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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the Transition period from                      to

Commission
File No. 0-14354

LOGO

(Exact name of registrant as specified in its charter)

Indiana

(State of Incorporation)

35-1692825

(IRS
Employer Identification No.)

135 N. Pennsylvania St.

Indianapolis, Indiana

(Address of principal executive offices)

46204

(Zip Code)

Registrants telephone number, including area code:

(317) 269-1200

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

NONE

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



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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes ̈No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                         |  |                      |  |                       
|------------------------ |  | -------------------- |  | ----------------------
|Large accelerated filer ̈ |  | Accelerated filer  x |  | Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes ̈No  x

State the aggregate market value of the common stock held by non-affiliates of the registrant: $336.0 million as of June 30, 2006.

On February 15, 2007, the registrant had 16,517,222 shares of common stock outstanding, $0.01 par value.

Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2007 Annual Meeting of Shareholders (Part III).



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FIRST INDIANA CORPORATION

Form 10-K

Table of Contents



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|Part I     |  |                                                                                                              |  |     
|           |  | Cautionary Statement Regarding Forward-Looking Information                                                   |  | 3   
|           |  | Financial Review                                                                                             |  | 4   
|           |  | Five-Year Summary of Selected Financial Data                                                                 |  | 4   
|           |  | Overview                                                                                                     |  | 5   
|           |  | Critical Accounting Policies                                                                                 |  | 6   
|           |  | Statement of Earnings Analysis                                                                               |  | 7   
|           |  | Financial Condition                                                                                          |  | 15  
|           |  | Asset Quality                                                                                                |  | 22  
|           |  | Liquidity and Market Risk Management                                                                         |  | 27  
|           |  | Capital                                                                                                      |  | 31  
|           |  | Impact of Inflation and Changing Prices                                                                      |  | 33  
|           |  | Impact of Accounting Standards Not Yet Adopted                                                               |  | 33  
|           |  | Fourth Quarter Summary                                                                                       |  | 33  
|           |  | Managements Responsibility for Financial Statements                                                         |  | 35  
|           |  | Managements Report on Internal Control over Financial Reporting                                             |  | 35  
|           |  | Report of Independent Registered Public Accounting Firm                                                      |  | 36  
|           |  | Report of Independent Registered Public Accounting Firm                                                      |  | 37  
|           |  | Consolidated Financial Statements                                                                            |  | 38  
|           |  | Notes to Consolidated Financial Statements                                                                   |  | 42  
|Item 1.    |  | Business                                                                                                     |  | 78  
|Item 1A.   |  | Risk Factors                                                                                                 |  | 84  
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 88  
|Item 2.    |  | Properties                                                                                                   |  | 88  
|Item 3.    |  | Legal Proceedings                                                                                            |  | 88  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 88  
|           |  | Executive Officers of the Registrant                                                                         |  | 89  
|Part II    |  |                                                                                                              |  |     
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 90  
|Item 6.    |  | Selected Financial Data                                                                                      |  | 92  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 92  
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 92  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 92  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 92  
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 92  
|Item 9B.   |  | Other Information                                                                                            |  | 93  
|Part III   |  |                                                                                                              |  |     
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 94  
|Item 11.   |  | Executive Compensation                                                                                       |  | 94  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters               |  | 94  
|Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 94  
|Item 14.   |  | Principal Accountants Fees and Services                                                                     |  | 94  
|Part IV    |  |                                                                                                              |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules                                                                      |  | 95  
|Signatures |  | 99                                                                                                          



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

You are hereby cautioned that this Annual Report on Form 10-K,
including Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties
ever materialize or the assumptions prove incorrect, the results of First Indiana Corporation and its consolidated subsidiaries (First Indiana) may differ materially from those expressed or implied by such forward-looking statements and
assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to (1) projections of revenue, margins, expenses, tax provisions, earnings, cash
flows, benefit obligations, share repurchase or other financial items; (2) statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans; (3) statements concerning
expected development, performance or market share relating to loans, deposits, fees or other products or services; (4) statements regarding future economic conditions or performance; (5) statements regarding any investigations, claims or
disputes; (6) statements of expectation or belief; and (7) statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include but are not limited to (a) macroeconomic trends and events nationally,
in the State of Indiana, and in our primary market of Indianapolis; (b) the execution and performance of contracts, including loans, by customers, suppliers and partners; (c) the difficulty of aligning expense levels with revenue changes;
(d) assumptions relating to the execution and timing of workforce restructuring programs; (e) the outcome of pending legislation and accounting pronouncements; (f) material changes or disruptions in financial markets which impact our
ability to raise funds; (g) changes in investor interest and criteria for the purchase of residential loans originated with the intention of selling the loans to investors; and (h) other risks that are described in this report, including but not
limited to the items discussed in Risk Factors in Item 1A of this report, and that are otherwise described from time to time in First Indianas Securities and Exchange Commission reports filed after this report. First Indiana
assumes no obligation and does not intend to update these forward-looking statements.



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FINANCIAL REVIEW

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

Business Combinations and discontinued operations that affect the
comparability of the 2006, 2005 and 2004 information shown in this five-year summary are discussed in Note 2 to the Consolidated Financial Statements.

On January 3, 2006, the Corporation and the Bank sold the assets related to its trust business (Trust) to Marshall & Ilsley Trust Company, N. A. (M&I), a subsidiary of Marshall &
Ilsley Corporation. First Indiana received approximately $15,000,000 in cash proceeds from the sale and recorded an after-tax gain of approximately $8,600,000 in the first quarter of 2006. In addition, the Corporation received approximately $850,000
in cash for the transfer of Trusts fees receivable to M&I. First Indiana may also receive future incentive payments over the next three years depending upon revenue growth. Trust income and expense has been presented as discontinued
operations, and the results of operations and cash flows have been disclosed separately for all periods presented in the Consolidated Statements of Earnings, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements.
Likewise, the assets of Trust have been reclassified to assets of discontinued operations on the Consolidated Balance Sheets. Prior to the announced sale, Trust was included in the community bank operating segment.



|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|-------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|(Dollars in Thousands, except Per Share Data)            |  | 2006 |            |   | 2005 |   |            | 2004 |  |   | 2003       |   |  | 2002 |           
|Year-End Balance Sheet Data                              |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total Assets                                             |  | $    | 2,162,113  |   |      | $ | 1,966,356  |      |  | $ | 1,898,263  |   |  | $    | 2,193,137  |   |  | $ | 2,125,590  |  
|Investment Securities                                    |  |      | 282,833    |   |      |   | 259,516    |      |  |   | 243,296    |   |  |      | 240,410    |   |  |   | 161,320    |  
|Loans                                                    |  |      | 1,694,687  |   |      |   | 1,567,186  |      |  |   | 1,500,190  |   |  |      | 1,814,991  |   |  |   | 1,837,633  |  
|Commercial                                               |  |      | 937,827    |   |      |   | 805,381    |      |  |   | 700,528    |   |  |      | 886,144    |   |  |   | 860,159    |  
|Consumer                                                 |  |      | 488,173    |   |      |   | 499,465    |      |  |   | 520,611    |   |  |      | 612,025    |   |  |   | 666,150    |  
|Residential Mortgage                                     |  |      | 268,687    |   |      |   | 262,340    |      |  |   | 279,051    |   |  |      | 316,822    |   |  |   | 311,324    |  
|Deposits                                                 |  |      | 1,611,055  |   |      |   | 1,449,276  |      |  |   | 1,370,697  |   |  |      | 1,489,972  |   |  |   | 1,339,204  |  
|Non-Interest-Bearing Demand                              |  |      | 242,975    |   |      |   | 268,682    |      |  |   | 265,203    |   |  |      | 235,811    |   |  |   | 180,389    |  
|Interest-Bearing Demand                                  |  |      | 194,878    |   |      |   | 229,876    |      |  |   | 189,911    |   |  |      | 217,353    |   |  |   | 179,751    |  
|Savings                                                  |  |      | 664,474    |   |      |   | 489,713    |      |  |   | 463,679    |   |  |      | 400,804    |   |  |   | 398,752    |  
|Certificates of Deposit                                  |  |      | 508,728    |   |      |   | 461,005    |      |  |   | 451,904    |   |  |      | 636,004    |   |  |   | 580,312    |  
|Short-Term Borrowings                                    |  |      | 277,888    |   |      |   | 220,732    |      |  |   | 162,208    |   |  |      | 147,074    |   |  |   | 170,956    |  
|Federal Home Loan Bank Advances                          |  |      | 19,666     |   |      |   | 42,365     |      |  |   | 114,499    |   |  |      | 265,488    |   |  |   | 346,532    |  
|Subordinated Notes                                       |  |      | 46,905     |   |      |   | 46,781     |      |  |   | 46,657     |   |  |      | 46,534     |   |  |   | 12,169     |  
|Shareholders Equity                                     |  |      | 182,094    |   |      |   | 175,442    |      |  |   | 172,143    |   |  |      | 208,894    |   |  |   | 221,211    |  
|Selected Operations Data                                 |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net Interest Income                                      |  | $    | 71,694     |   |      | $ | 69,110     |      |  | $ | 69,441     |   |  | $    | 76,900     |   |  | $ | 73,780     |  
|Provision for Loan Losses                                |  |      | (1,600     | ) |      |   | (3,200     | )    |  |   | 11,550     |   |  |      | 38,974     |   |  |   | 20,756     |  
|Non-Interest Income                                      |  |      | 27,884     |   |      |   | 29,318     |      |  |   | 36,851     |   |  |      | 34,635     |   |  |   | 33,353     |  
|Non-Interest Expense                                     |  |      | 62,630     |   |      |   | 63,061     |      |  |   | 69,223     |   |  |      | 70,543     |   |  |   | 54,627     |  
|Income from Continuing Operations, Net of Taxes          |  |      | 24,296     |   |      |   | 24,500     |      |  |   | 16,393     |   |  |      | 1,467      |   |  |   | 20,302     |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |      | 8,653      |   |      |   | 771        |      |  |   | (1,715     | ) |  |      | 1,062      |   |  |   | 878        |  
|Net Income                                               |  |      | 32,949     |   |      |   | 25,271     |      |  |   | 14,678     |   |  |      | 2,529      |   |  |   | 21,180     |  
|Basic Earnings (Loss) Per Share                          |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Income from Continuing Operations, Net of Taxes          |  |      | 1.47       |   |      |   | 1.43       |      |  |   | 0.84       |   |  |      | 0.07       |   |  |   | 1.04       |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |      | 0.52       |   |      |   | 0.04       |      |  |   | (0.09      | ) |  |      | 0.06       |   |  |   | 0.05       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic Net Earnings Per Share                             |  |      | 1.99       |   |      |   | 1.47       |      |  |   | 0.75       |   |  |      | 0.13       |   |  |   | 1.09       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Diluted Earnings (Loss) Per Share                        |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Income from Continuing Operations, Net of Taxes          |  |      | 1.44       |   |      |   | 1.40       |      |  |   | 0.83       |   |  |      | 0.07       |   |  |   | 1.02       |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |      | 0.50       |   |      |   | 0.04       |      |  |   | (0.09      | ) |  |      | 0.06       |   |  |   | 0.05       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Diluted Net Earnings Per Share                           |  |      | 1.94       |   |      |   | 1.44       |      |  |   | 0.74       |   |  |      | 0.13       |   |  |   | 1.07       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Dividends Declared Per Common Share                      |  |      | 0.800      |   |      |   | 0.608      |      |  |   | 0.540      |   |  |      | 0.528      |   |  |   | 0.512      |  
|Selected Ratios                                          |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net Interest Margin                                      |  |      | 3.73       | % |      |   | 3.85       | %    |  |   | 3.55       | % |  |      | 3.69       | % |  |   | 3.73       | %
|Return on Average Total Assets                           |  |      | 1.61       |   |      |   | 1.32       |      |  |   | 0.71       |   |  |      | 0.11       |   |  |   | 1.02       |  
|Return on Average Shareholders Equity                   |  |      | 18.44      |   |      |   | 14.39      |      |  |   | 6.94       |   |  |      | 1.15       |   |  |   | 9.66       |  
|Average Shareholders Equity to Average Total Assets     |  |      | 8.75       |   |      |   | 9.21       |      |  |   | 10.19      |   |  |      | 9.91       |   |  |   | 10.51      |  
|Tangible Equity to Tangible Assets                       |  |      | 6.98       |   |      |   | 7.33       |      |  |   | 7.38       |   |  |      | 8.04       |   |  |   | 10.12      |  
|Dividend Payout Ratio                                    |  |      | 41.24      |   |      |   | 42.22      |      |  |   | 72.58      |   |  |      | 412.50     |   |  |   | 47.76      |  
|Selected Value                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Book Value Per Share                                     |  | $    | 10.86      |   |      | $ | 10.22      |      |  | $ | 9.82       |   |  | $    | 10.75      |   |  | $ | 11.39      |  
|Average Common Shares Outstanding                        |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                    |  |      | 16,555,127 |   |      |   | 17,158,145 |      |  |   | 19,484,426 |   |  |      | 19,463,135 |   |  |   | 19,421,483 |  
|Diluted                                                  |  |      | 16,977,111 |   |      |   | 17,549,963 |      |  |   | 19,735,453 |   |  |      | 19,650,864 |   |  |   | 19,761,725 |  

All share and per share amounts have been restated to reflect the 5 for 4 stock split declared
January 18, 2006.



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OVERVIEW

First Indiana Corporation (First Indiana or the Corporation) is the holding
company for First Indiana Bank, N.A. (the Bank), the largest commercial bank headquartered in Indianapolis. First Indiana Bank is a community bank offering a full range of banking services in Central Indiana. The Bank attracts deposits
and originates commercial and consumer loans and offers cash management services through 32 banking centers. Additionally, the Bank originates home equity loans on a national basis through a network of agents and brokers. These loans are primarily
sold to investors.

In January 2006, First Indiana sold the assets related to its trust business (Trust). In October 2004,
First Indiana sold substantially all the assets of Somerset Financial Services, LLC (Somerset Financial), an accounting and consulting firm. The results of operations of Trust and Somerset Financial are reported as discontinued
operations, and their results of operations and cash flows have been disclosed separately for all periods presented in the Consolidated Statements of Earnings, Consolidated Statements of Cash Flows and Notes to Consolidated Financial Statements.
Likewise, the assets and liabilities of Trust have been reclassified to assets and liabilities of discontinued operations on the Consolidated Balance Sheets.

The Corporations success is largely dependent on its ability to manage credit risk and interest rate risk. Making loans is an essential element of the Banks business, and there is a risk that loans will
not be repaid. The risk of loss on a loan is affected by a number of factors, including credit risks of a particular borrower; changes in economic or industry conditions; the duration of the loan; and, in the case of a collateralized loan,
uncertainties about the future value of the collateral. An economic downturn could contribute to deterioration in the quality of the loan portfolio. Loans made up 78 percent of the Corporations assets at year-end 2006. If an economic downturn
occurs in the economy as a whole, or in Indiana where First Indiana has approximately 72 percent of its loans, borrowers may be unable to repay their loans as scheduled and the value of real estate or other collateral that may secure the loans could
be adversely affected.

Interest rate risk is defined as the exposure of net interest income, net earnings, and equity to changes in
interest rates. First Indiana manages risk from changes in market interest rates, in part, by controlling the mix of interest rate-sensitive assets and interest rate-sensitive liabilities. The Corporation makes adjustments to its rate-sensitive
balance sheet position, as necessary, when its outlook regarding possible movements in interest rates changes.

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

Several major initiatives were implemented in 2006. In January 2006, First Indiana sold the assets related to its trust business and received
approximately $15,000,000 in cash proceeds from the sale. An after-tax gain on sale of approximately $8,600,000 was recorded in the first quarter of 2006. Business development efforts led to growth of 16.4 percent in commercial loans during the
year. In addition, average deposits in 2006 increased 10.2 percent over average deposits in 2005. During the third quarter of 2006, the bank completed a successful conversion of its core systems to a new service provider. The core systems conversion
has enhanced the functionality of the banks operating systems and delivery channels, as well as improved the associated business processes.



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CRITICAL ACCOUNTING POLICIES

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

Allowance for Loan Losses

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

Goodwill

The Corporation accounts for goodwill under the provisions of Financial Accounting Standards Board (FASB) Statement
No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and other intangible assets with indefinite useful lives be tested for impairment at least annually. Assets and liabilities, including goodwill, are
assigned to reporting units. Reporting units with assigned goodwill are corporate banking and retail banking, which are included in the community bank segment. Goodwill formerly assigned to Somerset Financial was reclassified to Assets of
Discontinued Operations and later included as part of the October 2004 asset sale, which is discussed in Note 2 of the Notes to Consolidated Financial Statements. Impairment tests indicated that the fair value of each reporting unit with assigned
goodwill exceeded its recorded investment (thus goodwill was not impaired). Risk factors considered in determining reporting unit fair value include future loan and deposit originations and related revenues generated from this activity, future fee
revenues and costs associated with the services provided by each reporting unit, and the continued commitment of Corporation resources to each reporting unit. Future tests for impairment will also use this method. Should any of these risk factors
change, the fair value of a reporting unit could deteriorate, resulting in goodwill impairment.

Valuation Allowance for Deferred Taxes

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



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STATEMENT OF EARNINGS ANALYSIS

Earnings Summary

First Indiana reported net income of $32,949,000, or $1.94 per diluted share, in 2006, compared with earnings of $25,271,000, or $1.44 per diluted share,
in 2005. Net income in 2004 was $14,678,000 or $0.74 per diluted share. The increase in net income in 2006 compared with 2005 is primarily the result of the after-tax gain on sale of the Banks trust operations totaling $8,653,000; pre-tax
expenses totaling $1,727,000 associated with the conversion of the Corporations core data processor; and a $1,600,000 reduction in the provision for loan losses. The increase in net income in 2005 compared with 2004 is primarily the result of
improvements in credit quality which led to a reduction in the provision for loan losses. Non-performing assets decreased to $4,633,000 at December 31, 2005, from $21,445,000 at December 31, 2004, while net charge-offs of loans totaled
$10,804,000 in 2005 as compared to $11,575,000 in 2004. Included in 2005 results was a pre-tax loss of $1,649,000 on the sale of the Banks third-party loan servicing portfolio. Net income in 2005 was also positively impacted by results of the
cost reduction program implemented in the third quarter of 2004.

On January 3, 2006, the Corporation sold the assets related to its
trust business and received approximately $15,000,000 in cash proceeds from the sale. An after-tax gain of $8,653,000 was recorded in the first quarter of 2006 and reported as discontinued operations. In the fourth quarter of 2005, the Corporation
had announced the agreement to sell the assets related to its trust business, which subsequently closed in January 2006. The 2005 results of operations of the trust business are reported as discontinued operations. In the fourth quarter of 2004,
First Indiana sold substantially all the assets of Somerset Financial, and the operations and sale of Somerset Financial are reported as discontinued operations. Earnings from continuing operations, net of taxes, were $24,296,000, or $1.44 per
diluted share, in 2006 compared with $24,500,000, or $1.40 per diluted share, in 2005. Earnings from continuing operations, net of taxes in 2004 were $16,393,000, or $0.83 per diluted share. Earnings from discontinued operations, net of taxes, were
$8,653,000, or $0.50 per diluted share, in 2006, and $771,000, or $0.04 per diluted share, in 2005 compared with a loss from discontinued operations, net of taxes in 2004 of $1,715,000, or $0.09 per diluted share.

On January 18, 2006, the Board of Directors approved a five-for-four stock split that was effective on February 27, 2006, to shareholders of
record as of February 13, 2006. All share and per share information has been restated to reflect the stock split.

Net Interest Income

Net interest income was $71,694,000 in 2006, compared with $69,110,000 in 2005 and $69,441,000 in 2004. Net interest income increased
in 2006 compared with 2005 due to an increase in earning assets offset by a decrease in net interest margin. Net interest income decreased slightly in 2005 compared with 2004 due to a decrease in earning assets offset by an increase in net interest
margin. Earning assets averaged $1,924,415,000 in 2006, compared with $1,794,154,000 in 2005 and $1,955,281,000 in 2004. The increase in 2006 average earning assets compared with 2005 primarily consisted of increases in business and single-family
construction loans totaling $110,888,000 and an increase of $20,304,000 in securities available for sale. These increases were offset by declines in consumer and residential mortgage loans totaling approximately $15,933,000. The decrease in 2005
average earning assets compared with 2004 primarily consisted of reductions in single-family construction and consumer loans. The reduction in single-family construction loans was the result of the sale of the non-Indiana construction loan offices
in November 2004, which included approximately $134,373,000 in construction loans outstanding, partially offset by new originations in the Indianapolis market. See Financial Condition for a more detailed discussion of the
Corporations earning assets.

Net interest margin is calculated as the percentage of net interest income to average earning assets.
Net interest margin was 3.73 percent in 2006, compared with 3.85 percent in 2005 and 3.55 percent in 2004. While interest rates began to level-off and remain steady during 2006, the Banks customers continued to manage their funds more
aggressively, choosing higher cost, more rate sensitive products in a market of increasing competitive



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pricing pressure. This shift altered the interest rate risk profile of the Corporations balance sheet, effectively eliminating the asset-sensitive
position that had been maintained in 2005. As a result, net interest margin was compressed during the year ending 2006. During 2005, rate increases by the Federal Reserve Board which began in mid-2004 led to an increase in the 2005 net interest
margin, since First Indianas balance sheet had been in an asset-sensitive position. Lower yields on consumer and residential mortgage loans in 2004 and continued prepayments compressed net interest margins and net interest income in 2004, as
deposit rates were unable to fully absorb the lower market loan yields.

Net interest margin consists of two components: interest rate
spread and the contribution of interest-free funds, primarily non-interest-bearing demand deposits and shareholders equity. Interest rate spread is the difference between the yield on total earning assets and the cost of total interest-bearing
liabilities. While the contribution of interest-free funds had a positive impact on the 2006 net interest margin, the decline of the interest rate spread was more significant, leading to the overall decrease in net interest margin for 2006, as
compared to 2005. The interest rate spread for 2006 was 3.12 percent, compared with 3.35 percent in 2005 and 3.17 percent in 2004. The contribution of interest-free funds to net interest margin varies depending on the level of interest-free funds
and the level of interest rates. Interest-free funds averaged $310,658,000, or 16.1 percent of earning assets, in 2006, compared with $341,465,000, or 19.0 percent of earning assets, in 2005, and $368,428,000, or 18.8 percent of earning assets, in
2004. Interest-free funds provided 61 basis points to the margin in 2006, compared with 50 basis points in 2005 and 38 basis points in 2004. During 2005, both the interest rate spread and the contribution of interest-free funds were impacted
positively by rising interest rates and had a positive impact on the 2005 net interest margin. See Asset/Liability Management for a more detailed discussion of the Corporations management of interest rate risk.



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Net Interest Margin



|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|------------------------------------------ |  | -------------- | --------- | -------- | ---- | ----------- |  | ---- | -------------- |  | -------- | --------- | ----------- | - | ------- | -------------- | ---- | -------- |  | ----------- | --------- |  | - | ------- |  | ---- | -
|                                           |  | 2006           |           |          | 2005 |             |  | 2004 |               
|(Dollars in Thousands)                     |  | AverageBalance |           | Interest |      | Yield /Rate |  |      | AverageBalance |  | Interest |           | Yield /Rate |   |         | AverageBalance |      | Interest |  | Yield /Rate |          
|Assets                                     |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Interest-Bearing Due from Banks            |  | $              | 7,156     |          | $    | 353         |  | 4.94 | %              |  | $        | 5,354     |             | $ | 142     |                | 2.64 | %        |  | $           | 29,200    |  | $ | 389     |  | 1.33 | %
|Federal Funds Sold                         |  |                | 16,686    |          |      | 847         |  | 5.08 |                |  |          | 2,853     |             |   | 91      |                | 3.19 |          |  |             |          |  |   |        |  |     |  
|Securities Available for Sale              |  |                | 246,817   |          |      | 9,948       |  | 4.03 |                |  |          | 226,513   |             |   | 8,387   |                | 3.70 |          |  |             | 215,159   |  |   | 7,869   |  | 3.66 |  
|Other Investments                          |  |                | 24,350    |          |      | 1,209       |  | 4.96 |                |  |          | 26,447    |             |   | 1,159   |                | 4.38 |          |  |             | 25,573    |  |   | 1,170   |  | 4.57 |  
|Loans (1)                                  |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Business                                   |  |                | 580,308   |          |      | 45,129      |  | 7.78 |                |  |          | 504,388   |             |   | 33,236  |                | 6.59 |          |  |             | 491,490   |  |   | 25,577  |  | 5.20 |  
|Commercial Real Estate                     |  |                | 168,751   |          |      | 14,095      |  | 8.35 |                |  |          | 167,287   |             |   | 11,497  |                | 6.87 |          |  |             | 176,641   |  |   | 10,238  |  | 5.80 |  
|Single-Family Construction                 |  |                | 115,620   |          |      | 9,685       |  | 8.38 |                |  |          | 80,652    |             |   | 5,379   |                | 6.67 |          |  |             | 166,416   |  |   | 8,111   |  | 4.87 |  
|Consumer                                   |  |                | 498,273   |          |      | 36,653      |  | 7.36 |                |  |          | 509,471   |             |   | 34,625  |                | 6.80 |          |  |             | 554,570   |  |   | 34,177  |  | 6.16 |  
|Residential Mortgage                       |  |                | 266,454   |          |      | 13,800      |  | 5.18 |                |  |          | 271,189   |             |   | 12,664  |                | 4.67 |          |  |             | 296,232   |  |   | 14,113  |  | 4.76 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Loans                                |  |                | 1,629,406 |          |      | 119,362     |  | 7.33 |                |  |          | 1,532,987 |             |   | 97,401  |                | 6.35 |          |  |             | 1,685,349 |  |   | 92,216  |  | 5.47 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Earning Assets                       |  |                | 1,924,415 |          |      | 131,719     |  | 6.84 |                |  |          | 1,794,154 |             |   | 107,180 |                | 5.97 |          |  |             | 1,955,281 |  |   | 101,644 |  | 5.20 |  
|Other Assets                               |  |                | 118,195   |          |      |             |  |      |                |  |          | 113,388   |             |   |         |                |      |          |  |             | 119,780   |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Assets                               |  | $              | 2,042,610 |          |      |             |  |      |                |  | $        | 1,907,542 |             |   |         |                |      |          |  | $           | 2,075,061 |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Liabilities and Shareholders Equity       |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Interest-Bearing Deposits                  |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Demand Deposits                            |  | $              | 185,060   |          | $    | 1,878       |  | 1.01 | %              |  | $        | 189,297   |             | $ | 877     |                | 0.46 | %        |  | $           | 185,050   |  | $ | 635     |  | 0.34 | %
|Savings Deposits                           |  |                | 599,961   |          |      | 20,647      |  | 3.44 |                |  |          | 477,500   |             |   | 8,835   |                | 1.85 |          |  |             | 472,006   |  |   | 3,977   |  | 0.84 |  
|Certificates of Deposit                    |  |                | 523,904   |          |      | 23,133      |  | 4.42 |                |  |          | 473,150   |             |   | 16,218  |                | 3.43 |          |  |             | 565,940   |  |   | 15,821  |  | 2.80 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Interest-Bearing Deposits            |  |                | 1,308,925 |          |      | 45,658      |  | 3.49 |                |  |          | 1,139,947 |             |   | 25,930  |                | 2.27 |          |  |             | 1,222,996 |  |   | 20,433  |  | 1.67 |  
|Short-Term Borrowings                      |  |                | 217,873   |          |      | 8,988       |  | 4.13 |                |  |          | 181,930   |             |   | 5,121   |                | 2.81 |          |  |             | 128,676   |  |   | 1,521   |  | 1.18 |  
|Federal Home Loan Bank Advances            |  |                | 40,110    |          |      | 2,013       |  | 5.02 |                |  |          | 84,087    |             |   | 3,653   |                | 4.34 |          |  |             | 188,581   |  |   | 6,880   |  | 3.65 |  
|Subordinated Notes                         |  |                | 46,849    |          |      | 3,366       |  | 7.18 |                |  |          | 46,725    |             |   | 3,366   |                | 7.20 |          |  |             | 46,600    |  |   | 3,369   |  | 7.23 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Interest-Bearing Liabilities         |  |                | 1,613,757 |          |      | 60,025      |  | 3.72 |                |  |          | 1,452,689 |             |   | 38,070  |                | 2.62 |          |  |             | 1,586,853 |  |   | 32,203  |  | 2.03 |  
|Non-Interest-Bearing Demand Deposits       |  |                | 218,690   |          |      |             |  |      |                |  |          | 246,113   |             |   |         |                |      |          |  |             | 241,941   |  |   |         |  |      |  
|Other Liabilities                          |  |                | 31,459    |          |      |             |  |      |                |  |          | 33,124    |             |   |         |                |      |          |  |             | 34,723    |  |   |         |  |      |  
|Shareholders Equity                       |  |                | 178,704   |          |      |             |  |      |                |  |          | 175,616   |             |   |         |                |      |          |  |             | 211,544   |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Liabilities and Shareholders Equity |  | $              | 2,042,610 |          |      |             |  |      |                |  | $        | 1,907,542 |             |   |         |                |      |          |  | $           | 2,075,061 |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Net Interest Income/Spread                 |  |                |           |          | $    | 71,694      |  | 3.12 | %              |  |          |           |             | $ | 69,110  |                | 3.35 | %        |  |             |           |  | $ | 69,441  |  | 3.17 | %
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Net Interest Margin                        |  |                |           |          |      |             |  | 3.73 | %              |  |          |           |             |   |         |                | 3.85 | %        |  |             |           |  |   |         |  | 3.55 | %
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  

---

|(1) | Included in loans are loans held for sale totaling $24.7 million, $32.3 million, and $44.1 million in 2006, 2005, and 2004, respectively, and non-accrual loans.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|----------------------------- |  | ----------------------------------- | ------ | - | ----------------------- | - | ------ | ----------------------------------- |  | - | ------ | - |  | ------ | ------ | - | --------- | - | ------ | - |  | - | ------ | -
|                              |  | 2006 Compared with 2005             |        |   | 2005 Compared with 2004 |  
|                              |  | Increase (Decrease)Due to Change in |        |   |                         |   |        | Increase (Decrease)Due to Change in |  |   |        |  
|(Dollars in Thousands)        |  | Rate                                |        |   | Volume                  |   |        | NetChange                           |  |   | Rate   |   |  | Volume |        |   | NetChange |  
|Interest Income               |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|Interest-Bearing Deposits     |  | $                                   | 152    |   |                         | $ | 59     |                                     |  | $ | 211    |   |  | $      | 214    |   |           | $ | (461   | ) |  | $ | (247   | )
|Federal Funds Sold            |  |                                     |       |   |                         |   | 756    |                                     |  |   | 756    |   |  |        |       |   |           |   | 91     |   |  |   | 91     |  
|Securities Available for Sale |  |                                     | 776    |   |                         |   | 785    |                                     |  |   | 1,561  |   |  |        | 98     |   |           |   | 420    |   |  |   | 518    |  
|Other Investments             |  |                                     | 145    |   |                         |   | (95    | )                                   |  |   | 50     |   |  |        | (50    | ) |           |   | 39     |   |  |   | (11    | )
|Loans                         |  |                                     | 15,562 |   |                         |   | 6,399  |                                     |  |   | 21,961 |   |  |        | 14,005 |   |           |   | (8,820 | ) |  |   | 5,185  |  
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|                              |  |                                     | 16,635 |   |                         |   | 7,904  |                                     |  |   | 24,539 |   |  |        | 14,267 |   |           |   | (8,731 | ) |  |   | 5,536  |  
|Interest Expense              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|Interest-Bearing Deposits     |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|Demand Deposits               |  |                                     | 1,021  |   |                         |   | (20    | )                                   |  |   | 1,001  |   |  |        | 227    |   |           |   | 15     |   |  |   | 242    |  
|Savings Deposits              |  |                                     | 9,098  |   |                         |   | 2,714  |                                     |  |   | 11,812 |   |  |        | 4,811  |   |           |   | 47     |   |  |   | 4,858  |  
|Certificates of Deposit       |  |                                     | 5,039  |   |                         |   | 1,876  |                                     |  |   | 6,915  |   |  |        | 3,238  |   |           |   | (2,841 | ) |  |   | 397    |  
|Short-Term Borrowings         |  |                                     | 2,715  |   |                         |   | 1,152  |                                     |  |   | 3,867  |   |  |        | 2,771  |   |           |   | 829    |   |  |   | 3,600  |  
|FHLB Advances                 |  |                                     | 499    |   |                         |   | (2,139 | )                                   |  |   | (1,640 | ) |  |        | 1,126  |   |           |   | (4,353 | ) |  |   | (3,227 | )
|Subordinated Notes            |  |                                     | (9     | ) |                         |   | 9      |                                     |  |   | 0      |   |  |        | (12    | ) |           |   | 9      |   |  |   | (3     | )
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|                              |  |                                     | 18,363 |   |                         |   | 3,592  |                                     |  |   | 21,955 |   |  |        | 12,161 |   |           |   | (6,294 | ) |  |   | 5,867  |  
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  
|Net Interest Income           |  | $                                   | (1,728 | ) |                         | $ | 4,312  |                                     |  | $ | 2,584  |   |  | $      | 2,106  |   |           | $ | (2,437 | ) |  | $ | (331   | )
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |        |   |  |   |        |  

Non-Interest Income

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



|                                      |  |                         |        |                     |   |        |         |  |       |                     |  |   |        |   |  |         |        |   |      |          |    |  |   |        |  
|------------------------------------- |  | ----------------------- | ------ | ------------------- | - | ------ | ------- |  | ----- | ------------------- |  | - | ------ | - |  | ------- | ------ | - | ---- | -------- | -- |  | - | ------ | -
|                                      |  | Years Ended December 31 |       
|                                      |  |                         |        | Increase (Decrease) |   |        |         |  |       | Increase (Decrease) |  |   |        |  
|(Dollars in Thousands)                |  | 2006                    |        | Amount              |   |        | Percent |  |       | 2005                |  |   | Amount |   |  | Percent |        |   | 2004 |         
|Deposit Charges                       |  | $                       | 16,506 |                     | $ | (254   | )       |  | (1.5  | )%                  |  | $ | 16,760 |   |  | $       | (486   | ) |      | (2.8     | )% |  | $ | 17,246 |  
|Loan Servicing Income (Expense)       |  |                         |       |                     |   | (58    | )       |  |      |                     |  |   | 58     |   |  |         | 294    |   |      | (124.6   | )  |  |   | (236   | )
|Loan Fees                             |  |                         | 1,718  |                     |   | (100   | )       |  | (5.5  | )                   |  |   | 1,818  |   |  |         | (1,221 | ) |      | (40.2    | )  |  |   | 3,039  |  
|Investment Product Sales Commissions  |  |                         | 763    |                     |   | 182    |         |  | 31.3  |                     |  |   | 581    |   |  |         | (1,123 | ) |      | (65.9    | )  |  |   | 1,704  |  
|Sale of Loans                         |  |                         | 6,504  |                     |   | (3,684 | )       |  | (36.2 | )                   |  |   | 10,188 |   |  |         | (1,350 | ) |      | (11.7    | )  |  |   | 11,538 |  
|Sale of Loan Servicing                |  |                         |       |                     |   | 1,649  |         |  |      |                     |  |   | (1,649 | ) |  |         | (1,649 | ) |      |         |    |  |   |       |  
|Net Investment Securities Gain (Loss) |  |                         |       |                     |   | 813    |         |  |      |                     |  |   | (813   | ) |  |         | (794   | ) |      | (4,178.9 | )  |  |   | (19    | )
|Other                                 |  |                         | 2,393  |                     |   | 18     |         |  | 0.8   |                     |  |   | 2,375  |   |  |         | (1,204 | ) |      | (33.6    | )  |  |   | 3,579  |  
|                                      |  |                         |        |                     |   |        |         |  |       |                     |  |   |        |   |  |         |        |   |      |          |    |  |   |        |  
|                                      |  | $                       | 27,884 |                     | $ | (1,434 | )       |  | (4.9  | )%                  |  | $ | 29,318 |   |  | $       | (7,533 | ) |      | (20.4    | )% |  | $ | 36,851 |  
|                                      |  |                         |        |                     |   |        |         |  |       |                     |  |   |        |   |  |         |        |   |      |          |    |  |   |        |  

Non-interest income totaled $27,884,000 in 2006, compared with $29,318,000 in 2005 and $36,851,000
in 2004. Non-interest income in 2005 includes a loss of $1,649,000 on the sale of the Banks third-party loan servicing portfolio at the end of the first quarter.

Deposit charges in 2006 decreased 1.5 percent to $16,506,000 following a 2.8 percent decrease to $16,760,000 in 2005. The decrease in deposit charges in 2006 compared with 2005 reflects lower returned check



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##### Table of Contents

and demand deposit fees partially offset by an increase in debit card fees. The decrease in deposit charges in 2005 compared with 2004 was primarily due to a
reduction in account analysis fees resulting from a higher earnings credit rate in 2005 and a decline in overdraft charges.

The
Corporation is no longer servicing loans for others and, therefore, did not record loan servicing income in 2006. Loan servicing income was $58,000 in 2005, compared with loan servicing expense of $236,000 in 2004. Following the sale of the
Banks third-party loan servicing portfolio in the first quarter of 2005, the transfer of the servicing of the loans to the purchaser was completed in the second quarter. All loans have been sold servicing released since the second quarter of
2004, and the Bank expects to continue this practice. Additional information relating to loan servicing rights can be found in Note 3 of the Notes to the Consolidated Financial Statements.

Loan fees were $1,718,000 in 2006, compared with $1,818,000 in 2005 and $3,039,000 in 2004. Loan fees in 2006 decreased $100,000 from 2005 fees mainly
due to lower letter of credit fee accretion. The primary reason for the decrease in loan fees in 2005 compared with 2004 was a reduction in construction loan fees due to the sale of the non-Indiana construction loan offices in November 2004.

Investment and insurance product sales commissions generated by First Indiana Investor Services, Inc., the Banks investment products
and insurance sales subsidiary, were $763,000 in 2006, compared with $581,000 in 2005 and $1,704,000 in 2004. Sales revenues in 2006 increased from 2005 fees due to higher annuity and mutual fund sales. Sales revenues in 2005 were lower than 2004
fees due to the elimination of the existing sales channel as part of the cost reduction plan implemented in the third quarter of 2004.

Gain on the sale of loans (primarily closed-end and line of credit home equity loans) in 2006 was $6,504,000, a decrease of $3,684,000 from comparable revenues in 2005 of $10,188,000. Gain on the sale of loans in 2004 was $11,538,000 which
included a net gain of $958,000 from the sale of the non-Indiana construction loan offices. The decrease of gains on the sale of loans in 2006 compared with 2005 was a result of increased competition and rising interest rates, which caused lower
volume in the sale of loans. In addition during the third quarter of 2006, an investor which previously has purchased approximately one-half of the Corporations volume of loans significantly reduced loan purchases and notified us of its intent
to significantly reduce future purchases of loans. The investors action was in response to the credit deterioration of sub-prime loans in the national marketplace. In response to these developments in the market and the resulting negative
trend in gains on the sale of loans, the Corporation is continuing to evaluate its Consumer Finance Bank segment to develop a clear strategy going forward. Consumer loans sold were $256,906,000 in 2006, compared with $328,515,000 in 2005 and
$339,595,000 in 2004. Gain on the sale of loans decreased in 2005 from 2004 levels due to a reduction in loans sold as more loans were retained in the Banks portfolio. As a result of shifts in market demand and an increase in retail production
in 2005, a greater share of originated loans met the criteria for the Banks portfolio. Gain on the sale of residential loans was $193,000 in 2006, compared with $191,000 in 2005 and $104,000 in 2004.

The net investment securities loss in 2005 was $813,000, compared with a net loss of $19,000 in 2004. In addition to the sale of $35,000,000 in Federal
Home Loan Bank bonds in the first quarter of 2005 resulting in a loss of $804,000, the Bank sold its holding of Fannie Mae and Freddie Mac preferred stock in the same quarter at a loss of $9,000. The Bank had previously recognized impairment losses
of $299,000 in 2004 on this preferred stock.

Other non-interest income in 2006 was $2,393,000, compared with $2,375,000 in 2005 and
$3,579,000 in 2004. The majority of the other income totals for these periods is comprised of earnings on the cash surrender value of life insurance and other consumer loan fees. Income from late charges, prepayment penalties, and other consumer and
residential loan fees in 2005 was reduced from the previous year due to the sale of the loan servicing portfolio, the contraction in the consumer and mortgage loan portfolios, and the expiration of the prepayment penalty period on aging consumer
loans.



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##### Table of Contents

Non-Interest Expense

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



|                                         |  |                         |        |   |                    |   |       |         |  |       |                    |  |   |        |   |  |         |        |   |      |        |    |  |   |       
|---------------------------------------- |  | ----------------------- | ------ | - | ------------------ | - | ----- | ------- |  | ----- | ------------------ |  | - | ------ | - |  | ------- | ------ | - | ---- | ------ | -- |  | - | ------
|                                         |  | Years Ended December 31
|                                         |  |                         |        |   | Increase(Decrease) |   |       |         |  |       | Increase(Decrease) |  |   |       
|(Dollars in Thousands)                   |  | 2006                    |        |   | Amount             |   |       | Percent |  |       | 2005               |  |   | Amount |   |  | Percent |        |   | 2004
|Salaries                                 |  | $                       | 27,519 |   |                    | $ | (449  | )       |  | (1.6  | )%                 |  | $ | 27,968 |   |  | $       | (1,941 | ) |      | (6.5   | )% |  | $ | 29,909
|Benefits                                 |  |                         | 9,592  |   |                    |   | 265   |         |  | 2.8   |                    |  |   | 9,327  |   |  |         | 423    |   |      | 4.8    |    |  |   | 8,904 
|Net Occupancy                            |  |                         | 4,029  |   |                    |   | (301  | )       |  | (7.0  | )                  |  |   | 4,330  |   |  |         | 357    |   |      | 9.0    |    |  |   | 3,973 
|Equipment                                |  |                         | 6,496  |   |                    |   | 1,128 |         |  | 21.0  |                    |  |   | 5,368  |   |  |         | (578   | ) |      | (9.7   | )  |  |   | 5,946 
|Professional Services                    |  |                         | 3,755  |   |                    |   | (363  | )       |  | (8.8  | )                  |  |   | 4,118  |   |  |         | (710   | ) |      | (14.7  | )  |  |   | 4,828 
|Marketing                                |  |                         | 2,131  |   |                    |   | (13   | )       |  | (0.6  | )                  |  |   | 2,144  |   |  |         | 9      |   |      | 0.4    |    |  |   | 2,135 
|Telephone, Supplies, and Postage         |  |                         | 2,905  |   |                    |   | (99   | )       |  | (3.3  | )                  |  |   | 3,004  |   |  |         | (425   | ) |      | (12.4  | )  |  |   | 3,429 
|Other Intangible Asset Amortization      |  |                         | 342    |   |                    |   | (354  | )       |  | (50.9 | )                  |  |   | 696    |   |  |         | (22    | ) |      | (3.1   | )  |  |   | 718   
|Other Real Estate Owned Operations  Net |  |                         | (199   | ) |                    |   | (105  | )       |  | 111.7 |                    |  |   | (94    | ) |  |         | (1,309 | ) |      | (107.7 | )  |  |   | 1,215 
|Deposit Insurance                        |  |                         | 185    |   |                    |   | (5    | )       |  | (2.6  | )                  |  |   | 190    |   |  |         | (31    | ) |      | (14.0  | )  |  |   | 221   
|Miscellaneous                            |  |                         | 5,875  |   |                    |   | (135  | )       |  | (2.2  | )                  |  |   | 6,010  |   |  |         | (1,935 | ) |      | (24.4  | )  |  |   | 7,945 
|                                         |  |                         |        |   |                    |   |       |         |  |       |                    |  |   |        |   |  |         |        |   |      |        |    |  |   |       
|                                         |  | $                       | 62,630 |   |                    | $ | (431  | )       |  | (0.7  | )%                 |  | $ | 63,061 |   |  | $       | (6,162 | ) |      | (8.9   | )% |  | $ | 69,223
|                                         |  |                         |        |   |                    |   |       |         |  |       |                    |  |   |        |   |  |         |        |   |      |        |    |  |   |       

Non-interest expense in 2006 was $62,630,000, compared with $63,061,000 in 2005. Included in 2006
non-interest expense was $1,727,000 for the conversion of the Banks core data processor. Included in non-interest expense in 2004 were charges totaling $1,197,000 associated with the expense reduction plan announced in the third quarter of
that year. A significant portion of the remaining decrease in 2005 non-interest expense compared with 2004 was the result of the cost reduction plan and the sale of the non-Indiana construction loan offices in the fourth quarter of 2004.

Salary expense decreased $449,000 in 2006, compared with 2005. This decrease is primarily attributable to lower stock-based compensation cost and a
decrease in management performance bonuses. In 2005, First Indiana accounted for restricted and deferred stock awards as variable awards under the principles of Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to
Employees. Compensation expense related to these awards was significantly higher than 2006 expense due to an increase in the Corporations stock price. The Corporation had 514 full-time equivalent employees at year-end 2006, compared with
541 full-time equivalent employees at the end of 2005. Salary expense in 2005 declined $1,941,000 from 2004. Included in 2004 salary expense was severance expense of $932,000 associated with the plan to reduce operating expenses. Additionally, the
decrease in salary expense in 2005 was the result of a lower number of employees as part of the cost reduction plan and the sale of the non-Indiana construction loan offices in 2004. The Corporation had 579 full-time equivalent employees at year-end
2004.

Employee benefits expense in 2006 increased $265,000 or 2.8 percent over comparable expense in 2005. Increases in pension plan
expense in 2006, compared with 2005 and 2004, were partially offset by decreases in group insurance expense. Group insurance expense declined due to a reduction in the number of covered associates.

Net occupancy expense in 2006 decreased $301,000 from 2005 expense. Included in 2005 expense was a write-off of $400,000 for a lease on land previously
held for banking center expansion.

Equipment expense in 2006 was $1,128,000 higher than equipment expense in 2005. This increase is
largely explained by the core conversion costs recognized during 2006, including a $689,000 core processor contract cancellation fee expensed during the first quarter of 2006. Equipment expense in 2005 was $578,000 lower than in 2004. Decreases were
achieved in equipment lease expense, repairs and maintenance, and depreciation.



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##### Table of Contents

Professional services expense in 2006 decreased 8.8 percent or $363,000 from comparable expense in 2005.
A reduction in legal fees explains the majority of this decrease reflecting lower legal costs associated with loan delinquencies and foreclosures. Professional services expense in 2005 decreased $710,000 from 2004, primarily due to a reduction in
legal fees and a non-recurring charge of $296,000 incurred in 2004 related to the cancellation of a consulting agreement. Partially offsetting these reductions in 2005 was approximately $470,000 of one-time expense related to the imaging of the
Banks loan files. An increase in audit fees expense in 2005 reflects the increased cost of compliance with laws and regulations.

Marketing expense in 2006 was relatively flat compared with 2005. This follows relatively flat marketing expense for 2005 compared with 2004.

Telephone, supplies, and postage expense was $99,000 lower in 2006 than in 2005, and was $425,000 lower in 2005 than in 2004. These decreases reflect cost reduction efforts in both years.

Other intangible asset amortization was $342,000 in 2006. Other intangible asset amortization decreased in 2006 when compared to 2005 and 2004 primarily
because the non-compete agreement intangible was fully amortized by the end of 2005. Additional information relating to other intangible asset amortization expense can be found in Note 3 of the Notes to Consolidated Financial Statements.

Net revenue on other real estate owned (OREO) operations in 2006 was $199,000, compared with net revenue of $94,000 in 2005 and net
expense of $1,215,000 in 2004. In the third quarter of 2004, First Indiana expensed $1,128,000 as a fair value adjustment on a group of OREO properties associated with one credit relationship. Gains of $232,000 in the first quarter of 2006 and
$364,000 in the third quarter of 2005 were recorded on the disposal of some of those properties.

Miscellaneous expense in 2006 was
$5,875,000, compared with $6,010,000 in 2005 and $7,945,000 in 2004. The decrease in 2006 expense from the prior year is primarily due to a reduction in check losses. In 2005, the Corporation began to charge net losses on overdrafts against the
allowance for loan losses, in addition to reserving for estimated losses on overdrafts within the allowance for loan losses, in accordance with the Joint Guidance on Overdraft Protection Programs issued by the federal financial
institution regulators in February 2005. Previously these losses were included in non-interest expense. When compared to 2004 expense, decreases in debit card, ATM, personnel, charitable contributions, and other miscellaneous expenses in 2005 are
primarily the result of the cost reduction plan implemented in the third quarter of 2004.

The Corporations efficiency ratio was
62.90 percent in 2006, compared with 64.07 percent in 2005 and 65.13 percent in 2004. The cost of the core conversion and the expenses associated with the realignment of the senior management increased non-interest expense and had the effect of
increasing the efficiency ratio by 193 basis points. The loss on the servicing sale and the loss on the sale of securities reduced non-interest income and had the effect of increasing the 2005 efficiency ratio by 157 basis points. The charges
incurred as part of the expense reduction plan had a 113 basis point negative effect on the 2004 efficiency ratio.

Income Tax Expense

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



|                                    |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|(Dollars in Thousands)              |  | 2006 |        |   | 2005 |   |        | 2004 | 
|Earnings from Continuing Operations |  | $    | 38,548 |   |      | $ | 38,567 |      |  | $ | 25,519 |  
|Income Taxes                        |  |      | 14,252 |   |      |   | 14,067 |      |  |   | 9,126  |  
|Effective Tax Rate                  |  |      | 37.0   | % |      |   | 36.5   | %    |  |   | 35.8   | %

Additional data on income taxes can be found in Note 12 of the Notes to Consolidated Financial
Statements.



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##### Table of Contents

Discontinued Operations

On January 3, 2006, the Corporation and the Bank sold the assets related to its trust business (Trust) to Marshall & Ilsley Trust Company, N. A., a subsidiary of Marshall & Ilsley
Corporation and recorded an after-tax gain of approximately $8,600,000. First Indiana may also receive future incentive payments over the next three years depending upon revenue growth. Trust income and expense have been presented as discontinued
operations, and the results of operations and cash flows have been disclosed separately for all periods presented in the Consolidated Statements of Earnings, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements.
Likewise, the assets of Trust have been reclassified to assets of discontinued operations on the Consolidated Balance Sheets. Prior to the announced sale, Trust was included in the community bank operating segment.

On October 25, 2004, First Indiana Corporation sold substantially all the assets of Somerset Financial Services, LLC, to Somerset CPAs, P.C.
Somerset Financial Services, LLC, is a subsidiary of the Corporation and represented a majority of the operations of The Somerset Group, Inc., which was acquired by the Corporation in September 2000. Somerset CPAs was formed by a management group
from Somerset Financial and assumed substantially all the liabilities of Somerset Financial. The sales price was $6,000,000 excluding $5,405,000 of existing cash at Somerset Financial which was paid to the Corporation as a distribution before the
sale. Somerset Financials results of operations are reported as discontinued operations, and the results of operations and cash flows have been disclosed separately for all periods presented in the Consolidated Statements of Earnings,
Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements. Prior to the announced sale, Somerset Financial Services, LLC, was included in the Somerset Financial operating segment.

Earnings from discontinued operations, net of taxes, were $8,653,000, or $0.50 per diluted share, in 2006 compared with earnings from discontinued
operations, net of taxes, of $771,000, or $0.04 per diluted share, in 2005. The loss from discontinued operations, net of taxes in 2004 was $1,715,000, or $0.09 per diluted share. The 2004 pre-tax income from discontinued operations of $239,000
included a goodwill impairment loss of $1,852,000 related to Somerset Financial and $300,000 in costs incurred to sell that business. The Somerset Financial sale resulted in a taxable gain and no tax benefit was accrued for the goodwill impairment
or the costs to sell the business. Tax expense of $981,000 was recorded in connection with the sale. Additional information on discontinued operations can be found in Note 2 of the Notes to Consolidated Financial Statements.



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##### Table of Contents

FINANCIAL CONDITION

First Indianas total assets at December 31, 2006 were $2,162,113,000, compared
with $1,966,356,000 at December 31, 2005, and $1,898,263,000 at December 31, 2004. The reasons for the increases in total assets at year-end 2006 as compared to 2005 and year-end 2005 as compared to 2004 were primarily due to growth in
both business and single-family construction loans.

Loans

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



|                           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|-------------------------- |  | -------------- | --------- | ------- | ----- | - | ------ | ---- | --------- |  | ----- | ------ |  | ------- | --------- |  | ------ | - | ------- | - | --------- | ------ | ----- | ------- |  | - | --------- |  | ----- | -
|                           |  | At December 31 |          
|                           |  | 2006           |           |         | 2005  |   |        | 2004 |           |  | 2003  |        |  | 2002    |          
|(Dollars in Thousands)     |  | Amount         |           | Percent |       |   | Amount |      | Percent   |  |       | Amount |  | Percent |           |  | Amount |   | Percent |   |           | Amount |       | Percent | 
|Commercial Loans           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|Business                   |  | $              | 619,891   |         | 36.6  | % |        | $    | 545,215   |  | 34.8  | %      |  | $       | 466,703   |  | 31.1   | % |         | $ | 515,316   |        | 28.4  | %       |  | $ | 501,213   |  | 27.3  | %
|Commercial Real Estate     |  |                | 191,020   |         | 11.3  |   |        |      | 167,715   |  | 10.7  |        |  |         | 175,145   |  | 11.7   |   |         |   | 178,378   |        | 9.8   |         |  |   | 146,174   |  | 8.0   |  
|Single-Family Construction |  |                | 126,916   |         | 7.5   |   |        |      | 92,451    |  | 5.9   |        |  |         | 58,680    |  | 3.9    |   |         |   | 192,450   |        | 10.6  |         |  |   | 212,772   |  | 11.6  |  
|Consumer Loans             |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|Home Equity                |  |                | 475,160   |         | 28.0  |   |        |      | 485,111   |  | 31.0  |        |  |         | 505,702   |  | 33.7   |   |         |   | 591,565   |        | 32.6  |         |  |   | 654,930   |  | 35.6  |  
|Other Consumer             |  |                | 13,013    |         | 0.8   |   |        |      | 14,354    |  | 0.9   |        |  |         | 14,909    |  | 1.0    |   |         |   | 20,460    |        | 1.1   |         |  |   | 11,220    |  | 0.6   |  
|Residential Mortgage Loans |  |                | 268,687   |         | 15.8  |   |        |      | 262,340   |  | 16.7  |        |  |         | 279,051   |  | 18.6   |   |         |   | 316,822   |        | 17.5  |         |  |   | 311,324   |  | 16.9  |  
|                           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|Total Loans                |  | $              | 1,694,687 |         | 100.0 | % |        | $    | 1,567,186 |  | 100.0 | %      |  | $       | 1,500,190 |  | 100.0  | % |         | $ | 1,814,991 |        | 100.0 | %       |  | $ | 1,837,633 |  | 100.0 | %
|                           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  

Commercial Loans.The Bank offers a variety of commercial loans, including business loans,
commercial real estate loans, and single-family construction loans. Business loans increased $74,676,000 from $545,215,000 at December 31, 2005, to $619,891,000 at December 31, 2006. At December 31, 2004, business loans totaled
$466,703,000, which equated to an increase of $78,512,000 in business loans during 2005. These increases are primarily due to the deliberate and continuing shift in the mix of loans in the Banks portfolios, emphasizing credits that match the
Corporations targeted risk profile, and expansion of the business loan portfolio through its business development programs. The majority of business loans are loans to small and middle-market companies in Central Indiana. Business loans as a
percentage of total loans have grown from 31.1 percent in 2004 to 36.6 percent in 2006. Strategies for 2007 and beyond call for continued growth in this market segment, as well as an overall increase in the market share of the Indianapolis area.

The majority of First Indianas business loans have variable rates, which provide immediate adjustments when interest rate changes
occur. This portfolio of loans is diversified with loans to companies in a variety of industries, including distribution, manufacturing, transportation, finance, and various services. The Bank had 7.3 percent of business loan commitments to a single
industry group (specialty finance) at December 31, 2006. The next highest industry group concentration was 7.1 percent of business loan commitments (mortgage bankers and brokers). At December 31, 2006, the Bank had 77 loan relationships
with commitments over $5,000,000.

Commercial real estate loans were $191,020,000, $167,715,000 and $175,145,000 at December 31, 2006,
2005 and 2004, respectively. Commercial real estate loans outstanding as of these periods are predominately either on properties located in the Banks local market area or are loans to entities headquartered in the Indianapolis market. The
Banks portfolio of commercial real estate loans includes office buildings, strip centers, and multi-family units with usual terms of one to five years and land development loans generally with terms of three years or less.

Single-family construction loans are made both to builders and to individuals. At December 31, 2006, 2005 and 2004, the Banks construction
loans outstanding equaled $126,916,000, $92,451,000 and $58,680,000,



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##### Table of Contents

respectively. Since the sale of its non-Indiana residential construction loan business in 2004, the Banks strategy has been to grow this portfolio
through lending in the local market. As the construction loan portfolio increases, the Corporation is subject to additional credit risk inherent within construction lending. The Corporation continues to manage credit risk through appropriate loan
selection, by defining and limiting exposures to a single client, by requiring collateral and integrating consistent lending policies and underwriting criteria throughout the credit process.

The impact of the 2004 sale of the out-of-state residential construction loan business, which included $134,373,000 of outstanding residential
construction loans, was fully reflected in the balance sheet and no further reduction in the construction loan portfolio occurred as a result of the sale.

The following table presents the remaining maturities and interest rate sensitivity of commercial loans at December 31, 2006.



|                           |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  
|-------------------------- |  | -------------------- | ------- | ------------------------- | - | -------------- |  | ----- | ------ | ------- | - | ------- |  | ----- | -
|                           |  | Remaining Maturities |         |                           |   |                | 
|(Dollars in Thousands)     |  | One Yearor Less      |         | Over OneYear toFive Years |   | Over FiveYears |  | Total |        | Percent |  
|Type of Loan:              |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  
|Business                   |  | $                    | 479,554 |                           | $ | 140,337        |  | $     |       |         | $ | 619,891 |  | 66.1  | %
|Commercial Real Estate     |  |                      | 172,707 |                           |   | 6,094          |  |       | 12,219 |         |   | 191,020 |  | 20.4  |  
|Single-Family Construction |  |                      | 126,916 |                           |   |               |  |       |       |         |   | 126,916 |  | 13.5  |  
|                           |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  
|Total                      |  | $                    | 779,177 |                           | $ | 146,431        |  | $     | 12,219 |         | $ | 937,827 |  | 100.0 | %
|                           |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  
|Rate Sensitivity:          |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  
|Fixed Rate                 |  | $                    | 27,438  |                           | $ | 146,431        |  | $     | 12,219 |         | $ | 186,088 |  | 19.8  | %
|Adjustable Rate            |  |                      | 751,739 |                           |   |               |  |       |       |         |   | 751,739 |  | 80.2  |  
|                           |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  
|Total                      |  | $                    | 779,177 |                           | $ | 146,431        |  | $     | 12,219 |         | $ | 937,827 |  | 100.0 | %
|                           |  |                      |         |                           |   |                |  |       |        |         |   |         |  |       |  

Consumer Loans.First Indiana Banks consumer bank operates both a retail lending
network and a wholesale lending network. The retail network essentially functions through the Banks 32 banking centers located throughout the Central Indiana market area. The wholesale network originates loans nationally. The wholesale network
originates a full range of fixed rate and adjustable rate consumer loans with varying levels of credit risk. These range from A to sub-prime credits. The sub-prime loans typically involve lower credit scores with higher loan-to-value
ratios, up to 125 percent. The wholesale originated loans are generally sold to investors.

At December 31, 2006, consumer loans
totaled $488,173,000, compared with $499,465,000 and $520,611,000 at December 31, 2005 and 2004, respectively. The decreases in consumer loans have resulted as management has narrowed its consumer portfolio focus to locally sourced customer
products. The generally flat to inverted yield curve during 2006 produced a shift in consumer preference to longer term fixed-rate loans. Consumer loans generally have shorter terms and higher interest rates than residential loans, but involve
higher credit risk. Of the Banks consumer loans outstanding at December 31, 2006, 97.3 percent were secured by first or second mortgages on real property. At December 31, 2006, approximately 36 percent of the home equity portfolio
loans are revolving lines of credit which are prime-based while 33 percent are closed-end loans with ARM features.

Home equity loan
originations in 2006 totaled $367,853,000 ($80,958,000 retail, $286,895,000 wholesale). This compares with 2005 home equity loan originations of $461,809,000 ($53,584,000 retail, $408,225,000 wholesale) and 2004 home equity loan originations of
$408,031,000 ($32,894,000 retail, $375,137,000 wholesale). During 2006, the Bank sold $256,906,000 in home equity loans, compared with sales of $328,515,000 in 2005 and $339,595,000 in 2004. The Bank regularly sells the majority of wholesale loan



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##### Table of Contents

originations into the secondary market. The success of its business depends on the continued participation of investors in this market. In the third quarter
of 2006, an investor which previously has purchased approximately one-half of the Banks volume of loans significantly reduced loan purchases and notified us of its intent to significantly reduce future purchases of loans. Management is
currently seeking new investors to replace the resultant shortfall in sales. However, should additional secondary market sources not be found, both the liquidity and revenues attributable to these sales could decrease. Further, recent experience
indicates that the market for these loans has generated lower prices and therefore lower sales margins.

At December 31, 2006, the
Bank had $22,156,000 in closed-end consumer loans held for sale and $2,490,000 in home equity lines of credit held for sale. At December 31, 2005, the Bank had $26,697,000 in closed-end consumer loans held for sale and $5,645,000 in home equity
lines of credit held for sale. At December 31, 2004, the Bank had $18,393,000 in closed-end consumer loans held for sale and $25,744,000 in home equity lines of credit held for sale.

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

Residential Mortgage Loans.First Indiana
Banks residential loan strategy, during 2006 and 2005, emphasized mortgage production from the Banks internal referral sources. The retail banking centers market mortgage purchase and refinance products to the Banks client base. In
addition, mortgages are originated in partnership with selected realtors, builders, and mortgage correspondents. Fixed rate mortgages continue to be brokered or sold into the secondary market, while adjustable rate mortgages are primarily retained
for the Banks portfolio. The original contractual loan payment period for residential mortgage loans originated by the Bank generally ranges from 10 to 30 years. Because borrowers may refinance or prepay their loans, they normally remain
outstanding for a substantially shorter period.

Residential mortgage loans outstanding totaled $268,687,000 at December 31, 2006,
compared with $262,340,000 and $279,051,000 at year-end 2005 and 2004, respectively. Due to relatively low residential loan interest rates throughout 2005, First Indiana experienced significant loan prepayments in its residential loan portfolio.
However, prepayments during 2006 have slowed in response to gradual increases in market interest rates. In 2006, the Bank originated $51,615,000 in primarily adjustable rate residential mortgage loans and purchased $9,322,000 in primarily fixed rate
residential mortgage loans. In 2005, the Bank originated $48,355,000 and purchased no adjustable rate residential mortgage loans. In 2004, the Bank originated $16,173,000 and purchased $41,814,000 in primarily adjustable rate residential mortgage
loans. Sales of fixed rate residential mortgage loans into the secondary market in 2006, 2005, and 2004 were $10,684,000, $10,051,000, and $6,481,000, respectively. Gains on residential loan sales in 2006 were $193,000, compared with $191,000 in
2005 and $104,000 in 2004.

As part of its residential loan origination activities, First Indiana developed a network of residential loan
brokers with whom the Bank links prospective borrowers. First Indiana does not fund these mortgages, but collects a fee for this service. In 2006, First Indiana produced $851,000 of residential loans for brokers and fees of $16,000 were recognized.
In 2005, First Indiana produced $3,573,000 of residential loans for brokers and fees of $66,000 were recognized. In 2004, First Indiana produced $12,458,000 of residential loans for brokers and fees of $207,000 were recognized. Broker loan fees
decreased in 2005 from 2004 in part due to a shift in the method of delivering residential loans to the secondary market. In 2005 a greater percentage of residential loans were delivered by the Bank as correspondent with the gain recorded in gain on
the sale of loans rather than as a broker with the gain recorded in other non-interest income.

In the fourth quarter of 2006, the Bank
established First Indiana Mortgage, LLC (First Indiana Mortgage), a joint venture with Wells Fargo Mortgage. First Indiana Mortgage operates within the Indianapolis marketplace utilizing selected branch offices and offers a wide array of
mortgage products to First Indiana clients and



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prospects. The purpose of this joint venture is to expand and deepen relationships with First Indiana clients and provide products that the Bank is unable to
profitably provide. The Bank expects this collaboration to both increase fee income and reduce expenses (primarily related to residential loan originations). First Indiana Mortgages activities will not conflict with our consumer finance
business, but will reduce the amount of residential mortgages on the balance sheet as the existing portfolio pays down.

Investments

The relative mix of investment securities and loans in the Banks portfolio is dependent upon managements evaluation of the yields available on
loans compared with investment securities. The Board of Directors has established an investment policy, and management meets quarterly with the Risk Committee of the Board and provides information relating to types of investments, relative amounts,
and maturities. Credit risk is controlled by limiting the number, size, and type of investments and by approving the brokers and agents through which investments are made.

At December 31, 2006, First Indianas investments totaled $282,833,000, or 13.1 percent of total assets, and consisted of securities available
for sale, carried at fair market value, and other investments carried at cost.

The distribution of securities available for sale is
detailed below.



|                                             |  |             |         |      |   |         |  |   |        
|-------------------------------------------- |  | ----------- | ------- | ---- | - | ------- |  | - | -------
|                                             |  | December 31
|(Dollars in Thousands)                       |  | 2006        |         | 2005 |   | 2004   
|U.S. Government Treasuries, Agencies & Other |  | $           | 206,011 |      | $ | 163,461 |  | $ | 137,268
|Mortgage-Backed Securities                   |  |             | 56,816  |      |   | 69,515  |  |   | 80,001 
|Other Asset-Backed Securities                |  |             |        |      |   |        |  |   |       
|                                             |  |             |         |      |   |         |  |   |        
|Total                                        |  | $           | 262,827 |      | $ | 232,976 |  | $ | 217,269
|                                             |  |             |         |      |   |         |  |   |        

U.S. Treasuries, Agencies and Other included $1,165,000 of Fannie Mae and Freddie Mac preferred
stock at December 31, 2004. Other-than-temporary impairment losses of $299,000 were recognized in 2004 on the Banks holdings of Fannie Mae and Freddie Mac preferred stock. This preferred stock was sold in the first quarter of 2005 at an
additional loss of $9,000.

At December 31, 2006, securities available for sale had the following maturity and yield characteristics.



|                                             |  |                        |         |       |                                     |   |           |                                      |         |  |                    |           |  |       |        |  |           |   |       |   |     |           |      |       |  |   |         |  |      |  
|-------------------------------------------- |  | ---------------------- | ------- | ----- | ----------------------------------- | - | --------- | ------------------------------------ | ------- |  | ------------------ | --------- |  | ----- | ------ |  | --------- | - | ----- | - | --- | --------- | ---- | ----- |  | - | ------- |  | ---- | -
|                                             |  | Due in OneYear or Less |         |       | Due after One Yearthrough FiveYears |   |           | Due after Five Yearsthrough TenYears |         |  | Due afterTen Years |           |  | Total |       
|(Dollars in Thousands)                       |  | BookValue              |         | Yield |                                     |   | BookValue |                                      | Yield   |  |                    | BookValue |  | Yield |        |  | BookValue |   | Yield |   |     | BookValue |      | Yield | 
|U.S. Government Treasuries, Agencies & Other |  | $                      | 117,307 |       | 4.14                                | % |           | $                                    | 88,704  |  | 4.14               | %         |  | $     |       |  |          | % |       | $ |    |           |     | %     |  | $ | 206,011 |  | 4.14 | %
|Mortgage-Backed Securities                   |  |                        |        |       |                                    |   |           |                                      | 45,402  |  | 3.81               |           |  |       | 11,167 |  | 4.15      |   |       |   | 247 |           | 5.94 |       |  |   | 56,816  |  | 3.89 |  
|                                             |  |                        |         |       |                                     |   |           |                                      |         |  |                    |           |  |       |        |  |           |   |       |   |     |           |      |       |  |   |         |  |      |  
|Total                                        |  | $                      | 117,307 |       | 4.14                                | % |           | $                                    | 134,106 |  | 4.03               | %         |  | $     | 11,167 |  | 4.15      | % |       | $ | 247 |           | 5.94 | %     |  | $ | 262,827 |  | 4.08 | %
|                                             |  |                        |         |       |                                     |   |           |                                      |         |  |                    |           |  |       |        |  |           |   |       |   |     |           |      |       |  |   |         |  |      |  

For additional information concerning securities available for sale, see Note 4 of the Notes to
Consolidated Financial Statements.

Included in other investments are Federal Reserve Bank stock, Federal Home Loan Bank stock, and Common
Securities in the Corporations grantor trusts: First Indiana Capital Trust I and First Indiana Capital Statutory Trust II. The Bank is required by the Federal Reserve Board to own shares of Federal Reserve Bank (FRB) stock. FRB
stock, which is a restricted investment security, is carried at its cost. In addition, as a



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member of the Federal Home Loan Bank of Indianapolis (FHLB), the Bank is required to own shares of capital stock in the FHLB. FHLB stock is
carried at its cost, since it is a restricted investment security. The Bank is required to hold FHLB stock with a value of approximately $5,949,000. The Corporations holdings in FHLB stock are redeemable only upon five years notice to
the FHLB. In connection with the formation of First Indiana Capital Trust I (Trust I) and First Indiana Capital Statutory Trust II (Trust II), Trust I and Trust II issued Common Securities to the Corporation. The Common
Securities for each trust are carried at their cost since they are restricted investment securities. The Common Securities are not redeemable until the related subordinated notes are redeemed (according to the subordinated note terms).

The composition of other investments is summarized as follows.



|                                 |  |             |        |      |   |        |  |   |       
|-------------------------------- |  | ----------- | ------ | ---- | - | ------ |  | - | ------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2006        |        | 2005 |   | 2004  
|FRB Stock                        |  | $           | 1,110  |      | $ | 1,110  |  | $ | 1,110 
|FHLB Stock                       |  |             | 18,152 |      |   | 24,686 |  |   | 24,173
|Capital Trusts Common Securities |  |             | 744    |      |   | 744    |  |   | 744   
|                                 |  |             |        |      |   |        |  |   |       
|                                 |  | $           | 20,006 |      | $ | 26,540 |  | $ | 26,027
|                                 |  |             |        |      |   |        |  |   |       

Sources of Funds

General.Deposits are an important source of the Banks funds for use in lending and for other general business purposes. In addition to deposits, the Bank derives funds from repayments of loans and
investment securities, Federal Home Loan Bank advances, federal funds purchased, repurchase agreements, and sales of loans. Repayments of loans and investment 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.
At December 31, 2006, First Indiana Corporations outside sources of funds included a $10,000,000 line of credit with a commercial bank and subordinated notes.

Deposits.Growth in deposits has reduced funding costs, improved the liquidity position of the Bank, and lowered the ratio of loans to deposits. Deposits grew to $1,611,055,000 at December 31, 2006. The
growth can largely be attributed to increases in both commercial savings and retail time deposits, with 141.6 percent and 25.8 percent growth rates, respectively. The Bank experienced a decline in demand deposit balances in 2006. Commercial checking
balances declined 33.5 percent, partially offset by growth in retail checking balances of 6.3 percent. Bank initiatives are in place to support more deposit growth through retail branch expansion and maximization of the current retail branch
network.

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



|                            |  |                            |           |                            |   |         |                            |  |                            |           |  |                            |         |                            |  |   |                            |  |   |          |   |  |   |          
|--------------------------- |  | -------------------------- | --------- | -------------------------- | - | ------- | -------------------------- |  | -------------------------- | --------- |  | -------------------------- | ------- | -------------------------- |  | - | -------------------------- |  | - | -------- | - |  | - | ---------
|(Dollars in Thousands)      |  | Balance atDecember 31,2006 |           | 2006Net Increase(Decrease) |   |         | Balance atDecember 31,2005 |  | 2005Net Increase(Decrease) |           |  | Balance atDecember 31,2004 |         | 2004Net Increase(Decrease) |  |   | Balance atDecember 31,2003
|Non-Interest-Bearing Demand |  | $                          | 242,975   |                            | $ | (25,707 | )                          |  | $                          | 268,682   |  | $                          | 3,479   |                            |  | $ | 265,203                    |  | $ | 29,392   |   |  | $ | 235,811  
|Interest-Bearing Demand     |  |                            | 194,878   |                            |   | (34,998 | )                          |  |                            | 229,876   |  |                            | 39,965  |                            |  |   | 189,911                    |  |   | (27,442  | ) |  |   | 217,353  
|Savings                     |  |                            | 664,474   |                            |   | 174,761 |                            |  |                            | 489,713   |  |                            | 26,034  |                            |  |   | 463,679                    |  |   | 62,875   |   |  |   | 400,804  
|CDs under $100,000          |  |                            | 349,239   |                            |   | 64,034  |                            |  |                            | 285,205   |  |                            | 23,037  |                            |  |   | 262,168                    |  |   | (49,883  | ) |  |   | 312,051  
|CDs $100,000 and Greater    |  |                            | 159,489   |                            |   | (16,311 | )                          |  |                            | 175,800   |  |                            | (13,936 | )                          |  |   | 189,736                    |  |   | (134,217 | ) |  |   | 323,953  
|                            |  |                            |           |                            |   |         |                            |  |                            |           |  |                            |         |                            |  |   |                            |  |   |          |   |  |   |          
|Total Deposits              |  | $                          | 1,611,055 |                            | $ | 161,779 |                            |  | $                          | 1,449,276 |  | $                          | 78,579  |                            |  | $ | 1,370,697                  |  | $ | (119,275 | ) |  | $ | 1,489,972
|                            |  |                            |           |                            |   |         |                            |  |                            |           |  |                            |         |                            |  |   |                            |  |   |          |   |  |   |          



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The Bank currently issues certificates of deposit in denominations of $100,000 and greater to public
entities such as municipalities and to retail customers. Certificates of deposit of $100,000 or more totaled $159,489,000 at December 31, 2006, compared with $175,800,000 at December 31, 2005 and $189,736,000 at December 31, 2004. At
December 31, 2006, these certificates of deposit included no brokered funds, $10,012,000 in public funds, and $149,477,000 in retail funds. At December 31, 2005, these certificates of deposit included no brokered funds, $58,133,000 in
public funds, and $117,667,000 in retail funds. At December 31, 2004, these certificates of deposit included $19,844,000 in brokered funds, $86,475,000 in public funds, and $83,417,000 in retail funds. The Banks certificates of deposit of
$100,000 or more at December 31, 2006, the maturities of such deposits, and the percentage of total deposits represented by these certificates are set forth in the table below.



|                                            |  |                    |        |                               |   |                           |  |              |        |       |   |                    |  |   |         |  |     |  
|------------------------------------------- |  | ------------------ | ------ | ----------------------------- | - | ------------------------- |  | ------------ | ------ | ----- | - | ------------------ |  | - | ------- |  | --- | -
|(Dollars in Thousands)                      |  | ThreeMonths orLess |        | Over ThreeMonths to SixMonths |   | Over SixMonths toOne Year |  | Over OneYear |        | Total |   | Percent ofDeposits | 
|Certificates of Deposit $100,000and Greater |  | $                  | 59,359 |                               | $ | 26,789                    |  | $            | 45,780 |       | $ | 27,561             |  | $ | 159,489 |  | 9.9 | %
|                                            |  |                    |        |                               |   |                           |  |              |        |       |   |                    |  |   |         |  |     |  

Borrowings.The Federal Home Loan Bank of Indianapolis functions as a central bank
providing credit for depository institutions in Indiana and Michigan. As a member of the FHLB, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of such stock and certain of the Banks
residential mortgage loans, low loan-to value home equity loans, and other assets, subject to credit standards. The FHLB advances are made pursuant to several different credit programs, each with its own interest rate and range of maturities. At
December 31, 2006, the Bank had $19,666,000 in FHLB advances, with a weighted average interest rate of 5.39 percent. All of these advances carried fixed interest rates. The FHLB had the right to require the Bank to repay $10,000,000 of putable
advances at certain designated dates.

The Bank and approved correspondent banks from time to time enter into short-term borrowing
agreements that are classified as federal funds purchased. These borrowings are not collateralized and generally have maturities from one to 30 days. At December 31, 2006, the Bank did not have federal funds purchased borrowings.

First Indiana has repurchase agreements with depositors, under which clients funds are invested daily into a non-FDIC-insured, interest-bearing
account. In addition, the Bank from time to time enters into repurchase agreements with registered government securities dealers as a short-term source of borrowing. At December 31, 2006, the Bank had repurchase agreements totaling
$277,888,000, with a weighted average interest rate of 4.08 percent. First Indianas repurchase agreements are collateralized by qualifying investment securities. Additional information relating to short-term borrowings may be found in Note 10
of the Notes to Consolidated Financial Statements.

In October 2002, the Corporation formed First Indiana Capital Trust I (Trust
I) for the purpose of issuing $12,000,000 of trust preferred securities to the public. This unconsolidated grantor trusts sole assets are junior subordinated notes issued by the Corporation. The notes have a stated term of 30 years
(October 30, 2032) but may be redeemed at par in part or in full beginning October 30, 2007, and any calendar quarter end date thereafter, subject to approval by the Federal Reserve Board. The notes have a fixed rate of interest of 6.92 percent
through October 30, 2007, and a floating rate of interest, reset quarterly, equal to the London interbank offered rate (LIBOR) plus 3.35 percent thereafter to maturity. Interest is payable quarterly and the distribution rate of the
trust preferred securities is equal to the interest rate of the notes. The balance of the Trust I junior subordinated notes, net of unamortized discount, was $12,337,000 at December 31, 2006, and $12,295,000 at December 31, 2005.

In June 2003, First Indiana formed First Indiana Capital Statutory Trust II (Trust II) for the purpose of issuing $12,000,000
in trust preferred securities through a private placement. This unconsolidated grantor trusts sole assets are junior subordinated notes issued by the Corporation. The notes have a stated term of 30 years



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##### Table of Contents

(June 26, 2033) but may be redeemed at par in part or in full beginning June 26, 2008, and quarterly thereafter, subject to approval by the Federal
Reserve Board. The notes have a fixed rate of interest of 5.55 percent through June 26, 2008, and a floating rate of interest, reset quarterly, equal to LIBOR plus 3.10 percent thereafter to maturity. Interest on the notes is payable quarterly
in arrears. The distribution rate on the trust preferred securities equals the interest rate of the notes. The balance of the Trust II junior subordinated notes, net of unamortized discount, was $12,300,000 at December 31, 2006, and $12,252,000
at December 31, 2005.

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

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

In November 2003, the Corporation issued $22,500,000 in ten-year subordinated notes with a 7.50 percent fixed rate of interest. Interest
is payable semi-annually and the notes qualify as Tier 2 capital for regulatory purposes. The balance of these subordinated notes, net of discount, was $22,268,000 at December 31, 2006, and $22,234,000 at December 31, 2005.



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ASSET QUALITY

General

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

Additional information relating to non-performing assets, loan
charge-offs, and impaired loans may be found in Note 1, Note 6, and Note 7 of the Notes to Consolidated Financial Statements.

Non-Performing Assets

Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and foreclosed assets,
primarily other real estate owned (OREO). Non-performing assets were $13,101,000, or 0.77 percent of loans and foreclosed assets, at December 31, 2006; $4,633,000, or 0.30 percent of loans and foreclosed assets, at December 31,
2005; and $21,445,000, or 1.43 percent of loans and foreclosed assets at December 31, 2004. Non-performing business loans increased to $9,774,000 at December 31, 2006, compared with $1,586,000 at December 31, 2005. During the fourth
quarter of 2006, one business relationship with a loan balance of $7,997,000, after charge-off, was added to non-performing loans. This relationship was included as a potential problem loan at December 31, 2005 and December 31, 2004.
Commercial real estate non-performing loans at December 31, 2006 totaled $932,000 compared to $0 at December 31, 2005. One commercial real estate relationship totaling $723,000, after charge-off, was added to non-performing loans during
the fourth quarter of 2006. Non-performing consumer loans were $1,362,000 at year-end 2006, compared with $2,148,000 at year-end 2005. The decrease is attributable to the improving credit quality for the consumer loan portfolio, which includes
active management of non-performing loans through the on-going sale of these loans.

The amount of interest on non-accrual loans that was
contractually due in 2006 totaled $254,000. Interest received on these loans in 2006 totaled $1,392,000.



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Non-Performing Assets



|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------ |  | ----------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                       |  | December 31 |       
|(Dollars in Thousands)                                 |  | 2006        |        |   | 2005 |   |       | 2004 |  |   | 2003   |   |  | 2002 |       
|Non-Performing Loans                                   |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-Accrual Loans                                      |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                               |  | $           | 9,064  |   |      | $ | 1,383 |      |  | $ | 10,637 |   |  | $    | 9,483  |   |  | $ | 20,234 |  
|Commercial Real Estate                                 |  |             | 723    |   |      |   |      |      |  |   | 1,184  |   |  |      | 4,743  |   |  |   | 2,059  |  
|Single-Family Construction                             |  |             |       |   |      |   |      |      |  |   | 45     |   |  |      | 7,165  |   |  |   | 4,286  |  
|Consumer                                               |  |             | 917    |   |      |   | 1,323 |      |  |   | 3,078  |   |  |      | 7,402  |   |  |   | 9,405  |  
|Residential Mortgage                                   |  |             | 705    |   |      |   | 698   |      |  |   | 961    |   |  |      | 2,211  |   |  |   | 2,474  |  
|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Accrual Loans                                |  |             | 11,409 |   |      |   | 3,404 |      |  |   | 15,905 |   |  |      | 31,004 |   |  |   | 38,458 |  
|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Accruing Loans Past Due 90 Days or More                |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                               |  |             | 710    |   |      |   | 203   |      |  |   | 459    |   |  |      | 1,053  |   |  |   | 1,535  |  
|Commercial Real Estate                                 |  |             | 209    |   |      |   |      |      |  |   | 881    |   |  |      |       |   |  |   |       |  
|Single-Family Construction                             |  |             |       |   |      |   |      |      |  |   | 494    |   |  |      | 354    |   |  |   |       |  
|Consumer                                               |  |             | 445    |   |      |   | 825   |      |  |   | 2,025  |   |  |      | 2,691  |   |  |   | 3,093  |  
|Residential Mortgage                                   |  |             | 303    |   |      |   | 123   |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Accruing Loans Past Due 90 Days or More          |  |             | 1,667  |   |      |   | 1,151 |      |  |   | 3,859  |   |  |      | 4,098  |   |  |   | 4,628  |  
|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Performing Loans                             |  |             | 13,076 |   |      |   | 4,555 |      |  |   | 19,764 |   |  |      | 35,102 |   |  |   | 43,086 |  
|Foreclosed Assets                                      |  |             | 25     |   |      |   | 78    |      |  |   | 1,681  |   |  |      | 3,780  |   |  |   | 8,670  |  
|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Performing Assets                            |  | $           | 13,101 |   |      | $ | 4,633 |      |  | $ | 21,445 |   |  | $    | 38,882 |   |  | $ | 51,756 |  
|                                                       |  |             |        |   |      |   |       |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-Performing Loans to Loans at End of Year           |  |             | 0.77   | % |      |   | 0.29  | %    |  |   | 1.32   | % |  |      | 1.93   | % |  |   | 2.34   | %
|Non-Performing Assets to Loans and OREO at End of Year |  |             | 0.77   |   |      |   | 0.30  |      |  |   | 1.43   |   |  |      | 2.14   |   |  |   | 2.80   |  

Potential Problem Assets

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

The Bank had $16,511,000 in potential problem loans at
December 31, 2006. Of this amount, $13,114,000 represented loans to 15 separate business credits with an average loan amount of $874,000. These business loans are collateralized with real estate and other assets. Four of the business credits
have a current loan amount over $1,000,000. The remaining potential problem loans totaled $3,397,000 and consisted of nine construction and commercial real estate credits. These construction and commercial real estate loans are collateralized with
completed residential and commercial real estate and developed lots.

Potential problem loans decreased $16,831,000 from December 31,
2005. Included in this decrease is the one business relationship that was added to non-performing loans during the fourth quarter of 2006 with a balance of $7,997,000, after charge-off. Included in the net decrease is one credit totaling $707,000
that was added to potential problem loans during 2006.

Allowance for Loan Losses

An analysis of the adequacy of the allowance is completed each quarter and reviewed and approved by the Risk Committee of the Board of Directors. The
allowance for loan losses is maintained at the level deemed adequate to cover losses inherent in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net
of recoveries. While



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management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes to
one or more risk factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review this allowance and may require the Corporation to recognize additions to the allowance based on their judgment
about information available to them at the time of their examination.

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

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

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

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



24



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Allocation of Allowance for Loan Losses

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



|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|--------------------------------------- |  | ----------- | ------ | -------------------------------- | ----- | - | ------ | ---- | -------------------------------- |  | ----- | ------ |  | -------------------------------- | ------ |  | ------ | - | -------------------------------- | - | ------ | ------ | ----- | -------------------------------- |  | - | ------ |  | ----- | -
|                                        |  | December 31 |       
|                                        |  | 2006        |        |                                  | 2005  |   |        | 2004 |                                  |  | 2003  |        |  | 2002                             |       
|(Dollars in Thousands)                  |  | Amount      |        | Percent ofLoan Typeto TotalLoans |       |   | Amount |      | Percent ofLoan Typeto TotalLoans |  |       | Amount |  | Percent ofLoan Typeto TotalLoans |        |  | Amount |   | Percent ofLoan Typeto TotalLoans |   |        | Amount |       | Percent ofLoan Typeto TotalLoans | 
|Balance at End of Period Applicable to: |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|Business Loans                          |  | $           | 12,970 |                                  | 36.6  | % |        | $    | 18,733                           |  | 34.8  | %      |  | $                                | 30,287 |  | 31.1   | % |                                  | $ | 30,449 |        | 28.4  | %                                |  | $ | 15,959 |  | 27.3  | %
|Commercial Real Estate Loans            |  |             | 1,550  |                                  | 11.3  |   |        |      | 1,281                            |  | 10.7  |        |  |                                  | 1,712  |  | 11.7   |   |                                  |   | 1,400  |        | 9.8   |                                  |  |   | 2,154  |  | 8.0   |  
|Single-Family Construction Loans        |  |             | 603    |                                  | 7.5   |   |        |      | 415                              |  | 5.9   |        |  |                                  | 616    |  | 3.9    |   |                                  |   | 5,798  |        | 10.6  |                                  |  |   | 1,797  |  | 11.6  |  
|Consumer Loans                          |  |             | 7,676  |                                  | 28.7  |   |        |      | 7,815                            |  | 31.9  |        |  |                                  | 8,355  |  | 34.7   |   |                                  |   | 10,463 |        | 33.7  |                                  |  |   | 17,576 |  | 36.2  |  
|Residential Mortgage Loans              |  |             | 787    |                                  | 15.9  |   |        |      | 360                              |  | 16.7  |        |  |                                  | 413    |  | 18.6   |   |                                  |   | 656    |        | 17.5  |                                  |  |   | 546    |  | 16.9  |  
|Unallocated                             |  |             | 6,877  |                                  |      |   |        |      | 10,564                           |  |      |        |  |                                  | 11,789 |  |       |   |                                  |   | 4,431  |        |      |                                  |  |   | 6,437  |  |      |  
|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|                                        |  | $           | 30,463 |                                  | 100.0 | % |        | $    | 39,168                           |  | 100.0 | %      |  | $                                | 53,172 |  | 100.0  | % |                                  | $ | 53,197 |        | 100.0 | %                                |  | $ | 44,469 |  | 100.0 | %
|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  

Summary of Allowance for Loan Loss Activity

The provision for loan losses was a negative $1,600,000 for 2006, compared with a negative $3,200,000 for 2005 and a charge of $11,550,000 for 2004. The
negative provisions for loan losses for 2006 and 2005 reflect continued improvements in the credit quality of the loan portfolio. Net loan charge-offs for 2006 totaled $7,105,000, compared with $10,804,000 for 2005 and $11,575,000 for 2004. In
addition, net charge-offs to average loans in 2006 was 0.44 percent compared with a net charge-off ratio of 0.70 percent in 2005 and 0.69 percent in 2004. At December 31, 2006, net loans charged-off included one business loan that was
charged-off, in the fourth quarter of 2006, totaling $3,626,000. In addition, net loan charge-offs in 2005 included $5,240,000 related to one non-accrual business loan. Net consumer loan charge-offs were $2,828,000 for 2006, compared with $5,265,000
for 2005 and $4,095,000 for 2004. The decreased provision for loan losses in 2005, compared with 2004, reflected the improved credit quality of the loan portfolio and a stabilized level of net charged-off loan amounts. Throughout 2004, the Bank
developed and implemented specific initiatives to actively manage and resolve non-performing loans and improve credit quality by reducing risk in the loan portfolio through asset selection and management.

The unallocated portion of the allowance for loan losses decreased to $6,877,000 at December 31, 2006, compared with $10,564,000 at
December 31, 2005 and $11,789,000 at December 31, 2004. Although the unallocated portion of the allowance for loan losses decreased 34.9 percent in absolute dollars in 2006, the percent of unallocated allowance to total allowance decreased
to 22.6 percent at year-end 2006, compared with 27.0 percent at year-end 2005. The decrease in the unallocated reserve is consistent with the improving credit quality trends within the loan portfolio. The allowance for loan losses, including the
current level of the unallocated reserve, is adequate and is within the policy and methodology discussed above.

The ratio of the allowance
for loan losses to loans at December 31, 2006, was 1.80 percent, compared with 2.50 percent and 3.54 percent at December 31, 2005 and 2004, respectively. The decreases in the allowance for loan losses to total loans ratio for 2006 and 2005
are attributable to increases in total loans for the periods and decreases in the allowance for loan losses. In addition, the lower ratios reflect the continued credit quality improvement in the Banks loan portfolio during the twelve months
ended December 31, 2006, as compared to the same period of 2005. The decrease in the allowance is directionally consistent with the improving credit quality of the portfolio affirmed by lower net charge-offs for the year ending
December 31, 2006.

The ratio of the allowance for loan losses to non-performing loans at December 31, 2006 decreased to 232.52
percent, compared to 859.89 percent at December 31, 2005, while this ratio was 269.03 percent at



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December 31, 2004. The decrease in this ratio for 2006 is directly attributable to the increase in the level of non-performing loans, an increase of
$8,521,000 from 2005. This 2006 increase in non-performing loans was primarily due to one business loan outstanding, totaling $7,997,000, which was placed on non-accrual with a corresponding charge-off of $3,626,000 during the fourth quarter of
2006. This credit has been with the Bank since 1992 and has been actively managed for some time. Over the past few years, the Bank has been able to manage this credit down from a high of $25 million. Management believes that the classification of
this loan to non-performing status is not indicative of prevalent credit quality deterioration within the loan portfolio. The increase in this ratio for 2005 from 2004 is directly attributable to the decrease in the level of non-performing loans, a
$15,209,000 decrease from 2004. This decrease is evident of the credit quality improvement in the Banks loan portfolio that are a result of managements ongoing review activities to manage and resolve non-performing loans, as well as
processes to improve credit quality and reduce risk in the loan portfolios.

Changes in Allowance for Loan Losses



|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|---------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                           |  | Years Ended December 31 |       
|(Dollars in Thousands)                                     |  | 2006                    |        |   | 2005 |   |        | 2004 |  |   | 2003   |   |  | 2002 |       
|Balance of Allowance for Loan Losses at Beginning of Year  |  | $                       | 39,168 |   |      | $ | 53,172 |      |  | $ | 53,197 |   |  | $    | 44,469 |   |  | $ | 37,135 |  
|Charge-Offs                                                |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                                   |  |                         | 4,936  |   |      |   | 6,719  |      |  |   | 9,963  |   |  |      | 22,820 |   |  |   | 6,813  |  
|Commercial Real Estate                                     |  |                         | 498    |   |      |   |       |      |  |   | 630    |   |  |      | 101    |   |  |   | 729    |  
|Single-Family Construction                                 |  |                         |       |   |      |   |       |      |  |   | 1,973  |   |  |      | 5,026  |   |  |   | 641    |  
|Consumer                                                   |  |                         | 4,926  |   |      |   | 7,215  |      |  |   | 4,760  |   |  |      | 5,737  |   |  |   | 6,323  |  
|Residential Mortgage                                       |  |                         | 430    |   |      |   | 224    |      |  |   | 200    |   |  |      | 157    |   |  |   | 150    |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Charge-Offs                                          |  |                         | 10,790 |   |      |   | 14,158 |      |  |   | 17,526 |   |  |      | 33,841 |   |  |   | 14,656 |  
|Recoveries                                                 |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                                   |  |                         | 1,501  |   |      |   | 889    |      |  |   | 4,752  |   |  |      | 1,155  |   |  |   | 293    |  
|Commercial Real Estate                                     |  |                         | 10     |   |      |   | 278    |      |  |   | 49     |   |  |      | 34     |   |  |   | 15     |  
|Single-Family Construction                                 |  |                         | 73     |   |      |   | 237    |      |  |   | 485    |   |  |      | 254    |   |  |   | 72     |  
|Consumer                                                   |  |                         | 2,098  |   |      |   | 1,950  |      |  |   | 665    |   |  |      | 878    |   |  |   | 851    |  
|Residential Mortgage                                       |  |                         | 3      |   |      |   |       |      |  |   |       |   |  |      | 7      |   |  |   | 3      |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Recoveries                                           |  |                         | 3,685  |   |      |   | 3,354  |      |  |   | 5,951  |   |  |      | 2,328  |   |  |   | 1,234  |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net Charge-Offs                                            |  |                         | 7,105  |   |      |   | 10,804 |      |  |   | 11,575 |   |  |      | 31,513 |   |  |   | 13,422 |  
|Provision for Loan Losses                                  |  |                         | (1,600 | ) |      |   | (3,200 | )    |  |   | 11,550 |   |  |      | 38,974 |   |  |   | 20,756 |  
|Allowance Related to Bank Acquired                         |  |                         |       |   |      |   |       |      |  |   |       |   |  |      | 1,709  |   |  |   |       |  
|Transfer to Reserve for Off-Balance Sheet Credit Exposures |  |                         |       |   |      |   |       |      |  |   |       |   |  |      | (442   | ) |  |   |       |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Balance of Allowance for Loan Losses at End of Year        |  | $                       | 30,463 |   |      | $ | 39,168 |      |  | $ | 53,172 |   |  | $    | 53,197 |   |  | $ | 44,469 |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net Charge-Offs to Average Loans                           |  |                         | 0.44   | % |      |   | 0.70   | %    |  |   | 0.69   | % |  |      | 1.68   | % |  |   | 0.74   | %
|Allowance for Loan Losses to Loans at End of Year          |  |                         | 1.80   |   |      |   | 2.50   |      |  |   | 3.54   |   |  |      | 2.93   |   |  |   | 2.42   |  
|Allowance for Loan Losses to Non-Performing Loans          |  |                         | 232.52 |   |      |   | 859.89 |      |  |   | 269.03 |   |  |      | 151.55 |   |  |   | 103.21 |  



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LIQUIDITY AND MARKET RISK MANAGEMENT

Liquidity Management

First Indiana Corporation is a financial holding company and has conducted substantially all of its operations through the Bank. As a result, the ability
to finance the Corporations activities and fund interest on its debt depends primarily upon the receipt of earnings from the Bank that it pays to the holding company through dividends. The Corporation had no significant assets other than its
investment in the Bank and a receivable of $14,363,000 due from the Bank at December 31, 2006. Additionally, First Indiana Corporation has a $10,000,000 line of credit with a commercial bank. In 2006, the Corporation purchased on the open
market 629,756 shares of its common stock for $16,765,000 and received $1,434,000 in proceeds from the exercise of stock options.

The
Corporation is not subject to any bank regulatory restrictions on the payment of dividends to its shareholders although Federal Reserve Board policy and capital maintenance requirements may impose practical limits on the amount of dividends that can
be paid. See Part I, Item 1, Business  Supervision and Regulation. However, applicable laws and regulations limit the amount of dividends the Bank may pay. Prior regulatory approval is required if dividends to be declared by
the Bank in any year would exceed net earnings of the current year (as defined under the National Bank Act) plus retained net profits for the preceding two years. At January 1, 2007, the Bank could have paid dividends to the Corporation of
approximately $888,000 without regulatory approval. The Bank paid dividends of $39,100,000 in 2006. Due to the payment of an $11,000,000 special dividend in January 2003 (to partially fund the acquisition of MetroBanCorp), the Bank sought and
received approval from the Office of the Comptroller of the Currency (OCC) to make its regularly scheduled dividend payments in 2005, not to exceed $20,000,000. The Bank paid dividends of $20,000,000 to the Corporation in 2005. The Bank
sought and received approval from the OCC to make its regularly scheduled dividend payments in 2004, not to exceed $19,000,000. The Bank paid dividends of $16,000,000 to the Corporation in 2004. Under federal law, a depository institution is
prohibited from paying a dividend if the depository institution would thereafter be undercapitalized as determined by the federal bank regulatory agencies. While the Bank is currently classified as well-capitalized and should
have sufficient net income to fund projected liquidity needs, any failure by the Bank in the future to generate sufficient net income or maintain sufficient levels of capital to permit payment of dividends would result in its inability to pay
dividends to the Corporation.

The Banks primary source of funds is deposits, which were $1,611,055,000 at December 31, 2006,
and $1,449,276,000 at December 31, 2005. The Bank also relies on advances from the Federal Home Loan Bank of Indianapolis, short term borrowings, loan payments, loan payoffs, and sale of loans as sources of funds. Although the Bank continues to
rely on deposits as its chief source of funds, the use of borrowed funds continues to be an important component of the Banks liquidity. Scheduled loan payments are a relatively stable source of funds, but loan payoffs, the sale of loans, and
deposit inflows and outflows fluctuate, depending on interest rates and economic conditions. However, management does not expect any of these fluctuations to occur in amounts that would affect the Corporations ability to meet consumer demand
for liquidity or regulatory liquidity requirements.

The Banks primary use of funds is loans, which totaled $1,694,687,000 at
December 31, 2006, and $1,567,186,000 at December 31, 2005. In addition, the Bank invests in short-term investments and securities available for sale.



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The Corporation and its subsidiaries had the following obligations to make payments under long term debt
(excluding interest), lease agreements, and pension plans at December 31, 2006.



|                                   |  |      |       |             |   |             |  |           |       |       |   |        |  |   |        
|---------------------------------- |  | ---- | ----- | ----------- | - | ----------- |  | --------- | ----- | ----- | - | ------ |  | - | -------
|(Dollars in Thousands)             |  | 2007 |       | 2008 - 2009 |   | 2010 - 2011 |  | After2011 |       | Total
|FHLB Advances (1)                  |  | $    |      |             | $ | 10,000      |  | $         |      |       | $ | 9,666  |  | $ | 19,666 
|Subordinated Notes                 |  |      |      |             |   |            |  |           |      |       |   | 46,905 |  |   | 46,905 
|Operating Leases                   |  |      | 5,586 |             |   | 9,677       |  |           | 7,176 |       |   | 4,324  |  |   | 26,763 
|Defined Benefit Pension Plan (2)   |  |      | 2,604 |             |   |            |  |           |      |       |   |       |  |   | 2,604  
|Supplemental Pension (3)           |  |      | 1,103 |             |   | 2,334       |  |           | 2,550 |       |   | 5,222  |  |   | 11,209 
|                                   |  |      |       |             |   |             |  |           |       |       |   |        |  |   |        
|Total Contractual Cash Obligations |  | $    | 9,293 |             | $ | 22,011      |  | $         | 9,726 |       | $ | 66,117 |  | $ | 107,147
|                                   |  |      |       |             |   |             |  |           |       |       |   |        |  |   |        

---

|(1) | The FHLB has the option to require the Bank to repay $10,000,000 at certain designated dates.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Estimated cash contributions for 2007 were based upon actuarial estimates. The Corporation was unable to develop a reasonable estimate for future contributions for years after 2007.
Future contributions are impacted by future levels of interest rates, investment fund performance, and increases in beneficiary compensation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

At December 31, 2006, the Bank had the following outstanding commitments to fund lines of credit, letters of credit, and loans.



|                                     |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        
|------------------------------------ |  | ------------------------------------------ | ------- | ----------------- | - | --------- |  | --------- | ------- | ---------- | - | ------ |  | - | -------
|                                     |  | Amount of Commitment Expiration per Period
|(Dollars in Thousands)               |  | TotalCommitments                           |         | Less thanOne Year |   | 1-3 years |  | 3-5 years |         | Thereafter
|Lines of Credit:                     |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        
|Business Loans                       |  | $                                          | 260,851 |                   | $ | 202,375   |  | $         | 43,235  |            | $ | 12,813 |  | $ | 2,428  
|Commercial Real Estate Loans         |  |                                            | 46,054  |                   |   | 792       |  |           | 21,786  |            |   | 22,247 |  |   | 1,229  
|Single-Family Construction Loans     |  |                                            | 30,314  |                   |   | 14,480    |  |           | 15,834  |            |   |       |  |   |       
|Home Equity Loans                    |  |                                            | 179,148 |                   |   | 7,175     |  |           | 13,021  |            |   | 18,818 |  |   | 140,134
|                                     |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        
|Total Lines of Credit                |  |                                            | 516,367 |                   |   | 224,822   |  |           | 93,876  |            |   | 53,878 |  |   | 143,791
|                                     |  |                                            |         |                   |  
|Standby Letters of Credit            |  |                                            | 31,653  |                   |   | 14,795    |  |           | 15,763  |            |   | 997    |  |   | 97     
|                                     |  |                                            |         |                   |  
|Commitments to Originate Loans:      |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        
|Business Loans                       |  |                                            | 69,946  |                   |   | 69,946    |  |           |        |            |   |       |  |   |       
|Commercial Real Estate Loans         |  |                                            | 26,638  |                   |   | 26,638    |  |           |        |            |   |       |  |   |       
|Home Equity Loans                    |  |                                            | 8,520   |                   |   | 8,520     |  |           |        |            |   |       |  |   |       
|Other Consumer Loans                 |  |                                            | 365     |                   |   | 365       |  |           |        |            |   |       |  |   |       
|Residential Loans                    |  |                                            |        |                   |   |          |  |           |        |            |   |       |  |   |       
|                                     |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        
|Total Commitments to Originate Loans |  |                                            | 105,469 |                   |   | 105,469   |  |           |        |            |   |       |  |   |       
|                                     |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        
|Total Commercial Commitments         |  | $                                          | 653,489 |                   | $ | 345,086   |  | $         | 109,639 |            | $ | 54,875 |  | $ | 143,888
|                                     |  |                                            |         |                   |   |           |  |           |         |            |   |        |  |   |        

Of the lines of credit and commitments to fund loans at December 31, 2006, substantially all
are variable interest rate products.

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



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

Asset/Liability Management

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

The Corporation uses a model that measures interest rate sensitivity to
determine the impact on net interest income of immediate and sustained upward and downward movements in interest rates. Incorporated into the model are assumptions regarding the current and anticipated interest rate environment, estimated prepayment
rates of certain assets and liabilities, forecasted loan and deposit originations, contractual maturities and renewal rates on certificates of deposit, estimated borrowing needs, expected repricing spreads on variable-rate products, and contractual
maturities and repayments on lending and investment products. The model incorporates interest rate sensitive instruments that are held to maturity or available for sale. The Corporation has no trading assets. Based on the information and assumptions
in effect at December 31, 2006, the model forecasts that a 100 basis point increase in interest rates over a 12-month period would result in a 0.1 percent increase in net interest income while a 100 basis point decrease in interest rates would
result in a 2.1 percent decrease in net interest income. Because of the numerous assumptions used in the computation of interest rate sensitivity, and the fact that the model does not assume any actions ALCO could take in response to the change in
interest rates, the model forecasts may not be indicative of actual results.

Another interest rate risk measurement used by the
Corporation is the fair value at risk under change in market interest rates. The Corporation uses modeling techniques with assumptions similar to the interest sensitivity model described above to determine the fair value of all asset and
liability cash flows. The net change in the fair value of the asset and liability cash flows under different parallel rate movements is the amount of fair value at risk. The most recent economic value of equity at risk in a 100 basis point
shift in rates was less than 5 percent of the market value of the Corporation.

The Corporation also monitors interest rate sensitivity
using traditional gap analysis. Gap analysis is a static management tool used to identify mismatches in the repricing of assets and liabilities within specified periods of time. Since it is a static indicator it does not attempt to predict the net
interest income of a dynamic business in a rapidly changing environment. Significant adjustments may be made when the rate outlook changes. At December 31, 2006, First Indianas six-month and one-year cumulative gaps stood at a negative
1.18 percent and a negative 2.46 percent of total interest-earning assets. This means that 1.18 and 2.46 percent of First Indianas liabilities will reprice within six months and one year, respectively, without a corresponding repricing of
earning assets. This compares with a positive six-month gap of 7.41 percent and a positive one-year gap of 9.25 percent at December 31, 2005. The Corporation became liability sensitive in 2006 as certificates of deposit which formerly repriced
in the one-to-five year range moved to the over 180 days to one year and within six months repricing categories. In addition, growth of business and retail deposits is primarily reflected in the repricing categories of under one year. The
Corporation seeks to maintain a relatively neutral interest rate sensitivity position primarily through the pricing and term features its loan and deposit products. However, interest rate sensitivity may also be managed through the selective
additions of certain investments and, short-term and long-term borrowings.



29



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Interest Rate Sensitivity

The following table shows First Indianas interest rate sensitivity at December 31, 2006 and 2005.



|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|--------------------------------------------------- |  | ---- | - |  | ------- | --------- | --------------- | ------ | - | --------------- | - | --------- | ----------------------- |  | - | ------------------------- | - |  | -------------- | ------- | - |  | - | -------- | -
|(Dollars in Thousands)                              |  | Rate |   |  | Balance |           | Percent ofTotal |        |   | Within 180 Days |   |           | Over 180Days toOne Year |  |   | Over OneYear toFive Years |   |  | Over FiveYears |        
|Interest-Earning Assets                             |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Interest-Bearing Due from Banks                     |  | 5.20 | % |  | $       | 6,317     |                 | 0.31   | % |                 | $ | 6,317     |                         |  | $ |                          |   |  | $              |        |   |  | $ |         |  
|Federal Funds Sold                                  |  | 5.20 |   |  |         | 41,500    |                 | 2.05   |   |                 |   | 41,500    |                         |  |   |                          |   |  |                |        |   |  |   |         |  
|Securities Available for Sale                       |  | 5.07 |   |  |         | 262,827   |                 | 12.98  |   |                 |   | 71,620    |                         |  |   | 52,530                    |   |  |                | 138,677 |   |  |   |         |  
|Other Investments                                   |  | 4.65 |   |  |         | 20,006    |                 | 0.99   |   |                 |   |          |                         |  |   |                          |   |  |                |        |   |  |   | 20,006   |  
|Loans (1)                                           |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Business                                            |  | 7.91 |   |  |         | 619,891   |                 | 30.60  |   |                 |   | 467,786   |                         |  |   | 11,768                    |   |  |                | 140,337 |   |  |   |         |  
|Commercial Real Estate                              |  | 8.45 |   |  |         | 191,020   |                 | 9.43   |   |                 |   | 169,521   |                         |  |   | 3,186                     |   |  |                | 6,094   |   |  |   | 12,219   |  
|Single-Family Construction                          |  | 8.57 |   |  |         | 126,916   |                 | 6.27   |   |                 |   | 126,916   |                         |  |   |                          |   |  |                |        |   |  |   |         |  
|Consumer                                            |  | 7.32 |   |  |         | 488,173   |                 | 24.10  |   |                 |   | 217,900   |                         |  |   | 24,305                    |   |  |                | 150,792 |   |  |   | 95,176   |  
|Residential Mortgage                                |  | 5.39 |   |  |         | 268,687   |                 | 13.27  |   |                 |   | 47,362    |                         |  |   | 42,233                    |   |  |                | 152,607 |   |  |   | 26,485   |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  | 7.06 |   |  | $       | 2,025,337 |                 | 100.00 | % |                 |   | 1,148,922 |                         |  |   | 134,022                   |   |  |                | 588,507 |   |  |   | 153,886  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                
|Interest-Bearing Liabilities                        |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Deposits                                            |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Demand Deposits (2)                                 |  | 0.60 |   |  | $       | 194,878   |                 | 11.38  | % |                 |   | 20,024    |                         |  |   |                          |   |  |                |        |   |  |   | 174,854  |  
|Savings Deposits (2)                                |  | 3.75 |   |  |         | 664,474   |                 | 38.80  |   |                 |   | 615,691   |                         |  |   | 1,251                     |   |  |                | 10,007  |   |  |   | 37,525   |  
|Certificates of Deposit under $100,000              |  | 4.74 |   |  |         | 349,239   |                 | 20.39  |   |                 |   | 173,051   |                         |  |   | 100,478                   |   |  |                | 75,555  |   |  |   | 155      |  
|Certificates of Deposit $100,000 or Greater         |  | 5.13 |   |  |         | 159,489   |                 | 9.31   |   |                 |   | 86,148    |                         |  |   | 45,780                    |   |  |                | 27,561  |   |  |   |         |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  | 3.71 |   |  |         | 1,368,080 |                 | 79.88  |   |                 |   | 894,914   |                         |  |   | 147,509                   |   |  |                | 113,123 |   |  |   | 212,534  |  
|                                                    |  |      |   |  |         |           |                
|Borrowings                                          |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Short-Term Borrowings                               |  | 4.08 |   |  |         | 277,888   |                 | 16.23  |   |                 |   | 277,888   |                         |  |   |                          |   |  |                |        |   |  |   |         |  
|FHLB Advances                                       |  | 5.39 |   |  |         | 19,666    |                 | 1.15   |   |                 |   |          |                         |  |   |                          |   |  |                | 10,710  |   |  |   | 8,956    |  
|Subordinated Notes                                  |  | 7.15 |   |  |         | 46,905    |                 | 2.74   |   |                 |   |          |                         |  |   | 12,409                    |   |  |                | 12,252  |   |  |   | 22,244   |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|                                                    |  | 3.89 |   |  |         | 1,712,539 |                 | 100.00 | % |                 |   | 1,172,802 |                         |  |   | 159,918                   |   |  |                | 136,085 |   |  |   | 243,734  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Net  Other (3)                                     |  |      |   |  |         | 312,798   |                 |        |   |                 |   |          |                         |  |   |                          |   |  |                |        |   |  |   | 312,798  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Total                                               |  |      |   |  | $       | 2,025,337 |                 |        |   |                 |   | 1,172,802 |                         |  |   | 159,918                   |   |  |                | 136,085 |   |  |   | 556,532  |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Rate Sensitivity Gap                                |  |      |   |  |         |           |                 |        |   |                 | $ | (23,880   | )                       |  | $ | (25,896                   | ) |  | $              | 452,422 |   |  | $ | (402,646 | )
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|December 31, 2006  Cumulative Rate Sensitivity Gap |  |      |   |  |         |           |                 |        |   |                 | $ | (23,880   | )                       |  | $ | (49,776                   | ) |  | $              | 402,646 |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Percent of Total Interest-Earning Assets            |  |      |   |  |         |           |                 |        |   |                 |   | -1.18     | %                       |  |   | -2.46                     | % |  |                | 19.88   | % |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|December 31, 2005  Cumulative Rate Sensitivity Gap |  |      |   |  |         |           |                 |        |   |                 | $ | 136,403   |                         |  | $ | 170,253                   |   |  | $              | 482,089 |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  
|Percent of Total Interest-Earning Assets            |  |      |   |  |         |           |                 |        |   |                 |   | 7.41      | %                       |  |   | 9.25                      | % |  |                | 26.20   | % |  |   |          |  
|                                                    |  |      |   |  |         |           |                 |        |   |                 |   |           |                         |  |   |                           |   |  |                |         |   |  |   |          |  

---

|(1) | The distribution of fixed rate loans and mortgage-backed securities is based upon contractual maturity and scheduled contractual repayments adjusted for estimated prepayments. The
distribution of adjustable rate loans is based upon the earliest repricing date for each loan. Included in consumer loans are $24.6 million of home equity loans held for sale.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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CAPITAL

At December 31, 2006, shareholders equity was $182,094,000, or 8.42 percent of total
assets, compared with $175,442,000, or 8.92 percent of total assets, at December 31, 2005, and $172,143,000, or 9.07 percent of total assets, at December 31, 2004. At December 31, 2006, the Corporations tangible capital
(shareholders equity minus the sum of goodwill and other intangible assets) was $148,548,000, or 6.98 percent of tangible assets (total assets minus the sum of goodwill and other intangible assets), compared with $141,554,000, or 7.33 percent
of tangible assets at December 31, 2005, and $137,559,000, or 7.38 percent of tangible assets at December 31, 2004. In 2006, shareholders equity was reduced by the Corporations purchase of 629,756 shares of its common stock on
the open market for $16,765,000. In 2005, shareholders equity was reduced by the Corporations purchase of 689,536 shares of its common stock on the open market for $16,859,000. Shareholders equity decreased in 2004 primarily due to
the fourth quarter repurchase of 2,162,500 shares of common stock through a self-tender offer which reduced shareholders equity by $40,901,000. The decrease in the equity ratios in 2004 due to the stock repurchase was partially offset by the
reduction in total assets during the year.

First Indiana paid a dividend of $0.20 per common share in each of the four quarters of 2006,
an increase of 25.0 percent from the $0.16 dividend per common share paid in the third and fourth quarters of 2005. On January 18, 2006, the Board of Directors approved a five-for-four stock split. The stock split was effective
February 27, 2006, to shareholders of record as of February 13, 2006. All share and per share information herein has been restated to reflect the stock split. Also on January 17, 2007, the Board of Directors approved a quarterly
dividend of $0.21 per common share, an increase of 5 percent from the quarterly dividends paid in 2006, payable March 15, 2007, to shareholders of record as of March 6, 2007. This will be the 81st consecutive quarter First Indiana has paid
a cash dividend.

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

Regulatory Capital Requirements

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



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



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

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

The Federal Reserve Board, the FDIC, and the OCC have incorporated market and interest rate risk components into their risk-based capital standards.
Under these market risk requirements, capital is allocated to



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##### Table of Contents

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

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

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

The Corporation formed statutory trusts
for the purpose of issuing trust preferred securities. These trust preferred securities are included in the Corporations Tier 1 capital and total capital at December 31, 2006 and December 31, 2005. At December 31, 2006 and 2005,
the balance of trust preferred securities, net of discount, was $24,637,000 and $24,547,000, respectively.

The following table shows the
Corporations and the Banks capital levels and compliance with all capital requirements at December 31, 2006. In addition, the Bank exceeds the capital levels set by FDICIA for a bank to be considered well-capitalized.



|                                            |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|------------------------------------------- |  | ----------------- | ------- | ----- | ------------------------ | - | ------ | ---------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                            |  | December 31, 2006 |        
|                                            |  | Actual            |         |       | Minimum Capital Adequacy |   |        | To be Well-Capitalized |        
|(Dollars in Thousands)                      |  | Amount            |         | Ratio |                          |   | Amount |                        | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 175,348 |       | 8.43                     | % |        | $                      | 83,209  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 177,836 |       | 8.56                     |   |        |                        | 83,089  |  | 4.00 |        |  | $     | 103,862 |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 175,348 |       | 10.56                    | % |        | $                      | 66,412  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 177,836 |       | 10.74                    |   |        |                        | 66,256  |  | 4.00 |        |  | $     | 99,384  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 218,496 |       | 13.16                    | % |        | $                      | 132,824 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 198,667 |       | 11.99                    |   |        |                        | 132,511 |  | 8.00 |        |  | $     | 165,639 |  | 10.00 | %
|                                            | 
|                                            |  | December 31, 2005 |        
|                                            |  | Actual            |         |       | Minimum Capital Adequacy |   |        | To be Well-Capitalized |        
|                                            |  | Amount            |         | Ratio |                          |   | Amount |                        | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 168,434 |       | 8.70                     | % |        | $                      | 77,401  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 182,509 |       | 9.45                     |   |        |                        | 77,283  |  | 4.00 |        |  | $     | 96,604  |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 168,434 |       | 10.78                    | % |        | $                      | 62,495  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 182,509 |       | 11.70                    |   |        |                        | 62,371  |  | 4.00 |        |  | $     | 93,556  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 210,446 |       | 13.47                    | % |        | $                      | 124,990 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 202,248 |       | 12.97                    |   |        |                        | 124,742 |  | 8.00 |        |  | $     | 155,927 |  | 10.00 | %



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IMPACT OF INFLATION AND CHANGING PRICES

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

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

IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED

In July 2006, the Financial Accounting Standards Board issued
Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes, which is effective January 1, 2007. The purpose of FIN 48 is to clarify and set forth consistent rules for accounting for uncertain tax positions
in accordance with SFAS 109, Accounting for Income Taxes. The cumulative effect of applying the provisions of this interpretation are required to be reported separately as an adjustment to the opening balance of retained earnings in the
year of adoption. The Corporation is in process of reviewing and evaluating FIN 48; however, the impact of its adoption to First Indianas financial condition, results of operations, or cash flows is not expected to be material.

In September 2006, FASB issued SFAS 157 Fair Value Measurements. The statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Corporation is in the process of reviewing and evaluating SFAS 157, and therefore the impact of its adoption to First Indianas financial condition, results of operations, or cash flows is not yet
known.

In September 2006, FASBs Emerging Issues Task Force (EITF) reached a consensus on EITF 06-5 Purchases of
Life Insurance (the Consensus). The Consensus explains how to determine the amount that could be realized from a life insurance contract, which is the measurement amount for the asset under current GAAP. First Indiana owns several
life insurance contracts on certain of its officers and directors. The Consensus concluded that companies purchasing a life insurance policy should record as an asset the amount that could be realized, considering any additional amounts beyond the
cash surrender value included in the contractual terms of the policy. The amount that could be realized should be based on the assumed surrender at the individual policy or certificate level, unless all policies or certificates are required to be
surrendered as a group. When it is probable that contractual restrictions would limit the amount that could be realized, such contractual limitations should be considered and any amounts recoverable at the insurance companys discretion should
be excluded from the amount that could be realized. Policyholders adopting the Consensus would choose between retrospective application to all prior periods or recognizing the adoption as a cumulative-effect adjustment to the beginning retained
earnings or to other components of equity or assets. The Corporation adopted the provisions of the Consensus on January 1, 2007 with no material impact to First Indianas financial condition, results of operations, or cash flows.

FOURTH QUARTER SUMMARY

First Indiana recorded net income of $6,010,000, or $0.35 per diluted share, in the
fourth quarter of 2006, compared with income of $6,751,000, or $0.39 per diluted share, for the same period of 2005.

Net interest income
for the fourth quarter of 2006 was $18,179,000, with a net interest margin of 3.65 percent, compared with fourth quarter 2005 net interest income of $17,799,000 and a net interest margin of 3.85 percent. Although interest rates in 2006 began to
level-off and remain steady with an easing of competitive



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pricing pressures in the market, the Banks customers continued to manage their funds more aggressively, choosing higher cost, more rate sensitive
products. This shift altered the interest rate risk profile of the Corporations balance sheet, effectively eliminating the asset-sensitive position maintained in the past. As a result, net interest margin was compressed during 2006. Earning
assets averaged $1,992,289,000 in the fourth quarter of 2006, compared with $1,847,463,000 for the same quarter in 2005. Loans outstanding averaged $1,697,462,000 for the fourth quarter of 2006, compared with $1,582,859,000 for the fourth quarter of
2005. The increase in average loans outstanding was due to an increase in business, commercial real estate and construction loans, partially offset by a decrease in residential mortgages and consumer loans. Interest-bearing liabilities in the fourth
quarter of 2006 averaged $1,684,826,000 compared with $1,511,456,000 in the fourth quarter of 2005. Average core deposits, including demand, savings and retail certificates of deposits, in the fourth quarter of 2006 were $1,561,252,000, compared
with $1,305,371,000 in the fourth quarter of 2005.

No provision for loan losses was recorded in the fourth quarter of 2006 or the fourth
quarter of 2005. Net loan charge-offs were $4,509,000 in the fourth quarter of 2006, compared with $1,878,000 for the fourth quarter of 2005. Non-performing assets increased to $13,101,000 at December 31, 2006, from $5,907,000 at
September 30, 2006, and $4,633,000 at December 31, 2005. The increase in both net charge-offs and non-performing assets was due to one business loan relationship totaling $7,997,000 moved to non-accrual status, net of a related $3,626,000
charge-off. The ratio of the allowance for loan losses to loans at December 31, 2006, was 1.80 percent, compared with 2.07 percent at September 30, 2006, and 2.50 percent at December 31, 2005. The ratio of the allowance for loan
losses to non-performing loans at December 31, 2006, was 232.5 percent, compared with 604.22 percent at September 30, 2006, and 859.89 at December 31, 2005.

Non-interest income for the fourth quarter of 2006 was $6,530,000, compared with $7,619,000 for the same period in 2005. The most significant reason for
this quarter to quarter decrease was a lower level of consumer loan sales and related gains. Gain on the sale of loans was $1,119,000 for the fourth quarter of 2006, compared with $2,402,000 for the fourth quarter of 2005. The decreases of gains on
the sale of loans were a result of increased competition and rising interest rates, which caused lower volume in the sale of loans. In addition during the third quarter of 2006, an investor which previously has purchased approximately one-half of
the Corporations volume of loans significantly reduced loan purchases and notified us of its intent to significantly reduce future purchases of loans. In response to these developments in the market and the resulting negative trend in gains on
the sale of loans, the Corporation is evaluating its Consumer Finance Bank segment to develop a clear strategy going forward.

Non-interest
expense for the fourth quarter of 2006 was $15,345,000, compared with $15,261,000 for the fourth quarter of 2005. Salary expense was $6,591,000 for the fourth quarter of 2006, compared with $6,726,000 for the fourth quarter of 2005. The decrease in
salary expense was largely due to reductions in certain incentive accruals in response to the bank not meeting all of its performance objectives. Employee benefits expense was $2,244,000 for the fourth quarter of 2006, compared with $2,375,000 for
the fourth quarter of the previous year. The decrease in employee benefits expense was primarily attributable to a decrease in pension plan expense. Marketing expense in the fourth quarter of 2006 was $632,000 compared to $234,000 for the fourth
quarter of the previous year. Marketing expense increased as part of the banks overall strategy to grow deposits and loans. Other non-interest expense was $1,668,000 for the fourth quarter of 2006, compared with $1,576,000 for the fourth
quarter of 2005. This increase is largely due to higher expenses of the banks commercial lending division and reflects, in part, the increase in loan origination activities in 2006.

Additional information relating to the fourth quarter of 2006 and 2005 can be found in Note 19 of the Notes to the Consolidated Financial Statements.



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MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

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

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

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

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of First Indiana Corporation
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal
executive officer and principal financial officer, the Corporation conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control  Integrated Framework, management concluded that the Corporations internal control over financial
reporting was effective as of December 31, 2006. KPMG LLP, an independent registered public accounting firm, as auditors of the Corporations financial statements, has issued an attestation report on managements assessment of the
Corporations internal control over financial reporting as of December 31, 2006, as stated in their report which is included herein.



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

First Indiana Corporation:

We have audited managements assessment,
included in the accompanying Managements Report on Internal Control Over Financial Reporting, that First Indiana Corporation maintained effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). First Indiana Corporations management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the
Corporations internal control over financial reporting based on our audit.

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

A companys
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

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

In our opinion, managements assessment that First
Indiana Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, First Indiana Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of First Indiana Corporation and subsidiaries as of December 31, 2006 and 2005,
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, 2006, and our report dated March 2, 2007 expressed an unqualified opinion on
those consolidated financial statements.

LOGO

Indianapolis, Indiana

March 2, 2007



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R
eport of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

First Indiana Corporation:

We have audited the accompanying consolidated
balance sheets of First Indiana Corporation and subsidiaries as of December 31, 2006 and 2005, 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, 2006. These consolidated financial statements are the responsibility of the Corporations management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Indiana
Corporation and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of First Indiana Corporations internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated March 2, 2007 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial reporting.

LOGO

Indianapolis, Indiana

March 2, 2007



37



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##### Table of Contents

C
ONSOLIDATED FINANCIAL STATEMENTS

FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                       |  |                 |           |   |                 |   |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | - | --------------- | - | --------- | -
|(Dollars in Thousands, Except Per Share Data)                                                                          |  | December 312006 |           |   | December 312005 |  
|Assets                                                                                                                 |  |                 |           |   |                 |   |           |  
|Cash                                                                                                                   |  | $               | 53,511    |   |                 | $ | 49,903    |  
|Interest-Bearing Due from Banks                                                                                        |  |                 | 6,317     |   |                 |   | 3,151     |  
|Federal Funds Sold                                                                                                     |  |                 | 41,500    |   |                 |   | 10,000    |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Cash and Cash Equivalents                                                                                              |  |                 | 101,328   |   |                 |   | 63,054    |  
|Securities Available for Sale                                                                                          |  |                 | 262,827   |   |                 |   | 232,976   |  
|Other Investments                                                                                                      |  |                 | 20,006    |   |                 |   | 26,540    |  
|Loans                                                                                                                  |  |                 |           |   |                 |   |           |  
|Business                                                                                                               |  |                 | 619,891   |   |                 |   | 545,215   |  
|Commercial Real Estate                                                                                                 |  |                 | 191,020   |   |                 |   | 167,715   |  
|Single-Family Construction                                                                                             |  |                 | 126,916   |   |                 |   | 92,451    |  
|Consumer                                                                                                               |  |                 | 488,173   |   |                 |   | 499,465   |  
|Residential Mortgage                                                                                                   |  |                 | 268,687   |   |                 |   | 262,340   |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Loans                                                                                                            |  |                 | 1,694,687 |   |                 |   | 1,567,186 |  
|Allowance for Loan Losses                                                                                              |  |                 | (30,463   | ) |                 |   | (39,168   | )
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Net Loans                                                                                                              |  |                 | 1,664,224 |   |                 |   | 1,528,018 |  
|Premises and Equipment                                                                                                 |  |                 | 27,218    |   |                 |   | 24,272    |  
|Accrued Interest Receivable                                                                                            |  |                 | 11,710    |   |                 |   | 10,474    |  
|Goodwill                                                                                                               |  |                 | 30,682    |   |                 |   | 30,682    |  
|Other Intangible Assets                                                                                                |  |                 | 2,864     |   |                 |   | 3,206     |  
|Assets of Discontinued Operations                                                                                      |  |                 |          |   |                 |   | 1,020     |  
|Other Assets                                                                                                           |  |                 | 41,254    |   |                 |   | 46,114    |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Assets                                                                                                           |  | $               | 2,162,113 |   |                 | $ | 1,966,356 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Liabilities                                                                                                            |  |                 |           |   |                 |   |           |  
|Non-Interest-Bearing Deposits                                                                                          |  | $               | 242,975   |   |                 | $ | 268,682   |  
|Interest-Bearing Deposits                                                                                              |  |                 |           |   |                 |   |           |  
|Demand Deposits                                                                                                        |  |                 | 194,878   |   |                 |   | 229,876   |  
|Savings Deposits                                                                                                       |  |                 | 664,474   |   |                 |   | 489,713   |  
|Certificates of Deposit                                                                                                |  |                 | 508,728   |   |                 |   | 461,005   |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Interest-Bearing Deposits                                                                                        |  |                 | 1,368,080 |   |                 |   | 1,180,594 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Deposits                                                                                                         |  |                 | 1,611,055 |   |                 |   | 1,449,276 |  
|Short-Term Borrowings                                                                                                  |  |                 | 277,888   |   |                 |   | 220,732   |  
|Federal Home Loan Bank Advances                                                                                        |  |                 | 19,666    |   |                 |   | 42,365    |  
|Subordinated Notes                                                                                                     |  |                 | 46,905    |   |                 |   | 46,781    |  
|Accrued Interest Payable                                                                                               |  |                 | 2,612     |   |                 |   | 1,830     |  
|Advances by Borrowers for Taxes and Insurance                                                                          |  |                 | 1,265     |   |                 |   | 873       |  
|Other Liabilities                                                                                                      |  |                 | 20,628    |   |                 |   | 29,057    |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Liabilities                                                                                                      |  |                 | 1,980,019 |   |                 |   | 1,790,914 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Shareholders Equity                                                                                                   |  |                 |           |   |                 |   |           |  
|Preferred Stock, $.01 Par Value: 2,000,000 Shares Authorized; None Issued                                              |  |                 |          |   |                 |   |          |  
|Common Stock, $.01 Par Value: 33,000,000 Shares Authorized; Issued: 2006  20,518,538 Shares; 2005  20,284,569
Shares |  |                 | 205       |   |                 |   | 203       |  
|Capital Surplus                                                                                                        |  |                 | 18,121    |   |                 |   | 16,152    |  
|Retained Earnings                                                                                                      |  |                 | 225,365   |   |                 |   | 204,089   |  
|Accumulated Other Comprehensive Loss                                                                                   |  |                 | (2,908    | ) |                 |   | (3,077    | )
|Treasury Stock at Cost: 2006  3,750,811 Shares; 2005  3,121,165 Shares                                               |  |                 | (58,689   | ) |                 |   | (41,925   | )
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Shareholders Equity                                                                                             |  |                 | 182,094   |   |                 |   | 175,442   |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Liabilities and Shareholders Equity                                                                             |  | $               | 2,162,113 |   |                 | $ | 1,966,356 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

F
IRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS



|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | Years Ended December 31 |        
|(Dollars in Thousands, except Per Share Data)              |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|Interest Income                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Loans                                                      |  | $                       | 119,362 |   |      | $ | 97,401  |      |  | $ | 92,216  |  
|Securities Available for Sale                              |  |                         | 9,948   |   |      |   | 8,387   |      |  |   | 7,869   |  
|Dividends on Other Investments                             |  |                         | 1,209   |   |      |   | 1,159   |      |  |   | 1,170   |  
|Federal Funds Sold                                         |  |                         | 847     |   |      |   | 91      |      |  |   |        |  
|Interest-Bearing Due from Banks                            |  |                         | 353     |   |      |   | 142     |      |  |   | 389     |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Interest Income                                      |  |                         | 131,719 |   |      |   | 107,180 |      |  |   | 101,644 |  
|Interest Expense                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Deposits                                                   |  |                         | 45,658  |   |      |   | 25,930  |      |  |   | 20,433  |  
|Short-Term Borrowings                                      |  |                         | 8,988   |   |      |   | 5,121   |      |  |   | 1,521   |  
|Federal Home Loan Bank Advances                            |  |                         | 2,013   |   |      |   | 3,653   |      |  |   | 6,880   |  
|Subordinated Notes                                         |  |                         | 3,366   |   |      |   | 3,366   |      |  |   | 3,369   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Interest Expense                                     |  |                         | 60,025  |   |      |   | 38,070  |      |  |   | 32,203  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Interest Income                                        |  |                         | 71,694  |   |      |   | 69,110  |      |  |   | 69,441  |  
|Provision for Loan Losses                                  |  |                         | (1,600  | ) |      |   | (3,200  | )    |  |   | 11,550  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Interest Income after Provision for Loan Losses        |  |                         | 73,294  |   |      |   | 72,310  |      |  |   | 57,891  |  
|Non-Interest Income                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Deposit Charges                                            |  |                         | 16,506  |   |      |   | 16,760  |      |  |   | 17,246  |  
|Loan Servicing Income (Expense)                            |  |                         |        |   |      |   | 58      |      |  |   | (236    | )
|Loan Fees                                                  |  |                         | 1,718   |   |      |   | 1,818   |      |  |   | 3,039   |  
|Investment Product Sales Commissions                       |  |                         | 763     |   |      |   | 581     |      |  |   | 1,704   |  
|Sale of Loans                                              |  |                         | 6,504   |   |      |   | 10,188  |      |  |   | 11,538  |  
|Sale of Loan Servicing                                     |  |                         |        |   |      |   | (1,649  | )    |  |   |        |  
|Net Investment Securities Loss                             |  |                         |        |   |      |   | (813    | )    |  |   | (19     | )
|Other                                                      |  |                         | 2,393   |   |      |   | 2,375   |      |  |   | 3,579   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Non-Interest Income                                  |  |                         | 27,884  |   |      |   | 29,318  |      |  |   | 36,851  |  
|Non-Interest Expense                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Salaries and Benefits                                      |  |                         | 37,111  |   |      |   | 37,295  |      |  |   | 38,813  |  
|Net Occupancy                                              |  |                         | 4,029   |   |      |   | 4,330   |      |  |   | 3,973   |  
|Equipment                                                  |  |                         | 6,496   |   |      |   | 5,368   |      |  |   | 5,946   |  
|Professional Services                                      |  |                         | 3,755   |   |      |   | 4,118   |      |  |   | 4,828   |  
|Marketing                                                  |  |                         | 2,131   |   |      |   | 2,144   |      |  |   | 2,135   |  
|Telephone, Supplies, and Postage                           |  |                         | 2,905   |   |      |   | 3,004   |      |  |   | 3,429   |  
|Other Intangible Asset Amortization                        |  |                         | 342     |   |      |   | 696     |      |  |   | 718     |  
|OREO Expenses (Income)                                     |  |                         | (199    | ) |      |   | (94     | )    |  |   | 1,215   |  
|Other                                                      |  |                         | 6,060   |   |      |   | 6,200   |      |  |   | 8,166   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Non-Interest Expense                                 |  |                         | 62,630  |   |      |   | 63,061  |      |  |   | 69,223  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from Continuing Operations                          |  |                         | 38,548  |   |      |   | 38,567  |      |  |   | 25,519  |  
|Income Taxes                                               |  |                         | 14,252  |   |      |   | 14,067  |      |  |   | 9,126   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from Continuing Operations, Net of Taxes            |  |                         | 24,296  |   |      |   | 24,500  |      |  |   | 16,393  |  
|Discontinued Operations                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from Discontinued Operations                        |  |                         | 14,254  |   |      |   | 1,296   |      |  |   | 239     |  
|Income Taxes                                               |  |                         | 5,601   |   |      |   | 525     |      |  |   | 1,954   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (Loss) from Discontinued Operations, Net of Taxes   |  |                         | 8,653   |   |      |   | 771     |      |  |   | (1,715  | )
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Income                                                 |  | $                       | 32,949  |   |      | $ | 25,271  |      |  | $ | 14,678  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic Earnings (Loss) Per Share                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Earnings from Continuing Operations, Net of Taxes          |  | $                       | 1.47    |   |      | $ | 1.43    |      |  | $ | 0.84    |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | 0.52    |   |      |   | 0.04    |      |  |   | (0.09   | )
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic Net Earnings Per Share                               |  | $                       | 1.99    |   |      | $ | 1.47    |      |  | $ | 0.75    |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted Earnings (Loss) Per Share                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Earnings from Continuing Operations, Net of Taxes          |  | $                       | 1.44    |   |      | $ | 1.40    |      |  | $ | 0.83    |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | 0.50    |   |      |   | 0.04    |      |  |   | (0.09   | )
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted Net Earnings Per Share                             |  | $                       | 1.94    |   |      | $ | 1.44    |      |  | $ | 0.74    |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Dividends Per Common Share                                 |  | $                       | 0.800   |   |      | $ | 0.608   |      |  | $ | 0.540   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  

See Notes to Consolidated Financial Statements



39



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | -------------- | --- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ------------- | - |  | ------------------------ | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                              |  | Common Stock      |   |  | CapitalSurplus |     |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TreasuryStock |   |  | TotalShareholdersEquity |       
|(Dollars in Thousands, except Per Share Data)                                                                                                 |  | OutstandingShares |   |  | Amount         |     |   |                  |   |         |                                           
|Balance at December 31, 2003                                                                                                                  |  | 19,433,433        |   |  | $              | 216 |   |                  | $ | 46,554  |                                            |  | $ | 185,012       |   |  | $                        | 1,756  |   |  | $ | (24,644 | ) |  | $ | 208,894 |  
|Comprehensive Income:                                                                                                                         |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Net Income                                                                                                                                    |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 14,678        |   |  |                          |       |   |  |   |        |   |  |   | 14,678  |  
|Unrealized Loss on Securities Available for Sale of $5,202, Net of Income Taxes and Reclassification Adjustment of $(12), Net of Income
Taxes |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | (3,154 | ) |  |   |        |   |  |   | (3,154  | )
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income                                                                                                                    |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   | 11,524  |  
|Dividends on Common Stock  $0.540 per share                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (10,569       | ) |  |                          |       |   |  |   |        |   |  |   | (10,569 | )
|Exercise of Stock Options                                                                                                                     |  | 216,144           |   |  |                | 1   |   |                  |   | 2,326   |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 2,327   |  
|Redemption of Common Stock                                                                                                                    |  | (20,540           | ) |  |                |    |   |                  |   | (339    | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (339    | )
|Tax Benefit of Option Compensation                                                                                                            |  |                  |   |  |                |    |   |                  |   | 398     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 398     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                          |  |                  |   |  |                |    |   |                  |   | (58     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (58     | )
|Common Stock Issued under Stock Incentive Plan                                                                                                |  | 3,481             |   |  |                |    |   |                  |   | 49      |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 49      |  
|Common Stock to Be Issued under Stock Incentive Plan                                                                                          |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 70            |   |  |                          |       |   |  |   |        |   |  |   | 70      |  
|Common Stock Issued under Restricted Stock Plans                                                                                              |  | 117,188           |   |  |                | 1   |   |                  |   | 2,411   |                                            |  |   | (2,412        | ) |  |                          |       |   |  |   |        |   |  |   |        |  
|Common Stock Cancelled under Restricted Stock Plans                                                                                           |  | (31,140           | ) |  |                |    |   |                  |   | (498    | )                                          |  |   | 498           |   |  |                          |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 1,147         |   |  |                          |       |   |  |   |        |   |  |   | 1,147   |  
|Purchase and Retirement of Common Stock                                                                                                       |  | (2,162,500        | ) |  |                | (17 | ) |                  |   | (40,884 | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (40,901 | )
|Purchase of Treasury Stock                                                                                                                    |  | (32,375           | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   | (472    | ) |  |   | (472    | )
|Reissuance of Treasury Stock                                                                                                                  |  | 4,788             |   |  |                |    |   |                  |   | 48      |                                            |  |   |              |   |  |                          |       |   |  |   | 25      |   |  |   | 73      |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2004                                                                                                                  |  | 17,528,479        |   |  |                | 201 |   |                  |   | 10,007  |                                            |  |   | 188,424       |   |  |                          | (1,398 | ) |  |   | (25,091 | ) |  |   | 172,143 |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Comprehensive Income:                                                                                                                         |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Net Income                                                                                                                                    |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 25,271        |   |  |                          |       |   |  |   |        |   |  |   | 25,271  |  
|Unrealized Loss on Securities Available for Sale of $3,588 Net of Income Taxes and Reclassification Adjustment of $(488), Net of Income
Taxes |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | (1,679 | ) |  |   |        |   |  |   | (1,679  | )
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income                                                                                                                    |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   | 23,592  |  
|Dividends on Common Stock  $0.608 per share                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (10,544       | ) |  |                          |       |   |  |   |        |   |  |   | (10,544 | )
|Exercise of Stock Options                                                                                                                     |  | 321,744           |   |  |                | 2   |   |                  |   | 3,997   |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 3,999   |  
|Redemption of Common Stock                                                                                                                    |  | (15,075           | ) |  |                |    |   |                  |   | (344    | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (344    | )
|Tax Benefit of Option Compensation                                                                                                            |  |                  |   |  |                |    |   |                  |   | 852     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 852     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                          |  |                  |   |  |                |    |   |                  |   | (21     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (21     | )
|Common Stock to Be Issued under Stock Incentive Plans                                                                                         |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 624           |   |  |                          |       |   |  |   |        |   |  |   | 624     |  
|Common Stock Issued under Restricted Stock Plans                                                                                              |  | 14,000            |   |  |                |    |   |                  |   | 289     |                                            |  |   | (289          | ) |  |                          |       |   |  |   |        |   |  |   |        |  
|Common Stock Cancelled under Restricted Stock Plans                                                                                           |  | (938              | ) |  |                |    |   |                  |   | (17     | )                                          |  |   | 17            |   |  |                          |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   | 1,353   |                                            |  |   | 586           |   |  |                          |       |   |  |   |        |   |  |   | 1,939   |  
|Purchase and Retirement of Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   | (23     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (23     | )
|Purchase of Treasury Stock                                                                                                                    |  | (689,536          | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   | (16,859 | ) |  |   | (16,859 | )
|Reissuance of Treasury Stock                                                                                                                  |  | 4,730             |   |  |                |    |   |                  |   | 59      |                                            |  |   |              |   |  |                          |       |   |  |   | 25      |   |  |   | 84      |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2005                                                                                                                  |  | 17,163,404        |   |  |                | 203 |   |                  |   | 16,152  |                                            |  |   | 204,089       |   |  |                          | (3,077 | ) |  |   | (41,925 | ) |  |   | 175,442 |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Comprehensive Income:                                                                                                                         |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Net Income                                                                                                                                    |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | 32,949        |   |  |                          |       |   |  |   |        |   |  |   | 32,949  |  
|Unrealized Gain on Securities Available for Sale of $1,503 Net of Income Taxes and Reclassification Adjustment of $0, Net of Income
Taxes     |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | 908    |   |  |   |        |   |  |   | 908     |  
|Gains or Losses and Prior Service Costs or Credits, Net of                                                                                    |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Income Taxes Not Recognized as Components of Net Periodic Benefit Cost Upon Adoption ofSFAS 158                                               |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          | (739   | ) |  |   |        |   |  |   | (739    | )
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income                                                                                                                    |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   | 33,118  |  
|Dividends on Common Stock - $0.800 per share                                                                                                  |  |                  |   |  |                |    |   |                  |   |        |                                            |  |   | (13,409       | ) |  |                          |       |   |  |   |        |   |  |   | (13,409 | )
|Exercise of Stock Options                                                                                                                     |  | 160,902           |   |  |                | 1   |   |                  |   | 1,970   |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 1,971   |  
|Purchase of Vested Stock Options                                                                                                              |  |                  |   |  |                |    |   |                  |   | (52     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (52     | )
|Redemption of Common Stock                                                                                                                    |  | (21,052           | ) |  |                |    |   |                  |   | (536    | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (536    | )
|Payment for Fractional Shares                                                                                                                 |  | (389              | ) |  |                |    |   |                  |   | (11     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (11     | )
|Tax Benefit of Option Compensation                                                                                                            |  |                  |   |  |                |    |   |                  |   | 742     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 742     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                          |  |                  |   |  |                |    |   |                  |   | (44     | )                                          |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | (44     | )
|Common Stock to Be Issued under Stock Incentive Plans                                                                                         |  |                  |   |  |                |    |   |                  |   | 1,011   |                                            |  |   | (695          | ) |  |                          |       |   |  |   |        |   |  |   | 316     |  
|Common Stock Issued under Restricted Stock Plans                                                                                              |  | 116,094           |   |  |                | 1   |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 1       |  
|Common Stock Cancelled under Restricted Stock Plans                                                                                           |  | (21,586           | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                       |  |                  |   |  |                |    |   |                  |   | (1,366  | )                                          |  |   | 2,431         |   |  |                          |       |   |  |   |        |   |  |   | 1,065   |  
|Amortization of Stock Options                                                                                                                 |  |                  |   |  |                |    |   |                  |   | 253     |                                            |  |   |              |   |  |                          |       |   |  |   |        |   |  |   | 253     |  
|Purchase of Treasury Stock                                                                                                                    |  | (629,756          | ) |  |                |    |   |                  |   |        |                                            |  |   |              |   |  |                          |       |   |  |   | (16,765 | ) |  |   | (16,765 | )
|Reissuance of Treasury Stock                                                                                                                  |  | 110               |   |  |                |    |   |                  |   | 2       |                                            |  |   |              |   |  |                          |       |   |  |   | 1       |   |  |   | 3       |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2006                                                                                                                  |  | 16,767,727        |   |  | $              | 205 |   |                  | $ | 18,121  |                                            |  | $ | 225,365       |   |  | $                        | (2,908 | ) |  | $ | (58,689 | ) |  | $ | 182,094 |  
|                                                                                                                                              |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  

See Notes to Consolidated Financial Statements



40



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                               |  | Years Ended December 31 |         
|(Dollars in Thousands)                                                                         |  | 2006                    |          |   | 2005 |   |          | 2004 | 
|Cash Flows from Operating Activities                                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Income                                                                                     |  | $                       | 32,949   |   |      | $ | 25,271   |      |  | $ | 14,678   |  
|Income (Loss) from Discontinued Operations, Net of Taxes                                       |  |                         | 8,653    |   |      |   | 771      |      |  |   | (1,715   | )
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Income from Continuing Operations, Net of Taxes                                                |  |                         | 24,296   |   |      |   | 24,500   |      |  |   | 16,393   |  
|Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities               |  |                         |          |   |      |   |          |      |  |   |          |  
|Gain on Sale of Loans, Investments, Premises and Equipment, and Mortgage Servicing Assets, Net |  |                         | (5,621   | ) |      |   | (7,317   | )    |  |   | (11,943  | )
|Amortization of Premium, Discount, and Intangibles, Net                                        |  |                         | 1,378    |   |      |   | 3,468    |      |  |   | 2,982    |  
|Stock Option Expense                                                                           |  |                         | 253      |   |      |   |         |      |  |   |         |  
|Depreciation and Amortization of Premises and Equipment                                        |  |                         | 2,539    |   |      |   | 2,664    |      |  |   | 2,655    |  
|Amortization of Net Deferred Loan Fees                                                         |  |                         | 1,313    |   |      |   | 2,684    |      |  |   | 1,737    |  
|Provision for Loan Losses                                                                      |  |                         | (1,600   | ) |      |   | (3,200   | )    |  |   | 11,550   |  
|Origination of Loans Held for Sale, Net of Principal Collected                                 |  |                         | (259,488 | ) |      |   | (327,845 | )    |  |   | (322,393 | )
|Proceeds from Sale of Loans Held for Sale                                                      |  |                         | 274,094  |   |      |   | 348,735  |      |  |   | 493,416  |  
|Proceeds from Sale of Loan Servicing Assets                                                    |  |                         |         |   |      |   | 2,392    |      |  |   |         |  
|Stock Compensation                                                                             |  |                         | 316      |   |      |   | 624      |      |  |   | 119      |  
|Change in:                                                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Accrued Interest Receivable                                                                    |  |                         | (1,236   | ) |      |   | (2,280   | )    |  |   | 1,159    |  
|Other Assets                                                                                   |  |                         | 3,241    |   |      |   | (1,505   | )    |  |   | 5,685    |  
|Accrued Interest Payable                                                                       |  |                         | 782      |   |      |   | 12       |      |  |   | (338     | )
|Other Liabilities                                                                              |  |                         | (8,429   | ) |      |   | (7       | )    |  |   | 188      |  
|Operating Cash Flows of Discontinued Operations                                                |  |                         | (381     | ) |      |   | 781      |      |  |   | 5,437    |  
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided by Operating Activities                                                      |  |                         | 31,457   |   |      |   | 43,706   |      |  |   | 206,647  |  
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash Flows from Investing Activities                                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from Sale of Securities Available for Sale                                            |  |                         |         |   |      |   | 36,164   |      |  |   | 20,280   |  
|Proceeds from Maturities of Securities Available for Sale                                      |  |                         | 36,287   |   |      |   | 89,263   |      |  |   | 38,029   |  
|Purchase of Securities Available for Sale                                                      |  |                         | (64,621  | ) |      |   | (144,966 | )    |  |   | (65,000  | )
|Sale of Other Investments                                                                      |  |                         | 6,534    |   |      |   |         |      |  |   |         |  
|Principal Collected on Loans, Net of Originations                                              |  |                         | (138,028 | ) |      |   | (100,290 | )    |  |   | 166,865  |  
|Proceeds from Sale of Loans and OREO                                                           |  |                         | 3,917    |   |      |   | 11,745   |      |  |   | 18,071   |  
|Purchase of Loans                                                                              |  |                         | (9,476   | ) |      |   |         |      |  |   | (41,813  | )
|Acquisition of MetroBanCorp, Net of Cash Acquired                                              |  |                         |         |   |      |   |         |      |  |   | (8       | )
|Investment in Limited Partnership                                                              |  |                         | (125     | ) |      |   | (571     | )    |  |   | (572     | )
|Investment in Bank-Owned Life Insurance                                                        |  |                         |         |   |      |   | (6,300   | )    |  |   |         |  
|Purchase of Premises and Equipment                                                             |  |                         | (6,368   | ) |      |   | (2,839   | )    |  |   | (3,583   | )
|Proceeds from Sale of Premises and Equipment                                                   |  |                         |         |   |      |   | 3        |      |  |   | 799      |  
|Investing Cash Flows of Discontinued Operations                                                |  |                         | 10,054   |   |      |   | (35      | )    |  |   | (185     | )
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Investing Activities                                               |  |                         | (161,826 | ) |      |   | (117,826 | )    |  |   | 132,883  |  
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash Flows from Financing Activities                                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Change in Deposits                                                                         |  |                         | 161,894  |   |      |   | 78,772   |      |  |   | (118,988 | )
|Net Change in Short-Term Borrowings                                                            |  |                         | 57,156   |   |      |   | 58,524   |      |  |   | 15,134   |  
|Net Change in Advances by Borrowers for Taxes and Insurance                                    |  |                         | 392      |   |      |   | (302     | )    |  |   | (358     | )
|Repayment of Federal Home Loan Bank Advances                                                   |  |                         | (280,767 | ) |      |   | (887,790 | )    |  |   | (563,130 | )
|Borrowings of Federal Home Loan Bank Advances                                                  |  |                         | 258,068  |   |      |   | 815,675  |      |  |   | 412,200  |  
|Tax Benefit of Option Compensation                                                             |  |                         | 742      |   |      |   | 852      |      |  |   | 398      |  
|Stock Option Proceeds                                                                          |  |                         | 1,435    |   |      |   | 3,655    |      |  |   | 1,988    |  
|Restricted Shares Issued                                                                       |  |                         | 1        |   |      |   |         |      |  |   |         |  
|Deferred Compensation                                                                          |  |                         | (44      | ) |      |   | (21      | )    |  |   | (58      | )
|Purchase of Common Stock                                                                       |  |                         |         |   |      |   | (23      | )    |  |   | (40,901  | )
|Purchase of Treasury Stock                                                                     |  |                         | (16,765  | ) |      |   | (16,859  | )    |  |   | (472     | )
|Purchase of Vested Stock Options                                                               |  |                         | (52      | ) |      |   |         |      |  |   |         |  
|Payment of Fractional Shares                                                                   |  |                         | (11      | ) |      |   |         |      |  |   |         |  
|Reissuance of Treasury Stock                                                                   |  |                         | 3        |   |      |   | 84       |      |  |   | 73       |  
|Dividends Paid                                                                                 |  |                         | (13,409  | ) |      |   | (10,544  | )    |  |   | (10,569  | )
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Financing Activities                                               |  |                         | 168,643  |   |      |   | 42,023   |      |  |   | (304,683 | )
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Change in Cash and Cash Equivalents                                                        |  |                         | 38,274   |   |      |   | (32,097  | )    |  |   | 34,847   |  
|Cash and Cash Equivalents at Beginning of Year                                                 |  |                         | 63,054   |   |      |   | 95,151   |      |  |   | 60,304   |  
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and Cash Equivalents at End of Period                                                     |  | $                       | 101,328  |   |      | $ | 63,054   |      |  | $ | 95,151   |  
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  

See Notes to Consolidated Financial Statements



41



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##### Table of Contents

F
IRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

First Indiana Corporation (First Indiana or the Corporation) is a bank holding company, which has elected to be a financial holding company. First Indiana Bank, N.A. and its subsidiaries
(collectively the Bank), the principal asset of the Corporation, is a federally chartered national bank insured by the Federal Deposit Insurance Corporation. First Indiana is the largest commercial bank or bank holding company based in
Indianapolis. The Bank is engaged primarily in the business of attracting deposits from the general public and originating commercial and consumer loans. The Bank offers a full range of banking services from 32 banking centers located throughout
Central Indiana. In addition, the Bank has consumer loan offices in Indiana, Florida, Illinois, and Ohio.

On December 8, 2006, the
Corporation formed First Indiana Capital Corporation (FICC), a wholly-owned subsidiary of the Corporation. In addition on January 3, 2006, the Corporation and the Bank sold the assets related to its trust business, and on
October 25, 2004, First Indiana Corporation sold substantially all the assets of Somerset Financial. FICC, both sales and the related accounting are more fully described in Note 2.

In the fourth quarter of 2006, the Bank established First Indiana Mortgage, LLC (First Indiana Mortgage), a joint venture with Wells Fargo
Mortgage. First Indiana Mortgage operates within the Indianapolis marketplace, utilizing selected branch offices, and offers mortgage lending products to customers.

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

(A) Basis of Financial Statement Presentation.The Consolidated Financial Statements include the accounts of the Corporation and
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 amounts reported for
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, goodwill, and the valuation allowance for deferred taxes.

The Corporation is a variable interest holder in First Indiana Mortgage. The Corporation does not have a controlling financial interest or have enough
equity at risk for First Indiana Mortgage to finance its activities without additional subordinated financial support from Wells Fargo Mortgage. The Corporations variable interest arises from contractual, ownership or other monetary interests
in First Indiana Mortgage, which change with fluctuations in its net asset value. The Corporation does not consolidate First Indiana Mortgage, since it is not the primary beneficiary and will not absorb a majority of the expected losses, nor receive
a majority of the expected residual returns, or both. First Indiana Mortgage is presented using the equity method of accounting and is included in other assets in the Consolidated Financial Statements.

Certain amounts in the 2005 and 2004 Consolidated Financial Statements have been reclassified to conform to the current year presentation.

All share and per share data has been restated to reflect the five-for-four stock split declared on January 18, 2006.

(B) Revision of 2004 Statement of Cash Flows. The Corporation has separately disclosed the operating and investing portions of the cash flows
attributable to its discontinued operations, which in the 2004 Statements



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



of Cash Flows was originally reported on a combined basis with cash flows from continuing operations within operating activities. There were no
financing portions of cash flows attributable to discontinued operations in any year presented.

(C) 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.

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

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

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

(E) Loans.Loans originated for portfolio are recorded at cost, with any discount or
premium amortized to maturity using the level-yield method. Loans are generally placed on non-accrual status when payments of principal or interest become 90 days or more past due, or earlier when an analysis of a borrowers creditworthiness
indicates that payments could become past due, unless the loan is in process of collection and secured. Interest income on such loans is recognized only to the extent that cash is received and where future collection of principal is probable.
Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the opinion of management, the loans are estimated to be fully collectible.

(F) Home Equity and Mortgage Loan Commitment and Origination Activities.The Bank issues commitments to originate residential mortgage loans for
sale into the secondary market. These commitments are designated as free-standing derivatives and net changes in their fair value are recorded as either assets or liabilities on the balance sheet and income or expense in current earnings. At the
time the Bank issues these commitments, it may enter into a mandatory agreement to sell residential mortgage loans of similar interest rates and loan terms. These mandatory agreements to sell are also designated as free-standing derivatives and are
accounted for as described above. The Bank does not include the expected future cash flows related to the associated servicing of the loan, nor does it consider any other internally-developed intangible assets in accounting for these derivatives.
While the Banks objective for entering into these two types of derivatives is to lock in a gain on the sale of the resulting residential loans, there is no attempt by the Bank to qualify these derivatives for hedge accounting treatment. At
December 31, 2006, First Indiana had $43,000 in commitments to originate residential mortgage loans for sale and held no mandatory commitments to sell residential mortgage loans.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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

Loans held for sale are carried at the lower of cost or estimated market value in the aggregate.
The Bank continuously monitors its loan pipeline and manages it through limits on market exposure.

The Corporation is no longer servicing
loans for others. All loans have been sold servicing released since the second quarter of 2004 and the Banks third-party loan servicing portfolio was sold in the first quarter of 2005.

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

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

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

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

(K) Other Real Estate Owned.Other real estate owned (OREO) is generally
acquired by deed in lieu of foreclosure and is initially recorded at the lower of cost or fair market value less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, OREO is carried at the
lower of cost or fair value. The initial OREO write-down, if required, is charged against the allowance for loan losses, with subsequent write-downs charged to OREO expense. A review of OREO properties occurs in conjunction with the review of the
loan portfolios. As of December 31, 2006 and 2005, the balance of OREO included in other assets was $25,000 and $78,000, respectively.

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

(M) 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 currently enacted tax rates. 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Deferred tax assets are recognized subject to managements judgment that realization is more likely than not. First Indiana files consolidated federal
and Indiana income tax returns.

(N) Earnings Per Share.The following table presents the calculation of basic and diluted earnings
per share.



|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                                                                                                                                                                                   |  | Twelve Months Ended December 31
|(Dollars in Thousands, Except Per Share Data)                                                                                                                                                                      |  | 2006                            |            | 2005 |   | 2004      
|Basic Earnings Per Share                                                                                                                                                                                           |  |                                 |            |      |   |            |  |   |           
|Income from Continuing Operations, Net of Taxes (Numerator)                                                                                                                                                        |  | $                               | 24,296     |      | $ | 24,500     |  | $ | 16,393    
|                                                                                                                                                                                                                   |  |                                 |           
|Average Basic Shares Outstanding (Denominator)                                                                                                                                                                     |  |                                 | 16,555,127 |      |   | 17,158,145 |  |   | 19,484,426
|                                                                                                                                                                                                                   |  |                                 |           
|Basic Earnings Per Share, Income from Continuing Operations, Net of Taxes                                                                                                                                          |  | $                               | 1.47       |      | $ | 1.43       |  | $ | 0.84      
|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|Diluted Earnings Per Share                                                                                                                                                                                         |  |                                 |            |      |   |            |  |   |           
|Income From Continuing Operations, Net of Taxes (Numerator)                                                                                                                                                        |  | $                               | 24,296     |      | $ | 24,500     |  | $ | 16,393    
|                                                                                                                                                                                                                   |  |                                 |           
|Average Basic Shares Outstanding                                                                                                                                                                                   |  |                                 | 16,555,127 |      |   | 17,158,145 |  |   | 19,484,426
|Add: Dilutive Effect of Stock Options, Deferred Shares and Restricted Stock                                                                                                                                        |  |                                 | 421,984    |      |   | 391,818    |  |   | 251,026   
|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|Average Diluted Shares Outstanding (Denominator)                                                                                                                                                                   |  |                                 | 16,977,111 |      |   | 17,549,963 |  |   | 19,735,452
|                                                                                                                                                                                                                   |  |                                 |           
|Diluted Earnings Per Share, Income from Continuing Operations, Net of Taxes                                                                                                                                        |  | $                               | 1.44       |      | $ | 1.40       |  | $ | 0.83      
|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|Options to purchase shares not included in the computation of diluted net income per share because the options price was greater than
the average market price of the common shares (anti-dilutive option shares) |  |                                 |           |      |   |           |  |   |          

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

(P) Recent Accounting Pronouncements.In September 2006, FASB issued SFAS 158
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132 (R). First Indiana maintains supplemental defined benefit pension, medical, dental, and
life insurance plans for certain of its senior officers and board members.

Under SFAS 158, the Corporation is required to:



| |  |  | Recognize the funded status of a benefit plan  measured as the difference between plan assets at fair value (with limited exceptions) and the benefit
obligation  in its statement of financial position.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not
recognized as components of net periodic benefit cost pursuant to SFAS 87 or SFAS 106.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Measure defined benefit plan assets and obligations at December 31 in First Indianas statement of financial position (with limited exceptions).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Disclose in the notes to financial statements additional information on net periodic benefit cost for the next fiscal year that arise from delayed recognition of
the gains or losses, prior service costs or credits, and transition asset or obligation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



First Indiana adopted SFAS 158 on December 31, 2006. For disclosure information required by this
statement, see Note 15 of the Notes to Consolidated Financial Statements.

In September 2006, the SEC issued Staff Accounting
Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements in Current Year Financial Statements, (SAB 108). SAB 108 provides guidance regarding the process of quantifying financial statement
misstatements. In order to halt the current diversity in practice, SAB 108 recommends that registrants should quantify errors using both a balance sheet method (the iron curtain approach) and an income statement method (the
rollover approach). The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatements year(s) of
origination. The rollover approach quantifies a misstatement based on the amount of the error originating in the current year income statement, while ignoring the carryover effects of prior year misstatements. SAB 108 requires that companies
quantify an error under both rollover and iron curtain approaches and by evaluating the materiality of the error measured under each approach. If deemed material, companies would be required to adjust their financial statements. SAB 108 is effective
for the fiscal year ending after November 15, 2006. The Corporation adopted SAB 108 in the fourth quarter of 2006 with no material impact to First Indianas financial condition, results of operations, or cash flows.

(Q) Stock-Based Compensation. Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment (SFAS 123(R)). SFAS 123(R) addresses all forms of share-based payment awards, including shares under employee stock options, restricted stock and deferred stock rights. SFAS 123(R) requires all share-based payments to
be recognized as expense, based upon their fair values, in the financial statements over the vesting period of the awards. The Corporation has elected the modified prospective application and, as a result, has recorded $1,118,000 in expense, net of
related income tax benefits of $568,000, related to vested stock options, restricted stock and deferred stock awards, less estimated forfeitures, for the twelve months ended December 31, 2006.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



First Indiana issues several types of stock-based compensation awards that are described more fully
in Note 15 of the Notes to Consolidated Financial Statements. Prior to adoption of SFAS 123 (R), First Indiana accounted for these awards under recognition and measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations. Accordingly, no stock-based employee compensation cost was recognized in respect to stock option grants under the plans, except for deferred
compensation expense in connection with certain Somerset Financial options that were being amortized over the life of the respective options. Amortization expense relating to restricted stock grants was recognized in each period presented as the
restricted stock grants vest. The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, (SFAS 123) to stock-based employee compensation.



|                                                                                                                                            |  |                                 |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                            |  | Twelve Months Ended December 31 |       
|(Dollars in Thousands, Except Per Share Data)                                                                                               |  | 2005                            |        |   | 2004 |  
|Net Income, As Reported                                                                                                                     |  | $                               | 25,271 |   |      | $ | 14,678 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                                 | 1,612  |   |      |   | 655    |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (1,081 | ) |      |   | (521   | )
|                                                                                                                                            |  |                                 |        |   |      |   |        |  
|Pro Forma Net Income                                                                                                                        |  | $                               | 25,802 |   |      | $ | 14,812 |  
|                                                                                                                                            |  |                                 |        |   |      |   |        |  
|Basic Earnings Per Share                                                                                                                    |  |                                 |        |   |      |   |        |  
|As Reported                                                                                                                                 |  | $                               | 1.47   |   |      | $ | 0.75   |  
|Pro Forma                                                                                                                                   |  |                                 | 1.50   |   |      |   | 0.76   |  
|Diluted Earnings Per Share                                                                                                                  |  |                                 |        |   |      |   |        |  
|As Reported                                                                                                                                 |  | $                               | 1.44   |   |      | $ | 0.74   |  
|Pro Forma                                                                                                                                   |  |                                 | 1.47   |   |      |   | 0.75   |  

Pro forma net income and earnings per share for 2005 increased over reported net income and
earnings per share primarily due to lower compensation expense recognized for restricted and deferred stock awards under SFAS 123. Under APB 25, the fair value and the related compensation expense associated with performance-based restricted and
deferred stock awards increases or decreases as the market price of the underlying common stock increases or decreases. In 2005, the market price of First Indianas common stock increased approximately 53 percent. Under SFAS 123, the fair value
of these awards is established at their grant date and does not change throughout their vesting period.

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

The fair value of each option at the date of grant is estimated using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2004: dividend yield of 3.0 percent; expected volatility of 23.0 percent; weighted average risk-free interest rate of 4.4 percent; and expected lives of seven years. No options were granted in 2005.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(2) Business Combinations and Discontinued Operations

On January 3, 2006, the Corporation and the Bank sold the assets related to its trust business (Trust) to Marshall & Ilsley
Trust Company, N. A. (M&I), a subsidiary of Marshall & Ilsley Corporation. First Indiana received approximately $15,000,000 in cash proceeds from the sale and recorded an after-tax gain of approximately $8,600,000 in the
first quarter of 2006. In addition, the Corporation received approximately $850,000 in cash for the transfer of Trusts fees receivable to M&I. First Indiana may also receive future incentive payments over the next three years depending
upon revenue growth. Trust income and expense has been presented as discontinued operations, and the results of operations and cash flows have been disclosed separately for all periods presented in the Consolidated Statements of Earnings,
Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements. Likewise, the assets of Trust have been reclassified to assets of discontinued operations on the Consolidated Balance Sheets. Prior to the announced sale, Trust
was included in the community bank operating segment.

Results of operations for Trust were as follows.



|                                 |      |                         |       |  |   |      
|-------------------------------- | ---- | ----------------------- | ----- |  | - | -----
|(Dollars in Thousands)           |      | Years Ended December 31
|                                 | 2005 |                         | 2004 
|Non-Interest Income              |      |                         |       |  |   |      
|Trust Fees                       |      | $                       | 3,736 |  | $ | 3,584
|                                 |      |                         |       |  |   |      
|Total Non-Interest Income        |      |                         | 3,736 |  |   | 3,584
|                                 |      |                         |       |  |   |      
|Non-Interest Expense             |      |                         |       |  |   |      
|Salaries and Benefits            |      |                         | 1,612 |  |   | 1,495
|Net Occupancy                    |      |                         | 153   |  |   | 116  
|Equipment                        |      |                         | 46    |  |   | 51   
|Professional Services            |      |                         | 400   |  |   | 353  
|Marketing                        |      |                         |      |  |   | 5    
|Telephone, Supplies, and Postage |      |                         | 39    |  |   | 46   
|Other                            |      |                         | 190   |  |   | 189  
|                                 |      |                         |       |  |   |      
|Total Non-Interest Expense       |      |                         | 2,440 |  |   | 2,255
|                                 |      |                         |       |  |   |      
|Income before Tax                |      |                         | 1,296 |  |   | 1,329
|Income Tax                       |      |                         | 525   |  |   | 539  
|                                 |      |                         |       |  |   |      
|Net Income                       |      | $                       | 771   |  | $ | 790  
|                                 |      |                         |       |  |   |      

The following is condensed balance sheet information for Trust.



|                       |  |                 |      
|---------------------- |  | --------------- | -----
|(Dollars in Thousands) |  | December 312005
|Assets                 |  |                 |      
|Premises and Equipment |  | $               | 165  
|Other Assets           |  |                 | 855  
|                       |  |                 |      
|Total Assets           |  | $               | 1,020
|                       |  |                 |      

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Financial and assumed substantially all the liabilities of Somerset Financial. The sales price was $6,000,000 excluding $5,405,000 of existing cash at
Somerset Financial which was paid to the Corporation as a distribution before the sale. Somerset Financial has been presented as discontinued operations, and the results of operations and cash flows have been disclosed separately in the 2004
Consolidated Statements of Earnings, Cash Flows, and Notes to Consolidated Financial Statements. The 2004 net of tax loss of $2,505,000 from discontinued operations includes a $1,852,000 goodwill impairment loss and $300,000 in costs incurred to
sell the business. As the original acquisition of the Somerset Group, Inc. was a tax-free exchange, the goodwill resulting from the transaction was assigned a tax-basis of zero. As the sale resulted in a taxable gain, the Corporation did not record
a tax benefit for the goodwill impairment charge. The Corporation recorded tax expense associated with the sale of approximately $981,000 when the transaction closed. Prior to the announced sale, Somerset Financial Services, LLC was included in the
Somerset Financial operating segment.

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



|                                 |  |                            |        |  
|-------------------------------- |  | -------------------------- | ------ | -
|(Dollars in Thousands)           |  | Year EndedDecember 31,2004 |       
|Non-Interest Income              |  |                            |        |  
|Somerset Fees                    |  | $                          | 10,408 |  
|Loss on Sale of Fixed Assets     |  |                            | (2     | )
|                                 |  |                            |        |  
|Total Non-Interest Income        |  |                            | 10,406 |  
|                                 |  |                            |        |  
|Non-Interest Expense             |  |                            |        |  
|Salaries and Benefits            |  |                            | 7,342  |  
|Net Occupancy                    |  |                            | 610    |  
|Equipment                        |  |                            | 375    |  
|Professional Services            |  |                            | 528    |  
|Marketing                        |  |                            | 139    |  
|Telephone, Supplies, and Postage |  |                            | 234    |  
|Goodwill Impairment Loss         |  |                            | 1,852  |  
|Other                            |  |                            | 416    |  
|                                 |  |                            |        |  
|Total Non-Interest Expense       |  |                            | 11,496 |  
|                                 |  |                            |        |  
|Income (Loss) before Tax         |  |                            | (1,090 | )
|Income Tax                       |  |                            | 1,415  |  
|                                 |  |                            |        |  
|Net Income (Loss)                |  | $                          | (2,505 | )
|                                 |  |                            |        |  

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

The following table shows the change in the carrying amount of capitalized loan servicing rights. In March 2005, the Bank sold its servicing rights and
recognized a net loss of $1,649,000.



|                                 |  |                         |        |   |      |   |        |  
|-------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                 |  | Years Ended December 31 |       
|(Dollars in Thousands)           |  | 2005                    |        |   | 2004 |  
|Balance at Beginning of Period   |  | $                       | 4,260  |   |      | $ | 5,985  |  
|Additions                        |  |                         |       |   |      |   | 431    |  
|Amortization of Servicing Rights |  |                         | (421   | ) |      |   | (1,780 | )
|Sale of Servicing Rights         |  |                         | (3,878 | ) |      |   |       |  
|Change in Valuation Reserves     |  |                         | 39     |   |      |   | (376   | )
|                                 |  |                         |        |   |      |   |        |  
|Balance at End of Period         |  | $                       |       |   |      | $ | 4,260  |  
|                                 |  |                         |        |   |      |   |        |  



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table shows the changes in the valuation allowance for loan servicing rights for the
years ended December 31, 2005 and 2004.



|                               |      |                         |        |      |  |   |      
|------------------------------ | ---- | ----------------------- | ------ | ---- |  | - | -----
|(Dollars in Thousands)         |      | Years Ended December 31
|                               | 2005 |                         |        | 2004
|Balance at Beginning of Period |      | $                       | 3,291  |      |  | $ | 2,915
|Net Additions (Reductions)     |      |                         | (3,291 | )    |  |   | 376  
|                               |      |                         |        |      |  |   |      
|Balance at End of Period       |      | $                       |       |      |  | $ | 3,291
|                               |      |                         |        |      |  |   |      

The Corporation had no loans serviced for others at December 31, 2006 and December 31,
2005. Consumer loans serviced for others amounted to $225,467,000 at December 31, 2004. Residential loans serviced for others amounted to $95,527,000 at December 31, 2004.

The estimated fair value of loan servicing rights was $4,931,000 at December 31, 2004.

Goodwill at December 31, 2006 and 2005, was $30,682,000 all of which was assigned to the community bank segment.

The following tables summarize the carrying amount of other intangible assets at December 31, 2006 and 2005.



|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  
|------------------------------------------- |  | --------------------- | ------ | - | ------------------------------ | - | ------ | ----- |  | - | ------ | -
|(Dollars in Thousands)                      |  | CoreDepositIntangible |        |   | Non-competeAgreementIntangible |   |        | Total | 
|Gross Carrying Amount                       |  | $                     | 4,357  |   |                                | $ | 1,000  |       |  | $ | 5,357  |  
|Less: Accumulated Amortization              |  |                       | (1,493 | ) |                                |   | (1,000 | )     |  |   | (2,493 | )
|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  
|Net Carrying Amount as of December 31, 2006 |  | $                     | 2,864  |   |                                | $ |       |       |  | $ | 2,864  |  
|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  
|Amortization recognized in 2006             |  | $                     | 342    |   |                                | $ |       |       |  | $ | 342    |  
|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  
|Gross Carrying Amount                       |  | $                     | 4,357  |   |                                | $ | 1,000  |       |  | $ | 5,357  |  
|Less: Accumulated Amortization              |  |                       | (1,151 | ) |                                |   | (1,000 | )     |  |   | (2,151 | )
|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  
|Net Carrying Amount as of December 31, 2005 |  | $                     | 3,206  |   |                                | $ |       |       |  | $ | 3,206  |  
|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  
|Amortization recognized in 2005             |  | $                     | 363    |   |                                | $ | 333    |       |  | $ | 696    |  
|                                            |  |                       |        |   |                                |   |        |       |  |   |        |  

Projected annual intangible amortization for the years 2007 through 2011 is $321,000, $300,000,
$280,000, $260,000, and $239,000, respectively.

(4) Securities Available for Sale

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



|                                             |  |                   |         |                   |        |                        |  |               |       |                  |        |                        |  |   |         |  |   |     |  |   |       |  |   |        
|-------------------------------------------- |  | ----------------- | ------- | ----------------- | ------ | ---------------------- |  | ------------- | ----- | ---------------- | ------ | ---------------------- |  | - | ------- |  | - | --- |  | - | ----- |  | - | -------
|                                             |  | December 31, 2006 |         | December 31, 2005
|                                             |  | AmortizedCost     |         | Gross Unrealized  |        | Fair Value(Book Value) |  | AmortizedCost |       | Gross Unrealized |        | Fair Value(Book Value)
|(Dollars in Thousands)                       |  |                   | Gains   |                   | Losses |                        |  |               | Gains |                  | Losses |                       
|U.S. Government Treasuries, Agencies & Other |  | $                 | 207,530 |                   | $      | 4                      |  | $             | 1,523 |                  | $      | 206,011                |  | $ | 165,660 |  | $ |    |  | $ | 2,199 |  | $ | 163,461
|Mortgage-Backed Securities                   |  |                   |         |                   |        |                        |  |               |       |                  |        |                        |  |   |         |  |   |     |  |   |       |  |   |        
|FHLMC                                        |  |                   | 44,240  |                   |        | 32                     |  |               | 1,580 |                  |        | 42,692                 |  |   | 53,982  |  |   | 87  |  |   | 2,238 |  |   | 51,831 
|FNMA                                         |  |                   | 14,644  |                   |        | 13                     |  |               | 533   |                  |        | 14,124                 |  |   | 18,423  |  |   | 36  |  |   | 776   |  |   | 17,684 
|                                             |  |                   |         |                   |        |                        |  |               |       |                  |        |                        |  |   |         |  |   |     |  |   |       |  |   |        
|Total                                        |  | $                 | 266,414 |                   | $      | 49                     |  | $             | 3,636 |                  | $      | 262,827                |  | $ | 238,065 |  | $ | 123 |  | $ | 5,213 |  | $ | 232,976
|                                             |  |                   |         |                   |        |                        |  |               |       |                  |        |                        |  |   |         |  |   |     |  |   |       |  |   |        



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Securities totaling $262,827,000 were pledged as collateral for repurchase agreements, the Federal
Reserve Bank discount window line of credit and the treasury, tax, and loan account on December 31, 2006.

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



|                                       |  |                   |         |            |   |        
|-------------------------------------- |  | ----------------- | ------- | ---------- | - | -------
|                                       |  | December 31, 2006
|(Dollars in Thousands)                 |  | AmortizedCost     |         | Fair Value
|Due in one year or less                |  | $                 | 117,672 |            | $ | 117,307
|Due after one year through five years  |  |                   | 136,888 |            |   | 134,106
|Due after five years through ten years |  |                   | 11,606  |            |   | 11,167 
|Due after ten years                    |  |                   | 248     |            |   | 247    
|                                       |  |                   |         |            |   |        
|Total                                  |  | $                 | 266,414 |            | $ | 262,827
|                                       |  |                   |         |            |   |        

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



|                                         |  |      |   |      |   |      |      |  |   |      |  
|---------------------------------------- |  | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|(Dollars in Thousands)                   |  | 2006 |   | 2005 |   |      | 2004 | 
|Realized Gains                           |  | $    |  |      | $ |     |      |  | $ | 280  |  
|Realized Losses                          |  |      |  |      |   | (813 | )    |  |   |     |  
|Other-Than-Temporary Impairment Losses   |  |      |  |      |   |     |      |  |   | (299 | )
|                                         |  |      |   |      |   |      |      |  |   |      |  
|Net Investment Securities Gains (Losses) |  | $    |  |      | $ | (813 | )    |  | $ | (19  | )
|                                         |  |      |   |      |   |      |      |  |   |      |  

Other-than-temporary impairment losses of $299,000 were recognized in 2004 on the Banks
holdings of Fannie Mae and Freddie Mac preferred stock. This preferred stock was sold in the first quarter of 2005 at an additional loss of $9,000.

For securities with unrealized losses at December 31, 2006 and December 31, 2005, the following schedules identify the length of time (in consecutive months) these securities fair values had been below their amortized cost.



|                                             |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   
|-------------------------------------------- |  | ------------------- | ------- | ------------------- | - | ---------- |  | ---------------- | ------- | ---------- | - | ---------------- |  | ------------------- | ------- |  | - | ----- |  | --
|                                             |  | Less than 12 Months |         | 12 Months or Longer |   | Total     
|December 31, 2006 (Dollars in
Thousands)     |  | Fair Value          |         | UnrealizedLosses    |   | Fair Value |  | UnrealizedLosses |         | Fair Value |   | UnrealizedLosses |  | Number ofSecurities
|U.S. Government Treasuries, Agencies & Other |  | $                   | 39,228  |                     | $ | 29         |  | $                | 153,252 |            | $ | 1,494            |  | $                   | 192,480 |  | $ | 1,523 |  | 19
|Mortgage-Backed Securities                   |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   
|FHLMC                                        |  |                     |        |                     |   |           |  |                  | 41,267  |            |   | 1,580            |  |                     | 41,267  |  |   | 1,580 |  | 9 
|FNMA                                         |  |                     | 89      |                     |   | 1          |  |                  | 13,382  |            |   | 532              |  |                     | 13,471  |  |   | 533   |  | 11
|                                             |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   
|Total                                        |  | $                   | 39,317  |                     | $ | 30         |  | $                | 207,901 |            | $ | 3,606            |  | $                   | 247,218 |  | $ | 3,636 |  | 39
|                                             |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   
|                                             |  |                     |         |                     |   |            | 
|December 31, 2005 (Dollars in
Thousands)     |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                    
|U.S. Government Treasuries, Agencies & Other |  | $                   | 133,659 |                     | $ | 1,260      |  | $                | 29,802  |            | $ | 939              |  | $                   | 163,461 |  | $ | 2,199 |  | 17
|Mortgage-Backed Securities                   |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   
|FHLMC                                        |  |                     | 11,383  |                     |   | 272        |  |                  | 37,929  |            |   | 1,966            |  |                     | 49,312  |  |   | 2,238 |  | 9 
|FNMA                                         |  |                     | 2,132   |                     |   | 7          |  |                  | 14,425  |            |   | 769              |  |                     | 16,557  |  |   | 776   |  | 12
|                                             |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   
|Total                                        |  | $                   | 147,174 |                     | $ | 1,539      |  | $                | 82,156  |            | $ | 3,674            |  | $                   | 229,330 |  | $ | 5,213 |  | 38
|                                             |  |                     |         |                     |   |            |  |                  |         |            |   |                  |  |                     |         |  |   |       |  |   



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



U.S. Government Treasuries, Agencies & Other. The unrealized losses on the
Corporations investments in U.S. Treasury obligations and direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle these securities at
a price less than the face amount of the investment. Because the Corporation has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Corporation does not consider these investments to be
other-than-temporarily impaired at December 31, 2006 or 2005.

Federal Agency Mortgage-Backed Securities. The unrealized losses
on the Corporations investments in federal agency mortgage-backed securities were caused by interest rate increases. The Corporation purchased these investments at both premiums and discounts relative to their face amount, and the contractual
cash flows of these investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the face amount of the Corporations investment. Because the decline
in market value is attributable to changes in interest rates and not credit quality and because the Corporation has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Corporation does not
consider these investments to be other-than-temporarily impaired at December 31, 2006 or 2005.

(5) Other Investments

Included in other investments are Federal Reserve Bank stock, Federal Home Loan Bank stock, and Common Securities in the Corporations grantor
trusts: First Indiana Capital Trust I and First Indiana Capital Statutory Trust II. The Bank is required by the Federal Reserve Board to own shares of FRB stock. FRB stock, which is a restricted investment security, is carried at its cost. In
addition, as a member of the Federal Home Loan Bank of Indianapolis, the Bank is required to own shares of capital stock in the FHLB. FHLB stock is carried at its cost, since it is a restricted investment security. The Bank is required to hold FHLB
stock with the value of approximately $5,949,000. The Corporations holdings in FHLB stock are redeemable only upon five years notice to the FHLB. In connection with the formation of the capital trusts, Trust I and Trust II issued Common
Securities to the Corporation. The Common Securities for each trust are carried at their cost since they are restricted investment securities. The Common Securities are not redeemable until the related subordinated notes are redeemed (according to
the subordinated note terms).

The composition of other investments is summarized as follows.



|                                 |  |             |        |      |   |       
|-------------------------------- |  | ----------- | ------ | ---- | - | ------
|(Dollars in Thousands)           |  | December 31
|                                 |  | 2006        |        | 2005
|FRB Stock                        |  | $           | 1,110  |      | $ | 1,110 
|FHLB Stock                       |  |             | 18,152 |      |   | 24,686
|Capital Trusts Common Securities |  |             | 744    |      |   | 744   
|                                 |  |             |        |      |   |       
|                                 |  | $           | 20,006 |      | $ | 26,540
|                                 |  |             |        |      |   |       



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(6) Loans

The composition of loans is summarized as follows.



|                                 |  |             |           |      |   |          
|-------------------------------- |  | ----------- | --------- | ---- | - | ---------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2006        |           | 2005
|Commercial Loans                 |  |             |           |      |   |          
|Business Loans                   |  | $           | 619,891   |      | $ | 545,215  
|Commercial Real Estate Loans     |  |             | 191,020   |      |   | 167,715  
|Single-Family Construction Loans |  |             | 126,916   |      |   | 92,451   
|Consumer Loans                   |  |             |           |      |   |          
|Home Equity Loans                |  |             | 475,160   |      |   | 485,111  
|Other Consumer Loans             |  |             | 13,013    |      |   | 14,354   
|Residential Mortgage Loans       |  |             | 268,687   |      |   | 262,340  
|                                 |  |             |           |      |   |          
|                                 |  | $           | 1,694,687 |      | $ | 1,567,186
|                                 |  |             |           |      |   |          

Loans were net of deferred costs and net unearned discounts of $5,726,000 and $6,041,000 at
December 31, 2006 and 2005, respectively.

The weighted average yield on loans was 7.45 percent and 6.93 percent at December 31,
2006 and 2005, respectively.

Home equity loans totaling $256,906,000 and $328,515,000 were sold in 2006 and 2005, respectively. The Bank
had $24,646,000 and $32,342,000 in home equity loans held for sale at December 31, 2006 and 2005, respectively. The Bank sold $10,684,000 and $10,051,000 of residential loans in 2006 and 2005, respectively. In addition, the Corporation sold
$3,917,000 and $5,893,000 of non-performing residential and home equity loans in 2006 and 2005, respectively, and sold $3,925,000 of non-performing commercial loans in 2005.

During 2006 and 2005, the Bank transferred $25,000 and $683,000, respectively, from loans to other real estate owned.

The geographic distribution of loans at December 31, 2006, is presented below.



|                            |  |         |  
|--------------------------- |  | ------- | -
|Location                    |  | Percent |  
|Indiana                     |  | 72      | %
|Contiguous States           |  | 6       |  
|California                  |  | 3       |  
|Florida                     |  | 3       |  
|Arizona                     |  | 2       |  
|Other States (less than 3%) |  | 14      |  
|                            |  |         |  
|Total                       |  | 100     | %
|                            |  |         |  

The Bank makes the following types of consumer loans which have concentrations of credit risk:
sub-prime loans, high loan-to-value (LTV) loans, and interest-only loans. All of these loans are secured by mortgages on one-to-four family residential real estate and are diversified geographically. The Bank classifies a loan
as a sub-prime loan based on the credit characteristics of the borrower. A high LTV loan is identified as a loan with a LTV ratio greater than 90 percent that is not classified as a sub- prime loan. An interest-only loan is a 3-1 ARM



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



that pays only interest for the first three years or a 5-1 ARM that pays only interest for the first five years. Following the interest-only period the
loan converts to an amortizing loan. Interest-only loans are underwritten at the time of application based on the amortizing payment amount. The following table provides information on the loans outstanding and the Banks total credit
exposure for each of the three types of loans.



|                       |  |             |        |               |   |         |  |               |        |  |   |       
|---------------------- |  | ----------- | ------ | ------------- | - | ------- |  | ------------- | ------ |  | - | ------
|                       |  | December 31
|                       |  | 2006        |        | 2005         
|(Dollars in Thousands) |  | Balance     |        | TotalExposure |   | Balance |  | TotalExposure
|Sub-Prime              |  |             |        |               |   |         |  |               |        |  |   |       
|Closed-End             |  |             |        |               |   |         |  |               |        |  |   |       
|Fixed-Rate             |  | $           | 27,683 |               | $ | 27,683  |  | $             | 29,877 |  | $ | 29,877
|ARM                    |  |             | 3,215  |               |   | 3,215   |  |               | 2,679  |  |   | 2,679 
|Interest Only          |  |             | 2,015  |               |   | 2,015   |  |               | 1,197  |  |   | 1,197 
|                       |  |             |        |               |   |         |  |               |        |  |   |       
|                       |  |             | 32,913 |               |   | 32,913  |  |               | 33,753 |  |   | 33,753
|Open-End               |  |             | 14,761 |               |   | 20,143  |  |               | 23,730 |  |   | 30,758
|                       |  |             |        |               |   |         |  |               |        |  |   |       
|                       |  | $           | 47,674 |               | $ | 53,056  |  | $             | 57,483 |  | $ | 64,511
|                       |  |             |        |               |   |         |  |               |        |  |   |       
|High Loan-to-Value     |  | $           | 76,519 |               | $ | 83,013  |  | $             | 87,329 |  | $ | 94,816
|Interest-Only          |  |             | 98,937 |               |   | 98,937  |  |               | 81,693 |  |   | 81,693

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

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



|                                                  |  |             |       |      |   |      
|------------------------------------------------- |  | ----------- | ----- | ---- | - | -----
|                                                  |  | December 31
|(Dollars in Thousands)                            |  | 2006        |       | 2005
|Impaired Loans with Related Specific Allowance    |  | $           | 482   |      | $ |     
|Impaired Loans with No Related Specific Allowance |  |             | 9,152 |      |   | 1,045
|                                                  |  |             |       |      |   |      
|Total Impaired Loans                              |  | $           | 9,634 |      | $ | 1,045
|                                                  |  |             |       |      |   |      
|Specific Allowance on Impaired Loans              |  | $           | 336   |      | $ |     
|                                                  |  |             |       |      |   |      



|                                             |  |                         |       |      |   |       |  |   |       
|-------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ------
|                                             |  | Years Ended December 31
|(Dollars in Thousands)                       |  | 2006                    |       | 2005 |   | 2004 
|Average Balance of Impaired Loans            |  | $                       | 1,368 |      | $ | 6,181 |  | $ | 14,648
|Interest Income Recognized on Impaired Loans |  |                         | 1,287 |      |   | 311   |  |   | 1,200 

Non-accrual loans totaled $11,409,000 on December 31, 2006, and $3,404,000 on
December 31, 2005. Loans past due 90 days or more and still accruing interest totaled $1,667,000 on December 31, 2006, and $1,151,000 on December 31, 2005.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(7) Allowance for Loan Losses

A summary of activity in the allowance for loan losses for the three years ended December 31, 2006, follows.



|                             |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(Dollars in Thousands)       |  | 2006 |         |   | 2005 |   |         | 2004 | 
|Balance at Beginning of Year |  | $    | 39,168  |   |      | $ | 53,172  |      |  | $ | 53,197  |  
|Charge-Offs                  |  |      | (10,790 | ) |      |   | (14,158 | )    |  |   | (17,526 | )
|Recoveries                   |  |      | 3,685   |   |      |   | 3,354   |      |  |   | 5,951   |  
|                             |  |      |         |   |      |   |         |      |  |   |         |  
|Net Charge-Offs              |  |      | (7,105  | ) |      |   | (10,804 | )    |  |   | (11,575 | )
|Provision for Loan Losses    |  |      | (1,600  | ) |      |   | (3,200  | )    |  |   | 11,550  |  
|                             |  |      |         |   |      |   |         |      |  |   |         |  
|Balance at End of Year       |  | $    | 30,463  |   |      | $ | 39,168  |      |  | $ | 53,172  |  
|                             |  |      |         |   |      |   |         |      |  |   |         |  

(8) Premises and Equipment



|                         |  |             |         |   |      |   |         |  
|------------------------ |  | ----------- | ------- | - | ---- | - | ------- | -
|                         |  | December 31 |        
|(Dollars in Thousands)   |  | 2006        |         |   | 2005 |  
|Land                     |  | $           | 7,894   |   |      | $ | 6,978   |  
|Buildings                |  |             | 16,447  |   |      |   | 14,105  |  
|Leasehold Improvements   |  |             | 1,386   |   |      |   | 1,366   |  
|Furniture and Equipment  |  |             | 22,022  |   |      |   | 21,296  |  
|                         |  |             |         |   |      |   |         |  
|                         |  |             | 47,749  |   |      |   | 43,745  |  
|Accumulated Depreciation |  |             | (20,531 | ) |      |   | (19,473 | )
|                         |  |             |         |   |      |   |         |  
|                         |  | $           | 27,218  |   |      | $ | 24,272  |  
|                         |  |             |         |   |      |   |         |  

(9) Interest-Bearing Deposits



|                                            |  |             |           |      |   |          
|------------------------------------------- |  | ----------- | --------- | ---- | - | ---------
|                                            |  | December 31
|(Dollars in Thousands)                      |  | 2006        |           | 2005
|Interest-Bearing Demand                     |  | $           | 194,878   |      | $ | 229,876  
|Savings                                     |  |             | 664,474   |      |   | 489,713  
|Certificates of Deposit under $100,000      |  |             | 349,239   |      |   | 285,205  
|Certificates of Deposit $100,000 or Greater |  |             | 159,489   |      |   | 175,800  
|                                            |  |             |           |      |   |          
|                                            |  | $           | 1,368,080 |      | $ | 1,180,594
|                                            |  |             |           |      |   |          

Following is a table of maturities for certificates of deposit outstanding at December 31,
2006.



|                       |  |        |        
|---------------------- |  | ------ | -------
|(Dollars in Thousands) |  | Amount
|2007                   |  | $      | 405,144
|2008                   |  |        | 68,433 
|2009                   |  |        | 24,290 
|2010                   |  |        | 8,662  
|2011                   |  |        | 2,096  
|Thereafter             |  |        | 103    
|                       |  |        |        
|                       |  | $      | 508,728
|                       |  |        |        

Cash paid during the year for interest on deposits, advances, and other borrowed money was
$59,243,000, $38,058,000, and $32,541,000 for 2006, 2005, and 2004, respectively.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(10) Short-Term Borrowings

Federal funds purchased and securities sold under agreements to repurchase are classified as short-term borrowings. All of the Banks short-term borrowings at December 31, 2006 and December 31, 2005
were repurchase agreements. Repurchase agreements represent an indebtedness of the Bank secured by securities available for sale issued by (or fully guaranteed as to principal and interest by) the United States or an agency of the United States. All
agreements represent obligations to repurchase the same securities at maturity. These securities are under the Banks control. All of the repurchase agreements outstanding at December 31, 2006 had contractual maturities of one day. The
amount of securities pledged for repurchase agreements at December 31, 2006 was $254,641,000.

Following is a summary of repurchase
agreement borrowings for each of the three years ended December 31.



|                                      |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(Dollars in Thousands)                |  | 2006 |         |   | 2005 |   |         | 2004 | 
|Balance at Year-End                   |  | $    | 277,888 |   |      | $ | 220,732 |      |  | $ | 162,208 |  
|Average During the Year               |  |      | 201,034 |   |      |   | 159,755 |      |  |   | 119,863 |  
|Maximum Month-End Balance             |  |      | 277,888 |   |      |   | 220,732 |      |  |   | 162,208 |  
|Weighted Average Rate During the Year |  |      | 4.05    | % |      |   | 2.70    | %    |  |   | 1.15    | %
|Weighted Average Rate at Year-End     |  |      | 4.08    |   |      |   | 3.39    |      |  |   | 1.68    |  

At December 31, 2006, the Bank had $130,000,000 in unused lines of credit available from
financial institutions for borrowing federal funds. There are no fees associated with these lines. In addition, at December 31, 2006, the Corporation had a $10,000,000 unused revolving line of credit on which it paid $16,000 in fees in 2006.

(11) Federal Home Loan Bank Advances and Subordinated Debt

Each Federal Home Loan Bank is authorized to make advances to its member institutions, subject to their regulations and limitations. Scheduled principal repayments of FHLB advances outstanding at December 31,
2006, were as follows.



|                       |  |        |       
|---------------------- |  | ------ | ------
|(Dollars in Thousands) |  | Amount
|2007                   |  | $      |      
|2008                   |  |        | 10,000
|2009                   |  |        |      
|2010                   |  |        |      
|2011                   |  |        |      
|Thereafter             |  |        | 9,666 
|                       |  |        |       
|                       |  | $      | 19,666
|                       |  |        |       

FHLB advances outstanding at December 31, 2006, mature from January 2008 through April 2026.
Of the $19,666,000 in advances, the FHLB has the option to require the Bank to repay $10,000,000 at certain designated dates. The advances bear fixed rates ranging from 3.50 percent to 6.24 percent. The weighted average interest rate at
December 31, 2006 and 2005 was 5.39 percent and 4.84 percent, respectively. The FHLB advances are collateralized with FHLB stock and other qualifying assets totaling $453,715,000. As of December 31, 2006 and 2005, the Banks FHLB
advances were backed by sufficient collateral. Additionally, the Bank maintains an unused $10,000,000 line of credit with the FHLB.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                     |  |      |        |      |   |       
|------------------------------------ |  | ---- | ------ | ---- | - | ------
|(Dollars in Thousands)               |  | 2006 |        | 2005
|Subordinated Notes due November 2013 |  | $    | 22,268 |      | $ | 22,234
|Subordinated Notes due October 2032  |  |      | 12,337 |      |   | 12,295
|Subordinated Notes due June 2033     |  |      | 12,300 |      |   | 12,252
|                                     |  |      |        |      |   |       
|                                     |  | $    | 46,905 |      | $ | 46,781
|                                     |  |      |        |      |   |       

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

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

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

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

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



companies to continue to include the trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the
contrary. In May 2004, the Federal Reserve issued a proposal to allow the continued inclusion of trust preferred securities in Tier 1 capital. However, there can be no assurance that the Federal Reserve will continue to allow institutions to
continue to include trust preferred securities in Tier 1 capital. At December 31, 2006 and 2005, the balance of trust preferred securities, net of discount, was $24,637,000 and $24,547,000, respectively.

(12) Income Taxes

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



|                             |  |         |        |   |          |   |       |       |  |   |        |  
|---------------------------- |  | ------- | ------ | - | -------- | - | ----- | ----- |  | - | ------ | -
|(Dollars in Thousands)       |  | Current |        |   | Deferred |   |       | Total | 
|Year Ended December 31, 2006 |  |         |        |   |          |   |       |       |  |   |        |  
|Federal                      |  | $       | 11,035 |   |          | $ | 1,238 |       |  | $ | 12,273 |  
|State and Local              |  |         | 1,596  |   |          |   | 383   |       |  |   | 1,979  |  
|                             |  |         |        |   |          |   |       |       |  |   |        |  
|                             |  | $       | 12,631 |   |          | $ | 1,621 |       |  | $ | 14,252 |  
|                             |  |         |        |   |          |   |       |       |  |   |        |  
|Year Ended December 31, 2005 |  |         |        |   |          |   |       |       |  |   |        |  
|Federal                      |  | $       | 7,221  |   |          | $ | 7,186 |       |  | $ | 14,407 |  
|State and Local              |  |         | (517   | ) |          |   | 177   |       |  |   | (340   | )
|                             |  |         |        |   |          |   |       |       |  |   |        |  
|                             |  | $       | 6,704  |   |          | $ | 7,363 |       |  | $ | 14,067 |  
|                             |  |         |        |   |          |   |       |       |  |   |        |  
|Year Ended December 31, 2004 |  |         |        |   |          |   |       |       |  |   |        |  
|Federal                      |  | $       | 9,462  |   |          | $ | (862  | )     |  | $ | 8,600  |  
|State and Local              |  |         | 465    |   |          |   | 61    |       |  |   | 526    |  
|                             |  |         |        |   |          |   |       |       |  |   |        |  
|                             |  | $       | 9,927  |   |          | $ | (801  | )     |  | $ | 9,126  |  
|                             |  |         |        |   |          |   |       |       |  |   |        |  

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



|                       |  |                         |   |  |      |   |  |      |  
|---------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                       |  | Years Ended December 31 |  
|                       |  | 2006                    |   |  | 2005 |   |  | 2004 |  
|Statutory Rate         |  | 35.0                    | % |  | 35.0 | % |  | 35.0 | %
|State Income Taxes     |  | 3.7                     |   |  | 1.6  |   |  | 1.3  |  
|Nondeductible Expenses |  | 0.3                     |   |  | 0.2  |   |  | 0.8  |  
|Tax Credits            |  | (0.4                    | ) |  | (0.3 | ) |  | (0.8 | )
|Net Other              |  | (1.6                    | ) |  |     |   |  | (0.5 | )
|                       |  |                         |   |  |      |   |  |      |  
|Effective Rate         |  | 37.0                    | % |  | 36.5 | % |  | 35.8 | %
|                       |  |                         |   |  |      |   |  |      |  



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                        |  |             |        |      |   |       
|--------------------------------------- |  | ----------- | ------ | ---- | - | ------
|                                        |  | December 31
|(Dollars in Thousands)                  |  | 2006        |        | 2005
|Deferred Tax Assets                     |  |             |        |      |   |       
|Allowance for Loan Losses               |  | $           | 12,129 |      | $ | 15,261
|Pension and Retirement Benefits         |  |             | 4,692  |      |   | 3,785 
|Interest Credited                       |  |             | 244    |      |   | 144   
|Accrued Compensation                    |  |             | 1,604  |      |   | 1,203 
|Loans Held for Sale                     |  |             | 273    |      |   | 396   
|Non-Accrual of Interest                 |  |             | 181    |      |   | 45    
|Deposits                                |  |             |       |      |   | 44    
|Unrealized Loss on Investments          |  |             | 1,419  |      |   | 2,012 
|Adoption of SFAS158                     |  |             | 448    |      |   |      
|State Net Operating Loss Carry Forwards |  |             | 156    |      |   | 588   
|Other                                   |  |             | 6      |      |   | 6     
|                                        |  |             |        |      |   |       
|                                        |  |             | 21,152 |      |   | 23,484
|                                        |  |             |        |      |   |       
|Deferred Tax Liabilities                |  |             |        |      |   |       
|FHLB Stock Dividends                    |  |             | 1,420  |      |   | 1,377 
|Net Deferred Loan Fees                  |  |             | 2,536  |      |   | 2,630 
|Core Deposit Intangible                 |  |             | 1,138  |      |   | 1,235 
|Premises and Equipment                  |  |             | 54     |      |   | 299   
|Other                                   |  |             | 52     |      |   | 225   
|                                        |  |             |        |      |   |       
|                                        |  |             | 5,200  |      |   | 5,766 
|                                        |  |             |        |      |   |       
|Net Deferred Tax Assets                 |  | $           | 15,952 |      | $ | 17,718
|                                        |  |             |        |      |   |       

In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Corporation will realize the benefits of these deductible differences. The amount of the
deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. Included in the deferred tax asset as of December 31, 2006, are Indiana net operating loss carry forwards
that will expire in 2018.

In accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income
Taxes, a deferred liability has not been established for the Banks tax bad debt base year reserves of $16,586,000. The base year reserves are generally the balance of reserves as of December 31, 1987, reduced proportionally for
reductions in the Banks loan portfolio since that date. The base year reserves will continue to be subject to recapture and the Bank could be required to recognize a tax liability if (1) the Bank fails to qualify as a bank for
federal income tax purposes, (2) certain distributions are made with respect to the stock of the Bank, (3) the bad debt reserves are used for any purpose other than to absorb bad debt losses, or (4) there is a change in tax law.

Cash paid during the year for income taxes was $22,649,000, $7,512,000, and $5,470,000, for 2006, 2005, and 2004, respectively.



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

The Board of Directors has authorized the repurchase from time to time of the Corporations common stock. The program in effect in the first quarter
of 2005 provided for the repurchase of up to 937,500 outstanding shares of the Corporations common stock. In the first quarter of 2006, 429,756 shares were repurchased under this authorization. On April 19, 2006, the Corporation announced
that its Board of Directors had on that date approved the repurchase, from time to time, on the open market of up to 1,000,000 outstanding shares of the Corporations common stock. The Board provided for the repurchase of shares to begin at any
time and terminated all prior unfulfilled share repurchase programs. The Boards authorization has no expiration date. In 2006, 200,000 shares were repurchased under the April, 2006 authorization.

In 2006 and 2005 Shareholders equity was reduced by the Corporations purchase of shares of its common stock on the open market for
$16,765,000 and $16,859,000, respectively. In December 2004, the Corporation purchased and retired 2,162,500 of its common shares, or approximately 11.0 percent of shares outstanding, at $18.80 per share pursuant to a self-tender offer, reducing
shareholders equity by $40,901,000.

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

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

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



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Federal Deposit Insurance Corporation Improvement Act of 1999 (FDICIA) established
ratios and guidelines for banks to be considered well-capitalized. The Bank exceeds the capital levels set by FDICIA to be considered well-capitalized. The following tables show the Corporations and the Banks compliance with
all capital requirements at December 31, 2006, and December 31, 2005.



|                                            |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|------------------------------------------- |  | ----------------- | ------- | ----- | ----------------------- | - | ------ | --------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                            |  | December 31, 2006 |        
|                                            |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|(Dollars in Thousands)                      |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 175,348 |       | 8.43                    | % |        | $                     | 83,209  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 177,836 |       | 8.56                    |   |        |                       | 83,089  |  | 4.00 |        |  | $     | 103,862 |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 175,348 |       | 10.56                   | % |        | $                     | 66,412  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 177,836 |       | 10.74                   |   |        |                       | 66,256  |  | 4.00 |        |  | $     | 99,384  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 218,496 |       | 13.16                   | % |        | $                     | 132,824 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 198,667 |       | 11.99                   |   |        |                       | 132,511 |  | 8.00 |        |  | $     | 165,639 |  | 10.00 | %
|                                            | 
|                                            |  | December 31, 2005 |        
|                                            |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|(Dollars in Thousands)                      |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 168,434 |       | 8.70                    | % |        | $                     | 77,401  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 182,509 |       | 9.45                    |   |        |                       | 77,283  |  | 4.00 |        |  | $     | 96,604  |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 168,434 |       | 10.78                   | % |        | $                     | 62,495  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 182,509 |       | 11.70                   |   |        |                       | 62,371  |  | 4.00 |        |  | $     | 93,556  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 210,446 |       | 13.47                   | % |        | $                     | 124,990 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 202,248 |       | 12.97                   |   |        |                       | 124,742 |  | 8.00 |        |  | $     | 155,927 |  | 10.00 | %

The Corporation is not subject to any bank regulatory restrictions on the payment of dividends to
its shareholders although Federal Reserve Board policy and capital maintenance requirements may impose practical limits on the amount of dividends that can be paid. However, applicable laws and regulations limit the amount of dividends the Bank may
pay. Prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year (as defined under the National Bank Act) plus retained net profits for the preceding two years. At January 1, 2007,
the Bank could have paid dividends to the Corporation of approximately $888,000 without regulatory approval. Due to the payment of an $11,000,000 special dividend in January 2003 (to partially fund the acquisition of MetroBanCorp), the Bank sought
and received approval from the OCC to make its regularly scheduled dividend payments in 2005, not to exceed $20,000,000. The Bank paid dividends of $20,000,000 to the Corporation in 2005. The Bank sought and received approval from the OCC to make
its regularly scheduled dividend payments in 2004, not to exceed $19,000,000. The Bank paid dividends of $16,000,000 to the Corporation in 2004.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(14) Commitments and Contingencies

At December 31, 2006 and 2005, the Bank had the following outstanding commitments to fund loans.



|                                 |  |             |         |      |   |        
|-------------------------------- |  | ----------- | ------- | ---- | - | -------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2006        |         | 2005
|Commitments to Fund:             |  |             |         |      |   |        
|Business Loans                   |  | $           | 330,797 |      | $ | 336,104
|Commercial Real Estate Loans     |  |             | 72,692  |      |   | 66,580 
|Single-Family Construction Loans |  |             | 30,314  |      |   | 26,005 
|Consumer Loans                   |  |             |         |      |   |        
|Home Equity Loans                |  |             | 187,668 |      |   | 168,371
|Other                            |  |             | 365     |      |   | 291    
|Residential Mortgage Loans       |  |             |        |      |   | 969    
|                                 |  |             |         |      |   |        
|                                 |  | $           | 621,836 |      | $ | 598,320
|                                 |  |             |         |      |   |        

Of the commitments to fund loans at December 31, 2006, substantially all are commitments to
fund variable-rate products.

Standby letters of credit are contingent commitments issued by the Corporation to support the obligations of
a customer to a third party. Standby letters of credit are issued to support public and private financing, and other financial or performance obligations of customers. The credit risk involved in issuing standby letters of credit is the same as that
involved in extending loans to customers and, as such, is collateralized when necessary. As of December 31, 2006 and December 31, 2005, the Corporation had issued $31,653,000 and $36,687,000, respectively, in standby letters of credit,
predominately with remaining terms of three years or less. The fees receivable associated with a standby letter of credit is recognized by the Corporation as a liability at the inception of the commitment and the liability is amortized over the life
of the commitment. The Corporation has recognized a liability at December 31, 2006 and December 31, 2005, of $103,000 and $128,000 respectively, relating to these commitments.

At December 31, 2006 and December 31, 2005, the Corporation had a reserve of $494,000 and $442,000, respectively, included in other liabilities
for losses on off-balance sheet credit exposures.

First Indiana Corporation is the guarantor on a lease of Somerset CPAs, P.C. dated
November, 2000 for its office space. First Indiana had been the guarantor on this lease for its subsidiary, Somerset Financial Services, LLC. On October 25, 2004, First Indiana Corporation sold substantially all of the assets of Somerset
Financial Services to Somerset CPAs pursuant to an Asset Purchase Agreement. As part of this agreement, Somerset CPAs assumed liability for the office lease. However, First Indiana remains the guarantor until the lease expires in 2012. The maximum
potential future lease payments the Corporation could be required to pay under the guarantee are $4,205,000.

The Corporation is a limited
partner in two low income housing developments that are not consolidated into these financial statements. As of December 31, 2006, the Corporations investment in these partnerships was $1,510,000 with no future funding commitments. The
maximum risk of loss is equal to the Corporations recorded investment in these partnerships.

The Corporation is a variable interest
holder in First Indiana Mortgage. The Corporation does not have a controlling financial interest or have enough equity at risk for First Indiana Mortgage to finance its activities without additional subordinated financial support from Wells Fargo
Mortgage. The Corporations variable interest arises from contractual, ownership or other monetary interests in First Indiana Mortgage, which change with fluctuations in its net asset value. The Corporation does not consolidate First Indiana
Mortgage, since it is not the primary



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



beneficiary and will not absorb a majority of the expected losses, nor receive a majority of the expected residual returns, or both. First Indiana Mortgage
is presented using the equity method of accounting and is included in other assets in the Consolidated Financial Statements. As of December 31, 2006, the Corporations investment in First Indiana Mortgage was $125,000, with no future
funding commitments. The Corporations maximum exposure to loss as a result of its involvement with this unconsolidated company is equal to its recorded investment.

Rental Obligations.The Corporation leases 13 of its branches and two origination offices. The Bank also obtains its data processing services through an agreement with a third-party service provider.
Obligations under these non-cancelable operating leases (excluding the guarantee on the Somerset CPAs lease) at December 31, 2006, require minimum future payments of $5,586,000 in 2007, $5,132,000 in 2008, $4,545,000 in 2009, $3,584,000 in
2010, $3,592,000 in 2011, and $4,324,000 thereafter. Minimum future payments have not been reduced by minimum sublease rental income of $65,000 receivable in the future under non-cancelable subleases. Operating lease expenses were $8,326,000,
$5,818,000, and $6,426,000 for 2006, 2005, and 2004, respectively. The increase in 2006 operating lease expense over 2005 expense is primarily a result of the core conversion.

In the first quarter of 2007, First Indiana entered into a new lease for its headquarters and downtown Indianapolis retail branch in First Indiana Plaza.
The new lease replaces the lease in effect at December 31, 2006. The new lease is scheduled to commence in July, 2007 and has a term of 12 years. Obligations under non-cancelable operating leases at December 31, 2006 (restated to reflect
the obligation under this new lease), require minimum future payments of $5,496,000 in 2007, $5,303,000 in 2008, $5,255,000 in 2009, $4,295,000 in 2010, $4,302,000 in 2011, and $9,710,000 thereafter.

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

(15) Employee Benefit Plans

Retirement Plans.First Indiana is a participant in the Financial Institutions Retirement Fund (FIRF). This is a multi-employer defined
benefit pension plan and separate actuarial valuations are not made with respect to each participating employer. According to FIRF administrators, plan contributions of $2,426,000 and $2,782,000 were required for the plan years beginning
July 1, 2006, and July 1, 2005, respectively. The prepaid contribution asset was $1,819,000 and $1,997,000 at December 31, 2006 and 2005, respectively. First Indianas pension expense under this plan was $2,604,000, $2,519,000,
and $1,992,000 for 2006, 2005, and 2004, respectively.

First Indiana has a voluntary savings plan for eligible employees which qualify
under Section 401(k) of the Internal Revenue Code. Employees can participate by designating a portion of their compensation to be contributed to the plan. First Indiana in turn matches employee contributions in such uniform amounts or
percentages as annually determined by the employer. The Corporations expenses under its plan for matching contributions in 2006, 2005, and 2004 were $222,000, $231,000, and $277,000, respectively.

The Corporation and the Bank maintain supplemental pension benefit plans covering certain of their senior officers and certain senior officers of the
Banks Mooresville and Rushville divisions. These supplemental benefit plans provide benefits for their participants that normally would be paid under FIRF but are precluded from being so paid by limitations under the Internal Revenue Code. In
the case of some participants, benefits are provided in excess of those that normally would be paid under FIRF. All supplemental pension benefit plans use a December 31 measurement date. Unrecognized prior service amounts and unrecognized net
gains or losses are amortized using the straight-line method. The weighted average discount rate assumptions for all years disclosed are based on prevailing rates of high-quality, fixed income investments with a Moodys rating of Aa or higher.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The funded status of these non-qualified retirement plans and supplemental benefit plans and the
amounts relating thereto reflected in the accompanying consolidated balance sheets are as follows.



|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                               |  | Years Ended December 31 |        
|(Dollars in Thousands)                                                                         |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|Change in Projected Benefit Obligation                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Projected Benefit Obligation at the Beginning of the Year                                      |  | $                       | 13,718  |   |      | $ | 11,506  |      |  | $ | 10,744  |  
|Service Cost                                                                                   |  |                         | 328     |   |      |   | 304     |      |  |   | 208     |  
|Interest Cost                                                                                  |  |                         | 441     |   |      |   | 530     |      |  |   | 623     |  
|Actuarial (Gain) or Loss                                                                       |  |                         | (1,611  | ) |      |   | 1,566   |      |  |   | (299    | )
|Benefits Paid                                                                                  |  |                         | (914    | ) |      |   | (809    | )    |  |   | (237    | )
|Change in Plan Provisions                                                                      |  |                         |        |   |      |   | 284     |      |  |   | 467     |  
|Adjustment for Growth of Notional Balance                                                      |  |                         | 639     |   |      |   | 337     |      |  |   |        |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Projected Benefit Obligation at the End of the Year                                            |  | $                       | 12,601  |   |      | $ | 13,718  |      |  | $ | 11,506  |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Accumulated Benefit Obligation at the End of the Year                                          |  | $                       | 11,702  |   |      | $ | 11,628  |      |  | $ | 10,263  |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Change in Plan Assets                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Fair Value of Plan Assets at the Beginning of the Year                                         |  | $                       |        |   |      | $ |        |      |  | $ |        |  
|Benefits Paid                                                                                  |  |                         | (914    | ) |      |   | (809    | )    |  |   | (237    | )
|Employer Contributions                                                                         |  |                         | 914     |   |      |   | 809     |      |  |   | 237     |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Fair Value of Assets at the End of the Year                                                    |  | $                       |        |   |      | $ |        |      |  | $ |        |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Amount Recognized                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Funded Status                                                                                  |  | $                       | (12,601 | ) |      | $ | (13,718 | )    |  | $ | (11,506 | )
|Unrecognized Transition Obligation                                                             |  |                         | 73      |   |      |   | 85      |      |  |   | 97      |  
|Unrecognized Prior Service Cost                                                                |  |                         | 595     |   |      |   | 654     |      |  |   | 431     |  
|Unrecognized Net Loss                                                                          |  |                         | 848     |   |      |   | 2,506   |      |  |   | 1,005   |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Amount Recognized                                                                          |  | $                       | (11,085 | ) |      | $ | (10,473 | )    |  | $ | (9,973  | )
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Amounts Recognized in the Statement of Financial Position Before Applying SFAS 158             |  |                         |         |   |      |   |         |      |  |   |         |  
|Accrued Benefit Cost                                                                           |  | $                       | (11,085 | ) |      | $ | (10,473 | )    |  | $ | (10,263 | )
|Additional Liability due to Unfunded Accumulated Benefit Obligation                            |  |                         | (617    | ) |      |   | (1,155  | )    |  |   |        |  
|Intangible Asset                                                                               |  |                         | 617     |   |      |   | 739     |      |  |   | 290     |  
|Accumulated Other Comprehensive Income                                                         |  |                         |        |   |      |   | 416     |      |  |   |        |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Accrued Benefit Cost                                                                           |  | $                       | (11,085 | ) |      | $ | (10,473 | )    |  | $ | (9,973  | )
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Adjustments Caused By Applying SFAS 158                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Increase in Liability                                                                          |  | $                       | (1,516  | ) |      |   |         |      |  |   |         |  
|Increase in Charge to Accumulated Other Comprehensive Income                                   |  |                         | 1,516   |   |      |   |         |      |  |   |         |  
|                                                                                               |  |                         |        
|Liability Recognized in the Statement of Financial Position After Applying SFAS 158            |  |                         |         |   |      |   |         |      |  |   |         |  
|Accrued Benefit Cost                                                                           |  | $                       | (12,601 | ) |      |   |         |      |  |   |         |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Amounts Recognized in Accumulated Other Comprehensive Income After Applying SFAS 158           |  |                         |         |   |      |   |         |      |  |   |         |  
|Transition Obligation                                                                          |  | $                       | 73      |   |      |   |         |      |  |   |         |  
|Prior Service Cost                                                                             |  |                         | 595     |   |      |   |         |      |  |   |         |  
|Net Loss                                                                                       |  |                         | 848     |   |      |   |         |      |  |   |         |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Accrued Benefit Cost                                                                           |  | $                       | 1,516   |   |      |   |         |      |  |   |         |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets: |  |                         |         |   |      |   |         |      |  |   |         |  
|Projected Benefit Obligation                                                                   |  | $                       | 12,601  |   |      | $ | 13,718  |      |  | $ | 11,506  |  
|Accumulated Benefit Obligation                                                                 |  |                         | 11,702  |   |      |   | 11,628  |      |  |   | 10,263  |  
|Fair Value of Plan Assets                                                                      |  |                         |        |   |      |   |        |      |  |   |        |  
|                                                                                               |  |                         |        
|Weighted Average Assumptions at the End of the Year                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Discount Rate                                                                                  |  |                         | 5.75    | % |      |   | 5.50    | %    |  |   | 5.75    | %
|Rate of Compensation Increase                                                                  |  |                         | 5.00    | % |      |   | 5.00    | %    |  |   | 5.00    | %



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                                                                |  |                         |       |   |      |   |       |      |  |   |      |  
|------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                                                                |  | Years Ended December 31 |      
|(Dollars in Thousands)                                                          |  | 2006                    |       |   | 2005 |   |       | 2004 | 
|Service Cost                                                                    |  | $                       | 328   |   |      | $ | 304   |      |  | $ | 208  |  
|Interest Cost                                                                   |  |                         | 440   |   |      |   | 530   |      |  |   | 623  |  
|Expected Return on Plan Assets                                                  |  |                         |      |   |      |   |      |      |  |   |     |  
|Amortization of Net Loss                                                        |  |                         | 48    |   |      |   | 64    |      |  |   |     |  
|Amortization of Prior Service Cost                                              |  |                         | 59    |   |      |   | 61    |      |  |   | 36   |  
|Amortization of Transition Obligation                                           |  |                         | 12    |   |      |   | 12    |      |  |   | 12   |  
|Adjustment for Growth in Notional Balance                                       |  |                         | 639   |   |      |   | 337   |      |  |   |     |  
|                                                                                |  |                         |       |   |      |   |       |      |  |   |      |  
|Total Net Periodic Pension Cost                                                 |  | $                       | 1,526 |   |      | $ | 1,308 |      |  | $ | 879  |  
|                                                                                |  |                         |       |   |      |   |       |      |  |   |      |  
|Additional Information                                                          |  |                         |       |   |      |   |       |      |  |   |      |  
|Increase (Decrease) in Minimum Liability Included in Other Comprehensive Income |  | $                       | (416  | ) |      | $ | 416   |      |  | $ |     |  
|                                                                                |  |                         |       |   |      |   |       |      |  |   |      |  
|Total Net Periodic Pension Cost and Other Comprehensive Income                  |  | $                       | 1,110 |   |      | $ | 1,724 |      |  | $ | 879  |  
|                                                                                |  |                         |       |   |      |   |       |      |  |   |      |  
|Weighted Average Assumptions                                                    |  |                         |       |   |      |   |       |      |  |   |      |  
|Discount Rate                                                                   |  |                         | 5.75  | % |      |   | 5.75  | %    |  |   | 6.00 | %
|Expected Return on Plan Assets                                                  |  |                         | N/A   |   |      |   | N/A   |      |  |   | N/A  |  
|Rate of Compensation Increase                                                   |  |                         | 5.00  | % |      |   | 5.00  | %    |  |   | 5.00 | %

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



|                                                                                                  |  |   |      
|------------------------------------------------------------------------------------------------- |  | - | -----
|(Dollars in Thousands)                                                                            |  |  
|Expected Contributions for Fiscal Year Ending December 31, 2007                                   |  |   |      
|Expected Employer Contributions                                                                   |  | $ | 1,103
|Expected Employee Contributions                                                                   |  |   |     
|Estimated Future Benefit Payments Reflecting Expected Future Service for the Fiscal Years Ending: |  |   |      
|December 31, 2007                                                                                 |  | $ | 1,103
|December 31, 2008                                                                                 |  |   | 1,145
|December 31, 2009                                                                                 |  |   | 1,189
|December 31, 2010                                                                                 |  |   | 1,234
|December 31, 2011                                                                                 |  |   | 1,316
|December 31, 2012 through December 31, 2016                                                       |  |   | 5,222

There are no plan assets expected to be returned to the Corporation in the year ended
December 31, 2007.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                     |  | Years Ended December 31 |       
|(Dollars in Thousands)                                                               |  | 2006                    |        |   | 2005 |   |        | 2004 | 
|Change in Accumulated Benefit Obligation                                             |  |                         |        |   |      |   |        |      |  |   |        |  
|Accumulated Postretirement Benefit Obligation at the Beginning of the Year           |  | $                       | 984    |   |      | $ | 1,336  |      |  | $ | 1,041  |  
|Service Cost                                                                         |  |                         | 16     |   |      |   | 16     |      |  |   | 16     |  
|Interest Cost                                                                        |  |                         | 52     |   |      |   | 52     |      |  |   | 74     |  
|Actuarial (Gain) or Loss                                                             |  |                         | (24    | ) |      |   | (420   | )    |  |   | 205    |  
|Benefits Paid                                                                        |  |                         |       |   |      |   |       |      |  |   |       |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Accumulated Benefit Obligation at the End of the Year                                |  | $                       | 1,028  |   |      | $ | 984    |      |  | $ | 1,336  |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Funded Status at the End of the Year                                                 |  | $                       | (1,028 | ) |      | $ | (984   | )    |  | $ | (1,336 | )
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Amounts Recognized in the Statement of Financial Position Before Applying SFAS 158   |  | $                       | (1,357 | ) |      | $ | (1,349 | )    |  | $ | (1,341 | )
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Adjustments Caused by Applying SFAS 158                                              |  |                         |        |   |      |   |        |      |  |   |        |  
|Decrease in Liability                                                                |  | $                       | 329    |   |      |   |        |      |  |   |        |  
|Charge to Accumulated Other Comprehensive Income                                     |  |                         | (329   | ) |      |   |        |      |  |   |        |  
|                                                                                     |  |                         |       
|Liability Recognized in the Statement of Financial Position After Applying SFAS 158  |  |                         |        |   |      |   |        |      |  |   |        |  
|Accrued Benefit Cost                                                                 |  | $                       | 1,028  |   |      |   |        |      |  |   |        |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Amounts Recognized in Accumulated Other Comprehensive Income After Applying SFAS 158 |  |                         |        |   |      |   |        |      |  |   |        |  
|Transition Obligation                                                                |  | $                       |       |   |      |   |        |      |  |   |        |  
|Prior Service Cost                                                                   |  |                         |       |   |      |   |        |      |  |   |        |  
|Net (Gain) Loss                                                                      |  |                         | (329   | ) |      |   |        |      |  |   |        |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Total                                                                                |  | $                       | (329   | ) |      |   |        |      |  |   |        |  
|                                                                                     |  |                         |        |   |      |   |        |      |  |   |        |  
|Weighted Average Assumptions at the End of the Year                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Discount Rate                                                                        |  |                         | 5.75   | % |      |   | 5.50   | %    |  |   | 5.75   | %
|Rate of Compensation Increase                                                        |  |                         | N/A    |   |      |   | N/A    |      |  |   | N/A    |  
|                                                                                     |  |                         |       
|Assumed Health Care Cost Trend Rates                                                 |  |                         |        |   |      |   |        |      |  |   |        |  
|Health Care Trend Rate Assumed for Next Year                                         |  |                         | 7.00   | % |      |   | 8.00   | %    |  |   | 9.00   | %
|Ultimate Rate                                                                        |  |                         | 5.50   | % |      |   | 5.50   | %    |  |   | 5.50   | %
|Year that the Ultimate Rate is Reached                                               |  |                         | 2011   |   |      |   | 2011   |      |  |   | 2011   |  

The Corporation uses a December 31 measurement date for its postretirement medical, dental,
and life insurance programs. Unrecognized prior service amounts and unrecognized net gains or losses are amortized using the straight-line method.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                                               |  |                         |      |   |      |   |      |      |  |   |      |  
|-------------------------------------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                               |  | Years Ended December 31 |     
|(Dollars in Thousands)                                         |  | 2006                    |      |   | 2005 |   |      | 2004 | 
|Service Cost                                                   |  | $                       | 16   |   |      | $ | 16   |      |  | $ | 16   |  
|Interest Cost                                                  |  |                         | 52   |   |      |   | 52   |      |  |   | 74   |  
|Expected Return on Plan Assets                                 |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Net (Gain) or Loss                             |  |                         | (60  | ) |      |   | (60  | )    |  |   |     |  
|Amortization of Prior Service Cost                             |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Transition Obligation (Asset)                  |  |                         |     |   |      |   |     |      |  |   |     |  
|                                                               |  |                         |      |   |      |   |      |      |  |   |      |  
|Total Net Periodic Benefit Cost                                |  | $                       | 8    |   |      | $ | 8    |      |  | $ | 90   |  
|                                                               |  |                         |      |   |      |   |      |      |  |   |      |  
|Total Net Periodic Benefit Cost and Other Comprehensive Income |  | $                       | 8    |   |      | $ | 8    |      |  | $ | 90   |  
|                                                               |  |                         |      |   |      |   |      |      |  |   |      |  
|Weighted Average Assumptions                                   |  |                         |      |   |      |   |      |      |  |   |      |  
|Discount Rate                                                  |  |                         | 5.50 | % |      |   | 5.75 | %    |  |   | 6.00 | %
|Expected Return on Plan Assets                                 |  |                         | N/A  |   |      |   | N/A  |      |  |   | N/A  |  
|Rate of Compensation Increase                                  |  |                         | N/A  |   |      |   | N/A  |      |  |   | N/A  |  
|Assumed Health Care Cost Trend Rates                           |  |                         |      |   |      |   |      |      |  |   |      |  
|Health Care Trend Rate Assumed for Current Year                |  |                         | 8.00 | % |      |   | 8.50 | %    |  |   | 9.00 | %
|Ultimate Rate                                                  |  |                         | 5.50 | % |      |   | 5.50 | %    |  |   | 5.50 | %
|Year that the Ultimate Rate is Reached                         |  |                         | 2011 |   |      |   | 2011 |      |  |   | 2011 |  

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



|                                                        |  |                      |     |          |   |      |  
|------------------------------------------------------- |  | -------------------- | --- | -------- | - | ---- | -
|                                                        |  | One Percentage Point |    
|(Dollars in Thousands)                                  |  | Increase             |     | Decrease |  
|Effect on total of service and interest cost components |  | $                    | 10  |          | $ | (8   | )
|Effect on postretirement benefit obligation             |  |                      | 127 |          |   | (108 | )

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



|                                                                                                  |  |   |    
|------------------------------------------------------------------------------------------------- |  | - | ---
|(Dollars in Thousands)                                                                            |  |  
|Expected Contributions for Fiscal Year Ending December 31, 2007                                   |  |   |    
|Expected Employer Contributions                                                                   |  | $ | 55 
|Expected Employee Contributions                                                                   |  |   |   
|                                                                                                  | 
|Estimated Future Benefit Payments Reflecting Expected Future Service for the Fiscal Years Ending: |  |   |    
|December 31, 2007                                                                                 |  | $ | 55 
|December 31, 2008                                                                                 |  |   | 57 
|December 31, 2009                                                                                 |  |   | 58 
|December 31, 2010                                                                                 |  |   | 58 
|December 31, 2011                                                                                 |  |   | 59 
|December 31, 2012 through December 31, 2016                                                       |  |   | 330

There are no plan assets expected to be returned to the Corporation in the year ended
December 31, 2007.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Stock-Based Compensation.Under the First Indiana Corporation 2004 Executive Compensation Plan
(2004 Plan), First Indiana is authorized to provide cash and non-cash incentives (which may be options, restricted stock, or specified other stock-based awards) to its executives, key employees, and directors. At December 31, 2006,
847,360 stock-based award shares were available for grant under this plan. Effective January 1, 2006, First Indiana adopted Statement of Financial Accounting Standard 123 (revised 2004) Share-Based Payment (SFAS 123R).
The cumulative effect of adopting SFAS 123R was not material to First Indianas financial position, results of operations or cash flows. Prior to adoption of SFAS 123R, First Indiana accounted for these awards under recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations.

Stock Option AwardsThe maximum term on all options issued has been five years or ten years and each option has fully vested at the end of a period ranging from one to five years from the date of grant. Optionees may elect to
fund their option exercises with stock they currently own. In that event, the Corporation either cancels the stock certificates received from the optionee in the stock swap transaction or issues a new certificate for the net number of additional
shares. Upon the exercise of an option, the Corporation issues new common shares. All options currently outstanding are subject only to the optionees continuous service. For measuring compensation cost, stock options are valued at their grant
date using the Black-Scholes option pricing model.

A summary of the status of First Indianas stock option plans as of
December 31, 2006 and changes during the year is presented below. Included in the forfeited and expired totals are option shares originally granted to associates of the Banks trust operations.



|                                                  |  |                                    |   |  |                              |       |                                      |      |                                       |   |      
|------------------------------------------------- |  | ---------------------------------- | - |  | ---------------------------- | ----- | ------------------------------------ | ---- | ------------------------------------- | - | -----
|                                                  |  | Year Ended Ended December 31, 2006
|                                                  |  | Shares                             |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingTerm (Years) |      | AggregateIntrinsicValue(in Thousands)
|Outstanding at Beginning of Period                |  | 972,359                            |   |  | $                            | 14.09 |                                      |      |                                       |   |      
|Granted                                           |  |                                   |   |  |                              |      |                                      |      |                                       |   |      
|Exercised                                         |  | (160,902                           | ) |  |                              | 12.24 |                                      |      |                                       |   |      
|Forfeited                                         |  | (63,424                            | ) |  |                              | 14.63 |                                      |      |                                       |   |      
|Expired                                           |  | (4,197                             | ) |  |                              | 15.10 |                                      |      |                                       |   |      
|                                                  |  |                                    |   |  |                              |       |                                      |      |                                       |   |      
|Outstanding at End of Period                      |  | 743,836                            |   |  | $                            | 14.44 |                                      | 4.71 |                                       | $ | 8,124
|                                                  |  |                                    |   |  |                              |       |                                      |      |                                       |   |      
|Options Exercisable at End of Period              |  | 538,077                            |   |  | $                            | 14.23 |                                      | 4.03 |                                       | $ | 5,988
|                                                  |  |                                    |   |  |                              |       |                                      |      |                                       |   |      
|Fully-vested Options and Options Expected to Vest |  | 738,430                            |   |  | $                            | 14.43 |                                      | 4.71 |                                       | $ | 8,068
|                                                  |  |                                    |   |  |                              |       |                                      |      |                                       |   |      



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of the status of First Indianas fixed stock option plans as of December 31, 2005
and 2004, and changes during the years then ended is presented below.



|                                                               |  |        |           |      |                              |   |        |  |   |                              |   |  |   |      
|-------------------------------------------------------------- |  | ------ | --------- | ---- | ---------------------------- | - | ------ |  | - | ---------------------------- | - |  | - | -----
|                                                               |  | 2005   |           | 2004
|                                                               |  | Shares |           |      | WeightedAverageExercisePrice |   | Shares |  |   | WeightedAverageExercisePrice
|Outstanding at Beginning of Year                               |  |        | 1,343,425 |      |                              | $ | 13.72  |  |   | 1,795,336                    |   |  | $ | 13.39
|Granted                                                        |  |        |          |      |                              |   |       |  |   | 154,688                      |   |  |   | 15.77
|Exercised                                                      |  |        | (321,744  | )    |                              |   | 12.42  |  |   | (216,144                     | ) |  |   | 10.77
|Surrendered                                                    |  |        | (49,257   | )    |                              |   | 14.64  |  |   | (390,455                     | ) |  |   | 14.69
|                                                               |  |        |           |      |                              |   |        |  |   |                              |   |  |   |      
|Outstanding at End of Year                                     |  |        | 972,424   |      |                              |   | 14.09  |  |   | 1,343,425                    |   |  |   | 13.72
|                                                               |  |        |           |      |                              |   |        |  |   |                              |   |  |   |      
|Options Exercisable at Year-End                                |  |        | 585,183   |      |                              |   |        |  |   | 791,283                      |   |  |   |      
|                                                               |  |        |           |      |                              |   |        |  |   |                              |   |  |   |      
|Weighted Average Fair Value of Options Granted During the Year |  | $      |          |      |                              |   |        |  | $ | 3.44                         |   |  |   |      
|                                                               |  |        |           |      |                              |   |        |  |   |                              |   |  |   |      

Of the 390,455 stock options surrendered in 2004, 271,976 were related to the sale of Somerset
Financial assets.

The intrinsic value of stock option awards exercised in 2006, 2005 and 2004 was $2,249,000, $3,473,000 and $1,338,000 ,
respectively. The intrinsic values of stock option awards exercised were based on the closing prices of the Corporations common shares on the dates of the exercise.

The following table summarizes stock-based compensation plan information.



|                                                           |  |                                                                                           |  |                                                                           |       |                                                                                                                                         |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                           |  | (a)                                                                                       |  | (b)                                                                       |       | (c)                                                                                                                                    
|Plan category                                              |  | Number of securities tobe issued upon exerciseof outstanding options,warrants, and
rights |  | Weighted-averageexercise price
ofoutstanding options,warrants, and rights |       | Number of securities remainingavailable for future
issuanceunder equity compensation plans(excluding securities reflected incolumn (a))
|Equity compensation plans approved by security holders     |  | 743,836                                                                                   |  | $                                                                         | 14.44 |                                                                                                                                         | 847,360
|Equity compensation plans not approved by security holders |  |                                                                                          |  |                                                                           |      |                                                                                                                                         |       
|                                                           |  |                                                                                           |  |                                                                           |       |                                                                                                                                         |        
|Total                                                      |  | 743,836                                                                                   |  | $                                                                         | 14.44 |                                                                                                                                         | 847,360
|                                                           |  |                                                                                           |  |                                                                           |       |                                                                                                                                         |        



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Restricted Stock AwardsRestricted stock awards are subject to forfeiture upon either a
failure to meet certain specified performance objectives or continuous employment is interrupted or terminated prior to the vesting of the award. These awards vest over terms ranging from three to eight years. For measuring compensation cost,
restricted stock awards are valued based upon the market value of the common shares on the date of grant. A summary of the status of First Indianas restricted stock awards as of December 31, 2006 and changes during the year is presented
below.



|                                   |  |                              |   |  |                                     |       |                                      |      |                                            |   |      
|---------------------------------- |  | ---------------------------- | - |  | ----------------------------------- | ----- | ------------------------------------ | ---- | ------------------------------------------ | - | -----
|                                   |  | Year Ended December 31, 2006
|                                   |  | Shares                       |   |  | WeightedAverageGrant DateFair Value |       | WeightedAverageRemainingTerm (Years) |      | UnrecognizedCompensationCost(in Thousands)
|Outstanding at Beginning of Period |  | 222,618                      |   |  | $                                   | 16.87 |                                      |      |                                            |   |      
|Awarded                            |  | 116,094                      |   |  |                                     | 26.22 |                                      |      |                                            |   |      
|Vested (Restrictions Lapsed)       |  | (52,611                      | ) |  |                                     | 16.26 |                                      |      |                                            |   |      
|Forfeited                          |  | (21,586                      | ) |  |                                     | 21.16 |                                      |      |                                            |   |      
|                                   |  |                              |   |  |                                     |       |                                      |      |                                            |   |      
|Outstanding at End of Period       |  | 264,515                      |   |  | $                                   | 20.75 |                                      | 2.54 |                                            | $ | 2,808
|                                   |  |                              |   |  |                                     |       |                                      |      |                                            |   |      

A summary of the status of First Indianas restricted stock awards as of December 31,
2005, and 2004, and changes during the years ended on those dates is presented below.



|                                 |  |         |   |  |         |  
|-------------------------------- |  | ------- | - |  | ------- | -
|                                 |  | 2005    |   |  | 2004    |  
|Outstanding at Beginning of Year |  | 229,679 |   |  | 143,631 |  
|Granted                          |  | 14,000  |   |  | 117,188 |  
|Vested (Restrictions Lapsed)     |  | (20,123 | ) |  |        |  
|Forfeited                        |  | (938    | ) |  | (31,140 | )
|                                 |  |         |   |  |         |  
|Outstanding at End of Year       |  | 222,618 |   |  | 229,679 |  
|                                 |  |         |   |  |         |  

The total fair value of restricted stock awards vesting in 2006, 2005 and 2004 was $1,387,000,
$355,000 and $50,000, respectively.

Deferred Share AwardsDeferred share awards are subject to forfeiture upon either a
failure to meet certain specified performance objectives or continuous employment is interrupted or terminated prior to the vesting of the award. These awards vest over terms ranging from three to eight years. As part of their compensation,
non-employee members of the Corporations Board of Directors also receive deferred shares. These deferred shares vest in one year and earn dividend equivalents in the form of additional deferred shares at the same rate as dividends are paid on
the Corporations common stock. For measuring compensation cost, deferred shares are valued based upon the market value of the related common shares on the grant date. A summary of the status of First Indianas deferred stock awards as of
December 31, 2006 and changes during the year is presented below.



|                                   |  |                              |   |  |                              |   |                                      |      |                                       |   |                                            |  |   |    
|---------------------------------- |  | ---------------------------- | - |  | ---------------------------- | - | ------------------------------------ | ---- | ------------------------------------- | - | ------------------------------------------ |  | - | ---
|                                   |  | Year Ended December 31, 2006
|                                   |  | Shares                       |   |  | WeightedAverageExercisePrice |   | WeightedAverageRemainingTerm (Years) |      | AggregateIntrinsicValue(in Thousands) |   | UnrecognizedCompensationCost(in Thousands)
|Outstanding at Beginning of Period |  | 31,967                       |   |  | $                            |  |                                      |      |                                       |   |                                            |  |   |    
|Granted                            |  | 28,040                       |   |  |                              |  |                                      |      |                                       |   |                                            |  |   |    
|Exercised                          |  |                             |   |  |                              |  |                                      |      |                                       |   |                                            |  |   |    
|Forfeited                          |  | (2,187                       | ) |  |                              |  |                                      |      |                                       |   |                                            |  |   |    
|                                   |  |                              |   |  |                              |   |                                      |      |                                       |   |                                            |  |   |    
|Outstanding at End of Period       |  | 57,820                       |   |  | $                            |  |                                      | 2.00 |                                       | $ | 1,466                                      |  | $ | 188
|                                   |  |                              |   |  |                              |   |                                      |      |                                       |   |                                            |  |   |    
|Exercisable at End of Period       |  | 32,172                       |   |  | $                            |  |                                      |     |                                       | $ | 816                                        |  |   |    
|                                   |  |                              |   |  |                              |   |                                      |      |                                       |   |                                            |  |   |    



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of the status of First Indianas deferred stock awards as of December 31, 2005,
and 2004, and changes during the years ended on those dates is presented below.



|                                 |  |        |  |       
|-------------------------------- |  | ------ |  | ------
|                                 |  | 2005   |  | 2004  
|Outstanding at Beginning of Year |  | 25,000 |  |      
|Granted                          |  | 6,979  |  | 25,000
|Vested                           |  |       |  |      
|Forfeited                        |  |       |  |      
|                                 |  |        |  |       
|Outstanding at End of Year       |  | 31,979 |  | 25,000
|                                 |  |        |  |       

At December 31, 2006, the total unamortized fair value of non-vested awards (stock options,
restricted stock and deferred share awards) was $5,132,000. The weighted average period over which this fair value will be recognized is 3.36 years.

The total cost of stock-based compensation plans in 2006 was $1,686,000, with a related income tax benefit of $568,000.

Employees Stock Purchase Plan.Under the Corporations Employees Stock Purchase Plan, all full-time employees and directors are eligible to participate after satisfying the applicable
employment period. Approximately 36 percent of eligible employees participated in the plan in 2006. Under the terms of the Plan, employees and directors can choose to have up to 100 percent of their annual base earnings or directors fees
withheld to purchase the Corporations common stock. The Corporation matches the first 10 percent of the employee contribution at a ratio of up to one to three (33 percent) as determined according to the criteria specified within the plan and
announced to employees annually at the beginning of each year. The contributions are paid to a trustee, who purchases the Corporations stock bi-weekly at the then prevailing market price. First Indianas matching contributions were
$250,000, $178,000, and $182,000 for the years ended 2006, 2005, and 2004, respectively.

(16) Parent Company Only Statements

Condensed Balance Sheets



|                                                |  |             |         |   |      |   |        
|----------------------------------------------- |  | ----------- | ------- | - | ---- | - | -------
|                                                |  | December 31
|(Dollars in Thousands)                          |  | 2006        |         |   | 2005
|Assets                                          |  |             |         |   |      |   |        
|Cash and Due from Banks                         |  | $           | (1      | ) |      | $ | 2      
|Due from the Bank                               |  |             | 14,362  |   |      |   | 4,632  
|Investment in the Bank                          |  |             | 208,475 |   |      |   | 213,321
|Investment in Somerset Financial                |  |             |        |   |      |   | 1      
|Investment in First Indiana Capital Corporation |  |             | 1,080   |   |      |   |       
|Investment in Grantor Trusts                    |  |             | 744     |   |      |   | 744    
|Other Assets                                    |  |             | 4,708   |   |      |   | 4,294  
|                                                |  |             |         |   |      |   |        
|Total Assets                                    |  | $           | 229,368 |   |      | $ | 222,994
|                                                |  |             |         |   |      |   |        
|Liabilities                                     |  |             |         |   |      |   |        
|Subordinated Notes                              |  | $           | 46,905  |   |      | $ | 46,781 
|Other Liabilities                               |  |             | 369     |   |      |   | 771    
|                                                |  |             |         |   |      |   |        
|Total Liabilities                               |  |             | 47,274  |   |      |   | 47,552 
|Shareholders Equity                            |  |             | 182,094 |   |      |   | 175,442
|                                                |  |             |         |   |      |   |        
|Total Liabilities and Shareholders Equity      |  | $           | 229,368 |   |      | $ | 222,994
|                                                |  |             |         |   |      |   |        



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Condensed Statements of Earnings



|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                  |  | Years Ended December 31 |       
|(Dollars in Thousands)                                                            |  | 2006                    |        |   | 2005 |   |        | 2004 | 
|Income                                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|Dividends from the Bank                                                           |  | $                       | 39,100 |   |      | $ | 20,000 |      |  | $ | 16,000 |  
|Distributions from Somerset Financial                                             |  |                         |       |   |      |   |       |      |  |   | 5,405  |  
|Income from Investments                                                           |  |                         | 47     |   |      |   | 57     |      |  |   | 53     |  
|Non-Interest Income                                                               |  |                         | 4,633  |   |      |   | 6,693  |      |  |   | 3,277  |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Total Income                                                                      |  |                         | 43,780 |   |      |   | 26,750 |      |  |   | 24,735 |  
|Expense                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Interest Expense                                                                  |  |                         | 3,367  |   |      |   | 3,366  |      |  |   | 3,369  |  
|Non-Interest Expense                                                              |  |                         | 3,104  |   |      |   | 4,446  |      |  |   | 3,064  |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Total Expense                                                                     |  |                         | 6,471  |   |      |   | 7,812  |      |  |   | 6,433  |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Earnings before Income Taxes                                                      |  |                         | 37,309 |   |      |   | 18,938 |      |  |   | 18,302 |  
|Income Tax Benefit                                                                |  |                         | (666   | ) |      |   | (430   | )    |  |   | (1,287 | )
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Earnings before Equity in Undistributed Net Earnings of Subsidiaries              |  |                         | 37,975 |   |      |   | 19,368 |      |  |   | 19,589 |  
|Equity in Undistributed (Distributions in Excess of) Net Earnings of Subsidiaries |  |                         | (5,026 | ) |      |   | 5,903  |      |  |   | (4,911 | )
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Net Earnings                                                                      |  | $                       | 32,949 |   |      | $ | 25,271 |      |  | $ | 14,678 |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Condensed Statements of Cash Flows



|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                          |  | Years Ended December 31 |        
|(Dollars in Thousands)                                                                    |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|Cash Flows from Operating Activities                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Earnings                                                                              |  | $                       | 32,949  |   |      | $ | 25,271  |      |  | $ | 14,678  |  
|Adjustments to Reconcile Net Earnings to Net Cash (Used) Provided by Operating Activities |  |                         |         |   |      |   |         |      |  |   |         |  
|Equity in Undistributed Earnings                                                          |  |                         | 5,026   |   |      |   | (5,903  | )    |  |   | 4,911   |  
|Amortization of Restricted Common Stock                                                   |  |                         | 1,065   |   |      |   | 1,939   |      |  |   | 1,147   |  
|Amortization of Stock Option                                                              |  |                         | 253     |   |      |   |        |      |  |   |        |  
|Stock Compensation                                                                        |  |                         | 316     |   |      |   | 624     |      |  |   | 119     |  
|Change in Other Liabilities                                                               |  |                         | (278    | ) |      |   | (640    | )    |  |   | 100     |  
|Change in Due from the Bank and Other Assets                                              |  |                         | (10,143 | ) |      |   | 1,638   |      |  |   | 23,165  |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash Provided by Operating Activities                                                 |  |                         | 29,188  |   |      |   | 22,929  |      |  |   | 44,120  |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Investment in Limited Partnership                                                         |  |                         |        |   |      |   | (572    | )    |  |   | (572    | )
|Acquisition of MetroBanCorp                                                               |  |                         |        |   |      |   |        |      |  |   | (8      | )
|Disposition of Somerset Financial                                                         |  |                         |        |   |      |   |        |      |  |   | 6,000   |  
|Investment in FICC                                                                        |  |                         | (1,091  | ) |      |   |        |      |  |   |        |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash Provided (Used) by Investing Activities                                          |  |                         | (1,091  | ) |      |   | (572    | )    |  |   | 5,420   |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Financing Activities                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Tax Benefit of Option Compensation                                                        |  |                         | 742     |   |      |   | 852     |      |  |   | 398     |  
|Stock Option Proceeds                                                                     |  |                         | 1,435   |   |      |   | 3,655   |      |  |   | 1,988   |  
|Purchase of Treasury StockNet                                                            |  |                         | (16,762 | ) |      |   | (16,775 | )    |  |   | (399    | )
|Purchase of Vested Stock Options                                                          |  |                         | (52     | ) |      |   |         |      |  |   |         |  
|Payment for Fractional Shares                                                             |  |                         | (11     | ) |      |   |        |      |  |   |        |  
|Common Stock Issued under Deferred Compensation Plan                                      |  |                         | (44     | ) |      |   | (21     | )    |  |   | (58     | )
|Common Stock Issued under Restricted Stock Plans                                          |  |                         | 1       |   |      |   |         |      |  |   |         |  
|Purchase of Common Stock                                                                  |  |                         |        |   |      |   | (23     | )    |  |   | (40,901 | )
|Dividends Paid                                                                            |  |                         | (13,409 | ) |      |   | (10,544 | )    |  |   | (10,569 | )
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash Provided (Used) by Financing Activities                                          |  |                         | (28,100 | ) |      |   | (22,856 | )    |  |   | (49,541 | )
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Change in Cash and Cash Equivalents                                                   |  |                         | (3      | ) |      |   | (499    | )    |  |   | (1      | )
|Cash and Cash Equivalents at the Beginning of the Year                                    |  |                         | 2       |   |      |   | 501     |      |  |   | 502     |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and Cash Equivalents at the End of the Year                                          |  | $                       | (1      | ) |      | $ | 2       |      |  | $ | 501     |  
|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  

(17) Estimated Fair Value of Financial Instruments

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



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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

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

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

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

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

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

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



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Estimated Fair Value of Financial Instruments



|                                                           |  |                   |         |                     |   |                |  |                     |         |  |   |        
|---------------------------------------------------------- |  | ----------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                                           |  | December 31, 2006 |         | December 31, 2005  
|(Dollars in Thousands)                                     |  | CarryingAmount    |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Assets                                                     |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Cash and Cash Equivalents                                  |  | $                 | 101,328 |                     | $ | 101,328        |  | $                   | 63,054  |  | $ | 63,054 
|Securities Available for Sale                              |  |                   | 262,827 |                     |   | 262,827        |  |                     | 232,976 |  |   | 232,976
|Other Investments                                          |  |                   | 20,006  |                     |   | 20,006         |  |                     | 26,540  |  |   | 26,540 
|Loans                                                      |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Business                                                   |  |                   | 606,921 |                     |   | 607,536        |  |                     | 526,482 |  |   | 527,137
|Commercial Real Estate                                     |  |                   | 189,470 |                     |   | 189,631        |  |                     | 166,434 |  |   | 166,745
|Single-Family Construction                                 |  |                   | 126,313 |                     |   | 126,313        |  |                     | 92,036  |  |   | 92,036 
|Consumer                                                   |  |                   | 480,497 |                     |   | 480,863        |  |                     | 491,650 |  |   | 492,952
|Residential Mortgage                                       |  |                   | 267,900 |                     |   | 264,796        |  |                     | 261,980 |  |   | 258,443
|Liabilities                                                |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Deposits                                                   |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Non-Interest-Bearing Demand Deposits                       |  |                   | 242,975 |                     |   | 242,975        |  |                     | 268,682 |  |   | 268,682
|Interest-Bearing Demand Deposits                           |  |                   | 194,878 |                     |   | 194,878        |  |                     | 229,876 |  |   | 229,876
|Savings Deposits                                           |  |                   | 664,474 |                     |   | 664,474        |  |                     | 489,713 |  |   | 489,713
|Certificates of Deposit under $100,000                     |  |                   | 159,489 |                     |   | 159,662        |  |                     | 175,800 |  |   | 175,336
|Certificates of Deposit $100,000 or Greater                |  |                   | 349,239 |                     |   | 349,289        |  |                     | 285,205 |  |   | 285,238
|Borrowings                                                 |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Short-Term Borrowings                                      |  |                   | 277,888 |                     |   | 277,888        |  |                     | 220,732 |  |   | 220,732
|FHLB Advances                                              |  |                   | 19,666  |                     |   | 20,037         |  |                     | 42,365  |  |   | 43,823 
|Subordinated Notes                                         |  |                   | 46,905  |                     |   | 46,731         |  |                     | 46,781  |  |   | 46,865 
|Off-Balance-Sheet Instruments                              |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Commitments to Extend Credit and Standby Letters of Credit |  |                   | 103     |                     |   | 541            |  |                     | 128     |  |   | 1,208  

(18) Segment Reporting

The Corporations business units are primarily organized to operate in the financial services industry and are determined by the products and services offered. The community bank segment includes the Banks
branch network, investment and insurance subsidiary, and home equity, installment, and residential loans originated and purchased for the Banks portfolio. The community bank segment also includes business, single-family construction, and
commercial real estate loans, and traditional cash management services for business customers. The consumer finance segment originates and sells home equity loans and holds home equity loans originated for sale. Non-segment includes investment
portfolio management, the servicing of all loans and deposits, the parent company activities and other items not directly attributable to a specific segment. Revenues in the Corporations segments are generated from loans, loan sales, and fee
income. There are no foreign operations. Prior to their classification as discontinued operations, the Trust Division was disclosed as part of the community bank segment and Somerset Financial was disclosed as a separate segment.

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



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Segment Reporting



|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  
|------------------------------------------------------------- |  | ------------- | --------- | - | --------------- | - | ------ | ----------- |  | - | ---------------------- | - |  | - | --------- | -
|(Dollars in Thousands)                                        |  | CommunityBank |           |   | ConsumerFinance |   |        | Non-Segment |  |   | 2006ConsolidatedTotals |  
|Average Segment Assets                                        |  | $             | 1,623,719 |   |                 | $ | 32,267 |             |  | $ | 386,624                |   |  | $ | 2,042,610 |  
|Net Interest Income (Expense) (1)                             |  |               | 63,998    |   |                 |   | 1,525  |             |  |   | 6,171                  |   |  |   | 71,694    |  
|Provision for Loan Losses                                     |  |               | 1,600     |   |                 |   |       |             |  |   |                       |   |  |   | 1,600     |  
|Non-Interest Income                                           |  |               | 19,678    |   |                 |   | 6,318  |             |  |   | 1,888                  |   |  |   | 27,884    |  
|Intangible Amortization                                       |  |               | (342      | ) |                 |   |       |             |  |   |                       |   |  |   | (342      | )
|Other Non-Interest Expense                                    |  |               | (24,960   | ) |                 |   | (1,100 | )           |  |   | (36,228                | ) |  |   | (62,288   | )
|Intersegment Income (Expense) (2)                             |  |               | (16,473   | ) |                 |   | (764   | )           |  |   | 17,237                 |   |  |   |          |  
|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  
|Income (Loss) from Continuing Operations, Before Income Taxes |  | $             | 43,501    |   |                 | $ | 5,979  |             |  | $ | (10,932                | ) |  | $ | 38,548    |  
|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  
|                                                              |  |               |           |  
|                                                              |  | CommunityBank |           |   | ConsumerFinance |   |        | Non-Segment |  |   | 2005ConsolidatedTotals |  
|Average Segment Assets                                        |  | $             | 1,486,505 |   |                 | $ | 43,326 |             |  | $ | 377,711                |   |  | $ | 1,907,542 |  
|Net Interest Income (Expense) (1)                             |  |               | 62,749    |   |                 |   | 2,310  |             |  |   | 4,051                  |   |  |   | 69,110    |  
|Provision for Loan Losses                                     |  |               | 3,200     |   |                 |   |       |             |  |   |                       |   |  |   | 3,200     |  
|Non-Interest Income                                           |  |               | 19,280    |   |                 |   | 10,002 |             |  |   | 36                     |   |  |   | 29,318    |  
|Intangible Amortization                                       |  |               | (696      | ) |                 |   |       |             |  |   |                       |   |  |   | (696      | )
|Other Non-Interest Expense                                    |  |               | (23,720   | ) |                 |   | (3,758 | )           |  |   | (34,887                | ) |  |   | (62,365   | )
|Intersegment Income (Expense) (2)                             |  |               | (21,297   | ) |                 |   | 1,876  |             |  |   | 19,421                 |   |  |   |          |  
|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  
|Income (Loss) from Continuing Operations, Before Income Taxes |  | $             | 39,516    |   |                 | $ | 10,430 |             |  | $ | (11,379                | ) |  | $ | 38,567    |  
|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  
|                                                              |  |               |           |  
|                                                              |  | CommunityBank |           |   | ConsumerFinance |   |        | Non-Segment |  |   | 2004ConsolidatedTotals |  
|Average Segment Assets                                        |  | $             | 1,632,423 |   |                 | $ | 62,353 |             |  | $ | 380,285                |   |  | $ | 2,075,061 |  
|Net Interest Income (Expense) (1)                             |  |               | 69,564    |   |                 |   | 3,054  |             |  |   | (3,177                 | ) |  |   | 69,441    |  
|Provision for Loan Losses                                     |  |               | (11,550   | ) |                 |   |       |             |  |   |                       |   |  |   | (11,550   | )
|Non-Interest Income                                           |  |               | 24,009    |   |                 |   | 10,500 |             |  |   | 2,342                  |   |  |   | 36,851    |  
|Intangible Amortization                                       |  |               | (718      | ) |                 |   |       |             |  |   |                       |   |  |   | (718      | )
|Other Non-Interest Expense                                    |  |               | (29,430   | ) |                 |   | (3,695 | )           |  |   | (35,380                | ) |  |   | (68,505   | )
|Intersegment Income (Expense) (2)                             |  |               | (18,233   | ) |                 |   | 596    |             |  |   | 17,637                 |   |  |   |          |  
|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  
|Income (Loss) from Continuing Operations, Before Income Taxes |  | $             | 33,642    |   |                 | $ | 10,455 |             |  | $ | (18,578                | ) |  | $ | 25,519    |  
|                                                              |  |               |           |   |                 |   |        |             |  |   |                        |   |  |   |           |  

---

|(1) | The net interest income amounts in the segment results reflect the actual interest income and expense from segment activities and amounts for transfer income and expense to match
fund each segment. Transfer income and expense is assigned to assets and liabilities based on the cost of funds.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Intersegment revenues are received by one segment for performing a service for another segment. In the case of residential and consumer portfolios, the amount paid to the consumer
loan processing office is capitalized and amortized over a four-year period. These entries are eliminated from the Corporations actual results.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FIRST INDIANA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(19) Interim Quarterly Results (Unaudited)



|                                                  |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|------------------------------------------------- |  | ------------ | ------ | - | ------------- | - | ------ | ------------ |  | ------------- | ------ |  | - | ------
|(Dollars in Thousands, except Per Share Data)     |  | FirstQuarter |        |   | SecondQuarter |   |        | ThirdQuarter |  | FourthQuarter
|2006                                              |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|Total Interest Income                             |  | $            | 30,131 |   |               | $ | 32,048 |              |  | $             | 34,644 |  | $ | 34,896
|Net Interest Income                               |  |              | 17,854 |   |               |   | 17,741 |              |  |               | 17,920 |  |   | 18,179
|Provision for Loan Losses                         |  |              | (250   | ) |               |   | (1,350 | )            |  |               |       |  |   |      
|Non-Interest Income                               |  |              | 7,440  |   |               |   | 7,278  |              |  |               | 6,636  |  |   | 6,530 
|Non-Interest Expense                              |  |              | 16,172 |   |               |   | 15,473 |              |  |               | 15,640 |  |   | 15,345
|Income from Continuing Operations, Net of Taxes   |  |              | 5,910  |   |               |   | 6,703  |              |  |               | 5,673  |  |   | 6,010 
|Income from Discontinued Operations, Net of Taxes |  |              | 8,653  |   |               |   |       |              |  |               |       |  |   |      
|Net Income                                        |  |              | 14,563 |   |               |   | 6,703  |              |  |               | 5,673  |  |   | 6,010 
|Basic Earnings Per Share                          |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|Income from Continuing Operations, Net of Taxes   |  |              | 0.35   |   |               |   | 0.41   |              |  |               | 0.34   |  |   | 0.36  
|Income from Discontinued Operations, Net of Taxes |  |              | 0.52   |   |               |   |       |              |  |               |       |  |   |      
|Net Income                                        |  |              | 0.87   |   |               |   | 0.41   |              |  |               | 0.34   |  |   | 0.36  
|Diluted Earnings Per Share                        |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|Income from Continuing Operations, Net of Taxes   |  |              | 0.35   |   |               |   | 0.40   |              |  |               | 0.34   |  |   | 0.35  
|Income from Discontinued Operations, Net of Taxes |  |              | 0.50   |   |               |   |       |              |  |               |       |  |   |      
|Net Income                                        |  |              | 0.85   |   |               |   | 0.40   |              |  |               | 0.34   |  |   | 0.35  
|                                                  |  |              |        |  
|2005                                              |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|Total Interest Income                             |  | $            | 24,097 |   |               | $ | 26,031 |              |  | $             | 27,867 |  | $ | 29,185
|Net Interest Income                               |  |              | 16,340 |   |               |   | 17,238 |              |  |               | 17,734 |  |   | 17,799
|Provision for Loan Losses                         |  |              | (2,550 | ) |               |   | (650   | )            |  |               |       |  |   |      
|Non-Interest Income                               |  |              | 5,031  |   |               |   | 8,250  |              |  |               | 8,418  |  |   | 7,619 
|Non-Interest Expense                              |  |              | 15,445 |   |               |   | 16,321 |              |  |               | 16,034 |  |   | 15,261
|Income from Continuing Operations, Net of Taxes   |  |              | 5,406  |   |               |   | 6,127  |              |  |               | 6,406  |  |   | 6,561 
|Income from Discontinued Operations, Net of Taxes |  |              | 216    |   |               |   | 156    |              |  |               | 209    |  |   | 190   
|Net Income                                        |  |              | 5,622  |   |               |   | 6,283  |              |  |               | 6,615  |  |   | 6,751 
|Basic Earnings Per Share                          |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|Income from Continuing Operations, Net of Taxes   |  |              | 0.31   |   |               |   | 0.36   |              |  |               | 0.37   |  |   | 0.39  
|Income from Discontinued Operations, Net of Taxes |  |              | 0.01   |   |               |   | 0.01   |              |  |               | 0.01   |  |   | 0.01  
|Net Income                                        |  |              | 0.32   |   |               |   | 0.37   |              |  |               | 0.38   |  |   | 0.40  
|Diluted Earnings Per Share                        |  |              |        |   |               |   |        |              |  |               |        |  |   |       
|Income from Continuing Operations, Net of Taxes   |  |              | 0.31   |   |               |   | 0.35   |              |  |               | 0.36   |  |   | 0.38  
|Income from Discontinued Operations, Net of Taxes |  |              | 0.01   |   |               |   | 0.01   |              |  |               | 0.01   |  |   | 0.01  
|Net Income                                        |  |              | 0.32   |   |               |   | 0.36   |              |  |               | 0.37   |  |   | 0.39  



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PART I



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

Description of Business

First Indiana Corporation (First Indiana or the Corporation) is an Indiana corporation formed in 1986. It is the holding company
for First Indiana Bank, N.A. (the Bank), the largest commercial bank headquartered in Indianapolis.

In the fourth quarter of
2005, the Corporation announced an agreement to sell the assets related to its trust business. This sale was closed on January 3, 2006.

The Corporation had total assets of $2.16 billion at December 31, 2006, an increase of $195.8 million from $1.97 billion at December 31, 2005. Loans outstanding were $1.69 billion and deposits were $1.61 billion at
December 31, 2006.

Effective August 1, 2001, the Bank converted from a federal savings bank to a national bank and First Indiana
became a bank holding company registered with the Federal Reserve Board. Effective September 25, 2001, the Federal Reserve Board approved the Corporations election to become a financial holding company. As a financial holding company, the
Corporation may engage in activities that are financial in nature or incidental to a financial activity.

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

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

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

Business Segments

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

Competition

The Bank faces substantial competition in originating both commercial and consumer loans. This competition comes principally from other banks, savings institutions, mortgage banking companies, and other lenders. Many of these competitors
have competitive advantages, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing
alternatives, as well as lower origination and operating costs. This competition could reduce the Corporations net income by decreasing the number and size of loans that the Bank originates and the interest rates it may charge on these loans.

In attracting business and consumer deposits, the Bank faces substantial competition from other insured depository institutions such as
banks, savings institutions, and credit unions, as well as institutions offering



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uninsured investment alternatives, including money market funds. Many of these competitors enjoy advantages, including greater financial resources, more
aggressive marketing campaigns, better brand recognition, and more branch locations. These competitors may offer higher interest rates than the Bank, which could decrease the deposits that it attracts or require the Bank to increase its rates to
retain existing deposits or attract new deposits. Increased deposit competition could adversely affect the Corporations ability to generate the funds necessary for lending operations, which could increase the cost of funds.

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

Supervision and Regulation

First Indiana Corporation is a financial holding company and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended (BHC Act). The BHC Act requires the prior approval of
the Federal Reserve Board for a financial holding company to acquire or hold more than five percent voting interest in any bank and restricts interstate banking activities.

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

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

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

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

There are various statutory restrictions on the
ability of the Bank to pay dividends or make other payments to First Indiana Corporation, as described below. Prior regulatory approval is required if dividends to be declared by the Bank in any year would exceed net earnings of the current year (as
defined under the National Bank Act) plus retained net profits for the preceding two years. At January 1, 2007, the Bank could have paid dividends to the Corporation of approximately $888,000 without regulatory approval. Due to the payment of
an $11,000,000 special dividend in January 2003 (to partially fund the acquisition of MetroBanCorp), the Bank sought and



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received approval from the OCC to make its regularly scheduled dividend payments in 2005, not to exceed $20,000,000. The Bank paid dividends of $20,000,000
to the Corporation in 2005. The Bank sought and received approval from the OCC to make its regularly scheduled dividend payments in 2004, not to exceed $19,000,000. The Bank paid dividends of $16,000,000 to the Corporation in 2004.

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

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



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



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

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

First Indiana, like other bank holding companies, is required to maintain Tier 1 capital and total capital equal to at least 4 percent and 8 percent,
respectively, of total risk-weighted assets. As of December 31, 2006, the Corporation met both requirements, with Tier 1 and total capital equal to 10.56 percent and 13.16 percent, respectively, of total risk-weighted assets. The Bank was also
in compliance with its applicable minimum capital requirement at December 31, 2006, with Tier 1 capital and total capital equal to 10.74 percent and 11.99 percent, respectively, of its total risk-weighted assets.

The Federal Reserve Board, the FDIC, and the OCC have incorporated market and interest rate risk components into their risk-based capital standards.
Under these market risk requirements, capital is allocated to support the amount of market risk related to a financial institutions ongoing trading activities. The Federal Reserve Board also requires a minimum leverage ratio (Tier
1 capital to adjusted average assets) of 3 percent for bank holding companies that have the highest regulatory rating or have implemented the risk-based capital measures for market risk, or 4 percent for holding companies that do not meet either of
these requirements. The Bank is subject to similar requirements adopted by the OCC. As of December 31, 2006, the Corporations leverage ratio was 8.43 percent, and the Banks was 8.56 percent.

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

Source of Strength Doctrine.Under Federal Reserve
Board policy, a bank holding company is expected to serve as a source of financial strength to its subsidiary bank and to stand prepared to commit resources to support its subsidiary bank. There are no specific quantitative rules on the holding
companys potential liability. If the



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Bank were to encounter financial difficulty, the Federal Reserve Board could invoke the doctrine and require a capital contribution. In addition, and as a
separate legal matter, a holding company is required to guarantee the capital plan of an undercapitalized subsidiary bank. See FDICIA below.

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

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

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



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



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



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



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



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



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



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

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

FDICIA also contains a variety of other provisions that may affect First Indianas operations, including reporting requirements, regulatory
standards for real estate lending, truth in savings provisions, and the requirement that a depository institution give notice to customers and regulatory authorities before closing any branch. As of December 31, 2006, the Bank
exceeded the required capital ratios for classification as well-capitalized.

FDIC Insurance and Financing Corporation
Assessments.The Federal Deposit Insurance Reform Act of 2005 (the Reform Act) instituted a new risk-based assessment system that ties each banks insurance premium to the risk they pose to the deposit insurance fund. Under this
new system, the FDIC will evaluate each institutions risk based on three primary sources of information; supervisory ratings for all institutions, financial



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ratios for most institutions, and long-term debt issuer ratings for large institutions that have these ratings. Under the Reform Act, the FDIC has set 2007
assessment rates that will vary between five and seven cents per $100 of domestic deposits for nearly all of the industry. However, as part of the Reform Act, credits are provided to institutions that paid high premiums in the past to bolster the
FDICs insurance reserves. As a result, the majority of banks will have assessment credits to initially offset all of their premiums in 2007. Management believes the Banks 2007 net premiums under these new regulations will not be
material. Under the Federal Deposit Insurance Act, a depository institution may not pay interest on indebtedness, if such interest is required to be paid out of net profits, or distribute any of its capital assets while it remains in default on any
assessment due to the FDIC.

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

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

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

Community Reinvestment Act. Under the Community Reinvestment Act and related regulations, depository institutions have an affirmative obligation
to assist in meeting the credit needs of their market areas, including low and moderate income areas, consistent with safe and sound banking practices. The Community Reinvestment Act requires the adoption by each institution of a Community
Reinvestment Act statement for each of its market areas describing the depository institutions efforts to assist in its communitys credit needs. Depository institutions are periodically examined for compliance with the Community
Reinvestment Act and are periodically assigned ratings in this regard. Banking regulators consider a depository institutions Community Reinvestment Act rating when reviewing applications to establish new branches, undertake new lines of
business, and/or acquire part or all of another depository institution. An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution
subsidiary. The most recent Community Reinvestment Act rating the Bank has received was satisfactory.



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Privacy Provisions of the Graham-Leach-Bliley Act.Federal banking regulators, as required under
the Graham-Leach-Bliley Act (the GLB Act), have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure
of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of the GLB Act affect how consumer information is transmitted
through diversified financial services companies and conveyed to outside vendors.

Sarbanes-Oxley Act of 2002.The Sarbanes-Oxley
Act of 2002 (Sarbanes-Oxley) implemented a broad range of corporate governance and accounting measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded
companies, and to protect investors by improving the accuracy and reliability of disclosures under federal securities laws. The Corporation is subject to Sarbanes-Oxley because it is required to file periodic reports with the SEC under the
Securities and Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its implementing regulations have established new membership requirements and additional responsibilities for the Corporations audit committee, imposed restrictions
on the relationship between the Corporation and its outside auditors (including restrictions on the types of non-audit services outside auditors may provide to the Corporation), imposed additional responsibilities for the Corporations
financial statements on the chief executive officer and chief financial officer, expanded the disclosure requirements for corporate insiders, required the Corporations management to evaluate the Corporations disclosure controls and
procedures and its internal control over financial reporting, and required the outside auditors to issue a report on the Corporations internal control over financial reporting.

Patriot Act.On October 26, 2001, President Bush signed into law the USA Patriot Act of 2001 (the Patriot Act). The Patriot Act
substantially broadened the existing anti-money laundering legislation. In particular, the Patriot Act requires financial institutions, as defined by the Patriot Act, to create and maintain certain anti-money laundering programs. One such
program relates to the opening of new accounts. Financial institutions must include in their programs procedures to open new accounts in conjunction with the specific information that must be obtained before the account may be opened by the
financial institution.

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

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

Banks and other depository institutions also are subject to numerous consumer protection laws and regulations. These laws include, but are not limited
to, the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, The Fair and Accurate Credit Transactions Act, and the Fair Housing Act, as well
as regulations of the Office of the Comptroller of the Currency. These laws and regulations require compliance by depository institutions covering a myriad of consumer issues, from providing lending disclosures to responding to consumer electronic
funds transfer error claims.



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

Employees

At December 31, 2006, the Corporations full-time equivalent employees totaled 514.

Reports on Corporation Website

First Indiana
Corporation makes available free of charge through its Internet website the Corporations annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable
after they are electronically filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act. These reports are available by going to the Corporations website (www.firstindiana.com) and selecting Investor Relations and
then SEC Filings.



|Item 1A. | Risk Factors
|-------- | ------------

Investments in the Corporation common
stock involve risk. Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to
anticipate results or trends in future periods.

Growing deposits at a rate that optimally supports loan growth requires improving
the Corporations deposit gathering capabilities.

As loan growth accelerates, the Corporation must also generate significant
deposit growth. In the absence of sufficient deposit growth the Corporation will likely need to rely on higher cost borrowings to fund loan growth.

A significant challenge for the future of the Corporation is recruiting and retaining top talent.

In the
Corporations competitive market, success will be determined in large part by who can hire and retain the best talent. Finding and retaining high performing employees is a particular challenge for banks in the Corporations core market of
Central Indiana. Over the past several decades, the acquisitions of the largest banks in this market resulted in the elimination of comprehensive bank training programs in this area as their headquarters are now in other cities. At the same time,
the number of banks in the market has increased. So while demand for quality bankers rose, supply diminished, causing a shortage of well-trained bankers in Indianapolis.

The Corporations earnings are significantly affected by general business and economic conditions, including credit risk and interest rate risk.

The Corporations business and earnings are sensitive to general business and economic conditions in the United States and in Central Indiana, in
particular. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in debt and equity capital markets, the strength of the U.S. and local economies and consumer spending, borrowing and saving
habits. For example, an economic downturn, increase in unemployment, or higher interest rates could decrease the demand for loans and other products and services and/or result in a deterioration in credit quality and/or loan performance and
collectability. Nonpayment of loans, if it occurs, could have an adverse effect on the Corporations financial condition and results of operations. Higher interest rates also could increase the Corporations cost to borrow funds and
increase the rate the Corporation pays on deposits.



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The Corporation may not be able to keep pace with advances in technology as well as its
competitors.

The Corporation continually encounters technological change, and it may have fewer resources than many of its
competitors to continue to invest in technological improvements, which could reduce its ability to compete. The financial services industry is undergoing rapid technological changes with frequent introduction of new technology-driven products and
services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial service institutions to reduce costs. The Corporations future success will depend, in part, upon its ability to
address the needs of its customers by using technology to provide products and services to enhance customer convenience, as well as to create additional efficiencies in its operations. Many competitors have substantially greater resources to invest
in technological improvements. The Corporations ability to compete could be reduced if it cannot effectively implement new technology-driven products and services.

The Corporations Consumer Finance Bank segment of operations may be adversely affected if the Bank is unable to secure adequate funding from secondary market investors or if the Bank is unable to originate
sufficient volumes of consumer loans saleable into the secondary market. Both the origination and sale of its consumer loans expose the Corporation to potential liquidity risk, as well as volatility in the gains on sale of loans.

The Corporation regularly sells the majority of its closed-end and line of credit home equity loan originations into the secondary market. The success
of its business depends on the continued participation of investors in this market. In the third quarter of 2006, an investor which previously has purchased approximately one-half of the Corporations volume of loans significantly reduced loan
purchases and notified us of its intent to significantly reduce future purchases of loans. The investors action was in response to the credit deterioration of sub-prime loans in the national marketplace. Management is currently seeking new
investors to replace the resultant shortfall in sales. However, should additional secondary market sources not be found, both the liquidity and revenues attributable to these sales could decrease. Further, recent experience indicates that the market
for these loans has generated lower prices and therefore lower sales margins.

In response to these developments in the market, the
Corporation is continuing to evaluate its Consumer Finance Bank segment in order to maintain an effective strategy going forward.

The banking and financial services industry is highly competitive.

The Corporation operates in a highly competitive
environment in the products and services the Corporation offers and the markets in which it serves. The competition among financial services providers to attract and retain customers is intense. Customer loyalty can be easily influenced by a
competitors new products, especially offerings that provide cost savings to the customer. Some of the Corporations competitors may be better able to provide a wider range of products and services over a greater geographic area.

Additional competitors have and may enter our primary market of Indianapolis and/or acquire institution(s) in our markets and increase
competition. Further, new and additional competitors may make it more difficult and expensive for the Corporation to attract and retain key employees and customers.

The Corporation believes the banking and financial services industry in general will become even more competitive as a result of legislative, regulatory and technological changes and the continued consolidation of the
industry. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic funds transfer and automatic payment systems. Also, investment banks and
insurance companies are competing in more banking businesses such as syndicated lending and consumer banking. Many of the Corporations competitors are subject to fewer regulatory constraints and have lower cost structures. The Corporation
expects the consolidation of the banking and financial services industry to result in larger, better-capitalized companies offering a wide array of financial services and products.



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The Corporation is heavily regulated by federal and state agencies.

The holding company and its subsidiary bank are heavily regulated at the federal and state levels. This regulation is designed primarily to protect
consumers, depositors and the banking system as a whole, not shareholders. Congress and state legislatures and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes,
regulations or regulatory policies, including changes in interpretation or implementation of statues, regulations or policies, could affect the Corporation in substantial and unpredictable ways including limiting the types of financial services and
products the Corporation may offer, increasing the ability of non-banks to offer competing financial services and products and/or increasing the Corporations cost structures. Also, the Corporations failure to comply with laws,
regulations or policies could result in sanctions by regulatory agencies and damage to its reputation.

The Corporation is subject to
examinations and challenges by tax authorities.

In the normal course of business, the Corporation and its affiliates are routinely
subject to examinations and challenges from federal and state tax authorities regarding the amount of taxes due in connection with investments it has made and the businesses in which it is engaged. Recently, federal and state taxing authorities have
become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base,
apportionment and tax credit planning. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and
are not resolved in the Corporations favor, they could have an adverse effect on the Corporations financial condition and result of operations.

Maintaining or increasing the Corporations market share depends on market acceptance and regulatory approval of new products and services and other factors.

The Corporations success depends, in part, on its ability to adapt in products and services to evolving industry standards and to control expenses.
There is increasing pressure on financial services companies to provide products and services at lower prices. This can reduce the Corporations net interest margin and revenues from its fee-based products and services. In addition, the
Corporations success depends in part on its ability to generate significant levels of new business in its existing primary market of Indianapolis. Further, the widespread adoption of new technologies, including Internet-based services, could
require the Corporation to make substantial expenditures to modify or adapt its existing products and services or render the Corporations existing products obsolete. The Corporation may not be able to successfully introduce new products and
services, achieve market acceptance of its products and services, develop and maintain loyal customers and/or break into targeted markets.

The holding company relies on dividends from its bank subsidiary for most of its revenue.

The holding company is a
separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its bank subsidiary. These dividends are the principal source of funds to pay dividends on the holding companys common
stock and interest on its debt. The payment of dividends by a subsidiary is subject to federal law restrictions as well as to the laws of the subsidiarys state of incorporation. Also, a parent companys right to participate in a
distribution of assets upon a subsidiarys liquidation or reorganization is subject to the prior claims of the subsidiarys creditors.

The Corporations accounting policies and methods are the basis of how the Corporation reports its financial condition and results of operations, and they may require management to make estimates about matters that are inherently
uncertain.

The Corporations accounting policies and methods are fundamental to how the Corporation records and reports its
financial condition and results of operations. The Corporations management must exercise judgment



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in selecting and applying many of these accounting policies and methods in order to ensure that they comply with generally accepted accounting principles and
reflect managements judgment as to the most appropriate manner in which to record and report the Corporations financial condition and results of operations. In some cases, management must select the accounting policy or method to apply
from two or more alternatives, any of which might be reasonable under the circumstances yet might result in the Corporations reporting materially different amounts than would have been reported under a different alternative.

The Corporation has identified three accounting policies as being critical to the presentation of its financial condition and results of
operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different
conditions or using different assumptions. These critical accounting policies relate to: (1) the allowance for loan and lease losses; (2) goodwill; (3) the valuation allowance for deferred taxes. Because of the inherent uncertainty of
estimates about these matters, no assurance can be given that the application of alternative policies or methods might not result in the Corporations reporting materially different amounts.

More information on the Corporations critical accounting policies is contained in Item 7, Managements Discussion and Analysis of
Financial Position and Results of Operations and Note 12 of the Notes to Consolidated Financial Statements.

The Corporation is
dependent on senior management.

The Corporations continued success depends to a significant extent upon the continued
services of its senior management. The loss of services of any of the Corporations senior executive officers could cause the Corporations business to suffer. In addition, the Corporations success depends in part upon senior
managements ability to implement the Corporations business strategy.

The Corporations stock price can be volatile.

The Corporations stock price can fluctuate widely in response to a variety of factors including:



| |  |  | Actual or anticipated variations in the Corporations quarterly results;
| | - |  | ------------------------------------------------------------------------



| |  |  | New technology or services by the Corporations competitors;
| | - |  | ------------------------------------------------------------



| |  |  | Unanticipated losses or gains due to unexpected events, including losses or gains on securities held for investment purposes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Corporation or its competitors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in accounting policies or practices; or
| | - |  | -----------------------------------------------



| |  |  | Changes in government regulations.
| | - |  | ----------------------------------

General market fluctuations, industry factors and general economic and political conditions, such as economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, also could cause the
Corporations stock price to decrease regardless of its operating results.

The Corporation may be a defendant in a variety of
litigation and other actions, which may have a material adverse effect on its business, operating results and financial condition.

The Corporation and its subsidiaries may be involved from time to time in a variety of litigation arising out of the Corporations business. The Corporations insurance may not cover all claims that may be asserted against it, and
any claims asserted against the Corporation, regardless of merit or eventual outcome, may harm the



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Corporations reputation. Should the ultimate judgments or settlements in any litigation exceed the Corporations insurance coverage, they could
have a material adverse effect on the Corporations business, operating results and financial condition. In addition, the Corporation may not be able to obtain appropriate types or levels of insurance in the future, nor may the Corporation be
able to obtain adequate replacement policies with acceptable terms, if at all.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



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

At December 31, 2006, the
Corporation operated through 31 full-service banking centers in Central Indiana and three loan origination offices in addition to its headquarters and operations locations. The Corporation leases its headquarters location in downtown Indianapolis
and owns the Banks operations facilities in Greenwood, Indiana. FirstTrust Indiana, the Banks investment advisory and trust division, which was sold effective January 2006, leases its facility on the north side of Indianapolis. The
Corporation leases 13 of its branches and two origination offices and owns the remaining locations. The aggregate carrying value at December 31, 2006, of the properties owned or leased, including headquarters properties and leasehold
improvements at the leased offices, was $20,670,000. See Notes 8 and 14 of the Notes to Consolidated Financial Statements.



|Item 3. | Legal Proceedings
|------- | -----------------

There are no pending legal
proceedings to which the Corporation or any subsidiary was a party or to which any of their property is subject other than ordinary routine litigation incidental to its business which, in the opinion of management, is not material to the
Corporations business, operations, or financial condition.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matters were submitted to a vote of the Corporations security holders during the three months ended December 31, 2006.



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Executive Officers of the Registrant

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

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



|                   |  |                                                                                                                                                                           |  |     |  |                           
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | --------------------------
|Name               |  | Position                                                                                                                                                                  |  | Age |  | Year First Elected Officer
|William J. Brunner |  | Executive Vice President and Treasurer, Chief Financial Officer of the Corporation; Chief Financial Officer and Executive Vice President Financial Management of the Bank |  | 47  |  | 2000                      
|                   |  |                                                                                                                                                                           | 
|Tim S. Massey      |  | Executive Vice President and Chief Lending Officer                                                                                                                        |  | 48  |  | 2006                      
|                   |  |                                                                                                                                                                           | 
|David L. Maraman   |  | Executive Vice President and Chief Credit Officer of the Bank                                                                                                             |  | 59  |  | 2003                      
|                   |  |                                                                                                                                                                           | 
|Reagan K. Rick     |  | Secretary of the Corporation; Executive Vice
President Retail/Consumer Banking and Secretary of the Bank                                                                  |  | 45  |  | 2004                      

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

Tim S. Massey has been with the Bank since 2006, and is currently serving as executive vice president and chief lending officer of the
Bank. He oversees the Banks Commercial Lending.

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

Reagan K. Rick joined the Bank in September 2004 and currently serves as secretary of the Corporation and secretary and executive vice president
Retail/Consumer banking division of the Bank which includes the retail branch network and marketing department. Previously, he practiced law in Indiana for seven years with a concentration in commercial transactions and served in various lending
related capacities at commercial banks for fourteen years.



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PART II

On January 18, 2006, the Corporation declared a five-for-four stock split to be effected on February 27, 2006, to shareholders of record as of February 13, 2006. All share and per share information in
this Form 10-K has been restated to reflect the stock split.



|Item 5. | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ----------------------------------------------------------------------------------------------------------------

The Corporations stock is traded on the NASDAQ National Market under the ticker symbol FINB. As of February 9, 2007, there were approximately
1,466 holders of record of the Corporations common stock. The following table contains high and low bid information as reported by NASDAQ.



|               |  |      |       |      |   |            |  |      |       |     |   |            |  |   |       |  |   |      
|-------------- |  | ---- | ----- | ---- | - | ---------- |  | ---- | ----- | --- | - | ---------- |  | - | ----- |  | - | -----
|               |  | 2006 |       | 2005
|               |  | High |       | Low  |   | Book Value |  | High |       | Low |   | Book Value
|First Quarter  |  | $    | 28.78 |      | $ | 25.94      |  | $    | 10.41 |     | $ | 20.39      |  | $ | 16.88 |  | $ | 9.93 
|Second Quarter |  |      | 27.81 |      |   | 23.99      |  |      | 10.43 |     |   | 23.85      |  |   | 18.98 |  |   | 10.15
|Third Quarter  |  |      | 26.89 |      |   | 23.82      |  |      | 10.69 |     |   | 27.52      |  |   | 23.25 |  |   | 10.19
|Fourth Quarter |  |      | 26.30 |      |   | 24.11      |  |      | 10.86 |     |   | 29.08      |  |   | 26.06 |  |   | 10.22

The Corporation paid a dividend of $0.20 in each of the four quarters of 2006. The Corporation
paid a cash dividend of $0.144 per common share in each of the first two quarters of 2005 and increased the dividend to $0.16 per common share in the third and fourth quarters of 2005. All share and per share data has been restated to reflect the
five-for-four stock split declared on January 18, 2006.

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



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

The following line graph compares the cumulative total shareholder return on the common stock of the Corporation over
the last five fiscal years with the cumulative total return of the NASDAQ Stock Market Index and the cumulative total return of the NASDAQ Bank Index over the same period.

LOGO

ISSUER PURCHASES OF FIRST INDIANA COMMON STOCK



|                                      |  |                                                  |  |                                      |       |                                                                                            |   |                                                                                                                       |        
|------------------------------------- |  | ------------------------------------------------ |  | ------------------------------------ | ----- | ------------------------------------------------------------------------------------------ | - | --------------------------------------------------------------------------------------------------------------------- | -------
|Period                                |  | Total Number ofShares (or Units)Purchased(1) (2) |  | Average PricePaid per Share(or Unit) |       | Total Number ofShares (or Units)Purchased as Partof PubliclyAnnounced Plansor Programs
(2) |   | Maximum Number(or ApproximateDollar Value) ofShares (or Units) thatMay Yet BePurchased Under
thePlans or Programs (2)
|October 1, 2006 to October 31, 2006   |  |                                                 |  |                                      |       |                                                                                            |  |                                                                                                                       | 800,000
|November 1, 2006 to November 30, 2006 |  |                                                 |  |                                      |       |                                                                                            |  |                                                                                                                       | 800,000
|December 1, 2006 to December 31, 2006 |  | 421                                              |  | $                                    | 25.86 |                                                                                            |  |                                                                                                                       | 800,000
|                                      |  |                                                  |  |                                      |       |                                                                                            |   |                                                                                                                       |        
|Total                                 |  | 421                                              |  | $                                    | 25.86 |                                                                                            |  |                                                                                                                       | 800,000
|                                      |  |                                                  |  |                                      |       |                                                                                            |   |                                                                                                                       |        

---

|(1) | Shares of common stock are purchased by the Corporation in the open market and held in trust for certain of the Corporations Directors under the Director Deferred Fee Plan. In
the fourth quarter of 2006, 421 shares were purchased under this plan. At December 31, 2006, $176,000 of outstanding common stock had been repurchased under this plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On April 19, 2006, the Board of Directors of the Corporation approved the repurchase, from time to time, on the open market of up to 1,000,000 outstanding
shares of the Corporations common stock. The Board provided for the repurchase of shares to begin at any time and terminated all prior unfulfilled share
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | repurchase programs. The Boards authorization has no expiration date. At December 31, 2006, 200,000 shares of common stock had been purchased
under this plan.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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



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

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



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



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



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



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



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



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



| |  |  | Capital
| | - |  | -------



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



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



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



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

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



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

Information required by this item is shown in Financial Review under the headings Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Report of Independent Registered
Public Accounting Firm, and is incorporated by reference to the Corporations Proxy Statement under the heading Executive CompensationCompensation Committee Interlocks and Insider Participation. The Corporations
unaudited quarterly financial information for each of the years in the two-year period ended December 31, 2006 is shown in Note 19 of Notes to Consolidated Financial Statements under the heading Financial Review.



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

None.



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

Disclosure controls and
procedures are controls and other procedures designed to ensure that information required to be disclosed in the Corporations reports filed under the Securities Exchange Act of 1934, such as this Annual Report, is recorded, processed,
summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures are also designed to



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ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate
to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Report on Form 10-K, First Indiana
evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision and with the participation of management, including its chief executive officer and chief financial officer. The evaluation of
First Indianas disclosure controls and procedures included a review of the controls objectives and design, First Indianas implementation of the controls and the effect of the controls on the information generated for use in this
Annual Report. Included as exhibits to this Annual Report are Certifications of First Indianas chief executive officer and chief financial officer in accordance with Rule 13a-14 of the Securities Exchange Act of 1934. This Controls
and Procedures section of the Annual Report includes the information concerning the controls evaluation referred to in Rule 13a-15, and it should be read in conjunction with the Rule 13a-14 Certifications for a more complete understanding of the
topics presented.

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

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

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

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



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

None.



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PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

The information required by this item with respect to the directors is incorporated by reference to the Corporations Proxy Statement under the heading Proposal to Be Voted on No. 1: Election of Directors and the
information relating to compliance by officers and directors with Section 16(a) is incorporated by reference to the Corporations Proxy Statement under the heading Stock Ownership of Directors, Officers, and Certain Shareholders
 Section 16(a) Beneficial Ownership Reporting Compliance. The information required by this item with respect to the Corporations Audit Committee and Audit Committee financial experts is incorporated by reference to the
Corporations Proxy Statement under the heading Corporate Governance  Board Structure and Committee Composition  Audit Committee. Additional information about the Companys executive officers is included in Part I
under the heading Executive Officers of the Registrant.

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

There have been no material changes to the procedures by which security holders of the
Corporation may recommend nominees to the Board of Directors since the Corporations last disclosure with respect to such procedures.



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

The information required by
this item is incorporated by reference to the material under the headings Executive Compensation  and Corporate Governance  Board Compensation in the Corporations Proxy Statement.



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

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



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

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



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

The
information required by this item is incorporated by reference to the material under the heading Principal Accountant Fees and Services  Fees Incurred by First Indiana for KPMG in the Corporations Proxy Statement.



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PART IV



|Item 15. | Exhibits, Financial Statement Schedules
|-------- | ---------------------------------------



|                                                                                            |  |      
|------------------------------------------------------------------------------------------- |  | -----
|                                                                                            |  | Pages
|(a) (1) Financial Statements                                                                |  |      
|Report of Independent Registered Public Accounting Firm                                     |  | 37   
|Consolidated Balance Sheets as of December 31, 2006 and 2005                                |  | 38   
|Consolidated Statements of Earnings for the Three Years Ended December 31, 2006             |  | 39   
|Consolidated Statements of Shareholders Equity for the Three Years Ended December 31, 2006 |  | 40   
|Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2006           |  | 41   
|Notes to the Consolidated Financial Statements                                              |  | 42-77

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

None.

(3) Exhibits



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(a)  |  | Articles of Incorporation of First Indiana Corporation, incorporated by reference to Exhibit 3(a) of the Registrants Form 10-K filed on March 12, 2001.                                                                                                                                                                                                                                           
|      | 
|3(b)  |  | Amended and Restated Bylaws of First Indiana Corporation, as amended by amendment adopted July 19, 2006. *A                                                                                                                                                                                                                                                                                        
|      | 
|4(a)  |  | Form of Certificate of Common Stock of Registrant, incorporated by reference to Exhibit 4(c) of the Registrants registration statement on Form S-1, filed as No. 33-46547 on March 20,
1992.                                                                                                                                                                                                      
|      | 
|4(b)  |  | Rights Agreement dated as of November 14, 1997, incorporated by reference to Exhibit 4 of the Registrants Form 8-A filed December 2, 1997, and Amendment to Rights Agreement, incorporated
by reference to Exhibit 4 of the Registrants Form 10-Q filed on May 13, 2002.                                                                                                                         
|      | 
|10(a) |  | Form of data processing services contract between First Indiana Bank, N.A. and Metavante Corporation dated October 19, 2005 incorporated by reference to Exhibit 10(a) of the Registrants
Annual Report on Form 10-K for the year ended December 31, 2005. *B                                                                                                                                     
|      | 
|10(b) |  | First Indiana Corporation 1991 Stock Option and Incentive Plan, incorporated by reference to Exhibit A of the Registrants March 20, 1991 Proxy Statement, Pages A-1 to A-8.
*B                                                                                                                                                                                                                    
|      | 
|10(c) |  | First Indiana Corporation 1998 Stock Incentive Plan, incorporated by reference to Exhibit 10(c) of the Registrants Annual Report on Form 10-K for the year ended December 31, 1997.
*B                                                                                                                                                                                                            
|      | 
|10(d) |  | First Indiana Corporation 1992 Director Stock Option Plan, incorporated by reference to Exhibit A of the Registrants March 13, 1992 Proxy Statement, Pages A-1 to A-3. *B                                                                                                                                                                                                                         
|      | 
|10(e) |  | First Indiana Corporation Supplemental Benefit Plan effective May 1, 1997, incorporated by Reference to Exhibit 10(f) of the Registrants Annual Report on Form 10-K for the year ended
December 31, 1997. *B                                                                                                                                                                                      
|      | 
|10(f) |  | First Indiana Corporation Supplemental Benefit Plan Agreement effective May 1, 1997 between the Registrant and Robert H. McKinney, incorporated by reference to Exhibit 10(g) of the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 as amended October 20, 2004 and incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K filed October 22, 2004. *B



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10(g) |  | Form of First Indiana Corporation Supplemental Benefit Plan Agreement effective May 1, 1997 between the Registrant and Marni McKinney, incorporated by reference to Exhibit 10(h) of the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 as amended October 20, 2004 and incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K dated October 20, 2004. *B
|      | 
|10(h) |  | Form of Supplemental Benefit Plan Agreement effective May 6, 2000 between the Registrant and William J. Brunner; and effective July 23, 2003 between the Registrant and David L.
Maraman, incorporated by reference to Exhibit 10(i) of the Registrants Annual Report on Form 10-K for the year ended December 31, 1997. *B                                                                           
|      | 
|10(i) |  | Form of Employment Agreement between the Registrant and each of Robert H. McKinney and Marni McKinney, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed October
22, 2004. *B                                                                                                                                                                                               
|      | 
|10(j) |  | Form of Employment Agreement between First Indiana Bank and each of William J. Brunner, and David L. Maraman, incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K filed
October 22, 2004. *B                                                                                                                                                                                        
|      | 
|10(k) |  | The Somerset Group, Inc. 1991 Stock Incentive Plan, incorporated by reference to the Registrants Form 10-K filed on March 12, 2001. *B                                                                                                                                                                                                                                                                
|      | 
|10(l) |  | The Somerset Group, Inc. 1998 Stock Incentive Plan, incorporated by reference to the Registrants Form 10-K filed on March 12, 2001. *B                                                                                                                                                                                                                                                                
|      | 
|10(m) |  | The Somerset Group, Inc. Employee Stock Purchase Plan, incorporated by reference to the Registrants Form 10-K filed on March 12, 2001. *B                                                                                                                                                                                                                                                             
|      | 
|10(n) |  | Agreement and Plan of Merger dated September 4, 2002, by and among MetroBanCorp, Inc. and MetroBank and First Indiana Corporation, FIC Acquisition Corp. and First Indiana Bank, National
Association, incorporated by reference, to the Registrants Form 8-K filed on September 6, 2002.                                                                                                             
|      | 
|10(o) |  | Employment Continuation Agreement dated as of December 29, 2003, between the Registrant and Owen B. Melton, Jr., incorporated by reference to Exhibit 10(o) of the Registrants Form 10-K
filed on March 3, 2004. *B                                                                                                                                                                                   
|      | 
|10(p) |  | Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Junior Subordinated Indenture dated as of October 30, 2002 as an exhibit. The Registrant hereby agrees to
furnish a copy of this Indenture to the Commission upon request.                                                                                                                                      
|      | 
|10(q) |  | Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Junior Subordinated Indenture dated as of June 26, 2003 as an exhibit. The Registrant hereby agrees to
furnish a copy of this Indenture to the Commission upon request.                                                                                                                                         
|      | 
|10(r) |  | Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed its Subordinated Indenture dated as of November 14, 2003 as an exhibit. The Registrant hereby agrees to furnish
a copy of this Indenture to the Commission upon request.                                                                                                                                            
|      | 
|10(s) |  | Form of Employment Agreement between the Registrant and Robert H. Warrington, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated October 20, 2004.
*B                                                                                                                                                                                                                        
|      | 
|10(t) |  | Form of First Indiana Corporation Supplemental Benefit Plan Agreement between Registrant and Robert H. Warrington, incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K
filed October 22, 2004. *B                                                                                                                                                                                   
|      | 
|10(u) |  | First Indiana Corporation 2004 Executive Compensation Plan, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed February 17, 2005. *B                                                                                                                                                                                                                                         
|      | 
|10(v) |  | Form of Revised 2003-2005 Incentive Program, incorporated by reference to Exhibit 10.7 of the Registrants Form 8-K filed October 22, 2004. *B                                                                                                                                                                                                                                                         



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|       |  |                                                                                                                                                                                                                                                                      
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10(w)  |  | Form of 2004-2006 Incentive Program for Robert H. Warrington, incorporated by reference to Exhibit 10.8 of the Registrants Form 8-K filed October 22, 2004. *B                                                                                                      
|       | 
|10(x)  |  | Form of Restricted Stock Agreement for Revised 2003-2005 Incentive Program, incorporated by reference to Exhibit 10.9 of the Registrants Form 8-K filed October 22, 2004.
*B                                                                                        
|       | 
|10(y)  |  | Form of Deferred Stock Agreement, incorporated by reference to Exhibit 10.10 of the Registrants Form 8-K filed October 22, 2004. *B                                                                                                                                 
|       | 
|10(z)  |  | Form of Restricted Stock Agreement for 2004-2006 Incentive Program, incorporated by reference to Exhibit 10.11 of the Registrants Form 8-K filed October 22, 2004. *B                                                                                               
|       | 
|10(aa) |  | Asset Purchase Agreement between Registrant and Somerset CPAs, P.C., incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated October 25, 2004.                                                                                                  
|       | 
|10(ab) |  | Asset Purchase Agreement between Registrant and TierOne Bank, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated November 1, 2004.                                                                                                         
|       | 
|10(ac) |  | Form of Restricted Stock Agreement with William J. Brunner, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated December 22, 2004. *B                                                                                                       
|       | 
|10(ad) |  | Form of Restricted Stock Agreement with Robert H. Warrington, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated December 22, 2004. *B                                                                                                     
|       | 
|10(ae) |  | Form of Restricted Stock Agreement with Marni McKinney, incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K dated December 22, 2004. *B                                                                                                           
|       | 
|10(af) |  | Form of First Indiana Corporation Employment Agreement between Registrant andTim S. Massey, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed September 19,
2006. *B                                                                      
|       | 
|10(ag) |  | Form of First Amendment to Restricted Stock Agreements by and between the Registrant and David L. Maraman incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated
January 3, 2005. *B                                                           
|       | 
|10(ah) |  | Definitive agreement between First Indiana Bank, N.A. and Marshall & Ilsley Corporation for the sale of First Indianas trust business incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K dated October 21, 2005. *B                             
|       | 
|10(ai) |  | Form of First Indiana Corporation Employment Agreement between Registrant and Reagan K. Rick, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed January 5, 2006.
*B                                                                       
|       | 
|10(aj) |  | Form of Supplemental Benefit Plan Agreement between the Registrant and Reagan K. Rick, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated January 5, 2006.
*B                                                                              
|       | 
|10(ak) |  | First Indiana Corporation Employee Stock Purchase Plan, incorporated by reference to Exhibit A of the Registrants Form DEF 14A filed March 11, 2005. *B                                                                                                             
|       | 
|10(al) |  | Form of Restricted Stock Agreement under the 2006-2008 Long-Term Incentive Program, incorporated by reference to Exhibit 10(al) of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2005. *B.                                             
|       | 
|10(am) |  | Form of Deferred Share Agreement under the 2006-2008 Long-Term Incentive Program, incorporated by reference to Exhibit 10(am) of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2005. *B.                                               
|       | 
|10(an) |  | Form of Director Deferred Share Agreement under the 2004 Executive Compensation Plan and the 2006 Director Compensation Program, incorporated by reference to Exhibit 10(an) of the
Registrants Annual Report on Form 10-K for the year ended December 31, 2005. *B.
|       | 
|21     |  | Subsidiaries of First Indiana Corporation and First Indiana Bank. *A                                                                                                                                                                                                 



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|      |  |                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------
|23    |  | Consent of KPMG LLP.*A                                                                                       
|      | 
|31(a) |  | Rule 13a-14(a) Certification of Principal Executive Officer. *A                                              
|      | 
|31(b) |  | Rule 13a-14(a) Certification of Principal Financial Officer. *A                                              
|      | 
|32(a) |  | Section 1350 Certification of Chief Executive Officer. *A                                                    
|      | 
|32(b) |  | Section 1350 Certification of Chief Financial Officer. *A                                                    
|     
|*A    |  | These have been filed as an exhibit to this Form 10-K.                                                       
|*B    |  | Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



FIRST INDIANA CORPORATIONBy:

/s/    ROBERT H.
WARRINGTONRobert H. Warrington President and Chief Executive Officer (Principal Executive Officer) Date: March 2, 2007


Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has
been signed below by the following officers and directors on behalf of the Registrant and in the capacities indicated on March 2, 2007.

Officers



|    |  |                                                                                          |  |  |  |     |  |                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------- |  |  |  | --- |  | ---------------------------------------------------------------------------------------------------------
|By: |  | /s/    ROBERT H. WARRINGTON                                                              |  |  |  | By: |  | /s/    WILLIAM J.
BRUNNER                                                                                
|    |  | Robert H. Warrington President and Chief Executive Officer (Principal Executive Officer) |  |  |  |     |  | William J. Brunner Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Directors



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



99