the community it serves, including low and moderate
income neighborhoods. OTS regulations require publication of notice of, and an
opportunity for public comment with respect to, the application.

The merger cannot proceed in the absence of the necessary regulatory
approvals. On August 9, 2000, the OTS advised First Indiana and Somerset that it
had approved the proposed merger with no conditions, restrictions or
requirements that the First Indiana board of directors has reasonably determined
would, following the effective time of the merger, have a material adverse
effect on First Indiana or reduce the benefits of the merger to such a degree
that First Indiana would not have entered into the merger agreement had such
conditions, restrictions or requirements been known as of the date of the merger
agreement. First Indiana and Somerset are not aware of any other regulatory
approvals required in order to complete the merger.

RESALES OF FIRST INDIANA COMMON STOCK

The shares of First Indiana common stock to be issued in the merger will be
freely transferable under the Securities Act, except for shares issued to any
shareholder who may be deemed to be an "affiliate" (generally including, without
limitation, directors, certain executive officers, and beneficial owners of 10%
or more of any class of capital stock) of Somerset for purposes of Rule 145
under the Securities Act of 1933 as of the date of the special meeting.
Affiliates may not sell their shares of First Indiana common stock acquired in
the merger except pursuant to an effective registration statement under the
Securities Act or other applicable exemption from the registration requirements
of the Securities Act.

Somerset has agreed in the merger agreement to use its reasonable best
efforts to cause each person who may be deemed to be an "affiliate" of Somerset
to execute and deliver to First Indiana an agreement pursuant to which such
person agreed, among other things, not to offer to sell, transfer or otherwise
dispose of any of the shares of First Indiana common stock distributed to them
pursuant to the merger except in compliance with Rule 145 under the Securities
Act, or in a transaction that, in the opinion of counsel reasonably satisfactory
to First Indiana, is otherwise exempt from the registration requirements of the
Securities Act, or in an offering registered under the Securities Act. First
Indiana may place restrictive legends on certificates representing First Indiana
common stock issued to all persons who are deemed to be "affiliates" of Somerset
under Rule 145. This joint proxy statement and prospectus does not cover resales
of First Indiana common stock received by any person who may be deemed to be an
affiliate of Somerset. Affiliates of Somerset subject to Rule 145 may sell
shares of First Indiana common stock held by them during the one-year period
following the merger provided First Indiana remains current in its reporting
obligations under the Securities Exchange Act of 1934 (and two year period if it
does not) only in accordance with Rule 145(d), pursuant to an effective
registration statement or in transactions otherwise exempt from registration
under the Securities Act of 1933.

45
<PAGE>
FIRST INDIANA SELECTED FINANCIAL DATA

This information is derived from audited consolidated financial statements
for the years ended December 31, 1995 through 1999 and from unaudited
consolidated financial statements for the six months ended June 30, 1999 and
2000. Information with respect to per share data for all periods reflects a
six-for-five stock split effected March 1, 1996, a five-for-four stock split
effected March 18, 1997 and a six-for-five stock split effected March 6, 1998.
You should read this information together with First Indiana's historical
consolidated financial statements, and related notes, which appear elsewhere in
this proxy statement and prospectus.

------------------------------

(1) Interim calculations have been annualized for comparative purposes.

46
<PAGE>
FIRST INDIANA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997

First Indiana Corporation posted another year of record earnings in 1999.
Net earnings were $22,733,000, or $1.81 per basic share, for the year ended
December 31, 1999, including a gain from the sale of the deposits of the
Evansville Division of First Indiana Bank, First Indiana's principal subsidiary.
This represents a 19 percent increase over 1998 earnings of $19,147,000, or
$1.50 per basic share. Earnings for the year ended December 31, 1997, were
$17,744,000, or $1.40 per basic share. Excluding the gain from the Evansville
sale, 1999 earnings were $21,738,000, or $1.73 per basic share, a 14 percent
increase, which is also a record.

Diluted earnings per share, including the Evansville sale, were $1.77 for
the year, compared to $1.44 for the year ended December 31, 1998, and $1.69
excluding the Evansville sale.

Return on average equity for 1999 was 13.37 percent, compared with
11.96 percent in 1998 and 12.16 percent in 1997.

To reflect confidence in the continued earnings potential of First Indiana,
the board of directors authorized an 8 percent increase in First Indiana's
annual cash dividend, to $.56 per share from $.52 per share, beginning with the
first quarterly dividend payment on March 15, 2000. Dividends per common share
(adjusted for stock dividends and splits) were $.52 in 1999, $.48 in 1998, and
$.40 in 1997. All per-share amounts in the 1999 Annual Report have been adjusted
for all stock dividends and splits.

During the third quarter of 1999, First Indiana completed two significant
events that affected earnings. These were the sale of $120 million of deposits
of First Indiana Bank's five Evansville, Indiana-area branches and changes in
First Indiana Bank's mortgage banking strategy.

In August, First Indiana sold its Evansville Division to another bank. This
action reflects First Indiana Bank's relationship-based strategy as it allowed
First Indiana Bank to focus resources in Central Indiana, the fastest-growing
region of the state.

Also in the third quarter, First Indiana Bank exited the traditional
mortgage banking business in favor of originating mortgages for relationship
customers. Mortgage lending has become a commodity business, where the only
differentiating factor for most customers is a low rate; consequently, First
Indiana shifted its emphasis onto products and services where First Indiana Bank
can add value in other ways. First Indiana continues to offer consumer loan
products, which allows First Indiana Bank to capitalize on prosperous markets
throughout the United States and diversify geographic risk, without the overhead
of fixed offices. The initial result of this change in strategy was a decrease
in residential loan originations. Residential mortgage loan originations
amounted to $494 million in 1999, compared with $744 million in 1998.

Originations in home equity lending were $526 million, compared with
$433 million in 1998. This significant increase was a result of several factors.
First, First Indiana Bank continued to expand its distribution network and
currently provides loans in 45 states. Much of the expansion concentrated in the
western United States, where growth potential is strong. Second, First Indiana
Bank diversified its product offering and began pursuing larger first lien loans
more aggressively. Third, the environment of 1999 produced difficulties for some
competitors and gave First Indiana the opportunity to secure more business.
Last, in keeping with First Indiana Bank's overall strategy of deepening
relationships, plans were implemented to concentrate on loan originations
through a smaller number of larger producers. This resulted in operational
efficiencies as well as larger sales.

47
<PAGE>
Relationship building was a key in construction lending, and resulted in
originations of $521 million, compared with $481 million the previous year. In
addition, new markets were added, and a variety of unique products were
developed to take advantage of growing markets.

Another area of asset growth in 1999 was the business-related segments of
the market. Business loans outstanding increased to $236 million at year-end
1999 from $179 million one year earlier.

The significant growth in originations in these core assets areas translated
into growth on the balance sheet. At December 31, 1999, home equity,
construction, and business loans outstanding were $665 million, $274 million,
and $236 million, compared with $566 million, $216 million, and $179 million one
year earlier.

The provision for loan losses in 1999 was $9,410,000, compared with
$9,780,000 in 1998 and $10,700,000 in 1997. By continuing to provide for loan
losses in a manner consistent with the higher risk associated with and losses
inherent in home equity, construction, and business lending, First Indiana
Bank's loan loss allowance was $28,759,000 at year-end, or 163 percent of
non-performing loans, compared with $25,700,000, or 150 percent of
non-performing loans, at December 31, 1998.

FirstTrust Indiana, First Indiana Bank's trust and investment advisory
division, completed its first year of operation since receiving trust powers on
December 31, 1998. Account relationships have been accepted in three product
lines: personal trust, institutional investment management, and estate and
guardianship administration. Assets under management stood at approximately
$450 million at year-end 1999, approaching $1 billion during the year, including
a short-term institutional assignment.

First Indiana's total assets increased 10.2 percent to $1,979,774,000 at
year-end, compared with $1,795,990,000 at December 31, 1998. Shareholders'
equity increased to $177,103,000 at December 31, 1999, a 6.7 percent increase
over the December 31, 1998 level of $165,970,000. The tangible and core capital
of First Indiana Bank was $157,725,000, or 7.98 percent of assets, which
exceeded regulatory minimums by $128,090,000 and $78,699,000 at year-end 1999.
Average shareholders' equity to average assets equaled 9.00 percent and
9.33 percent for 1999 and 1998.

First Indiana Corporation is a non-diversified, unitary savings and loan
holding company. First Indiana Bank is a federally chartered stock savings bank
insured by the Federal Deposit Insurance Corporation. First Indiana is the
largest publicly held bank based in Indianapolis.

NET INTEREST INCOME

Net interest income is the most critical component of First Indiana's net
earnings. It is affected by both the volume and interest rate of
interest-earning assets and interest-bearing liabilities.

Net interest income was $70,851,000 in 1999, compared with $63,851,000 in
1998 and $64,034,000 in 1997. This increase is primarily due to growth in
earning assets, with 1999 levels at ten percent over 1998.

NET INTEREST MARGIN

First Indiana's net interest margin is the clearest indicator of its ability
to generate core earnings. The margin was 3.92 percent for the year ended
December 31, 1999, compared with 3.88 percent in 1998 and 4.39 percent in 1997.
Net interest margin consists of two components: interest-rate spread and the
contribution of interest-free funds (primarily shareholders' equity and other
non-interest-bearing liabilities). Interest-rate spread is the difference
between the return on total earning assets and the cost of total
interest-bearing liabilities.

First Indiana's average interest-rate spread for the year ended
December 31, 1999 was 3.28 percent, compared with 3.16 percent in 1998 and
3.70 percent in 1997.

48
<PAGE>
The contribution of interest-free funds to First Indiana's net interest
margin varies depending on the level of capital and use of interest-free
liabilities. Average interest-free funds provided an additional 64 basis points
to the margin in 1999, compared with 72 and 69 basis points in 1998 and 1997.

The following table presents an analysis of First Indiana's income-earning
assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- -------------------------------- ---------------------
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
---------------------- ---------- -------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning Assets
Federal Funds Sold............... $ 8,572 $ 411 4.79% $ 9,469 $ 521 5.50% $ 12,739 $ 695
Investments...................... 103,551 6,247 6.03 124,756 7,465 5.98 113,037 6,818
Federal Home Loan Bank Stock..... 17,977 1,476 8.21 14,171 1,097 7.74 13,207 1,055
Mortgage-Backed Sec.............. 50,155 3,255 6.49 32,446 2,065 6.36 35,130 2,446
Loans Receivable(1).............. 1,625,666 135,037 8.31 1,465,288 125,783 8.58 1,284,212 117,371
---------- -------- ---------- -------- ---------- --------
Total Earning Assets............. 1,805,921 146,426 8.11 1,646,130 136,931 8.32 1,458,325 128,385
---------- -------- ---------- -------- ---------- --------
Other Assets..................... 82,917 68,885 52,168
---------- ---------- ----------
Total Assets..................... $1,888,838 $1,715,015 $1,510,493
========== ========== ==========
Liabilities and Shareholders'
Equity
Interest Bearing Liabilities
Deposits
Now and Money Market Checking.. $ 98,515 $ 1,611 1.64% $ 84,891 $ 1,951 2.30% $ 84,761 $ 1,908
Passbook and Statement
Savings...................... 375,684 15,381 4.09 330,917 15,225 4.60 302,635 13,881
Money Market Savings........... 24,603 764 3.11 28,819 990 3.44 30,416 1,001
Jumbo Certificates............. 235,320 13,208 5.61 184,332 10,771 5.84 113,632 6,583
Fixed-Rate Certificates........ 446,610 23,509 5.26 464,839 25,998 5.59 470,853 26,563
Federal Home Loan Bank Advances.. 328,470 18,309 5.57 270,491 15,348 5.67 219,685 12,288
Short-Term Borrowings............ 56,348 2,793 4.96 52,922 2,797 5.29 39,018 2,127
---------- -------- ---------- -------- ---------- --------
Total Interest Bearing
Liabilities.................... 1,565,550 75,575 4.83 1,417,211 73,080 5.16 1,261,000 64,351
---------- -------- ---------- -------- ---------- --------
Other Liabilities................ 153,249 137,737 103,566
Shareholders' Equity............. 170,039 160,067 145,927
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity........... $1,888,838 $1,715,015 $1,510,493
========== ========== ==========
Net Interest Income/Spread....... $ 70,851 3.28% $ 63,851 3.16% $ 64,034
======== ==== ======== ==== ========
Net Interest Margin.............. 3.92% 3.88%
==== ====

<CAPTION>
1997
--------

(DOLLARS IN THOUSANDS) RATE
---------------------- --------
<S> <C>
Assets
Earning Assets
Federal Funds Sold............... 5.46%
Investments...................... 6.03
Federal Home Loan Bank Stock..... 7.99
Mortgage-Backed Sec.............. 6.96
Loans Receivable(1).............. 9.14

Total Earning Assets............. 8.80

Other Assets.....................

Total Assets.....................

Liabilities and Shareholders'
Equity
Interest Bearing Liabilities
Deposits
Now and Money Market Checking.. 2.25%
Passbook and Statement
Savings...................... 4.59
Money Market Savings........... 3.29
Jumbo Certificates............. 5.79
Fixed-Rate Certificates........ 5.64
Federal Home Loan Bank Advances.. 5.59
Short-Term Borrowings............ 5.45

Total Interest Bearing
Liabilities.................... 5.10

Other Liabilities................
Shareholders' Equity.............

Total Liabilities and
Shareholders' Equity...........

Net Interest Income/Spread....... 3.70%
====
Net Interest Margin.............. 4.39%
====
</TABLE>

------------------------------

(1) Included in loans receivable are loans held for sale totaling $32,567,
$98,588, and $34,217 in 1999, 1998, and 1997, and non-accrual loans.

49
<PAGE>
CHANGES IN RATE/VOLUME

The following table shows the impact on net interest income of changes in
interest rates and volume of First Indiana's assets and liabilities.

<TABLE>
<CAPTION>
1999 COMPARED WITH 1998 1998 COMPARED WITH 1997
INCREASE (DECREASE) DUE TO CHANGE IN INCREASE (DECREASE) DUE TO CHANGE IN
-------------------------------------------- --------------------------------------------
(DOLLARS IN THOUSANDS) RATE VOLUME OTHER NET CHANGE RATE VOLUME OTHER NET CHANGE
---------------------- -------- -------- -------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans Receivable.................... $(4,068) $13,767 $(445) $ 9,254 $(7,132) $16,550 $(1,006) $8,412
Investments......................... 61 (1,269) (10) (1,218) (54) 707 (6) 647
Federal Home Loan Bank Stock........ 68 294 17 379 (78) 129 (9) 42
Mortgage Backed Securities.......... 41 1,127 22 1,190 (210) (187) 16 (381)
Federal Funds Sold.................. (67) (49) 6 (110) 6 (178) (2) (174)
------- ------- ----- ------- ------- ------- ------- ------
(3,965) 13,870 (410) 9,495 (7,468) 17,021 (1,007) 8,546
------- ------- ----- ------- ------- ------- ------- ------
Interest Expense
Deposits
Now and Money Market Checking..... (563) 313 (90) (340) 40 3 -- 43
Passbook and Statement Savings.... (1,677) 2,060 (227) 156 43 1,297 4 1,344
Money Market Savings.............. (95) (145) 14 (226) 44 (53) (2) (11)
Jumbo Certificates................ (425) 2,979 (117) 2,437 57 4,096 35 4,188
Fixed-Rate Certificates........... (1,530) (1,019) 60 (2,489) (229) (339) 3 (565)
Federal Home Loan Bank Advances..... (271) 3,290 (58) 2,961 177 2,842 41 3,060
Short-Term Borrowings............... (174) 181 (11) (4) (65) 758 (23) 670
------- ------- ----- ------- ------- ------- ------- ------
(4,735) 7,659 (429) 2,495 67 8,604 58 8,729
------- ------- ----- ------- ------- ------- ------- ------
Net Interest Income................. $ 770 $ 6,211 $ 19 $ 7,000 $(7,535) $ 8,417 $(1,065) $ (183)
======= ======= ===== ======= ======= ======= ======= ======
</TABLE>

NON-INTEREST INCOME

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
------------------- -------------------
(DOLLARS IN THOUSANDS) 1999 AMOUNT PERCENT 1998 AMOUNT PERCENT 1997
---------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of Investments.................................. $ (886) $(1,281) (324.3)% $ 395 $ 178 82.0% $ 217
Sale of Loans........................................ 5,288 (4,498) (46.0) 9,786 4,854 98.4 4,932
Sale of Deposits..................................... 7,590 7,590 100.0 -- -- --
Loan Servicing Income................................ 1,220 (415) (25.4) 1,635 (1,132) (40.9) 2,767
Loan Fees............................................ 3,626 534 17.3 3,092 734 31.1 2,358
Insurance Commissions................................ 108 2 1.9 106 (132) (55.5) 238
Trust Fees........................................... 1,080 1,080 100.0 -- -- -- --
Customer Fee Income.................................. 5,296 1,189 29.0 4,107 403 10.9 3,704
Other................................................ 3,636 81 2.3 3,555 821 30.0 2,734
------- ------- ------ ------- ------- ----- -------
$26,958 $ 4,282 18.9% $22,676 $ 5,726 33.8% $16,950
======= ======= ====== ======= ======= ===== =======
</TABLE>

The increase in non-interest income was due to several important factors.
FirstTrust completed its first full year of operation, which produced a
significant increase in trust fees. Customer fee income grew substantially as a
benefit of a significant increase in the number of consumer and business
checking accounts during 1999. This growth was due to marketing efforts and the
fallout of mergers by other banks in the market. These increases were offset by
decreases in the gains on sales of investments and loans. During the third
quarter of 1999, First Indiana Bank recognized a $7.6 million gain on the sale
of deposits at its Evansville, Indiana-area branches. First Indiana Bank also
elected to sell certain loans and investment securities available for sale,
which resulted in a $4.4 million loss. In

50
<PAGE>
addition, approximately $1.6 million in various non-interest expenses related to
the Evansville and mortgage restructuring were recognized during the quarter.

NON-INTEREST EXPENSE

The following table describes First Indiana's non-interest expense for each
of the past three years.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
------------------- -------------------
(DOLLARS IN THOUSANDS) 1999 AMOUNT PERCENT 1998 AMOUNT PERCENT 1997
---------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and Benefits.............................. $ 39,343 $5,965 17.9% $ 33,378 $ 7,442 28.7% $25,936
Capitalized Salaries and Benefits.................. (11,191) (514) 4.8 (10,677) (4,657) (77.4) (6,020)
Net Occupancy...................................... 2,942 49 1.7 2,893 41 1.4 2,852
Deposit Insurance.................................. 712 21 3.0 691 (2) (0.3) 693
Real Estate Owned Operations--Net.................. 537 (321) (37.4) 858 206 31.6 652
Equipment.......................................... 5,825 783 15.5 5,042 350 7.5 4,692
Office Supplies and Postage........................ 2,059 27 1.3 2,032 183 9.9 1,849
Other.............................................. 12,119 580 5.0 11,539 1,089 10.4 10,450
-------- ------ ----- -------- ------- ----- -------
$ 52,346 $6,590 14.4% $ 45,756 $ 4,652 11.3% $41,104
======== ====== ===== ======== ======= ===== =======
</TABLE>

Non-interest expense increased in 1999, in support of several long-term
strategies; however, the majority of the increase was reflected in salaries and
benefits. Approximately $3.0 million, or 45%, of the increase in non-interest
expense can be attributed to record loan originations. Also, in connection with
the sale of the Evansville Division and the restructuring of First Indiana
Bank's mortgage lending business, appropriate severance packages were provided
for a number of employees, primarily in the third quarter. Furthermore, the
first full year of operation of First Indiana Bank's FirstTrust Division added
salaries and benefits for 11 employees. Even though salaries and benefits
increased compared to those of 1998, the fourth quarter saw a decrease of
8 percent over the prior fourth quarter. In addition, expenses rose due to Year
2000 preparedness planning. The "other" category increased as a consequence of
marketing and expenses related to First Indiana Bank's increase in the number of
checking accounts.

ASSET QUALITY

First Indiana's asset quality is directly affected by the credit risk of the
assets on its balance sheet. The procedures for reviewing the quality of First
Indiana's loans, the appropriateness of loan and real estate owned ("REO")
classifications, and the adequacy of loan and REO loss allowances are reviewed
by First Indiana's board of directors.

GENERAL ALLOWANCES--First Indiana establishes general allowances as
percentages of loans outstanding. The percentages are based on First Indiana
Bank's risk model, which incorporates empirical data about loss experience,
credit risk, geographic diversity, general economic trends, and other factors.

ADEQUACY OF ALLOWANCES--Management believes that First Indiana's current
loan and REO loss allowances are sufficient to absorb future losses inherent in
the current loan and REO portfolio. However, there can be no assurance that
additional allowances will not be required or that the amount of any such
allowances will not be significant. Various regulatory agencies periodically
review these allowances and may require First Indiana to recognize additions to
them.

51
<PAGE>
The Investment Committee of First Indiana's board of directors is
responsible for monitoring and reviewing investment quality and liquidity. This
committee approves investment policies and meets quarterly to review investment
transactions. Credit risk is controlled by limiting the number and size of
investments and by approving the brokers and dealers through which investments
are made.

NON-PERFORMING ASSETS

First Indiana has managed its loan portfolio to reduce concentration of loan
types and to diversify assets geographically. Non-performing assets, which
consist of non-accrual, impaired and restructured loans, REO, and other
repossessed assets, decreased to $19.4 million at December 31, 1999 from
$19.9 million one year earlier.

NON-ACCRUAL, IMPAIRED, AND RESTRUCTURED LOANS--First Indiana places loans on
non-accrual status when payments of principal or interest become 90 days or more
past due, or earlier when an analysis of a borrower's creditworthiness indicates
that payments could become past due. A loan is 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. Impairment is recognized by
allocating a portion of the allowance for loan losses to such a loan 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 or the calculated
present value of projected cash flows discounted at the contractual interest
rate.

The table below sets forth the amounts of First Indiana's non-performing
assets. The information pertaining to non-accrual loans and restructured loans
is set forth by type of loan.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
---------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non Accrual Loans
Residential Mortgage......................... $ 3,564 $ 4,268 $ 3,718 $ 3,849 $ 2,399
Residential Construction..................... 4,090 4,714 6,059 4,573 2,229
Commercial Real Estate....................... -- -- 99 -- 1,514
Business..................................... 806 1,019 254 166 428
Consumer..................................... 7,493 7,175 8,302 6,792 8,120
------- ------- ------- ------- -------
Total Non Accrual Loans...................... 15,953 17,176 18,432 15,380 14,690
------- ------- ------- ------- -------
Impaired Loans................................. 1,719 -- -- -- 3,306
Restructured Loans............................. -- -- -- 6,913 5,909
Real Estate Owned.............................. 1,727 2,704 4,390 4,828 2,943
Other Repossessed Assets....................... -- -- -- -- 317
------- ------- ------- ------- -------
Total Non Performing Assets.................... $19,399 $19,880 $22,822 $27,121 $27,165
======= ======= ======= ======= =======
</TABLE>

REAL ESTATE OWNED--Real estate owned is generally acquired through
foreclosure, and is carried at the lower of First Indiana Bank's book balance in
the property or the fair market value of the property, less reasonable costs of
disposition. A review of REO properties, including the adequacy of the loss
allowance and decisions whether to charge off REO, occurs in conjunction with
the review of the loan portfolios described above.

52
<PAGE>
The following schedule is a summary of REO, net of the allowance for REO
losses.

POTENTIAL PROBLEM ASSETS--First Indiana had $21.0 million in potential
problem loans at December 31, 1999. Of this amount, $16.8 million consisted of
loans to residential builders, $2.9 million represented loans to business
borrowers, and $1.3 million represented loans to commercial real estate/ land
development borrowers. These loans are currently performing according to their
loan agreements, but the borrower's financial operations and condition caused
management to question their ability to comply with present repayment terms. The
collateral for the builder loans is one-to-four family dwellings and fully
developed lots. The business loans are also collateralized with non-residential
real estate and other assets. The land development loans are collateralized with
developed lots or development in progress and raw land.

SUMMARY OF LOAN LOSS EXPERIENCE

Loan losses decreased primarily due to reduced consumer and construction
loan charge-offs. The net charge-offs of $6.4 million, $6.5 million, and
$7.1 million in 1999, 1998, and 1997, respectively, reflect both the significant
increase in home equity loans outstanding and the adoption of a more
conservative charge-off policy. First Indiana Bank now writes down consumer
loans at the date of foreclosure and charges off the entire balance of home
equity loans greater than 120 days delinquent with loan-to-value ratios above
90 percent. If the loan has a loan-to-value ratio less than 90 percent, the loan
is written down to its estimated disposition value after considering any first
mortgage position and disposition costs.

First Indiana Bank's loan loss provision of $9.4 million and $9.8 million in
1999 and 1998, respectively, reflects the improved charge-off experience and a
decrease in delinquencies in First Indiana Bank's portfolio of home equity
loans.

The allowance for loan losses increased to $28,759,000 at December 31, 1999,
or 163 percent of the non-performing loans at year-end.

53
<PAGE>
The following table summarizes the loan loss experience.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
---------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan Losses at
Beginning of Year....................... $25,700 $22,414 $18,768 $16,234 $12,525
Charge-Offs
Residential Mortgage...................... (30) (91) (83) (9) (34)
Residential Construction.................. (412) (658) (1,190) (360) (231)
Commercial Real Estate.................... -- (93) (75) -- (1,139)
Consumer.................................. (5,114) (6,934) (7,210) (9,592) (2,969)
Business.................................. (2,015) (15) (528) -- (61)
------- ------- ------- ------- -------
Total Charge-Offs......................... (7,571) (7,791) (9,086) (9,961) (4,434)
------- ------- ------- ------- -------
Recoveries
Residential Mortgage...................... -- 2 -- 26 6
Residential Construction.................. 235 270 40 69 16
Commercial Real Estate.................... -- -- 727 135 13
Consumer.................................. 963 986 1,261 1,429 190
Business.................................. 22 39 4 42 18
------- ------- ------- ------- -------
Total Recoveries.......................... 1,220 1,297 2,032 1,701 243
------- ------- ------- ------- -------
Net Charge-Offs........................... (6,351) (6,494) (7,054) (8,260) (4,191)
Provision for Loan Losses................. 9,410 9,780 10,700 11,815 7,900
Recapture of Loan Loss Provision due to
Auto Portfolio Sale..................... -- -- -- (1,021) --
Balance of Allowance for Loan Losses at
End of Year............................. 28,759 25,700 22,414 18,768 16,234
------- ------- ------- ------- -------
Balance of REO Loss Allowance at End of
Year.................................... 500 500 483 543 1,066
------- ------- ------- ------- -------
Balance of Loan and REO Loss Allowance at
End of Year............................. $29,259 $26,200 $22,897 $19,311 $17,300
======= ======= ======= ======= =======
Ratio of Net Charge Offs to Average Loans
Outstanding............................. 0.39% 0.44% 0.55% 0.67% 0.35%
Ratio of Allowance for Loan Losses to
Loans Receivable........................ 1.69% 1.66% 1.63% 1.52% 1.28%
Ratio of Total Loan and REO Loss Allowance
to Non Performing Assets................ 150.73% 131.79% 100.33% 71.20% 63.68%
Ratio of Allowance for Loan Losses to Non
Performing Loans........................ 162.73% 149.63% 121.60% 84.19% 67.91%
</TABLE>

54
<PAGE>
The following table presents an allocation of First Indiana's allowance for
loan losses at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH
(DOLLARS IN THOUSANDS) AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
---------------------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at End of Period
Applicable to:
Residential Mortgage Loans..... $ 673 27.0% $ 609 34.6% $ 588 36.7% $ 632 34.9%
Residential Construction
Loans........................ 5,464 16.4 4,613 14.0 3,663 11.4 3,270 11.2
Commercial Real Estate Loans... 323 2.1 298 2.1 330 2.9 777 3.7
Consumer Loans................. 10,665 40.4 9,508 37.7 9,706 39.9 9,042 42.7
Business Loans................. 4,350 14.1 2,727 11.6 2,008 9.1 1,809 7.5
Unallocated.................... 7,285 -- 7,945 -- 6,119 -- 3,238 --
------- ----- ------- ----- ------- ----- ------- -----
$28,759 100.0% $25,700 100.0% $22,414 100.0% $18,768 100.0%
======= ===== ======= ===== ======= ===== ======= =====

<CAPTION>
DECEMBER 31,
---------------------
1995
---------------------
PERCENT OF
LOANS IN
EACH
(DOLLARS IN THOUSANDS) AMOUNT CATEGORY
---------------------- -------- ----------
<S> <C> <C>
Balance at End of Period
Applicable to:
Residential Mortgage Loans..... $ 426 33.3%
Residential Construction
Loans........................ 2,928 11.2
Commercial Real Estate Loans... 1,095 4.4
Consumer Loans................. 7,808 45.4
Business Loans................. 820 5.7
Unallocated.................... 3,157 --
------- -----
$16,234 100.0%
======= =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

SUMMARY OF CORPORATION'S RESULTS. For the first six months of 2000, First
Indiana's net earnings were $11,696,000, compared with $9,651,000 one year ago.
For the six months ended June 30, 2000, diluted earnings per share were $0.91,
compared with $0.75 for the same period one year ago. Cash dividends through the
first six months of 2000 and 1999 were $0.28 and $0.26 per share of common stock
outstanding, respectively.

NET INTEREST INCOME. For the six months ended June 30, 2000, net interest
income was $38,522,000, compared with $34,074,000 for the six months ended
June 30, 1999. In order to enhance net interest income, First Indiana has
targeted the consumer, business, and construction loan portfolios for growth in
2000 while de-emphasizing residential loan portfolio growth.

Net loans outstanding increased to $1,816,887,000 at June 30, 2000, compared
with $1,604,192,000 one year earlier. At June 30, 2000, home equity loans
outstanding were $734,747,000, compared with $603,507,000 at June 30, 1999, a
22 percent increase. Business loans were $283,883,000 at June 30, 2000, compared
with $196,715,000 one year earlier, a 44 percent increase. Consumer loans sales
for the six months ended June 30, 2000 were $126,280,000, compared with
$144,212,000 for the same period in 1999. Residential loan sales for the six
months ended June 30, 2000 were $9,856,000, compared with $254,002,000 for the
same period in 1999. This drop is consistent with First Indiana Bank's strategy
related to exiting the mortgage business.

Interest income for the six months ended June 30, 2000 was $83,440,000,
compared with $70,300,000 for the same period in 1999. Interest expense for the
six months ended June 30, 2000 and 1999 was $44,918,000 and $36,226,000,
respectively. The increase in interest expense is related to an increase in
costs of funds and the growth in deposits and the increase in short-term
borrowings to fund the increase in loans outstanding.

For the six months ended June 30, 2000, First Indiana's cost of funds was
5.25 percent, compared with 4.74 percent for the same period in 1999. For the
six months ended June 30, 2000, the yield on earning assets was 8.47 percent,
compared with 7.97 percent for the same period in 1999. These changes are both
related to the rising interest rate environment.

For the six months ended June 30, 2000, First Indiana's annualized return on
total average assets was 1.15 percent, compared with 1.05 percent for the same
period in 1999.

55
<PAGE>
NET INTEREST MARGIN. Net interest margin consists of two components:
interest-rate spread and the contribution of interest-free funds (primarily
capital and other non-interest-bearing liabilities). The following analysis of
net interest margin reflects First Indiana's ability to generate strong net
interest income resulting from a prudent combination of assets and liabilities.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net Interest Income......................................... $ 38,522 $ 34,074
========== ==========
Average Interest-Earning Assets............................. $1,970,588 $1,763,091
Average Interest-Bearing Liabilities........................ 1,710,952 1,527,727
---------- ----------
Average Interest-Free Funds............................... $ 259,636 $ 235,364
========== ==========
Yield on Interest-Earning Assets............................ 8.47% 7.97%
Cost of Interest-Bearing Liabilities........................ 5.25 4.74
---------- ----------
Interest-Rate Spread...................................... 3.22 3.23
Impact of Interest-Free Funds............................... 0.69 0.64
---------- ----------
Net Interest Margin....................................... 3.91% 3.87%
========== ==========
</TABLE>

Non-accruing delinquent loans have been included in average interest-earning
assets.

Margin has been closely monitored throughout the industry because recent
interest rate increases have put upward pressure on deposit costs and
borrowings. To counteract this, the Bank has focused efforts on prime-based
business and consumer lending, which helps ease the downward pressure on net
interest margin. A direct result of loan growth has been favorable gains in net
interest income. However, loan growth has outpaced deposit growth, causing an
increase in borrowed funds.

NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE. The following
table analyzes the allowance for loan losses and REO for the six months ended
June 30, 2000 and 1999.

<TABLE>
<CAPTION>
ALLOWANCE FOR REO LOSS LOAN & REO
LOAN LOSSES ALLOWANCE LOSS ALLOWANCE
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999 2000 1999
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance of Loss Allowance at Beginning of
Year........................................ $28,759 $25,700 $ 500 $ 500 $29,259 $26,200
Provision for Losses.......................... 4,878 4,920 (225) (211) 4,653 4,709
Charge-Offs--Residential...................... (43) -- -- (14) (43) (14)
--Consumer......................... (2,212) (2,983) (10) (19) (2,222) (3,002)
--Construction..................... (322) (208) (5) (4) (327) (212)
--Business......................... (73) (278) -- -- (73) (278)
--Commercial Real Estate........... -- -- -- (79) -- (79)
Recoveries--Residential....................... 6 20 45 16 52 36
--Consumer........................... 378 500 141 254 519 754
--Construction....................... 75 202 54 33 129 235
--Business........................... 52 4 -- -- 52 4
--Commercial Real Estate............. -- -- -- 24 -- 24
------- ------- ----- ----- ------- -------
Balance at June 30,........................... $31,498 $27,877 $ 500 $ 500 $31,998 $28,377
======= ======= ===== ===== ======= =======
Ratio of Allowance for Loan Losses to Loans
Receivable.................................. 1.70% 1.71%
Ratio of REO Loss Allowance to Real Estate
Owned....................................... 14.69% 16.36%
Ratio of Total Loans and REO Loss Allowance to
Non-Performing Assets....................... 133.00% 167.08%
</TABLE>

56
<PAGE>
Non-performing assets were $24,058,000, or 1.14 percent of assets, at
June 30, 2000. This compares with $19,399,000, or 0.98 percent of assets, at
December 31, 1999 and $16,984,000, or 0.89 percent of assets, at June 30, 1999.
This category includes not only non-accrual loans and real estate owned, but
also restructured loans on which First Indiana Bank continues to accrue
interest. Since December 31, 1999, the growth in non-performing assets consists
of $664,000 in Land Development loans, $1,940,000 in Construction loans, and
$2,015,000 in Home Equity loans.

First Indiana Bank regularly reviews all non-performing assets to evaluate
the adequacy of the allowances for losses on loans and REO inherent in the loan
portfolio. The allowance for loan losses is maintained through a provision for
loan losses, which is charged to earnings. The provisions are determined in
conjunction with management's review and evaluation of current economic
conditions, changes in the character and size of the loan portfolio, estimated
charge-offs, and other pertinent information derived from a quarterly review of
the loan portfolio and REO properties.

The amount of the provision in 2000 is the result of management's ongoing
evaluation of the adequacy of its loan and real estate owned loss allowances and
the changing composition of First Indiana's loan portfolio and REO. Management
will continue to evaluate the adequacy of the provision and will adjust it if
necessary, based on the risk inherent in the portfolio.

NON-INTEREST INCOME. For the six months ended June 30, 2000 and 1999, total
non-interest income was $10,157,000 and $12,309,000, respectively.

Non-interest income was down primarily due to a reduction in gain on sale
for loans and a decrease in loan fees. Gain on sale of loans is down $2,245,000
and loan fees are down $620,000 for the six months ended June 30, 2000 compared
to the same period last year. This stems from a restructuring of First Indiana
Bank's mortgage operations in October of 1999. As planned, construction lending
originations of residential construction and permanent mortgage loans are down
from the same period last year, resulting in a reduction of loan fees. The
decrease in non-interest income is offset by a decrease in non-interest expense
from the mortgage operations restructuring.

The gain on sale of loans of $2,323,000 for the six month period ended
June 30, 2000 consists primarily of gains on the sale of fixed-rate home equity
loans, but also includes gains on the sale of residential mortgage loans. The
gain on sale of loans for the six month periods ended June 30, 1999 was
$4,568,000. A national network of agents, coupled with a call center, has
allowed First Indiana Bank to aggressively pursue originations of home equity
products with loan-to-value ratios of greater than 80 percent. First Indiana
Bank processes and underwrites these loans and subsequently sells them into the
secondary market. In some cases, First Indiana Bank retains the servicing rights
on the home equity loan sales.

First Indiana's residential loan servicing portfolio amounted to
$789,603,000 at June 30, 2000, compared with $768,100,000 at June 30, 1999. The
consumer loan servicing portfolio was $315,337,000 at June 30, 2000, compared
with $172,910,000 at June 30, 1999.

Loan and deposit charges increased $814,000 for the six months ended
June 30, 2000 compared with the same period last year, primarily as a result of
First Indiana Bank's successful promotional campaigns to acquire new checking
accounts.

FirstTrust Indiana, a division of First Indiana Bank, had $527,637,000 in
trust assets under management at June 30, 2000. Trust fees generated from these
assets are also included in other non-interest income.

During the first quarter of 1999, the Bank recognized $905,000 on the sale
of $148 million in loan servicing rights, which is included as a component of
other non-interest income.

NON-INTEREST EXPENSE. Non-interest expense for the six months ended
June 30, 2000 and 1999 was $24,731,000 and $25,748,000, respectively. Salaries
and benefits decreased $556,000 during the six

57
<PAGE>
months ended June 30, 2000 compared to 1999. Occupancy expenses decreased
$216,000 for the six months when compared with 1999. Both are primarily due to
the discontinuance of mortgage banking operations and the sale of the Evansville
division in the third quarter of 1999. Resources have been redeployed to
commercial and consumer banking. Equipment, a component of other operating
expenses, increased $396,000 in 2000 compared with 1999, primarily due to
additional depreciation of equipment and software related to hardware and
software improvements.

Deposit insurance premiums for the six months ended June 30, 2000 were
$133,000, compared to $358,000 for the same period in 1999. This reduction is
due to a drop in premiums to realign thrift deposit insurance with that of
banks.

CAPITAL RESOURCES AND LIQUIDITY

CAPITAL. At June 30, 2000, shareholders' equity was $185,058,000, or
8.73 percent of total assets, compared with shareholders' equity of
$177,103,000, or 8.95 percent of total assets, at December 31, 1999 and
$166,716,000, or 8.70 percent of total assets, at June 30, 1999.

In April 1999, First Indiana's board of directors authorized the repurchase
from time to time of up to an additional $10,000,000 of First Indiana's
outstanding common stock. Of the additional $10,000,000 authorized, $3,963,000
has been repurchased as of June 30, 2000. Through December 31, 1999, First
Indiana had repurchased a total of 1,088,813 shares of its common stock, at a
cost of $13,981,000, or 9 percent of its shares outstanding.

In November 1997, First Indiana's board of directors established a
shareholder rights agreement, whereby each common shareholder is entitled to one
preferred stock right for each share of common stock held. The rights "flip in"
upon the acquisition of 20 percent of First Indiana's outstanding common stock
in a takeover attempt, and offer current shareholders a measure of protection of
their investment in First Indiana.

First Indiana paid a quarterly dividend of $0.14 per common share on
June 16, 2000 to shareholders of record as of June 6, 2000. This reflects an
increase from a quarterly dividend of $0.13 per share in 1999. For the six
months ended June 30, 2000, First Indiana has paid $0.28 in dividends, compared
to $0.26 for the same period in 1999.

58
<PAGE>
The following table shows First Indiana Bank's strong capital levels and
compliance with all capital requirements at June 30, 2000. First Indiana Bank is
classified as "well-capitalized" under the OTS regulatory framework for prompt
corrective action, its highest classification. To be categorized as "well-
capitalized," First Indiana Bank must maintain minimum total risk-based, tier
one risk-based and tier one leverage ratios as set forth in the table. The table
reflects categories of assets includable under OTS regulations. There are no
conditions or events since the date of classification that management believes
have changed First Indiana Bank's category.

CAPITAL REQUIREMENTS

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR FDICIA OTS PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Indiana Bank Capital................ $165,269
Tangible Capital(1)....................... 165,131 9.80% $ 31,751 1.50% n/a n/a
Core (Tier One) Capital................... 165,131 9.80 84,670 4.00 $105,837 5.00%
Tier One Risk-Based Capital............... 165,131 9.53 n/a n/a 103,931 6.00
Total Risk-Based Capital(2)............... 185,305 10.70 138,575 8.00 173,219 10.00
</TABLE>

------------------------

(1) First Indiana Bank capital differs from tangible capital by the FAS115
equity securities adjustment of ($1,443) and a goodwill adjustment of
$1,581.

(2) Risk-based capital includes a $21,774 addition for general loan loss
reserves and a $1,600 deduction for land loans with loan-to-value ratios in
excess of 80 percent.

LIQUIDITY. First Indiana conducts its business through its subsidiaries.
The main source of funds for First Indiana is dividends from First Indiana Bank.
First Indiana has no significant assets other than its investment in First
Indiana Bank.

First Indiana Bank's primary source of funds is its deposits, which were
$1,312,115,000 at December 31, 1999, $1,227,918,000 at December 31, 1998 and
$1,376,203,000 at June 30, 2000.

In recent years, First Indiana has relied on loan payments, loan payoffs,
sale of loans, Federal Home Loan Bank advances, repurchase agreements,
mortgage-backed bonds, and floating-rate notes as sources of funds. Although
First Indiana Bank will continue to rely on core retail deposits as its chief
source of funds, the use of borrowed funds, including Federal Home Loan Bank
advances, continues to be an important component of First Indiana 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
significantly, depending on interest rates and economic conditions. However,
management does not expect any of these items to occur in amounts that would
affect First Indiana's ability to meet consumer demand for liquidity or
regulatory liquidity requirements.

Regulations require the director of the OTS to set minimum liquidity levels
between four and 10 percent of assets. In the fourth quarter of 1997, the
regulations were altered to lower the liquidity requirement to four percent of
net withdrawable assets, and the definition of net withdrawable assets was
simplified. This change did not have a significant impact on First Indiana's
liquidity position. First Indiana Bank's average liquidity ratio for the quarter
ended June 30, 2000, was 4.39 percent.

INFORMATION REGARDING OPERATING SEGMENTS

A description of First Indiana's operating segments and financial
information regarding those segments is contained in "First Indiana's Business"
and Note 17 to First Indiana's 1999 consolidated financial statements, which
appear elsewhere in this proxy statement and prospectus.

59
<PAGE>
IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED

FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133," was issued in June 1999. Statement
No. 137 defers the effective date of Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" for one year. Statement No. 133,
as amended, is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.

FASB Statement No. 133 generally requires that derivatives embedded in
hybrid instruments be separated from their host contracts and be accounted for
separately as derivative contracts. For instruments existing at the date of
adoption, Statement No. 133 provides an entity the option of not applying this
provision to such hybrid instruments entered into before January 1, 1998 and not
substantially modified thereafter. Consistent with the deferral of the effective
date for one year, Statement No. 137 also provides an entity the option of not
applying this provision to the hybrid instruments entered into before
January 1, 1998 or 1999 and not substantially modified thereafter. Management is
currently assessing the impact of this statement on the financial condition and
results of operations of First Indiana in the year of adoption.

YEAR 2000 COMPLIANCE

First Indiana Bank was required by the Federal Financial Institutions
Examination Council ("FFIEC") to assess both First Indiana Bank's and its
vendors' ability to be Year 2000 ready by June 30, 1999. Because First Indiana
Bank relies heavily on technology for transaction processing and interest
calculation, preparing for the Year 2000 was a critical focus of First Indiana
Bank's resources. In addition to testing the technology, First Indiana Bank also
made plans to ensure the availability of funds in order to meet potentially high
liquidity needs during December 1999.

RISKS OF YEAR 2000 ISSUES--First Indiana Bank faced two primary risks
regarding Year 2000 issues: technical and liquidity risks. Technical risk refers
to possible disruption of the bank's operations because of computer failure at
the bank or third parties. The most serious effect on the operations of First
Indiana Bank could have resulted if basic services provided by the bank's
external service bureau were disrupted; however, disruption in services such as
telecommunications and electric power could have also had a serious effect on
the business, operations, and/or financial condition of the bank. Liquidity risk
refers to the concern that Bank customers would withdraw substantial amounts of
currency in response to fears about the Year 2000. The bank took several steps
to address this possibility.

STATE OF READINESS--First Indiana Bank assembled a team of associates to
lead the bank's Year 2000 readiness efforts. All hardware and software vendors,
as well as other significant vendors and borrowers, were identified and
contacted to determine their readiness. The bank developed action plans and
contingency plans for known potential Year 2000 readiness issues. This included
completing integrated testing of interdependent systems, testing date interfaces
with third parties, and developing Bank-wide contingency plans which were tested
during the latter half of the year. The OTS conducted regular examinations of
all financial institutions to assess Year 2000 readiness in accordance with
FFIEC guidelines. The bank's external data services bureau, which provides most
of the automated processing of First Indiana's customer transactions, was also
examined by the OTS.

COSTS TO ADDRESS YEAR 2000 ISSUES--First Indiana Bank's expenditures
associated with the Year 2000 as of December 31, 1999 totaled $4.7 million.
These costs included major system renovations, an upgrade of all desktop
personal computers throughout the bank, implementation of an independent
location for Year 2000 testing, and fees related to third-party vendor testing.
First Indiana Bank expensed $774,000 of these expenditures in 1999. The
remaining expenditures relating to system and equipment purchases were
capitalized in accordance with generally accepted accounting principles.

60
<PAGE>
While these costs are fairly self-evident, it is not possible to assess the
financial impact of lost revenue due to Year 2000 issues attributable to
external factors, although management foresees no internal impact or risk to the
bank's ability to operate in the 21st century.

CONTINGENCY PLANS--Even though First Indiana Bank made significant efforts
to assess, remediate, and test its technical systems to address Year 2000
processing issues, contingency plans were also developed. These plans were
intended to provide alternative processes and actions in the event of systems
malfunctions or failure due to Year 2000 issues. First Indiana Bank was required
to follow FFIEC guidance advising two levels of contingency planning:
remediation and business resumption. Remediation contingency plans addressed the
actions to be taken if the remediation efforts fell behind schedule or appeared
in jeopardy of not delivering a Year 2000 ready system when required.

First Indiana Bank defined remediation contingency plan requirements that
were intended to provide alternative processes and actions to address failed or
unsuccessful remediation efforts. The first priority was core processes and
mission-critical systems. Business resumption contingency plans addressed the
actions that would be taken if key business processes could not be performed in
the normal manner due to Year 2000 related system or third party failures. The
bank developed business resumption contingency plans for each of its key
business processes and completed testing of them in November 1999. The business
resumption plans of the bank include the four phases cited in the FFIEC
contingency planning process. These four phases are (1) establishment of
organization planning guidelines; (2) completion of a business impact analysis,
including the definition of Year 2000 failure scenarios; (3) development of a
contingency plan for core systems including contingency trigger dates; and
(4) review and periodic testing of plan viability.

Throughout the rollover period into Year 2000 and the first seven months of
the New Year, there were no significant Year 2000-related system issues;
however, First Indiana Bank will continue to monitor these issues.

FINANCIAL CONDITION

First Indiana's total assets at June 30, 2000, were $2,119,047,000, an
increase of $139,273,000 from $1,979,774,000 at December 31, 1999. Total assets
at December 31, 1998 were $1,795,990,000.

Net loans receivable at June 30, 2000, were $1,816,887,000, compared with
$1,673,422,000 at December 31, 1999 and $1,518,543,000 at December 31, 1998. The
predominant growth in loans occurred in the targeted portfolios of business and
consumer, all of which increased from year-end 1999.

The composition of First Indiana Bank's loan portfolio continued to change
in 2000 and 1999, as the bank added higher-yielding loans to the balance sheet
through the origination of home equity, residential construction, and business
loans.

Consumer loans outstanding were $675,763,000 at the end of 1999, compared
with $580,525,000 one year earlier. Construction loans outstanding increased to
$274,010,000, compared with $216,059,000 at the end of 1998. First Indiana Bank
focused on offering new products to builders and customers in 1999 in order to
develop a multi-faceted relationship. Business loans outstanding increased to
$235,941,000, compared with $178,933,000 at the end of 1998. Residential loans
outstanding amounted to $481,034,000 at December 31, 1999, compared with
$536,124,000 in 1998. This is due to First Indiana Bank's departure from the
traditional mortgage banking business.

Total loan sales in 1999 amounted to $718,028,000, compared with
$608,243,000 in 1998 and $217,132,000 in 1997.

First Indiana Bank's residential loan servicing portfolio was $789,603,000
at June 30, 2000, compared with $843,443,000, $908,582,000 and $969,089,000 at
December 31, 1999, 1998 and 1997,

61
<PAGE>
respectively. The decrease in residential loan servicing is due to two factors.
First, the bank sold $148 million in residential loan servicing during the first
quarter of 1999. Second, with the mortgage restructuring, the bank is
originating fewer residential mortgage loans. The bank's consumer loan servicing
portfolio was $315,337,000 at June 30, 2000, compared with $260,223,000,
$106,243,000 and $54,645,000 at December 31, 1999, 1998 and 1997, respectively.
The strategy of First Indiana Bank is to continue to build the consumer loan
servicing portfolio. The servicing portfolio provides a source of fee income,
but is subject to fluctuations as rates fall and serviced loans pay off.

To fund asset growth, First Indiana emphasized lower cost demand and savings
deposits. As a result of this strategy, average balances of NOW and Money Market
accounts increased to $99 million in 1999, from $85 million in 1998. A similar
increase occurred in Passbook and Savings Statement accounts, with average
balances rising to $376 million in 1999, from $331 million in 1998. In the
fourth quarter of 1999, First Indiana introduced an Indexed Money Market account
as further evidence of this strategy. In addition, First Indiana Bank continues
to use borrowed fund and jumbo certificates of deposit for funding.

Total deposits were $1,376,203,000 at June 30, 2000, compared with
$1,312,115,000 at December 31, 1999 and $1,227,918,000 at December 31, 1998.
This increase is primarily due to an increase in retail checking deposits and
jumbo certificates of deposit. Non-interest-bearing deposits consist of retail
and commercial checking accounts, as well as official checking accounts.
Commercial checking accounts are expected to become a more significant source of
funds. Included in commercial checking accounts at June 30, 2000, December 31,
1999 and December 31, 1998 were approximately $9,364,000, $3,407,000 and
$4,285,000, respectively, of escrow balances maintained for loans serviced for
others. These balances represent principal, interest, taxes, and insurance that
require separate maintenance at the request of the investor. Official checking
accounts at June 30, 2000, December 31, 1999 and December 31, 1998 were
$26,477,000, $26,111,000 and $51,293,000 respectively.

Federal Home Loan Bank advances totaled $421,759,000 at June 30, 2000,
compared with $366,854,000 at December 31, 1999 and $327,247,000 at
December 31, 1998.

First Indiana also uses short-term repurchase agreements as sources of
funds. Borrowings will continue to be used in the short run to compensate for
periodic or other reductions in deposits or inflows at less than projected
levels, and long-term to support lending activities.

INTEREST-RATE SENSITIVITY. First Indiana engages in rigorous, formal
asset/liability management, the objectives of which are to manage interest-rate
risk, ensure adequate liquidity, and coordinate sources and uses of funds. At
June 30, 2000, First Indiana's cumulative one-year interest-rate gap stood at a
negative 6.39 percent compared to a negative 8.50 percent at December 31, 1999.
This means that at June 30, 2000 6.39 percent of First Indiana's liabilities
will reprice within one year without a corresponding repricing of the assets
they fund. Because of the changing interest rate environment, it is management's
intention to continue to reduce this liability sensitive position throughout the
year.

62
<PAGE>
The following schedule analyzes the difference in rate-sensitive assets and
liabilities or gap at December 31, 1999.

RATE SENSITIVITY BY PERIOD OF MATURITY OR RATE CHANGE
DECEMBER 31, 1999

<TABLE>
<CAPTION>
OVER 180 OVER ONE
PERCENT WITHIN DAYS TO YEAR TO OVER
(DOLLARS IN THOUSANDS) RATE BALANCE OF TOTAL 180 DAYS ONE YEAR FIVE YEARS FIVE YEARS
---------------------- -------- ---------- -------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Investment Securities & Other....... 6.53% $ 154,012 8.06% $ 48,390 $ -- $ 85,279 $ 20,343
Loans Receivable(1)
Mortgage-Backed Securities........ 7.03 54,734 2.86 5,380 5,572 43,781 --
Residential Mortgage Loans........ 7.49 481,034 25.17 115,618 78,291 229,333 57,793
Commercial Real Estate Loans...... 8.51 35,434 1.85 6,029 6,741 16,595 6,070
Business Loans.................... 8.92 235,941 12.35 168,735 11,540 46,463 9,202
Consumer Loans.................... 9.43 675,762 35.37 273,518 49,895 251,875 100,474
Residential Construction Loans.... 8.51 274,010 14.34 246,711 13,706 13,593 --
---------- ------ --------- --------- -------- ---------
Total Interest-Earning Assets... 8.43% $1,910,927 100.00% 864,381 165,745 686,919 193,882
==== ========== ======
INTEREST-BEARING LIABILITIES
Deposits:
Demand Deposits(2)................ 1.07 $ 97,253 5.85% -- -- -- 97,253
Passbook Deposits(3).............. 3.85 37,201 2.24 2,108 907 7,258 26,928
Money Market Savings.............. 4.23 343,822 20.67 343,822 -- -- --
Jumbo Certificates................ 5.72 308,088 18.52 140,550 40,291 127,247 --
Fixed-Rate Certificates........... 5.29 411,395 24.73 155,812 135,403 120,180 --
---------- ------ --------- --------- -------- ---------
Total Deposits.................. 4.71 1,197,759 72.01 642,292 176,601 254,685 124,181

Borrowings:
FHLB Advances..................... 5.75 366,854 22.05 225,000 50,000 85,000 6,854
Short-Term Borrowings............. 5.35 98,754 5.94 98,754 -- -- --
---------- ------ --------- --------- -------- ---------
Total Interest-Bearing
Liabilities................... 4.97% 1,663,367 100.00% 966,046 226,601 339,685 131,035
==== ====== ========= ========= ========
Net--Other(4)....................... 247,560 247,560
---------- ---------
Total........................... $1,910,927 966,046 226,601 339,685 378,595
========== --------- --------- -------- ---------
Rate Sensitivity Gap................ $(101,665) $ (60,856) $347,234 $(184,713)
========= ========= ======== =========
December 31, 1999 Cumulative
Rate-Sensitivity Gap.............. $(101,665) $(162,521) $184,713
========= ========= ========
Percent of Total Interest-Earning
Assets............................ (5.32)% (8.50)% 9.67%
========= ========= ========
December 31, 1998 Cumulative
Rate-Sensitivity Gap.............. $ 132,868 $ 118,070 $248,681
========= ========= ========
Percent of Total Interest-Earning
Assets............................ 7.74% 6.88% 14.49%
========= ========= ========
</TABLE>

------------------------------

(1) The distribution of fixed-rate loans is based upon contractual maturity and
scheduled contractual repayment adjusted for estimated prepayments. For
adjustable-rate loans, interest rates adjust at intervals of six months to
five years. Included in Residential Mortgage Loans are $5,996 of Loans Held
for Sale. Included in Consumer Loans are $26,572 of Home Equity Loans Held
for Sale.

(2) These deposits have been included in the Over 5 Years category to reflect
management's assumption that these accounts are not rate-sensitive. This
assumption is based upon historic trends of these deposits through periods
of significant increases and decreases in interest rates without changes in
rates paid on these deposits. Included in this category are NOW, money
market checking and non-interest bearing deposits. The rate represents a
blended rate on all deposit types in the category.

(3) A portion of these deposits have been included in the Over 5 Years category
to reflect management's assumption that these accounts are not
rate-sensitive. This assumption is based upon the historic minimal decay
rates on these types of deposits experienced through periods of significant
increases and decreases in interest rates without changes in rates paid on
these deposits.

(4) Net--Other is the excess of other non-interest-bearing liabilities and
capital over other non-interest-bearing assets.

63
<PAGE>
The following schedule analyzes the difference in rate-sensitive assets and
liabilities or gap at June 30, 2000.

RATE SENSITIVITY BY PERIOD OF MATURITY OR RATE CHANGE
JUNE 30, 2000

<TABLE>
<CAPTION>
OVER 180 OVER ONE
PERCENT WITHIN 180 DAYS TO YEAR TO OVER
(DOLLARS IN THOUSANDS) RATE BALANCE OF TOTAL DAYS ONE YEAR FIVE YEARS FIVE YEARS
---------------------- -------- ---------- -------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Investment Securities & Other......... 6.75% $ 143,020 7.00% $ 21,604 $ 76 $ 99,749 $ 21,591
Loans Receivable (1)
Mortgage-Backed Securities.......... 7.03 51,066 2.50 4,254 4,065 26,960 15,787
Residential Mortgage Loans.......... 7.50 538,505 26.37 94,528 60,653 338,174 45,150
Commercial Real Estate Loans........ 8.90 41,854 2.05 12,333 7,164 15,687 6,670
Business Loans...................... 9.52 283,833 13.90 209,924 5,984 53,817 14,108
Consumer Loans...................... 9.53 746,188 36.53 290,735 39,352 216,865 199,236
Residential Construction Loans...... 9.00 238,005 11.65 216,931 11,932 9,142 --
---- ---------- ------ --------- --------- -------- ---------
Total Interest-Earning Assets..... 8.66% $2,042,471 100.00% 850,309 129,226 760,393 302,542
==== ========== ======

Interest-Bearing Liabilities
Deposits:
Demand Deposits (2)................. 1.30% $ 94,920 5.34% -- -- -- 94,920
Passbook Deposits (3)............... 1.93 37,905 2.13 2,812 907 7,258 26,928
Money Market Savings................ 4.78 341,700 19.21 341,700 -- -- --
Jumbo Certificates.................. 6.31 339,827 19.10 103,559 49,769 186,499 --
Fixed-Rate Certificates............. 5.83 431,724 24.26 158,794 91,362 181,568 --
---------- ------ --------- --------- -------- ---------
Total Deposits.................... 5.21 1,246,076 70.04 606,865 142,038 375,325 121,848

Borrowings:
FHLB Advances....................... 6.38 421,759 23.71 200,000 50,000 165,000 6,759
Short-Term Borrowings............... 5.96 111,177 6.25 111,177 -- -- --
---------- ------ --------- --------- -------- ---------
Total Interest-Bearing
Liabilities..................... 5.53% 1,779,012 100.00% 918,042 192,038 540,325 128,607
==== ======
Net--Other (4)........................ 263,459 263,459
---------- --------- --------- -------- ---------
Total............................. $2,042,471 918,042 192,038 540,325 392,066
========== --------- --------- -------- ---------
Rate Sensitivity Gap.................... $ (67,733) $ (62,812) $220,068 $ (89,524)
========= ========= ======== =========
June 30, 2000........................... $ (67,733) $(130,545) $ 89,523
========= ========= ========
Percent of Total Interest-Earning
Assets................................ (3.32)% (6.39)% 4.38%
========= ========= ========
December 31, 1999....................... $(101,665) $(162,521) $184,713
========= ========= ========
Percent of Total Interest-Earning
Assets................................ (5.32)% (8.50)% 9.67%
========= ========= ========
</TABLE>

------------------------------

(1) The distribution of fixed-rate loans is based upon contractual maturity and
scheduled contractual repayment adjusted for estimated prepayments. For
adjustable-rate loans, interest rates adjust at intervals of six months to
five years. Included in Consumer Loans are $42,517 of Home Equity Loans Held
for Sale.

(4) Net--Other is the excess of other non-interest-bearing liabilities and
capital over other non-interest-bearing assets.

64
<PAGE>
ASSET/LIABILITY MANAGEMENT AND MARKET RISK

First Indiana engages in rigorous, formal asset/liability management, the
objectives of which are 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") and the board of directors review the
earnings impact of various changes in interest rates each month and manage the
risk to maintain an acceptable level of change to net interest income. First
Indiana Bank also monitors interest rate sensitivity using GAP analysis. This
method recognizes the dynamics of the balance sheet and the effect of changing
interest rates on First Indiana's net earnings.

The cumulative rate-sensitivity gap reflects First Indiana's sensitivity to
interest-rate changes over 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.

At December 31, 1999, First Indiana's six-month and one-year cumulative gap
stood at a negative 5.32 percent and a negative 8.50 percent of total
interest-earning assets. This compares with a positive 7.74 percent and a
positive 6.88 percent at December 31, 1998. This means that 5.32 and
8.50 percent of First Indiana's liabilities will reprice within six months and
one year without a corresponding repricing of the assets they are funding. The
1999 gap position represents funding choices made by First Indiana Bank late in
the year and is not indicative of future anticipated gap positions. Management
intends to maintain a relatively neutral gap position to manage the volatility
of earnings.

First Indiana's success is largely dependent upon its ability to manage
interest-rate risk, which is defined as the exposure of First Indiana's net
interest income and net earnings to changes in interest rates. ALCO is
responsible for managing interest-rate risk and First Indiana has established
acceptable limits for interest-rate exposure, which are reviewed on a monthly
basis. First Indiana Bank uses a model which measures interest-rate sensitivity
to determine the impact on net earnings 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 deposits, estimated borrowing needs, anticipated loan loss
provision, projected secondary marketing gains and losses, expected repricing
spreads on variable-rate products, and contractual maturities and repayments on
lending and investment products. The model incorporates interest-rate sensitive
instruments which are held to maturity or available for sale. First Indiana Bank
has no trading assets.

Based on the information and assumptions in effect at June 30, 2000,
management believes that a 100 basis point increase or decrease in interest
rates over a 12 month period would result in a 3.8 percent decrease and a
6.3 percent decrease in net earnings, respectively, because of the change 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 the ALCO could take in response to the change in interest rates, the
results should not be relied upon as indicative of actual results.

Historically First Indiana Bank enters into forward sales contracts for
future delivery of residential fixed-rate mortgage loans at a specified yield in
order to limit market risk associated with its pipeline of residential mortgage
loans held for sale and commitments to fund residential mortgage loans. Market
risk arises from the possible inability of either party to comply with the
contract terms.

First Indiana Bank designates these forward sales contracts as hedges. To
qualify as a hedge, the forward sales contract must be effective in reducing the
market risk of the identified anticipated

65
<PAGE>
residential mortgage loan sale which is probable to occur. Effectiveness is
evaluated on an ongoing basis through analysis of the residential mortgage loan
pipeline position. Commitments under these forward sales contracts and the
underlying residential mortgage loans are valued, and the net position is
carried at the lower of cost or market. Unrecognized gains and losses on these
forward sales contracts are generally immaterial and are charged to current
earnings as an adjustment to the gain or loss on residential mortgage loan sales
when realized, or when the contract matures or is terminated.

66
<PAGE>
PRICE RANGE OF FIRST INDIANA COMMON STOCK AND DIVIDEND HISTORY

First Indiana's common stock is traded on the Nasdaq National Market under
the symbol FISB. The following table sets forth the high and low sale prices of
the First Indiana common stock for certain periods and the dividend paid per
share during those periods.

<TABLE>
<CAPTION>
CLOSING PRICES
PER SHARE DIVIDENDS
------------------- PER
QUARTERLY PERIOD HIGH LOW SHARE
---------------- -------- -------- ---------
<S> <C> <C> <C>
1998
First Quarter............................................. $30.00 $22.92 $0.12
Second Quarter............................................ 27.38 23.75 0.12
Third Quarter............................................. 27.75 19.13 0.12
Fourth Quarter............................................ 22.13 17.38 0.12
1999
First Quarter............................................. 20.50 18.00 0.13
Second Quarter............................................ 21.38 18.38 0.13
Third Quarter............................................. 25.75 20.88 0.13
Fourth Quarter............................................ 26.13 19.75 0.13
2000
First Quarter............................................. 23.25 16.81 0.14
Second Quarter............................................ 20.25 17.00 0.14
Third Quarter (through August 18, 2000)................... 20.56 19.13 --
</TABLE>

67
<PAGE>
HOLDERS OF FIRST INDIANA COMMON STOCK

First Indiana has only one class of stock, its common stock, of which
12,614,603 shares were outstanding as of the close of business on June 30, 2000.
As of June 30, 2000, there were approximately 1,399 holders of record of First
Indiana common stock. The following table shows, as of June 30, 2000, on an
actual basis and a pro forma basis for the merger, the number and percentage of
shares of common stock owned beneficially by (1) each director of First Indiana
and each executive officer of First Indiana named in the Summary Compensation
Table below, (2) each person who owned beneficially more than 5% of the issued
and outstanding common stock of First Indiana and (3) executive officers and
directors as a group. The pro forma calculations assume that 80% of the Somerset
common stock is exchanged for First Indiana common stock and 20% is exchanged
for cash and that the McKinney family affiliates exchange all of their Somerset
stock for First Indiana stock. The address of all 5% or greater holders is 135
North Pennsylvania Street, Suite 2800, Indianapolis, Indiana 46204.

<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------------- ---------------------
AMOUNT AND AMOUNT AND
NATURE OF PERCENT NATURE OF PERCENT
BENEFICIAL OF BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS
------------------------------------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Gerald L. Bepko..................................... 38,479(1) * 38,479 *
Andrew Jacobs, Jr................................... 12,475(2) * 12,475 *
Robert J. Laiken.................................... 9,120(3) * 9,120 *
Marni McKinney...................................... 3,464,975(4) 27.3% 2,184,473 17.1%
Robert H. McKinney.................................. 3,464,975(4) 27.3 2,184,473 17.1
Owen B. Melton, Jr.................................. 326,278(5) 2.6 326,596 2.6
Phyllis W. Minott................................... 42,248(6) * 42,248 *
Michael L. Smith.................................... 49,664(7) * 64,944 *
John W. Wynne....................................... 45,126(8) * 45,126 *
David L. Gray....................................... 72,811(9) * 72,811 *
David E. Lindsey.................................... 111,136(10) * 111,136 *
Merrill E. Matlock.................................. 38,060(11) * 38,060 *
All executive officers and directors as a group
(17 persons)...................................... 4,305,397(12) 33.1 3,116,537 23.9
</TABLE>

Unless otherwise noted, the above named persons have sole voting power and
sole investment power.

------------------------

* Less than 1%.

(1) Includes 2,077 shares held in trust under the First Indiana Bank Directors'
Stock Purchase Plan (the "Directors' Stock Purchase Plan"), 3,715 shares
held in trust under the First Indiana Bank Employees' Stock Purchase Plan
(the "Stock Purchase Plan"), 473 shares held jointly with Mr. Bepko's
spouse, and 29,968 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934 (the "Exchange Act").

(2) Includes 1,103 shares held in trust under the Directors' Stock Purchase
Plan, 134 shares held in trust under the Stock Purchase Plan and
11,238 shares as to which there is a right to acquire beneficial ownership
as specified in Rule 13d-3(d)(1) under the Exchange Act.

(3) Includes 1,421 shares held in trust under the Directors' Stock Purchase
Plan, 207 shares held in trust under the Stock Purchase Plan and
7,492 shares as to which there is a right to acquire beneficial ownership
as specified in Rule 13d-3(d)(1) under the Exchange Act.

68
<PAGE>
(4) These shares are beneficially owned by a group consisting of Somerset,
Robert H. McKinney and Marni McKinney. Robert H. McKinney owns
616,450 shares of First Indiana, including 2,153 shares held in trust under
the Stock Purchase Plan, 40,000 shares of First Indiana as to which Mr.
McKinney has the right to acquire beneficial ownership as specified in Rule
13d-3(d)(1) under the Exchange Act and 12,000 shares of restricted stock
under First Indiana's 1998 Stock Option and Incentive Plan. Mr. McKinney,
his immediate family, a family limited partnership, and various irrevocable
trusts established by Mr. McKinney for the benefit of his children together
beneficially own, directly or indirectly, approximately 43% of the
outstanding capital stock of Somerset, which owns of record
2,758,467 shares of First Indiana. The total held by the group also
includes 90,058 shares of First Indiana owned by Mr. McKinney's daughter,
Marni McKinney, including 5,794 shares held in trust under the Stock
Purchase Plan, 3,087 shares held on her behalf under First Indiana Bank's
401(k) Plan, 40,000 shares as to which she has the right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under the Exchange
Act, and 12,000 shares of restricted stock under the 1998 Stock Option and
Incentive Plan. Mr. McKinney is the Chairman and a director of Somerset and
Ms. McKinney is the Vice Chairman and Chief Executive Officer and a
director of Somerset.

(5) Includes 11,172 shares held in trust under the Stock Purchase Plan, 1,126
shares held on Mr. Melton's behalf under First Indiana Bank's 401(k) Plan,
107,996 shares owned of record jointly with Mr. Melton's spouse, 61,874
owned of record by Mr. Melton's spouse, 69,244 shares as to which there is
a right to acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Exchange Act and 12,000 shares of restricted stock under First
Indiana's 1998 Stock Option and Incentive Plan.

(6) Includes 5,155 shares held in trust under the Stock Purchase Plan, 2,077
shares held in trust under the Directors' Stock Purchase Plan, 252 shares
held under First Indiana's Dividend Reinvestment and Stock Purchase Plan
(the "DR Plan") and 33,714 shares as to which there is a right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under the Exchange
Act and.

(7) Includes 33,714 shares as to which there is a right to acquire beneficial
ownership as specified in Rule 13d-3(d)(1) under the Exchange Act.

(8) Includes 206 shares held in trust under the Stock Purchase Plan,
820 shares held under the Directors' Stock Purchase Plan, 151 shares held
under the DR Plan, and 18,730 shares as to which there is a right to
acquire beneficial ownership as specified in Rule 13d-3(d)(l) under the
Exchange Act.

(9) Includes 518 shares held in trust under the Stock Purchase Plan, 4,439
shares owned of record by Mr. Gray's spouse and 31,497 shares as to which
there is a right to acquire beneficial ownership as specified in Rule
13d-3(d)(1) under the Exchange Act. After May 24, 2000, Mr. Gray was no
longer an officer of First Indiana.

(10) Includes 657 shares held in trust under the Stock Purchase Plan and 19,200
shares as to which there is a right to acquire beneficial ownership as
specified in Rule 13d-3(d)(1) under the Exchange Act.

(11) Includes 815 shares held in trust under the Stock Purchase Plan,
697 shares held under the DR Plan and 20,400 shares as to which there is a
right to acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Exchange Act.

(12) Includes 39,461 shares held in trust under the Stock Purchase Plan, 7,498
shares held under the Directors' Stock Purchase Plan, 1,556 shares held
under the DR Plan, 9,532 shares held under First Indiana Bank's 401(k)
Plan and 380,043 shares as to which there is a right to acquire beneficial
ownership as specified in Rule 13d-3(d)(1) under the Exchange Act.

69
<PAGE>
FIRST INDIANA'S BUSINESS

FIRST INDIANA CORPORATION

First Indiana Corporation, an Indiana corporation formed in 1986, is a
nondiversified, unitary savings and loan holding company. The principal asset of
First Indiana is the outstanding stock of First Indiana Bank, its wholly owned
subsidiary. First Indiana has no separate operations, and its business consists
only of First Indiana Bank.

FIRST INDIANA BANK

First Indiana is a federally chartered stock savings bank whose depository
accounts are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC"). Established in 1934, First
Indiana was operated as a federally chartered, mutual savings and loan
institution until August 1983, when it converted to a federal stock savings
bank. First Indiana has $2.1 billion in assets and is the largest publicly held
bank based in Indianapolis.

First Indiana is engaged primarily in the business of attracting deposits
from the general public and originating home equity loans, residential
construction loans, and business loans. First Indiana offers a full range of
banking services through 23 banking offices located throughout metropolitan
Indianapolis, Franklin, Pendleton, Westfield, Mooresville, and Rushville,
Indiana. First Indiana Bank also originates home equity loans indirectly through
a network of loan originators and loan agents throughout the United States.

During the third quarter of 1999, First Indiana completed two significant
events, both of which are discussed more fully in Item 7. These were the sale of
$120 million of deposits of First Indiana Bank's five Evansville, Indiana-area
branches and changes in First Indiana Bank's mortgage banking strategy.

Also in the third quarter, First Indiana Bank exited the traditional
mortgage banking business in favor of originating mortgages for relationship
customers. Mortgage lending has become a commodity business, where the only
differentiating factor for most customers is a low rate of interest;
consequently, First Indiana shifted its emphasis to products and services where
First Indiana Bank can add value in other ways. First Indiana continues to offer
consumer loan products, which allows First Indiana Bank to capitalize on
prosperous markets throughout the United States and diversify geographic risk,
without the overhead of fixed offices.

First Indiana has construction and consumer loan service offices throughout
Indiana and in Arizona, Florida, Illinois, North Carolina, Ohio, and Oregon. In
early 1999, First Indiana established a new operating subsidiary, One Investment
Corporation. One Investment Corporation purchases and sells loan participations
originated by First Indiana and by others in the secondary market.

FirstTrust Indiana, First Indiana Bank's trust and investment advisory
division, completed its first year of operation since receiving trust powers on
December 31, 1998. Account relationships have been accepted in three product
lines: personal trust, institutional investment management, and estate and
guardianship administration. FirstTrust enables First Indiana to diversify
sources of non-interest income while providing a broader spectrum of products to
retail and commercial customers.

The metropolitan area served by First Indiana consists of Indianapolis, the
State's capital and largest city, and the surrounding six-county suburban and
agricultural areas in the central part of the State. The population of the
metropolitan Indianapolis area in 1990 was approximately 1,200,000.
Indianapolis' diversified economy includes manufacturing and service industries,
such as Eli Lilly &

70
<PAGE>
Company (pharmaceuticals), the federal and state governments, General Motors
(automotive), and Ameritech (communications).

First Indiana experiences substantial competition in attracting and
retaining deposits and in lending funds. The primary factors in competing for
deposits are the ability to offer attractive interest rates and products, and
meeting and exceeding customer expectations regarding office locations and
flexible hours. Direct competition for deposits comes from other depository
institutions, money market mutual funds, and other investment products. The
primary factors in competing for loans are interest rates, loan origination
fees, and loan product variety. Competition for origination of loans normally
comes from other depository institutions, lending brokers, and insurance
companies.

LENDING ACTIVITIES

GENERAL. First Indiana has a substantial market presence in residential
construction lending, commercial real estate lending, business loans, and
consumer loans, primarily home equity loans originated both on a direct and
indirect basis.

To minimize the mismatch between the duration of its interest-rate-sensitive
assets and liabilities, First Indiana has a policy of (i) increasing its
portfolio of adjustable-rate and shorter-term mortgage, consumer, and business
loans; (ii) selling most fixed-rate, longer-term loans into the secondary market
unless those loans can be funded by liabilities of a similar maturity; and
(iii) increasing transaction accounts, which are less volatile than certificates
of deposit.

LOAN PORTFOLIO COMPOSITION. The following tables set forth information
concerning the composition of First Indiana's loan portfolio in dollar amounts
and in percentages, by type of security, and by type of loan. Also presented is
a reconciliation of total loans receivable and mortgage-backed securities
("loans") before net items to loans receivable after net items. Net items
consist of loans in process (undisbursed portion of loan balances), deferred
income, unearned discounts and unamortized premiums, and allowances for loan
losses.

71
<PAGE>
LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------- --------------------- --------------------- ---------------------
LOANS BY TYPE OF SECURITY AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------------------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Loans Secured
by:
Single-Family Units....... $ 930,204 47.6% $ 937,321 52.9% $ 750,619 49.5% $ 640,743 47.4%
2-4 Family Units.......... 1,398 0.1 1,489 0.1 1,093 0.1 1,643 0.1
Over 4 Family Units....... 8,645 0.4 7,365 0.4 9,844 0.6 9,586 0.7

Mortgage-Backed
Securities................ 54,734 2.8 29,680 1.7 38,081 2.5 36,152 2.7
Commercial Real Estate and
Other Mortgage Loans...... 25,654 1.4 25,411 1.4 32,269 2.1 37,735 2.8
Consumer Loans.............. 675,763 34.6 580,525 32.8 548,016 36.1 526,769 38.9
Business Loans.............. 255,199 13.1 189,074 10.7 137,517 9.1 100,513 7.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Mortgage-Backed
Securities and Loans
Receivable (Before Net
Items).................... $1,951,597 100.0% $1,770,865 100.0% $1,517,439 100.0% $1,353,141 100.0%
========== ===== ========== ===== ========== ===== ========== =====
LOANS BY TYPE OF LOAN
----------------------------
Real Estate:
Conventional:
Loans on Existing
Property................ $ 509,214 26.1% $ 551,641 31.1% $ 530,603 34.9% $ 463,211 34.2%
Construction Loans:
Commercial Real Estate
Loans................. -- 0.0 -- 0.0 -- 0.0 11 0.0
Residential Loans....... 453,384 23.2 406,650 23.0 253,259 16.7 214,433 15.8
Insured or Guaranteed:
Mortgage-Backed
Securities............ 54,734 2.8 29,680 1.7 38,081 2.5 36,152 2.7
FHA and VA Loans........ 3,303 0.2 13,295 0.8 9,963 0.7 12,052 0.9
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Real Estate Loans..... 1,020,635 52.3 1,001,266 56.6 831,906 54.8 725,859 53.6
Consumer Loans.............. 675,763 34.6 580,525 32.7 548,016 36.1 526,769 39.0
Business Loans.............. 255,199 13.1 189,074 10.7 137,517 9.1 100,513 7.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Mortgage-Backed
Securities and Loans
Receivable (Before Net
Items).................... $1,951,597 100.0% $1,770,865 100.0% $1,517,439 100.0% $1,353,141 100.0%
========== ===== ========== ===== ========== ===== ========== =====

<CAPTION>
AT DECEMBER 31,
---------------------
1995
---------------------
LOANS BY TYPE OF SECURITY AMOUNT PERCENT
------------------------- ---------- --------
<S> <C> <C>
First Mortgage Loans Secured
by:
Single-Family Units....... $ 625,133 45.1%
2-4 Family Units.......... 1,885 0.1
Over 4 Family Units....... 18,946 1.4
Mortgage-Backed
Securities................ 49,089 3.5
Commercial Real Estate and
Other Mortgage Loans...... 46,137 3.3
Consumer Loans.............. 575,009 41.4
Business Loans.............. 72,146 5.2
---------- -----
Total Mortgage-Backed
Securities and Loans
Receivable (Before Net
Items).................... $1,388,345 100.0%
========== =====
LOANS BY TYPE OF LOAN
----------------------------
Real Estate:
Conventional:
Loans on Existing
Property................ $ 464,604 33.5%
Construction Loans:
Commercial Real Estate
Loans................. 6,835 0.5
Residential Loans....... 207,957 15.0
Insured or Guaranteed:
Mortgage-Backed
Securities............ 49,089 3.5
FHA and VA Loans........ 12,705 0.9
---------- -----
Total Real Estate Loans..... 741,190 53.4
Consumer Loans.............. 575,009 41.4
Business Loans.............. 72,146 5.2
---------- -----
Total Mortgage-Backed
Securities and Loans
Receivable (Before Net
Items).................... $1,388,345 100.0%
========== =====
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Loans Receivable (Before Net Items)................... $1,896,863 $1,741,185 $1,479,358 $1,316,989 $1,339,256
Less:
Undisbursed Portion of Loans.............................. 198,632 200,732 110,629 84,173 72,511
Deferred Income, Unearned Discounts, and Unamortized
Premiums................................................ (3,950) (3,790) (2,412) (1,762) (624)
Allowance for Loan Losses................................. 28,759 25,700 22,414 18,768 16,234
---------- ---------- ---------- ---------- ----------
Total Loans Receivable Before Mortgage Backed Securities.... 1,673,422 1,518,543 1,348,727 1,215,810 1,251,135
Plus:
Mortgage Backed Securities................................ 54,734 29,680 38,081 36,152 49,089
---------- ---------- ---------- ---------- ----------
Mortgage Backed Securities and Loans Receivable--Net........ $1,728,156 $1,548,223 $1,386,808 $1,251,962 $1,300,224
========== ========== ========== ========== ==========
</TABLE>

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<PAGE>
ADJUSTABLE- AND FIXED-RATE LOANS. The following table sets forth the
balances at the dates indicated of all loans receivable and mortgage-backed
securities before net items which have fixed interest rates and adjustable
interest rates. Adjustable-rate loans include all loans with original maturities
of five years or less.

<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Residential Mortgage Loans
Fixed Rates............................ $ 183,341 $ 230,955 $ 189,323 $ 166,968 $ 186,885
Adjustable Rates....................... 801,597 737,500 602,835 512,965 491,681
---------- ---------- ---------- ---------- ----------
Total.................................. $ 984,938 $ 968,455 $ 792,158 $ 679,933 $ 678,566
========== ========== ========== ========== ==========

Commercial Real Estate Loans
Fixed Rates............................ $ 9,134 $ 6,855 $ 6,099 $ 17,213 $ 11,948
Adjustable Rates....................... 26,563 25,956 33,649 28,713 50,676
---------- ---------- ---------- ---------- ----------
Total.................................. $ 35,697 $ 32,811 $ 39,748 $ 45,926 $ 62,624
========== ========== ========== ========== ==========

Total Residential Mortgage and
Commercial Real Estate Loans
Fixed Rates............................ $ 192,475 $ 237,810 $ 195,422 $ 184,181 $ 198,833
Adjustable Rates....................... 828,160 763,456 636,484 541,678 542,357
---------- ---------- ---------- ---------- ----------
Total.................................. $1,020,635 $1,001,266 $ 831,906 $ 725,859 $ 741,190
========== ========== ========== ========== ==========

Consumer Loans
Fixed Rates............................ $ 480,489 $ 437,267 $ 395,423 $ 368,697 $ 411,030
Adjustable Rates....................... 195,274 143,258 152,593 158,072 163,979
---------- ---------- ---------- ---------- ----------
Total.................................. $ 675,763 $ 580,525 $ 548,016 $ 526,769 $ 575,009
========== ========== ========== ========== ==========

Business Loans
Fixed Rates............................ $ 70,923 $ 61,272 $ 47,577 $ -- $ 5,699
Adjustable Rates....................... 184,276 127,802 89,940 100,513 66,447
---------- ---------- ---------- ---------- ----------
Total.................................. $ 255,199 $ 189,074 $ 137,517 $ 100,513 $ 72,146
========== ========== ========== ========== ==========

Total Mortgage Backed Securities and
Loans Receivable
Fixed Rates............................ $ 743,888 $ 736,349 $ 638,422 $ 552,878 $ 615,562
Adjustable Rates....................... 1,207,710 1,034,516 879,017 800,263 772,783
---------- ---------- ---------- ---------- ----------
Total.................................. $1,951,597 $1,770,865 $1,517,439 $1,353,141 $1,388,345
========== ========== ========== ========== ==========
</TABLE>

RESIDENTIAL MORTGAGE LOANS. The original contractual loan payment period
for residential loans originated by First Indiana normally ranges from 10 to
30 years. Because borrowers may refinance or prepay their loans, however, such
loans normally remain outstanding for a substantially shorter period. First
Indiana sells most fixed-rate residential loans to secondary market investors,
including the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA").

During the third quarter of 1999, First Indiana Bank exited the traditional
mortgage banking business in favor of originating mortgages for relationship
customers. Mortgage lending has become a commodity business, where the only
differentiating factor for most customers is a low rate; consequently, First
Indiana shifted its emphasis onto products and services where First Indiana Bank
can add value in other ways. The initial result of this change in strategy was a
decrease in residential loan originations. Residential mortgage loan
originations amounted to $494 million in 1999, compared with $744 million in
1998. Another result was

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<PAGE>
a reduction in the sales of residential mortgage loans into the secondary market
as part of First Indiana Bank's normal mortgage banking activity. This resulted
in pre-tax gains of $1.3 million during 1999, compared with gains of
$3.0 million in 1998.

First Indiana's fixed-rate mortgage loans include a due-on-sale clause,
which gives First Indiana Bank the right to declare a loan immediately due and
payable if, among other things, the borrower sells or otherwise disposes of the
real property subject to the mortgage and the loan is not repaid. Due-on-sale
clauses are generally considered important tools to prevent both the
unrestricted transfer of low interest-rate loans in high interest-rate
environments and the corresponding increase in the average life of such loans.
First Indiana's policy is to enforce these clauses in its loan contracts.

First Indiana's construction loans are made both to individuals and
builders. These loans have terms ranging from six months to one year and include
options for the homebuyer to convert the loan to fixed- or adjustable-rate
permanent financing. The interest rate on construction loans is generally one
percent over First Indiana Bank's prime rate and adjusts upon changes in the
prime rate. At December 31, 1999 and 1998, First Indiana Bank's gross
construction loans outstanding equaled $453 million and $407 million,
respectively.

COMMERCIAL LOANS. First Indiana offers a variety of commercial loans,
primarily business loans and commercial real estate loans (including land
development loans).

Included in business loans at December 31, 1999 are $25 million in land
development loans, which are exclusively for the acquisition and development of
land into individual single-family building lots. The interest rate on land
development loans is generally one and one-quarter percent over First Indiana
Bank's prime rate, which adjusts upon changes in the prime rate, and the term of
these loans is generally 36 months.

The following table presents the remaining maturities and rate sensitivity
of residential construction and business loans at December 31, 1999.

<TABLE>
<CAPTION>
REMAINING MATURITIES
-----------------------------------------------------
OVER ONE YEAR TO
(DOLLARS IN THOUSANDS) ONE YEAR OR LESS FIVE YEARS OVER FIVE YEARS TOTAL PERCENT
---------------------- ---------------- ---------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Type of Loan:
Residential Construction--Net..... $260,417 $13,593 $ -- $274,010 53.7%
Business--Net..................... 180,276 46,463 9,202 235,941 46.3
-------- ------- ------ -------- -----
Total............................... $440,693 $60,056 $9,202 $509,951 100.0%
======== ======= ====== ======== =====
Rate Sensitivity:
Fixed Rate........................ $ 19,979 $42,547 $8,397 $ 70,923 13.9%
Adjustable Rate................... 420,714 17,509 805 439,028 86.1
-------- ------- ------ -------- -----
Total............................... $440,693 $60,056 $9,202 $509,951 100.0%
======== ======= ====== ======== =====
</TABLE>

Multi-family and commercial real estate lending was a substantial part of
First Indiana's business activities from the early 1970s until 1991, when such
activity was largely curtailed because of the economic environment. With the
changing economic environment and improved market for commercial real estate
lending, First Indiana Bank intends to increase somewhat its volume of these
loans to include permanent financing for selected apartments, office buildings,
and warehouses, though much of this additional volume will be sold. First
Indiana Bank's management continues to monitor the credit quality of these loans
aggressively, both with respect to new originations and loans already in the
portfolio.

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<PAGE>
The following table shows, as of December 31, 1999 and 1998, outstanding
multi-family and commercial real estate loans originated and purchased by First
Indiana.

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT AMOUNT PERCENT
---------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans Originated........................... $35,225 98.7% $32,036 97.6%
Loans Purchased............................ 472 1.3 778 2.4
------- ----- ------- -----
$35,697 100.0% $32,814 100.0%
======= ===== ======= =====
</TABLE>

CONSUMER LENDING. As part of its strategy for growth, First Indiana has
increased its origination and purchase of consumer loans, primarily home equity
loans and home equity lines of credit. At December 31, 1999, such loans totaled
$675.8 million, of which $26.6 million were held for sale, compared with
$580.5 million, of which $45.9 million were held for sale, at December 31, 1998.
Much of the increase in 1999 occurred as First Indiana capitalized on
alternative delivery channels for originations by utilizing a national network
of originators.

Consumer loans generally have shorter terms and higher interest rates than
residential loans but involve somewhat higher credit risks, particularly for
unsecured lending. Of the $675.8 million of consumer loans outstanding at
December 31, 1999, 98.4 percent were secured by first or second mortgages on
real property, 0.2 percent was secured by deposits, and 1.4 percent were secured
by personal property or were unsecured.

First Indiana offers revolving lines of credit and loans secured by a lien
on the equity in the borrower's home in amounts up to 100 percent of the
appraised value of the real estate. For lines of credit at or below an
80 percent loan-to-value ("LTV") ratio, the interest rate is typically the WALL
STREET JOURNAL prime rate plus one or two percent, depending on the amount of
the loan. The interest rate rises in various increments as the LTV ratio
increases. The highest rate charged is the WALL STREET JOURNAL prime rate plus
4.5 percent for lines of credit at a 100 percent LTV. At December 31, 1999,
First Indiana Bank had approximately $364.2 million in home equity loans above
80 percent LTV. Holders of revolving lines of credit with up to an 80 percent
LTV ratio are billed monthly for interest at the daily periodic rate due on the
daily loan balances for the billing cycle. Generally, holders of revolving lines
of credit above 85 percent LTV are required to pay all interest due, with a
minimum payment of $50. At December 31, 1999, First Indiana had approved
$286 million of 80 percent LTV lines of credit, of which $133 million were
outstanding, compared with $252 million of such lines which had been approved at
December 31, 1998, $110 million of which were outstanding.

First Indiana also offers variable- and fixed-rate term home equity loans
with up to a 100 percent LTV ratio. Borrowers of fixed-rate term loans make
fixed payments over a term ranging from one to 15 years. Variable-rate term
loans in excess of 80 percent LTV feature monthly payments equal to two percent
of the outstanding loan balance.

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

Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. First Indiana has endeavored to
reduce certain of these risks by, among other things, employing individuals
experienced in this type of lending and emphasizing prompt collection efforts.
In addition, First Indiana adds general provisions to its loan loss allowance,
in amounts determined to be adequate to cover loan losses inherent in the
portfolio, at the time the loans are originated.

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<PAGE>
Federal regulations limit the amount of consumer loans that savings
institutions are able to originate and hold in their loan portfolios. First
Indiana complies with such regulations, and the amount of its consumer loan
portfolio is approximately $514 million below the maximum permitted at
December 31, 1999.

ORIGINATION, PURCHASE, AND SALE OF LOANS. As a federally chartered savings
bank, First Indiana has general authority to make real estate loans throughout
the United States. At December 31, 1999, however, over 45% of First Indiana's
real estate loans receivable were secured by real estate located in Indiana.
First Indiana Bank originates home equity loans through a national network of
consumer lending offices, which has expanded to include 45 states.

Interest rates charged by First Indiana 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.

Loan originations come from a number of sources. Residential loan
originations are attributable primarily to referrals from real estate brokers,
builders, and walk-in customers. Construction loan originations are obtained
primarily by direct solicitation of builders and repeat business from builders.
Multi-family and commercial real estate loan originations are obtained from
previous borrowers and direct contacts with First Indiana. Consumer loans come
from walk-in customers, loan brokers, agents, and originators.

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

INCOME FROM LENDING ACTIVITIES. In making long-term one- to four-family
home mortgage loans, First Indiana generally charges an origination fee of one
percent of the loan amount. As part of the loan application, the applicant also
reimburses First Indiana for its out-of-pocket costs in reviewing the
application, such as the appraisal fee, whether or not the loan is closed. The
interest rate charged is normally the prevailing market rate at the time the
loan application is received. Commitments to home purchasers generally have a
term of 60 days or less from the date First Indiana issues the loan commitment.

In the case of one-to-four-family residential construction loans, First
Indiana charges a one to three percent non-refundable commitment fee. Interest
rates on construction loans are based on the prevailing market rate at the time
the commitment is extended. Commitment fees and other terms of commercial real
estate and business loans are individually negotiated.

First Indiana earns fees on existing loans, including prepayment charges,
late charges, and assumption fees.

SERVICING ACTIVITY. First Indiana's sale of whole loans and loan
participations in the secondary market generates income and provides additional
funds for loan originations. During 1999, First Indiana Bank identified and sold
$148 million in out-of-market loan servicing at a gain of $905,000.

At December 31, 1999, First Indiana serviced approximately $1,104 million in
loans and loan participations which it had sold. As of December 31, 1999,
approximately $7.5 million in loans, or about 0.4 percent of First Indiana's
mortgage-backed securities and loans receivable after net items, were serviced
by others.

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<PAGE>
The total cost of mortgage loans originated with the intent to sell is
allocated between the loan servicing right and the mortgage loan without
servicing based on their relative fair values at the date of sale. The
capitalized cost of loan servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenue. For this purpose, estimated
servicing revenues include late charges and other ancillary income. Estimated
servicing costs include direct costs associated with performing the servicing
function and appropriate allocations of other costs.

Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the underlying
serviced loans. These risk characteristics include loan type (fixed or
adjustable rate), investor type (FHLMC, GNMA, private), term, and note rate.
Impairment represents the excess of carrying value of an individual mortgage
servicing rights stratum over its estimated fair value, and is recognized
through a valuation allowance.

Fair values for individual strata are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment, default
and interest rates, and other factors which are subject to change over time.
Changes in these underlying assumptions could cause the fair value of loan
servicing rights, and the related valuation allowance, to change significantly
in the future. At December 31, 1999 and 1998, the balance of capitalized loan
servicing rights included in other assets was $8,759,000 and $5,770,000, with a
fair market value of $11,405,000 and $6,865,000. The amounts capitalized in
1999, 1998, and 1997 were $6,040,000, $3,891,000 and $893,000, and the amounts
amortized to loan servicing income were $1,919,000, $1,823,000 and $819,000.

ASSET QUALITY

GENERAL. First Indiana's asset quality is directly affected by the credit
risk of the assets on its balance sheet. Most of First Indiana's credit risk is
concentrated in its loan portfolios and, to a lesser extent, its real estate
owned ("REO") portfolio. Consequently, First Indiana has established policies
and procedures to ensure accurate and timely assessment of credit risk from the
date the loan is originated or purchased.

The procedures for reviewing the quality of First Indiana's loans, the
appropriateness of loan and REO classifications, and the adequacy of loan and
REO loss allowances fall within the purview of First Indiana's board of
directors. To manage these tasks, the board of directors has established a
two-tiered asset review system. Under this system, standing management
committees regularly discuss and review potential losses on all loans and REO
and the adequacy of First Indiana's loan and REO loss allowances.
Recommendations on the allowances are forwarded to the Investment Committee of
First Indiana's board of directors for approval each quarter, then presented to
the full board of directors for approval and ratification. Management committees
also recommend loan and REO classifications which, if approved by the Investment
Committee of the board of directors, are referred to the full board for final
approval and ratification.

The second part of First Indiana's asset review system is managed by an
independent chief credit officer appointed by the board of directors. The chief
credit officer makes an independent evaluation of First Indiana's portfolio and
management's recommendations on allowances for loan and REO losses. He regularly
reviews these recommendations with First Indiana's Chairman and the Chairman of
the Executive Committee of the board of directors. These meetings give the chief
credit officer a forum for discussing asset quality issues with members of the
board of directors. This system provides an independent review and assessment of
management's recommendations about loan and REO classifications and loss
allowances. This entire process is subject to the continual review and approval
by the board of directors.

An allowance for loan and lease losses ("ALLL") is established for each
significant loan portfolio of First Indiana Bank in an amount adequate to absorb
the losses inherent within each loan portfolio.

77
<PAGE>
The ALLL is segmented into three major components based on the credit
characteristics of the underlying loans within each loan portfolio: Special
Mention Loans, Classified Loans and Pass Loans (loans not rated Special Mention
or Classified).

A Risk Rating Analysis (loan grade) is completed on all loans that exceed a
minimum loan amount threshold for the asset specific loan portfolios, namely,
construction, business, commercial real estate and land development lending. The
Risk Rating Analysis is an eight grade system with five pass grades. The final
three grades, Special Mention, Substandard and Doubtful correlate to the Office
of Thrift Supervision's criticized assets. The loans with a grade of Special
Mention or worse exhibit or may exhibit certain defined weaknesses which, if
left uncorrected, may jeopardize the full repayment of the loan. These loans
pose a higher level of risk to First Indiana Bank than the loans in a Pass
grade. Therefore, loans with a grade of Special Mention, Substandard or Doubtful
are assigned a Target Reserve within the ranges established by the Office of
Thrift Supervision ("OTS").

For the homogeneous loan portfolios and the asset specific loan portfolios
where the loan amount is less than the minimum threshold established for that
portfolio, when a loan becomes contractually delinquent 90 days in either
interest or principal, the loan is considered non-accrual and is classified as
Substandard. All other loans within these portfolio segments are considered pass
loans. For the asset specific loan portfolios, a loan is considered non-accrual
based on the specific circumstances but in no event later than a contractual
delinquency of 90 days in either interest or principal.

The determination of the required ALLL ("Target Reserve") for Pass Loans is
based on two different analyses of the empirical data for each loan portfolio
over the preceding 36 months. The first analysis, the Trend Forecast, consists
of linear and non-linear regression analysis of the loans outstanding, the level
and trend of delinquencies and the level and trend of net charge-offs for the
portfolio. The second analysis, the Formula Calculation, is completed for each
loan portfolio and is based on the correlation of the level of loans delinquent
60 days or more to the level of net charge-offs. The result of each analysis is
the projected level of net charge-offs for the next twelve months for the
individual loan portfolio.

Due to the potentially positive impact to net charge-offs of other factors
specific to a loan portfolio's performance and for new loan products within a
loan portfolio, a Policy Limit is established for each loan portfolio. The
Policy Limit represents the minimum level of loss established for each portfolio
and is based on historical losses for First Indiana Bank's loan portfolios in
conjunction with expected losses for similar loan types within First Indiana
Bank's loan portfolio.

The greater of the Policy Limit, Trend Forecast or Formula Ratio for each
loan portfolio is set as the Base Reserve for that portfolio. The Base Reserve
is then adjusted for factors that may influence the loan portfolio's actual net
charge-offs. The final adjusted Base Reserve is equal to the Target Reserve for
the Pass Loans for an individual loan portfolio.

The regulatory classification of loans and determination of non-accrual
status is completed each month. The determination of the Target Reserve for the
pass portfolio using the analyses discussed above is completed on a quarterly
basis and the Target Reserve adjusted accordingly.

In addition to the ALLL established for each loan portfolio, First Indiana
Bank maintains an unallocated ALLL to cover the residual losses inherent in the
loan portfolio. As discussed above, the Target Reserve for the Pass Loans is
established for a 12-month period. A residual loss is the inherent loss within
the loan portfolio over the life of the loans in the portfolio.

Management believes that First Indiana's current loan and REO loss
allowances are sufficient to absorb potential losses which are inherent in the
loan portfolio; however, there can be no assurance that additional allowances
will not be required or that the amount of any such allowances will not be
significant. In addition, various regulatory agencies, as an integral part of
their examinations, periodically review these allowances and may require First
Indiana to recognize additions to the

78
<PAGE>
allowances based on their judgment about information available at the time of
their examination. No such additions were required by the OTS in their most
recent examinations of First Indiana.

The Investment Committee of First Indiana's board of directors is
responsible for monitoring and reviewing First Indiana's liquidity and
investments. The Investment Committee approves investment policies and meets
quarterly to review transactions. Credit risk is controlled by limiting the
number and size of investments and by approving the brokers and agents through
which investments are made.

REGULATORY CLASSIFICATION OF ASSETS. Federal regulations require that each
savings institution regularly classify its own assets. In addition, in
connection with examinations of savings institutions, the OTS and the FDIC
examiners have authority to identify problem assets and, if appropriate, to
require them to be classified.

There are three classifications for problem assets: Substandard, Doubtful
and Loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristic that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a significant possibility of
loss. An asset classified as Loss is considered uncollectible and of such little
value that continuation as an asset of the savings institution is not warranted.

Assets classified as Substandard or Doubtful require the savings institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as Loss, the savings institution must either establish
specific allowances for loan losses in the amount of 100 percent of the portion
of the asset classified Loss or charge off such amount. If a savings institution
does not agree with an examiner's classification of an asset, it may appeal this
determination to the District Director of the OTS.

On the basis of management's review of its assets as of December 31, 1999 on
a net basis, First Indiana had classified $40.3 million as Substandard, compared
with $31.8 million and $33.4 million at December 31, 1998 and 1997,
respectively. The amount of First Indiana's Doubtful and Loss loans at each such
date was immaterial.

NON-PERFORMING ASSETS. First Indiana categorizes its non-performing assets
into four categories: Non-Accrual Loans, Impaired Loans, Restructured Loans, and
Real Estate Owned.

First Indiana places loans on non-accrual status when payments of principal
or interest become 90 days or more past due, or earlier when an analysis of a
borrower's creditworthiness indicates that payments could become past due. Total
non-accrual loans were $16.0 million at December 31, 1999, compared with $17.2
and $18.4 million at December 31, 1998 and 1997, respectively.

Loans are classified as impaired when an analysis of a borrower's
creditworthiness indicates it is unlikely that the borrower can meet contractual
obligations for principal and interest repayments. At December 31, 1999, First
Indiana had identified one impaired loan, totaling $1.72 million, which had an
allocated reserve of $710,000.

REO is generally acquired by foreclosure or deed in lieu of foreclosure and
is carried at the lower of cost (the unpaid balance at the date of acquisition
plus foreclosure and other related costs) or fair market value less reasonable
disposal costs to sell. A review of REO properties, including the adequacy of
the loss allowance and decisions whether to charge off REO, occurs in
conjunction with the review of the loan portfolios.

First Indiana has carefully managed its loan portfolio, including its
non-performing assets, to reduce exposure to the commercial real estate loan
sector and to diversify its assets geographically and by type of loan.
Accordingly, First Indiana has not experienced the difficulties faced by savings

79
<PAGE>
institutions which have had concentrations in areas of the country most
adversely affected by economic cycles. First Indiana's non-performing assets
fell in 1999 to $19.4 million at December 31, 1999 from $19.9 million one year
earlier.

SUMMARY OF LOAN LOSS EXPERIENCE. First Indiana regularly reviews the status
of all non-performing assets to evaluate the adequacy of the allowances for
losses on loans and REO. For additional information relating to First Indiana's
loan and REO loss allowances, see First Indiana's Consolidated Financial
Statements, including Note 5 thereto.

INVESTMENT ACTIVITIES

Federally chartered savings institutions have authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certain certificates of deposits of insured banks
and savings institutions, certain bankers' acceptances, and federal funds.
Subject to various restrictions, federally chartered savings institutions may
also invest a portion of their assets in commercial paper and corporate debt
securities and in mutual funds whose assets conform to the investments a
federally chartered savings institution is otherwise authorized to make
directly.

As an Indiana corporation, First Indiana has authority to invest in any type
of investment permitted under Indiana law. As a savings and loan holding
company, however, its investments are subject to certain regulatory restrictions
described under "Savings Institution Regulation."

The relative mix of investment securities and loans in First Indiana's
portfolio is dependent upon management's evaluation of the yields available on
loans compared to investment securities. The board of directors has established
an investment policy, and the Investment Committee of the board meets quarterly
with management to establish more specific investment guidelines about types of
investments, relative amounts, and maturities. First Indiana's current
investment guidelines limit purchases of corporate bonds to an investment rating
of A- or greater. Liquid investments are managed to ensure that regulatory
liquidity requirements are satisfied.

As required by SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, First Indiana continually reassesses the classification of
securities as either available-for-sale or held-to-maturity. During the third
quarter of 1998, management changed its positive intent to hold held-to-maturity
investments and mortgage-backed securities. Accordingly, the entire portfolios
of mortgage-backed securities with an amortized cost of $19,274,000 and
investment securities with an amortized cost of $5,243,000 were transferred from
held-to-maturity to available-for-sale. At the time of the transfer, these
mortgage-backed securities and investment securities had unrecognized gains of
$374,000 and $86,000, respectively, which were recognized as a separate
component of accumulated other comprehensive income. Management elected to
transfer these securities which had been previously designated as
held-to-maturity.

At December 31, 1999, First Indiana's investments totaled $103.2 million, or
5.21 percent of total assets, and consisted primarily of U.S. Treasury and
agency obligations, corporate debt securities and asset-backed securities. For
additional information concerning investments held by First Indiana at certain
dates, see First Indiana's Consolidated Financial Statements, including Note 2
thereto.

At December 31, 1999, First Indiana also had mortgage-backed securities
classified as available for sale. At December 31, 1999, these mortgage-backed
securities totaled $54.7 million, or 2.76 percent of total assets. For
additional information concerning mortgage-backed securities held by First
Indiana, see First Indiana's Consolidated Financial Statements, including Notes
2 and 3 thereto.

SOURCES OF FUNDS

GENERAL. Deposits are an important source of First Indiana's funds for use
in lending and for other general business purposes. In addition to deposits,
First Indiana derives funds from repayments

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<PAGE>
of loans and mortgage-backed securities, Federal Home Loan Bank of Indianapolis
("FHLB") advances, repurchase agreements, short-term borrowings, and sales of
loans. Repayments of loans and mortgage-backed securities are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used to compensate for reductions in normal sources of funds, such as deposit
inflows at less than projected levels, or to support expanded activities.
Historically, First Indiana's borrowings have been primarily from the FHLB and
through repurchase agreements.

DEPOSITS. First Indiana has a wide variety of deposit programs designed to
attract both short-term and long-term deposits from the general public. These
deposit accounts include passbook accounts, non-interest-bearing consumer and
commercial demand accounts, NOW accounts, and money market checking accounts, as
well as fixed-rate certificates and money market accounts. In 2000, First
Indiana plans to continue to increase consumer and commercial checking accounts
and certificates of deposit in an effort to reduce funding costs and strengthen
core deposits.

The following table shows the distribution of First Indiana's deposits by
interest-rate categories at each of the dates indicated:

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Rate:
Under 3.00%.............................. $ 278,429 $ 551,421 $ 205,265
3.00 - 5.00.............................. 509,556 217,244 385,859
5.01 - 7.00.............................. 524,079 457,988 493,012
7.01 - 9.00.............................. 51 756 23,032
9.01 - 11.00............................. -- 509 387
---------- ---------- ----------
$1,312,115 $1,227,918 $1,107,555
========== ========== ==========
</TABLE>

The following table reflects the increase (decrease) in deposits for various
types of deposit programs offered by First Indiana for each of the periods
indicated:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
NOW Checking and Non Interest Bearing
Deposits.................................. $ (8,714) $ 41,210 $ 13,342
Money Market Checking....................... (49) (1,858) (9,106)
Passbook and Statement Savings.............. (21,793) 63,052 (1,056)
Money Market Savings........................ 15,113 (661) (2,914)
Jumbo Certificates of $100 or More.......... 136,926 49,232 23,358
Fixed Rate Certificates..................... (37,286) (30,612) (11,555)
-------- -------- --------
Net Increase (Decrease)....................... $ 84,197 $120,363 $ 12,069
======== ======== ========
</TABLE>

First Indiana's jumbo certificates of $100,000 or more at December 31, 1999,
the maturities of such deposits, and the percentage of total deposits
represented by these certificates are set forth in the table below:

<TABLE>
<CAPTION>
OVER THREE OVER SIX
THREE MONTHS MONTHS TO MONTHS TO OVER PERCENT OF
(DOLLARS IN THOUSANDS) OR LESS SIX MONTHS ONE YEAR ONE YEAR TOTAL DEPOSITS
---------------------- ------------ ---------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jumbo Certificates of $100 or More... $104,527 $34,849 $40,291 $127,247 $306,914 23.39%
</TABLE>

BORROWINGS. The FHLB of Indianapolis functions as a central reserve bank
providing credit for depository institutions in Indiana and Michigan. As a
member of the FHLB, First Indiana is required

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to own capital stock in the FHLB and is authorized to apply for advances on the
security of such stock and certain of First Indiana's residential mortgage loans
and other assets, subject to credit standards. The FHLB advances are made
pursuant to several different credit programs, each with its own interest rate
and range of maturities.

The FHLB prescribes the acceptable uses for advances and imposes size limits
on them. Acceptable uses have included expansion of residential mortgage lending
and short-term liquidity needs. Depending on the program, limitations on the
amount of advances are generally based on the FHLB's assessment of the
institution's creditworthiness. At December 31, 1999, First Indiana had
$366.9 million in FHLB advances (18.53 percent of total assets), with a weighted
average interest rate of 5.75 percent.

First Indiana also enters into repurchase agreements as a short-term source
of borrowing, but only with registered government securities dealers.

The following table sets forth certain information regarding repurchase
agreements and federal funds purchased (short-term borrowings) at and for the
years ended on the dates indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
Highest Month-End Balance of Short-Term
Borrowings During the Year..................... $98,754 $62,620 $84,896

Average Month-End Balance of Short-Term
Borrowings During the Year..................... 54,578 51,166 38,899

Weighted Average Interest Rate of Short-Term
Borrowings During the Year..................... 5.0% 5.3% 5.5%

Weighted Average Interest Rate of Short-Term
Borrowings at End of the Year.................. 5.4% 4.8% 5.5%
</TABLE>

REGULATORY CAPITAL

RISK-BASED CAPITAL. Savings institutions are required to have risk-based
capital of eight percent of risk-weighted assets. At December 31, 1999, First
Indiana's risk-based capital was $176.1 million, or 11.10 percent of
risk-weighted assets. Risk-based capital is defined as common equity, less
goodwill, the excess portion of land loans with a loan-to-value ratio of greater
than 80 percent, and investments in non-mortgage-lending-related subsidiaries,
plus general allowances for loan losses. Risk-weighting of assets is derived
from assigning one of four risk-weighted categories to an institution's assets,
based on the degree of credit risk associated with the asset. The categories
range from zero percent for low-risk assets (such as United States Treasury
securities) to 100 percent for high-risk assets (such as real estate owned). The
carrying value of each asset is then multiplied by the risk-weighting applicable
to the asset category. The sum of the products of the calculation equals total
risk-weighted assets.

CORE CAPITAL. Savings institutions are also required to maintain a minimum
leverage ratio, under which core (Tier One) capital must equal at least
4 percent of total assets, but not less than the minimum required by the Office
of the Comptroller of the Currency ("OCC") for national banks, which minimum
currently stands at 4 percent. First Indiana's primary regulator, the OTS, is
expected to adopt the OCC minimum. The components of core capital are the same
as those set by the OCC for national banks, and consist of common equity, plus
non-cumulative preferred stock and minority interest in consolidated
subsidiaries, minus certain intangible assets, including purchased loan
servicing. At December 31, 1999, First Indiana's core capital and leverage ratio
were $157.7 million and 7.98 percent.

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TANGIBLE CAPITAL. Savings institutions must also maintain minimum tangible
capital of 1.5 percent of total assets. First Indiana's tangible capital and
tangible capital ratio at December 31, 1999, were $157.7 million and
7.98 percent, respectively.

CAPITAL REGULATIONS. The OTS has minimum capital standards that place
savings institutions into one of five categories, from "critically
undercapitalized" to "well-capitalized," depending on levels of three measures
of capital. A well-capitalized institution as defined by the regulations has a
total risk-based capital ratio of at least ten percent, a Tier One (core)
risk-based capital ratio of at least six percent, and a leverage (core)
risk-based capital ratio of at least five percent. At December 31, 1999 First
Indiana was classified as "well-capitalized."

The OTS adopted regulations adding an interest-rate risk component to the
proposed capital regulations. Under this component, an institution with an
"above normal" level of interest-rate risk exposure is subject to an "add-on" to
its risk-based capital requirement. "Above normal" interest-rate risk is defined
as a reduction in "market value portfolio equity" (as defined) resulting from a
200 basis point increase or decrease in interest rates, if the decline in value
exceeds two percent of the institution's assets. Institutions failing to meet
this test will be required to add to their risk-based capital.

The OTS issued this final rule to implement the portions of Section 305 of
the Federal Deposit Insurance Corporation Improvement Act of 1991, which
requires the agencies to revise their risk-based capital standards for insured
depository institutions to ensure that those standards take adequate account of
concentration of credit risk and the risks of nontraditional activities. The
final rule amends the risk-based capital standards by explicitly identifying
concentration of credit risk and certain risks arising from nontraditional
activities, as well as an institution's ability to manage these risks, as
important factors in assessing an institution's overall capital adequacy. Based
on its interest-rate risk at December 31, 1999, First Indiana was not required
to add to its risk-based capital under this regulation.

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.

Almost all of the assets and liabilities of a savings institution are
monetary, which limits the usefulness of data derived by adjusting a savings
institution's financial statements for the effects of changing prices.

REGULATION

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), contains
various provisions intended to recapitalize Bank Insurance Fund and enacts a
number of regulatory reforms that affect all insured depository institutions,
regardless of the insurance fund in which they participate. Among other things,
FDICIA grants the OTS broader regulatory authority to take prompt corrective
action against insured institutions that do not meet capital requirements,
including placing severely under-capitalized institutions into conservatorship
or receivership. Since First Indiana exceeded all capital requirements at
December 31, 1999, these provisions are not expected to have an impact on its
operations.

GRAMM-LEACH-BLILEY ACT OF 1999. 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

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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.

In addition, the GLB Act provides that no company may acquire control of an
insured savings association after May 4, 1999, unless that company either
(i) engages only in the financial activities permissible for a Financial Holding
Company or (ii) is a grandfathered, unitary savings and loan holding company.
The GLB Act generally grandfathers any company that was a unitary savings and
loan holding company on May 4, 1999. Such a company may continue to operate
under present law as long as (i) the company continues to control only one
savings institution or its successor (excluding supervisory acquisitions) that
it controlled on May 4, 1999 and (ii) each controlled institution meets the
qualified thrift lender test. First Indiana is a grandfathered unitary savings
and loan holding company.

First Indiana does not believe that the GLB Act will have any immediate,
material impact on its operations. However, to the extent that the GLB Act
permits commercial banks, securities firms and insurance companies to affiliate,
the Act may have the effect of increasing the amount of competition that First
Indiana faces from other companies offering financial products, many of which
may have substantially more financial resources.

SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

Under the Home Owner's Loan Act ("HOLA"), as amended, the Director of the
OTS has regulatory jurisdiction over savings and loan holding companies. First
Indiana, as a savings and loan holding company within the meaning of HOLA, is
subject to regulation, supervision and examination by and the reporting
requirements of the Director of OTS.

SAVINGS INSTITUTION REGULATION

GENERAL. As a SAIF-insured savings institution, First Indiana is subject to
supervision and regulation by the OTS. Under OTS regulations, First Indiana is
required to obtain audits by independent auditors and to be examined
periodically by the Director of OTS. First Indiana is subject to assessments by
OTS and the FDIC to cover the costs of such examinations. The OTS may revalue
assets of First Indiana based upon appraisals and require the establishment of
specified reserves in amounts equal to the difference between such revaluation
and the book value of the assets. The Director of the OTS also is authorized to
promulgate regulations to ensure the safe and sound operations of savings
institutions and may impose various requirements and restrictions on the
activities of savings institutions.

The regulations and policies of the OTS for the safe and sound operations of
savings institutions can be no less stringent than those established by the OCC
for national banks. Additionally, under the FDICIA, the OTS prescribed safety
and soundness regulations in 1995 relating to (i) internal controls, information
systems, and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest-rate exposure; (v) asset growth; and
(vi) compensation and benefit standards for officers, directors, employees and
principal shareholders. These regulations did not have a material effect on
First Indiana.

As a member of SAIF, First Indiana is also subject to regulation and
supervision by the FDIC, in its capacity as administrator of SAIF, to ensure the
safety and soundness of SAIF.

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During the most recent trust examination, the OTS examiners verbally
informed First Indiana Bank that a federal savings bank rendering investment
advice for a fee may be required to file Form ADV with the Securities and
Exchange Commission ("SEC") as a "registered investment advisor" under the
Investment Advisors Act of 1940. While national and state "banks" are
specifically exempted from this requirement, it is unclear whether federal
savings banks are included in the definition for this purpose.

First Indiana Bank is currently compiling the data necessary to complete the
SEC filing and take any other actions that may be required for full compliance
with the Investment Advisors Act, if necessary, but is concurrently seeking
advice of legal counsel for clarification of the responsibilities of a federal
savings bank under the Act.

QUALIFIED THRIFT LENDER REQUIREMENT. In order for First Indiana to exercise
the powers granted to federally chartered savings institutions and maintain full
access to FHLB advances, it must be a "qualified thrift lender" ("QTL"). A
savings institution is a QTL if its qualified thrift investments equal or exceed
65 percent of the savings institution's portfolio assets on a monthly average
basis in nine out of 12 months. As amended by the FDICIA, qualified thrift
investments generally consist of (i) various housing related loans and
investments (such as residential construction and mortgage loans, home
improvement loans, mobile home loans, home equity loans, and mortgage-backed
securities); (ii) certain obligations of the FDIC, the Federal Savings and Loan
Insurance Corporation Resolution Fund and the Resolution Trust Corporation (for
limited periods); and (iii) shares of stock issued by any Federal Home Loan
Bank, the Federal Home Loan Mortgage Corporation, or the Federal National
Mortgage Association.

At December 31, 1999, the qualified thrift investment percentage test for
First Indiana was near 83 percent. First Indiana complies with the new QTL test
as revised upon enactment of FDICIA.

LIQUIDITY. Under applicable federal regulations, savings institutions are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, certain banker's acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency obligations)
equal to a monthly average of not less than a specified percentage of
withdrawable deposits plus short-term borrowings. Under HOLA, this liquidity
requirement may be changed from time to time by the Director of the OTS to any
amount within the range of four percent to ten percent, depending upon economic
conditions and the deposit flows of member institutions. First Indiana Bank's
liquidity ratio at December 31, 1999 was 6.80 percent. In 1997, the OTS lowered
the liquidity requirement to four percent of net withdrawable assets, simplified
the definition of net withdrawable assets, and eliminated a separate requirement
for short-term liquidity. At December 31, 1999, First Indiana was in compliance
with these liquidity requirements.

LOANS-TO-ONE-BORROWER LIMITATIONS. HOLA generally requires savings
institutions to comply with the loans-to-one-borrower limitations applicable to
national banks. In general, national banks may make loans to one borrower in
amounts up to 15 percent of the bank's unimpaired capital and surplus, plus an
additional 10 percent of capital and surplus for loans secured by readily
marketable collateral. At December 31, 1999, First Indiana's loan-to-one
borrower limitation was approximately $27.7 million, and no loans to a single
borrower exceeded that amount.

COMMERCIAL REAL PROPERTY LOANS. HOLA limits the aggregate amount of
commercial real estate loans that a federal savings institution may make to an
amount not in excess of 400 percent of the savings institution's capital. First
Indiana was in compliance with the commercial real property loan limitation at
December 31, 1999.

LIMITATION ON CAPITAL DISTRIBUTIONS. Under OTS regulations, a savings
institution has no restrictions on capital distributions as long as, after the
distribution, it is still classified as "adequately capitalized." An adequately
capitalized savings association is one with a total risk-based capital ratio of

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8 percent or greater, a Tier 1 risk-based capital ratio of 4 percent or greater,
and a leverage ratio of 4 percent or greater. No regulatory approval of the
capital distribution is required, but prior notice must be given to the OTS.

LIMITATION OF EQUITY RISK INVESTMENTS. Under applicable regulations, First
Indiana is generally prohibited from investing directly in equity securities and
real estate (other than that used for offices and related facilities or acquired
through, or in lieu of, foreclosure or on which a contract purchaser has
defaulted). In addition, OTS regulations limit the aggregate investment by
savings institutions in certain equity risk investments including equity
securities, real estate, service corporations and operating subsidiaries and
loans for the purchase of land and construction loans made after February 27,
1987 on non-residential properties with loan-to-value ratios exceeding
80 percent. At December 31, 1999, First Indiana was in compliance with the
equity risk investment limitations.

INSURANCE OF DEPOSITS. FDIC-insured institutions pay deposit insurance
premiums depending on their placement within one of nine categories. The
categories are determined by (i) the insured institution's placement in capital
group 1, 2, or 3, depending on its classification as "well-capitalized,"
"adequately capitalized," or "undercapitalized," and (ii) its supervisory rating
of A, B, or C. Prior to October 1, 1996, well-capitalized institutions with a
supervisory rating of A paid $.23 per $100 of deposits, while undercapitalized
institutions with a rating of C paid $.31 per $100 of deposits.

In the third quarter of 1996, the FDIC levied an industry-wide special
assessment to recapitalize the Savings Association Insurance Fund ("SAIF"),
which insures First Indiana's customers' deposits. First Indiana Bank incurred a
one-time pre-tax charge to earnings of $6,749,000 to comply with this
assessment. Beginning January 1, 1997, deposit insurance premiums between $.00
and $.27 per $100 of deposits are in effect, based on the same nine-category
rating system discussed in the previous paragraph. The Deposit Insurance Funds
Act of 1996 ("Funds Act") also separated, effective January 1, 1997, the
Financing Corporation ("FICO") assessment to service the interest on its bond
obligations from the SAIF assessment. As part of the deposit insurance
assessments, institutions pay a FICO assessment for debt service requirements.
The FICO assessment rate is subject to change on a quarterly basis, depending on
the debt service requirements. In January 2000, First Indiana paid $.0212 per
$100 of deposits to comply with this assessment. The total deposit insurance
expense paid was $712,000, $691,000, and $693,000 for 1999, 1998, and 1997,
respectively.

First Indiana was a well-capitalized institution throughout 1999, and paid
no deposit insurance premiums other than the FICO assessment. Because it is
well-capitalized, First Indiana will continue to pay no deposit insurance
premiums in 1999, but these premiums could increase in the future if the
aggregate SAIF premiums paid by all SAIF-insured institutions do not equal or
exceed 1.25% of insurable deposits.

COMMUNITY REINVESTMENT ACT. Ratings of savings institutions under the
Community Reinvestment Act of 1977 ("CRA") must be disclosed. The disclosure
includes both a four-tier descriptive rating using terms such as satisfactory
and unsatisfactory and a written evaluation of each institution's performance.
Also, the FHLB is required to adopt regulations establishing standards of
community investment and service for members of the FHLB System to meet to be
eligible for long-term advances. Those regulations are required to take into
account a savings institution's CRA record and the member's record of lending to
first-time home buyers. At December 31, 1999, First Indiana Bank's rating was
"satisfactory." First Indiana Bank intends to maintain its long-standing record
of community lending and to meet or exceed the CRA standards under FIRREA.

TRANSACTIONS WITH AFFILIATES

Pursuant to HOLA, transactions engaged in by a savings institution or one of
its subsidiaries with affiliates of the savings institution generally are
subject to the affiliate transaction restrictions contained in Sections 371c
(23A) and 371c-1 (23B) of the Federal Reserve Act. Section 371c (23) of the
Federal

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Reserve Act imposes both quantitative and qualitative restrictions on
transactions engaged in by a member depository institution or one of its
subsidiaries with an affiliate, while Section 371c-1 (23B) of the Federal
Reserve Act requires, among other things, that all transactions with affiliates
be on terms substantially the same as and at least as favorable to the member
bank or its subsidiary as the terms that would apply to or would be offered in a
comparable transaction with an unaffiliated party.

Section 375b (22(h)) of the Federal Reserve Act imposes restrictions on
loans to executive officers, directors, and principal shareholders. Under
Section 375b (22(h)), loans to an executive officer or to a greater than
10 percent shareholder of a savings institution, or certain affiliated entities
of either, may not exceed the institution's loan-to-one-borrower limit when
considered with all other outstanding loans to such person and affiliated
entities. Section 375b (22(h)) also prohibits loans above amounts prescribed by
the appropriate federal banking agency to directors, executive officers, and
greater than 10 percent shareholders of a savings institution and their
respective affiliates, unless the loan is approved in advance by a majority of
the board of directors of the institution, with any interested director not
participating in the voting. The Federal Reserve Board has prescribed the loan
amount (which includes all other outstanding loans to such person) for which
such prior board of director approval is required, as the greater of $25,000 or
5 percent of capital and surplus. Prior board of director approval is also
required if an amount is requested that, when aggregated with all other
extensions of credit to that person, and all related interests of that person,
exceeds $500,000. First Indiana is in compliance with these regulations.

FEDERAL HOME LOAN BANK SYSTEM

The Federal Home Loan Bank System ("FHLB") consists of 12 regional Banks,
each subject to supervision and regulation by the Federal Housing Finance Board.
The FHLB provides a central credit facility for member savings institutions. As
a member of the FHLB, First Indiana is required to own shares of capital stock
in the FHLB. The calculation of the required stock amount is the greater of one
percent of the aggregate unpaid mortgage loan, .3 percent of total assets, or
1/20 of its advances from the FHLB. As of December 31, 1999, First Indiana was
in compliance with this requirement.

FEDERAL RESERVE SYSTEM

The Federal Reserve Board has adopted regulations that require savings
institutions to maintain non-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts) and non-personal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than one and one-half years. At December 31,
1999, First Indiana was in compliance with these requirements. These reserves
may be used to satisfy liquidity requirements imposed by the Director of the
OTS. Because required reserves must be maintained in the form of vault cash or
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the amount of the institution's
interest-earning assets.

Savings institutions also have the authority to borrow from the Federal
Reserve discount window. Federal Reserve Board regulations, however, require
savings institutions to exhaust all the FHLB sources before borrowing from a
Federal Reserve Bank. The FDICIA places limitations upon a Federal Reserve
Bank's ability to extend advances to under-capitalized and critically
under-capitalized depository institutions. The FDICIA provides that a Federal
Reserve bank generally may not have advances outstanding to an under-capitalized
institution for more than 60 days in any 120-day period.

FEDERAL SECURITIES LAW

The stock of First Indiana is registered with the SEC under the Securities
Exchange Act of 1934. First Indiana is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.

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First Indiana stock held by persons who are affiliates (generally officers,
directors, and principal stockholders) of First Indiana may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If First Indiana meets specified current public information
requirements, each affiliate of First Indiana is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.

TAXATION

FEDERAL. First Indiana, on behalf of itself, First Indiana Bank and its
subsidiaries, files a calendar tax year consolidated federal income tax return
and reports items of income and expense using the accrual method of accounting.

In accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109"), a deferred liability has not been
established for First Indiana Bank's tax bad debt base year reserves of
$16,586,000. The base year reserves are generally the balance of reserves as of
December 31, 1987, reduced proportionally for reductions in First Indiana Bank's
loan portfolio since that date. The base year reserves will continue to be
subject to recapture and First Indiana Bank could be required to recognize a tax
liability if: (i) the bank fails to qualify as a "bank" for federal income tax
purposes; (ii) certain distributions are made with respect to the stock of the
bank; (iii) the bad debt reserves are used for any purpose other than to absorb
bad debt losses; or (iv) there is a change in tax law. The enactment of this
legislation had no material impact on First Indiana's operations or financial
position.

Under SFAS 109, First Indiana may recognize deferred tax assets for
deductible temporary differences based on an evaluation of the likelihood of
realizing the underlying tax benefits. The realization of these benefits
principally depends upon the following sources of taxable income: (i) taxable
income in the current year or prior years that is available through carryback
(potential recovery of taxes paid for the current year or prior years);
(ii) future taxable income that will result from the reversal of existing
taxable temporary differences (potential offsetting of deferred tax
liabilities); or (iii) future taxable income, exclusive of the reversal of
existing temporary differences, that is generated by future operations.

In addition, tax-planning strategies may be available to accelerate taxable
income or deductions, change the character of taxable income or deductions, or
switch from tax-exempt to taxable investments so that there would be sufficient
taxable income of the appropriate character and in the appropriate periods to
allow for realization of the tax benefits.

The Federal Financial Institutions Examination Council (the "FFIEC") has
adopted all provisions of SFAS 109 for regulatory reporting purposes, including
those provisions related to deferred tax assets. However, the FFIEC agencies
have imposed a limitation on the amount of net deferred tax assets that may be
included in the calculation of regulatory capital. The limitation requires an
institution to deduct from capital, when computing its regulatory capital
ratios, any amount of net deferred tax asset that is not supported by the sum of
the carryback potential of the institution plus the lower of the next twelve
months' estimated earnings or ten percent of Tier 1 capital. At December 31,
1999, First Indiana met all the above requirements and had no adjustments to
regulatory capital.

The Internal Revenue Service has examined the tax returns of First Indiana
through 1996.

STATE. Effective January 1, 1999, the State of Indiana imposes a franchise
tax on the "apportioned income" of depository institutions at a fixed rate of
8.5 percent per year. This franchise tax is imposed in lieu of the gross income
tax, adjusted gross income tax, savings and loan excise tax and supplemental net
income tax otherwise imposed on certain corporate entities and depository
institutions. "Apportioned income" consists of the taxpayer's "adjusted gross
income" multiplied by the depository institution's total receipts attributable
to transacting business in Indiana divided by total receipts attributable to
transacting business everywhere. For example, tax-exempt interest is included in
the

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depository institution's adjusted gross income for state franchise tax purposes.
The Indiana Department of Revenue has examined the state income tax returns of
First Indiana through 1994.

SERVICE CORPORATION SUBSIDIARIES

OTS regulations permit federal savings institutions to invest in the capital
stock, obligations, or specified types of securities of subsidiaries (referred
to as "service corporations") and to make loans to such subsidiaries and joint
ventures in which such subsidiaries are participants in an aggregate amount not
exceeding 2 percent of an institution's assets, plus an additional one percent
of assets if the amount over 2 percent is used for specified community or
inner-city development purposes. In addition, federal regulations permit
institutions to make specified types of loans to such subsidiaries (other than
special-purpose finance subsidiaries), in which the institution owns more than
10 percent of the stock, in an aggregate amount not exceeding 50 percent of the
institution's regulatory capital if the institution's regulatory capital is in
compliance with applicable regulations. FIRREA requires a savings institution
which acquires a non-savings institution subsidiary, or which elects to conduct
a new activity within a subsidiary, to give the FDIC and the OTS at least
30 days' advance written notice. The FDIC may, after consultation with the OTS,
prohibit specific activities if it determines such activities pose a serious
threat to the SAIF. Moreover, savings institutions must deduct from capital, for
purposes of meeting the leverage limit, tangible capital, and risk-based capital
requirements, their entire investment in and loans to a subsidiary engaged in
activities permissible for a national bank (other than exclusively agency
activities for its customers or mortgage banking subsidiaries).

ONE INVESTMENT CORPORATION. One Investment Corporation is a wholly owned
subsidiary formed in January 1999 to engage in the purchase and sale of loan
participations originated both by First Indiana and by others in the secondary
market.

ONE MORTGAGE CORPORATION. One Mortgage Corporation is a wholly owned
subsidiary formed in 1983 to originate single-family residential mortgage loans
outside of Indiana for sale to First Indiana or for sale into the secondary
market. Since the third quarter of 1999, when First Indiana Bank exited the
traditional mortgage banking business in favor of originating mortgages for our
relationship customers, One Mortgage Corporation has not engaged in any such
activities.

ONE PROPERTY CORPORATION. One Property Corporation is a wholly owned
subsidiary formed in 1985 to engage in commercial real estate investment
activities. To date, One Property Corporation has not engaged in any such
activities.

PIONEER SERVICE CORPORATION. Pioneer Service Corporation is a wholly owned
subsidiary of First Indiana Bank. In April 1990, Pioneer Service Corporation
invested in a limited partnership which was formed to develop and own a 112-unit
apartment complex in Greencastle, Indiana.

EMPLOYEES

At December 31, 1999, First Indiana and its subsidiaries employed 577
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.

First Indiana and its subsidiaries currently maintain a comprehensive
employee benefit program providing, among other benefits, a qualified pension
plan, a 401(k) plan, medical reimbursement accounts, hospitalization and major
medical insurance, paid sick leave, short-term and long-term disability
insurance, life insurance, an employees' stock purchase plan, tuition
reimbursement, and reduced loan rates for employees who qualify.

89
<PAGE>
FIRST INDIANA'S MANAGEMENT

DIRECTORS

The following persons serve as directors of First Indiana:

<TABLE>
<CAPTION>
DIRECTOR
NAME, AGE, PRINCIPAL OCCUPATION(S) AND BUSINESS EXPERIENCE DURING PAST 5 YEARS SINCE
------------------------------------------------------------------------------ --------
<S> <C>
GERALD L. BEPKO, Age 59 ............................................. 1988
Vice President for Long-Range Planning of Indiana University and Chancellor,
Indiana University-Purdue University at Indianapolis; Director, USA Group,
USA Funds and Indianapolis Life Insurance Company; previously Dean and
Professor of Law, Indiana University School of Law, Indianapolis.

ANDREW JACOBS, JR., Age 68 .......................................... 1997
Adjunct Professor, Indiana University-Purdue University at Indianapolis;
Attorney; Retired Member, United States Congress.

ROBERT J. LAIKIN, Age 36 ............................................ 1999
Chairman and Chief Executive Officer of Brightpoint, Inc., provider of
distribution and value-added logistics services to the wireless
communications industry; previously President of Brightpoint, Inc.

MARNI MCKINNEY, Age 43 .............................................. 1992
Vice Chairman and Chief Executive Officer of First Indiana and Chairman of
First Indiana Bank; Director, Vice Chairman, and Chief Executive Officer,
The Somerset Group, Inc., an affiliate of First Indiana, financial services
provider; previously President and Executive Vice President of The Somerset
Group, Inc., and Vice President of First Indiana and First Indiana Bank.

ROBERT H. MCKINNEY, Age 74 .......................................... 1954
Chairman of First Indiana; Chairman and Director, The Somerset Group, Inc.,
an affiliate of First Indiana, financial services; retired partner, Bose
McKinney & Evans, attorneys; Chairman, Federal Home Loan Bank Board,
1977-1979.

OWEN B. MELTON, JR., Age 53 ......................................... 1983
President and Chief Operating Officer of First Indiana and President and
Chief Executive Officer of First Indiana Bank.

PHYLLIS W. MINOTT, Age 61 ........................................... 1976
Chairman and Chief Executive Officer, Minott Motion Pictures, Inc.,
commercial movie production; previously General Auditor, Eli Lilly &
Company, pharmaceutical company; Controller, Accounting, and Chief
Accounting Officer, Eli Lilly & Company.

MICHAEL L. SMITH, Age 51 ............................................ 1985
Executive Vice President and Chief Financial Officer, Anthem, Inc., a health
benefits management company; Director of The Somerset Group, Inc., an
affiliate of First Indiana, FinishMaster, Inc. and First Internet Bank of
Indiana; formerly Senior Vice President, Anthem, Inc.; formerly Chief
Operating Officer and Chief Financial Officer, American Health Network,
Inc., a physician management company; formerly President, Somerset Financial
Services, a division of The Somerset Group, Inc.

JOHN W. WYNNE, Age 67 ............................................... 1991
Director Emeritus of Duke-Weeks Realty Corporation, a real estate investment
trust; previously Chairman, Duke Realty Investments, Inc. and partner, Duke
Associates, real estate development; retired as counsel (previously
partner), Bose McKinney & Evans, attorneys.
</TABLE>

During 1999, the boards of directors of First Indiana and First Indiana Bank
each met twelve times. All directors attended in excess of 75% of the aggregate
of the total number of meetings of the boards of directors of First Indiana and
First Indiana Bank (considered separately) and the total

90
<PAGE>
number of meetings held by all First Indiana and First Indiana Bank committees
(considered separately) on which he or she served.

CERTAIN COMMITTEES OF THE BOARDS OF DIRECTORS OF THE CORPORATION AND THE BANK

Among other committees, the board of directors of First Indiana has an Audit
Committee and a Compensation Committee.

AUDIT COMMITTEE. The Audit Committee evaluates audit performance, handles
relations with First Indiana's independent auditors, and evaluates policies and
procedures related to internal audit functions and controls. The members of
First Indiana's Audit Committee in 1999 were Phyllis W. Minott (Chairperson),
H.J. Baker, Andrew Jacobs, Jr., and John W. Wynne. The Audit Committee met three
times during 1999. (Mr. Baker attended two meetings of the committee prior to
his retirement from the board of directors, which was effective April 15, 1999.)

COMPENSATION COMMITTEE. The Compensation Committee reviews and makes
recommendations to the board of directors with respect to the compensation of
directors, officers, and employees of First Indiana and First Indiana Bank,
administers and grants options and other stock awards under First Indiana's
stock option plans, and administers First Indiana Bank's Employees' Stock
Purchase Plan. The members of the Compensation Committee during 1999 were Gerald
L. Bepko (Chairman), H.J. Baker, Phyllis W. Minott and John W. Wynne. The
Compensation Committee met three times during 1999. (Mr. Baker attended two
meetings of the committee prior to his retirement from the board of directors;
Mr. Wynne joined the committee thereafter and attended one meeting of the
committee during 1999.)

COMPENSATION OF DIRECTORS

Directors of First Indiana and First Indiana Bank, other than Robert H.
McKinney, Marni McKinney and Owen B. Melton, Jr., received in 1999 a quarterly
retainer of $2,500, plus $1,000 per meeting of the full board of directors and
per committee meeting attended.

Under the First Indiana 1992 Director Stock Option Plan, First Indiana
reserved approximately 262,497 shares of its common stock for issuance upon the
exercise of options to be granted under the plan. The plan provides for the
issuance of non-qualified options to purchase 3,746 shares to each outside
director of First Indiana on the date of each annual meeting of shareholders.
First Indiana granted 3,746 shares to each outside director on April 15, 1999,
in accordance with the plan. No option is exercisable during the period of one
year following the date of grant, and options granted under the plan must
specify an exercise price of not less than 100% of the market price of the
shares at the date of grant.

Under the Directors' Deferred Fee Plan, directors of First Indiana may elect
to defer all or any portion of the fees paid for attendance at a board of
directors or committee meeting. The deferred fees are then contributed to a
trust which buys stock with such fees or invests such fees in an interest-
bearing account. Directors are not eligible to receive shares or cash held under
the plan until they cease to be a director, officer, or employee of the
Corporation. Amounts deferred are not taxable to the director until the trust
distributes the cash or stock to the director. In the event of a change in
control of First Indiana, amounts held under the plan are payable immediately in
one lump sum.

Directors also may elect to contribute part of their fees to First Indiana
Bank's Employees' Stock Purchase Plan. As with other participants, First Indiana
Bank matches a certain portion of such contributions and purchases First
Indiana's common stock on the open market at the prevailing market price. The
material features of the Stock Purchase Plan are described under the heading
"--Executive Compensation."

91
<PAGE>
EXECUTIVE OFFICERS

The following table sets forth information about the executive officers of
First Indiana and First Indiana Bank who are not directors of First Indiana or
First Indiana Bank. All executive officers are appointed by the board of
directors and serve at the discretion of the board of directors.

<TABLE>
<CAPTION>
YEAR FIRST ELECTED
NAME POSITION AGE OFFICER
---- ---------------------------------------------- -------- ------------------
<S> <C> <C> <C>
William J. Brunner..... Vice President and Treasurer of First Indiana; 41 2000
Chief Financial Officer and Senior Vice
President, Financial Management Division of
First Indiana Bank

David A. Lindsey....... Senior Vice President, Consumer Finance 49 1983
Division of First Indiana Bank

Merrill E. Matlock..... Senior Vice President, Commercial and Mortgage 50 1984
Banking Division of First Indiana Bank

Timothy J. O'Neill..... Senior Vice President, Correspondent Banking 52 1972
Services Division of First Indiana Bank

Edward E. Pollack...... Senior Vice President, Technology and 51 1998
Operations Division of First Indiana Bank

Kenneth L. Turchi...... Senior Vice President, Retail Banking, 41 1987
Marketing, and Strategic Planning Division of
First Indiana Bank
</TABLE>

William J. Brunner joined First Indiana and First Indiana Bank in May 2000,
replacing David L. Gray. He serves as First Indiana's vice president and
treasurer, and as First Indiana 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, from 1999 to
2000, Mr. Brunner was the Senior Vice President and Director of Corporate
Planning at Citizens Financial Group, a $28 billion bank holding company based
in Providence, Rhode Island. From 1986 to 1999, Mr. Brunner was Vice
President--Treasury Management for Banc One Corporation in Columbus Ohio.

David A. Lindsey has been with First Indiana Bank since January 1983,
serving as the bank's senior vice president, Consumer Finance Division. He
oversees the bank's national consumer sales force.

Merrill E. Matlock is senior vice president of First Indiana Bank's
Commercial and Mortgage Banking Division. He is responsible for the bank's
residential, construction, business, and commercial real estate lending.
Mr. Matlock has worked for First Indiana Bank since 1984 and was most recently
first vice president of the construction lending department.

Timothy J. O'Neill has been with First Indiana Bank since 1970. He currently
serves as the bank's senior vice president, Correspondent Banking Services
Division. As part of his current responsibilities, he develops relationships
with smaller community banks to provide private label products and services to
their customers.

Edward E. Pollack joined First Indiana Bank in 1998, and offers many years
of experience in operations and technology at the nation's largest guarantor of
student loans. He is serving as senior vice president, Technology and Operations
Division.

Kenneth L. Turchi joined First Indiana in September 1985 and currently
serves as senior vice president, Retail Banking, Marketing, and Strategic
Planning Division. His duties include strategic

92
<PAGE>
planning, marketing, advertising, market research, investor and public
relations, telemarketing, and supervision of retail banking center sales and
operations.

CERTAIN TRANSACTIONS

First Indiana Bank offers its directors, officers, and employees a loan plan
involving variable-rate mortgages, lines of credit, home equity loans, credit
cards, and various installment loans with a lower interest rate (not below the
bank's cost of funds) and waiver of loan origination fees, and fixed-rate
mortgage loans with waiver of loan origination fees only. Except as described
above, all outstanding loans to directors, officers, and employees have been
made in the ordinary course of business and on substantially the same terms as
those prevailing at the time for comparable transactions with non-affiliated
persons. Management believes that these loans neither involve more than the
normal risk of collectibility nor present other unfavorable features.

In 1996, First Indiana Bank sold its insurance and non-FDIC-insured
investment sales business to The Somerset Group, Inc. At the same time, the two
companies entered into a multi-year operating agreement under which Somerset
provides insurance and non-FDIC-insured investment products and services to
First Indiana Bank's customers and pays the bank a commission on such sales.
During the year ended December 31, 1999, Somerset paid to the bank $113,350 in
accordance with the terms of the purchase agreement and the operating agreement.
Robert H. McKinney and Marni McKinney are officers, directors and substantial
shareholders of Somerset, and Michael L. Smith is a director of Somerset.

93
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY OF COMPENSATION. The following table sets forth the compensation
awarded to, earned by, or paid to the chief executive officer and the four most
highly compensated executive officers other than the chief executive officer
(collectively, the "Named Executive Officers") during the last three fiscal
years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS(1) PAYOUTS
ANNUAL COMPENSATION ------------------------ ------------
----------------------------------- RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS(#) LTIP PAYOUTS COMPENSATION
-------- -------- -------- -------- ------------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROBERT H. MCKINNEY..... 1999 $200,000 $106,474 $301,788(2) -- 20,000 $391,500(3) $ 8,118(4)
Chairman and Chief 1998 199,231 40,520 -- -- 12,000 -- 5,944
Executive Officer 1997 210,000 37,800 -- 357,000 -- -- 6,404
of First Indiana

OWEN B. MELTON, JR..... 1999 315,000 161,612 304,005(2) -- 20,000 $391,500(3) 4,583(5)
President and Chief 1998 295,000 61,395 -- -- 12,000 -- 3,356
Operating Officer of 1997 280,000 50,400 -- 357,000 -- -- 4,550
First Indiana;
President and Chief
Executive Officer of
First Indiana Bank

DAVID L. GRAY.......... 1999 166,500 66,002 -- -- 5,000 79,833 12,280(6)
Vice President and 1998 160,000 31,218 -- -- 6,000 -- 8,863
Treasurer of First 1997 152,500 25,940 -- -- -- -- 9,065
Indiana; Senior Vice
President--Financial
Management Division,
and Chief Financial
Officer of First
Indiana Bank

MERRILL E. MATLOCK..... 1999 165,000 82,500 -- -- 5,000 73,317 3,409(7)
Senior Vice President-- 1998 150,000 31,573 -- -- 6,000 -- 2,959
Commercial and Mortgage 1997 119,616 24,349 -- -- -- -- 2,325
Banking Division of
First Indiana Bank

DAVID A. LINDSEY....... 1999 160,000 86,500 -- -- 5,000 74,167 11,600(8)
Senior Vice President-- 1998 145,000 29,789 -- -- 6,000 -- 8,192
Consumer Finance 1997 140,000 23,349 -- -- -- -- 8,309
Division of First
Indiana Bank
</TABLE>

------------------------------

(1) Adjusted for all stock splits through December 31, 1999.

(2) Represents payments made by First Indiana to reimburse Mr. McKinney and
Mr. Melton for income taxes payable due to the vesting of common stock
awarded under the Long-Term Plan in 1997.

(3) Represents the market value on December 31, 1999 of 18,000 shares of
restricted stock granted in 1997 (adjusted for all stock splits and stock
dividends since the date of issue) to each of Mr. McKinney and Mr. Melton
under the Long-Term Plan, and vesting on December 31, 1999.

(4) Consists of a $6,064 contribution by First Indiana Bank to the Stock
Purchase Plan, and a $2,054 contribution by First Indiana Bank to
Mr. McKinney's account in First Indiana Bank's 401(k) Plan.

(5) Consists of a $2,467 contribution by First Indiana Bank to the Stock
Purchase Plan, and a $2,116 contribution by First Indiana Bank to
Mr. Melton's account in First Indiana Bank's 401(k) Plan.

(6) Consists of a $7,903 contribution by First Indiana Bank to the Stock
Purchase Plan, the payment by First Indiana Bank of $1,860 for term life
insurance premiums, and a $2,517 contribution by First Indiana Bank to
Mr. Gray's account in First Indiana Bank's 401(k) Plan. After May 24, 2000,
Mr. Gray was no longer an officer of First Indiana.

(7) Consists of a $740 contribution by First Indiana Bank to the Stock Purchase
Plan, the payment by First Indiana Bank of $1,840 for term life insurance
premiums, and a $829 contribution by First Indiana Bank to Mr. Matlock's
account in First Indiana Bank's 401(k) Plan.

(8) Consists of a $7,592 contribution by First Indiana Bank to the Stock
Purchase Plan, the payment by First Indiana Bank of $1,785 for term life
insurance premiums, and a $2,223 contribution by First Indiana Bank to
Mr. Lindsey's account in First Indiana Bank's 401(k) Plan.

94
<PAGE>
STOCK OPTIONS. The following table sets forth certain information with
respect to stock options granted to the Named Executive Officers during the last
fiscal year. The Potential Realizable Value columns on the right of this table
assume that the value of the underlying stock will appreciate each year at the
specified percentages.

OPTION GRANTS IN THE LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE ------------------------------
NAME GRANTED FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE 0% 5% 10%
---- ------------ ------------ ---------------- --------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert H. McKinney... 5,350 6.8% $20.56 02-16-04 $00.00 $ 17,621 $ 51,041
4,650 5.9% 18.69 02-16-09 00.00 54,656 138,510
Owen B. Melton, Jr... 10,000 12.7% 18.69 02-16-09 00.00 117,540 297,870
David L. Gray........ 5,000 6.3% 18.69 02-16-09 00.00 58,770 148,935
Merrill E. Matlock... 5,000 6.3% 18.69 02-16-09 00.00 58,770 148,935
David A. Lindsey..... 5,000 6.3% 18.69 02-16-09 00.00 58,770 148,935
</TABLE>

The following table sets forth on an aggregate basis each exercise of stock
options during fiscal year 1999 by each of the Named Executive Officers and the
1999 year-end value of the unexercised options of each such executive officer.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FY-END FY-END
ON --------------------------- ---------------------------
NAME EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. McKinney...... 13,122 $187,251 62,997(1) 10,000 $624,915 $20,596
Owen B. Melton, Jr...... -- -- 59,244(1) 10,000 568,620 30,600
David L. Gray........... -- -- 40,870(1) 5,000 481,336 15,300
Merrill E. Matlock...... -- -- 26,022(1) 5,000 250,771 15,300
David A. Lindsey........ 11,247 151,024 19,200(1) 5,000 150,804 15,300
</TABLE>

------------------------

(1) Of the exercisable options, portions thereof had an exercise price in excess
of the purchase price on December 31, 1999, as described in the following
table:

<TABLE>
<CAPTION>
SHARES UNDERLYING
OPTIONS WHEN
SHARES UNDERLYING OPTIONS EXERCISE PRICE
WHEN MARKET PRICE EXCEEDED MARKET
NAME EXCEEDED EXERCISE PRICE PRICE
---- ------------------------- -----------------
<S> <C> <C>
Robert H. McKinney................... 50,997 12,000
Owen B. Melton, Jr................... 47,244 12,000
David L. Gray........................ 34,870 6,000
Merrill E. Matlock................... 20,022 6,000
David A. Lindsey..................... 13,200 6,000
</TABLE>

95
<PAGE>
PENSION PLANS

The following table sets forth, in specified compensation and years of
service classifications, the estimated annual benefits payable upon retirement
at age 65 under First Indiana Bank's non-contributory, qualified defined benefit
pension plan (the "Qualified Plan"), as supplemented by the supplemental benefit
plan adopted by First Indiana Bank on January 17, 1992 (the "Supplemental Plan")
(the Qualified Plan and the Supplemental Plan are collectively referred to as
the "Plans"). While the table shows the annual benefit payable, participants may
elect to receive the present value of the entire benefit in one lump sum.
Amounts shown are based on an assumed Social Security integration base of
$35,100 and are not subject to any deduction for Social Security or other offset
amounts.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
COVERED 10 YEARS' BENEFIT 20 YEARS' BENEFIT 30 YEARS' BENEFIT 40 YEARS' BENEFIT
COMPENSATION SERVICE SERVICE SERVICE SERVICE
------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
$100,000 $ 18,245 $ 36,490 $ 54,735 $ 73,858
120,000 22,245 44,490 66,735 89,858
140,000 26,245 52,490 78,735 105,858
160,000 30,245 60,490 90,735 121,858
180,000 34,245 68,490 102,735 137,858
200,000 38,245 76,490 114,735 153,858
220,000 42,245 84,490 126,735 169,858
240,000 46,245 92,490 138,735 185,858
260,000 50,245 100,490 150,735 201,858
280,000 54,245 108,490 162,735 217,858
300,000 58,245 116,490 174,735 233,858
320,000 62,245 124,490 186,735 249,858
340,000 66,245 132,490 198,735 265,858
360,000 70,245 140,490 210,735 281,858
380,000 74,245 148,490 222,735 297,858
400,000 78,245 156,490 234,735 313,858
500,000 98,245 196,490 294,735 393,858
600,000 118,245 236,490 354,735 473,858
700,000 138,245 276,490 414,735 553,858
800,000 158,245 316,490 474,735 633,858
</TABLE>

The annual retirement benefit displayed in the Pension Plan Table is the
product of (i) the participant's number of years of credited benefit service,
multiplied by (ii) the sum of 1.5% of that portion of the participant's covered
compensation that does not exceed the Social Security integration base for the
participant plus 2% of the participant's covered compensation that exceeds such
integration base. Compensation covered by the Plans is the sum of the average of
a participant's annualized rate of base salary (as reported in the Salary column
of the Summary Compensation Table) for the five consecutive years of employment
which produce the highest such average, plus the annual average of all bonuses
(including both the Bonus and the LTIP Payouts columns as reported in the
Summary Compensation Table, and the market value on the date of vesting of any
restricted stock awards made pursuant to the Long-Term Plan) paid to the
participant for the three years preceding the participant's retirement.

As of January 1, 2000, the number of years of credited benefit service and
the compensation covered by the Plans (based on average annual salaries for
1995-1999 and average annual bonuses for 1997-1999) for each of the Named
Executive Officers were as follows: Robert H. McKinney, 47 years--

96
<PAGE>
$424,954; Owen B. Melton, Jr., 21 years--$523,500; David L. Gray,
18 years--$231,219; Merrill E. Matlock, 15 years--$199,306; and David A.
Lindsey, 17 years--$210,013.

EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS

Special retirement benefits are provided under the Supplemental Plan to
Mr. McKinney. His normal retirement benefit under the Supplemental Plan is
payable for life and 15 years certain. The monthly amount of his normal benefit
is the higher of two calculated amounts. The first is his monthly retirement
benefit that would be payable to him under the Supplemental Plan if such benefit
were determined in the normal way and were payable for life only. The second is
a monthly retirement benefit equal to the excess of (i) 80% of his adjusted
monthly compensation over (ii) the sum of (a) his monthly retirement benefit
under the Qualified Plan (determined as though such benefit were payable in the
form of a straight-life annuity) plus (b) his primary Social Security benefit
payable at age 65. For purposes of the foregoing, Mr. McKinney's adjusted
monthly compensation is one-twelfth of the sum of (i) his highest annual rate of
salary from First Indiana plus (ii) the greater of (a) 37.5% of his highest
annual rate of salary from First Indiana or (b) the annual average of all
bonuses paid to him by First Indiana for the three years next preceding his
retirement. In the last fiscal year, Mr. McKinney received $134,892 in payments
under the Qualified Plan.

Special death benefits are provided under the Supplemental Plan to
Mr. McKinney and Mr. Melton. The death benefit provided to Mr. McKinney and
Mr. Melton equals three times their respective highest annual rates of salary,
grossed up for income taxes at the highest applicable marginal rate in effect at
the time of death, and is payable whether either of them dies before or after
separation from service and without regard to when they separate from service.

Mr. McKinney and Mr. Melton are parties to agreements with First Indiana,
and Messrs. Lindsey and Matlock are parties to agreements with First Indiana
Bank, which agreements provide for certain benefits if the executive officer's
employment is terminated following a change in control of First Indiana (as
defined in the applicable agreement), other than a termination with cause (as
defined in the applicable agreement) or a termination by the officer without
good reason (as defined in the applicable agreement). In such case,
Messrs. Lindsey and Matlock would be entitled to a severance payment equal to
that portion of their annual base salary (calculated as twelve times the highest
monthly base salary paid to the executive officer during the twelve months prior
to the change in control) not already paid, plus any compensation previously
deferred by the executive officer, accrued vacation pay and a lump-sum pension
supplement, and Mr. McKinney and Mr. Melton would be entitled to a severance
payment equal to three times their annual base salary, plus the additional items
listed above. Certain adjustments may be made to the severance payments made in
connection with the change in control if such payments would be subject to the
excise tax imposed on "excess parachute payments" under Section 4999 of the
Internal Revenue Code of 1986, as amended.

First Indiana Bank and David L. Gray entered into a severance agreement in
the second quarter of 2000. Pursuant to the agreement, First Indiana Bank will
pay $166,500 to Mr. Gray in 26 equal installments ending May 2001, together with
the cash value of Mr. Gray's earned and unpaid vacation time. The bank also
agreed to continue Mr. Gray's participation in certain retirement and medical
insurance plans for up to one year.

97
<PAGE>
SOMERSET SELECTED FINANCIAL DATA

This information is derived from audited consolidated financial statements
for the years ended December 31, 1995 through 1999 and from unaudited
consolidated financial statements for the six months ended June 30, 1999 and
2000. Information with respect to per share data for all periods reflects the
five for four stock splits effected February 29, 1996 and February 26, 1997. All
historical amounts have also been restated to reflect a merger that occurred
January 20, 1998 with Whipple & Company P.C., which was accounted for as a
pooling-of-interests combination. You should read this information together with
Somerset's historical consolidated financial statements, and related notes,
contained elsewhere in this proxy statement and prospectus and in the annual
reports and other information that Somerset files with the Securities and
Exchange Commission. See "Where You Can Find More Information."

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ----------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 1995
--------------------------------------------- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Working capital.......................... $ 3,851 $ 2,804 $ 5,795 $ 6,251 $ 5,998 $ 9,146
Carrying value--investment in First
Indiana................................ 40,529 39,010 36,104 32,406 29,746 27,549
Market value--investment in First Indiana... 54,825 59,997 55,169 68,515 48,470 38,882
Total assets............................. 50,114 47,309 44,773 42,460 39,718 40,188
Long-term debt........................... -- -- -- 30 44 2,500
Total liabilities........................ 11,617 10,938 9,310 9,000 8,121 10,429
Shareholders' equity..................... 38,497 36,371 35,463 33,460 31,597 29,759
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999 1999 1998 1997 1996 1995
------------- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Fees, commissions and
investment income........ $6,997 $5,670 $10,317 $7,656 $7,242 $6,532 $5,099
Equity in earnings of First
Indiana.................. 2,559 2,101 4,986 4,130 3,883 3,003 3,938
Gross profit of
construction
operations(1)............ -- -- -- -- -- -- 1,649
Income from operations
before income taxes...... 3,731 2,921 5,141 4,001 3,567 3,123 5,571
Net income(2).............. 2,517 1,885 3,392 2,865 2,536 2,145 3,355
Basic earnings per common
share.................... 0.90 0.66 1.20 0.99 0.87 0.75 1.16
Diluted earnings per common
share.................... 0.88 0.65 1.18 0.97 0.86 0.73 1.15
Dividends declared per
common share (semi-
annual)(3)............... 0.11 0.10 0.20 0.18 0.18 0.16 0.128
</TABLE>

------------------------

(1) The construction operations were sold in June 1995.

(2) Net income for the six months ended June 30, 1999 and the year ended
December 31, 1999 was reduced $115 for the cumulative effect of a change in
accounting principle.

(3) Somerset's policy has been to declare semi-annual dividends in the first and
third quarters.

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SOMERSET MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1997

Somerset earned $3,392,000 in 1999, compared with $2,865,000 in 1998 and
$2,536,000 in 1997. Net income for 1999 included a non-recurring charge against
net income of $115,000, representing the cumulative effect of a change in
accounting principle. Excluding this non-recurring charge, 1999 earnings were
$3,507,000. Earnings for 1999 of $3,392,000 represented an 18.4% increase over
1998 earnings and a 33.8% increase over 1997 earnings. Earnings, excluding the
non-recurring charge of $3,507,000, represented a 22.4% increase over 1998
earnings and a 38.3% increase over 1997 earnings.

Net income per diluted share for 1999 of $1.18 represented a 22% increase
over the $.97 earned in 1998 and a 37% increase over the $.86 earned in 1997.
Income before cumulative effect of change in accounting principle per diluted
share for 1999 of $1.22 represented a 26% increase over the $.97 earned in 1998
and a 42% increase over the $.86 earned in 1997.

The change in accounting principle was the adoption on January 1, 1999 of
the American Institute of Certified Public Accountants Statement of Position
98-5 ("SOP 98-5"), Reporting on the Costs of Start-up Activities. SOP 98-5
required Somerset to charge to expense costs of start-up activities, including
organization costs, which had been capitalized in prior periods.

REVENUE AND INCOME. The increases in earnings were a result of a 30%
increase in revenue and equity income during 1999 that reached $15,303,000,
compared with $11,786,000 in 1998. The $15,303,000 represented a 38% increase
over the $11,125,000 recorded in 1997.

The three components of revenue and income consist of fees and commissions,
investment income, and equity in earnings of First Indiana Corporation. Fees and
commissions and investment income represent Somerset's direct operations in the
financial services industry. During 1999 operations consisted of three entities:
Somerset Financial Services, Paradym Technologies, Inc., and First Indiana
Investor Services. The other component of revenue and income, equity in earnings
of First Indiana Corporation, represents Somerset's ownership percentage (22% at
December 31, 1999) of the net income of First Indiana Corporation.

Fee income is generated by Somerset Financial Services and Paradym
Technologies, Inc. ("Paradym"). Somerset Financial Services was formed in 1998
as a result of a merger with Whipple & Company P.C. ("Whipple"), a certified
public accounting firm. Paradym, an information technology company, was formed
in 1999 by combining Somerset's existing information technology resources with
resources acquired from two other companies. Services provided by these two
entities are paid for primarily on an independent consulting fee basis, either
as a flat fee or on an hourly basis. Commission income is primarily generated by
First Indiana Investor Services, which is an independent insurance agency and a
representative for an investment broker/dealer, and it receives its compensation
as a percentage of the insurance or investment products sold. Investment income
is income generated from Somerset's own investment portfolio.

Somerset completed a merger with McGee, Rice & Wheat, Inc. ("MRW"), a
certified public accounting firm on September 1, 1999. The merger was accounted
for as a purchase, and the operations of MRW were combined with Somerset
Financial Services.

The results of MRW are included in consolidated financial results commencing
on the date of the merger.

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FEES, COMMISSIONS, AND INVESTMENT INCOME. Revenue from fees, commissions,
and investment income for the three years ended December 31, 1999 were as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Fee revenue............................. $ 9,115,000 $6,386,000 $5,765,000
Commission revenue...................... 1,113,000 941,000 1,084,000
----------- ---------- ----------
10,228,000 7,327,000 6,849,000
Investment income....................... 89,000 329,000 393,000
----------- ---------- ----------
$10,317,000 $7,656,000 $7,242,000
=========== ========== ==========
</TABLE>

Revenue from fees and commissions during 1999 of $10,228,000 represented an
increase of 40% over 1998 revenue of $7,327,000, and a 49% increase over 1997
revenue of $6,848,000. Paradym Technologies, Inc., Somerset's information
technology company formed early in 1999, contributed $1,398,000 of the increase,
or 19% of the total increase. Paradym achieved positive financial results during
its initial year of operation. The level of client services provided was above
expectations partially due to clients' computer preparations for the Year 2000
(referred to as Y2K). Increased fee income for tax consulting and preparation,
health care consulting, and investment and wealth management were the service
specialties primarily responsible for the remainder of the increase in fee
revenue. The increase came as a result of adding new clients throughout the year
and also from an increase in the number of services provided to existing
clients.

Commission revenue from the sale of insurance and investment products for
1999 increased $172,000, or 18% compared to 1998, and 3% compared to 1997. The
turnaround in revenue occurred primarily from increased sales of mutual funds
and fixed annuity insurance contracts. Increased sales resulted from the
introduction of new products into Somerset's portfolio offerings, concentrated
marketing efforts within the branch banking system of First Indiana Bank, and an
expansion of marketing efforts to existing clients and non-bank related clients.

Investment income decreased in each of the three years primarily from a
decrease in the average amount of net cash available for investments. During
1999 the investment portfolio was liquidated at a loss of $124,000, which
further reduced investment income for the year. The investment portfolio
consisted primarily of fixed rate bonds, which would have continued to decline
in value as interest rates continued to increase. The funds generated from the
liquidation were primarily used to fund the merger with McGee, Rice &
Wheat, Inc., and for a stock repurchase program.

EQUITY IN EARNINGS OF FIRST INDIANA CORPORATION. Somerset's equity in
earnings of First Indiana of $4,986,000 was 20.7% above 1998 and 28.4% above the
amount for 1997. First Indiana posted record earnings in 1999 while sustaining
asset growth. Total assets increased 10.2% and amounted to $2.0 billion compared
to $1.8 billion at December 31, 1998. This growth in assets followed an 11.3%
increase in 1998 over year-end 1997 of $1.8 billion, compared to $1.6 billion at
December 31, 1997.

First Indiana's return on average equity for 1999 was 13.4%, compared with
12.0% in 1998, and 12.2% in 1997.

Growth in loans and lower-cost deposits contributed to First Indiana's net
interest margin. The margin was 3.92% for the year ended December 31, 1999,
compared with 3.88% in 1998, and 4.39% in 1997. The average interest rate
spread, the primary factor in computing net interest margin, was 3.28% for 1999,
compared with 3.16% in 1998, and 3.70% in 1997.

During the third quarter of 1999, First Indiana completed two significant
events that affected earnings. The first was the sale of its Evansville
division, which allowed First Indiana Bank to focus resources in Central
Indiana, the fastest-growing region of the state. The second was that the bank

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<PAGE>
exited the traditional mortgage banking business in favor of originating
mortgages for relationship customers.

Loans outstanding grew $155 million, or 10% when compared to the end of
1998, bringing total loans outstanding to $1.7 billion, compared with
$1.5 billion at the end of 1998, and $1.4 billion at year-end 1997. Business
loans grew 32%, consumer loans increased 16%, and residential construction loans
grew 27%.

Excluding Evansville and jumbo deposits, total deposits grew 12% during 1999
to $1.0 billion, from $904 million at the end of 1998. The growth primarily
occurred in checking accounts and passbook savings accounts.

Total non-interest income increased 19% in 1999 to $27.0 million, from
$22.7 million in 1998, and $17.0 million in 1997. The sale of deposits of the
Evansville division contributed $7.6 million to non-interest income.

First Indiana's loan losses as a percentage of outstanding loans decreased
primarily due to reduced consumer and construction loan charge-offs. Net
charge-offs amounted to $6.4 million, $6.5 million, and $7.1 million in 1999,
1998, and 1997, respectively. The allowance for loan losses increased to
$28.8 million at December 31, 1999, or 163% of non-performing loans at year-end.

For a more detailed discussion of the Results of Operations of First Indiana
Corporation, please refer to the Form 10-K of First Indiana Corporation, filed
with the Securities and Exchange Commission under File Number 0-14354.

OPERATING EXPENSES. Somerset's operating expenses of $10,162,000 for 1999
represented a 31% increase over the $7,785,000 expended in 1998, and were 35%
above such operating expenses of 1997.

As a percentage of revenue and income, the $10,162,000 incurred in 1999 was
66% (a 34% margin), one percentage point higher than in 1998, excluding one-time
merger costs incurred in 1998 (a 35% margin), and two percentage points lower
than the 68% ratio (a 32% margin) of 1997.

Generally, the major reason for the increase in operating expenses was the
continued growth of Somerset as evidenced by the 30% increase in revenue and
income. The 1999 amount included expenses for the first time of the newly formed
information technology subsidiary, Paradym Technologies, Inc., the merged
operations of McGee, Rice & Wheat, Inc., and added staff and other costs to
support the increase in fees and commissions from operations contained in all
three years. The percentage improvements of 1999 and 1998, compared with 1997,
are indicative of operating efficiencies achieved by the 1998 merger with
Whipple & Company, P.C.

Somerset expects operating expenses, measured as a percentage of revenue and
income, to decrease in future years. The merger with McGee, Rice & Wheat, Inc.,
occurred on September 1, 1999. The four months included in 1999 consolidated
results are historically the lowest four months of revenue generation for a
certified public accounting firm. Therefore, operating expenses include four
months of expenses approximating all other months, without any benefit of the
peak revenue cycle of January through April. In addition, Somerset incurred
higher than normal general and administrative expenses from outside sources in
connection with the investigation and review of possible acquisition candidates,
which is expected to be lower in 2000. Also, additional professional staff was
hired during the fourth quarter to support anticipated demand for Somerset's
services. The full revenue potential of these talented individuals is not
expected to be realized in financial results until 2000 and beyond.

Somerset is also making significant changes in technology to improve
efficiency in operations and for better and faster delivery of information to
its clients. The major work and output functions of each entity and service
specialty have been reviewed and plans adopted for each area. The many
improvements include better client Internet access to their investment accounts
and greater use of

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<PAGE>
technology for accumulation, review, analysis, and storage of data for tax,
accounting and consulting services.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1999

Earnings for the six months ended June 30, 2000, amounted to $2,517,000, or
$.88 per diluted share, compared with $1,885,000, or $.65 per diluted share, for
the same period last year, an increase in per share earnings of 35%. The 1999
earnings included a non-recurring charge against net earnings of $115,000
resulting from the adoption of a new accounting pronouncement at the beginning
of 1999. Excluding this one-time expense, earnings for the first six months of
2000 represented a 26% increase over last year.

The improvement in earnings for the six-month period was a result of an
increase in revenue during the period. Revenue and equity income for the first
six months of 2000 amounted to over $9.5 million, compared with $7.8 million for
the six months last year, an increase of 23% over 1999.

For the first six months of the year, revenue from fees and commissions for
financial services increased 25% to approximately $7 million, compared with
$5.6 million last year. Somerset's share of pretax earnings from First Indiana
Corporation increased almost 22% to $2.6 million, compared with $2.1 million in
1999.

All service specialties recorded increased fees for the first half of the
year except the information technology group, which had tremendous growth in
1999 as a result of Y2K engagements and now has returned to a normal level of
operations.

The increases in fees for tax consulting and tax return preparation were
instrumental in the overall increase in revenue for services. New individual and
small business clients continued to be added to Somerset's client base. In
addition, revenue for 2000 included the results of McGee, Rice & Wheat, Inc., a
CPA firm that merged with Somerset on September 1, 1999, and aided in the
overall increase in revenues.

Another major contributor to the overall increase in revenue was commission
earned by Somerset's investment and insurance products division. Commissions
received from these product sales increased 52% for the six months when compared
to last year.

For the first six months of 2000, Somerset's operating expenses of
$5,825,000 were $975,000, or 20%, above the $4,850,000 expended in the first six
months of 1999.

The higher operating expenses were primarily due to the inclusion of the
operating expenses of McGee, Rice & Wheat, Inc. in the 2000 amounts that were
not included in the 1999 results. The largest expense of Somerset is personnel
and personnel related costs. The September 1, 1999, merger with McGee, Rice &
Wheat added 16 individuals to our professional and support staff and accounted
for the major portion of the increase in salaries, wages, commission, and
benefit expenses. These personnel related costs increased 21% for the
year-to-date.

The increase in operating expenses was necessary to support the 25% increase
in fees and commission revenue during the first six months of 2000. As a
provider of professional financial services, an increase in revenue generally
requires an increase in professional personnel to provide those services.

Somerset's revenue and income from financial services and cash flows
historically have been cyclical as a result of the timing of income tax planning
and preparation services provided by Somerset. Because of government-imposed
filing deadlines, a larger percentage of these services occur during the first
four months of each calendar year.

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<PAGE>
According to First Indiana's June 30, 2000, Form 10-Q filed with the SEC,
the increased equity earnings from First Indiana were a result of First Indiana
Bank's sales strategy as a locally-based community bank with an emphasis on
building customer relationships. For the past several years, First Indiana Bank
has concentrated on becoming a relationship-oriented bank with the goal of
earning 100% of its clients' business. This focus has led to growth in deposits,
loans, deposit-related fees, and containment of non-interest expense.

First Indiana Bank's total deposits rose to $1.4 billion at June 30, 2000,
an increase of 12% over June 30, 1999. Consumer checking balances grew to
$141 million at June 30, 2000, a 16% increase over one year earlier. This growth
in consumer checking balances is significant because these accounts create
opportunities to build long-term relationships consistent with First Indiana's
marketing strategy.

Growth in deposits supported expansion of First Indiana Bank's loan
portfolio. Total loans outstanding were $1.8 billion at June 30, 2000, compared
with $1.6 billion one year earlier, an increase of 13%. More significantly, the
composition of First Indiana's loan portfolio continued to change. Business
loans outstanding grew 44% to $284 million from $197 million at June 30, 1999.
Consumer loans, which primarily include home equity loans originated through
First Indiana Bank's national loan origination network, grew 21% to
$746 million from $617 million one year ago.

First Indiana's non-interest expense for the first six months of 2000 was
$24.7 million, a 4% decrease over the same period last year.

Despite rising interest rates, First Indiana maintained a net interest
margin of 3.91% for the first six months of 2000, compared with 3.87% for the
same period last year.

FINANCIAL CONDITION AND LIQUIDITY

The financial condition and liquidity of Somerset remained very good at
December 31, 1999 and June 30, 2000. Somerset was also in a very sound position
at the end of 1998.

Somerset's balance sheet at December 31, 1998 contained a large percentage
of liquid assets that at that time were considered by management in excess of
the working capital needs of Somerset and were intended for future use in
expansion of operations and other uses to increase shareholder value. These
liquid assets were primarily represented by short-term investments of $3,713,000
shown in the current asset section of the 1998 Consolidated Balance Sheet.
During 1999 Somerset utilized a major portion of these excess liquid assets for
acquisitions and other long-term transactions as discussed below.

At December 31, 1999, Somerset had a ratio of current assets to current
liabilities of 4.2 to one, compared to 14.8 to one at December 31, 1998. On a
pro forma basis, had the short-term investments at December 31, 1998 been used
for non-current purposes, the 1998 pro forma current ratio would have been 6.0
to one.

Net working capital at December 31, 1999 was $2.8 million, compared to 1998
working capital of $5.8 million. On a pro forma basis (excluding the short-term
investments) the 1998 working capital was $2.1 million, $700,000 less than the
1999 amount.

The decrease in the current ratio and the amount of net working capital
resulted from the sale of all short-term investments and the use of the cash
primarily for the cash portion of the merger with McGee, Rice & Wheat, Inc., of
$1,046,000; purchase of assets for the formation of Paradym Technologies, Inc.,
of $315,000; and the net repurchase of 87,941 treasury shares of Somerset common
stock (at an average price of $17.50) of $1,539,000. The remainder was used to
purchase hardware and software for technology improvements.

At June 30, 2000, Somerset had a ratio of current assets to current
liabilities of 5.0 to 1, which was 19% higher than the 4.2 to 1 ratio that
existed at December 31, 1999. Net working capital of

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$3.9 million at June 30, 2000, represented an increase of 39% over the
$2.8 million at December 31, 1999. The increase in working capital occurred as a
result of the cyclical increase in revenue discussed above that occurs during
the first four months of a calendar year. Management considers the financial
condition and liquidity of Somerset very good at June 30, 2000.

Management considers a current ratio of 3.0 to 1.0 adequate to support the
working capital needs of operations.

Somerset had no debt at June 30, 2000 or December 31, 1999. Shareholders'
equity represented 77% of assets at June 30, 2000, and December 31, 1999.
Shareholders' equity of $38.5 million represented an increase of 6% over the
$36.4 million at December 31, 1999. The book value per share at June 30, 2000,
was $13.70, compared to $12.97 at the end of 1999.

In addition to the uses of cash discussed above, Somerset paid cash
dividends of $566,000 to its shareholders in 1999, at an annual rate of $.20 per
share, which was $.02 per share higher than 1998 and 1997. Dividends paid during
1999 represented 37% of cash flow from operations, compared to 71% in 1998, and
41% in 1997. A semi-annual cash dividend of $308,000 was paid to its
shareholders during the first quarter of 2000, representing an annual rate of
$.22 per share; a 10% increase over the $.20 per share paid in 1999.

Operating activities during 1999 provided $1,547,000 of cash, compared to
$734,000 in 1998. The primary causes of the increase were an increase in net
income, deferred income tax expense, accounts payable and accrued expenses,
which were offset by an increase in trade accounts, notes, and other
receivables. Deferred income tax expense increase when compared to 1998, because
1998 included a change of method of reporting taxable income for Whipple from
cash basis accounting to accrual basis accounting, causing a reversal of taxes
previously deferred at December 31, 1997. The increase in accounts payable,
accrued expenses, trade accounts, notes, and other receivables resulted from the
overall increase in revenue and operating levels.

Operating activities during the six months ended June 30, 2000, provided
cash of $1,167,000, compared with cash provided of $1,212,000 during the first
six months of 2000. Total cash and cash equivalents increased $566,000 for the
six-month period. The cyclical nature of operations, as noted above, causes a
rapid increase in receivables during the first four months of the year, which
results in the use of cash to support this increase. During the remainder of the
year, cash from operations improves as the balance of trade accounts receivable
is reduced. During the second quarter of 2000, operating activities provided
cash of $1,487,000, primarily as a result of this cycle.

Major contributors to the positive cash flow from operations were the
increase in net income and accrued income tax payable. These were offset by an
increase in prepaid expenses, which was a result of costs incurred in connection
with the pending merger of Somerset with First Indiana.

Somerset transferred cash of $83,000 in connection with the sale of assets
of a subsidiary in exchange for a note receivable and an equity investment in
the purchaser. Somerset expended $137,000 for the purchase of computer hardware
as part of a continuing plan to increase efficiency in its accounting and tax
service specialties. Cash dividends of $309,000 were paid to shareholders for
the first half of 2000, representing an annual rate of $.22 per share, a 10%
increase over the $.20 per share paid in 1999.

Generally Accepted Accounting Principles ("GAAP") require Somerset to record
income tax expense at full corporate rates on a portion of its equity income
from First Indiana. GAAP also requires Somerset to record its investment in
First Indiana at a net carrying value, which represents its acquisition cost of
First Indiana shares plus its equity share of First Indiana's net income. Under
certain circumstances, the deferred tax liability recorded in this manner
(approximately $10.6 million) may not be paid. The market value of Somerset's
investment in First Indiana at June 30, 2000 was

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approximately $55 million, or $14.3 million greater than the investment-carrying
amount reflected in its balance sheet.

Management anticipates that future purchases of property and equipment will
be funded by available cash and cash provided by operations. An acquisition of
another entity would require the use of debt and/or the issuance of additional
shares of common stock.

Somerset is a registered savings and loan holding company and is subject to
regulations of permitted activities defined in the National Housing Act and
administered by the Office of Thrift Supervision.

INFORMATION REGARDING OPERATING SEGMENTS

A description of Somerset's operating segments and financial information
regarding those segments is contained in Note 11 to Somerset's 1999 consolidated
financial statements, which appear elsewhere in this proxy statement and
prospectus.

IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED

Pronouncements by the Financial Accounting Standards Board and the American
Institute of Certified Public Accountants during 1999 were not expected to be
material to Somerset's consolidated financial statements.

During March, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25." This pronouncement will
become effective July 1, 2000 on a prospective (future) basis. Somerset has
stock option grants outstanding for 49,313 options shares that will be affected
by this pronouncement. The impact on Somerset's financial statements is not
material.

YEAR 2000 READINESS

Somerset was subject to regulations of two governmental agencies in
connection with review of its state of readiness for the Year 2000. Somerset's
operations of the First Indiana Investor Services division was subject to review
by the Federal Financial Institutions Examination Council ("FFIEC"), and its
Somerset Financial Services division, as a Registered Investment Advisor, was
subject to review by the Securities and Exchange Commission ("SEC"). Both the
FFIEC and the SEC required Somerset to assess Somerset's and its vendors'
ability to be Year 2000 ready by June 30, 1999 for all mission critical systems.
Because Somerset relies on technology for transaction processing, preparing for
the Year 2000 was a critical focus of resources.

All hardware and software vendors, as well as significant other vendors,
were identified and contacted. Somerset identified potential Year 2000 readiness
issues and developed action plans and contingency plans for each issue. During
1998 and 1999, Somerset tested systems for purposes of validating Year 2000
readiness, upgraded and replaced existing hardware, software, and embedded
systems, and implemented contingency plans in the event a particular vendor
would not assist Somerset in its Year 2000 efforts. A team monitored significant
vendor relationships to ensure that no issues would cause management to doubt
the ability of the vendor to be adequately prepared for the Year 2000 and thus
possibly impact Somerset's ability to conduct business beyond the century
change.

Somerset uses external data service bureaus for processing and reporting of
some customer data. Proxy testing was conducted on the mission critical aspects
with the service bureaus.

Somerset completed an upgrade of personal computer hardware during 1998 at a
cost of approximately $140,000 and also completed the installation of
replacement vendor-supplied software at

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a cost of approximately $20,000. During 1999 Somerset completed the upgrade of
two additional software systems at a cost of $25,000.

Throughout the rollover period into Year 2000 and the first seven months of
the new year, there were no significant Year 2000 related systems issues;
however, Somerset will continue to monitor these systems.

INFORMATION ON FORWARD-LOOKING STATEMENTS

The statements in the preceding discussion that are not historical are
forward-looking statements. Although Somerset believes that its expectations are
based upon reasonable assumptions within the bounds of knowledge of its
business, there can be no assurance that Somerset's financial goals will be
realized. Numerous factors may affect Somerset's actual results and may cause
results to differ materially from those expressed in forward-looking statements
made by or on behalf of Somerset.

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PRICE RANGE OF SOMERSET COMMON STOCK AND DIVIDEND HISTORY

Somerset's common stock is traded on the Nasdaq National Market under the
symbol SOMR. The following table sets forth the high and low sale prices of the
Somerset common stock for certain periods and the dividend paid per share during
those periods. Somerset pays its dividends semi-annually.

<TABLE>
<CAPTION>
CLOSING PRICES
PER SHARE
------------------- DIVIDENDS
QUARTERLY PERIOD HIGH LOW PER SHARE
---------------- -------- -------- ---------
<S> <C> <C> <C>
1998
First Quarter.................................... $25.63 $19.25 $0.09
Second Quarter................................... 24.25 21.00 --
Third Quarter.................................... 25.00 17.88 0.09
Fourth Quarter................................... 18.88 15.75 --

1999
First Quarter.................................... 17.13 15.75 0.10
Second Quarter................................... 20.13 14.63 --
Third Quarter.................................... 22.50 19.19 0.10
Fourth Quarter................................... 19.75 17.75 --

2000
First Quarter.................................... 19.31 16.63 0.11
Second Quarter................................... 22.63 17.50 --
Third Quarter (through August 18, 2000).......... 24.38 21.88
</TABLE>

The last reported sale price of Somerset's common stock on the Nasdaq
National Market on August 18, 2000 was $24.38 per share. As of August 10, 2000,
Somerset had approximately 203 registered holders and 922 beneficial holders of
its common stock.

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COMPARISON OF SHAREHOLDER RIGHTS

The rights of First Indiana shareholders are currently governed by the
Indiana Business Corporation Law (the "IBCL") and the articles of incorporation,
as amended, and the bylaws, as amended, of First Indiana (the "First Indiana
Charter" and the "First Indiana Bylaws," respectively). The rights of Somerset
shareholders are currently governed by the IBCL and the amended articles of
incorporation and the amended and restated bylaws of Somerset (the "Somerset
Charter" and "Somerset Bylaws," respectively).

The following discussions are qualified by reference to the IBCL, the First
Indiana Charter, the First Indiana Bylaws, the Somerset Charter and the Somerset
Bylaws. Copies of the First Indiana Charter, the First Indiana Bylaws, the
Somerset Charter and the Somerset Bylaws are incorporated by reference herein
and will be sent to holders of First Indiana shares and Somerset shares upon
request. See "Where You Can Find More Information."

AUTHORIZED CAPITAL

First Indiana is currently authorized to issue 35,000,000 shares of capital
stock, of which 33,000,000 are common shares and 2,000,000 are preferred shares.

The First Indiana Charter authorizes the First Indiana board of directors,
without shareholder approval, to provide for the issuance of First Indiana
preferred shares in one or more series and to fix the designations and the
powers, preferences, conversion and other rights, voting rights, restrictions
and limitations as to dividends, liquidation preference, qualifications and
terms and conditions of redemption as the First Indiana board may determine. To
date, the First Indiana board of directors has only created Series A Junior
Participating Preferred Stock in connection with the adoption of the shareholder
rights plan discussed below, and no shares of that series are outstanding.

Somerset is authorized to issue 4,000,000 common shares but is not
authorized to issue any preferred shares.

VOTING

Each holder of First Indiana common shares is entitled to one vote per share
and to the same and identical voting rights as other holders of First Indiana
common shares. Holders of First Indiana common shares do not have cumulative
voting rights. Except as may otherwise be provided in the First Indiana Charter,
a designation of a series of First Indiana preferred shares or as otherwise
expressly required by law, holders of First Indiana preferred shares do not have
any voting rights.

Each holder of Somerset common shares is entitled to one vote per share and
to the same and identical voting rights as other holders of Somerset common
shares. Holders of Somerset common shares do not have cumulative voting rights.

BOARD OF DIRECTORS

The First Indiana Charter and First Indiana Bylaws currently provide that
the number of directors will be nine. The directors are divided into three
classes and hold office for staggered three year terms.

The Somerset Bylaws currently provide that the number of directors will be
nine. The Somerset directors are divided into three classes and serve staggered
three year terms pursuant to the Somerset Charter.

REMOVAL OF DIRECTORS

Under the IBCL, directors may be removed in any manner provided in the
articles of incorporation. In addition, directors may be removed by the
shareholders and directors with or without

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cause unless the articles of incorporation specify otherwise. Both the First
Indiana Charter and the Somerset Charter provide that a director may be removed
for cause by a two-thirds majority vote of the entire board of directors or by
the affirmative vote of at least a two-thirds majority of the shares entitled to
vote at a meeting called expressly for such purpose.

SPECIAL MEETINGS OF SHAREHOLDERS

The IBCL provides that a special meeting of shareholders may be called by
the board of directors or persons specifically authorized to do so by the
articles of incorporation or bylaws and if no percentage of votes necessary to
demand such a meeting is specified, the demand must be made by the holders of
all of the votes entitled to be cast on the issue.

Pursuant to both the First Indiana Bylaws and the Somerset Bylaws, a special
meeting of the shareholders may be called at any time by the chairman, the
president, a majority of the board of directors or at the request of the owners
of not less than 25% of the outstanding shares entitled to vote.

POWER TO ADOPT, AMEND OR REPEAL BYLAWS

The IBCL reserves the power to amend or repeal by-laws solely to the
corporation's board of directors unless the articles of incorporation provide
otherwise. Both the First Indiana Charter and the Somerset Charter allow the the
directors to amend or repeal any provision of the bylaws only by a 2/3 vote of
the directors then in office.

AMENDMENT OF ARTICLES OF INCORPORATION

Under the IBCL, certain amendments to the First Indiana Charter or the
Somerset Charter are permitted without shareholder action; however, shareholders
are entitled to vote on a proposed amendment if the amendment would
(1) increase or decrease the aggregate number of authorized shares of the class;
(2) effect an exchange or reclassification of all or part of the shares of the
class into shares of another class; (3) effect an exchange or reclassification,
or create the right of exchange, of all or part of the shares of another class
into shares of the class; (4) change the designation, rights, preferences, or
limitations of all or part of the shares of the class; (5) change the shares of
all or part of the class into a different number of shares of the same class;
(6) create a new class of shares having rights or preferences with respect to
distributions or to dissolution that are prior, superior, or substantially equal
to the shares of the class (except for any series of preferred stock created by
the First Indiana board of directors as permitted by the First Indiana Charter);
(7) increase the rights, preferences, or number of authorized shares of any
class that, after giving effect to the amendment, have rights or preferences
with respect to distributions or to dissolution that are prior, superior, or
substantially equal to the shares of the class; (8) limit or deny an existing
preemptive right of all or part of the shares of the class; or (9) cancel or
otherwise affect rights to distributions or dividends that have accumulated but
not yet been declared on all or part of the shares of the class.

Article IX of First Indiana's Charter and Article VIII of Somerset's Charter
each provide that a two-thirds majority of the board of directors may amend or
repeal certain provisions of the First Indiana Charter or the Somerset Charter,
respectively, if the amendment is approved by a majority vote of the
shareholders. However, specified provisions require a two-thirds majority vote
of the issued and outstanding shares of capital stock for amendment or repeal.

ANTI-TAKEOVER PROVISIONS

Chapter 43 of the IBCL generally prohibits a "resident domestic corporation"
of Indiana, such as First Indiana or Somerset, from engaging in any "Business
Combination" (as defined below) with any "Interested Shareholder" (defined
generally as any person that, individually or with or through any of

109
<PAGE>
its affiliates or associates, beneficially owns 10% or more of the outstanding
voting securities of a corporation) for a period of five years after the date
the person becomes an Interested Shareholder unless, before such person became
an Interested Shareholder, the board of directors of the corporation approved
either the business combination or the purchase of more than 10% of the
corporation's voting securities by the Interested Shareholder. Chapter 43 also
provides that a resident domestic corporation may not engage in a merger or
other business combination with an Interested Shareholder at any time unless one
of three conditions is satisfied: (1) the board of directors of the corporation
had, before such person became an Interested Shareholder, approved either the
business combination or the purchase of more than 10% of the corporation's
voting securities by the Interested Shareholder; (2) certain "fair price"
criteria are satisfied (including a requirement that the Interested Shareholder
and its affiliates and associates have not purchased any additional shares after
first acquiring 10% of the corporation's voting securities); or (3) five years
have passed since the Interested Shareholder acquired more than 10% of the
corporation's voting securities and the Business Combination is approved by a
majority of the "disinterested" voting securities of the corporation.

A "Business Combination" is defined in Chapter 43 of the IBCL as (1) any
merger of a resident domestic corporation or any of its subsidiaries with
(A) an Interested Shareholder or (B) any other corporation which is, or after a
merger or consolidation would be, an affiliate or associate of an Interested
Shareholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with an
Interested Shareholder or any of its affiliates or associates of assets of a
resident domestic corporation or any of its subsidiaries (A) having an aggregate
market value equal to 10% or more of the aggregate market value of all assets,
determined on a consolidated basis, of the resident domestic corporation,
(B) having an aggregate market value equal to 10% or more of the aggregate
market value of all the outstanding shares of the resident domestic corporation,
or (C) representing 10% or more of the earning power or net income, determined
on a consolidated basis, of the resident domestic corporation; (3) the issuance
or transfer by a resident domestic corporation or any of its subsidiaries (in
one transaction or a series of transactions) of any shares of the resident
domestic corporation or any of its subsidiaries which has an aggregate market
value equal to 5% or more of the aggregate market value of all the outstanding
shares of the resident domestic corporation to an Interested Shareholder or any
of its affiliates or associates, except pursuant to the exercise of warrants or
rights to purchase shares offered, or a dividend or distribution or made pro
rata to all shareholders of the resident domestic corporation; (4) the adoption
of a plan of liquidation or plan of dissolution of a resident domestic
corporation proposed by, or pursuant to any agreement, arrangement or
understanding with, an Interested Shareholder or any of its affiliates or
associates; (5) any reclassification of securities including, without
limitation, any share split, share dividend or other distribution of shares in
respect of 68 shares, or any reverse share split), or recapitalization of a
resident domestic corporation, or any merger or consolidation of a domestic
corporation with any of its subsidiaries, or any other transaction (whether or
not with or into or otherwise involving an Interested Shareholder), proposed by,
or pursuant to any agreement, arrangement or understanding with, an Interested
Shareholder or any of its affiliates or associates, which has the effect,
directly or indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of voting shares or securities convertible into
voting shares of a resident domestic corporation or any of its subsidiaries
which is directly or indirectly owned by the Interested Shareholder or any of
its affiliates or associates (except as a result of immaterial changes due to
fractional share adjustments); or (6) any receipt by an Interested Shareholder
or any of its affiliates or associates, directly or indirectly (except
proportionally as a shareholder of the resident domestic corporation), of any
loans, advances, guarantees, pledges or other financial assistance or any tax
credits or tax advantages provided by or through a resident domestic
corporation.

The First Indiana Charter and the Somerset Charter each contain a business
combination provision similar to the IBCL. However, these provisions define a
"business combination" differently than the IBCL and require a two-thirds
majority vote of shareholders or the board of directors to

110
<PAGE>
approve a business combination. As a result, these provisions may afford
protection to shareholders in certain situations in which Chapter 43 would not
apply.

SHAREHOLDER RIGHTS AGREEMENT

First Indiana has a rights agreement pursuant to which common shareholders
are granted rights to purchase fractional interests in preferred shares upon the
occurrence of certain triggering events. Each Somerset shareholder entitled to
receive First Indiana common shares pursuant to the merger will also receive
associated rights to purchase fractional interests in First Indiana preferred
shares pursuant to the terms of the First Indiana rights agreement, dated as of
November 14, 1997.

Under the First Indiana rights agreement, each common shareholder receives a
dividend of one right (a "Right") for each outstanding First Indiana common
share which entitles the holder to purchase 1/100 of a share of Series A Junior
Participating Preferred Stock (a "Unit") of First Indiana at a purchase price of
$85.00 per Unit, subject to adjustment to prevent dilution (the "Purchase
Price"). Generally, each Unit has substantially the same voting rights as one
First Indiana common share. The Rights expire on November 14, 2007 unless
redeemed earlier by First Indiana.

Generally, the Rights become exercisable if:

- any person or group other than certain exempt persons becomes the
beneficial owner of 20% or more of the outstanding common shares of First
Indiana (such person being an "Acquiring Person" and the date of the
announcement being the "Shares Acquisition Date"); or

- a person or group commences a tender offer that would result in a person
acquiring 15% of the then outstanding common shares, unless the tender
offer is for all outstanding shares and deemed fair by a majority of the
Continuing Directors.

Under certain circumstances, once the Rights are exercisable, each holder of
a Right, except any Acquiring Person, may receive, upon exercise, Units having a
value equal to two times the Purchase Price. Additionally, upon the acquisition
or sale of First Indiana, each holder of a Right may receive, upon exercise,
common stock of the Acquiring Person having a value equal to two times the
exercise price of the Right.

At any time before the Rights are exercisable, a majority of the First
Indiana board of directors may redeem the Rights at a price of $.01 per Right,
or exchange the Rights for First Indiana common shares at an exchange ratio of
one share of First Indiana common stock per Right (as adjusted for stock splits
and other events pursuant to the Rights Agreement). In certain cases a decision
to redeem the Rights must be approved by a majority of the directors serving on
the First Indiana board or directors immediately prior to the Shares Acquisition
Date or the directors appointed by such directors (the "Continuing Directors")

The Rights may have certain anti-takeover effects and will cause substantial
dilution to a person or group that attempts to acquire First Indiana on terms
not approved by a majority of the Continuing Directors, unless the offer is
conditioned on a number of the Rights being acquired. However, the Rights should
not interfere with any acquisition approved by a majority of the Continuing
Directors because the Rights may be redeemed or amended by First Indiana. Thus,
the Rights are intended to encourage persons that seek to acquire control of
First Indiana to initiate such an acquisition through negotiations with the
board of directors. To the extent any potential acquirors are deterred by the
Rights, the Rights may have the effect of preserving incumbent management in
office.

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<PAGE>
LEGAL MATTERS

Various matters relating to the merger and the merger agreement, including
the validity of the First Indiana common shares offered to holders of Somerset
common shares by this joint proxy statement and prospectus and the tax aspects
of the merger transaction, have been passed upon for First Indiana by Bose
McKinney & Evans LLP, Indianapolis, Indiana. Various matters relating to the
merger and the merger agreement and the tax aspects of the merger transaction
have been passed upon for Somerset by Barnes & Thornburg, Indianapolis, Indiana.
Bose McKinney & Evans LLP has represented both First Indiana and Somerset in
various matters in the past. David A. Butcher, a partner in Bose McKinney &
Evans LLP, is the Secretary of First Indiana. Robert H. McKinney, the Chairman
of First Indiana and Somerset was a partner in Bose McKinney & Evans until 1990,
when he retired from the partnership.

INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS

The consolidated financial statements of First Indiana as of December 31,
1999 and 1998, and for each of the years in the three-year period ended
December 31, 1999, have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.

The consolidated financial statements of Somerset as of December 31, 1999
and 1998, and for each of the years in the three-year period ended December 31,
1999, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants, included
herein, and upon the authority of said firm as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

First Indiana and Somerset are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and each files reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any materials First Indiana or Somerset files with the
Securities and Exchange Commission at its Public Reference Room at 450 Fifth
Street, N.W., Washington D.C. 20549. You may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains
an Internet site that contains reports, proxies, information statements, and
other information regarding issuers that file electronically, and the address of
that site is http://www.sec.gov. First Indiana's common shares and Somerset's
common shares are listed on the Nasdaq National Market System under the symbols
"FISB" and "SOMR," respectively.

First Indiana has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act of 1933 with respect
to the common shares of First Indiana being offered in the merger. This joint
proxy statement and prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the registration
statement. Parts of the registration statement are omitted from the joint proxy
statement and prospectus in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information, your attention is
directed to the registration statement. Statements made in this joint proxy
statement and prospectus concerning the contents of any documents are not
necessarily complete, and in each case are qualified in all respects by
reference to the copy of the document filed with the Securities and Exchange
Commission.

The Securities and Exchange Commission allows Somerset to "incorporate by
reference" the information Somerset files with the Securities and Exchange
Commission, which means that Somerset can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this joint proxy statement and prospectus.

112
<PAGE>
Somerset incorporates by reference the documents listed below:

(1) Somerset's annual report on Form 10-K for the year ended December 31,
1999;

(2) Somerset's quarterly reports on Form 10-Q for the quarters ended
March 31, 2000 and June 30, 2000;

(3) Somerset's current report on Form 8-K filed April 21, 2000; and

(4) The description of Somerset's common shares contained in the
Registration Statement on Form 10, as amended.

The Securities and Exchange Commission has assigned file number 0-14227 to
the reports and other information that Somerset files with the Securities and
Exchange Commission.

You may request a copy of each of the above-listed Somerset documents at no
cost, by writing or telephoning Somerset at the following address or telephone
number, and the requested documents will be sent by first class mail within one
business day of Somerset's receipt of your request:

Investor Relations Department
Attention: Joseph M. Richter
The Somerset Group, Inc.
135 North Pennsylvania Street, Suite 2800
Indianapolis, Indiana 46204
Tel: (317) 269-1328
[email protected]

Any statement contained in a document incorporated or deemed to be
incorporated herein shall be deemed modified or superseded for purposes of this
joint proxy statement and prospectus to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this joint proxy statement and prospectus.

You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is inconsistent with information contained in this document or
any document incorporated by reference. This joint proxy statement and
prospectus is not an offer to sell these securities in any state where the offer
and sale of these securities is not permitted. The information in this joint
proxy statement and prospectus is current as of the date it is mailed to
security holders, and not necessarily as of any later date. If any material
change occurs during the period that this joint proxy statement and prospectus
is required to be delivered, this joint proxy statement and prospectus will be
supplemented or amended.

All information regarding First Indiana in this joint proxy statement and
prospectus has been provided by First Indiana and all information regarding
Somerset in this joint proxy statement and prospectus has been provided by
Somerset.

113
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Condensed Combined Balance Sheet as of June 30,
2000 (unaudited).......................................... F-3
Pro Forma Condensed Combined Balance Sheet as of
December 31, 1999 (unaudited)............................. F-4
Pro Forma Condensed Combined Statement of Earnings for the
six months ended
June 30, 2000 (unaudited)................................. F-5
Pro Forma Condensed Combined Statement of Earnings for the
year ended December 31, 1999 (unaudited).................. F-6
Notes to Pro Forma Condensed Combined Financial Statements
(unaudited)............................................... F-7

CONSOLIDATED FINANCIAL STATEMENTS OF FIRST INDIANA
CORPORATION

Independent Auditors' Report................................ F-10
Consolidated Balance Sheets as of December 31, 1999 and 1998
and as of June 30, 2000 (unaudited)....................... F-11
Consolidated Statements of Earnings for the Three-Year
Period Ended December 31, 1999 and for the Six Months
Ended June 30, 2000 and 1999 (unaudited).................. F-12
Consolidated Statements of Shareholders' Equity for the
Three-Year Period Ended December 31, 1999 and for the Six
Months Ended June 30, 2000 (unaudited).................... F-13
Consolidated Statements of Cash Flows for the Three-Year
Period Ended December 31, 1999 and for the Six Months
Ended June 30, 2000 and 1999 (unaudited).................. F-15
Notes to Consolidated Financial Statements.................. F-16

CONSOLIDATED FINANCIAL STATEMENTS OF THE SOMERSET
GROUP, INC.

Independent Auditors' Report................................ F-45
Consolidated Statements of Income for the Three-Year Period
Ended December 31, 1999 and for the Six Months Ended
June 30, 2000 and 1999 (unaudited)........................ F-46
Consolidated Balance Sheets as of December 31, 1999 and 1998
and as of June 30, 2000 (unaudited)....................... F-47
Consolidated Statements of Cash Flows for the Three-Year
Period Ended December 31, 1999 and for the Six Months
Ended June 30, 2000 and 1999 (unaudited).................. F-48
Consolidated Statements of Shareholders' Equity for the
Three-Year Period Ended December 31, 1999 and for the Six
Months Ended June 30, 2000 (unaudited).................... F-49
Notes to Consolidated Financial Statements.................. F-50
</TABLE>

F-1
<PAGE>
FIRST INDIANA CORPORATION
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

The following pro forma condensed combined financial statements for First
Indiana include certain pro forma adjustments to the historical financial
statements of First Indiana to reflect the proposed merger of First Indiana and
Somerset. The merger will be accounted for using the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16. These
pro forma condensed combined financial statements should be read in conjunction
with First Indiana's consolidated financial statements as of and for the three
years ended December 31, 1999, First Indiana's consolidated financial statements
as of and for the six months ended June 30, 2000, Somerset's consolidated
financial statements as of and for the three years ended December 31, 1999 and
Somerset's consolidated financial statements as of and for the six months ended
June 30, 2000, all of which are included in this proxy statement and prospectus.

The following pro forma condensed combined balance sheets are based upon the
December 31, 1999 and the June 30, 2000 combined balance sheets of First Indiana
and Somerset, presented as if the merger occurred on the respective dates of
such balance sheets.

The following pro forma condensed combined statements of earnings are based
upon the combined statements of earnings for the year ended December 31, 1999
and for the six months ended June 30, 2000 of First Indiana and Somerset,
presented as if the merger occurred as of the beginning of each such period.

The pro forma condensed combined financial statements do not purport to be
indicative of the actual financial position or results of operations which would
have been obtained assuming that the merger had been completed as set forth
above, or which may be obtained in the future.

F-2
<PAGE>
FIRST INDIANA CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET

JUNE 30, 2000

(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA FIRST INDIANA
------------------------ MERGER POST-MERGER
(DOLLARS IN THOUSANDS) FIRST INDIANA SOMERSET ADJUSTMENTS PRO FORMA
---------------------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash........................................... $ 34,767 $ 1,609 $ (1,000)(D) $ 35,376
Federal funds sold............................. 21,000 -- -- 21,000
---------- ------- -------- ----------
Total cash and cash equivalents............ 55,767 1,609 (1,000) 56,376
Investments available for sale................. 100,429 -- -- 100,429
Investment in First Indiana Corporation........ -- 40,529 (40,529)(A) --
Mortgage-backed securities available for
sale......................................... 51,066 -- -- 51,066
Loans held for sale............................ 42,517 -- -- 42,517
Loans receivable............................... 1,805,868 -- -- 1,805,868
Less allowance for loan losses............. 31,498 -- -- 31,498
---------- ------- -------- ----------
Loans receivable--net.......................... 1,816,887 -- -- 1,816,887
Premises and equipment......................... 17,282 802 -- 18,084
Accrued interest receivable.................... 16,201 -- -- 16,201
Real estate owned--net......................... 2,905 -- -- 2,905
Goodwill....................................... 1,581 3,057 (3,057)(K) 11,436
9,855 (B)
Prepaid expenses and other assets.............. 56,929 4,117 -- 61,046
---------- ------- -------- ----------
TOTAL ASSETS............................... $2,119,047 $50,114 $(34,731) $2,134,430
========== ======= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits................ $ 130,127 $ -- $ -- $ 130,127
Interest-bearing deposits.................... 1,246,076 -- -- 1,246,076
---------- ------- -------- ----------
Total deposits............................. 1,376,203 -- -- 1,376,203
Federal Home Loan Bank advances.............. 421,759 -- 13,883 (E) 435,642
Short-term borrowings........................ 111,177 -- -- 111,177
Deferred income taxes--investment related.... -- 10,676 (10,676)(I) --
Accrued interest payable..................... 6,845 -- -- 6,845
Advances by borrowers for taxes and
insurance.................................. 3,528 -- -- 3,528
Other liabilities............................ 14,477 941 -- 15,418
---------- ------- -------- ----------
Total liabilities.............................. 1,933,989 11,617 3,207 1,948,813
---------- ------- -------- ----------
Shareholders' Equity:
Common stock................................. 137 1,862 (28)(G) 131
22 (H)
(1,862)(H)
Paid-in capital in excess of par............. 39,399 3,528 2,210 (F) 40,940
(48,935)(G)
48,266 (H)
(3,528)(H)
Retained earnings............................ 161,211 34,837 (34,837)(H) 160,235
(976)(C)
Accumulated other comprehensive income
(loss)..................................... (1,443) -- -- (1,443)
Treasury stock--at cost...................... (14,246) (1,730) 1,730 (H) (14,246)
---------- ------- -------- ----------
Total shareholders' equity..................... 185,058 38,497 (37,938) 185,617
---------- ------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $2,119,047 $50,114 $(34,731) $2,134,430
========== ======= ======== ==========
</TABLE>

See accompanying notes to pro forma condensed combined financial statements.

F-3
<PAGE>
FIRST INDIANA CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET

DECEMBER 31, 1999

(UNAUDITED)

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits................ $ 114,356 $ -- $ -- $ 114,356
Interest-bearing deposits.................... 1,197,759 -- -- 1,197,759
---------- ------- -------- ----------
Total deposits............................. 1,312,115 -- -- 1,312,115
Federal Home Loan Bank advances.............. 366,854 -- 13,851 (E) 380,705
Short-term borrowings........................ 98,754 -- -- 98,754
Deferred income taxes--investment related.... -- 10,084 (10,084)(I) --
Accrued interest payable..................... 5,605 -- -- 5,605
Advances by borrowers for taxes and
insurance.................................. 1,377 -- -- 1,377
Other liabilities............................ 17,966 854 -- 18,820
---------- ------- -------- ----------
Total liabilities.............................. 1,802,671 10,938 3,767 1,817,376
---------- ------- -------- ----------
Shareholders' Equity:
Common stock................................. 136 1,862 (28)(G) 130
22 (H)
(1,862)(H)
Paid-in capital in excess of par............. 37,962 3,560 1,674 (F) 38,856
(48,935)(G)
48,155 (H)
(3,560)(H)
Retained earnings............................ 153,710 32,792 (32,792)(H) 153,710
Accumulated other comprehensive income
(loss)..................................... (724) -- -- (724)
Treasury stock--at cost...................... (13,981) (1,843) 1,843 (H) (13,981)
---------- ------- -------- ----------
Total shareholders' equity..................... 177,103 36,371 (35,483) 177,991
---------- ------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $1,979,774 $47,309 $(31,716) $1,995,367
========== ======= ======== ==========
</TABLE>

See accompanying notes to pro forma condensed combined financial statements.

F-4
<PAGE>
FIRST INDIANA CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

FOR THE SIX MONTHS ENDED JUNE 30, 2000

(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA FIRST INDIANA
------------------------- MERGER POST-MERGER
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST INDIANA SOMERSET ADJUSTMENTS PRO FORMA
--------------------------------------------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans.................................................... $ 77,049 $ -- $ -- $ 77,049
Investments.............................................. 3,356 27 -- 3,383
Mortgage-backed securities............................... 1,870 -- -- 1,870
Dividends on Federal Home Loan Bank stock................ 823 -- -- 823
Federal funds sold and interest-bearing deposits......... 342 -- -- 342
---------- --------- ------- ----------
Total interest income...................................... 83,440 27 -- 83,467
---------- --------- ------- ----------
Interest expense:
Deposits................................................... 30,300 -- -- 30,300
Federal Home Loan Bank advances............................ 11,673 -- 492 (O) 12,165
Short-term borrowings...................................... 2,945 -- -- 2,945
---------- --------- ------- ----------
Total interest expense..................................... 44,918 -- 492 45,410
---------- --------- ------- ----------
Net interest income........................................ 38,522 27 (492) 38,057
Provision for loan losses................................ 4,878 -- -- 4,878
---------- --------- ------- ----------
Net interest income after provision for loan losses........ 33,644 27 (492) 33,179
---------- --------- ------- ----------
Non-interest income:
Customer fee income...................................... 3,551 -- -- 3,551
Consulting fees and commissions.......................... -- 6,970 -- 6,970
Sale of investments held for sale........................ 43 -- -- 43
Sale of loans............................................ 2,323 -- -- 2,323
Loan servicing income.................................... 595 -- -- 595
Loan fees................................................ 1,332 -- -- 1,332
Trust fees............................................... 675 -- -- 675
Equity in earnings of First Indiana Corporation.......... -- 2,559 (2,559)(L) --
Other.................................................... 1,638 -- 68 (J) 1,706
---------- --------- ------- ----------
Total non-interest income.................................. 10,157 9,529 (2,491) 17,195
---------- --------- ------- ----------
Non-interest expense:
Salaries and benefits.................................... 13,735 4,462 23 (M) 18,220
Net occupancy............................................ 1,347 279 -- 1,626
Equipment................................................ 2,957 161 -- 3,118
Deposit insurance........................................ 133 -- -- 133
Real estate owned operations--net........................ 285 -- -- 285
Office supplies and postage.............................. 888 122 -- 1,010
Other.................................................... 5,386 801 (113)(K) 6,335
---------- --------- ----------
(68)(J)
329 (N)
-------

Total non-interest expense................................. 24,731 5,825 171 30,727
---------- --------- ------- ----------
Earnings before income taxes............................... 19,070 3,731 (3,154) 19,647
Income taxes............................................. 7,374 1,214 (1,009)(P) 7,579
---------- --------- ------- ----------
Net earnings before cumulative effect of change in
accounting principle..................................... $ 11,696 $ 2,517 $(2,145) $ 12,068
========== ========= ======= ==========

Basic earnings per share before cumulative effect of change
in accounting principle.................................. $ 0.93 $ 0.90 $ 0.96
========== ========= ==========

Diluted earnings per share before cumulative effect of
change in accounting principle........................... $ 0.91 $ 0.88 $ 0.95
========== ========= ==========

Weighted average shares--basic............................. 12,614,938 2,807,209 12,573,849
========== ========= ==========
Weighted average shares--diluted........................... 12,795,639 2,846,677 12,754,550
========== ========= ==========
</TABLE>

See accompanying notes to pro forma condensed combined financial statements.

F-5
<PAGE>
FIRST INDIANA CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 1999

(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA FIRST INDIANA
------------------------- MERGER POST-MERGER
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST INDIANA SOMERSET ADJUSTMENTS PRO FORMA
--------------------------------------------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans.................................................... $ 135,037 $ -- $ -- $ 135,037
Investments.............................................. 6,247 89 -- 6,336
Mortgage-backed securities............................... 3,255 -- -- 3,255
Dividends on Federal Home Loan Bank stock................ 1,476 -- -- 1,476
Federal funds sold and interest-bearing deposits......... 411 -- -- 411
---------- --------- ------- ----------
Total interest income...................................... 146,426 89 -- 146,515
---------- --------- ------- ----------
Interest expense:
Deposits................................................. 54,473 -- -- 54,473
Federal Home Loan Bank advances.......................... 18,309 -- 756 (O) 19,065
Short-term borrowings.................................... 2,793 -- -- 2,793
---------- --------- ------- ----------
Total interest expense..................................... 75,575 -- 756 76,331
---------- --------- ------- ----------
Net interest income........................................ 70,851 89 (756) 70,184
Provision for loan losses................................ 9,410 -- -- 9,410
---------- --------- ------- ----------
Net interest income after provision for loan losses........ 61,441 89 (756) 60,774
---------- --------- ------- ----------
Non-interest income:
Customer fee income...................................... 5,296 -- -- 5,296
Consulting fees and commissions.......................... -- 10,228 -- 10,228
Sale of investments held for sale........................ (886) -- -- (886)
Sale of mortgage-backed securities available for sale.... (2,129) -- -- (2,129)
Sale of loans............................................ 7,417 -- -- 7,417
Sale of deposits......................................... 7,590 -- -- 7,590
Loan servicing income.................................... 1,220 -- -- 1,220
Loan fees................................................ 3,626 -- -- 3,626
Trust fees............................................... 1,080 -- -- 1,080
Equity in earnings of First Indiana Corporation.......... -- 4,986 (4,986)(L) --
Other.................................................... 3,744 -- 113 (J) 3,857
---------- --------- ------- ----------
Total non-interest income.................................. 26,958 15,214 (4,873) 37,299
---------- --------- ------- ----------
Non-interest expense:
Salaries and benefits.................................... 28,152 7,689 7 (M) 35,848
Net occupancy............................................ 2,942 449 -- 3,391
Equipment................................................ 5,825 203 -- 6,028
Deposit insurance........................................ 712 -- -- 712
Real estate owned operations--net........................ 537 -- -- 537
Office supplies and postage.............................. 2,059 174 -- 2,233
Other.................................................... 12,119 1,647 (146)(K) 14,179
---------- --------- ----------
(113)(J)
672 (N)
-------

Total non-interest expense................................. 52,346 10,162 420 62,928
---------- --------- ------- ----------
Earnings before income taxes............................... 36,053 5,141 (6,049) 35,145
Income taxes............................................. 13,320 1,634 (1,936)(P) 13,018
---------- --------- ------- ----------
Net earnings before cumulative effect of change in
accounting principle..................................... $ 22,733 $ 3,507 $(4,113) $ 22,127
========== ========= ======= ==========

Basic earnings per share before cumulative effect of change
in accounting principle.................................. $ 1.81 $ 1.24 $ 1.76
========== ========= ==========

Diluted earnings per share before cumulative effect of
change in accounting principle........................... $ 1.77 $ 1.22 $ 1.72
========== ========= ==========

Weighted average shares--basic............................. 12,578,145 2,822,583 12,551,641
========== ========= ==========
Weighted average shares--diluted........................... 12,839,678 2,868,229 12,895,991
========== ========= ==========
</TABLE>

See accompanying notes to pro forma condensed combined financial statements.

F-6
<PAGE>
FIRST INDIANA CORPORATION

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

AT AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND
AT AND FOR THE SIX MONTHS ENDED JUNE 30, 2000

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the merger been consummated as of or at the beginning of the period
indicated, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined company. It is
anticipated that the merger will be completed in the third quarter of 2000 or
early in the fourth quarter of 2000.

Under generally accepted accounting principles, the transaction will be
accounted for as a purchase. Accordingly, First Indiana will determine fair
values of Somerset's assets and liabilities, and will record as goodwill the
excess of consideration paid, plus costs of the merger, over the fair value of
the net assets acquired. A final determination of required purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values has not
yet been made. The goodwill resulting from the merger will be amortized to
expense over a 15 year period. Certain reclassifications have been included in
the unaudited pro forma condensed combined balance sheet and unaudited pro forma
condensed combined statements of earnings to conform presentation.

NOTE 2. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS

The accounting policies of both companies are in the process of being
reviewed for consistency. As a result of this review, certain conforming
accounting adjustments may be necessary. The nature and extent of these
adjustments have not been determined but are not expected to be significant.

NOTE 3. PRO FORMA ADJUSTMENTS

(A) Pro forma adjustment to eliminate Somerset's investment in First Indiana
Corporation (2,758,467 common shares accounted for using the equity method
of accounting).

(B) Pro forma adjustment to record as goodwill the excess of consideration paid,
plus costs of the merger and the fair value of Somerset's stock options,
over the fair value of the net assets acquired (see also (D), (F) and (H)).

(D) Pro forma adjustment to record estimated merger costs of $1,000,000.

(E) Pro forma adjustment to reflect the assumed borrowings of FHLB advances by
First Indiana Bank to pay its intercompany receivable to First Indiana,
which will use the funds to pay the cash portion of the purchase price
assuming an exchange ratio of 80% stock and 20% cash (see also (O)).

(F) Pro forma adjustment to reflect the fair value of vested and unvested
Somerset stock options of $1,674,000 at December 31, 1999 and $2,210,000 at
June 30, 2000.

(G) Pro forma adjustment to record the repurchase of 2,758,467 First Indiana
common shares held by Somerset at a market price of $17.75 per share.

F-7
<PAGE>
FIRST INDIANA CORPORATION

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)

AT AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND
AT AND FOR THE SIX MONTHS ENDED JUNE 30, 2000

(UNAUDITED)

NOTE 3. PRO FORMA ADJUSTMENTS (CONTINUED)
(H) Pro forma adjustment to record the purchase of Somerset shares assuming 80%
of the shares (2,243,121 at December 31, 1999 and 2,248,285 at June 30,
2000) are exchanged for shares of First Indiana at a rate of 1.21 First
Indiana shares (at a market price of $17.75 per share) for each Somerset
share, and 20% of the shares (560,781 at December 31, 1999 and 562,072 at
June 30, 2000) exchanged for cash at $24.70 per share. The total purchase
price including merger costs and the fair value of Somerset stock options is
$64,702,000 at December 31, 1999 and $65,381,000 at June 30, 2000.

(I) Pro forma adjustment to eliminate Somerset's deferred income taxes related
to accumulated earnings from its investment in First Indiana.

(J) Pro forma adjustment to eliminate commissions paid by a subsidiary of
Somerset to First Indiana Bank.

(K) Pro forma adjustment to eliminate the goodwill and the related amortization
recorded by Somerset related to its previous acquisitions.

(L) Pro forma adjustment to eliminate the equity in First Indiana's earnings
recorded by Somerset.

(M) Pro forma adjustment to amortize unvested stock option unearned compensation
recorded in connection with the merger.

(N) Pro forma adjustment to record the amortization of goodwill over 15 years.

(O) Pro forma adjustment to record the interest expense on the borrowings at a
rate of 5.46% for the year ended December 31, 1999, and 7.09% for the six
months ended June 30, 2000 (interest rates used are five year Federal Home
Loan Bank advances at January 4, 1999 and January 3, 2000 respectively).

(P) Pro forma adjustment to reflect the tax effect of the various adjustments
above.

F-8
<PAGE>
FIRST INDIANA CORPORATION

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)

AT AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND
AT AND FOR THE SIX MONTHS ENDED JUNE 30, 2000

(UNAUDITED)

NOTE 4. COMPARISON OF SELECTED PRO FORMA COMBINED DATA

The following table compares selected pro forma combined data assuming stock
and cash exchange ratios of 80%-20%, 90%-10%, and 65%-35% at and for the periods
ended June 30, 2000 and December 31, 1999.

<TABLE>
<CAPTION>
ASSUMPTION: ASSUMPTION: ASSUMPTION:
80% STOCK AND 20% CASH 90% STOCK AND 10% CASH 65% STOCK AND 35% CASH
--------------------------- --------------------------- ---------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE YEAR SIX MONTHS FOR THE YEAR SIX MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
DATA) 2000 1999 2000 1999 2000 1999
--------------------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Combined Income Statement
Data:
Net Earnings before Cumulative Effect
of Change in Accounting Principle... $12,068 $22,127 $12,257 $22,326 $11,787 $21,577
Earnings per Share:
Basic............................... $ 0.96 $ 1.76 $ 0.93 $ 1.73 $ 1.00 $ 1.79
Diluted............................. 0.95 1.72 0.92 1.69 0.99 1.74
</TABLE>

<TABLE>
<CAPTION>
ASSUMPTION: ASSUMPTION: ASSUMPTION:
80% STOCK AND 90% STOCK AND 65% STOCK AND
20% CASH 10% CASH 35% CASH
------------------------- ------------------------- -------------------------
AT AT AT AT AT AT
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 2000 1999 2000 1999
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Combined Balance Sheet Data:
Goodwill.................................... $ 11,436 $ 12,734 $ 10,530 $ 11,831 $ 12,795 $ 14,090
Total Stockholders' Equity.................. 185,617 177,991 191,652 184,013 176,563 168,958
</TABLE>

F-9
<PAGE>
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, 1999 and 1998 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, 1999.
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 generally accepted auditing
standards. 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.

KPMG LLP

Indianapolis, Indiana
January 18, 2000

F-10
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
(DOLLARS IN THOUSANDS) 2000 1999 1998
---------------------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash..................................................... $ 34,767 $ 30,941 $ 45,153
Federal funds sold....................................... 21,000 30,500 12,500
---------- ---------- ----------
Total cash and cash equivalents........................ 55,767 61,441 57,653
Investments available for sale (Notes 2 and 9)........... 100,429 103,169 113,291
Mortgage-backed securities available for sale (Notes 3
and 9)................................................. 51,066 54,734 29,680
Loans held for sale...................................... 42,517 32,567 112,398
Loans receivable......................................... 1,805,868 1,669,614 1,431,845
Less allowance for loan losses......................... 31,498 (28,759) (25,700)
---------- ---------- ----------
Loans receivable--net (Notes 4, 5, 8, and 12)............ 1,816,887 1,673,422 1,518,543
Premises and equipment (Note 6).......................... 17,282 17,071 18,546
Accrued interest receivable.............................. 16,201 13,554 11,680
Real estate owned--net (Note 5).......................... 2,905 1,227 2,204
Prepaid expenses and other assets (Note 10).............. 58,510 55,156 44,393
---------- ---------- ----------
TOTAL ASSETS........................................... $2,119,047 $1,979,774 $1,795,990
========== ========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits.......................... $ 130,127 $ 114,356 $ 129,043
Interest-bearing deposits.............................. 1,246,076 1,197,759 1,098,875
---------- ---------- ----------
Total deposits (Note 7).............................. 1,376,203 1,312,115 1,227,918
Federal Home Loan Bank advances (Note 8)............... 421,759 366,854 327,247
Short-term borrowings (Note 9)......................... 111,177 98,754 54,219
Accrued interest payable............................... 6,845 5,605 2,646
Advances by borrowers for taxes and insurance.......... 3,528 1,377 1,958
Other liabilities...................................... 14,477 17,966 16,032
---------- ---------- ----------
Total liabilities........................................ 1,933,989 1,802,671 1,630,020
---------- ---------- ----------
Shareholders' Equity (Notes 10, 11, and 13)
Preferred stock, $.01 par value: 2,000,000 shares
authorized; none issued.............................. -- -- --
Common stock, $.01 par value: 33,000,000 shares
authorized; 13,716,274, 13,611,965 and 13,512,902
shares issued and outstanding, including shares in
treasury............................................. 137 136 135
Paid-in capital in excess of par....................... 39,399 37,962 37,029
Retained earnings...................................... 161,211 153,710 137,063
Accumulated other comprehensive income (loss).......... (1,443) (724) 425
Treasury stock--at cost 1,101,671, 1,088,813 and
809,608 shares....................................... (14,246) (13,981) (8,682)
---------- ---------- ----------
Total shareholders' equity............................... 185,058 177,103 165,970
---------- ---------- ----------
Commitments and contingencies (Note 12).................. -- -- --
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $2,119,047 $1,979,774 $1,795,990
========== ========== ==========
</TABLE>

See Notes to Consolidated Financial Statements

F-11
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1999 1998 1997
--------------------------------------------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans (Note 4)............................ $77,049 $64,954 $135,037 $125,783 $117,371
Investments............................... 3,356 2,988 6,247 7,465 6,818
Mortgage-backed securities................ 1,870 1,451 3,255 2,065 2,446
Dividends on Federal Home Loan Bank stock.. 823 697 1,476 1,097 1,055
Federal funds sold and interest-bearing
deposits................................ 342 210 411 521 695
------- ------- -------- -------- --------
Total interest income....................... 83,440 70,300 146,426 136,931 128,385
------- ------- -------- -------- --------
Interest expense:
Deposits (Note 7)......................... 30,300 27,181 54,473 54,935 49,936
Federal Home Loan Bank advances........... 11,673 7,947 18,309 15,348 12,288
Short-term borrowings..................... 2,945 1,098 2,793 2,797 2,127
------- ------- -------- -------- --------
Total interest expense...................... 44,918 36,226 75,575 73,080 64,351
------- ------- -------- -------- --------
Net interest income......................... 38,522 34,074 70,851 63,851 64,034
Provision for loan losses (Note 5)........ 4,878 4,920 9,410 9,780 10,700
------- ------- -------- -------- --------
Net interest income after provision for loan
losses.................................... 33,644 29,154 61,441 54,071 53,334
------- ------- -------- -------- --------
Non-interest income:
Sale of investments available for sale.... 43 218 (886) 395 217
Sale of mortgage-backed securities
available for sale...................... -- -- (2,129) 368 --
Sale of loans............................. 2,323 4,568 7,417 9,418 4,932
Sale of deposits.......................... -- -- 7,590 -- --
Loan servicing income..................... 595 513 1,220 1,635 2,767
Loan fees................................. 1,332 1,952 3,626 3,092 2,358
Insurance commissions..................... 66 41 108 106 238
Trust fees................................ 675 289 1,080 -- --
Customer fee income....................... 3,551 2,737 5,296 4,107 3,704
Other..................................... 1,372 1,991 3,636 3,555 2,734
------- ------- -------- -------- --------
Total non-interest income................... 10,157 12,309 26,958 22,676 16,950
------- ------- -------- -------- --------
Non-interest expense:
Salaries and benefits..................... 13,735 14,291 28,152 22,701 19,916
Net occupancy............................. 1,347 1,563 2,942 2,893 2,852
Equipment................................. 2,957 2,561 5,825 5,042 4,692
Deposit insurance......................... 133 358 712 691 693
Real estate owned operations--net......... 285 289 537 858 652
Office supplies and postage............... 888 1,073 2,059 2,032 1,849
Other..................................... 5,386 5,613 12,119 11,539 10,450
------- ------- -------- -------- --------
Total non-interest expense.................. 24,731 25,748 52,346 45,756 41,104
------- ------- -------- -------- --------
Earnings before income taxes................ 19,070 15,715 36,053 30,991 29,180
Income taxes (Note 10).................... 7,374 6,064 13,320 11,844 11,436
------- ------- -------- -------- --------
Net earnings................................ $11,696 $ 9,651 $ 22,733 $ 19,147 $ 17,744
======= ======= ======== ======== ========
Basic earnings per share.................... $ 0.93 $ 0.76 $ 1.81 $ 1.50 $ 1.40
======= ======= ======== ======== ========
Diluted earnings per share.................. $ 0.91 $ 0.75 $ 1.77 $ 1.44 $ 1.36
======= ======= ======== ======== ========
Dividends per common share.................. $ 0.28 $ 0.26 $ 0.52 $ 0.48 $ 0.40
======= ======= ======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-12
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN ACCUMULATED
COMMON STOCK CAPITAL OTHER
--------------------- IN EXCESS RETAINED COMPREHENSIVE TREASURY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SHARES AMOUNT OF PAR EARNINGS INCOME (LOSS) STOCK
--------------------------------------------- ---------- -------- --------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 12,455,122 $132 $33,181 $111,767 $(72) $(6,350)
Comprehensive income:
Net earnings for 1997... -- -- -- 17,744 -- --
Unrealized gain on securities available
for sale, net of income taxes of $271
and reclassification adjustment
(Note 2)............ -- -- -- -- 397 --
Total comprehensive income...
Tax benefit of option compensation... -- -- 656 -- -- --
Common stock issued under restricted stock
plans--net of amortization (Note 13)... 43,500 -- 1,088 (725) -- --
Common stock issued under deferred
compensation plan...... -- -- -- (24) -- --
Exercise of stock options... 201,306 2 866 -- -- --
Dividends--$.40 per share... -- -- -- (5,063) -- --
Redemption of common stock... (29,823) -- (501) -- -- --
Purchase of treasury stock... (6,000) -- -- -- -- (132)
Reissuance of treasury stock... 4,591 -- 40 -- -- 42
Payment for fractional shares... (505) -- (12) -- -- --
---------- ---- ------- -------- ---- -------
Balance at December 31, 1997... 12,668,191 134 35,318 123,699 325 (6,440)
Comprehensive income:
Net earnings for 1998... -- -- -- 19,147 -- --
Unrealized gain on securities available
for sale, net of income taxes of $68
and reclassification adjustment (Note
2)................... -- -- -- -- 100 --
Total comprehensive income...
Tax benefit of option compensation... -- -- 870 -- -- --
Common stock issued under restricted stock
plans--net of amortization (Note 13)... 6,000 -- 150 277 -- --
Common stock issued under deferred
compensation plan...... -- -- -- 65 -- --
Exercise of stock options... 139,147 1 885 -- -- --
Dividends--$.48 per share... -- -- -- (6,125) -- --
Redemption of common stock... (6,695) -- (184) -- -- --
Purchase of treasury stock... (103,000) -- -- -- -- (2,242)
Payment for fractional shares... (349) -- (10) -- -- --
---------- ---- ------- -------- ---- -------
Balance at December 31, 1998... 12,703,294 $135 $37,029 $137,063 $425 $(8,682)
========== ==== ======= ======== ==== =======

TOTAL
SHAREHOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) EQUITY
--------------------------------------------- -------------
<S> <C>
Balance at December 31, 1996... $138,658
Comprehensive income:
Net earnings for 1997... 17,744
Unrealized gain on securities available
for sale, net of income taxes of $271
and reclassification adjustment
(Note 2)............ 397
Total comprehensive income... 18,141
Tax benefit of option compensation... 656
Common stock issued under restricted stock
plans--net of amortization (Note 13)... 363
Common stock issued under deferred
compensation plan...... (24)
Exercise of stock options... 868
Dividends--$.40 per share... (5,063)
Redemption of common stock... (501)
Purchase of treasury stock... (132)
Reissuance of treasury stock... 82
Payment for fractional shares... (12)
--------
Balance at December 31, 1997... 153,036
Comprehensive income:
Net earnings for 1998... 19,147
Unrealized gain on securities available
for sale, net of income taxes of $68
and reclassification adjustment (Note
2)................... 100
Total comprehensive income... 19,247
Tax benefit of option compensation... 870
Common stock issued under restricted stock
plans--net of amortization (Note 13)... 427
Common stock issued under deferred
compensation plan...... 65
Exercise of stock options... 886
Dividends--$.48 per share... (6,125)
Redemption of common stock... (184)
Purchase of treasury stock... (2,242)
Payment for fractional shares... (10)
--------
Balance at December 31, 1998... $165,970
========
</TABLE>

See Notes to Consolidated Financial Statements

F-13
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
PAID-IN ACCUMULATED
COMMON STOCK CAPITAL OTHER
--------------------- IN EXCESS RETAINED COMPREHENSIVE TREASURY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SHARES AMOUNT OF PAR EARNINGS INCOME (LOSS) STOCK
--------------------------------------------- ---------- -------- --------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998... 12,703,294 $135 $37,029 $137,063 $ 425 $(8,682)
Comprehensive income:
Net earnings for 1999... -- -- -- 22,733 -- --
Unrealized loss on securities available
for sale, net of income taxes of $861
and reclassification adjustment (Note
2)................... -- -- -- -- (1,149) --
Total comprehensive income...
Tax benefit of option compensation... -- -- 468 -- -- --
Common stock issued under restricted stock
plans--net of amortization (Note 13)... -- -- (160) 446 -- --
Exercise of stock options... 102,147 1 682 -- -- --
Dividends--$.52 per share... -- -- -- (6,532) -- --
Redemption of common stock... (3,084) -- (57) -- -- --
Purchase of treasury stock... (279,205) -- -- -- -- (5,299)
---------- ---- ------- -------- ------- --------
Balance at December 31, 1999... 12,523,152 136 37,962 153,710 (724) (13,981)
Comprehensive income (unaudited):
Net earnings January 1, 2000 to June 30,
2000 (unaudited)..... -- -- -- 11,696 -- --
Unrealized loss on securities available
for
sale of $1,189, net of income taxes and
reclassification adjustment of $43
(unaudited).......... -- -- -- -- (719) --
Total comprehensive income (unaudited)...
Tax benefit of option compensation
(unaudited)............ -- -- 219 -- -- --
Common stock issued under restricted stock
plans--net of amortization (unaudited)... 36,000 -- 792 (660) -- --
Exercise of stock options (unaudited)... 70,960 1 454 -- -- --
Dividends--$.28 per share (unaudited)... -- -- -- (3,535) -- --
Redemption of common stock (unaudited)... (2,651) -- (56) -- -- --
Purchase of treasury stock (unaudited)... (15,000) -- -- -- -- (283)
Reissuance of treasury stock (unaudited)... 2,142 -- 28 -- -- 18
---------- ---- ------- -------- ------- --------
Balance at June 30, 2000 (unaudited)... 12,614,603 $137 $39,399 $161,211 $(1,443) $(14,246)
========== ==== ======= ======== ======= ========

TOTAL
SHAREHOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) EQUITY
--------------------------------------------- -------------
<S> <C>
Balance at December 31, 1998... $165,970
Comprehensive income:
Net earnings for 1999... 22,733
Unrealized loss on securities available
for sale, net of income taxes of $861
and reclassification adjustment (Note
2)................... (1,149)
Total comprehensive income... 21,584
Tax benefit of option compensation... 468
Common stock issued under restricted stock
plans--net of amortization (Note 13)... 286
Exercise of stock options... 683
Dividends--$.52 per share... (6,532)
Redemption of common stock... (57)
Purchase of treasury stock... (5,299)
--------
Balance at December 31, 1999... 177,103
Comprehensive income (unaudited):
Net earnings January 1, 2000 to June 30,
2000 (unaudited)..... 11,696
Unrealized loss on securities available
for
sale of $1,189, net of income taxes and
reclassification adjustment of $43
(unaudited).......... (719)
Total comprehensive income (unaudited)... 10,977
Tax benefit of option compensation
(unaudited)............ 219
Common stock issued under restricted stock
plans--net of amortization (unaudited)... 132
Exercise of stock options (unaudited)... 455
Dividends--$.28 per share (unaudited)... (3,535)
Redemption of common stock (unaudited)... (56)
Purchase of treasury stock (unaudited)... (283)
Reissuance of treasury stock (unaudited)... 46
--------
Balance at June 30, 2000 (unaudited)... $185,058
========
</TABLE>

See Notes to Consolidated Financial Statements

F-14
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------
(DOLLARS IN THOUSANDS) 2000 1999 1999 1998 1997
---------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 11,696 $ 9,651 $ 22,733 $ 19,147 $ 17,744
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities
Gain on sale of assets and deposits....................... (2,366) (4,786) (11,992) (10,181) (5,149)
Amortization.............................................. 50 1,425 1,818 1,941 864
Amortization of restricted stock plan..................... 132 223 286 427 363
Depreciation.............................................. 1,418 1,088 2,524 2,211 2,022
Loan and mortgage-backed securities net accretion......... 221 (151) (240) 490 668
Provision for loan losses................................. 4,878 4,920 9,410 9,780 10,700
Origination of loans held for sale net of principal
collected............................................... (142,134) (391,216) (558,535) (630,620) (240,558)
Proceeds from sale of loans held for sale................. 134,492 402,783 647,113 598,676 211,858
Tax benefit of option compensation........................ 219 323 468 870 656
Change in:
Accrued interest receivable............................. (2,647) (1,130) (1,874) (358) (626)
Other assets............................................ (9,285) (30,819) (17,789) (19,337) (10,180)
Accrued interest payable................................ 1,240 670 2,959 (69) 697
Other liabilities....................................... (3,489) 1,143 1,934 1,509 2,882
--------- --------- --------- --------- ---------
Net cash provided (used) by operating activities...... (5,575) (5,876) 91,815 (29,514) (8,059)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of investments available for sale..... 22,255 30,211 147,486 20,399 14,991
Proceeds from sales of mortgage-backed securities
available for sale...................................... -- -- 55,752 23,483 --
Proceeds from maturity of investment securities held to
maturity................................................ -- -- -- 99 237
Proceeds from sale of mortgage-backed securities held to
maturity................................................ -- -- -- -- 7,528
Proceeds from maturity of investment securities available
for sale................................................ (112) 18,957 3,143 25,756 20,695
Purchase of investment securities available for sale...... (20,000) (49,806) (144,898) (47,375) (39,912)
Purchase of mortgage-backed securities available for
sale.................................................... -- (30,284) (89,604) (30,261) (17,568)
Principal collected on mortgage-backed securities......... 3,035 2,271 6,343 1,928 7,903
Originations of loans net of principal collected.......... (135,885) (73,562) (306,488) (125,399) (107,404)
Proceeds from sale of loans............................... 1,960 -- 70,915 9,567 5,274
Purchase of premises and equipment........................ (1,687) (2,167) (2,965) (6,810) (2,291)
Proceeds from sale of premises and equipment.............. 141 31 1,146 -- 27
--------- --------- --------- --------- ---------
Net cash provided (used) by investing activities...... (130,293) (104,349) (259,170) (128,613) (110,520)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net change in deposits.................................... 64,088 119,597 204,137 120,363 12,069
Sale of deposits.......................................... -- -- (112,350) -- --
Repayments of Federal Home Loan Bank advances............. (475,096) (472,071) (662,087) (344,048) (174,028)
Borrowings of Federal Home Loan Bank advances............. 530,001 456,684 701,694 413,837 216,020
Net change in short-term borrowings....................... 12,423 13,209 44,535 (21,532) 45,696
Net change in advances by borrowers for taxes and
insurance............................................... 2,151 778 (581) 539 299
Stock option proceeds and redemption of common stock...... 399 216 626 702 367
Common stock issued under deferred compensation plan...... -- -- -- 65 (24)
Payment for fractional shares............................. -- -- -- (10) (12)
Purchase of treasury stock................................ (283) (4,444) (5,299) (2,242) (132)
Reissuance of Treasury Stock.............................. 46 -- -- -- --
Dividends paid............................................ (3,535) (3,278) (6,532) (6,125) (5,063)
--------- --------- --------- --------- ---------
Net cash provided by financing activities............. 130,194 110,691 164,143 161,549 96,192
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents..................... (5,674) 466 3,788 7,422 (23,387)
Cash and cash equivalents at beginning of period............ 61,441 57,653 57,653 50,231 73,618
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.................. $ 55,767 $ 58,119 $ 61,441 $ 57,653 $ 50,231
========= ========= ========= ========= =========
</TABLE>

F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(INFORMATION AT AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS
UNAUDITED)

(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

First Indiana Corporation ("First Indiana" or the "Corporation") is a
nondiversified, unitary savings and loan holding company. First Indiana Bank and
its subsidiaries (collectively the "Bank"), the principal asset of the
Corporation, is a federally chartered stock savings bank insured by the Federal
Deposit Insurance Corporation. First Indiana is the largest publicly held bank
based in Indianapolis.

The Bank is engaged primarily in the business of attracting deposits from
the general public and originating commercial, consumer, and construction loans.
The Bank offers a full range of banking services from 23 banking centers located
throughout Metropolitan Indianapolis, Franklin, Mooresville, Pendleton,
Rushville, and Westfield, Indiana. In the third quarter of 1999, the Bank sold
the deposits and branch facilities of its Evansville banking centers. In
addition, the Bank has construction and consumer loan offices throughout Indiana
and in Florida, Georgia, 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 is 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. First Indiana'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 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 generally accepted accounting principles and to general
practices within the savings bank industry. The more significant policies are
summarized below.

(A) BASIS OF FINANCIAL STATEMENT PRESENTATION--The Consolidated Financial
Statements include the accounts of the Corporation and of the Bank. 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 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 allowances for loan and real
estate owned losses.

(B) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--The Bank classifies
investments in debt securities as either trading, held to maturity, or available
for sale. Investments and debt securities classified as held to maturity are
stated at cost, as adjusted for amortization of premiums and accretion

F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
of discounts using the level yield method. The Bank has the ability and positive
intent to hold these securities to maturity.

Investments in debt 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. Investments in debt
securities classified as trading are stated at fair value. Unrealized holding
gains and losses for trading securities are included in earnings.

Dividend and interest income are 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) LOANS--Loans originated for portfolio are recorded at cost, with any
discount or premium amortized to maturity using the level-yield method. Loans
are placed on non-accrual status when payments of principal or interest become
90 days or more past due or earlier when an analysis of a borrower's
creditworthiness indicates that payments could become past due. Interest income
on such loans is recognized only to the extent that cash is received and where
future collection 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.

(D) MORTGAGE AND HOME EQUITY LOAN ORIGINATION ACTIVITIES--In general, the
Bank originates fixed-rate residential mortgage loans and selected fixed-rate
home equity loans for sale in the secondary market. Adjustable-rate residential
mortgage and other home equity loans are originated primarily for investment
purposes, with the intention of holding them to maturity. In certain instances,
adjustable-rate mortgage loans originated are identified as held for sale. This
action is taken primarily to effectively manage the total interest-rate risk
levels of the Bank's asset/liability structure.

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
conservatively manages it through limits on market exposure. Currently, the Bank
achieves this objective through the use of forward sales contracts. The Bank
enters into forward sales contracts for future delivery of loans at a specified
yield in order to limit market risk associated with its pipeline of loans held
for sale and commitments to fund loans. Market risk arises from the possible
inability of either party to comply with the contract terms. The total cost of
residential mortgage and home equity 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
appropriate 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, and note rate.

F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Impairment represents the excess of cost of an individual loan servicing rights
stratum over its estimated fair value, and is recognized through a valuation
allowance.

Fair values for individual strata are based on the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved. Estimates of fair value include assumptions about prepayment, default
and interest rates, and other factors that are subject to change over time.
Changes in these underlying assumptions could cause the fair value of loan
servicing rights, and the related valuation allowance, to change significantly
in the future. As of December 31, 1999 and 1998, the balance of capitalized loan
servicing rights included in other assets was $8,759,000 and $5,770,000, with a
fair market value of $11,405,000 and $6,865,000. The amounts capitalized in
1999, 1998, and 1997 were $6,040,000, $3,891,000, and $893,000 and the amounts
amortized to loan servicing income were $1,919,000, $1,823,000, and $819,000.

(E) 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.

(F) 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.

(G) REAL ESTATE OWNED--Real estate owned ("REO") generally is acquired by
deed in lieu of foreclosure and is carried at the lower of cost or fair market
value.

(H) LOSS ALLOWANCES--Allowances have been established for possible loan and
REO losses. The provisions for losses charged to operations are based on
management's judgment of current economic conditions and the credit risk of the
loan portfolio and REO. Management believes that these allowances are adequate
for loan losses inherent in the loan and REO portfolios. While management uses
available information to recognize losses on loans and REO, future additions to
the allowances may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review these allowances and may require the Corporation to
recognize additions to the allowances based on their judgment about information
available to them at the time of their examination.

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. Impairment is recognized by allocating a portion of the
allowance for loan losses to such a loan 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 or the calculated present value of projected cash
flows discounted at the contractual interest rate. Allocations on impaired loans
are considered in relation to the overall adequacy of the allowance for loan
losses and adjustments are made to the provision for loan losses as deemed
necessary.

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. Cash
payments representing interest income are reported as such. Other cash payments
are reported as reductions in recorded investment. Increases or decreases due to
changes in estimates of future payments and the passage of time are considered
in relation to the overall adequacy of the allowance for loan losses.

F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(I) 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.

(J) EARNINGS PER SHARE--Basic earnings per share for the six months ended
June 30, 2000 and 1999 were computed by dividing net earnings by the weighted
average shares of common stock outstanding (12,614,938 and 12,643,297 for the
six months ended June 30, 2000 and 1999). Diluted earnings per share for the six
months ended June 30, 2000 and 1999 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 (12,795,639 and 12,876,487 for the six months ended June 30, 2000
and 1999). Dilution of the per-share calculation relates to stock options. Basic
earnings per share for the years ended December 31, 1999, 1998, and 1997 were
computed by dividing net earnings by the weighted average shares of common stock
outstanding (12,578,145, 12,735,570, and 12,643,615, in 1999, 1998, and 1997,
respectively). Diluted earnings per share for 1999, 1998, and 1997 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 (12,839,678, 13,256,972, and
13,050,746 in 1999, 1998, and 1997, respectively). Dilution of the per-share
calculation relates to stock options.

(K) 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.

(L) 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.

(M) RECLASSIFICATION--Certain amounts in the 1998 and 1997 Consolidated
Financial Statements have been reclassified to conform to the current year
presentation.

(N) COMPREHENSIVE INCOME--Comprehensive income is the total of net income
and all nonowner changes in shareholders' equity.

F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(2) INVESTMENTS AND THEIR SCHEDULED MATURITIES

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- ---------------------------------------------
BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET
(DOLLARS IN THOUSANDS) VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
---------------------- -------- ---------- ---------- -------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments Available
for Sale:
U.S. Treasury and
Government Agencies'
Obligations......... $ 68,610 $ 0 $(661) $ 67,949 $ 73,497 $632 $ 0 $ 74,129
Corporate Debt
Securities.......... 19,557 27 (230) 19,354 22,416 259 -- 22,675
Asset Backed
Securities.......... 15,717 26 (24) 15,719 16,392 -- (57) 16,335
Other Securities...... 145 2 -- 147 145 7 -- 152
-------- --- ----- -------- -------- ---- ---- --------
$104,029 $55 $(915) $103,169 $112,450 $898 $(57) $113,291
======== === ===== ======== ======== ==== ==== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
U.S. TREASURY AND
GOVERNMENT
AGENCIES' OBLIGATIONS CORPORATE DEBT SECURITIES ASSET BACKED SECURITIES
------------------------------ ------------------------------ ------------------------------
BOOK MARKET BOOK MARKET BOOK MARKET
(DOLLARS IN THOUSANDS) VALUE VALUE YIELD VALUE VALUE YIELD VALUE VALUE YIELD
---------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scheduled Maturities:
One Year or Less............. $ 0 $ 0 0.00% $ 2,101 $ 2,101 5.78% $ 0 $ 0 0.00%
After One Year to Five
Years...................... 68,610 67,949 6.29 17,456 17,253 6.73 -- -- 0.00
After Five Years to Ten
Years...................... -- -- 0.00 -- -- 0.00 10,774 10,751 7.48
After Ten Years.............. -- -- 0.00 -- -- 0.00 4,943 4,968 7.47
------- ------- ------- ------- ------- -------
$68,610 $67,949 $19,557 $19,354 $15,717 $15,719
======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------
OTHER SECURITIES TOTAL PORTFOLIO
------------------------------ ------------------------------
BOOK MARKET BOOK MARKET
(DOLLARS IN THOUSANDS) VALUE VALUE YIELD VALUE VALUE YIELD
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Scheduled Maturities (continued):
One Year or Less.............................. $145 $147 6.50% $ 2,246 $ 2,248 5.83%
After One Year to Five Years.................. -- -- -- 86,066 85,202 6.33
After Five Years to Ten Years................. -- -- -- 10,774 10,751 7.48
After Ten Years............................... -- -- -- 4,943 4,968 7.47
---- ---- -------- --------
$145 $147 $104,029 $103,169
==== ==== ======== ========
</TABLE>

F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(2) INVESTMENTS AND THEIR SCHEDULED MATURITIES (CONTINUED)
amortized cost of $5,243,000 were transferred from held-to-maturity to
available-for-sale. At the time of the transfer, these mortgage-backed
securities and investment securities had unrecognized gains of $374,000 and
$86,000, respectively, which were recognized as a separate component of
accumulated other comprehensive income.

The weighted average yield on investment available for sale was
6.52 percent at December 31, 1999 and 6.17 percent at December 31, 1998.

At December 31, 1999, all of First Indiana's corporate debt securities were
issued by banks and finance companies and were rated investment grade or higher
by Standard & Poors or Moody's Investor Services. The Bank's investment policy
prohibits investment in non-investment grade issues. The asset-backed securities
are collateralized by home equity and student loan receivables.

In 1999, realized gains (losses) from the sale of investment securities
available for sale were $218,000 and $(1,104,000). In 1998, realized gains
(losses) from the sale of investment securities available for sale were $401,000
and $(6,000). In 1997, realized gains (losses) from the sale of investment
securities available for sale were $234,000 and $(17,000).

The following table discloses the reclassification adjustments, net of tax,
for Comprehensive Income:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
Unrealized Holding Gains (Losses) Arising During the
Period.................................................... $ (617) $ 335 $ 526
Reclassification Adjustment for Gains (Losses) Included in
Net Earnings.............................................. (532) (235) (129)
------- ----- -----
Net Unrealized Gain (Losses) on Securities Available for
Sale...................................................... $(1,149) $ 100 $ 397
======= ===== =====
</TABLE>

(3) MORTGAGE-BACKED SECURITIES

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------
UNREALIZED UNREALIZED
(DOLLARS IN THOUSANDS) BOOK VALUE GAINS LOSSES MARKET VALUE
---------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available for Sale:
FHLMC............................................. $34,364 $11 $(223) $34,152
FNMA.............................................. 20,720 7 (151) 20,576
Participation Certificates........................ 6 -- -- 6
Deferred Income and Net Unearned Discounts........ 23 -- (23) --
------- --- ----- -------
$55,113 $18 $(397) $54,734
======= === ===== =======
</TABLE>

F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(3) MORTGAGE-BACKED SECURITIES (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------
UNREALIZED UNREALIZED
(DOLLARS IN THOUSANDS) BOOK VALUE GAINS LOSSES MARKET VALUE
---------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available for Sale:
FHLMC............................................. $ 8,085 $132 $ 0 $ 8,217
FNMA.............................................. 6,501 132 -- 6,633
Participation Certificates........................ 14,789 105 (64) 14,830
Deferred Income and Net Unearned Discounts........ 432 -- (432) --
------- ---- ----- -------
$29,807 $369 $(496) $29,680
======= ==== ===== =======
</TABLE>

The weighted average yield on mortgage-backed securities available for sale
was 7.03 percent and 6.76 percent at December 31, 1999 and 1998. The majority of
the securities have maturities in excess of 10 years. Realized losses on the
sale of mortgage-backed securities available for sale were $2,129,000 in 1999.
Realized gains on sale of mortgage-backed securities were $368,000 in 1998.

(4) LOANS RECEIVABLE

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- ---------- ----------
<S> <C> <C>
Residential Mortgage Loans
Loans Held for Sale....................................... $ 5,996 $ 66,469
Loans Held in Portfolio................................... 470,824 465,654
Residential Construction Loans.............................. 453,384 406,650
Commercial Real Estate Loans................................ 35,697 32,813
Business Loans.............................................. 255,199 189,074
Consumer Loans
Home Equity Loans Held for Sale........................... 26,571 45,929
Home Equity Loans Held in Portfolio....................... 638,606 520,003
Installment Loans......................................... 7,424 10,334
Other Consumer Loans...................................... 3,162 4,259
Undisbursed Portion of Loans
Residential Construction Loans............................ (179,374) (190,591)
Business Loans............................................ (19,258) (10,141)
Deferred Income and Net Unearned Discounts.................. 3,950 3,790
Allowance for Loan Losses................................... (28,759) (25,700)
---------- ----------
$1,673,422 $1,518,543
========== ==========
</TABLE>

The weighted average yield on loans was 8.64 percent and 8.48 percent at
December 31, 1999 and 1998. Residential loans serviced for others amounted to
$843,443,000 and $908,582,000 at December 31, 1999 and 1998. Consumer loans
serviced for others amounted to $260,223,000 and $106,243,000 at December 31,
1999 and 1998.

F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(4) LOANS RECEIVABLE (CONTINUED)

Over 45 percent of First Indiana's residential construction and permanent
mortgage loans are secured by collateral located in Indiana, with another
20 percent and 19 percent located in North Carolina and Florida. Over
54 percent of the Bank's consumer loans are secured by collateral located in
Indiana and its contiguous states, with 35 percent located in Indiana. The
Bank's commercial real estate and business loans are secured primarily by
collateral in Indiana and contiguous states.

In connection with the Bank's efforts to establish a secondary market for
its home equity loan originations, over $297 million, $168 million, and
$72 million in fixed-rate loans were sold in 1999, 1998, and 1997. In addition,
at December 31, 1999 and 1998, the Bank had classified $26,571,000 and
$45,929,000 of home equity loans as held for sale.

During 1999, 1998, and 1997, the Bank transferred $9,542,000, $9,572,000,
and $7,922,000 from loans to real estate owned.

At December 31, 1999, First Indiana had identified one impaired loan,
totaling $1,719,000, which had an allocated reserve of $71,000.

(5) ALLOWANCE FOR LOAN AND REO LOSSES

A summary of activity in the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997 follows:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------- ------------------------------
(DOLLARS IN THOUSANDS) 2000 1999 1999 1998 1997
---------------------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan Losses at
Beginning of Year............................ $28,759 $25,700 $25,700 $22,414 $18,768
Charge-Offs
Residential Mortgage......................... (43) -- (30) (91) (83)
Residential Construction..................... (322) (208) (412) (658) (1,190)
Commercial Real Estate....................... -- -- -- (93) (75)
Consumer..................................... (2,212) (2,983) (5,114) (6,934) (7,210)
Business..................................... (73) (278) (2,015) (15) (528)
------- ------- ------- ------- -------
Total Charge-Offs.............................. (2,650) (3,469) (7,571) (7,791) (9,086)
------- ------- ------- ------- -------
Recoveries
Residential Mortgage......................... 6 20 -- 2 --
Residential Construction..................... 75 202 235 270 40
Commercial Real Estate....................... -- -- -- -- 727
Consumer..................................... 378 500 963 986 1,261
Business..................................... 52 4 22 39 4
------- ------- ------- ------- -------
Total Recoveries............................... 511 726 1,220 1,297 2,032
------- ------- ------- ------- -------
Net Charge-Offs................................ (2,139) (2,743) (6,351) (6,494) (7,054)
------- ------- ------- ------- -------
Provision for Loan Losses...................... 4,878 4,920 9,410 9,780 10,700
------- ------- ------- ------- -------
Balance of Allowance for Loan Losses at End of
Period....................................... $31,498 $27,877 $28,759 $25,700 $22,414
======= ======= ======= ======= =======
</TABLE>

F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(5) ALLOWANCE FOR LOAN AND REO LOSSES (CONTINUED)
A summary of activity in the allowance for REO losses for the years ended
December 31, 1999, 1998 and 1997 follows:

(6) PREMISES AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- -------- --------
<S> <C> <C>
Land.................................................... $ 3,485 $ 2,710
Buildings............................................... 5,492 8,800
Leasehold improvements.................................. 1,513 1,373
Furniture, fixtures and equipment....................... 21,648 22,822
Accumulated depreciation and amortization............... (15,067) (17,159)
-------- --------
$ 17,071 $ 18,546
======== ========
</TABLE>

F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(7) DEPOSITS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
WEIGHTED WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT PERCENT AVERAGE RATE AMOUNT PERCENT AVERAGE RATE
---------------------- ---------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
TYPE
Non-interest-bearing checking..... $ 114,356 8.72% -- $ 129,043 10.51% --
NOW checking...................... 108,041 8.23 1.23% 102,068 8.31 1.87%
Money market checking............. 188 0.01 0.99 237 0.02 1.30
Passbook and statement savings.... 343,848 26.21 4.15 365,641 29.78 4.48
Money market savings.............. 26,200 2.00 3.85 11,087 0.90 2.61
Jumbo certificates of deposit of
$100 or greater................. 306,914 23.39 5.72 169,988 13.84 5.49
Fixed-rate certificates of
deposit......................... 412,568 31.44 5.29 449,854 36.64 5.40
---------- ------ ---------- ------
$1,312,115 100.00% 4.27% $1,227,918 100.00% 4.25%
========== ====== ========== ======
</TABLE>

<TABLE>
<CAPTION>
MATURITY AMOUNT PERCENT AMOUNT PERCENT
-------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Checking.......................... $ 222,585 16.96% $ 231,348 18.85%
Passbook and statement savings.... 343,848 26.21 365,641 29.78
Money market savings.............. 26,200 2.00 11,087 0.90
Certificates of deposit maturing
in
One year........................ 466,804 35.58 377,656 30.76
Two years....................... 189,193 14.42 183,256 14.92
Three years..................... 49,783 3.79 33,264 2.71
Four years...................... 12,200 0.93 21,771 1.77
Five years...................... 1,502 0.11 3,895 0.31
---------- ------ ---------- ------
$1,312,115 100.00% $1,227,918 100.00%
========== ====== ========== ======
</TABLE>

Interest expense for the years ended December 31, 1999, 1998, and 1997 was
as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
NOW and money market checking.................... $ 2,072 $ 2,570 $ 2,473
Passbook, statement and money market savings..... 15,684 15,596 14,317
Certificates of deposit.......................... 36,717 36,769 33,146
------- ------- -------
$54,473 $54,935 $49,936
======= ======= =======
</TABLE>

Official checking accounts at December 31, 1999 and 1998 were $26,111,000
and $51,293,000, respectively. Included in official checking accounts at
December 31, 1999 and 1998 were $3,407,000 and $4,285,000 of
non-interest-bearing escrows held for investors under the terms of various
servicing agreements.

Cash paid during the year for interest on deposits, advances, and other
borrowed money was $72,616,000, $73,149,000, and $63,654,000 for 1999, 1998, and
1997.

F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(7) DEPOSITS (CONTINUED)
During the third quarter of 1999, the Bank recognized a $7,590,000 gain on
the sale of deposits at the Evansville, Indiana-area branches. The Bank also
elected to sell certain loans and investment securities available for sale,
which resulted in a $4,400,000 loss. In addition, approximately $1,600,000 in
various non-interest expenses related to the Evansville sale and mortgage
restructuring were recognized during the quarter.

(8) FEDERAL HOME LOAN BANK ADVANCES

Each Federal Home Loan Bank ("FHLB") is authorized to make advances to its
member institutions, subject to FHLB regulations and limitations. First
Indiana's advances outstanding and their stated rates were as follows at the
dates shown:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1999 1998
----------------------- -----------------------
INTEREST INTEREST INTEREST INTEREST
(DOLLARS IN THOUSANDS) RATES AMOUNT RATES AMOUNT
---------------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
MATURITY
1999........................................... -- -- 5.00 to 6.29% $152,000
2000........................................... 5.60 to 6.01% $205,000 5.52 to 6.01 100,000
2001........................................... 4.99 to 5.61 35,000 4.99 to 5.61 35,000
2002........................................... 5.54 25,000 -- --
2003........................................... 5.24 to 6.04 85,000 5.24 to 5.74 25,000
2004........................................... -- -- -- --
Thereafter..................................... 2.75 to 8.57 16,854 2.75 to 8.57 15,247
-------- --------
$366,854 $327,247
======== ========
</TABLE>

The weighted average interest rate on advances was 5.75 and 5.44 percent at
December 31, 1999 and 1998. Under a security agreement with the FHLB, First
Indiana is required to pledge FHLB stock and qualifying first mortgages equal to
the sum of 160 percent of FHLB advances. Additionally, First Indiana maintains
an unused $10,000,000 line of credit with the FHLB. As of December 31, 1999 and
1998, First Indiana had sufficient collateral under this agreement.

(9) OTHER BORROWINGS

Short-term borrowings represent federal funds purchased and repurchase
agreements. At December 31, 1999 and 1998, short-term borrowings had balances of
$98,754,000 and $54,219,000 with weighted average interest rates of 5.35 and
4.81 percent, respectively.

Repurchase agreements represent an indebtedness of First Indiana secured by
investments and mortgage-backed securities 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. Repurchase agreements averaged $54,578,000 and $51,166,000 during 1999
and 1998, and the maximum amounts outstanding at the end of any month during
1999 and 1998 were $98,754,000 and $62,620,000. The carrying value of the
underlying securities at December 31, 1999 and 1998 was $98,370,000 and
$53,673,000 with market values of $97,818,000 and $53,866,000. These securities
are under the Bank's control.

F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(9) OTHER BORROWINGS (CONTINUED)
First Indiana had $68,000,000 and $28,000,000 in unused lines of credit
available from local financial institutions, and the FHLB of Indianapolis at
December 31, 1999 and 1998. There are no fees associated with these lines.

(10) INCOME TAXES

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

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) CURRENT DEFERRED TOTAL
---------------------- -------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1999:
Federal.......................................... $10,371 $ 353 $10,724
State and local.................................. 2,160 436 2,596
------- ------- -------
$12,531 $ 789 $13,320
======= ======= =======

Year ended December 31, 1998:
Federal.......................................... $ 9,611 $ (374) $ 9,237
State and local.................................. 2,706 (99) 2,607
------- ------- -------
$12,317 $ (473) $11,844
======= ======= =======

Year ended December 31, 1997:
Federal.......................................... $10,564 $(1,590) $ 8,974
State and local.................................. 2,927 (465) 2,462
------- ------- -------
$13,491 $(2,055) $11,436
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory rate............................................ 35.0% 35.0% 35.0%
State income taxes...................................... 4.2 5.5 5.5
Negative goodwill....................................... (1.8) (0.9) (1.0)
Non-taxable interest income............................. (0.1) (0.1) (0.1)
Other................................................... (0.4) (1.3) (0.2)
---- ---- ----
Effective rate............................................ 36.9% 38.2% 39.2%
==== ==== ====
</TABLE>

Deferred income tax assets and liabilities result from temporary and timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The tax effects of

F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(10) INCOME TAXES (CONTINUED)
temporary differences that give rise to significant portions of net deferred tax
assets included in other assets are presented below:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- -------- --------
<S> <C> <C>
Deferred tax assets
Allowance for loan and REO losses....................... $11,671 $10,738
Pension and retirement benefits......................... 3,308 3,012
Interest credited....................................... 479 205
Premises and equipment.................................. 449 273
Excess servicing........................................ -- 11
Accrued compensation.................................... -- 679
Unrealized loss on investments.......................... 493 --
Other................................................... 717 577
------- -------
17,117 15,495
------- -------
Deferred tax liabilities
Loan servicing rights................................... 3,014 1,589
FHLB stock dividends.................................... 559 574
Net deferred loan fees.................................. 5,079 4,487
Excess tax reserves..................................... 158 243
Unrealized gain on investments.......................... -- 289
Excess servicing........................................ 7 --
Other................................................... 45 51
------- -------
8,862 7,233
------- -------
Net deferred tax assets................................... $ 8,255 $ 8,262
======= =======
</TABLE>

In accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," a deferred liability has not been established for
the Bank's tax bad debt base year reserves of $16,586,000. The base year
reserves are generally the balance of reserves as of December 31, 1987, reduced
proportionally for reductions in the Bank's loan portfolio since that date. The
base year reserves will continue to be subject to recapture and the Bank could
be required to recognize a tax liability if: (1) the Bank fails to qualify as a
"bank" for federal income tax purposes; (2) certain distributions are made with
respect to the stock of the Bank; (3) the bad debt reserves are used for any
purpose other than to absorb bad debt losses; or (4) there is a change in tax
law. The enactment of this legislation had no material impact on the
Corporation's operations or financial position.

Cash paid during the year for income taxes was $14,869,000, $11,187,000, and
$11,360,000 for 1999, 1998, and 1997.

(11) SHAREHOLDERS' EQUITY

The Corporation is subject to regulation as a savings and loan holding
company by the Office of Thrift Supervision ("OTS"). The Bank, as a subsidiary
of a savings and loan holding company, is subject to certain restrictions in its
dealings with the Corporation. The Bank is further subject to the regulatory
requirements applicable to a federal savings bank.

F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(11) SHAREHOLDERS' EQUITY (CONTINUED)
Savings institutions are required to have risk-based capital of 8 percent of
risk-weighted assets. Risk-based capital is defined as First Indiana Bank's
common equity, less goodwill and investments in non-mortgage-lending-related
subsidiaries, plus general allowances for loan and REO losses. Risk weighting of
assets is derived from assigning one of five risk-weighted categories to an
institution's assets, based on the degree of credit risk associated with the
asset. The categories range from zero percent for low-risk assets (such as
United States Treasury securities) to 100 percent for high-risk assets (such as
real estate owned). The book value of each asset is then multiplied by the risk
weighting applicable to the asset category. The sum of the products of the
calculation equals total risk-weighted assets. At December 31, 1999, and
June 30, 2000, First Indiana Bank's risk-based capital exceeded the minimum
requirement.

Savings institutions are also required to maintain a minimum leverage ratio,
under which core (Tier One) capital must equal at least 4 percent of total
assets. The components of core capital consist of common equity plus
non-cumulative preferred stock and minority interests in consolidated
subsidiaries, minus certain intangible assets, including purchased loan
servicing. Savings institutions must also maintain minimum tangible capital of
one and one-half percent of total assets. At December 31, 1999, and June 30,
2000, First Indiana Bank exceeded the minimum tangible and core capital
requirements.

OTS has adopted additional minimum capital standards that place savings
institutions into one of five categories, from "critically undercapitalized" to
"well-capitalized," depending on levels of three measures of capital. A
well-capitalized institution as defined by the regulations has a total
risk-based capital ratio of at least 10 percent, a Tier One risk-based capital
ratio of at least six percent, and a leverage risk-based capital ratio of at
least five percent. At December 31, 1999, and June 30, 2000, First Indiana Bank
was classified as well-capitalized.

OTS has further proposed an interest-rate risk component of the proposed
capital regulations. Under this component, an institution with an "above normal"
level of interest-rate risk exposure will be subject to an "add-on" to its
risk-based capital requirement. "Above normal" interest-rate risk is defined as
a reduction in "market value portfolio equity" (as defined) resulting from a 200
basis point increase or decrease in interest rates, if the decline in value
exceeds two percent of the institution's assets. Institutions failing to meet
this test will be required to add to their risk-based capital. Based on its
interest-rate risk at December 31, 1999, and June 30, 2000, First Indiana Bank
does not expect to be required to add to its risk-based capital under the
proposed regulations.

First Indiana Corporation is not required under OTS regulations to meet
regulatory capital restrictions. The following tables show First Indiana Bank's
strong capital levels and compliance with all capital requirements at June 30,
2000, December 31, 1999 and 1998. First Indiana is classified as
"well-capitalized" under the OTS regulatory framework for prompt corrective
action, its highest classification. To be categorized as "well-capitalized,"
First Indiana Bank must maintain minimum total risk-based, tier one risk-based
and tier one leverage ratios as set forth in the table. The table reflects
categories of assets includable under OTS regulations. There are no conditions
or events since the date of classification that management believes have changed
First Indiana Bank's category.

Pursuant to prior OTS regulations, liquidation accounts for the benefit of
eligible account holders were established in amounts equal to the net worths of
the merged or converted entities. At December 31, 1999, the liquidation accounts
relating to all prior transactions aggregated $12,907,000,

F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(11) SHAREHOLDERS' EQUITY (CONTINUED)
which amount satisfies the minimum required of each. First Indiana Bank is not
permitted to pay dividends on its common stock if its shareholders' equity would
be reduced below the aggregate amount then required for the liquidation
accounts.

First Indiana Corporation is not subject to any regulatory restrictions on
the payment of dividends to its shareholders. However, First Indiana Bank may
not declare or pay a cash dividend on its stock if, as a result, First Indiana
Bank's capital would be reduced below the minimum requirements. First Indiana
Bank is required to give the OTS 30 days' advance notice before declaring a
dividend. Under OTS regulations, First Indiana Bank may, without prior OTS
approval, make capital distributions to First Indiana of up to all of First
Indiana Bank's net earnings over the most recent four-quarter period, less
capital distributions made during such four-quarter period.

First Indiana 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
First Indiana's outstanding common stock in a takeover attempt, and offer
current shareholders a measure of protection for their investment in First
Indiana.

First Indiana's stock has split six times since December 31, 1991. In
March 1998, First Indiana paid a six-for-five stock dividend. In March 1997,
First Indiana effected a five-for-four stock split. All per-share amounts have
been adjusted to reflect the stock dividend and split.

<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------------------------------
TO BE WELL-
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (1)...................... $165,131 7.80% $ 31,751 1.50% N/A N/A
Core (Tier one) capital................... 165,131 7.80 84,670 4.00 $105,837 5.00%
Tier one risk-based capital............... 165,131 9.53 N/A N/A 103,931 6.00
Total risk-based capital (2).............. 185,305 10.70 138,575 8.00 173,219 10.00
First Indiana Bank capital................ 165,269 N/A N/A N/A N/A N/A
</TABLE>

------------------------

(1) First Indiana Bank capital differs from tangible capital by the FAS 115
equity securities adjustment of ($1,443) and a goodwill adjustment of
$1,581.

(2) Risk-based capital includes a $21,774 addition for general loan loss
reserves and a $1,600 deduction for land loans with loan-to-value ratios in
excess of 80 percent.

F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(11) SHAREHOLDERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------
TO BE WELL-
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (1)...................... $157,725 7.98% $ 29,635 1.50% N/A N/A
Core (Tier one) capital................... 157,725 7.98 79,026 4.00 $ 98,783 5.00%
Tier one risk-based capital............... 157,725 9.94 N/A N/A 95,171 6.00
Total risk-based capital (2).............. 176,090 11.10 126,895 8.00 158,619 10.00
First Indiana Bank capital................ 157,002 N/A N/A N/A N/A N/A
</TABLE>

------------------------

(1) First Indiana Bank capital differs from tangible capital by the FAS 115
equity securities adjustment of ($724).

(2) Risk-based capital includes a $19,937 addition for general loan loss
reserves and a $1,571 deduction for land loans with loan-to-value ratios in
excess of 80 percent.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------
TO BE WELL-
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (1)...................... $139,992 7.80% $ 26,915 1.50% N/A N/A
Core (Tier one) capital................... 139,992 7.80 53,831 3.00 $ 89,718 5.00%
Tier one risk-based capital............... 139,992 10.10 N/A N/A 83,190 6.00
Total risk-based capital (2).............. 155,839 11.24 110,919 8.00 138,649 10.00
First Indiana Bank capital................ 140,418 N/A N/A N/A N/A N/A
</TABLE>

------------------------

(1) First Indiana Bank capital differs from tangible capital by the FAS 115
equity securities adjustment of $425.

(2) Risk-based capital includes a $17,434 addition for general loan loss
reserves and a $1,587 deduction for land loans with loan-to-value ratios in
excess of 80 percent.

F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(12) COMMITMENTS AND CONTINGENCIES

At December 31, 1999 and 1998, First Indiana had the following outstanding
commitments to fund loans:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- -------- --------
<S> <C> <C>
Commitments to fund:
Residential mortgage loans............................ $ 56,329 $252,576
Commercial real estate loans.......................... 10,950 16,422
Consumer loans:
Home equity loans................................... 169,482 155,447
Other............................................... 5,764 7,226
-------- --------
$242,525 $431,671
======== ========
</TABLE>

Of the commitments to fund loans at December 31, 1999, nearly all are
commitments to fund variable-rate products. Commitments to sell loans at
December 31, 1999 and 1998 were $3,520,000 and $134,198,000, respectively.

At December 31, 1999, the Corporation had approximately $36,995,000 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
First Indiana to repurchase the loan. If the investor exercises this option,
First Indiana 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.

First Indiana issues lines of credit to residential builders to purchase
residential lots to build model or speculative homes as well as homes for
committed buyers. At December 31, 1999, First Indiana had outstanding lines of
credit totaling $270,487,000 with $157,862,000 disbursed against those lines.
First Indiana also makes residential construction loans to individual borrowers.
At December 31, 1999, First Indiana had outstanding commitments for these loans
totaling $28,094,000 with $16,861,000 disbursed against those commitments. First
Indiana's collateral policy on these residential construction loans requires a
first mortgage on the underlying real estate and improvements.

First Indiana issues letters of credit on behalf of its commercial loan
customers in exchange for a fee. At December 31, 1999, outstanding letters of
credit totaled $35.6 million. Letters of credit issued to enhance the bond
rating of economic development bonds totaled $31.4 million. Should these letters
be submitted for payment, First Indiana's collateral policy requires the
assignment of the underlying commercial real estate. The Bank also had
outstanding $2.9 million of standby letters of credit which guarantee payment to
a vendor for goods and services in the event of customer default. To insure the
completion of infrastructure improvements (sewers, streets, sidewalks,
underground utilities etc.), the Bank had outstanding $1.3 million of completion
letters of credit. These letters were issued to municipal authorities and
utility companies on behalf of the Bank's commercial real estate borrowers. The
standby and completion 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.

F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
RENTAL OBLIGATIONS--Obligations under non-cancelable operating leases for
office space at December 31, 1999 require minimum future payments of $1,541,000
in 2000, $1,473,000 in 2001, $1,367,000 in 2002, $1,189,000 in 2003, $984,000 in
2004, and $3,260,000 thereafter. Minimum future payments have not been reduced
by minimum sublease rental income of $232,000 receivable in the future under
non-cancelable subleases. Rental expense on office buildings was $1,736,000,
$1,637,000, and $1,616,000, for 1999, 1998, and 1997.

OTHER CONTINGENCIES--Other 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.

(13) EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS--First Indiana maintains non-qualified retirement plans for
the directors of its Mooresville and Rushville Divisions and supplemental
pension benefit plans covering certain senior officers of the Bank and its
divisions. These supplemental benefit plans provide benefits for some of their
participants that normally would be paid under the Financial Institution
Retirement Fund ("FIRF") or Mooresville pension plans but are precluded from
being paid by limitations under the Internal Revenue Code.

The unrecognized net transition obligation is being amortized over
15 years. The projected benefit obligations were determined using an assumed
discount rate of 8.00 percent and 6.75 percent at December 31, 1999 and 1998.
The assumed long-term salary increases were 5 percent at December 31, 1999 and
December 31, 1998, compounded annually.

Net periodic pension expense for the plan consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the year............ $186 $198 $150
Interest cost on projected benefit obligations.......... 543 486 440
Net amortization and deferral........................... 80 60 29
---- ---- ----
Net pension costs....................................... $809 $744 $619
==== ==== ====
</TABLE>

The funded status of the plan and the amounts reflected in the accompanying
consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- -------- --------
<S> <C> <C>
Projected benefit obligations............................... $8,098 $7,861
Fair value of plan assets................................... -- --
------ ------
Excess of projected benefit obligation over fair value of
plan assets............................................... 8,098 7,861
Unrecognized net transition obligation...................... (158) (170)
Unrecognized loss........................................... (914) (1,415)
------ ------
Accrued pension cost........................................ $7,026 $6,276
====== ======
</TABLE>

F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(13) EMPLOYEE BENEFIT PLANS (CONTINUED)
Additionally, First Indiana is a participant in FIRF. This plan is a
multi-employer plan; separate actuarial valuations are not made with respect to
each participating employer. According to FIRF administrators, the market value
of the fund's assets exceeded the value of vested benefits in the aggregate as
of June 30, 1999, the date of the latest actuarial valuation. Pension expense
was $16,000, $12,000, and $59,000 for 1999, 1998, and 1997.

The Bank has a voluntary savings plan for eligible employees which qualifies
under Section 401(k) of the Internal Revenue Code. Employees can participate
after 12 months' employment by designating a portion of their salary to purchase
appropriate investment options. The Corporation in turn matches the first six
percent of the employee contribution at a rate of $.25 for every $1 in employee
contributions. In 1999, the Corporation matched employee contributions for the
Corporation's common stock at a rate of $.50 for every $1. First Indiana made
matching contributions of $233,000, $172,000, and $129,000 in 1999, 1998, and
1997.

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 those institutions relating to merger
agreements of prior acquisitions was $717,000 and $752,000, and the accrued
liability was $1,123,000 and $1,094,000 at December 31, 1999 and 1998. Expense
under the programs was $29,000, $38,000, and $35,000 in 1999, 1998, and 1997,
respectively.

The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 8.00 percent and 6.75 percent at December 31, 1999 and
1998. The assumed long-term salary increase was 5.00 percent for 1999 and 1998.
The assumed health care cost trend rates used were 7 percent for 1998,
6 percent for 1999 and 5.50 percent for 2000 and later years. The trend rate for
years 10 and thereafter was 6 percent per year.

STOCK-BASED COMPENSATION--First Indiana has four stock-based compensation
plans, which are described below. First Indiana applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for these plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. The compensation cost charged
against income for its performance-based plan was $523,000, $777,000, and
$660,000 in 1999, 1998, and 1997. The compensation cost charged against income
for the Employees' Stock Purchase Plan was $377,000, $184,000, and $153,000 in
1999, 1998, and 1997. Had compensation cost been determined based on the fair
value at the grant date for awards under those plans consistent with the method
of Statement of Financial Accounting Standard No. 123, First Indiana's net
earnings and earnings per share would have

F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(13) EMPLOYEE BENEFIT PLANS (CONTINUED)
been reduced to the pro forma amounts indicated below. The effects of applying
FAS No. 123 in this pro forma disclosure are not indicative of future amounts.

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
--------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net earnings
As reported.................................... $22,733 $19,147 $17,744
Pro forma...................................... 22,578 18,704 17,675

Basic earnings per share
As reported.................................... $ 1.81 $ 1.50 $ 1.40
Pro forma...................................... 1.80 1.46 1.40

Diluted earnings per share
As reported.................................... 1.77 1.44 1.36
Pro forma...................................... 1.76 1.41 1.35
</TABLE>

A summary of the status of First Indiana's fixed stock option plans as of
December 31, 1999, 1998, and 1997, and changes during the years ended on those
dates is presented below:

<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 661,898 $11.56 688,076 $ 8.33 863,903 $ 7.16
Granted..................................... 101,476 18.98 119,316 23.52 25,479 16.30
Exercised................................... (102,147) 6.68 (139,147) 6.37 (201,306) 4.32
Surrendered................................. (2,940) 20.44 (6,347) 24.67 -- --
-------- -------- --------
Outstanding at end of year.................. 658,287 13.42 661,898 11.56 688,076 8.33
======== ======== ========
Options exercisable at year end............. 553,677 548,902 662,597
======== ======== ========
Weighted average fair value of options
granted during the year................... $ 5.68 $ 6.25 $ 4.54
======== ======== ========
</TABLE>

FIXED STOCK OPTION PLANS--First Indiana has three fixed stock option plans:
the 1991 Stock Option and Incentive Plan, the 1992 Directors' Stock Option Plan,
and the 1998 Stock Option and Incentive Plan. Under the 1991 and 1998 Plans,
First Indiana is authorized to grant options to its employees for up to 562,500
and 630,000 shares of common stock, respectively. Under the 1992 Plan, First
Indiana is authorized to grant options to its outside directors (i.e., directors
who are not employees of the Corporation or any subsidiary) for up to 262,500
shares. Under all plans, the exercise price of each option equals the market
price of the Corporation's stock on the date of grant, the option's maximum term
is ten years, and all options fully vest at the end of one or five years.
Similar plans were effected upon completion of the mergers with the Evansville,
Rushville, and Mooresville divisions, which allow grants for up to approximately
415,000 shares of common stock. In lieu of cash, some optionees elect to fund
their option exercises with stock they currently own. In that event, the
Corporation cancels the stock certificates received from the optionee in the
stock swap transaction.

F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(13) EMPLOYEE BENEFIT PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997: dividend yield of
3.0 percent for all years; expected volatility of 32 percent for 1999 and
23 percent for 1998 and 1997; weighted average risk-free interest rates of
5.22 percent, 5.66 percent, and 6.89 percent respectively; and expected lives of
seven years for all years.

In addition to the options outstanding at December 31, 1999, 644,673 shares
of common stock were available for future grants or awards.

The following table summarizes information about fixed stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/99 LIFE (YEARS) PRICE AT 12/31/99 PRICE
------------------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.00 - $ 7.00........................... 198,277 2.40 $6.51 198,277 $6.51
7.01 - 15.00........................... 217,160 4.80 10.96 217,160 10.96
15.01 - 28.00........................... 242,850 8.26 21.26 138,240 22.74
------- -------
3.00 - 28.00........................... 658,287 5.35 13.42 553,677 12.31
======= =======
</TABLE>

PERFORMANCE-BASED STOCK PLAN--Under the 1991 Stock Option and Incentive
Plan, First Indiana may award restricted stock to executive officers. On
January 23, 1997, First Indiana awarded 43,500 shares of stock among three
executive officers. On April 15, 1998, First Indiana awarded 6,000 shares of
stock to an executive officer. All of these shares are subject to recall by
First Indiana in the event certain specified performance objectives are not met
by December 31, 1999. First Indiana expensed $523,000, $777,000, and $660,000 in
1999, 1998 and 1997, respectively, in connection with these awards.

EMPLOYEES' STOCK PURCHASE PLAN--Under the 1987 Employees' Stock Purchase
Plan, all full-time employees and directors are eligible to participate after
six months' employment. Approximately 51 percent of eligible employees
participated in the plan in 1999. Under the terms of the Plan, employees can
choose to have up to 10 percent of their annual base earnings withheld to
purchase the Corporation's common stock. The Corporation in turn matches the
employee contribution at a rate of $1 for every $3 or $4 in employee
contributions, depending on whether the Corporation has met specified
performance objectives for the previous calendar year. In 1999 the matching
contribution was increased to $1 for every $2 in employee contributions. This
action was taken in order to encourage increased participation in the plan. The
contributions are then paid to a trustee, who purchases the Corporation's stock
each month at the then prevailing market price. A one-to-three contribution was
in effect for the 1998 and 1997 plan years. First Indiana's matching
contributions were $377,000, $184,000, and $153,000 for the years ended 1999,
1998, and 1997, respectively.

F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(14) PARENT COMPANY STATEMENTS

<TABLE>
<CAPTION>
DECEMBER 31,
CONDENSED BALANCE SHEETS -------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- -------- --------
<S> <C> <C>
Assets
Certificate of Deposit and Checking Account with the
Bank.................................................... $ 501 $ 501
Due from Bank............................................. 16,260 23,575
Investment in the Bank.................................... 157,002 140,418
Other Assets.............................................. 3,340 1,476
-------- --------
Total Assets................................................ $177,103 $165,970
======== ========
Liabilities................................................. $ 0 $ 0
Shareholders' Equity........................................ 177,103 165,970
-------- --------
Total Liabilities and Shareholders' Equity.................. $177,103 $165,970
======== ========
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
CONDENSED STATEMENTS OF EARNINGS ------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
Cash Dividends from the Bank................................ $ 6,532 $15,295 $14,241
Interest Income on Certificate of Deposit................... 25 28 27
Expenses.................................................... (2,557) (1,965) (240)
Income Tax Credit........................................... 1,000 786 81
------- ------- -------
Earnings Before Equity in Undistributed Net Earnings of the
Bank...................................................... 5,000 14,144 14,109
Equity in Undistributed Net Earnings of the Bank............ 17,733 5,003 3,635
------- ------- -------
Net Earnings................................................ $22,733 $19,147 $17,744
======= ======= =======
</TABLE>

F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(14) PARENT COMPANY STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
CONDENSED STATEMENTS OF CASH FLOWS ------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Earnings................................................ $ 22,733 $19,147 $ 17,744
Adjustments to Reconcile Net Earnings to Net Cash Provided
by Operating Activities
Equity in Undistributed Earnings of the Bank................ (17,733) (5,003) (3,635)
Amortization of Restricted Stock Plan....................... 286 427 363
Change in Other Liabilities................................. -- (64) 127
Change in Due from the Bank and Other Assets................ 6,302 (7,767) (10,391)
-------- ------- --------
Net Cash Provided by Operating Activities................... 11,588 6,740 4,208
-------- ------- --------
Cash Flows from Investing Activities
Investment in Equity Security............................... (851) -- --
-------- ------- --------
Cash Flows from Financing Activities
Stock Option Proceeds....................................... 626 702 367
Common Stock Issued Under Deferred Compensation Plan........ -- 65 (24)
Purchase of Treasury Stock.................................. (5,299) (2,242) (132)
Payment for Fractional Shares............................... -- (10) (12)
Tax Benefit of Option Compensation.......................... 468 870 656
Dividends Paid.............................................. (6,532) (6,125) (5,063)
-------- ------- --------
Net Cash Used by Financing Activities....................... (10,737) (6,740) (4,208)
-------- ------- --------
Net Change in Cash and Cash Equivalents..................... -- -- --
Cash and Cash Equivalents at Beginning of the Year.......... 501 501 501
-------- ------- --------
Cash and Cash Equivalents at End of the Year................ $ 501 $ 501 $ 501
======== ======= ========
</TABLE>

F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(15) INTERIM QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
--------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
Total Interest Income................................... $34,383 $35,917 $37,545 $38,581
Net Interest Income..................................... 16,584 17,490 18,244 18,533
Provision for Loan Loss................................. 2,460 2,460 1,950 2,540
Earnings Before Income Taxes............................ 7,619 8,096 10,531 9,807
Net Earnings............................................ 4,630 5,021 6,622 6,460
Basic Earnings Per Share................................ 0.37 0.40 0.53 0.52
Diluted Earnings Per Share.............................. 0.36 0.39 0.52 0.50

1998
Total Interest Income................................... $33,130 $34,255 $34,857 $34,689
Net Interest Income..................................... 15,693 15,826 15,952 16,380
Provision for Loan Loss................................. 2,820 2,320 2,320 2,320
Earnings Before Income Taxes............................ 7,278 7,524 8,174 8,015
Net Earnings............................................ 4,418 4,617 5,003 5,109
Basic Earnings Per Share................................ 0.35 0.36 0.39 0.40
Diluted Earnings Per Share.............................. 0.33 0.35 0.38 0.39
</TABLE>

(16) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The table below 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

F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(16) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents......................... $ 61,441 $ 61,441 $ 57,653 $ 57,653
Investment securities............................. 103,169 103,169 113,291 113,291
Mortgage-backed securities........................ 54,734 54,734 29,680 29,680
Loans receivable
Residential mortgage loans...................... 480,361 479,309 535,515 542,035
Residential construction loans.................. 268,546 267,335 211,446 211,012
Commercial real estate loans.................... 35,111 35,114 32,304 33,402
Business loans.................................. 231,591 231,707 176,206 177,522
Consumer loans.................................. 665,097 662,058 571,017 585,212
Accrued interest receivable....................... 13,554 13,554 11,680 11,680
Loan servicing rights............................. 8,759 11,405 5,770 6,865

Liabilities
Deposits
Demand deposits................................. 211,609 211,609 215,457 215,457
Passbook deposits............................... 37,201 37,201 41,233 41,233
Money market savings............................ 343,822 343,822 351,387 351,387
Jumbo certificates.............................. 308,088 308,088 171,171 171,579
Fixed-rate certificates......................... 411,395 411,395 448,670 454,845
Borrowings
FHLB advances................................... 366,854 363,664 327,247 328,936
Short-term borrowings........................... 98,754 98,765 54,219 54,228
Accrued interest payable.......................... 5,605 5,605 2,646 2,646
Advances by borrowers for taxes and insurance..... 1,377 1,377 1,958 1,958

Off-balance-sheet instruments (Unrealized gains
(losses))
Commitments to extend credit.................... -- (245) -- 137
Letters of credit............................... -- -- -- (2)
Loan servicing rights........................... -- 1,916 -- 2,589
</TABLE>

CASH AND CASH EQUIVALENTS--For cash and equivalents, the carrying amount is
a reasonable estimate of fair value.

INVESTMENT SECURITIES--For securities, fair values are based on quoted
market prices or dealer quotes.

MORTGAGE-BACKED SECURITIES--Estimated fair value for mortgage-backed
securities issued by quasi-governmental agencies is based on quoted market
prices. The fair value of mortgage-backed securities issued by
non-quasi-governmental agencies is estimated based on similar securities with
quoted market prices and adjusted for any differences in credit ratings or
maturities.

F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(16) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.

LOAN SERVICING RIGHTS--The fair value of residential and consumer loan
servicing rights is determined based on the estimated discounted net cash flows
to be received less the estimated costs of servicing. This estimated fair value
approximates the amount for which the servicing could currently be sold.

ACCRUED INTEREST RECEIVABLE, ACCRUED INTEREST PAYABLE, AND ADVANCES BY
BORROWERS FOR TAXES AND INSURANCE--The estimated fair value of these financial
instruments approximates their carrying value.

(17) SEGMENT REPORTING

The Corporation's business units are primarily organized to operate in the
banking industry, and are determined by the products and services offered. The
consumer segment includes the origination, sale, servicing and portfolio
activities of both home equity and installment loans, and the residential
segment encompasses the origination, sale, servicing and portfolio of both
residential first mortgage and Community Reinvestment Act loans. The business
segment originates construction, commercial, and commercial real estate loans,
and provides traditional cash management services to business customers.
Investment portfolio management is included in the treasury segment. The retail
segment includes the Bank's 23-branch network, as well as virtual banking
services, which were introduced in February 1998. FirstTrust, which commenced
operations in the first quarter of 1999, provides trust and advisory services to
the Bank's customers. Revenues in the Corporation's segments are generated from
loans, deposits, investments, servicing fees, loan sales and trust and advisory
services. There are no foreign operations.

The segment financial information provided below is based on the internal
management reporting software used by the Corporation's Executive Committee to
monitor and manage the financial

F-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(17) SEGMENT REPORTING (CONTINUED)
performance of the Corporation. The Corporation evaluates segment performance
based on average assets and profit or loss before income taxes and indirect
expenses. Indirect expenses include the Corporation's overhead and support
expenses. The Corporation attempts to match fund each business unit by reviewing
the earning assets and 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.
<TABLE>
<CAPTION>

SEGMENT INTERSEGMENT
(DOLLARS IN THOUSANDS) CONSUMER RESIDENTIAL BUSINESS TREASURY RETAIL FIRSTTRUST TOTALS ELIMINATIONS
---------------------- --------- ----------- -------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets.. $724,388 $511,516 $564,184 $216,926 $20,538 $ 974 $2,038,526 $(2,428)(1)
Net Interest Income..... 11,616 3,295 10,076 1,811 9,845 -- 36,643 1,879(2)
Non Interest Income..... 2,974 738 1,729 43 2,947 675 9,106 1,051(3)
Intersegment Income
(Expense)............. 2,283 (76) -- -- -- -- 2,207 (2,207)(4)
Significant Noncash
Items:
Provision for Loan
Losses................ 3,834 110 934 -- -- -- 4,878 --
Earning (Loss) before
Income Tax............ 11,450 2,835 6,846 1,520 6,193 (45) 28,799 (9,729)(3)

<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 2000
CONSOLIDATED
(DOLLARS IN THOUSANDS) TOTALS
---------------------- -------------
<S> <C>
Average Segment Assets.. $2,036,098
Net Interest Income..... 38,522
Non Interest Income..... 10,157
Intersegment Income
(Expense)............. --
Significant Noncash
Items:
Provision for Loan
Losses................ 4,878
Earning (Loss) before
Income Tax............ 19,070
</TABLE>
<TABLE>
<CAPTION>

SEGMENT INTERSEGMENT
CONSUMER RESIDENTIAL BUSINESS TREASURY RETAIL FIRSTTRUST TOTALS ELIMINATIONS
--------- ----------- -------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets.. $610,978 $530,055 $455,271 $178,598 $52,527 $ 929 $1,828,358 $16,677(1)
Net Interest Income..... 10,697 3,909 8,041 737 7,353 -- 30,737 3,337(2)
Non Interest Income..... 4,022 2,389 2,267 218 2,138 289 11,323 986(3)
Intersegment Income
(Expense)............. 2,938 3,135 (1,157) -- 456 -- 5,372 (5,372)(4)
Significant Noncash
Items:
Provision for Loan
Losses................ 3,671 43 1,206 -- -- -- 4,920 --
Earning (Loss) before
Income Tax............ 11,442 4,988 5,453 488 2,370 (591) 24,150 (8,435)(3)

<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
CONSOLIDATED
TOTALS
-------------
<S> <C>
Average Segment Assets.. $1,845,035
Net Interest Income..... 34,074
Non Interest Income..... 12,309
Intersegment Income
(Expense)............. --
Significant Noncash
Items:
Provision for Loan
Losses................ 4,920
Earning (Loss) before
Income Tax............ 15,715
</TABLE>

------------------------------

(1) Segment assets differ from consolidated assets due to reclassification
adjustments (primarily related to income tax assets) that are not reflected
in the management reporting system.

(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 each asset and liability based on the treasury
yield curve. These match-funding entries are not made to the Corporation's
actual results.

(3) Represents other income and expense items which are allocated to Corporate
overhead departments. These amounts are included in the Corporation's
overall results, but are not part of the management reporting system.

(4) Intersegment income and expenses are received by one segment for performing
a service for another segment. In the case of residential and consumer
portfolios, an amount is paid to the origination office which is capitalized
in the portfolio and amortized over a four-year period. These charges are
similar to premiums paid for the purchase of loans, and are treated as such
for management reporting. These entries are eliminated from the
Corporation's actual results.

F-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(17) SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>

SEGMENT INTERSEGMENT
(DOLLARS IN THOUSANDS) CONSUMER RESIDENTIAL BUSINESS TREASURY RETAIL FIRSTTRUST TOTALS ELIMINATIONS
---------------------- --------- ----------- -------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets... $638,870 $514,278 $482,519 $182,729 $53,037 $ 851 $1,872,284 $ 16,554(1)
Net Interest Income...... 22,460 7,173 17,330 1,049 15,817 -- 63,829 7,022(2)
Non Interest Income...... 7,538 889 4,228 4,538 4,791 1,080 23,064 3,894(3)
Intersegment Income
(Expense).............. 4,821 5,381 (1,945) -- 957 -- 9,213 (9,213)(4)
Significant Noncash
Items:
Provision for Loan
Losses................. 6,174 87 3,149 -- -- -- 9,410 --
Earning (Loss) before
Income Tax............. 24,895 6,455 11,298 4,611 5,685 (452) 52,491 (16,438)(3)

<CAPTION>
1999
CONSOLIDATED
(DOLLARS IN THOUSANDS) TOTALS
---------------------- ------------
<S> <C>
Average Segment Assets... $1,888,838
Net Interest Income...... 70,851
Non Interest Income...... 26,958
Intersegment Income
(Expense).............. --
Significant Noncash
Items:
Provision for Loan
Losses................. 9,410
Earning (Loss) before
Income Tax............. 36,053
</TABLE>
<TABLE>
<CAPTION>

SEGMENT INTERSEGMENT
CONSUMER RESIDENTIAL BUSINESS TREASURY RETAIL TOTALS ELIMINATIONS
--------- ----------- -------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets... $661,990 $479,913 $352,883 $183,107 $46,939 $1,724,832 $ (9,817)(1)
Net Interest Income...... 17,079 2,868 13,486 1,003 9,927 44,363 19,488(2)
Non Interest Income
(Expense).............. 18,696 (7,229) 3,661 1,917 3,259 20,304 2,373(3)
Intersegment Income
(Expense).............. 5,369 6,984 (1,551) -- 2,666 13,468 (13,468)(4)
Significant Noncash
Items:
Provision for Loan
Losses................. 7,076 136 2,568 -- -- 9,780 --
Earning (Loss) before
Income Tax............. 29,731 (1,428) 10,697 2,576 2,871 44,447 (13,456)(3)

<CAPTION>
1998
CONSOLIDATED
TOTALS
------------
<S> <C>
Average Segment Assets... $1,715,015
Net Interest Income...... 63,851
Non Interest Income
(Expense).............. 22,677
Intersegment Income
(Expense).............. --
Significant Noncash
Items:
Provision for Loan
Losses................. 9,780
Earning (Loss) before
Income Tax............. 30,991
</TABLE>
<TABLE>
<CAPTION>

SEGMENT INTERSEGMENT
CONSUMER RESIDENTIAL BUSINESS TREASURY RETAIL TOTALS ELIMINATIONS
--------- ----------- -------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Segment Assets... $543,298 $460,670 $296,966 $177,659 $38,404 $1,516,997 $ (6,504)(1)
Net Interest Income...... 18,386 4,436 11,056 365 18,375 52,618 11,416(2)
Non Interest Income...... 4,024 4,086 2,783 1,418 2,664 14,975 1,975(3)
Intersegment Income
(Expense).............. (312) 4,161 76 -- 475 4,400 (4,400)(4)
Significant Noncash
Items:
Provision for Loan
Losses................. 9,281 152 1,267 -- -- 10,700 --
Earning (Loss) before
Income Tax............. 9,903 8,334 9,867 1,590 9,796 39,490 (10,310)(3)

<CAPTION>
1997
CONSOLIDATED
TOTALS
------------
<S> <C>
Average Segment Assets... $1,510,493
Net Interest Income...... 64,034
Non Interest Income...... 16,950
Intersegment Income
(Expense).............. --
Significant Noncash
Items:
Provision for Loan
Losses................. 10,700
Earning (Loss) before
Income Tax............. 29,180
</TABLE>

------------------------------

(1) Segment assets differ from consolidated assets due to reclassification
adjustments (primarily related to income tax assets) that are not reflected
in the management reporting system.

F-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FIRST INDIANA CORPORATION AND SUBSIDIARIES

(18) SUBSEQUENT EVENT (UNAUDITED)

On April 19, 2000, First Indiana and The Somerset Group, Inc. ("Somerset")
jointly announced the signing of a definitive agreement pursuant to which
Somerset will be merged with and into a wholly-owned subsidiary of First
Indiana. The merger agreement provides that each shareholder of Somerset will
have the option of receiving 1.21 shares of First Indiana common stock (valued
at $21.48, based on First Indiana's April 18, 2000 closing price of $17.75 per
share) or $24.70 in cash, or a combination of each (with cash limited to 35% of
Somerset's shares outstanding at closing), for each share of Somerset stock
owned as of the effective date of the merger. Based on First Indiana's
April 18, 2000 closing price, and assuming that 80% of Somerset's shares are
exchanged for stock and 20% are exchanged for cash, the transaction has an
aggregate value of approximately $63 million. This transaction, which is
expected to close in the third quarter of 2000, will be accounted for using
purchase accounting. The transaction is also subject to approval by First
Indiana and Somerset shareholders, the Office of Thrift Supervision, and the
Securities and Exchange Commission.

F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
The Somerset Group, Inc.:

We have audited the accompanying consolidated balance sheets of The Somerset
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of The Somerset
Group, Inc.'s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Somerset
Group, Inc., and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.

KPMG LLP

Indianapolis, Indiana
February 11, 2000

F-45
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME

THE SOMERSET GROUP, INC.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue and income:
Fees and commissions.......... $6,970,000 $5,577,000 $10,228,000 $ 7,327,000 $ 6,849,000
Equity in earnings of FIC..... 2,559,000 2,101,000 4,986,000 4,130,000 3,883,000
Investment income............. 27,000 93,000 89,000 329,000 393,000
---------- ---------- ----------- ----------- -----------
Total revenue and income...... 9,556,000 7,771,000 15,303,000 11,786,000 11,125,000
---------- ---------- ----------- ----------- -----------
Operating expenses:
Salaries, wages,
commissions, & benefits..... 4,462,000 3,696,000 7,689,000 5,849,000 5,990,000
General & administrative
expenses.................... 736,000 723,000 1,474,000 998,000 882,000
Occupancy expenses............ 279,000 203,000 449,000 347,000 305,000
Advertising and marketing..... 74,000 82,000 201,000 152,000 96,000
Depreciation and
amortization................ 274,000 146,000 349,000 272,000 246,000
Interest expense.............. -- -- -- 4,000 39,000
Merger expenses............... -- -- -- 163,000 --
---------- ---------- ----------- ----------- -----------
Total operating expenses...... 5,825,000 4,850,000 10,162,000 7,785,000 7,558,000
---------- ---------- ----------- ----------- -----------
Income before income taxes and
cumulative effect of change in
accounting principle.......... 3,731,000 2,921,000 5,141,000 4,001,000 3,567,000
Income tax expense.............. 1,214,000 921,000 1,634,000 1,136,000 1,031,000
---------- ---------- ----------- ----------- -----------
Income before cumulative effect
of change in accounting
principle..................... 2,517,000 2,000,000 3,507,000 2,865,000 2,536,000
Cumulative effect of change in
accounting principle, net..... -- (115,000) (115,000) -- --
---------- ---------- ----------- ----------- -----------
Net income.................... $2,517,000 $1,885,000 $ 3,392,000 $ 2,865,000 $ 2,536,000
========== ========== =========== =========== ===========
Income per share:
Basic:
Income before cumulative
effect of change in
accounting principle........ $ 0.90 $ 0.70 $ 1.24 $ 0.99 $ 0.87
Cumulative effect of change in
accounting principle........ -- (0.04) (0.04) -- --
---------- ---------- ----------- ----------- -----------
$ 0.90 $ 0.66 $ 1.20 $ 0.99 $ 0.87
========== ========== =========== =========== ===========
Diluted:
Income before cumulative
effect of change in
accounting principle........ $ 0.88 $ 0.69 $ 1.22 $ 0.97 $ 0.86
Cumulative effect of change in
accounting principle........ -- (0.04) (0.04) -- --
---------- ---------- ----------- ----------- -----------
$ 0.88 $ 0.65 $ 1.18 $ 0.97 $ 0.86
========== ========== =========== =========== ===========
Average shares outstanding:
Basic......................... 2,807,209 2,847,387 2,822,583 2,899,933 2,902,800
Diluted....................... 2,846,677 2,884,775 2,868,229 2,961,835 2,957,978
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-46
<PAGE>
CONSOLIDATED BALANCE SHEETS

THE SOMERSET GROUP, INC.

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
JUNE 30, -------------------------
2000 1999 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 1,609,000 $ 1,043,000 $ 526,000
Short-term investments.............................. -- -- 3,713,000
Trade accounts, notes, and other receivables, less
allowance for doubtful accounts................... 2,816,000 2,539,000 1,888,000
Prepaid expenses.................................... 398,000 93,000 87,000
Refundable income taxes............................. -- 14,000 --
----------- ----------- -----------
Total current assets.............................. 4,823,000 3,689,000 6,214,000
Investments
First Indiana Corporation (market values of
$54,825,000, $59,997,000 and $55,169,000)......... 40,529,000 39,010,000 36,104,000
----------- ----------- -----------
Paradym Technical Enterprises, Inc.................. 255,000 -- --
----------- ----------- -----------
40,784,000
-----------
Office furniture and equipment........................ 1,835,000 2,000,000 1,169,000
Less accumulated depreciation....................... 1,033,000 1,039,000 712,000
----------- ----------- -----------
802,000 961,000 457,000
----------- ----------- -----------
Other assets
Note receivable, net................................ 148,000 -- 240,000
Goodwill, net of accumulated amortization........... 3,057,000 3,152,000 1,074,000
Other............................................... 500,000 497,000 684,000
----------- ----------- -----------
3,705,000 3,649,000 1,998,000
----------- ----------- -----------
Total Assets.......................................... $50,114,000 $47,309,000 $44,773,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable.............................. $ 187,000 $ 238,000 $ 97,000
Accrued compensation................................ 303,000 498,000 194,000
Taxes, other than income taxes...................... 60,000 82,000 33,000
Income taxes........................................ 333,000 -- 30,000
Other accrued expenses.............................. 89,000 67,000 65,000
----------- ----------- -----------
Total current liabilities......................... 972,000 885,000 419,000
----------- ----------- -----------
Deferred income taxes................................. 10,645,000 10,053,000 8,891,000
----------- ----------- -----------
Shareholders' equity
Common stock without par value, authorized
4,000,000 shares, issued and outstanding
2,909,214 shares.................................. 1,862,000 1,862,000 1,862,000
Capital in excess of stated value................... 3,528,000 3,560,000 3,599,000
Accumulated other comprehensive income (loss), net
of deferred income taxes.......................... -- -- (19,000)
Retained earnings................................... 34,837,000 32,792,000 30,359,000
----------- ----------- -----------
40,227,000 38,214,000 35,801,000
Less 98,857, 105,312 and 17,371 treasury shares, at
cost.............................................. (1,730,000) (1,843,000) (338,000)
----------- ----------- -----------
Total shareholders' equity........................ 38,497,000 36,371,000 35,463,000
----------- ----------- -----------
Total Liabilities and Shareholders' Equity............ $50,114,000 $47,309,000 $44,773,000
=========== =========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements

F-47
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

THE SOMERSET GROUP, INC.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 2,517,000 $ 1,885,000 $ 3,392,000 $ 2,865,000 $ 2,536,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle, net................................. -- 115,000 115,000 -- --
Depreciation and amortization.................... 274,000 146,000 349,000 272,000 246,000
Deferred income taxes............................ 697,000 404,000 1,448,000 719,000 1,199,000
Equity in earnings of First Indiana
Corporation.................................... (2,559,000) (2,101,000) (4,986,000) (4,130,000) (3,883,000)
Dividends received from First Indiana
Corporation.................................... 772,000 717,000 1,434,000 1,319,000 1,087,000
Changes in operating assets and liabilities:
Trade accounts, notes and other receivables.... (369,000) (435,000) (651,000) (666,000) 171,000
Prepaid expenses............................... (307,000) 3,000 (6,000) (7,000) (18,000)
Accounts payable and accrued expenses.......... (217,000) 337,000 496,000 86,000 (42,000)
Accrued and refundable income taxes............ 359,000 141,000 (44,000) 276,000 (173,000)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by operating activities... 1,167,000 1,212,000 1,547,000 734,000 1,123,000
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Decrease (increase) in short-term investments.... -- 1,237,000 3,713,000 1,533,000 (524,000)
Payment for purchase of McGee Rice & Wheat....... -- -- (1,046,000) -- --
Purchase of shares of First Indiana.............. -- -- -- (990,000) --
Proceeds from sale of assets..................... -- -- -- -- 8,000
Purchase of property and equipment............... (137,000) (285,000) (755,000) (207,000) (229,000)
Transfer of cash on sale of assets of Paradym
Technologies, Inc.............................. (83,000) -- -- -- --
Decrease (increase) in other assets.............. (141,000) 324,000 286,000 256,000 (3,000)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by investing activities... (361,000) 1,276,000 2,198,000 592,000 (748,000)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on note payable, bank......... -- -- -- (459,000) (225,000)
Principal payments on long-term borrowings....... -- -- -- (43,000) (12,000)
Proceeds from sale of common stock............... 120,000 251,000 338,000 88,000 330,000
Purchase of treasury shares...................... (51,000) (2,300,000) (3,000,000) (464,000) (475,000)
Cash dividends paid.............................. (309,000) (288,000) (566,000) (522,000) (462,000)
----------- ----------- ----------- ----------- -----------
Net cash used by financing activities.............. (240,000) (2,337,000) (3,228,000) (1,400,000) (844,000)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents... 566,000 151,000 517,000 (74,000) (469,000)
Cash and cash equivalents at beginning of period... 1,043,000 526,000 526,000 600,000 1,069,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period......... $ 1,609,000 $ 677,000 $ 1,043,000 $ 526,000 $ 600,000
=========== =========== =========== =========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-48
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

THE SOMERSET GROUP, INC.

YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 AND SIX MONTHS ENDED JUNE 30, 2000

<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
IN EXCESS OTHER
COMMON OF STATED COMPREHENSIVE RETAINED TREASURY
(DOLLARS IN THOUSANDS) STOCK VALUE INCOME(LOSS) EARNINGS SHARES TOTAL
---------------------- -------- --------- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997............................ $1,836 $3,713 $ -- $26,048 $ -- $31,597
Comprehensive income:
Net income year ended December 31, 1997............ -- -- -- 2,536 -- 2,536
Unrealized losses on short-term investments, net of
deferred income taxes............................ -- -- (22) -- -- (22)
-------
Total comprehensive income....................... 2,514
-------
Common stock issued (40,157 shs.).................. 39 265 -- 39 -- 343
Common stock retired (30,825 shs.)................. (20) (429) -- -- -- (449)
Cash dividends paid................................ -- -- -- (462) -- (462)
Equity in other capital changes of First Indiana
Corporation, net of deferred income taxes........ -- -- -- (83) -- (83)
------ ------ ---- ------- ------- -------
Balance December 31, 1997.......................... 1,855 3,549 (22) 28,078 -- 33,460
Comprehensive income:
Net income year ended December 31, 1998............ -- -- -- 2,865 -- 2,865
Unrealized gains on short-term investments, net of
deferred income taxes............................ -- -- 3 -- -- 3
-------
Total comprehensive income....................... 2,868
-------
Tax benefit of stock options exercised............. -- 95 -- -- -- 95
Reissuance of treasury shares (6,094 shs.)......... 7 (45) -- -- 126 88
Purchase of treasury shares (23,465 shs.).......... -- -- -- -- (464) (464)
Cash dividends paid................................ -- -- -- (522) -- (522)
Equity in other capital changes of First Indiana
Corporation, net of deferred income taxes........ -- -- -- (62) -- (62)
------ ------ ---- ------- ------- -------
Balance December 31, 1998.......................... 1,862 3,599 (19) 30,359 (338) 35,463
Comprehensive income:
Net income year ended December 31, 1999............ -- -- -- 3,392 -- 3,392
Unrealized gains on short-term investments, net of
deferred income taxes............................ -- -- 19 -- -- 19
-------
Total comprehensive income....................... 3,411
-------
Tax benefit of stock options exercised............. -- 98 -- -- -- 98
Reissuance of treasury shares:
Stock plans (39,380 shs.)........................ -- (347) -- -- 685 338
Merger transaction (47,442 shs.)................. -- 210 -- -- 810 1,020
Purchase of treasury shares (174,763 shs.)......... -- -- -- -- (3,000) (3,000)
Cash dividends paid................................ -- -- -- (566) -- (566)
Equity in other changes of First Indiana
Corporation, net of deferred income taxes........ -- -- -- (393) -- (393)
------ ------ ---- ------- ------- -------
Balance December 31, 1999.......................... 1,862 3,560 -- 32,792 (1,843) 36,371
Comprehensive income (unaudited):
Net income January 1 to June 30, 2000
(unaudited)...................................... -- -- -- 2,517 -- 2,517
-------
Total comprehensive income (unaudited)........... 2,517
-------
Tax benefit of stock options exercised
(unaudited)...................................... -- 12 -- -- -- 12
Reissuance of treasury shares (unaudited).......... -- (44) -- -- 164 120
Purchase of treasury shares (unaudited)............ -- -- -- -- (51) (51)
Cash dividends paid (unaudited).................... -- -- -- (309) -- (309)
Equity in other changes of First Indiana
Corporation, net of deferred income taxes
(unaudited)...................................... -- -- -- (163) -- (163)
------ ------ ---- ------- ------- -------
Balance June 30, 2000 (unaudited).................. $1,862 $3,528 $ -- $34,837 $(1,730) $38,497
====== ====== ==== ======= ======= =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE SOMERSET GROUP, INC.

(INFORMATION AT AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 IS
UNAUDITED)

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Somerset Group, Inc. (The "Company" or "Somerset") is a non-diversified,
unitary savings and loan holding company. Its major asset at December 31, 1999
and June 30, 2000 is an ownership interest of 22% in First Indiana Corporation
("First Indiana"), which owns 100% of First Indiana Bank (the "Bank"). The
Company operates First Indiana Investor Services, which markets insurance and
investment products primarily to Bank customers. A subsidiary of the Company,
Somerset Financial Services L.L.C., provides tax, accounting, health care
consulting, investment and wealth management, information technology consulting,
and management consulting services.

(a) BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial
statements for the years ended December 31, 1999, 1998 and 1997 include the
accounts of the Company and its 100% owned subsidiary. The consolidated
financial statements have been prepared in conformity with Generally Accepted
Accounting Principles. 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. The consolidated financial statements for
the six months ended June 30, 2000 and June 30, 1999 have been prepared with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.

(b) FEES AND COMMISSIONS: Fees and commissions represent revenue from
financial services provided to clients and from the sale of insurance and
investment products.

(c) CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, cash in banks, and money market funds
immediately available.

(d) SHORT-TERM INVESTMENTS: Investments are valued at fair value on the
statement date. They are available-for-sale and proceeds are available on three
days' notice. Unrealized holding gains and losses are excluded from earnings and
are reported net of deferred income taxes as accumulated other comprehensive
income.

(e) INVESTMENT IN FIRST INDIANA CORPORATION: First Indiana Corporation is
a non-diversified unitary savings and loan holding company whose primary
subsidiary is a federally chartered stock savings bank. It operates retail
banking and mortgage and consumer loan offices throughout Indiana and mortgage
and consumer loan offices in seven other states. Somerset's investment in First
Indiana Corporation is stated at cost, adjusted for its share of undistributed
earnings, and includes adjustments under the purchase method of accounting.
Capital changes of First Indiana Corporation are reflected as a separate
component of consolidated retained earnings.

(f) OFFICE FURNITURE AND EQUIPMENT: Office furniture and equipment are
stated at historical cost for financial reporting purposes. Depreciation is
determined using the straight-line method based upon the estimated useful lives
of the individual assets. Both straight-line and accelerated methods are used
for income tax purposes.

F-50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(g) EMPLOYEE BENEFIT PLANS: Somerset maintains a profit-sharing retirement
and savings plan that is qualified under Internal Revenue Service Code
Section 401(k). The Company makes direct contributions to the plan for all
eligible employees annually and also matches employee contributions to the plan.

(h) INCOME TAXES: The Company 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 tax
basis. The principal temporary difference between the financial statement
carrying amounts and the tax basis that result in deferred taxes is the
investment in First Indiana, accounted for under the equity method of
accounting. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period in which the change became
effective.

(i) EARNINGS PER SHARE: Basic earnings per share for 1999, 1998, and 1997
were computed by dividing net income by the weighted average shares of common
stock outstanding (2,822,583, 2,899,933, and 2,902,800 in 1999, 1998, and 1997,
respectively). Diluted earnings per share for 1999, 1998, and 1997 were computed
by dividing net income by the weighted average shares of common stock and common
stock that would have been outstanding assuming the issuance of all potential
dilutive shares outstanding (2,868,229, 2,961,835, and 2,957,978 in 1999, 1998,
and 1997, respectively). Dilution of the per share calculations relate to
outstanding stock options. All share and per-share amounts have been adjusted
for five-for-four stock splits that were effective February 26, 1997 and
February 29, 1996.

Basic earnings per share for the six months ended June 30, 2000, and 1999
were computed by dividing net income by the weighted average shares of common
stock outstanding (2,807,209 and 2,847,387 respectively). Diluted earnings per
share for the six months ended June 30, 2000, and 1999 were computed by dividing
net income by the weighted average shares of common stock and common stock that
would have been outstanding assuming the issuance of all potential dilutive
shares outstanding (2,846,677 and 2,884,775 respectively). Dilution of the per
share calculations relate to outstanding stock options.

(j) TREASURY SHARES: Treasury shares issued were valued at average cost of
all treasury shares at the date of issuance. Treasury share transactions for the
year ended December 31, 1999 and the six months ended June 30, 2000 were as
follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- ------------------
<S> <C> <C>
Shares held in treasury, beginning of
period..................................... 105,312 17,371
Number of shares repurchased................. 2,922 174,763
Number of shares re-issued for exercise of
stock options.............................. (9,377) (39,380)
Number of shares re-issued for exercise of
stock options in merger transaction........ -- (47,442)
------- -------
Shares held in treasury, June 30, 2000 and
December 31, 1999.......................... 98,857 105,312
======= =======
</TABLE>

F-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(k) COMPREHENSIVE INCOME: Comprehensive income is the total of net income
and all non-owner changes in shareholders' equity.

NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE

During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting On The Costs of Start-Up
Activities. SOP 98-5 requires that the costs of start-up activities, including
organization costs, be expensed as incurred. It further requires that any such
costs capitalized in prior periods be charged to expense. SOP 98-5 was effective
for financial statements for fiscal years beginning after December 15, 1998.
Somerset adopted SOP 98-5 effective January 1, 1999. Concurrent with the
adoption, Somerset charged $189,000 to expense ($115,000 after income taxes)
that is reported as the cumulative effect of a change in accounting principle in
the Consolidated Statements of Income.

NOTE 3. BUSINESS COMBINATIONS

WHIPPLE & COMPANY P.C.

On January 20, 1998, Somerset issued 333,339 shares of its common stock for
all the outstanding common stock of Whipple & Company P.C. ("Whipple"), a
provider of financial and accounting services that include tax planning and
preparation, accounting, health care consulting, information technology,
investment management, and management consulting services. Shares of Whipple
were not publicly traded. This business combination was accounted for as a
pooling-of-interests combination and, accordingly, the consolidated financial
statements for periods prior to the combination have been restated to include
the accounts and results of operations of Whipple.

PARADYM TECHNOLOGIES, INC.

On January 4, 1999, a 100% owned subsidiary of Somerset purchased the assets
of two companies and commenced operations as Paradym Technologies, Inc.
("Paradym"). Paradym provides information technology consulting services,
including corporate Internet and networking services. The total cost of the
assets purchased was $315,000.

MCGEE, RICE & WHEAT, INC.

On September 1, 1999, Somerset completed a merger with McGee, Rice &
Wheat, Inc. ("MRW"), a certified public accounting firm located in Indianapolis,
Indiana. The accounting, tax, and other services offered by MRW were combined
with the Company's financial services division. This business combination was
accounted for as a purchase. Accordingly, the results of MRW have been included
in the Consolidated Financial Statements since the date of the merger. Somerset
issued 47,442 shares of its common stock, valued at $1,020,000, and paid
$1,046,000 cash in exchange for all outstanding shares of MRW. The transaction
was valued at $2,066,000, all of which was considered goodwill, and is being
amortized over 20 years. There were no liabilities assumed, and no cash was
acquired in the transaction.

The following unaudited pro forma financial information presents the
combined results of operations of Somerset and MRW as if the merger had occurred
as of the beginning of 1997, after

F-52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 3. BUSINESS COMBINATIONS (CONTINUED)
giving effect to certain adjustments, including amortization of goodwill and
related income tax effects. The unaudited pro forma financial information does
not necessarily reflect the results of operations that would have occurred had
Somerset and MRW constituted a single entity during the periods shown.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue and income.................... $16,953,000 $13,598,000 $12,780,000
=========== =========== ===========
Net income............................ $ 3,523,000 $ 2,924,000 $ 2,555,000
=========== =========== ===========
Income per share:
Basic............................... $ 1.23 $ 0.99 $ 0.87
Diluted............................. $ 1.21 $ 0.97 $ 0.86
</TABLE>

PARADYM SALE (UNAUDITED)

On June 1, 2000, Paradym Technologies, Inc., a wholly owned subsidiary of
Somerset, sold a portion of its business. The computer network design and
support services were sold, and the Company retained the computer applications
software and support services. Total proceeds from the sale were $403,000,
comprised of a fifty-percent equity interest in the acquiring entity and a
promissory note receivable of $148,000. No gain or loss was recognized on the
transaction.

NOTE 4. SHORT-TERM INVESTMENTS

Short-term investments are stated at fair value and are available-for-sale.
At December 31, 1999, the Company did not have any short-term investments. All
investments were sold during 1999 for a loss of $124,000 that reduced investment
income. Investments at December 31, 1998, consisted of the following:

<TABLE>
<CAPTION>
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bond Mutual Funds................................ $2,059,000 $1,000 $(43,000) $2,017,000
Government Agency Mortgage Securities............ 830,000 4,000 -- 834,000
Collateralized Mortgage Securities............... 674,000 3,000 -- 677,000
Money Market Funds, Pending Investment........... 185,000 -- -- 185,000
---------- ------ -------- ----------
$3,748,000 $8,000 $(43,000) $3,713,000
========== ====== ======== ==========
</TABLE>

F-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 5. ALLOWANCES FOR DOUBTFUL ACCOUNTS

Activity concerning the allowances for doubtful accounts for the three years
ended December 31, 1999 was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 138,000 $153,000 $ 118,000
Additions (recoveries) charged (credited) to costs and
expenses.................................................. (108,000) 10,000 149,000
Uncollectible accounts written off, net of recoveries....... -- (25,000) (114,000)
--------- -------- ---------
Balance at end of period.................................... $ 30,000 $138,000 $ 153,000
========= ======== =========
Amount classified as a reduction of trade accounts, notes,
and other receivables..................................... $ 30,000 $138,000 $ 53,000
Amount classified as a reduction of other assets, notes
receivable................................................ -- -- 100,000
--------- -------- ---------
$ 30,000 $138,000 $ 153,000
========= ======== =========
</TABLE>

NOTE 6. INVESTMENT IN FIRST INDIANA CORPORATION

The Company's percentage ownership in First Indiana was as follows:

(Shares adjusted for First Indiana's stock splits.)

<TABLE>
<CAPTION>
FIRST INDIANA
SHARES SHARES PERCENTAGE
OWNED OUTSTANDING OWNERSHIP
AS OF: --------- ------------- ----------
<S> <C> <C> <C>
June 30, 2000............................... 2,758,467 12,614,603 21.8%
December 31, 1999........................... 2,758,467 12,513,344 22.0%
December 31, 1998........................... 2,758,467 12,703,294 21.7%
December 31, 1997........................... 2,717,967 12,668,191 21.5%
</TABLE>

The Company's equity in earnings of First Indiana was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------
2000 1999 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity in earnings of First Indiana based on
percentage of ownership..................... $2,559,000 $4,986,000 $4,122,000 $3,815,000
Equity in First Indiana's gain on sale of
subsidiary sold to the Company, contained in
equity in earnings.......................... -- -- -- (15,000)
Purchase price adjustments:
The Company's equity ownership of First
Indiana's net assets exceeded the actual
cost of its shares. Under the purchase
accounting method, these purchase price
adjustments are being amortized to income
using both the declining balance and
straight line methods and amortization
periods of of 3 to 25 years............... -- -- 8,000 83,000
---------- ---------- ---------- ----------
Total equity in earnings...................... $2,559,000 $4,986,000 $4,130,000 $3,883,000
========== ========== ========== ==========
</TABLE>

F-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 6. INVESTMENT IN FIRST INDIANA CORPORATION (CONTINUED)
At December 31, 1999, the actual cost of the Company's shares exceeded its
equity ownership of First Indiana's net assets. In future periods these
aggregate purchase price adjustments will be amortized to expense using the
straight-line method over 3 to 25 years. At December 31, 1999, the unamortized
balance of the purchase price adjustments to be charged against equity in
earnings was $62,000.

The changes in retained earnings for equity in other capital changes of
First Indiana primarily represents changes in the Company's percentage share of
First Indiana's net worth resulting from changes in the number of First Indiana
shares outstanding or the number of shares owned by the Company. Such capital
changes also represent changes in First Indiana's unrealized gain or loss on
investments and other changes reflected in First Indiana's retained earnings.

The Company's equity in undistributed earnings (equity in earnings not
received as dividends) and capital changes of First Indiana, included in
consolidated retained earnings at December 31, 1999 and 1998 were $24,735,000
and $21,829,000, respectively.

First Indiana is not subject to any regulatory restrictions on the payment
of dividends to its stockholders. However, the Office of Thrift Supervision has
promulgated regulations governing dividend payments, stock redemptions, and
other capital distributions, including upstreaming of dividends by a savings
institution to a holding company. Under these regulations, the Bank may make
distributions to First Indiana of up to 100% of the Bank's net earnings over the
most recent four-quarter period, less distributions made during such
four-quarter period. The Bank is required to give the Office of Thrift
Supervision 30 days advance notice before declaring a dividend.

NOTE 7. OTHER ASSETS

Note receivable at December 31, 1998, consisted of a balance of $240,000 on
a promissory note in connection with the sale of assets. The note was paid in
full in 1999.

Goodwill is stated net of accumulated amortization. The amounts represent
cost of assets purchased in excess of their fair value and include consideration
paid for exclusive operating agreements, client lists, and other intangible
assets.

F-55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 7. OTHER ASSETS (CONTINUED)
Amounts paid are being amortized to expense over 15 and 20 years and
consisted of the following:

<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
LIFE AMOUNT LIFE AMOUNT
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
First Indiana Investor Services:
Original amount paid (1996)........................ 15 yrs. $1,188,000 15 yrs. $1,188,000
Additional purchase price paid under an agreement
for payment if profits exceeded pre-determined
amounts.......................................... 13 yrs. 101,000 13 yrs. 101,000
------- ---------- ------- ----------
1,289,000 1,289,000
Paradym Technologies, Inc............................ 15 yrs. 141,000 --
McGee, Rice & Wheat, Inc............................. 20 yrs. 2,066,000 --
------- ---------- ----------
3,496,000 1,289,000
Less accumulated amortization........................ (344,000) (215,000)
---------- ----------
$3,152,000 $1,074,000
========== ==========
</TABLE>

Other assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Investment in split-dollar life insurance............... $497,000 $495,000
Organizational costs.................................... -- 189,000
-------- --------
$497,000 $684,000
======== ========
</TABLE>

The investment in split-dollar life insurance consists of contracts for a
key officer of the Company and is secured by cash value of the contracts and a
contractual guarantee of yield.

Organizational costs were incurred in connection with the start-up of
specialty consulting services offered by the Company and Whipple. As discussed
in Note 2, the Company adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 98-5, Reporting on the Costs of
Start-Up Activities, effective January 1, 1999. Concurrent with this adoption,
the $189,000 was charged to expense as a change in accounting principle in 1999.

NOTE 8. FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial instruments at
December 31, 1999 and 1998 approximate their carrying value as reflected in the
consolidated balance sheets, except for the investment in First Indiana. The
Company's financial instruments include cash and cash equivalents, short-term
investments, and notes receivable. The investment in First Indiana had a fair
value of $54,825,000, $59,997,000 and $55,169,000 at June 30, 2000,
December 31, 1999 and 1998, respectively.

F-56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 9. INCOME TAXES

Income tax expense (benefit) attributable to income before cumulative effect
of change in accounting principle consisted of:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $ 162,000 $ 321,000 $ (147,000)
State and local........................ 24,000 58,000 (20,000)
---------- ---------- ----------
186,000 379,000 (167,000)
---------- ---------- ----------
Deferred:
Federal................................ 1,260,000 659,000 1,033,000
State and local........................ 188,000 98,000 165,000
---------- ---------- ----------
1,448,000 757,000 1,198,000
Total:
Federal................................ 1,422,000 980,000 886,000
State and local........................ 212,000 156,000 145,000
---------- ---------- ----------
Total income tax expense on income before
cumulative effect of change in
accounting principle................... $1,634,000 $1,136,000 $1,031,000
========== ========== ==========
</TABLE>

Income tax expense attributable to income before cumulative effect of change
in accounting principle differed from the amounts computed by applying the
federal income tax rate of 34% to the pretax income as a result of the
following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate of
34%.................................... $1,748,000 $1,360,000 $1,213,000
Add tax effect of:
State and local income taxes, net of
federal income tax benefit........... 140,000 106,000 132,000
Dividends received deduction (First
Indiana)............................... (390,000) (359,000) (296,000)
Other.................................... 136,000 29,000 (18,000)
---------- ---------- ----------
$1,634,000 $1,136,000 $1,031,000
========== ========== ==========
</TABLE>

F-57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 9. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax liability at December 31, 1999 and 1998 consist
of:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................... $ 11,000 $ 53,000
Unrealized investment losses...................... -- 12,000
Accrued liabilities............................... -- 7,000
Merger expenses................................... 57,000 --
----------- ----------
Total deferred tax assets......................... $ 68,000 $ 72,000
=========== ==========
Deferred tax liabilities:
Investment in First Indiana....................... $10,084,000 $8,951,000
Office furniture and equipment.................... 26,000 12,000
----------- ----------
Total deferred tax liabilities.................... $10,110,000 $8,963,000
=========== ==========
Net deferred tax liabilities........................ $10,042,000 $8,891,000
=========== ==========
Amount classified as current........................ $ (11,000) $ --
Amount classified as long-term...................... 10,053,000 8,891,000
----------- ----------
$10,042,000 $8,891,000
=========== ==========
</TABLE>

The Company made income tax payments of $177,000 and $61,000 during the
years ended December 31, 1999 and 1998, respectively, and received income tax
refunds of $125,000 during the year ended December 31, 1997.

F-58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 10. INTERIM QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER ANNUAL
-------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1999
Commissions, fees, and investment income....... $ 3,662 $ 2,008 $ 2,001 $ 2,646 $ 10,317
Equity in earnings of First Indiana............ 1,006 1,095 1,460 1,425 4,986
Operating expenses............................. (2,536) (2,314) (2,416) (2,896) (10,162)
------- ------- ------- ------- --------
Income before income taxes and cumulative
effect of change in accounting principle..... 2,132 789 1,045 1,175 5,141
Income tax expense............................. 726 195 286 427 1,634
------- ------- ------- ------- --------
Income before cumulative effect of change in
accounting principle......................... 1,406 594 759 748 3,507
Cumulative effect of change in accounting
principle.................................... (115) -- -- -- (115)
------- ------- ------- ------- --------
Net income..................................... $ 1,291 $ 594 $ 759 $ 748 $ 3,392
======= ======= ======= ======= ========
Income per share--basic........................ $ 0.45 $ 0.21 $ 0.27 $ 0.27 $ 1.20
======= ======= ======= ======= ========
Income per share--diluted...................... $ 0.44 $ 0.21 $ 0.27 $ 0.26 $ 1.18
======= ======= ======= ======= ========
1998
Commissions, fees, and investment income....... $ 2,587 $ 1,720 $ 1,673 $ 1,676 $ 7,656
Equity in earnings of First Indiana............ 950 997 1,081 1,102 4,130
Operating expenses............................. (2,045) (1,949) (1,888) (1,903) (7,785)
------- ------- ------- ------- --------
Income before income taxes..................... 1,492 768 866 875 4,001
------- ------- ------- ------- --------
Net income..................................... $ 1,012 $ 570 $ 628 $ 655 $ 2,865
======= ======= ======= ======= ========
Income per share--basic........................ $ 0.35 $ 0.20 $ 0.22 $ 0.23 $ 0.99
======= ======= ======= ======= ========
Income per share--diluted...................... $ 0.34 $ 0.19 $ 0.21 $ 0.22 $ 0.97
======= ======= ======= ======= ========
</TABLE>

Revenue and income from financial services is cyclical in nature as a result
of the timing of income tax planning and preparation services performed by the
Company. Because of government imposed filing deadlines, a larger percentage of
these services occur during the first four months of each calendar year. Revenue
and income during the first quarter of each year will be favorably affected, as
compared to the remaining three-quarters of the year.

F-59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 11. SEGMENT REPORTING

Somerset's business units are organized to operate in the financial services
industry and as a holding company for its investment in First Indiana. There are
four operating and reporting units organized on the basis of the type and source
of their revenue and income.

THE SOMERSET GROUP MANAGEMENT DIVISION

This division manages all investment and treasury functions of the Company,
including overseeing its investment in First Indiana. It also sets policy
guidelines for the other operating divisions. Revenue and income is derived from
the Company's investment in First Indiana and from investment and loan
portfolios.

SOMERSET FINANCIAL SERVICES DIVISION

Services provided to the general public by Somerset Financial Services
include tax planning and preparation, health care consulting, investment and
wealth management, and management consulting services for entrepreneurs, their
businesses, families, and individuals. Revenue and income for services is
primarily on a fee basis; as an hourly fee or a quoted flat fee. No products are
sold and only minimal remuneration is received as an agent for any other
business or organization.

FIRST INDIANA INVESTOR SERVICES DIVISION

This division markets investment and insurance products primarily within the
branch bank system of First Indiana and to a lesser degree to the general
public. The primary investment products include variable annuities, mutual
funds, and stocks and bonds. The primary insurance products include fixed
annuities, life insurance, and property and casualty insurance. Revenue and
income received is generated solely from commissions received on products sold,
as an agent for insurance companies, or through a contractual arrangement with a
registered investment broker/dealer.

PARADYM TECHNOLOGIES, INC.

Prior to June 1, 2000, this subsidiary provided information technology
consulting services, including corporate Internet, network design, installation
and support, and application software installation and support. Subsequent to
June 1, 2000, it only provides application software installation and support.

There were no material inter-segment sales and no foreign operations.

F-60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 11. SEGMENT REPORTING (CONTINUED)

The segment financial information provided below is based on the internal
management reporting system used by the Company's management to monitor and
manage the financial performance of the Company. The Company evaluates segment
performance based on the return on beginning equity employed and the return on
revenue.

<TABLE>
<CAPTION>
FIRST
SOMERSET SOMERSET INDIANA
GROUP FINANCIAL INVESTOR PARADYM
MANAGEMENT SERVICES SERVICES TECHNOLOGIES
(DOLLARS IN THOUSANDS) DIVISION DIVISION DIVISION INC. CONSOLIDATED
---------------------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Beginning equity employed............... $33,022 $ 842 $1,274 $ 325 $35,463
Assets.................................. $39,902 $5,208 $1,502 $ 697 $47,309
Revenue and income:
Fee based revenue--external
customers........................... $ -- $7,717 $ -- $1,398 $ 9,115
Commission revenue--external
customers........................... -- -- 1,113 -- 1,113
------- ------ ------ ------ -------
Total fees and commissions.......... -- 7,717 1,113 1,398 10,228
Equity earnings from First Indiana.... 4,986 -- -- -- 4,986
Investment income--external sources... 72 16 -- 1 89
------- ------ ------ ------ -------
Total revenue and income............ 5,058 7,733 1,113 1,399 15,303
------- ------ ------ ------ -------
Expenses:
Salaries, wages, commissions, &
benefits............................ 546 5,672 609 862 7,689
General and administrative expenses... 299 841 181 153 1,474
Occupancy expenses.................... 24 362 21 42 449
Advertising and marketing............. 10 170 8 13 201
Depreciation and amortization(1)...... 17 185 111 36 349
------- ------ ------ ------ -------
Total expenses...................... 896 7,230 930 1,106 10,162
------- ------ ------ ------ -------
Income before income taxes and
cumulative effect change in accounting
principle............................. 4,162 503 183 293 5,141
------- ------ ------ ------ -------
Income tax expense:
Current provision..................... (192) 202 67 109 186
Deferred provision(1)................. 1,429 17 -- 2 1,448
------- ------ ------ ------ -------
1,237 219 67 111 1,634
------- ------ ------ ------ -------
Income before cumulative effect of
change in accounting principle........ 2,925 284 116 182 3,507
Cumulative effect of change in
accounting principle, net(2).......... -- (115) -- -- (115)
------- ------ ------ ------ -------
Net income.............................. $ 2,925 $ 169 $ 116 $ 182 $ 3,392
======= ====== ====== ====== =======
</TABLE>

------------------------

(1) A significant non-cash expense

(2) Unusual non-recurring expense

F-61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 11. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
SOMERSET SOMERSET FIRST INDIANA
GROUP FINANCIAL INVESTOR
MANAGEMENT SERVICES SERVICES
(DOLLARS IN THOUSANDS) DIVISION DIVISION DIVISION CONSOLIDATED
---------------------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Beginning equity employed....................... $31,421 $ 824 $1,215 $33,460
Assets.......................................... 41,208 $2,217 $1,348 $44,773
Revenue and income:
Fee based revenue--external customers......... $ -- $6,386 $ -- $ 6,386
Commission revenue--external customers........ -- -- 941 941
------- ------ ------ -------
Total fees and commissions.................. -- 6,386 941 7,327
Equity earnings from First Indiana
Corporation................................. 4,130 -- -- 4,130
Investment income--external sources........... 329 -- -- 329
------- ------ ------ -------
Total revenue and income.................... 4,459 6,386 941 11,786
------- ------ ------ -------
Expenses:
Salaries, wages, commissions, and benefits.... 503 4,802 544 5,849
General and administrative expenses........... 172 684 142 998
Occupancy expenses............................ 25 303 19 347
Advertising and marketing..................... 12 130 10 152
Depreciation and amortization(1).............. 19 143 110 272
Interest expense.............................. -- 4 -- 4
Merger expenses(2)............................ 95 68 -- 163
------- ------ ------ -------
Total expenses.............................. 826 6,134 825 7,785
------- ------ ------ -------
Income before income taxes...................... 3,633 252 116 4,001
------- ------ ------ -------
Income tax expense:
Current provision (benefit)................... (87) 423 43 379
Deferred provision(1)......................... 1,083 (327) 1 757
------- ------ ------ -------
996 96 44 1,136
------- ------ ------ -------
Net income...................................... $ 2,637 $ 156 $ 72 $ 2,865
======= ====== ====== =======
</TABLE>

------------------------

(1) A significant non-cash expense

(2) Unusual non-recurring expenses

F-62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 11. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
SOMERSET SOMERSET FIRST INDIANA
GROUP FINANCIAL INVESTOR
MANAGEMENT SERVICES SERVICES
(DOLLARS IN THOUSANDS) DIVISION DIVISION DIVISION CONSOLIDATED
---------------------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Beginning equity employed....................... $29,592 $ 761 $1,244 $31,597
Assets.......................................... $39,628 $1,487 $1,345 $42,460
Revenue and income:
Fee based revenue--external customers......... $ -- $5,765 $ -- $ 5,765
Commission revenue--external customers........ -- -- 1,084 1,084
------- ------ ------ -------
Total fees and commissions.................. -- 5,765 1,084 6,849
Equity earnings from First Indiana
Corporation................................. 3,883 -- -- 3,883
Investment income--external sources........... 369 24 -- 393
------- ------ ------ -------
Total revenue and income.................... 4,252 5,789 1,084 11,125
------- ------ ------ -------
Expenses:
Salaries, wages, commissions, and benefits.... 756 4,788 446 5,990
General and administrative expenses........... 133 541 208 882
Occupancy expenses............................ 23 264 18 305
Advertising and marketing..................... 6 78 12 96
Depreciation and amortization(1).............. 19 127 100 246
Interest expense.............................. -- 39 -- 39
Total expenses.............................. 937 5,837 784 7,558
------- ------ ------ -------
Income before income taxes...................... 3,315 (48) 300 3,567
------- ------ ------ -------
Income tax expense:
Current provision (benefit)................. (142) (131) 106 (167)
Deferred provision(1)....................... 1,069 126 3 1,198
------- ------ ------ -------
927 (5) 109 1,031
Net income...................................... $ 2,388 $ (43) $ 191 $ 2,536
======= ====== ====== =======
</TABLE>

------------------------

(1) A significant non-cash expense

F-63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 11. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
(DOLLARS IN THOUSANDS) 2000 1999
---------------------- -------- --------
<S> <C> <C>
Assets:
Somerset Group Management Division........................ $41,812 $39,814
Somerset Financial Services L.L.C......................... 6,440 2,903
First Indiana Investor Services Division.................. 1,459 1,359
Paradym Technologies, Inc................................. 403 601
------- -------
$50,114 $44,677
======= =======
Revenue and Income:(A)
Somerset Group Management Division........................ $ 2,572 $ 2,198
Somerset Financial Services L.L.C......................... 5,955 4,407
First Indiana Investor Services Division.................. 680 447
Paradym Technologies, Inc................................. 349 719
------- -------
$ 9,556 $ 7,771
======= =======
Net Income (Loss):
Somerset Group Management Division........................ $ 1,544 $ 1,309
Somerset Financial Services L.L.C......................... 893 568
First Indiana Investor Services Division.................. 89 23
Paradym Technologies, Inc................................. (9) 100
------- -------
Income before cumulative effect of change in accounting
principle................................................. 2,517 2,000
Cumulative effect of change in accounting principle(B)...... -- (115)
------- -------
Net Income.................................................. $ 2,517 $ 1,885
======= =======
</TABLE>

------------------------

NOTES:

(A) All revenue and income is from external sources, except for equity in
earnings of First Indiana Corporation, included in Somerset Group Management
Division.

(B) A significant non-recurring, non-cash expense.

NOTE 12. STOCK-BASED COMPENSATION

The Company has two types of stock-based compensation plans: stock options
and stock grants, as described below. The Company has applied Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized for such stock options.
Compensation cost for stock grants issued has been charged against income and
includes reimbursement to the grantee of personal income taxes incurred. There
were no stock grants issued or outstanding during 1999. The amounts charged for
the stock grants and taxes were $31,000 and $395,000 in 1998 and 1997,
respectively.

Had compensation cost for the stock options granted in 1999, 1998, and 1997
been determined based on the fair value at the grant date consistent with the
methods of Federal Accounting Standards

F-64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 12. STOCK-BASED COMPENSATION (CONTINUED)
Board ("FASB") Statement No. 123, Accounting for Stock-Based Compensation, the
Company's net income and earnings per share would have been reduced as shown in
the pro forma amounts as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net Income:
As reported............................ $3,392,000 $2,865,000 $2,536,000
Pro forma.............................. $3,218,000 $2,810,000 $2,507,000
Basic earnings per share:
As reported............................ $ 1.20 $ 0.99 $ 0.87
Pro forma.............................. $ 1.14 $ 0.97 $ 0.86
Diluted earnings per share:
As reported............................ $ 1.18 $ 0.97 $ 0.86
Pro forma.............................. $ 1.12 $ 0.95 $ 0.85
</TABLE>

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with weighted-average assumptions
as follows:

<TABLE>
<CAPTION>
YEAR GRANTS ISSUED 1999 1998 1997
------------------ -------- -------- --------
<S> <C> <C> <C>
Dividend yield...................................... 1.00% 1.20% 1.15%
Expected volatility................................. 54% 59% 47%
Risk-free interest rate............................. 6.0% 5.43% 6.11%
Expected option life................................ 5 yrs. 5 yrs. 5 yrs.
</TABLE>

The effects of applying FASB Statement No. 123 in the above pro forma are
not indicative of future amounts. The Company expects that grants will be made
in the future.

STOCK OPTIONS

The Company's 1991 and 1998 Stock Incentive Plans provide for granting of
qualified and non-qualified stock options to officers and other key employees at
the quoted market value of the Company's common stock on the date of the grant.

The two plans are essentially identical. Qualified options are exercisable
during either a period of two to five years or a period of three to five years
after the date of grant, and expire five years from the date of the grant.

Non-qualified options are exercisable during a period of six months to ten
years after the date of the grant and expire ten years from the date of the
grant. The 1991 Plan authorized 156,250 shares for granting options, and the
1998 Plan authorized 145,000 shares, with or without stock appreciation rights.

The Company also maintains a 1991 Director Stock Option Plan, which
authorized 78,125 shares. The plan provides for the granting of stock options to
non-employee directors of the Company. Grants issued are non-qualified stock
options, which do not afford favorable tax treatment to recipients and which
normally result in tax deductions to the Company. Options are granted annually
at the time of

F-65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 12. STOCK-BASED COMPENSATION (CONTINUED)
the annual meeting of the shareholders, at the quoted market price on that date.
The plan allows no more than the grant of 15,625 shares annually. Director
options have a term of five years and are exercisable during the second through
fifth years.

Certain incentive stock option grants, issued February 18, 1998, were
amended on February 19, 1999. The amendments changed the exercise price, the
term of the option, and the exercise dates. The effect of the amendments were to
change the 1998 option grants to correspond exactly with the terms of additional
option grants issued on February 19, 1999. Option grants for 1998 for 51,813
shares, held by 24 officers and key employees, were amended. The original grants
bore an exercise price equal to the market price on February 18, 1998, of $23.63
per share and were amended to the market price on February 17, 1999, of $16.375
per share.

The following summary reflects changes in the options outstanding during the
three years ended December 31, 1999.

<TABLE>
<CAPTION>
OFFICERS' WEIGHTED
AND KEY AVERAGE
EMPLOYEES' DIRECTORS' PRICE PER
PLAN PLAN SHARE
---------- ---------- ---------
<S> <C> <C> <C>
Balance at January 1, 1997..................... 121,719 26,562 $ 7.82
Options granted.............................. 23,879 9,387 16.30
Options expired.............................. -- (1,563) (12.80)
Options exercised............................ (35,468) (4,689) (6.33)
------- -------
Balance at December 31, 1997................... 110,130 29,697 10.21
Options granted.............................. 62,063 9,378 18.49
Options exercised............................ (13,595) (4,689) 4.81
------- -------
Balance at December 31, 1998................... 158,598 34,386 15.33
Options granted.............................. 58,112 7,815 16.36
Options expired.............................. (1,000) -- 16.38
Options exercised............................ (28,439) (10,941) 8.58
------- -------
Balance at December 31, 1999................... 187,271 31,260 15.40
======= =======
</TABLE>

F-66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 12. STOCK-BASED COMPENSATION (CONTINUED)
Outstanding option shares at December 31, 1999, by exercise price per share,
were as follows:

<TABLE>
<CAPTION>
OFFICERS' AND KEY DIRECTORS'
PRICE PER SHARE EMPLOYEES' PLANS PLAN
--------------- ----------------- ----------
<S> <C> <C>
$ 5.84.............................................. 5,469 --
8.32.............................................. 10,938 --
8.48.............................................. 12,501 1,563
11.20.............................................. 17,188 --
12.80.............................................. -- 4,689
15.50.............................................. -- 7,815
15.80.............................................. 9,500 --
16.25.............................................. -- *7,815
16.375............................................. *111,175 --
17.375............................................. 12,500 --
24.25.............................................. -- 9,378
25.99.............................................. * 8,000 --
-------- ------
187,271 31,260
======== ======
</TABLE>

------------------------

* Options not exercisable at December 31, 1999; 119,175 option shares issued
to Officers and Key Employees, and 7,815 option shares issued to Directors.
All other options were exercisable.

STOCK GRANTS

The Company's 1991 and 1998 Stock Incentive Plans also provide for the
issuance of stock grants to key individuals for achievement of specific results
over a three-year period. On April 1, 1994, the Company awarded 15,625 shares of
stock to each of two executive officers. These shares were subject to recall by
the Company in the event that certain specific employment and performance
objectives were not met by March 31, 1997. Such objectives were met and the
shares were vested with the two executive officers. The Company does not have
any stock grants outstanding at December 31, 1999.

Reserved for future stock options and stock grants at December 31, 1999 were
73,948 shares under the Officers and Key Employees' Plans and 12,492 shares
under the Directors' Stock Option Plan.

NOTE 13. RETIREMENT PLANS

The Company maintained a retirement plan for all employees during 1998 and
1997. The plan was a SAR-SEP and was qualified for income tax deferral under
Internal Revenue Service Code Section 408(k). Under the plan, employee
contributions and employer matching contributions were deferred for income tax
purposes. All amounts were contributed to trusteed Individual Retirement
Accounts established by the participants.

The Company made matching SAR-SEP contributions for participants of 100% of
each employee's contributions, to a maximum of 6% of salary. The costs of such
matching contributions were $52,000 and $53,000 during the years ended
December 31, 1998 and 1997, respectively.

The SAR-SEP was terminated in 1998, following the merger with Whipple, and
all employees became participants in a plan maintained by Whipple for the
benefit of its employees.

F-67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 13. RETIREMENT PLANS (CONTINUED)
The Whipple Plan adopted by the Company is a Profit Sharing Plan qualified
for tax-deferred employee and employer contributions under Internal Revenue Code
Section 401(k). Contributions made to the plan for all plan participants were
$245,000, $126,000, and $129,000 during the years ended December 31, 1999, 1998,
and 1997, respectively.

NOTE 14. COMMITMENTS AND CONTINGENCIES

The Company, in the normal course of business, is involved in various claims
and contingencies. After taking into consideration legal counsel's evaluation
and the extent of insurance coverage, management is of the opinion that the
outcome of claims and contingencies will not result in any ultimate liability
material to the consolidated financial statements.

NOTE 15. SUMMARIZED FINANCIAL STATEMENTS OF FIRST INDIANA CORPORATION

Summarized consolidated financial information is presented below and on the
following two pages for First Indiana. This 22 percent-owned subsidiary
represents a significant part of the Company's income and financial strength.
Summary discussions of the operating and financial results for First Indiana
Corporation appear in the Management's Discussion and Analysis section of the
report. A complete 1999 annual report for First Indiana is available upon
request.

FIRST INDIANA CORPORATION

SUMMARIZED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
(DOLLARS IN THOUSANDS) 1999 1998
---------------------- ---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 61,441 $ 57,653
Investments................................................. 103,169 113,291
Mortgage-backed securities--net............................. 54,734 29,680
Loans receivable--net....................................... 1,673,422 1,518,543
Premises and equipment...................................... 17,071 18,546
Accrued interest receivable................................. 13,554 11,680
Real estate owned........................................... 1,227 2,204
Prepaid expenses and other assets........................... 55,156 44,393
---------- ----------
Total Assets............................................ $1,979,774 $1,795,990
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits.................................................. $1,312,115 $1,227,918
Federal Home Loan Bank (FHLB) advances.................... 366,854 327,247
Short-term borrowings..................................... 98,754 54,219
Accrued interest payable.................................. 5,605 2,646
Advances by borrowers for taxes and insurance............. 1,377 1,958
Other liabilities......................................... 17,966 16,032
---------- ----------
Total Liabilities....................................... 1,802,671 1,630,020
Shareholders' Equity........................................ 177,103 165,970
---------- ----------
Total Liabilities and Shareholders' Equity.............. $1,979,774 $1,795,990
========== ==========
</TABLE>

F-68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 15. SUMMARIZED FINANCIAL STATEMENTS OF FIRST INDIANA CORPORATION
(CONTINUED)

FIRST INDIANA CORPORATION
SUMMARIZED CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- -------- -------- --------
<S> <C> <C> <C>
Interest Income............................................. $146,426 $136,931 $128,385
-------- -------- --------
Interest Expense
Deposits.................................................. 54,473 54,935 49,936
FHLB advances............................................. 18,309 15,348 12,288
Short-term borrowings..................................... 2,793 2,797 2,127
-------- -------- --------
Total Interest Expense...................................... 75,575 73,080 64,351
-------- -------- --------
Net Interest Income......................................... 70,851 63,851 64,034
Provision for loan losses................................. 9,410 9,780 10,700
-------- -------- --------
Net Interest Income After Provision for Loan Losses......... 61,441 54,071 53,334
Non-Interest Income
Sale of loans............................................. 7,417 9,418 4,932
Loan servicing income..................................... 1,220 1,635 2,767
Loan fees................................................. 3,626 3,092 2,358
Customer fee income....................................... 5,296 4,107 3,704
Other..................................................... 9,399 4,424 3,189
-------- -------- --------
Total Non-Interest Income................................... 26,958 22,676 16,950
-------- -------- --------
Non-Interest Expense
Salary and benefits....................................... 28,152 22,701 19,916
Net occupancy............................................. 2,942 2,893 2,852
Deposit insurance......................................... 712 691 693
Real estate owned operations--net......................... 537 858 652
Other..................................................... 20,003 18,613 16,991
-------- -------- --------
Total Non-Interest Expense.................................. 52,346 45,756 41,104
-------- -------- --------
Earnings Before Income Taxes................................ 36,053 30,991 29,180
Income Taxes................................................ 13,320 11,844 11,436
-------- -------- --------
Net Earnings................................................ $ 22,733 $ 19,147 $ 17,744
======== ======== ========
</TABLE>

F-69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 15. SUMMARIZED FINANCIAL STATEMENTS OF FIRST INDIANA CORPORATION
(CONTINUED)
FIRST INDIANA CORPORATION

SUMMARIZED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- --------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings.............................................. $ 22,733 $ 19,147 $ 17,744
Adjustments to reconcile net earnings to net
Cash provided (used) by operating activities
(Gain) Loss on sales of assets & deposits............... (11,992) (10,181) (5,149)
Amortization............................................ 2,104 2,368 1,227
Depreciation............................................ 2,524 2,211 2,022
Provision for loan losses............................... 9,410 9,780 10,700
Net sale of loans held for resale....................... 88,578 (31,944) (28,700)
Net Change in all other assets & liabilities............ (15,010) (17,765) (6,559)
--------- --------- ---------
Net Cash (Used) Provided by Operating Activities........ 98,347 (26,384) (8,715)
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds--sales investments available for sale............ 147,486 20,399 14,991
Proceeds--sales investment securities..................... 55,752 23,483 --
Proceeds--maturities investment securities................ 3,143 25,855 20,932
Purchase of investment securities......................... (144,898) (47,375) (39,912)
Origination of loans and mortgage-backed securities--net
of collections.......................................... (306,488) (125,399) (107,404)
Proceeds from sale of loans............................... 70,915 9,567 5,274
Purchase of premises and equipment........................ (2,965) (6,810) (2,291)
Other--net................................................ (82,115) (28,333) 2,110
--------- --------- ---------
Net Cash (Used) Provided Investing Activities............... (259,170) (128,613) (110,520)
--------- --------- ---------
Cash Flows from Financing Activities
Net change in deposits.................................... 204,137 120,363 12,069
Net change in short-term borrowings....................... 44,535 (21,532) 45,696
Net change in FHLB advances............................... 39,607 69,789 41,992
Purchase of treasury stock................................ (5,299) (2,242) (132)
Dividends paid............................................ (6,532) (6,125) (5,063)
Other--net................................................ (111,837) 2,166 1,286
--------- --------- ---------
Net Cash Provided (Used) Financing Activities............... 164,611 162,419 95,848
--------- --------- ---------
Increase (Decrease) Cash & Cash Equivalents................. $ 3,788 $ 7,422 $ (23,387)
========= ========= =========
</TABLE>

F-70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 15. SUMMARIZED FINANCIAL STATEMENTS OF FIRST INDIANA CORPORATION
(CONTINUED)
FIRST INDIANA CORPORATION AND SUBSIDIARIES

SUMMARIZED INCOME STATEMENTS

SIX MONTHS ENDED JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
(DOLLARS IN THOUSANDS) 2000 1999
---------------------- -------- --------
<S> <C> <C>
Interest income........................................... $83,440 $70,300
Interest expense.......................................... 44,918 36,226
------- -------
Net interest income....................................... 38,522 34,074
Provision for loan losses................................. 4,878 4,920
------- -------
Net interest income after provision for loan losses....... 33,644 29,154
Non interest income....................................... 10,157 12,309
Non interest expense...................................... 24,731 25,748
------- -------
Income before income taxes................................ 19,070 15,715
Income tax expense........................................ 7,374 6,064
------- -------
Net income................................................ $11,696 $ 9,651
======= =======
</TABLE>

SUMMARIZED BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2000 1999
---------------------- ---------- -------------
<S> <C> <C>
Assets.............................................. $2,119,047 $1,979,774
Loans--Net.......................................... $1,816,887 $1,673,422
Deposits............................................ $1,376,203 $1,312,115
Shareholders' Equity................................ $ 185,058 $ 177,103
</TABLE>

NOTE 16. CYCLICAL BUSINESS OPERATIONS (UNAUDITED)

Revenue and income from financial services is cyclical in nature as a result
of the timing of income tax planning and preparation services performed by
Somerset. Because of government imposed filing deadlines, a larger percentage of
these services occur during the first four months of each calendar year. Revenue
and income during the first quarter of each year is favorably affected, as
compared to the remaining three-quarters of the year.

F-71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

THE SOMERSET GROUP, INC.

NOTE 16. CYCLICAL BUSINESS OPERATIONS (UNAUDITED) (CONTINUED)
Revenue, net income and earnings per share for the four quarterly periods
ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. ANNUAL
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) MAR. 31 JUNE 30 SEPT. 30 DEC. 31 1999
--------------------------------------------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue and income...................... $4,668 $3,103 $3,461 $4,071 $15,303
Net income.............................. $1,291 $ 594 $ 759 $ 748 $ 3,392
Basic earnings per share................ $ 0.45 $ 0.21 $ 0.27 $ 0.27 $ 1.20
Diluted earnings per share.............. $ 0.44 $ 0.21 $ 0.27 $ 0.26 $ 1.18
</TABLE>

NOTE 17. AVERAGE SHARES OUTSTANDING

Average shares outstanding, computed on the diluted basis as required by
Financial Accounting Standards Board Statement 128, included the common share
equivalents of outstanding stock options. There were 39,468 and 37,388
equivalent shares included in the average diluted shares outstanding for the six
months ended June 30, 2000 and June 30, 1999 respectively.

Somerset had the following shares of its stock reserved for exercise of
stock options.

<TABLE>
<CAPTION>
DATE SHARES
---- --------
<S> <C>
June 30, 2000............................................... 15,262
December 31, 1999........................................... 86,440
</TABLE>

NOTE 18. SUBSEQUENT EVENT (UNAUDITED)

On April 19, 2000, Somerset and First Indiana jointly announced the signing
of a definitive agreement pursuant to which Somerset will be merged with and
into a wholly-owned subsidiary of First Indiana. The merger agreement provides
that each shareholder of Somerset will have the option of receiving 1.21 shares
of First Indiana common stock (valued at $21.48, based on First Indiana's
April 18, 2000 closing price of $17.75 per share) or $24.70 in cash, or a
combination of each (with cash limited to 35% of Somerset's shares outstanding
at closing), for each share of Somerset stock owned as of the effective date of
the merger. Based on First Indiana's April 18, 2000 closing price, and assuming
that 80% of Somerset's shares are exchanged for stock and 20% are exchanged for
cash, the transaction has an aggregate value of approximately $63 million. This
transaction, which is expected to close in the third quarter or early in the
fourth quarter of 2000, will be accounted for using purchase accounting. The
transaction is also subject to approval by Somerset and First Indiana
shareholders and the Office of Thrift Supervision.

F-72
<PAGE>
ANNEX A

AGREEMENT AND PLAN OF
REORGANIZATION

BETWEEN

THE SOMERSET GROUP, INC.

AND

FIRST INDIANA CORPORATION

APRIL 19, 2000

<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I................................................... A-1
Certain Definitions; Interpretation..................... A-1
1.01 CERTAIN DEFINITIONS........................... A-1
1.02 INTERPRETATION................................ A-5

ARTICLE II.................................................. A-5
The Merger.............................................. A-5
2.01 THE MERGER.................................... A-5
2.02 RESERVATION OF RIGHT TO REVISE STRUCTURE...... A-6
2.03 EFFECTIVE TIME................................ A-6
2.04 ACCOUNTING TREATMENT.......................... A-6
2.05 TREATMENT OF FIRST INDIANA COMMON STOCK HELD
BY SOMERSET......................................... A-6

ARTICLE III................................................. A-7
Consideration........................................... A-7
3.01 CONSIDERATION................................. A-7
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS....... A-8
3.03 FRACTIONAL SHARES............................. A-8
3.04 EXCHANGE PROCEDURES........................... A-8
3.05 ANTI-DILUTION ADJUSTMENTS..................... A-10
3.06 STOCK OPTIONS................................. A-10

ARTICLE IV.................................................. A-10
Actions Pending the Merger.............................. A-10
4.01 FORBEARANCES OF SOMERSET...................... A-10
4.02 FORBEARANCES OF FIRST INDIANA................. A-12

ARTICLE V................................................... A-13
Representations and Warranties.......................... A-13
5.01 DISCLOSURE SCHEDULES.......................... A-13
5.02 STANDARD...................................... A-13
5.03 REPRESENTATIONS AND WARRANTIES OF SOMERSET.... A-13
5.04 REPRESENTATIONS AND WARRANTIES OF FIRST
INDIANA............................................. A-21

ARTICLE VI.................................................. A-24
Covenants............................................... A-24
6.01 REASONABLE BEST EFFORTS....................... A-24
6.02 SHAREHOLDER APPROVALS......................... A-24
6.03 REGISTRATION STATEMENT........................ A-25
6.04 PRESS RELEASES................................ A-26
6.05 ACCESS; INFORMATION........................... A-26
6.06 ACQUISITION PROPOSALS......................... A-26
6.07 AFFILIATE AGREEMENTS.......................... A-27
6.08 NASDAQ LISTING................................ A-27
6.09 REGULATORY APPLICATIONS....................... A-27
6.10 D & O INDEMNIFICATION AND INSURANCE........... A-27
6.11 ACCOUNTANTS' LETTERS.......................... A-28
6.12 NOTIFICATION OF CERTAIN MATTERS............... A-28
6.13 EMPLOYEE MATTERS.............................. A-28

ARTICLE VII................................................. A-29
Conditions to Consummation of the Merger................ A-29
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO
EFFECT THE MERGER................................... A-29
7.02 CONDITIONS TO OBLIGATION OF SOMERSET.......... A-30
</TABLE>

<PAGE>
<TABLE>
<S> <C>
7.03 CONDITIONS TO OBLIGATION OF FIRST INDIANA..... A-30

ARTICLE VIII................................................ A-31
Termination............................................. A-31
8.01 TERMINATION................................... A-31
8.02 EFFECT OF TERMINATION AND ABANDONMENT......... A-32
8.03 TERMINATION FEE............................... A-32

ARTICLE IX.................................................. A-33
Miscellaneous........................................... A-33
9.01 SURVIVAL...................................... A-33
9.02 WAIVER; AMENDMENT............................. A-33
9.03 COUNTERPARTS.................................. A-33
9.04 GOVERNING LAW................................. A-33
9.05 EXPENSES...................................... A-33
9.06 NOTICES....................................... A-33
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES....................................... A-34
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated as of
April 19, 2000, by and between THE SOMERSET GROUP, INC. ("Somerset") and FIRST
INDIANA CORPORATION ("First Indiana"), each Indiana corporations with their
respective headquarters in Indianapolis, Indiana.

W I T N E S S E T H:

A. The parties desire to effect the acquisition by First Indiana of
Somerset, which shall be accomplished through the merger of Somerset with and
into First Indiana Financial Services, Inc. ("Financial Services"), an entity to
be organized as an Indiana corporation that will be wholly owned by First
Indiana and which will be created solely for the purpose of effecting this
merger (the "Merger").

B. The Boards of Directors of Somerset and First Indiana, respectively,
each have determined that it is in the best interests of their respective
corporations and shareholders to effect the Merger.

D. It is the intention of the parties to this Agreement that the business
combination contemplated hereby be treated as a "reorganization" under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").

NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:

ARTICLE I
CERTAIN DEFINITIONS; INTERPRETATION

1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings assigned below:

(a) "Acquisition Proposal" has the meaning assigned in Section 6.06.

(b) "Agreement" means this Agreement, as amended or modified from time
to time in accordance with Section 9.02.

(c) "Ancillary Documents" means, when executed and delivered, the
Articles of Merger attached hereto as Exhibit A, the Affiliate Agreement
attached hereto as Exhibit B, the Opinion of First Indiana's Counsel, Bose
McKinney & Evans LLP, attached hereto as Exhibit C, the Opinion of
Somerset's Counsel, Barnes & Thornburg, attached hereto as Exhibit D, and
the Agreement and Plan of Merger by and between Financial Services and
Somerset attached hereto as Exhibit E.

(d) "Closing Date" has the meaning assigned in Section 2.03.

(e) "Code" has the meaning assigned in the recitals to this Agreement.

(f) "Compensation Plans" has the meaning assigned in Section 5.03(l).

(g) "Consideration" has the meaning assigned in Section 3.01(a).

(h) "Consideration Ratio" has the meaning assigned in Section 3.06.

(i) "Contract" means, with respect to any person, any agreement,
indenture, undertaking, debt instrument, contract, lease or other commitment
to which such person or any of its Subsidiaries is a party or by which any
of them is bound or to which any of their properties is subject.

(j) "Disclosure Schedule" has the meaning assigned in Section 5.01.

(k) "DOL" means the United States Department of Labor.

A-1
<PAGE>
(l) "Effective Date" means the date on which the Effective Time occurs.

(m) "Effective Time" means the date and time at which the Merger becomes
effective.

(n) "Environmental Laws" means any federal, state or local law,
regulation, order, decree, permit, authorization, common law or agency
requirement with force of law relating to: (1) the protection or restoration
of the environment, health or safety (in each case as relating to the
environment) or natural resources; or (2) the handling, use, presence,
disposal, release or threatened release of any Hazardous Substance.

(o) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.

(p) "ERISA Affiliate" has, with respect to any person, the meaning
assigned in Section 5.03(l).

(q) "ERISA Affiliate Plan" has the meaning assigned in Section 5.03(l).

(r) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.

(s) "Exchange Agent" means Harris Trust and Savings Bank or another bank
or trust company selected by First Indiana and reasonably acceptable to
Somerset to effect the payment of the Consideration pursuant to
Section 3.01.

(t) "Exchange Fund" has the meaning assigned in Section 3.04(a).

(u) "Exchange Ratio" has the meaning assigned in Section 3.01(a).

(v) "Fee" has the meaning assigned in Section 8.03.

(w) "Financial Services" has the meaning assigned in the recitals to
this Agreement.

(x) "Financial Services Articles" means the Articles of Incorporation of
Financial Services.

(y) "Financial Services By-laws" means the By-laws of Financial
Services.

(z) "Financial Services Merger Agreement" means the Agreement and Plan
of Merger by and between Financial Services and Somerset, a form of which is
attached as Exhibit E.

(aa) "First Indiana" has the meaning assigned in the preamble to this
Agreement.

(bb) "First Indiana Articles" means the Articles of Incorporation of
First Indiana.

(cc) "First Indiana Board" means the First Indiana Board of Directors.

(dd) "First Indiana By-Laws" means the By-Laws of First Indiana.

(ee) "First Indiana Common Stock" means the common stock, par value of
$.01 per share, of First Indiana.

(ff) "First Indiana Preferred Stock" means the preferred stock, par
value of $.01 per share, of First Indiana.

(gg) "First Indiana's SEC Documents" has the meaning assigned in
Section 5.04(g).

(hh) "Former Somerset Employees" has the meaning assigned in
Section 6.13.

(ii) "Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.

(jj) "Hazardous Substance" means any substance in any concentration that
is: (1) listed, classified or regulated pursuant to any Environmental Law;
(2) any petroleum product or by- product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls,

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radioactive materials or radon; or (3) any other substance which is or may
be the subject of regulatory action by any Governmental Authority pursuant
to any Environmental Law.

(kk) "Indemnified Person" has the meaning assigned in Section 5.03(l).

(ll) "IBCL" means the Indiana Business Corporation Law, I.C. 23-1-17-1
ET SEQ.

(mm) "Insurance Amount" has the meaning assigned in Section 6.10(a).

(nn) "Insurance Policies" has the meaning assigned in Section 5.03(r).

(oo) "IRS" means the United States Internal Revenue Service.

(pp) "KBW" means Keefe, Bruyette & Woods, Inc.

(qq) "Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.

(rr) "Loans" means loans, leases, extensions of credit, commitments to
extend credit and other assets.

(ss) "Market Value" has the meaning, in respect of First Indiana Common
Stock and the Effective Date, assigned in Section 3.06.

(tt) "Material Adverse Effect" means, with respect to First Indiana or
Somerset, any effect that (1) is both material and adverse to the financial
position, results of operations or business of First Indiana and its
Subsidiaries taken as a whole, or Somerset and its Subsidiaries taken as a
whole, respectively, other than (A) the effects of any change attributable
to or resulting from changes in economic conditions, laws, regulations or
accounting guidelines (generally accepted accounting principles or
otherwise) applicable to depository institutions generally, or in general
levels of interest rates, and (B) payments associated with the Merger as
contemplated by this Agreement; or (2) would materially impair the ability
of either First Indiana or Somerset to perform its obligations under this
Agreement or otherwise materially threaten or materially impede the
consummation of the Merger and the other transactions contemplated by this
Agreement.

(uu) "McDonald" means McDonald Investments Inc.

(vv) "Merger" has the meaning assigned in the recitals to this Agreement.

(ww) "Multiemployer Plan" means, with respect to any person, a
multiemployer plan within the meaning of Section 3(37) of ERISA.

(xx) "NASDAQ" means The NASDAQ Stock Market.

(yy) "New Certificates" has the meaning assigned in Section 3.04(b).

(zz) "Old Certificates" has the meaning assigned in Section 3.04().

(aaa) "OTS" means the Office of Thrift Supervision.

(bbb) "PBGC" means the Pension Benefit Guaranty Corporation.

(ccc) "Pension Plan" has the meaning assigned in Section 5.03(l).

(ddd) "Per Share Cash Consideration" has the meaning assigned in
Section 3.01(a).

(eee) "Per Share Stock Consideration" has the meaning assigned in
Section 3.01(a).

(fff) "Person" means any individual, bank, savings bank, corporation,
partnership, association, joint-stock company, business trust or
unincorporated organization.

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(ggg) "Previously Disclosed" means, with respect to Somerset or First
Indiana, information set forth in such party's Disclosure Schedule.

(hhh) "Proxy Statements" has the meaning assigned in Section 6.03.

(iii) "Registration Statement" has the meaning assigned in Section 6.03.

(jjj) "Representatives" means, with respect to any person, such person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.

(kkk) "Replacement Option" has the meaning assigned in Section 3.06.

(lll) "Rights" means, with respect to any person, securities or
obligations convertible into or exercisable or exchangeable for, or giving
any person any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other instrument
the value of which is determined in whole or in part by reference to the
market price or value of, shares of capital stock of such person.

(mmm) "SEC" means the Securities and Exchange Commission.

(nnn) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.

(ooo) "Somerset" has the meaning assigned in the preamble to this
Agreement.

(ppp) "Somerset Affiliate" has the meaning assigned in Section 6.07.

(qqq) "Somerset Articles" means the Articles of Incorporation of Somerset.

(rrr) "Somerset Board" means the Board of Directors of Somerset.

(sss) "Somerset By-Laws" means the By-laws of Somerset, as and if
amended.

(ttt) "Somerset Common Stock" means the common stock, without par value
per share, of Somerset.

(uuu) "Somerset Reports" has the meaning assigned in Section 5.03(i).

(vvv) "Somerset Stock Option" means each option to purchase shares of
Somerset Common Stock which is outstanding under the Somerset Stock Plans on
the date as of which this Agreement is made and which remains outstanding as
of the Effective Time.

(www) "Somerset Stock Plans" means the 1986, 1991, and 1998 Stock Incentive
Plans and the 1991 Directors Stock Option Plan of The Somerset Group, Inc.

(xxx) "Somerset's SEC Documents" has the meaning assigned in
Section 5.03(g).

(yyy) "Subsidiary" and "Significant Subsidiary" have the meanings assigned
to them in Rule 1-02 of Regulation S-X of the SEC; provided that reference
to Subsidiaries of Somerset shall not mean or include First Indiana or any
Subsidiaries of First Indiana.

(zzz) "Superior Proposal" means an Acquisition Proposal made by a third
party after the date hereof which, in the good faith judgment of the Board
of Directors of the corporation receiving the Acquisition Proposal, taking
into account the various legal, financial and regulatory aspects of the
proposal and the person making such proposal, (1) if accepted, is
significantly more likely than not to be consummated, and (2) if
consummated, is reasonably likely to result in a materially more favorable
transaction than the Merger for the applicable corporation and its
shareholders and other relevant constituencies.

(aaaa) "Surviving Corporation" has the meaning assigned in Section 2.01.

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(bbbb) "Taxes" means all taxes, charges, fees, levies or other assessments,
however denominated, including, without limitation, all net income, gross
income, gross receipts, sales, use, AD VALOREM, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property
or other taxes, custom duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority whether arising
before, on or after the Effective Date.

(cccc) "Tax Returns" has the meaning assigned in Section 5.03(o).

(dddd) "TRA" has the meaning assigned in Section 5.03(l).

1.02 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No rule of construction against the
draftsperson shall be applied in connection with the interpretation or
enforcement of this Agreement. Whenever this Agreement shall require a party to
take an action, such requirement shall be deemed to constitute an undertaking by
such party to cause its Subsidiaries, and to use its reasonable best efforts to
cause its other affiliates, to take appropriate action in connection therewith.
References herein to "transaction contemplated by this Agreement" shall be
deemed to include a reference to the transactions contemplated by the Ancillary
Documents.

ARTICLE II
THE MERGER

2.01 THE MERGER. At the Effective Time, the business combination
contemplated by this Agreement shall occur and in furtherance thereof:

(a) STRUCTURE AND EFFECTS OF THE MERGER. Somerset shall merge with and
into Financial Services, and the separate corporate existence of Somerset
shall thereupon cease. Financial Services shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Indiana, and the separate corporate existence of Financial Services with all
its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The Merger shall have the effects specified in the
IBCL.

(b) ARTICLES OF INCORPORATION. The Financial Services Articles as in
effect immediately prior to the Effective Time shall continue to be the
articles of incorporation of the Surviving Corporation following the Merger,
until duly amended in accordance with the terms thereof and the IBCL.

(c) BY-LAWS. The Financial Services By-laws as in effect immediately
prior to the Effective Time shall continue to be the by-laws of the
Surviving Corporation following the Merger, until duly amended in accordance
with the terms thereof and the Financial Services Articles.

(d) DIRECTORS. The directors of Financial Services immediately prior
to the Effective Time shall continue to hold such positions following the
Merger, and such directors shall hold office

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until such time as their successors shall be duly elected and qualified. The
directors immediately prior to the Effective Time shall be as follows:

Robert H. McKinney
Marni McKinney
Owen B. Melton, Jr.
Patrick J. Early.

(e) OFFICERS. The officers of Financial Services holding such
positions immediately prior to the Effective Time shall continue to be the
officers of the Surviving Corporation following the Merger. The officers
immediately prior to the Effective Time shall be as follows:

<TABLE>
<S> <C>
Patrick J. Early President and Chief Executive Officer
Marni McKinney Chairman
Owen B. Melton, Jr. Secretary and Treasurer
</TABLE>

2.02 RESERVATION OF RIGHT TO REVISE STRUCTURE. At First Indiana's
election, the Merger may alternatively be structured so that (a) Somerset is
merged with and into First Indiana directly, or any direct or indirect wholly
owned subsidiary of First Indiana other than Financial Services or (b) any
direct or indirect wholly owned subsidiary of First Indiana is merged with and
into Somerset; provided, however, that no such change shall (x) alter or change
the amount or kind of the Consideration or the treatment of the holders of
Somerset Common Stock or Somerset Stock Options, (y) prevent the parties from
obtaining the opinions of Barnes & Thornburg and Bose McKinney & Evans LLP
referred to in Sections 7.02(d) and 7.03(d), respectively, or (z) materially
impede or delay consummation of the transactions contemplated by this Agreement.
In the event of such an election, the parties agree to execute an appropriate
amendment to this Agreement in order to reflect such election.

2.03 EFFECTIVE TIME. The Merger shall become effective upon the filing, in
the office of the Secretary of State of the State of Indiana, of Articles of
Merger in accordance with IBCL Section 23-1-40-5, or at such later date and time
as may be set forth in such articles, which articles shall be in substantially
the same form as that attached hereto as Exhibit A. Subject to the terms of this
Agreement, the parties shall cause the Merger to become effective (a) on the
date that is the fifth full NASDAQ trading day (the "Closing Date") to occur
after the last of the conditions set forth in Article VII (other than conditions
relating solely to the delivery of documents dated the Effective Date) shall
have been satisfied or waived in accordance with the terms of this Agreement, or
(b) on such date as the parties may agree in writing.

2.04 ACCOUNTING TREATMENT. The acquisition of Somerset by First Indiana,
as effected by the Merger, will be accounted for under the purchase method of
accounting.

2.05 TREATMENT OF FIRST INDIANA COMMON STOCK HELD BY SOMERSET. Each share
of First Indiana Common Stock issued, outstanding and held by Somerset
immediately prior to the Effective Time shall be cancelled as of the Effective
Time and certificates representing such shares shall be delivered by Somerset to
First Indiana. Immediately following the Effective Time, all such shares shall
be treated as authorized but unissued shares of First Indiana.

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ARTICLE III
CONSIDERATION

3.01 CONSIDERATION.

(a) Subject to the terms and conditions of this Agreement, at the
Effective Time:

(1) Each share of Somerset Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held as
treasury stock of Somerset and shares held directly or indirectly by
First Indiana, except shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, if any) shall become and be
converted into the right to receive, subject to adjustment as set forth
in Section 3.05:

(A) 1.21 shares (the "Exchange Ratio") of First Indiana Common
Stock (the "Per Share Stock Consideration"), or

(B) $24.70, in cash (such sum, the "Per Share Cash Consideration"
and together with the Per Share Stock Consideration, the
"Consideration"); and

provided, that the aggregate number of shares of First Indiana Common
Stock that shall be issued in the Merger shall be not less than the
product of (a) sixty-five percent (65%), of (b) the Exchange Ratio, times
(c) the number of shares of Somerset Common Stock outstanding as of the
Effective Time (the "Stock Number").

(2) Each share of Somerset Common Stock that, immediately prior to
the Effective Time, is held as treasury stock of Somerset or held
directly or indirectly by First Indiana, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted,
shall by virtue of the Merger be canceled and retired and shall cease to
exist, and no exchange or payment shall be made therefor.

(b) Subject to the allocation procedures set forth in Section 3.01(c),
each record holder of Somerset Common Stock will be entitled (1) to elect to
receive First Indiana Common Stock for all or some of the shares of Somerset
Common Stock ("Stock Election Shares") held by such record holder, (2) to
elect to receive cash for all or some of the shares of Somerset Common Stock
("Cash Election Shares") held by such record holder or (3) to indicate that
such holder makes no such election for all or some of the shares of Somerset
Common Stock ("No-Election Shares") held by such record holder. All such
elections (each, an "Election") shall be made on a form designed for that
purpose by First Indiana and reasonably acceptable to Somerset (an "Election
Form"). Any shares of Somerset Common Stock with respect to which the record
holder thereof shall not, as of the Election Deadline (as defined below),
have properly submitted to the Exchange Agent (as defined below) a properly
completed Election Form shall be deemed to be No-Election Shares. A record
holder acting in different capacities or acting on behalf of other persons
in any way shall be entitled to submit an Election Form for each capacity in
which such record holder so acts with respect to each person for which it so
acts.

(c) Not later than the 15th day after the Election Deadline, First
Indiana shall cause the Exchange Agent to effect the allocation among the
holders of Somerset Common Stock of rights to receive the Per Share Stock
Consideration or the Per Share Cash Consideration in the Merger as follows:

(1) Number of Stock Elections Less Than Stock Number. If the number
of Stock Election Shares (on the basis of Election Forms received as of
the Election Deadline) is less than the Stock Number, then

(A) all Stock Election Shares shall be, as of the Effective Time,
converted into the right to receive the Per Share Stock
Consideration,

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(B) the Exchange Agent shall allocate pro rata from among the
No-Election Shares a sufficient number of No-Election Shares such
that the sum of such number and the number of Stock Election Shares
shall equal as closely as practicable the Stock Number, and all such
selected shares ("Stock-Selected No-Election Shares") shall be, as of
the Effective Time, converted into the right to receive the Per Share
Stock Consideration, provided that if the sum of all No-Election
Shares and Stock Election Shares is less than the Stock Number, all
No-Election Shares shall be Stock-Selected No-Election Shares,

(C) if the sum of Stock Election Shares and No-Election Shares is
less than the Stock Number, the Exchange Agent shall allocate pro
rata from among the Cash Election Shares a sufficient number of Cash
Election Shares such that the sum of such number, plus the number of
Stock Election Shares and the number of Stock-Selected No-Election
Shares, shall equal as closely as practicable the Stock Number, and
all such selected shares ("Converted Cash Election Shares") shall be,
as of the Effective Time, converted into the right to receive the Per
Share Stock Consideration, and

(D) the No-Election Shares and Cash Election Shares that are not
Stock-Selected No-Election Shares or Converted Cash Election Shares
(as the case may be) shall be, as of the Effective Time, converted
into the right to receive the Per Share Cash Consideration; or

(2) Number of Stock Elections Greater Than or Equal to Stock Number.
If the number of Stock Election Shares (on the basis of Election Forms
received by the Election Deadline) is greater than or equal to the Stock
Number, then

(A) all Cash Election Shares and No-Election Shares shall be, as
of the Effective Time, converted into the right to receive the Per
Share Cash Consideration, and

(B) The Stock Election Shares shall be, as of the Effective Time,
converted into the right to receive the Per Share Stock
Consideration.

3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
(a) holders of Somerset Common Stock shall cease to be, and shall have no rights
as, shareholders of Somerset, other than the right to receive (1) any dividend
or other distribution with respect to such Somerset Common Stock with a record
date occurring prior to the Effective Time and (2) the consideration provided
under this Article III, and (b) holders of Somerset Stock Options shall have no
further or continuing right to receive Somerset Common Stock, First Indiana
Common Stock or any form of consideration other than the consideration provided
under this Article III. After the Effective Time, there shall be no transfers on
the stock transfer books of Somerset or the Surviving Corporation of shares of
Somerset Common Stock, and no attempted or purported exercise of Somerset Stock
Options shall be effective.

3.03 FRACTIONAL SHARES. Notwithstanding any other provision in this
Agreement, no fractional shares of First Indiana Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof, will be
issued in the Merger; instead, First Indiana shall pay to each holder of
Somerset Common Stock who otherwise would be entitled to a fractional share of
First Indiana Common Stock an amount in cash (without interest) determined by
multiplying such fraction by the Per Share Cash Consideration.

3.04 EXCHANGE PROCEDURES.

(a) Not later than the 20th business day prior to the anticipated
Effective Date or such other date as the parties may agree in writing (the
"Mailing Date"), First Indiana shall mail an Election Form and a letter of
transmittal to each holder of record of Somerset Common Stock. To be
effective, an Election Form must be properly completed, signed and actually
received by the Exchange Agent not later than 5:00 p.m., Chicago time, on
the 20thcalendar day after the Mailing Date (the "Election Deadline") or
such other time and date as the parties may agree in writing, and in order
to be deemed properly completed the Election Form must be accompanied by one
or

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more certificates (the "Old Certificates") (or indemnity satisfactory to the
Surviving Corporation and the Exchange Agent, if any of such certificates
are lost, stolen or destroyed) representing all shares of Somerset Common
Stock covered by such Election Form, together with duly executed transmittal
materials included in or required by the Election Form. First Indiana shall
have reasonable discretion, which it may delegate in whole or in part to the
Exchange Agent, to determine whether Election Forms (and the accompanying
certificates and material) have been properly completed, signed and timely
submitted or to disregard defects in Election Forms; such decisions of First
Indiana (or of the Exchange Agent) shall be conclusive and binding. Neither
First Indiana nor the Exchange Agent shall be under any obligation to notify
any person of any defect in an Election Form submitted to the Exchange
Agent. The Exchange Agent and First Indiana shall also make all computations
contemplated by Section 3.01 hereof, and, after consultation with Somerset,
all such computations shall be conclusive and binding on the former holders
of Somerset Common Stock absent manifest error. Shares of Somerset Common
Stock covered by an Election Form which is not effective shall be treated as
if no Election had been made with respect to such shares of Somerset Common
Stock. Once an Election is made it may be amended at any time prior to the
Election Deadline, but thereafter it may not be amended or revoked.

(b) At or prior to the Effective Time, First Indiana shall deposit, or
shall cause to be deposited, with the Exchange Agent, certificates
representing the shares of First Indiana Common Stock ("New Certificates")
and an estimated amount of cash (such cash and New Certificates, together
with any dividends or distributions with a record date occurring after the
Effective Date with respect thereto (without any interest on any such cash,
dividends or distributions), being hereinafter referred to as the "Exchange
Fund") to be issued as consideration.

(c) The Surviving Corporation shall cause the New Certificates into
which shares of a shareholder's Somerset Common Stock are converted on the
Effective Date and/or any check in respect of any Per Share Cash
Consideration, fractional share interests or dividends or distributions
which such person shall be entitled to receive to be delivered to such
shareholder upon delivery (if not previously delivered) to the Exchange
Agent of certificates representing such shares of Somerset Common Stock
("Old Certificates") (or indemnity satisfactory to the Surviving Corporation
and the Exchange Agent, if any of such certificates are lost, stolen or
destroyed) owned by such shareholder; provided that New Certificates and/or
any such check shall not be issued to any Somerset Affiliate unless and
until such Somerset Affiliate has delivered an agreement pursuant to
Section 6.07. No interest will be paid on any Consideration that any such
person shall be entitled to receive pursuant to this Article III upon such
delivery.

(d) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Somerset Common Stock
for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.

(e) No dividends or other distributions on First Indiana Common Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of Somerset
Common Stock converted in the Merger into the right to receive shares of
such First Indiana Common Stock until the holder thereof shall be entitled
to receive New Certificates in exchange therefor in accordance with this
Article III. After becoming so entitled in accordance with this
Article III, the record holder thereof also shall be entitled to receive any
such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of First Indiana
Common Stock such holder had the right to receive upon surrender of the Old
Certificate.

(f) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Somerset for six months after the Effective Time shall be
returned to First Indiana. Any shareholders of Somerset who have not
theretofore complied with this Article III shall thereafter

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look only to First Indiana for payment of Per Share Stock Consideration, Per
Share Cash Consideration, cash in lieu of any fractional shares and unpaid
dividends and distributions on First Indiana Common Stock deliverable in
respect of each share of Somerset Common Stock such shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.

3.05 ANTI-DILUTION ADJUSTMENTS. Should First Indiana change (or establish
a record date for changing) the number of shares of First Indiana Common Stock
issued and outstanding prior to the Effective Date by way of a stock split,
stock dividend, recapitalization or similar transaction with respect to the
outstanding First Indiana Common Stock, and the record date therefor shall be
prior to the Effective Date, the Exchange Ratio and the Per Share Cash
Consideration shall be proportionately adjusted.

3.06 STOCK OPTIONS. At the Effective Time, each Somerset Stock Option
shall be converted into an option (a "Replacement Option") to acquire, on the
same terms and conditions as were applicable under such Somerset Stock Option, a
specified number of shares of First Indiana Common Stock, at a specified
exercise price per share. In respect of each option or set of identical options
outstanding to the same holder, such number shall be determined by multiplying
the number of shares of Somerset Common Stock subject to such Somerset Stock
Option or set of identical Somerset Stock Options by the Exchange Ratio and
rounding such product to the nearest whole number, and such exercise price per
share shall be determined by dividing the per share exercise price under such
Somerset Stock Option or set of identical Somerset Stock Options by the Exchange
Ratio and rounding such quotient to the nearest whole cent. For example, a
Somerset Stock Option to purchase 200 shares of Somerset Common Stock at an
exercise price of $14.52 per share would be converted into an option to purchase
242 shares of First Indiana Common Stock at an exercise price of $12.00 per
share. Notwithstanding the foregoing, each Somerset Stock Option which is
intended to be an "incentive stock option" (as defined in Section 422 of the
Code) shall be adjusted in accordance with the requirements of Section 424 of
the Code. Accordingly, with respect to "incentive stock options," fractional
shares will be rounded down to the nearest whole number of shares and where
necessary the per share exercise price will be rounded up to the nearest cent.
At the Effective Time, First Indiana shall assume the Somerset Stock Plans;
provided, however, that such assumption shall be only in respect of the
Replacement Options and that First Indiana shall have no obligation with respect
to any awards under the Somerset Stock Plans other than the Replacement Options
and shall have no obligation to make any additional grants or awards under such
assumed Somerset Stock Plans. At all times after the Effective Time, First
Indiana shall reserve for issuance such number of shares of First Indiana Common
Stock as are needed to permit the Replacement Options to be exercised in the
manner contemplated by this Agreement and the instruments pursuant to which such
options were granted. First Indiana shall file with the SEC a registration
statement on an appropriate form under the Securities Act with respect to the
shares of First Indiana Common Stock subject to the Replacement Options and
shall use its reasonable best efforts to maintain the current status of the
prospectus contained therein, as well as comply with any applicable state
securities or "blue sky" laws, for so long as such options remain outstanding.

ARTICLE IV
ACTIONS PENDING THE MERGER

4.01 FORBEARANCES OF SOMERSET. From the date hereof until the earlier of
the termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement or the Disclosure Schedule, without the prior
written consent of First Indiana, Somerset will not, and will cause each of its
Subsidiaries not to:

(a) ORDINARY COURSE. Conduct the business of Somerset and its
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent therewith, fail to use reasonable efforts

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to preserve intact their business organizations and assets and maintain
their rights, franchises and existing relations with customers, suppliers,
employees and business associates.

(b) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof, (1) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
Somerset Common Stock or any Rights with respect to Somerset Common Stock,
(2) permit any additional shares of Somerset Common Stock to become subject
to new grants of employee or director stock options, other Rights or similar
stock-based employee rights, (3) repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of Somerset Common Stock, (4) effect any
recapitalization, reclassification, stock split or like change in
capitalization, or (5) enter into, or take any action to cause any holders
of Somerset Common Stock to enter into, any agreement, understanding or
commitment relating to the right of holders of Somerset Common Stock to vote
any shares of Somerset Common Stock, or cooperate in any formation of any
voting trust relating to such shares.

(c) DIVIDENDS, ETC. Make, declare, pay or set aside for payment any
dividend, other than (1) regular semi-annual cash dividends on Somerset
Common Stock paid with record and payment dates consistent with past
practice in an amount not to exceed $.11 per share or in the case of such
dividends declared after August 31, 2000, $.17 per share and (2) dividends
from wholly owned Subsidiaries to Somerset or another wholly owned
Subsidiary of Somerset, as applicable (in each case consistent with past
practice), on or in respect of, any shares of its capital stock, or declare
or make any other distribution on any shares of its capital stock, or split,
combine, redeem, reclassify, purchase or otherwise acquire, any shares of
its capital stock.

(d) COMPENSATION; EMPLOYMENT CONTRACTS; ETC. Enter into, amend,
modify, renew or terminate any employment, consulting, severance or similar
Contracts with any directors, officers, or employees of, or independent
contractors with respect to, Somerset or its Subsidiaries, or grant any
salary, wage or other increase or increase any employee benefit (including
incentive or bonus payments), except (1) for normal general increases in
salary to individual, non-officer employees in the ordinary course of
business consistent with past practice, (2) for other changes that are
required by applicable law or this Agreement, or (3) to satisfy Previously
Disclosed Contracts existing on the date hereof.

(e) BENEFIT PLANS. Enter into, establish, adopt, amend, modify or
terminate any pension, retirement, stock option, stock purchase, savings,
profit sharing, employee stock ownership, deferred compensation, consulting,
bonus, group insurance or other employee or director benefit, incentive or
welfare Contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, or make any new or increase any outstanding
grants or awards under any such Contract, plan or arrangement, in respect of
any current or former directors, officers, or employees of, or independent
contractors with respect to, Somerset or its Subsidiaries (or any dependent
or beneficiary of any of the foregoing persons), including taking any action
that accelerates the vesting or exercisability of or the payment or
distribution with respect to, stock options, restricted stock or other
compensation or benefits payable thereunder, except, in each such case, as
may be required by applicable law or this Agreement, and except, as to any
or all such outstanding stock options, an amendment made prior to July 1,
2000, which, subject to such definitions and additional conditions and
limitations as Somerset may deem appropriate, and subject to First Indiana's
approval of the form and substance of the amendment (which approval shall
not be withheld unreasonably), makes the option exercisable immediately, and
for a period of up to six months after termination of the optionee's
continuous service (but in no event after the expiration of the original
life of the option), in the event, at or within 120 days after the Effective
Time, the optionee's continuous service as a director or employee, including
service with First Indiana and its Subsidiaries after the Merger,
(i) terminates automatically by reason of the Merger or (ii) is terminated
by the employer (including any direct or indirect successor employer),

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provided, in a situation to which clause (ii) applies, the employer
characterizes such termination as having resulted from the Merger.

(f) DISPOSITIONS. Except as Previously Disclosed, sell, transfer,
mortgage, lease, encumber or otherwise dispose of or discontinue any
material portion of its assets, business or properties or sell, transfer,
pledge, encumber or otherwise dispose of any First Indiana Common Stock held
by it as of the date of this Agreement.

(g) ACQUISITIONS. Except (1) pursuant to Previously Disclosed
Contracts existing on the date hereof, (2) for short-term investments for
cash management purposes, (3) pursuant to BONA FIDE hedging transactions, or
(4) by way of foreclosures or otherwise in satisfaction of debts previously
contracted in good faith, in each case in the ordinary and usual course of
business consistent with past practice, acquire any assets, properties or
deposits of another person in any one transaction or a series of related
transactions which otherwise would not be permitted by this Section 4.01.

(h) GOVERNING DOCUMENTS. Amend the Somerset Articles, Somerset By-laws
or the articles of incorporation or by-laws (or similar governing documents)
of any of Somerset's Subsidiaries.

(i) ACCOUNTING METHODS. Implement or adopt any change in the
accounting principles, practices or methods used by Somerset and its
Subsidiaries, other than as may be required by generally accepted accounting
principles, as concurred with by Somerset's independent auditors.

(j) CONTRACTS. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material Contract or amend
or modify in any material respect any of its existing material Contracts.

(k) CLAIMS. Settle any claim, action or proceeding, except for any
claim, action or proceeding involving solely money damages in an amount,
individually or in the aggregate, that is not material to Somerset and its
Subsidiaries, taken as a whole.

(l) INDEBTEDNESS. Without the prior written consent of First Indiana,
other than in the ordinary course of business, (1) incur any indebtedness
for borrowed money, (2) assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other Person,
(3) cancel, release, assign or modify any material amount of indebtedness of
any other Person, or (4) make any loan or advance to any Subsidiary or any
third party.

(m) ADVERSE ACTIONS. (1) Take any action reasonably likely to prevent
or impede the Merger from qualifying as a reorganization within the meaning
of Section 368 of the Code; or (2) take any action that is intended or is
reasonably likely to result in (A) any of its representations and warranties
set forth in this Agreement being or becoming untrue in any material respect
at any time at or prior to the Effective Time, (B) any of the conditions to
the Merger set forth in Article VII not being satisfied or (C) a material
breach of any provision of this Agreement; except, in each case, as may be
required by applicable law.

(n) COMMITMENTS. Agree or commit to do, or enter into any Contract
regarding, anything that would be precluded by clauses (a) through
(m) without first obtaining First Indiana's written consent.

4.02 FORBEARANCES OF FIRST INDIANA. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of Somerset, First Indiana will not, and will cause each
of its Subsidiaries not to:

(a) ORDINARY COURSE. Conduct the business of First Indiana and its
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent herewith, fail to use reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees and business
associates.

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(b) ADVERSE ACTIONS. (1) Take any action reasonably likely to prevent
or impede the Merger from qualifying as a reorganization within the meaning
of Section 368 of the Code; or (2) take any action that is intended or is
reasonably likely to result in (A) any of its representations and warranties
set forth in this Agreement being or becoming untrue in any material respect
at any time at or prior to the Effective Time, (B) any of the conditions to
the Merger set forth in Article VII not being satisfied or (C) a material
breach of any provision of this Agreement; except, in each case, as may be
required by applicable law.

(c) GOVERNING DOCUMENTS. Amend the First Indiana Articles or the First
Indiana By-Laws in a manner that would be materially adverse to the holders
of First Indiana Common Stock.

(d) COMMITMENTS. Agree or commit to do, or enter into any Contract
regarding, anything that would be precluded by clauses (a) through
(c) without first obtaining Somerset's consent.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, Somerset has
delivered to First Indiana and First Indiana has delivered to Somerset a
schedule (respectively, each party's "Disclosure Schedule") setting forth, among
other things, items the disclosure of which is necessary or appropriate either
(a) in response to an express disclosure requirement contained in a provision
hereof or (b) as an exception to one or more representations or warranties
contained in Section 5.03 or 5.04, respectively, or to one or more of its
covenants contained in Article IV.

5.02 STANDARD. No representation or warranty of Somerset or First Indiana
contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, event or circumstance is not Previously Disclosed.

5.03 REPRESENTATIONS AND WARRANTIES OF SOMERSET. Except as Previously
Disclosed, Somerset hereby represents and warrants to First Indiana:

(a) ORGANIZATION, STANDING AND AUTHORITY. Somerset is duly organized,
validly existing and in good standing under the laws of the State of
Indiana, and is duly qualified to do business and is in good standing in all
the jurisdictions where its ownership or leasing of property or assets or
the conduct of its business requires it to be so qualified.

(b) SOMERSET STOCK. As of the date hereof, the authorized capital
stock of Somerset consists solely of 4,000,000 shares of Somerset Common
Stock, of which 2,807,231 shares are outstanding as of the date hereof. As
of the date hereof, 101,984 shares of Somerset Common Stock are held in
treasury by Somerset. The outstanding shares of Somerset Common Stock have
been duly authorized and are validly issued, fully paid and nonassessable,
and subject to no preemptive rights (and were not issued in violation of any
preemptive rights). As of the date hereof, except as Previously Disclosed,
there are no shares of Somerset Common Stock authorized and reserved for
issuance, Somerset does not have any Rights issued or outstanding with
respect to Somerset Common Stock, and Somerset does not have any commitment
to authorize, issue or sell any Somerset Common Stock or Rights, except
pursuant to this Agreement. The Disclosure Schedule sets forth the number of
shares of Somerset Common Stock which are issuable and reserved for issuance
upon exercise of Somerset Stock Options as of the date hereof and the
exercise price of such Somerset Stock Options.

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(c) SUBSIDIARIES.

(1) (A) The Disclosure Schedule sets forth all of Somerset's
Subsidiaries together with the jurisdiction of organization of each such
Subsidiary, (B) Somerset owns, directly or indirectly, all the issued and
outstanding equity securities of each of its Subsidiaries, (C) no equity
securities of any of Somerset's Subsidiaries are or may become required
to be issued (other than to it or its Subsidiaries) by reason of any
Rights, (D) there are no contracts, commitments, understandings or
arrangements by which any of such Subsidiaries is or may be bound to sell
or otherwise transfer any equity securities of any such Subsidiaries
(other than to it or its Subsidiaries), (E) there are no contracts,
commitments, understandings, or arrangements relating to Somerset's
rights to vote or to dispose of such securities (other than to Somerset
or its Subsidiaries), and (F) all the equity securities of each such
Subsidiary held by Somerset or its Subsidiaries are fully paid and
nonassessable and are owned by Somerset or its Subsidiaries free and
clear of any Liens.

(2) The Disclosure Schedule describes all equity securities and
interests in a partnership or joint venture of any kind in which Somerset
owns, directly or indirectly, a beneficial interest, and Somerset has
provided to First Indiana all material information or agreements
pertaining to such interests.

(3) Each of Somerset's Subsidiaries has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction
of its organization, and is duly qualified to do business and in good
standing in all the jurisdictions where its ownership or leasing of
property or assets or the conduct of its business requires it to be so
qualified.

(d) CORPORATE POWER. Somerset and each of its Subsidiaries has the
requisite power and authority to carry on its business as it is now being
conducted and to own all its properties and assets, and Somerset has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby.

(e) CORPORATE AUTHORITY AND ACTION. Somerset has the requisite
corporate power and authority, and has taken all corporate action necessary,
in order (A) to authorize the execution and delivery of, and performance of
its obligations under, this Agreement, and (B) subject only to receipt of
the approval of the plan of merger contained in this Agreement by the
holders of a majority of the outstanding shares of Somerset Common Stock, to
consummate the Merger. This Agreement and the Ancillary Documents to which
Somerset is a party each constitute and/or will constitute the valid and
legally binding obligation of Somerset, enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general applicability
relating to or affecting creditors' rights or by general equity principles).

(f) REGULATORY FILINGS; NO DEFAULTS.

(1) No consents or approvals of, or filings or registrations with,
any Governmental Authority or with any third party are required to be
made or obtained by Somerset or any of its Subsidiaries in connection
with the execution, delivery or performance by Somerset of this
Agreement, or to consummate the Merger and the other transactions
contemplated hereby, except for (A) the filing with, and declaration of
effectiveness by, the SEC of the Registration Statement, (B) the filing
of applications and receipt of approval thereof from the OTS with respect
to the Merger, (C) the filing of articles of merger with the Secretary of
State of the State of Indiana pursuant to the IBCL, (D) the filing of a
notice with the NASDAQ with respect to the listing for trading of the
shares of First Indiana Common Stock to be issued in the Merger on the
National Market System, and (E) such other filings, approvals, consents
or waivers as are required under applicable law in connection with the
transactions contemplated

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by this Agreement. As of the date hereof, Somerset is not aware of any
reason why the approvals of all Governmental Authorities necessary to
permit consummation of the transactions contemplated by this Agreement
will not be received without the imposition of a condition or requirement
described in Section 7.01(b).

(2) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and the making of required filings under federal and
state securities laws, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do
not and will not (A) constitute a breach or violation of, or a default
under, or give rise to any Lien, any acceleration of remedies or any
right of termination under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or Contract of Somerset or
of any of its Subsidiaries or to which Somerset or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the Somerset Articles or the
Somerset By-laws, or (C) require any consent or approval under any such
law, rule, regulation, judgment, decree, order, governmental permit or
license or Contract.

(g) SEC DOCUMENTS; FINANCIAL STATEMENTS.

(1) Somerset's Annual Reports on Form 10-K and proxy statements on
Form 14-A for the fiscal years ended December 31, 1997, 1998 and 1999,
quarterly reports on Form 10-Q for the fiscal years ended December 31,
1998 and 1999, and all other reports, registration statements, definitive
proxy statements or information statements filed or to be filed by
Somerset or any of its Subsidiaries subsequent to December 31, 1999 under
the Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, in the form filed or to be filed (collectively, "Somerset's
SEC Documents") with the SEC, as of the date filed, (A) complied or will
comply with the applicable requirements under the Securities Act or the
Exchange Act, as the case may be, and (B) did not (or if amended or
superseded by a filing prior to the date of this Agreement, then as of
the date of such filing) and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such
Somerset's SEC Document (including the related notes and schedules
thereto) fairly presents, or will fairly present, the financial position
of Somerset and its Subsidiaries as of its date, and each of the
statements of income and changes in shareholders' equity and cash flows
or equivalent statements in such of Somerset's SEC Documents (including
any related notes and schedules thereto) fairly presents, or will fairly
present, the results of operations, changes in shareholders' equity and
changes in cash flows, as the case may be, of Somerset and its
Subsidiaries for the periods to which they relate, in each case in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except in each case as may be noted
therein, subject to normal year-end audit adjustments in the case of
unaudited statements.

(2) Since December 31, 1999 on a consolidated basis Somerset and its
Subsidiaries have not incurred any liability other than in the ordinary
course of business consistent with past practice.

(3) Since December 31, 1999 (A) Somerset and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice and (B) no event has occurred or
circumstance arisen that, individually or taken together with all other
facts, events and circumstances (described in any paragraph of
Section 5.03 or otherwise), has had or is reasonably likely to have a
Material Adverse Effect with respect to Somerset.

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(h) LITIGATION. Except as disclosed in Somerset's SEC Documents filed
before the date hereof, no litigation, claim or other proceeding before any
court, arbitrator or Governmental Authority is pending against Somerset or
any of its Subsidiaries and, to Somerset's knowledge, no such litigation,
claim or other proceeding has been threatened which would have a Material
Adverse Effect with respect to Somerset.

(i) COMPLIANCE WITH LAWS. Somerset and each of its Subsidiaries:

(1) conducts its business in compliance in all material respects with
all applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses;

(2) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities required in order to permit them to own or lease
their properties and to conduct their businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to Somerset's knowledge, no
suspension or cancellation of any of them is threatened;

(3) has received, since December 31, 1997, no notification or
communication from any Governmental Authority (A) asserting that Somerset
or any of its Subsidiaries is not in compliance with any of the statutes,
regulations, or ordinances that such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit, or governmental
authorization (nor, to Somerset's knowledge, do grounds for any of the
foregoing exist), or (C) restricting or disqualifying their activities
(except for restrictions generally imposed by rule, regulation or
administrative policy on accounting professionals generally);

(4) is not aware of any pending or threatened investigation, review
or disciplinary proceedings by any Governmental Authority against
Somerset, any of its Subsidiaries or any officer, director or employee
thereof;

(5) is not subject to any order or decree issued by, or a party to
any agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or subject to any order or
directive by, a recipient of any supervisory letter from or has adopted
any board resolutions at the request of any Governmental Authority, or
been advised by any Governmental Authority that it is considering issuing
or requesting any such agreement or other action or have knowledge of any
pending or threatened regulatory investigation; and

(6) since December 31, 1996, has timely filed all reports,
registrations and statements, together with any amendments required to be
made with respect thereto, that were required to be filed under any
applicable law, regulation or rule, with any applicable Governmental
Authority (collectively, the "Somerset Reports"). As of their respective
dates, the Somerset Reports complied in all material respects with the
applicable statutes, rules, regulations and orders enforced or
promulgated by the regulatory authority with which they were filed.

(j) MATERIAL CONTRACTS; DEFAULTS. The Disclosure Schedule sets forth a
complete and accurate list of the following categories of material Contracts
to which Somerset or any of its Subsidiaries is a party:

(1) any Contract that (A) is not terminable at will both without cost
or other liability to Somerset or any of its Subsidiaries and upon notice
of ninety (90) days or less and (B) which provides for fees or other
payments by Somerset or its Subsidiaries in excess of $30,000 per annum
or in excess of $50,000 for the remaining term of the Contract;

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(2) any Contract with a term beyond the Effective Time under which
Somerset or any of its Subsidiaries created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness for
borrowed money (including capitalized lease obligations) in an amount in
excess of $30,000;

(3) any Contract restricting the conduct of business by Somerset or
any of its Subsidiaries;

(4) any Contract to which Somerset or any of its Subsidiaries is a
party, on the one hand, and under which any affiliate, officer, director,
employee, or any person who owns more than 10% of the outstanding
Somerset Common Stock or the common stock of any of its Subsidiaries, on
the other hand, is a party or beneficiary;

(5) any Contract with respect to the employment of, or payment to,
any present or former directors, officers, employees or consultants
relating to their services as such with Somerset or any Subsidiary; and

(6) any Contract involving the purchase or sale of assets with a book
value greater than $50,000 entered into since December 31, 1999.

Neither Somerset nor any of its Subsidiaries nor, to Somerset's
knowledge, any other party thereto, is in default under any such Contract
and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.

(k) PROPERTIES. Except as disclosed in the financial statements filed
in Somerset's SEC Documents on or before the date hereof, Somerset and its
Subsidiaries have good and marketable title, free and clear of all Liens
(other than Liens for current taxes not yet delinquent, or Liens held by
Somerset or its Subsidiaries) to all of the material properties and assets,
tangible or intangible, reflected in such financial statements as being
owned by Somerset and its Subsidiaries as of the dates thereof. All
buildings and all fixtures, equipment, and other property and assets which
are material to its business and are held under leases or subleases by any
of Somerset and its Subsidiaries are held under valid leases or subleases
enforceable in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and to general equity principles).

(l) EMPLOYEE BENEFIT PLANS.

(1) Somerset's Disclosure Schedule contains a complete list of all
bonus, vacation, deferred compensation, commission-based compensation,
pension, retirement, profit-sharing, thrift, savings, employee stock
ownership, stock bonus, stock purchase, restricted stock, stock
appreciation and stock option plans, all employment or severance
contracts, all medical, dental, disability, severance, health and life
insurance plans, all other employee benefit and fringe benefit plans,
contracts or arrangements and any "change of control" or similar
provisions in any plan, contract or arrangement maintained or contributed
to by Somerset or any of its Subsidiaries for the benefit of current or
former officers, employees or directors or the beneficiaries or
dependents of any of the foregoing (collectively, Somerset's
"Compensation Plans").

(2) With respect to each Compensation Plan, if applicable, Somerset
has provided or made available to First Indiana, true and complete copies
of existing: (A) Compensation Plan documents and amendments thereto;
(B) trust instruments and insurance contracts; (C) the most recent
Form 5500 filed with the IRS; (D) the most recent actuarial report and
financial statement; (E) the most recent summary plan description;
(F) forms filed with the PBGC (other than for premium payments); (G) the
most recent determination letter issued by the

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IRS; and (H) any Form 5310 or Form 5330 filed with the IRS. Each
Form 5500, actuarial report and financial statement referred to in the
preceding sentence accurately reflects the contributions, liabilities and
funding levels of the applicable Compensation Plan.

(3) Each of the Compensation Plans has been administered and operated
in all material respects in accordance with the terms thereof and with
applicable law, including ERISA, the Code and the Securities Act. Neither
Somerset, any of its Subsidiaries nor any other person for whom
indemnification by Somerset or any of its Subsidiaries could apply
("Indemnified Person") has incurred or is likely to incur fiduciary
liability under Part 4 of Title I of ERISA with respect to any
Compensation Plan. Each of the Compensation Plans which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter
from the IRS with respect to "TRA" (as defined in Section 1 of IRS
Revenue Procedure 93-39), and, except as Previously Disclosed, Somerset
is not aware of any circumstances that would likely result in the
revocation or denial of any such favorable determination letter. None of
Somerset, any of its Subsidiaries or an Indemnified Person has engaged in
any transaction or taken any action with respect to any Compensation Plan
that has subjected, or could, to Somerset's knowledge, subject Somerset
or any of its Subsidiaries or any Indemnified Person to a tax or penalty
imposed by either Section 4975 of the Code or Section 502 of ERISA. There
is no pending or, to Somerset's knowledge, threatened litigation or
governmental audit, examination or investigation relating to Somerset's
Compensation Plans.

(4) No liability under Title IV of ERISA (other than premiums to the
PBGC) has been or is reasonably expected to be incurred by Somerset or
any of its Subsidiaries with respect to any "single-employer plan"
(within the meaning of Section 4001(a)(15) of ERISA) or Multiemployer
Plan currently or formerly maintained or contributed to by any of them,
or the single-employer plan or Multiemployer Plan of any entity (an
"ERISA Affiliate") which is considered one employer with Somerset under
Section 4001(a)(14) of ERISA or Section 414(b) or (c) of the Code (an
"ERISA Affiliate Plan"). No notice of a "reportable event," within the
meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
Pension Plan or any ERISA Affiliate within the 12-month period ending on
the date hereof. The PBGC has not instituted proceedings to terminate any
Pension Plan or ERISA Affiliate Plan and, to Somerset's knowledge, no
condition exists that presents a material risk that such proceedings will
be instituted. To the knowledge of Somerset, there is no pending
investigation or enforcement action by the PBGC, the DOL or IRS or any
other governmental agency with respect to any Compensation Plan.

(5) All contributions, premiums and payments required to have been
made under the terms of any of the Compensation Plans or applicable law
have been timely made or reflected in Somerset's SEC Documents and made
in accordance with generally accepted accounting principles. Neither any
of the Pension Plans nor ERISA Affiliate Plans has an "accumulated
funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. None of Somerset, any of
its Subsidiaries or any ERISA Affiliate has provided, or is required to
provide, security to, nor are there any circumstances requiring, or which
can reasonably be expected to result in, the imposition of any lien on
the assets of Somerset or any of its Subsidiaries with respect to, any
Pension Plan or any ERISA Affiliate Plan pursuant to Section 401(a)(29)
or Section 412(n) of the Code or pursuant to ERISA.

(6) To Somerset's knowledge, under each Pension Plan, as of the last
day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities"
attributable to the participant therein of Somerset and its Subsidiaries
did

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not exceed the then current value of the assets of such plan attributable
to the participation therein of Somerset and its Subsidiaries. For this
purpose, "benefit liabilities" shall be determined in accordance with
Section 4001(a)(16) of ERISA on the basis of the actuarial assumptions
contained in the Plan's most recent actuarial valuation.

(7) Except as set forth in Somerset's Disclosure Schedule or as
required by COBRA, no Compensation Plan provides benefits, including
death or medical benefits, with respect to any employees or former
employees of Somerset or any of its Subsidiaries (or their spouses,
beneficiaries, or dependents) beyond the retirement or other termination
of service of any such employee. There has been no communication to
employees, former employees or their spouses, beneficiaries or dependents
by Somerset or any of its Subsidiaries that promised or guaranteed such
employees retiree health or life insurance or other retiree death
benefits on a permanent basis or promised or guaranteed that any such
benefits could not be modified, eliminated or terminated.

(8) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby including, without
limitation, as a result of any termination of employment prior to, at or
following the Effective Time, will (A) result in any increase in
compensation or any payment (including, without limitation, severance,
golden parachute or otherwise) becoming due to any current or former
director, officer or employee of Somerset or any of its Subsidiaries
under any Compensation Plan or otherwise from Somerset or any of its
Subsidiaries, (B) increase any benefits otherwise payable under any
Compensation Plan, or (C) result in any acceleration of the time of
payment, funding or vesting of any such benefit.

(9) Neither Somerset nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which are
not or would not reasonably be expected to be deductible as a result of
the limitations under Section 162(m) of the Code and the regulations
issued thereunder. None of Somerset, the Surviving Corporation or any of
their respective Subsidiaries will be obligated to make a payment as a
result, directly or indirectly, of the transactions contemplated by this
Agreement that would not reasonably be expected to be deductible as a
result of the limitations under Section 162(m) of the Code and the
regulations issued thereunder.

(10) As a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a
result of any termination of employment prior to, at or following the
Effective Time), neither Somerset nor the Surviving Corporation, or any
of their respective Subsidiaries will be obligated to make a payment that
would be characterized as an "excess parachute payment" to an individual
who is a "disqualified individual" (as such terms are defined in
Section 280G of the Code)in respect of Somerset, without regard to
whether such payment is reasonable compensation for personal services
performed or to be performed in the future.

(m) LABOR MATTERS. Neither Somerset nor any of its Subsidiaries is a
party to or is bound by any collective bargaining Contract or understanding
with a labor union or labor organization, nor is Somerset or any of its
Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel Somerset or any such
Subsidiary to bargain with any labor organization as to wages or conditions
of employment, nor is there any strike or other labor dispute involving it
or any of its Subsidiaries pending or, to Somerset's knowledge, threatened,
nor is Somerset aware of any activity involving it or any of its
Subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.

(n) ENVIRONMENTAL MATTERS. (1) To Somerset's knowledge, Somerset and
each of its Subsidiaries has complied in all material respects at all times
with applicable Environmental Laws;

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(2) to Somerset's knowledge, no property (including buildings and any other
structures) currently or formerly owned or operated by Somerset or any of
its Subsidiaries has been contaminated with, or has had any release of, any
Hazardous Substance except as Previously Disclosed; (3) to Somerset's
knowledge, neither Somerset nor any of its Subsidiaries would reasonably be
expected to be ruled to be the owner or operator under any Environmental Law
of any property in which it has currently or formerly held a Lien; (4) to
Somerset's knowledge, neither Somerset nor any of its Subsidiaries is
subject to liability for any Hazardous Substance disposal or contamination
on any other third-party property; (5) neither Somerset nor any of its
Subsidiaries has received any notice, demand letter, claim or request for
information alleging any violation of, or liability under, any Environmental
Law; (6) neither Somerset nor any of its Subsidiaries is subject to any
order, decree, injunction or other agreement with any Governmental Authority
or any third party relating to any Environmental Law; (7) to Somerset's
knowledge, there are no circumstances or conditions involving Somerset or
any of its Subsidiaries or any currently or formerly owned or operated
property (including the presence of asbestos, underground storage tanks,
lead products, polychlorinated biphenyls or gas station sites) that could
result in any claims, liability or investigations or result in any
restrictions on the ownership, use, or transfer of any property pursuant to
any Environmental Law; and (8) Somerset has delivered to First Indiana
copies of all environmental reports, studies, sampling data, correspondence,
filings and other environmental information in its possession or reasonably
available to it relating to Somerset, any of its Subsidiaries, any currently
or formerly owned or operated property or any property in which Somerset or
any of its Subsidiaries has held a Lien.

(o) TAX MATTERS. (1) All returns, declarations, reports, estimates,
information returns and statements required to be filed on or before the
Effective Date under federal, state, local or any foreign tax laws ("Tax
Returns") with respect to Somerset or any of its Subsidiaries, have been or
will be timely filed, or requests for extensions have been timely filed and
have not expired; (2) all Tax Returns filed by Somerset and its Subsidiaries
are complete and accurate in all material respects; (3) all Taxes shown to
be due and payable (without regard to whether such Taxes have been assessed)
on such Tax Returns (or, with respect to Tax Returns for which an extension
has been timely filed, will be required to be shown as due and payable when
such Tax Returns are filed) have been paid or adequate reserves have been
established for the payment of such Taxes; (4) no audit or examination or
refund litigation with respect to any such Tax Return is pending or, to
Somerset's knowledge, has been threatened; (5) all deficiencies asserted or
assessments made as a result of any examination of a Tax Return of Somerset
or any of its Subsidiaries have been paid in full; (6) no waivers of
statutes of limitation have been given by or requested with respect to any
Taxes of Somerset or its Subsidiaries; (7) Somerset and its Subsidiaries
have never been a member of an affiliated, combined, consolidated or unitary
Tax group for purposes of filing any Tax Return (other than a consolidated
group of which Somerset was the common parent); (8) no closing agreements,
private letter rulings, technical advice memoranda or similar agreement or
rulings have been entered into or issued by any taxing authority with
respect to Somerset or any of its Subsidiaries; (9) no tax is required to be
withheld pursuant to Section 1445 of the Code as a result of the transfer
contemplated by this Agreement; (10) Somerset and its Subsidiaries are not
bound by any tax indemnity, tax sharing or tax allocation agreement or
arrangement; and (11) Somerset and its Subsidiaries have withheld and paid
all Taxes that they are required to withhold from compensation income of
their employees.

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(p) RISK MANAGEMENT. All swaps, caps, floors, option agreements,
futures and forward contracts and other similar risk management
arrangements, whether entered into for Somerset's own account, or for the
account of one or more of Somerset's Subsidiaries or their customers, were
entered into (1) in accordance with prudent business practices and all
applicable laws, rules, regulations and regulatory policies and (2) with
counterparties believed to be financially responsible at the time; and each
of them constitutes the valid and legally binding obligation of Somerset or
one of its Subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles), and are in full force and effect. Neither Somerset nor
its Subsidiaries, nor to Somerset's knowledge any other party thereto, is in
breach of any of its material obligations under any such agreement or
arrangement.

(q) BOOKS AND RECORDS. The books and records of Somerset and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of Somerset and its Subsidiaries.

(r) INSURANCE. Somerset's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by Somerset or its
Subsidiaries ("Insurance Policies"). Somerset and its Subsidiaries are
insured with reputable insurers against such risks and in such amounts as is
prudent in accordance with industry practices. All of the Insurance Policies
are in full force and effect; Somerset and its Subsidiaries are not in
material default thereunder; and all claims thereunder have been filed in
due and timely fashion.

(s) NO BROKERS. No action has been taken by Somerset that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a fee to be paid by Somerset to
McDonald in an amount and on terms Previously Disclosed.

(t) DISCLOSURE. The information Previously Disclosed or otherwise
provided to First Indiana in connection with this Agreement does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in the light of
the circumstances in which they are being made, not misleading. The copies
of all documents furnished to First Indiana hereunder are true and complete.

5.04 REPRESENTATIONS AND WARRANTIES OF FIRST INDIANA. Except as Previously
Disclosed in a paragraph of its Disclosure Schedule corresponding to the
relevant paragraph below, First Indiana hereby represents and warrants to
Somerset as follows:

(a) ORGANIZATION, STANDING AND AUTHORITY. First Indiana is duly
organized, validly existing and in good standing under the laws of the State
of Indiana, and is duly qualified to do business and is in good standing in
the jurisdictions where its ownership or leasing of property or assets or
the conduct of its business requires it to be so qualified.

(b) FIRST INDIANA STOCK.

(1) As of the date hereof, the authorized capital stock of First
Indiana consists solely of 33,000,000 shares of First Indiana Common
Stock, of which 12,625,856 shares are outstanding, and 2,000,000 shares
of First Indiana Preferred Stock, of which no shares are outstanding as
of the date hereof. As of the date hereof, except as Previously
Disclosed, there are no shares of First Indiana Common Stock authorized
and reserved for issuance, First Indiana does not have any Rights issued
or outstanding with respect to First Indiana Common Stock, and First
Indiana does not have any commitment to authorize, issue or sell any
First Indiana Common Stock or Rights, except pursuant to this Agreement.
The number of shares of First Indiana Common Stock which are issuable and
reserved for issuance upon exercise of First Indiana

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Stock Options as of the date hereof and the exercise price of such First
Indiana Stock Options are Previously Disclosed.

(2) The shares of First Indiana Common Stock to be issued as
Consideration, when issued in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.

(c) SUBSIDIARIES. Each of First Indiana's Subsidiaries has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization, and is duly qualified to do business and
in good standing in the jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so qualified.

(d) CORPORATE POWER. First Indiana and each of its Subsidiaries has
the requisite power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; First Indiana has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby; and as of the Closing Date Financial Services will have
the requisite power and authority to execute, perform and deliver its
obligations and to consummate the transactions contemplated hereby.

(e) CORPORATE AUTHORITY AND ACTION. First Indiana has the requisite
corporate power and authority, and has taken all corporate action necessary,
in order (A) to authorize the execution and delivery of, and performance of
its obligations under, this Agreement, and (B) subject only to (i) receipt
of the approval by the holders of a majority of the outstanding shares of
First Indiana Common Stock of the plan of merger contained in this Agreement
and (ii) the registration and issuance of the First Indiana Common Stock to
be provided as part of the Consideration, to consummate the Merger. This
Agreement and the Ancillary Documents to which First Indiana and/or
Financial Services is a party each constitute and/or will constitute the
valid and legally binding obligation thereof, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general applicability
relating to or affecting creditors' rights or by general equity principles).

(f) REGULATORY APPROVALS; NO DEFAULTS.

(1) No consents or approvals of, or filings or registrations with,
any Governmental Authority or with any third party are required to be
made or obtained by First Indiana or any of its Subsidiaries in
connection with the execution, delivery or performance by First Indiana
or Financial Services of this Agreement, or to consummate the Merger and
the other transactions contemplated hereby, except for (A) the filing
with, and declaration of effectiveness by, the SEC of the Registration
Statement, (B) the filing of applications with and receipt of approval
thereof from the OTS, with respect to the Merger, (C) the filing of
articles of merger with the Secretary of State of the State of Indiana
pursuant to the IBCL, (D) the filing of a notice with the NASDAQ with
respect to the listing for trading of the shares of First Indiana Common
Stock to be issued in the Merger on the National Market System, and
(E) such other filings, approvals, consents or waivers as are required
under applicable law in connection with the transactions contemplated by
this Agreement. As of the date hereof, First Indiana is not aware of any
reason why the approvals of all Governmental Authorities necessary to
permit consummation of the transactions contemplated by this Agreement
will not be received without the imposition of a condition or requirement
described in Section 7.01(b).

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under, or give rise to any Lien, any acceleration of remedies or any
right of termination under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or Contract of First
Indiana or of any of its Subsidiaries or to which First Indiana or any of
its Subsidiaries or properties is subject or bound, (B) constitute a
breach or violation of, or a default under, the First Indiana Articles or
the First Indiana By-laws, or as of the Closing Date, constitute a breach
or violation of, or a default under, the Financial Services Articles or
the Financial Services By-laws, or (C) require any consent or approval
under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or Contract.

(g) SEC DOCUMENTS; FINANCIAL STATEMENTS.

(1) First Indiana's Annual Reports on Form 10-K and proxy statements
on Form 14-A for the fiscal years ended December 31, 1997, 1998 and 1999,
quarterly reports on Form 10-Q filed during the fiscal year ended
December 31, 1999, and all other reports, registration statements,
definitive proxy statements or information statements filed or to be
filed by First Indiana or any of its Subsidiaries subsequent to
December 31, 1999 under the Securities Act, or under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, in the form filed or to be filed
(collectively, the "First Indiana's SEC Documents") with the SEC, as of
the date filed, (A) complied or will comply with the applicable
requirements under the Securities Act or the Exchange Act, as the case
may be, and (B) did not (or if amended or superseded by a filing prior to
the date of this Agreement, then as of the date of such filing) and will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such First Indiana SEC Document
(including the related notes and schedules thereto) fairly presents, or
will fairly present, the financial position of First Indiana and its
Subsidiaries as of its date, and each of the statements of income and
changes in shareholders' equity and cash flows or equivalent statements
in such of First Indiana's SEC Documents (including any related notes and
schedules thereto) fairly presents, or will fairly present, the results
of operations, changes in shareholders' equity and changes in cash flows,
as the case may be, of First Indiana and its Subsidiaries for the periods
to which they relate, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end
audit adjustments in the case of unaudited statements.

(2) Since December 31, 1999 on a consolidated basis First Indiana and
its Subsidiaries have not incurred any liability other than in the
ordinary course of business consistent with past practice.

(3) Since December 31, 1999 (A) First Indiana and its Subsidiaries
have conducted their respective businesses in the ordinary and usual
course consistent with past practice and (B) no event has occurred or
circumstance arisen that, individually or taken together with all other
facts, events and circumstances (described in any paragraph of
Section 5.04 or otherwise), has had or is reasonably likely to have a
Material Adverse Effect with respect to First Indiana.

(h) LITIGATION. Except as disclosed in First Indiana's SEC Documents
filed before the date hereof, no litigation, claim or other proceeding
before any court, arbitrator or Governmental Authority is pending against
First Indiana or any of its Subsidiaries and, to First Indiana's knowledge,
no such litigation, claim or other proceeding has been threatened.

(i) COMPLIANCE WITH LAWS. First Indiana and each of its Subsidiaries:

(1) conducts its business in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable

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thereto or to the employees conducting such businesses, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act and
all other applicable fair lending laws and other laws relating to
discriminatory business practices;

(2) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to
conduct their businesses substantially as presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened;

(3) has received, since December 31, 1997 no notification or
communication from any Governmental Authority (A) asserting that First
Indiana or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances that such Governmental Authority
enforces; (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to First Indiana's knowledge, do any
grounds for any of the foregoing exist) or (C) restricting or
disqualifying their activities (except for restrictions generally imposed
by rule, regulation or administrative policy on banking organizations
generally); and

(4) is not subject to any order or decree issued by, or a party to
any agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or subject to any order or
directive by, a recipient of any supervisory letter from or has adopted
any board resolutions at the request of any Governmental Authority, or
been advised by any Governmental Authority that it is considering issuing
or requesting any such agreement or other action or have knowledge of any
pending or threatened regulatory investigation.

(j) NO BROKERS. No action has been taken by First Indiana that would
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding a fee to be paid by
First Indiana to KBW.

(k) DISCLOSURE. The information Previously Disclosed or otherwise
provided to Somerset in connection with this Agreement does not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in the light of
the circumstances in which they are being made, not misleading. The copies
of all documents furnished to Somerset hereunder are true and complete.

ARTICLE VI

COVENANTS

6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of Somerset and First Indiana agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.

6.02 SHAREHOLDER APPROVALS. Each of Somerset and First Indiana agrees to
take, in accordance with applicable law, applicable stock exchange rules, and
their respective articles of incorporation and by-laws, all action necessary to
convene appropriate meetings of their shareholders to consider and vote upon the
approval and adoption of this Agreement and the consummation of the actions and
transactions contemplated hereby, and to solicit shareholder approval and
adoption, as promptly as practicable after the Registration Statement is
declared effective. The Somerset Board and the First Indiana Board each is
recommending and, unless either board of directors, after having consulted with

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and considered the advice of outside counsel and its investment banking firm,
has determined in good faith that to do so would result in a failure by the
directors to discharge properly their fiduciary duties in accordance with
Indiana law, the Somerset Board and First Indiana Board will continue to
recommend to the shareholders of Somerset and First Indiana, respectively, that
they approve this Agreement and take any other action required to permit
consummation of the transactions contemplated hereby. First Indiana agrees to
take all action necessary to cause the Board of Directors of Financial Services
to approve and have executed the Financial Services Merger Agreement, and First
Indiana agrees to approve such agreement and the transactions contemplated
thereby in its capacity as sole shareholder of Financial Services.

6.03 REGISTRATION STATEMENT.

(a) First Indiana agrees to prepare a registration statement on
Form S-4 (the "Registration Statement"), to be filed by First Indiana with
the SEC in connection with the issuance of First Indiana Common Stock in the
Merger (including the proxy statement and prospectus and other proxy
solicitation materials of First Indiana and Somerset constituting a part
thereof (the "Proxy Statements") and all related documents). Somerset agrees
to cooperate, and to cause its Subsidiaries to cooperate, with First
Indiana, its counsel and its accountants, in preparation of the Registration
Statement and the Proxy Statements; and, provided that Somerset and its
Subsidiaries have cooperated as required above, First Indiana agrees to file
the Registration Statement with the SEC as promptly as reasonably
practicable after the date hereof. Each of Somerset and First Indiana agrees
to use its reasonable best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as reasonably
practicable after filing thereof. First Indiana also agrees to use all
reasonable best efforts to obtain all necessary state securities law or
"Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Somerset agrees to furnish to First Indiana
all information concerning Somerset, its Subsidiaries, officers, directors
and shareholders as may be reasonably requested in connection with the
foregoing.

(b) Each of Somerset and First Indiana agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it
for inclusion or incorporation by reference in (1) the Registration
Statement will, at the time the Registration Statement and each amendment or
supplement thereto, if any, becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (2) the Proxy Statements and any
amendment or supplement thereto will, at the date of mailing to shareholders
and at the time of the shareholders meetings for the respective
corporations, contain any untrue statement which, at the time and in the
light of the circumstances under which such statement is made, is false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier statement in
the Proxy Statement or any amendment or supplement thereto. Each of Somerset
and First Indiana further agrees that if it shall become aware prior to the
Effective Date of any information furnished by it that would cause any of
the statements in the Proxy Statement to be false or misleading with respect
to any material fact, or to omit to state any material fact necessary to
make the statements therein not false or misleading, to promptly inform the
other party thereof and to take the necessary steps to correct the Proxy
Statements.

(c) First Indiana agrees to advise Somerset, promptly after First
Indiana receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of First
Indiana Common Stock for offering or sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose, or of any
request by the SEC for the amendment or supplement of the Registration
Statement or for additional information.

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6.04 PRESS RELEASES. Each of Somerset and First Indiana agrees that it
will not, without the prior approval of the other party, issue any press release
or written statement for general circulation relating to the transactions
contemplated hereby (except for any release or statement that, in the written
opinion of outside counsel to such party, is required by law or regulation and
as to which such party has used its best efforts to discuss with the other party
in advance, provided that such release or statement has not been caused by, or
is not the result of, a previous disclosure by or at the direction of such party
or any of its representatives that was not permitted by this Agreement).

6.05 ACCESS; INFORMATION.

(a) Each of Somerset and First Indiana agrees that upon reasonable
notice and subject to applicable laws relating to the exchange of
information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, tax
returns and work papers of independent auditors), properties, personnel and
to such other information as any party may reasonably request and, during
such period, it shall furnish promptly to such other party (1) a copy of
each material report, schedule and other document filed by it pursuant to
the requirements of federal or state securities or banking laws, and
(2) all other information concerning the business, properties and personnel
of it as the other may reasonably request.

(b) Each of Somerset and First Indiana agrees that it will not, and will
cause its representatives not to, use any information obtained pursuant to
this Section 6.05 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Subject to the requirements of
law, each party will keep confidential, and will cause its representatives
to keep confidential, all information and documents obtained pursuant to
this Section 6.05 in accordance with that certain Confidentiality Agreement
dated as of January 7, 2000 by and between First Indiana and Somerset. In
the event that this Agreement is terminated or the transactions contemplated
by this Agreement shall otherwise fail to be consummated, each party shall
promptly cause all copies of documents or extracts thereof containing
information and data as to another party hereto to be returned to the party
which furnished the same.

(c) No investigation by either party of the business and affairs of the
other shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to
either party's obligation to consummate the transactions contemplated by
this Agreement.

6.06 ACQUISITION PROPOSALS. Somerset agrees that it shall not, and shall
cause its Subsidiaries and its and its Subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any tender or exchange offer, proposal for a merger, consolidation
or other business combination involving Somerset or any of its Subsidiaries or
any proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the assets or deposits of, Somerset or any of its
Subsidiaries, other than the transactions contemplated by this Agreement (any of
the foregoing, an "Acquisition Proposal"); provided however, that if Somerset is
not otherwise in violation of this Section 6.06, the Somerset Board may provide
information to, and may engage in such negotiations or discussions with, a
person with respect to an Acquisition Proposal, directly or through
representatives, if the Somerset Board, after consultation with its outside
counsel and McDonald, determines in good faith that its failure to engage in any
such negotiations or discussions would constitute a failure to discharge
properly the fiduciary duties of such directors in accordance with Indiana law.
Somerset shall promptly (within 24 hours) advise First Indiana following the
receipt by it of any Acquisition Proposal and the substance thereof (including
the identity of the person making such Acquisition Proposal and a copy of such

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Acquisition Proposal), and advise First Indiana of any developments with respect
to such Acquisition Proposal immediately upon the occurrence thereof.

6.07 AFFILIATE AGREEMENTS. Not later than the 15th day prior to the
mailing of the Proxy Statements, Somerset shall deliver to First Indiana a
schedule of each person that, to Somerset's knowledge, is or is reasonably
likely to be, as of the date of the Somerset shareholders' meeting, deemed to be
an "affiliate" of it (each, a "Somerset Affiliate") as that term is used in
Rule 145 under the Securities Act. Somerset agrees to use its reasonable best
efforts to cause each person who may be deemed to be a Somerset Affiliate to
execute and deliver to Somerset and First Indiana on or before the date of
mailing of the Proxy Statement an agreement in the form attached hereto as
Exhibit B.

6.08 NASDAQ LISTING. First Indiana agrees to use its best efforts to list,
prior to the Effective Date, on the National Market System of NASDAQ, subject to
official notice of issuance, the shares of First Indiana Common Stock to be
issued to the holders of Somerset Common Stock in the Merger.

6.09 REGULATORY APPLICATIONS.

(a) First Indiana and Somerset and their respective Subsidiaries shall
cooperate and use their respective reasonable best efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement. Each of First Indiana and Somerset agrees that it will consult
with the other party hereto with respect to the obtaining of all material
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the
other party appraised of the status of material matters relating to
completion of the transactions contemplated hereby. Copies of applications
and correspondence with such Governmental Authorities promptly shall be
provided to the other party.

(b) Each of First Indiana and Somerset agrees, upon request, to furnish
the other party with all information concerning itself, its Subsidiaries,
directors, officers and shareholders and such other matters as may be
reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its
Subsidiaries to any third party or Governmental Authority.

6.10 D & O INDEMNIFICATION AND INSURANCE.

(a) For a period of two years from the Effective Time, First Indiana
shall use its reasonable best efforts obtain an endorsement to its
directors' and officers' liability insurance policy to cover the present and
former officers and directors of Somerset or any of its Subsidiaries
(determined as of the Effective Time) with respect to claims against such
directors and officers arising from facts or events which occurred before
the Effective Time, which insurance shall contain at least the same coverage
and amounts, and contain terms and conditions no less advantageous, as that
coverage currently provided by Somerset; provided however, that if First
Indiana is unable to obtain such endorsement, then First Indiana may
purchase run-off coverage under Somerset's existing directors' and officers'
liability insurance policy for such claims; provided further, that in no
event shall First Indiana be required to expend each year during such
two-year period more than one and one-half times the current annual amount
spent by Somerset (the "Insurance Amount") to maintain or procure its
current directors' and officers' liability insurance coverage; provided
further, that if First Indiana is unable to maintain or obtain the insurance
called for by this Section 6.10(a), First Indiana shall use its reasonable
best efforts to obtain as much comparable insurance as is available for the
Insurance Amount; provided, further, that officers and directors of Somerset
or any Subsidiary may be required to make application and provide customary
representations and warranties to First Indiana's insurance carrier for the
purpose of obtaining such insurance.

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(b) For six years after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless the present and former officers
and directors of Somerset and its Subsidiaries against all losses, expenses
(including attorneys' fees), claims, damages or liabilities arising out of
actions or omissions occurring on or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement) to the
full extent then permitted under the IBCL and by First Indiana's Articles of
Incorporation as in effect on the date hereof, including provisions relating
to advances of expenses incurred in the defense of any action or suit.

(c) If First Indiana shall consolidate with or merge into any other
entity and shall not be the continuing or surviving entity of such
consolidation or merger or shall transfer all or substantially all of its
assets to any entity, then and in each case, proper provision shall be made
so that the successors and assigns of First Indiana shall assume the
obligations set forth in this Section 6.10.

6.11 ACCOUNTANTS' LETTERS. Each of Somerset and First Indiana shall use
its reasonable best efforts to cause to be delivered to the other party, and
such other party's directors and officers who sign the Registration Statement,
with the consent of KPMG, LLP, independent auditors, letters of KPMG, LLP dated
(a) the date on which the Registration Statement shall become effective and
(b) a date shortly prior to the Effective Date, and addressed to such other
party, and such directors and officers, in form and substance customary for
"comfort" letters delivered by independent accountants in accordance with
Statement of Accounting Standards No. 72.

6.12 NOTIFICATION OF CERTAIN MATTERS. Each of Somerset and First Indiana
shall give prompt notice to the other of any fact, event or circumstance known
to it that (a) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (b) would cause or constitute a material
breach of any of its representations, warranties, covenants or agreements
contained herein.

6.13 EMPLOYEE MATTERS. First Indiana agrees that those employees of
Somerset or its Subsidiaries who become employees of First Indiana or its
Subsidiaries on the Effective Date ("Former Somerset Employees"), while they
remain employees of First Indiana or its Subsidiaries after the Effective Date
will be provided with benefits under employee benefit plans during their period
of employment which are no less favorable in the aggregate than those provided
by First Indiana to similarly situated employees of First Indiana and its
Subsidiaries or to those currently provided by Somerset. At the Effective Time,
First Indiana will amend or cause to be amended each employee benefit plan of
First Indiana and its Subsidiaries in which Former Somerset Employees are
eligible to participate, to the extent necessary, so that as of the Effective
time (i) such plans take into account for purposes of eligibility, vesting and
benefit accrual, the service of such employees with Somerset and its
Subsidiaries as if such service were with First Indiana and its Subsidiaries, to
the same extent that such service was credited under a comparable plan of
Somerset and its Subsidiaries, (ii) Former Somerset Employees and their
dependents who were covered immediately prior to the Effective Time under any
medical benefit plan of Somerset are not subject to any waiting periods or
pre-existing condition limitations under the comparable medical benefit plans of
First Indiana or its Subsidiaries in which they are eligible to participate
(other than waiting periods and pre-existing condition limitations no longer or
more limiting than those to which they were subject under such medical benefit
plan of Somerset) and may commence participation in such plans on the Effective
Date, (iii) Former Somerset Employees will retain credit for unused sick leave
and vacation pay which has been accrued as of the Effective Time, and (iv) for
purposes of determining the entitlement of Former Somerset Employees to sick
leave and vacation pay following the Effective Time, the service of such
employees with Somerset and its Subsidiaries shall be treated as if such service
were with First Indiana and its Subsidiaries. Notwithstanding the foregoing, it
is contemplated that Financial Services will not adopt and maintain for its
employees the qualified defined benefit pension plan currently maintained by
First Indiana and its other Subsidiaries for their respective employees.
Further, it is contemplated that Financial Services may cover its employees
under the 401(k) and medical benefit plans now maintained by Somerset

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rather than under the 401(k) and medical benefit plans now maintained by First
Indiana and its other Subsidiaries and that such 401(k) plan of Somerset will
continue to be in effect until at least January 1, 2001. It is also contemplated
that Financial Services may cover its employees under the employee stock
purchase plan now maintained by Somerset and that such plan will continue to be
in effect until at least January 1, 2001, except that such plan would relate to
First Indiana Common Stock instead of Somerset Common Stock. Financial Services
will honor the employment agreements of Somerset which have been disclosed to
First Indiana in the Disclosure Schedule of Somerset.

ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER

7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of First Indiana and Somerset to consummate the
Merger is subject to the fulfillment or written waiver by First Indiana and
Somerset prior to the Effective Time of each of the following conditions:

(a) SHAREHOLDER APPROVAL. This Agreement and the actions and
transactions contemplated hereby shall have been duly adopted by the
affirmative vote of the holders of the requisite number of the outstanding
shares of Somerset Common Stock and First Indiana Common Stock entitled to
vote thereon in accordance with applicable law, the Somerset Articles and
the Somerset By-laws, and the First Indiana Articles and First Indiana
By-Laws, as applicable and the actions and transactions contemplated by this
Agreement shall have been adopted by the Board of Directors and sole
shareholder of Financial Services.

(b) GOVERNMENTAL AND REGULATORY CONSENTS. All approvals and
authorizations of, filings and registrations with, and notifications to, all
Governmental Authorities required for the consummation of the Merger, and
for the prevention of any termination of any material right, privilege,
license or agreement of either First Indiana or Somerset or their respective
Subsidiaries, shall have been obtained or made and shall be in full force
and effect and all waiting periods required by law shall have expired;
provided, however, that none of the preceding shall be deemed obtained or
made if it shall be subject to any condition or restriction the effect of
which would have been such that First Indiana would not reasonably have
entered into this Agreement had such condition or restriction been known as
of the date hereof.

(c) THIRD PARTY CONSENTS. All consents or approvals of all persons,
other than Governmental Authorities, required for or in connection with the
execution, delivery and performance of this Agreement and the consummation
of the Merger shall have been obtained and shall be in full force and
effect, unless the failure to obtain any such consent or approval is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on First Indiana or the Surviving Corporation.

(d) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.

(e) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.

(f) BLUE SKY APPROVALS. All permits and other authorizations under the
federal and state securities laws (other than that referred to in
Section 7.01(e)) and other authorizations necessary to consummate the
transactions contemplated hereby and to issue the shares of First Indiana
Common Stock to be issued in the Merger shall have been received and be in
full force and effect.

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<PAGE>
(g) LISTING. The shares of First Indiana Common Stock to be issued in
the Merger shall have been approved for listing on the National Market
System of NASDAQ, subject to official notice of issuance.

7.02 CONDITIONS TO OBLIGATION OF SOMERSET. The obligation of Somerset to
consummate the Merger is also subject to the fulfillment or written waiver by
Somerset prior to the Effective Time of each of the following conditions:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of First Indiana set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Effective Date as though made on
and as of the Effective Date (except that representations and warranties
that by their terms speak as of the date of this Agreement or some other
date shall be true and correct only as of such date), and Somerset shall
have received a certificate, dated the Effective Date, signed on behalf of
First Indiana by a senior executive officer and the Treasurer of First
Indiana to such effect.

(b) PERFORMANCE OF OBLIGATIONS OF FIRST INDIANA. First Indiana shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time, and
Somerset shall have received a certificate, dated the Effective Date, signed
on behalf of First Indiana by the Chairman and the President of First
Indiana to such effect.

(c) OPINION OF COUNSEL. Somerset shall have received an opinion, dated
the Effective Date, of Bose McKinney & Evans LLP, counsel to First Indiana,
in substantially the same form as that attached hereto as Exhibit C.

(d) TAX OPINION OF SOMERSET'S COUNSEL. Somerset shall have received an
opinion of Barnes & Thornburg, counsel to Somerset, to the effect that
(1) the Merger constitutes a "reorganization" within the meaning of
Section 368 of the Code and (2) no gain or loss will be recognized by
shareholders of Somerset to the extent they receive shares of First Indiana
Common Stock as Consideration in exchange for shares of Somerset Common
Stock.

(e) ACCOUNTANTS' LETTERS. Somerset shall have received the letters
referred to in Section 6.11 from KPMG, LLP, First Indiana's independent
auditors.

(f) MCDONALD FAIRNESS OPINION. Somerset shall have received the
opinion of McDonald, dated the date of the Proxy Statement (which shall be
appended as an exhibit thereto), to the effect that the Consideration to be
received in the Merger by the shareholders of Somerset is fair to the
shareholders of Somerset from a financial viewpoint.

7.03 CONDITIONS TO OBLIGATION OF FIRST INDIANA. The obligation of First
Indiana to consummate the Merger is also subject to the fulfillment or written
waiver by First Indiana prior to the Effective Time of each of the following
conditions:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Somerset set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Effective Date as though made on and as
of the Effective Date (except that representations and warranties that by
their terms speak as of the date of this Agreement or some other date shall
be true and correct only as of such date) and First Indiana shall have
received a certificate, dated the Effective Date, signed on behalf of
Somerset by the Chief Executive Officer and the Chief Financial Officer of
Somerset to such effect.

(b) PERFORMANCE OF OBLIGATIONS OF SOMERSET. Somerset shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and First
Indiana shall have received a certificate, dated the Effective Date, signed

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<PAGE>
on behalf of Somerset by the Chief Executive Officer and the Chief Financial
Officer of Somerset to such effect.

(c) OPINION OF COUNSEL. First Indiana shall have received an opinion,
dated the Effective Date, of Barnes & Thornburg, Counsel to Somerset, in
substantially the same form as that attached hereto as Exhibit D.

(d) TAX OPINION OF FIRST INDIANA'S COUNSEL. First Indiana shall have
received an opinion of Bose McKinney & Evans LLP, counsel to First Indiana,
dated the Effective Date, to the effect that the Merger constitutes a
"reorganization" within the meaning of Section 368 of the Code.

(e) ACCOUNTANTS' LETTERS. First Indiana and its directors and officers
who sign the Registration Statement shall have received the letters referred
to in Section 6.11 from KPMG, LLP, Somerset's independent auditors.

(f) KBW FAIRNESS OPINION. First Indiana shall have received the
opinion of KBW, dated the date of the Proxy Statement (which shall be
appended as an exhibit thereto), to the effect that the consideration to be
received in the Merger by the shareholders of First Indiana is fair to the
shareholders of First Indiana from a financial viewpoint.

ARTICLE VIII
TERMINATION

8.01 TERMINATION. This Agreement may be terminated and the Merger may be
abandoned:

(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of First Indiana and Somerset, if the Board of Directors of
each so determines by vote of a majority of the members of its entire Board.

(b) BREACH. At any time prior to the Effective Time, by First Indiana
or Somerset, in each case if its Board of Directors so determines by vote of
a majority of the members of its entire Board, in the event of either:
(1) a breach by the other party of any representation or warranty contained
herein, which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach; or
(2) a breach by the other party of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach and which breach would be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on the breaching party.

(c) DELAY. At any time prior to the Effective Time, by First Indiana
or Somerset, in each case if its Board of Directors so determines by vote of
a majority of the members of its entire Board, in the event that the Merger
is not consummated by December 31, 2000, except to the extent that the
failure of the Merger then to be consummated arises out of or results from
the action or inaction of the party seeking to terminate pursuant to this
Section 8.01(c).

(d) NO APPROVAL. By Somerset or First Indiana, in each case if its
Board of Directors so determines by a vote of a majority of the members of
its entire Board, in the event (1) the approval of any Governmental
Authority required for consummation of the Merger and the other transactions
contemplated by this Agreement shall have been denied by final
non-appealable action of such Governmental Authority or (2) any shareholder
approval contemplated by Section 6.02 herein is not obtained.

(e) FAILURE TO RECOMMEND, ETC. By either party, if (1) prior to the
effectiveness of the Registration Statement, the Board of Directors of the
other party shall not have recommended adoption and approval of this
Agreement to its shareholders, or (2) at any time prior to the

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<PAGE>
receipt of the approval of the other party's shareholders contemplated by
Section 7.01(a), the other party's Board of Directors shall have withdrawn
such recommendation or modified or changed such recommendation in a manner
adverse to the interests of the other party (whether in accordance with
Section 6.02 or otherwise).

(f) ACCEPTANCE OF SUPERIOR PROPOSAL. By Somerset, if, without
breaching Section 6.06, Somerset shall contemporaneously enter into a
definitive agreement with a third party providing for an Acquisition
Proposal on terms determined in good faith by the Somerset Board, after
consulting with and considering the written advice of Somerset's outside
counsel and financial advisors, to constitute a Superior Proposal; provided,
that the right to terminate this Agreement under this
Section 8.01(f) shall not be available to Somerset unless it delivers to
First Indiana (1) written notice of Somerset's intention to terminate at
least five days prior to termination and (2) simultaneously with such
termination, the Fee referred to in Section 8.03.

(g) SHARE PRICE PERFORMANCE. By Somerset, if the average of the
closing prices of First Indiana Common Stock for the thirty (30) trading
days ending five (5) trading days before the Effective Time is less than
$14.40 per share.

8.02 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (a) as set forth in Sections 8.03 and 9.01 and
(b) that termination will not relieve a breaching party from liability for any
willful breach of this Agreement giving rise to such termination.

8.03 TERMINATION FEE. If (1) First Indiana terminates this Agreement
pursuant to Section 8.01(e) (at a time when Somerset could not also terminate
pursuant to Section 8.01(e)) or (2) Somerset terminates this Agreement pursuant
to Section 8.01(f), then, within five business days of such termination,
Somerset shall pay First Indiana by wire transfer in immediately available funds
a fee of One Million Dollars ($1,000,000) (the "Fee"). If Somerset terminates
this Agreement pursuant to Section 8.01(e) (at a time when First Indiana could
not also do so pursuant to Section 8.01(e), then, within five business days of
such termination, First Indiana shall pay the Fee to Somerset by wire transfer
in immediately available funds. If Somerset terminates this Agreement solely by
reason of the failure of Somerset to receive shareholder approval of the Merger,
and if, within twelve months of the date of such termination by Somerset, a
change in control of Somerset is consummated, then Somerset shall pay the Fee to
First Indiana by wire transfer in immediately available funds. (For purposes of
this Section 8.03, a "change in control" shall be deemed to have taken place if:
(w) any person or entity, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, other than Somerset or
First Indiana, or a group consisting of Robert H. McKinney and Marni McKinney,
or a Subsidiary of Somerset, or a Subsidiary of First Indiana, or any employee
benefit plan of Somerset or First Indiana or any of their respective
Subsidiaries, is or becomes the beneficial owner, directly or indirectly, of
securities representing fifty percent (50%) or more of the then-issued and
outstanding common stock of Somerset or the combined voting power of the
then-outstanding securities of Somerset, whether through a tender offer or
otherwise; (x) there occurs any consolidation or merger in which Somerset is not
the continuing or surviving corporation (except for a merger in which the
holders of Somerset's common and/or other voting stock immediately prior to the
merger have the same pro- portionate ownership of common and/or other voting
stock of the surviving corporation immediately after the merger); (y) there
occurs any consolidation or merger in which Somerset is the surviving
corporation but in which shares of its common and/or other voting stock would be
converted into cash or securities of any other corporation or other property; or
(z) there occurs any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of Somerset.) Notwithstanding the foregoing, no Fee shall be required to be paid
if First Indiana or Somerset terminates this Agreement solely because of the
failure of either party to obtain shareholder approval of this Agreement and the
actions and transactions contemplated hereby.

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<PAGE>
ARTICLE IX
MISCELLANEOUS

9.01 SURVIVAL. None of the representations, warranties, covenants and
other agreements in this Agreement or in any instrument delivered pursuant to
this Agreement, other than those contained in Sections 6.05(b), 8.02, and 8.03
and in this Article IX, shall survive the termination of this Agreement if this
Agreement is terminated prior to the Effective Time. None of the
representations, warranties, covenants and other agreements in this Agreement or
in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
other agreements, shall survive the Effective Time, except for those covenants
and agreements contained in Section 6.10 which by their terms apply or are to be
performed in whole or in part after the Effective Time and this Article IX.

9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this
Agreement may be (a) waived by the party benefitted by the provision, or
(b) amended or modified at any time, by an agreement in writing executed by both
parties, except that, after approval of the Merger by the shareholders of
Somerset, no amendment may be made which under applicable law requires further
approval of such shareholders without obtaining such required further approval.

9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.

9.04 GOVERNING LAW. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of Indiana applicable to contracts
made and to be performed entirely within such State.

9.05 EXPENSES. Subject to Section 8.03, each party hereto will bear all
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that printing and postage expenses relating to the
Somerset stockholder meeting and SEC registration fees shall be shared equally
between Somerset and First Indiana.

9.06 NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given (a) on the date of
delivery, if personally delivered or telecopied (with confirmation), (b) on the
first business day following the date of dispatch, if delivered by a recognized
next-day courier service, or (c) on the third business day following the date of
mailing, if mailed by registered or certified mail (return receipt requested),
in each case to such party at its address or telecopy number set forth below or
such other address or numbers as such party may specify by notice to the parties
hereto.

If to Somerset, to:

Marni McKinney, Chief Executive Officer
The Somerset Group, Inc.
2800 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204

With a copy to:

Claudia V. Swhier, Esq.
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204

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<PAGE>
If to First Indiana, to:

Robert H. McKinney, Chairman
First Indiana Corporation
2800 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204

With a copy to:

David A. Butcher, Esq.
Bose McKinney & Evans LLP
2700 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204

9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with the Disclosure Schedules and the Exhibits hereto) represents the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and this Agreement supersedes any and all other oral or
written agreements heretofore made. Except for Section 6.10 hereof (which are
intended to be for the benefit of those present and former officers and
directors of Somerset and its Subsidiaries affected thereby and may be enforced
by such persons), nothing in this Agreement, expressed or implied, is intended
to confer upon any person, other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.

<TABLE>
<S> <C> <C> <C>
THE SOMERSET GROUP, INC. FIRST INDIANA CORPORATION
("Somerset") ("First Indiana")

By: /s/ MARNI MCKINNEY By: /s/ ROBERT H. MCKINNEY
---------------------------------------- ----------------------------------------
Printed: Marni McKinney Printed: Robert H. McKinney
Title: CHIEF EXECUTIVE OFFICER Title: CHAIRMAN
</TABLE>

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<PAGE>
Each of the undersigned directors of Somerset hereby (a) agrees in his
capacity as a director to recommend to Somerset's shareholders the approval of
this Agreement and the Merger, and (b) agrees in his individual capacity to vote
his shares of Somerset common stock that are registered in his personal name
(and agrees to use his best efforts to cause all additional shares of Somerset
common stock owned jointly with any other person or by his spouse or over which
he has voting influence or control to be voted) in favor of this Agreement and
the Merger. In addition, each of the undersigned directors hereby agrees not to
make any transfers of shares of Somerset with the purpose of avoiding his
agreements set forth in the preceding sentence.

Dated this 19th day of April, 2000.

<TABLE>
<S> <C>
/s/ PATRICK J. EARLY
-------------------------------------------
Patrick J. Early

/s/ WILLIAM L. ELDER
-------------------------------------------
William L. Elder

/s/ DOUGLAS W. HUEMME
-------------------------------------------
Douglas W. Huemme

/s/ MALCOLM ARCHIBALD LESLIE
-------------------------------------------
Malcolm Archibald Leslie

/s/ GARY L. LIGHT
-------------------------------------------
Gary L. Light

/s/ KEVIN K. MCKINNEY
-------------------------------------------
Kevin K. McKinney

/s/ MARNI MCKINNEY
-------------------------------------------
Marni McKinney

/s/ ROBERT H. MCKINNEY
-------------------------------------------
Robert H. McKinney

/s/ MICHAEL L. SMITH
-------------------------------------------
Michael L. Smith
</TABLE>

A-35
<PAGE>
ANNEX B

[MCDONALD INVESTMENTS LETTERHEAD]

August 18, 2000

Board of Directors
The Somerset Group, Inc.
135 N. Pennsylvania Street
Suite 2800
Indianapolis, IN 46204

Attention: Mr. Robert H. McKinney
Chairman of the Board

Madame and Gentlemen:

You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of the common
stock, without par value ("Somerset Common Stock"), of The Somerset Group, Inc.
("Somerset"), of the Consideration, as set forth in Section 3.01(a) of the
Agreement and Plan of Reorganization dated as of April 19, 2000 (the
"Agreement"), between Somerset and First Indiana Corporation ("First Indiana").

The Agreement provides for the merger (the "Merger") of Somerset with and
into First Indiana. Pursuant to the Agreement at the Effective Time (as defined
in the Agreement), each outstanding share of Somerset Common Stock, other than
any shares held in the treasury of Somerset, will be exchanged for the right to
receive 1.21 shares (the "Exchange Ratio") of the common stock, par value of
$.01 per share, of First Indiana ("First Indiana Common Stock") or $24.70 in
cash, provided that the aggregate number of shares of First Indiana Common Stock
that shall be issued in the Merger shall be not less than the product of
(a) sixty-five percent (65%) of (b) the Exchange Ratio, times (c) the number of
shares of Somerset Common Stock outstanding as of the Effective Time, as set
forth in Section 3.01(a) of the Agreement. The terms and conditions of the
Merger are more fully set forth in the Agreement.

McDonald Investments Inc., as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.

We have acted as Somerset's financial advisor in connection with, and have
participated in certain negotiations leading to, the Agreement. In connection
with rendering our opinion set forth herein, we have among other things:

(i) Reviewed Somerset's Annual Reports to Shareholders and Annual
Reports on Form 10-K for each of the years ended December 31, 1999,
December 31, 1998 and December 31, 1997, including the audited
financial statements contained therein, and

B-1
<PAGE>

Board of Directors
August 18, 2000
Page 2

Somerset's Quarterly Reports on Form 10-Q for each of the quarters
ended March 31, 2000 and June 30, 2000;

(ii) Reviewed First Indiana's Annual Reports to Shareholders and Annual
Reports on Form 10-K for each of the years ended December 31,
1999, December 31, 1998 and December 31, 1997, including the
audited financial statements contained therein, and First
Indiana's Quarterly Reports on Form 10-Q for each of the quarters
ended March 31, 2000 and June 30, 2000;

(iii) Reviewed certain other public and non-public information,
primarily financial in nature, relating to the respective
businesses, earnings, assets and prospects of Somerset and First
Indiana provided to us or publicly available;

(iv) Participated in meetings and telephone conferences with members of
senior management of Somerset and First Indiana concerning the
financial condition, business, assets, financial forecasts and
prospects of the respective companies, as well as other matters we
believed relevant to our inquiry;

(v) Reviewed certain stock market information for Somerset Common Stock
and First Indiana Common Stock, and compared it with similar
information for certain companies, the securities of which are
publicly traded;

(vi) Compared the results of operations and financial condition of
Somerset and First Indiana with that of certain companies, which
we deemed to be relevant for purposes of this opinion;

(vii) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions, which we deemed to be relevant
for purposes of this opinion;

(viii) Reviewed the Agreement dated April 19, 2000 and certain related
documents; and

(ix) Performed such other reviews and analyses as we have deemed
appropriate.

In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and have relied upon the accuracy and completeness of
the representations, warranties and covenants of Somerset and First Indiana
contained in the Agreement. We have not been engaged to undertake, and have not
assumed any responsibility for, nor have we conducted, an independent
investigation or verification of such matters. We have not been engaged to and
we have not conducted a physical inspection of any of the assets, properties or
facilities of either Somerset or First Indiana, nor have we made or obtained or
been furnished with any independent valuation or appraisal of any of such
assets, properties or facilities or any of the liabilities of either Somerset or
First Indiana. With respect to financial forecasts used in our analysis, we have
assumed that such forecasts have been reasonably prepared by management of
Somerset and First Indiana, as the case may be, on a basis reflecting the best
currently available estimates and judgments of the management of Somerset and
First Indiana, as to the future performance of Somerset, First Indiana, and
Somerset and First Indiana combined, as the case may be. We have not been
engaged to and we have not assumed any responsibility for, nor have we conducted
any independent investigation or verification of such matters, and we express no
view as to such financial forecasts or the assumptions on which they are based.
We have also assumed that all of the conditions to the consummation of the
Merger, as set forth in the Agreement, including the tax-free treatment of the
Merger to the holders of Somerset Common Stock who elect to receive payment for

B-2
<PAGE>

Board of Directors
August 18, 2000
Page 3

their shares in shares of First Indiana Common Stock, and that the merger will
be accounted for under the purchase method of accounting, would be satisfied and
that the Merger would be consummated on a timely basis in the manner
contemplated by the Agreement.

Our engagement was limited to providing financial advice to the Special
Committee of the Board of Directors of Somerset in connection with the Merger,
and we were not requested to, and did not, solicit indications of interest from
any potential acquirors. We will receive a fee for our services as financial
advisor to Somerset, a substantial portion of which is contingent upon closing
of the Merger. We will also receive a fee for our services in rendering this
opinion. In the past, we have also provided certain other investment banking
services for First Indiana and have received compensation for such services.

In the ordinary course of business, we may actively trade securities of
Somerset and First Indiana for our own account and for the accounts of customers
and, accordingly, we may at any time hold a long or short position in such
securities.

This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Consideration, to the
holders of Somerset Common Stock, and does not address the underlying business
decision by Somerset's Board of Directors to effect the Merger, does not compare
or discuss the relative merits of any other terms of the Merger, and does not
constitute a recommendation to any Somerset shareholder as to how such
shareholder should vote with respect to the Merger. This opinion does not
represent an opinion as to what the value of Somerset Common Stock or First
Indiana Common Stock may be at the Effective Time of the Merger or as to the
prospects of Somerset's business or First Indiana's business.

This opinion is directed to the Board of Directors of Somerset and may not
be reproduced, summarized, described or referred to or given to any other person
without our prior written consent. Notwithstanding the foregoing, this opinion
may be included in the proxy statement to be mailed to the holders of Somerset
Common Stock in connection with the Merger, provided that this opinion will be
reproduced in such proxy statement in full, and any description of or reference
to us or our actions, or any summary of the opinion in such proxy statement,
will be in a form reasonably acceptable to us and our counsel.

Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair to the holders of Somerset Common Stock
from a financial point of view.

Very truly yours,

/s/ McDonald Investments Inc.

MCDONALD INVESTMENTS INC.

B-3
<PAGE>
ANNEX C

[LETTERHEAD]

August 18, 2000

Board of Directors
First Indiana Corporation
135 North Pennsylvania Street
Indianapolis, IN 46204

Members of the Board:

You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of First Indiana Corporation
("First Indiana") of the consideration (the "Consideration") offered in the
proposed merger (the "Merger") of First Indiana with The Somerset Group, Inc.
("Somerset"), pursuant to the Agreement and Plan of Reorganization dated as of
April 19, 2000 between First Indiana and Somerset (the "Agreement"). Under terms
of the Agreement, First Indiana is offering the right to receive, at the
election of each holder of Somerset common stock, either (i) 1.21 shares of
First Indiana Common Stock, (ii) $24.70 in cash or (iii) a combination of stock
and cash provided no less that 65% of Somerset Common Stock outstanding will be
converted into First Indiana Common Stock and no more than 35% of Somerset
Common Stock will be converted into cash.

Keefe, Bruyette & Woods, Inc. as part of its investment banking business is
continually engaged in the valuation of banking businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. As
specialists in the securities of banking companies we have experience in, and
knowledge of, the valuation of banking enterprises. In the ordinary course of
our business as a broker-dealer, we may, from time to time, purchase securities
from, and sell securities to, First Indiana and as a market maker in securities
we may from time to time have a long or short position in, and buy or sell, debt
or equity securities of First Indiana for our own account and for the accounts
of our customers. To the extent we have any such position as of the date of this
opinion it has been disclosed to First Indiana. We have acted as a financial
advisor to the Board of Directors of First Indiana in rendering this fairness
opinion and will receive a fee from First Indiana for our services.

In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, Annual Reports to
Stockholders of First Indiana and Somerset for the three years ended
December 31, 1999; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of Somerset and First Indiana, and certain internal financial
analyses and forecasts for Somerset and First Indiana prepared by management. We
also have held discussions with members of the senior management of Somerset and
First Indiana regarding the past and current business operations, regulatory
relationships, financial condition and future prospects of their respective

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LETTERHEAD
companies. In addition, we have compared certain financial and stock market
information for Somerset and First Indiana with similar information for certain
other companies the securities of which are publicly traded and performed such
other studies and analyses as we considered appropriate.

In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independently verifying any of such information. We have
relied upon the management of First Indiana and Somerset as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to us, and we have
assumed that such forecasts and projections reflect the best currently available
estimates and judgments of First Indiana and Somerset and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated by such management. We have also assumed that the aggregate
allowances for loan losses for First Indiana are adequate to cover such losses.
In rendering our opinion, we have not made or obtained any evaluations or
appraisals of the property of First Indiana or Somerset nor have we examined any
individual credit files of First Indiana.

We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following:
(i) the historical and current financial position and results of operations of
First Indiana and Somerset and (ii) the assets and liabilities of First Indiana
and Somerset. We have also taken into account our assessment of general
economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and our
knowledge of the banking industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.

Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration in the Merger is fair, from a financial point of view,
to the common stockholders of First Indiana.

Very truly yours,

/s/ KEEFE, BRUYETTE & WOODS, INC.
KEEFE, BRUYETTE & WOODS, INC.

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