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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

(Amendment No. 1)



(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, 2005



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-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 (as defined 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. Yes ̈No x



State the aggregate market value of the common stock held by non-affiliates of the
registrant: $328.5 million as of June 30, 2005.



On February 15,
2006, the registrant had 16,873,490 shares of common stock outstanding, $0.01 par value.



Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2006 Annual Meeting of Shareholders (Part III).



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First Indiana Corporation 10-K/A Explanatory Note



First Indiana Corporation (the Company) hereby amends its Annual Report on Form 10-K (the Original Filing) for the
year ended December 31, 2005 (originally filed March 2, 2006) as set forth on this Form 10-K/A (Amendment No. 1).



While the Company obtained signed original copies of the Reports of Independent Registered Public Accounting Firm on pages 35 and 36 of the Original Filing, the
signatures were not added to the EDGAR version before it was filed with the SEC. The signed reports are included in this Form 10-K/A.



The following Item of the Original Filing is amended by this Amendment No. 1:



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



Other unaffected Items of the Original Filing have not been included in this Amendment No. 1.



2



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



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, 2005. KPMG LLP, an independent registered public accounting firm, audited the Corporations financial statements included in this annual report and has issued an attestation report on managements assessment of the
Corporations internal control over financial reporting as of December 31, 2005, as stated in their report which is included herein.



3



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Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

First Indiana Corporation:



We have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that
First Indiana Corporation maintained effective internal control over financial reporting as of December 31, 2005, 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, 2005, 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, 2005, 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, 2005 and 2004, 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, 2005, and our report dated March 1, 2006 expressed an unqualified opinion on those consolidated financial statements.



LOGO



Indianapolis, Indiana

March 1, 2006



4



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Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

First Indiana Corporation:



We have audited the accompanying consolidated balance sheets of First Indiana Corporation and subsidiaries as of December 31, 2005 and 2004, 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, 2005. 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, 2005 and 2004, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2005, 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, 2005, 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 1, 2006 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial reporting.



LOGO



Indianapolis, Indiana

March 1, 2006



5



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CONSOLIDATED FINANCIAL STATEMENTS



FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                       |  |                 |           |   |                 |   |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | - | --------------- | - | --------- | -
|(Dollars in Thousands, except Per Share Data)                                                                          |  | December 312005 |           |   | December 312004 |  
|Assets                                                                                                                 |  |                 |           |   |                 |   |           |  
|Cash                                                                                                                   |  | $               | 49,903    |   |                 | $ | 52,611    |  
|Interest-Bearing Due from Banks                                                                                        |  |                 | 3,151     |   |                 |   | 42,540    |  
|Federal Funds Sold                                                                                                     |  |                 | 10,000    |   |                 |   |          |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Cash and Cash Equivalents                                                                                              |  |                 | 63,054    |   |                 |   | 95,151    |  
|Securities Available for Sale                                                                                          |  |                 | 232,976   |   |                 |   | 217,269   |  
|Other Investments                                                                                                      |  |                 | 26,540    |   |                 |   | 26,027    |  
|Loans                                                                                                                  |  |                 |           |   |                 |   |           |  
|Business                                                                                                               |  |                 | 545,215   |   |                 |   | 466,703   |  
|Commercial Real Estate                                                                                                 |  |                 | 167,715   |   |                 |   | 175,145   |  
|Single-Family Construction                                                                                             |  |                 | 92,451    |   |                 |   | 58,680    |  
|Consumer                                                                                                               |  |                 | 499,465   |   |                 |   | 520,611   |  
|Residential Mortgage                                                                                                   |  |                 | 262,340   |   |                 |   | 279,051   |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Loans                                                                                                            |  |                 | 1,567,186 |   |                 |   | 1,500,190 |  
|Allowance for Loan Losses                                                                                              |  |                 | (39,168   | ) |                 |   | (53,172   | )
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Net Loans                                                                                                              |  |                 | 1,528,018 |   |                 |   | 1,447,018 |  
|Premises and Equipment                                                                                                 |  |                 | 24,272    |   |                 |   | 24,783    |  
|Accrued Interest Receivable                                                                                            |  |                 | 10,474    |   |                 |   | 8,194     |  
|Loan Servicing Rights                                                                                                  |  |                 |          |   |                 |   | 4,260     |  
|Goodwill                                                                                                               |  |                 | 30,682    |   |                 |   | 30,682    |  
|Other Intangible Assets                                                                                                |  |                 | 3,206     |   |                 |   | 3,902     |  
|Assets of Discontinued Operations                                                                                      |  |                 | 1,020     |   |                 |   | 996       |  
|Other Assets                                                                                                           |  |                 | 46,114    |   |                 |   | 39,981    |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Assets                                                                                                           |  | $               | 1,966,356 |   |                 | $ | 1,898,263 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Liabilities                                                                                                            |  |                 |           |   |                 |   |           |  
|Non-Interest-Bearing Deposits                                                                                          |  | $               | 268,682   |   |                 | $ | 265,203   |  
|Interest-Bearing Deposits                                                                                              |  |                 |           |   |                 |   |           |  
|Demand Deposits                                                                                                        |  |                 | 229,876   |   |                 |   | 189,911   |  
|Savings Deposits                                                                                                       |  |                 | 489,713   |   |                 |   | 463,679   |  
|Certificates of Deposit                                                                                                |  |                 | 461,005   |   |                 |   | 451,904   |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Interest-Bearing Deposits                                                                                        |  |                 | 1,180,594 |   |                 |   | 1,105,494 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Deposits                                                                                                         |  |                 | 1,449,276 |   |                 |   | 1,370,697 |  
|Short-Term Borrowings                                                                                                  |  |                 | 220,732   |   |                 |   | 162,208   |  
|Federal Home Loan Bank Advances                                                                                        |  |                 | 42,365    |   |                 |   | 114,499   |  
|Subordinated Notes                                                                                                     |  |                 | 46,781    |   |                 |   | 46,657    |  
|Accrued Interest Payable                                                                                               |  |                 | 1,830     |   |                 |   | 1,818     |  
|Advances by Borrowers for Taxes and Insurance                                                                          |  |                 | 873       |   |                 |   | 1,175     |  
|Other Liabilities                                                                                                      |  |                 | 29,057    |   |                 |   | 29,066    |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Liabilities                                                                                                      |  |                 | 1,790,914 |   |                 |   | 1,726,120 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|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: 2005 - 20,284,569 Shares; 2004 - 19,964,838 Shares |  |                 | 162       |   |                 |   | 160       |  
|Capital Surplus                                                                                                        |  |                 | 16,193    |   |                 |   | 10,048    |  
|Retained Earnings                                                                                                      |  |                 | 204,089   |   |                 |   | 188,424   |  
|Accumulated Other Comprehensive Loss                                                                                   |  |                 | (3,077    | ) |                 |   | (1,398    | )
|Treasury Stock at Cost: 2005 - 3,121,165 Shares; 2004 - 2,436,359 Shares                                               |  |                 | (41,925   | ) |                 |   | (25,091   | )
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Shareholders Equity                                                                                             |  |                 | 175,442   |   |                 |   | 172,143   |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  
|Total Liabilities and Shareholders Equity                                                                             |  | $               | 1,966,356 |   |                 | $ | 1,898,263 |  
|                                                                                                                       |  |                 |           |   |                 |   |           |  



See Notes to
Consolidated Financial Statements



6



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF EARNINGS



|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | Years Ended December 31 |        
|(Dollars in Thousands, except Per Share Data)              |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|Interest Income                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Loans                                                      |  | $                       | 97,401  |   |      | $ | 92,216  |      |  | $ | 104,979 |  
|Securities Available for Sale                              |  |                         | 8,387   |   |      |   | 7,869   |      |  |   | 8,035   |  
|Dividends on Other Investments                             |  |                         | 1,159   |   |      |   | 1,170   |      |  |   | 1,252   |  
|Federal Funds Sold                                         |  |                         | 91      |   |      |   |        |      |  |   | 3       |  
|Interest-Bearing Due from Banks                            |  |                         | 142     |   |      |   | 389     |      |  |   | 61      |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Interest Income                                      |  |                         | 107,180 |   |      |   | 101,644 |      |  |   | 114,330 |  
|Interest Expense                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Deposits                                                   |  |                         | 25,930  |   |      |   | 20,433  |      |  |   | 25,164  |  
|Short-Term Borrowings                                      |  |                         | 5,121   |   |      |   | 1,521   |      |  |   | 1,390   |  
|Federal Home Loan Bank Advances                            |  |                         | 3,653   |   |      |   | 6,880   |      |  |   | 9,360   |  
|Subordinated Notes                                         |  |                         | 3,366   |   |      |   | 3,369   |      |  |   | 1,516   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Interest Expense                                     |  |                         | 38,070  |   |      |   | 32,203  |      |  |   | 37,430  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Interest Income                                        |  |                         | 69,110  |   |      |   | 69,441  |      |  |   | 76,900  |  
|Provision for Loan Losses                                  |  |                         | (3,200  | ) |      |   | 11,550  |      |  |   | 38,974  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Interest Income after Provision for Loan Losses        |  |                         | 72,310  |   |      |   | 57,891  |      |  |   | 37,926  |  
|Non-Interest Income                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Deposit Charges                                            |  |                         | 16,760  |   |      |   | 17,246  |      |  |   | 16,895  |  
|Loan Servicing Income (Expense)                            |  |                         | 58      |   |      |   | (236    | )    |  |   | (2,079  | )
|Loan Fees                                                  |  |                         | 1,818   |   |      |   | 3,039   |      |  |   | 2,610   |  
|Investment Product Sales Commissions                       |  |                         | 581     |   |      |   | 1,704   |      |  |   | 1,717   |  
|Sale of Loans                                              |  |                         | 10,188  |   |      |   | 11,538  |      |  |   | 10,822  |  
|Sale of Loan Servicing                                     |  |                         | (1,649  | ) |      |   |        |      |  |   |        |  
|Net Investment Securities Gain (Loss)                      |  |                         | (813    | ) |      |   | (19     | )    |  |   | 7       |  
|Other                                                      |  |                         | 2,375   |   |      |   | 3,579   |      |  |   | 4,663   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Non-Interest Income                                  |  |                         | 29,318  |   |      |   | 36,851  |      |  |   | 34,635  |  
|Non-Interest Expense                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Salaries and Benefits                                      |  |                         | 37,295  |   |      |   | 38,813  |      |  |   | 39,170  |  
|Net Occupancy                                              |  |                         | 4,330   |   |      |   | 3,973   |      |  |   | 3,981   |  
|Equipment                                                  |  |                         | 5,368   |   |      |   | 5,946   |      |  |   | 6,246   |  
|Professional Services                                      |  |                         | 4,118   |   |      |   | 4,828   |      |  |   | 5,554   |  
|Marketing                                                  |  |                         | 2,144   |   |      |   | 2,135   |      |  |   | 2,489   |  
|Telephone, Supplies, and Postage                           |  |                         | 3,004   |   |      |   | 3,429   |      |  |   | 3,734   |  
|Other Intangible Asset Amortization                        |  |                         | 696     |   |      |   | 718     |      |  |   | 736     |  
|OREO Expenses                                              |  |                         | (94     | ) |      |   | 1,215   |      |  |   | 691     |  
|Other                                                      |  |                         | 6,200   |   |      |   | 8,166   |      |  |   | 7,942   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Non-Interest Expense                                 |  |                         | 63,061  |   |      |   | 69,223  |      |  |   | 70,543  |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from Continuing Operations                          |  |                         | 38,567  |   |      |   | 25,519  |      |  |   | 2,018   |  
|Income Taxes                                               |  |                         | 14,067  |   |      |   | 9,126   |      |  |   | 551     |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from Continuing Operations, Net of Taxes            |  |                         | 24,500  |   |      |   | 16,393  |      |  |   | 1,467   |  
|Discontinued Operations                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from Discontinued Operations                        |  |                         | 1,296   |   |      |   | 239     |      |  |   | 1,834   |  
|Income Taxes                                               |  |                         | 525     |   |      |   | 1,954   |      |  |   | 772     |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (Loss) from Discontinued Operations, Net of Taxes   |  |                         | 771     |   |      |   | (1,715  | )    |  |   | 1,062   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Income                                                 |  | $                       | 25,271  |   |      | $ | 14,678  |      |  | $ | 2,529   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic Earnings (Loss) Per Share                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Earnings from Continuing Operations, Net of Taxes          |  | $                       | 1.43    |   |      | $ | 0.84    |      |  | $ | 0.07    |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | 0.04    |   |      |   | (0.09   | )    |  |   | 0.06    |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic Net Earnings Per Share                               |  | $                       | 1.47    |   |      | $ | 0.75    |      |  | $ | 0.13    |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted Earnings (Loss) Per Share                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Earnings from Continuing Operations, Net of Taxes          |  | $                       | 1.40    |   |      | $ | 0.83    |      |  | $ | 0.07    |  
|Earnings (Loss) from Discontinued Operations, Net of Taxes |  |                         | 0.04    |   |      |   | (0.09   | )    |  |   | 0.06    |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted Net Earnings Per Share                             |  | $                       | 1.44    |   |      | $ | 0.74    |      |  | $ | 0.13    |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Dividends Per Common Share                                 |  | $                       | 0.608   |   |      | $ | 0.540   |      |  | $ | 0.528   |  
|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  



See Notes to
Consolidated Financial Statements



7



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                                                                               |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | ------ | --- | - | -------------- | - | ------- | -------------------------------------------- |  | - | ------- | ------------- |  | ------------------------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                               |  | Common Stock      |   |  |        |     |   |                |   |         | Accumulated Other ComprehensiveIncome (Loss) |  |   |         |               |  | Total ShareholdersEquity |       
|(Dollars in Thousands, except Per Share Data)                                                                                                  |  | OutstandingShares |   |  | Amount |     |   | CapitalSurplus |   |         | RetainedEarnings                             |  |   |         | TreasuryStock |  |                          
|Balance at December 31, 2002                                                                                                                   |  | 19,425,575        |   |  | $      | 173 |   |                | $ | 43,296  |                                              |  | $ | 194,738 |               |  | $                         | 4,644  |   |  | $ | (21,640 | ) |  | $ | 221,211 |  
|Comprehensive Income:                                                                                                                          |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|Net Earnings                                                                                                                                   |  |                  |   |  |        |    |   |                |   |        |                                              |  |   | 2,529   |               |  |                           |       |   |  |   |        |   |  |   | 2,529   |  
|Unrealized Loss on Securities Available for Sale of $4,772, Net of Income Taxes and Reclassification Adjustment of $4, Net of Income
Taxes     |  |                  |   |  |        |    |   |                |   |        |                                              |  |   |        |               |  |                           | (2,888 | ) |  |   |        |   |  |   | (2,888  | )
|                                                                                                                                               |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income (Loss)                                                                                                              |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   | (359    | )
|Dividends on Common Stock - $0.528 per share                                                                                                   |  |                  |   |  |        |    |   |                |   |        |                                              |  |   | (10,277 | )             |  |                           |       |   |  |   |        |   |  |   | (10,277 | )
|Exercise of Stock Options                                                                                                                      |  | 103,628           |   |  |        | 1   |   |                |   | 897     |                                              |  |   |        |               |  |                           |       |   |  |   |        |   |  |   | 898     |  
|Redemption of Common Stock                                                                                                                     |  | (24,248           | ) |  |        |    |   |                |   | (356    | )                                            |  |   |        |               |  |                           |       |   |  |   |        |   |  |   | (356    | )
|Tax Benefit of Option Compensation                                                                                                             |  |                  |   |  |        |    |   |                |   | 103     |                                              |  |   |        |               |  |                           |       |   |  |   |        |   |  |   | 103     |  
|Common Stock Issued under Deferred Compensation Plan                                                                                           |  |                  |   |  |        |    |   |                |   | (35     | )                                            |  |   |        |               |  |                           |       |   |  |   |        |   |  |   | (35     | )
|Option Consideration Related to Executive Retirement                                                                                           |  |                  |   |  |        |    |   |                |   | 324     |                                              |  |   |        |               |  |                           |       |   |  |   |        |   |  |   | 324     |  
|Common Stock Issued under Restricted Stock Plans                                                                                               |  | 158,636           |   |  |        | 1   |   |                |   | 3,447   |                                              |  |   | (3,448  | )             |  |                           |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                        |  |                  |   |  |        |    |   |                |   |        |                                              |  |   | 321     |               |  |                           |       |   |  |   |        |   |  |   | 321     |  
|Forfeiture of Restricted Common Stock                                                                                                          |  | (15,000           | ) |  |        |    |   |                |   | (1,149  | )                                            |  |   | 1,149   |               |  |                           |       |   |  |   |        |   |  |   |        |  
|Purchase of Treasury Stock                                                                                                                     |  | (221,219          | ) |  |        |    |   |                |   |        |                                              |  |   |        |               |  |                           |       |   |  |   | (3,036  | ) |  |   | (3,036  | )
|Reissuance of Treasury Stock                                                                                                                   |  | 6,061             |   |  |        |    |   |                |   | 68      |                                              |  |   |        |               |  |                           |       |   |  |   | 32      |   |  |   | 100     |  
|                                                                                                                                               |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                                                                                                                   |  | 19,433,434        |   |  |        | 175 |   |                |   | 46,595  |                                              |  |   | 185,012 |               |  |                           | 1,756  |   |  |   | (24,644 | ) |  |   | 208,894 |  
|                                                                                                                                               |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|Comprehensive Income:                                                                                                                          |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|Net Earnings                                                                                                                                   |  |                  |   |  |        |    |   |                |   |        |                                              |  |   | 14,678  |               |  |                           |       |   |  |   |        |   |  |   | 14,678  |  
|Unrealized Loss on Securities Available for Sale of $5,202, Net of Income Taxes and Reclassification Adjustment of $(12), Net of Income
Taxes  |  |                  |   |  |        |    |   |                |   |        |                                              |  |   |        |               |  |                           | (3,154 | ) |  |   |        |   |  |   | (3,154  | )
|                                                                                                                                               |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  
|Total Comprehensive Income                                                                                                                     |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   | 11,524  |  
|Dividends on Common Stock - $0.540 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  | )             |  |                           |       |   |  |   |        |   |  |   |        |  
|Amortization of Restricted Common Stock                                                                                                        |  |                  |   |  |        |    |   |                |   |        |                                              |  |   | 1,147   |               |  |                           |       |   |  |   |        |   |  |   | 1,147   |  
|Forfeiture of Restricted Common Stock                                                                                                          |  | (31,140           | ) |  |        |    |   |                |   | (498    | )                                            |  |   | 498     |               |  |                           |       |   |  |   |        |   |  |   |        |  
|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        |   |  |        | 160 |   |                |   | 10,048  |                                              |  |   | 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    | )             |  |                           |       |   |  |   |        |   |  |   |        |  
|Forfeiture of Restricted Common Stock                                                                                                          |  | (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        |   |  | $      | 162 |   |                | $ | 16,193  |                                              |  | $ | 204,089 |               |  | $                         | (3,077 | ) |  | $ | (41,925 | ) |  | $ | 175,442 |  
|                                                                                                                                               |  |                   |   |  |        |     |   |                |   |         |                                              |  |   |         |               |  |                           |        |   |  |   |         |   |  |   |         |  



See Notes to
Consolidated Financial Statements



8



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ------------------------ | - | -------- | ---- |  | - | -------- | -
|                                                                                               |  | Years Ended December 31 |         
|                                                                                               |  | 2005                    |          |   | 2004                     |   |          | 2003 | 
|(Dollars in Thousands)                                                                         |  |                         |          |   | Revised - See Note 1 (B) |  
|Cash Flows from Operating Activities                                                           |  |                         |          |   |                          |   |          |      |  |   |          |  
|Net Income                                                                                     |  | $                       | 25,271   |   |                          | $ | 14,678   |      |  | $ | 2,529    |  
|Income (Loss) from Discontinued Operations, Net of Taxes                                       |  |                         | 771      |   |                          |   | (1,715   | )    |  |   | 1,062    |  
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Income from Continuing Operations, Net of Taxes                                                |  |                         | 24,500   |   |                          |   | 16,393   |      |  |   | 1,467    |  
|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 |  |                         | (7,317   | ) |                          |   | (11,943  | )    |  |   | (10,829  | )
|Amortization of Premium, Discount, and Intangibles, Net                                        |  |                         | 3,468    |   |                          |   | 2,982    |      |  |   | 4,628    |  
|Depreciation and Amortization of Premises and Equipment                                        |  |                         | 2,664    |   |                          |   | 2,655    |      |  |   | 2,572    |  
|Amortization of Net Deferred Loan Fees                                                         |  |                         | 2,684    |   |                          |   | 1,737    |      |  |   | 1,573    |  
|Provision for Loan Losses                                                                      |  |                         | (3,200   | ) |                          |   | 11,550   |      |  |   | 38,974   |  
|Origination of Loans Held for Sale, Net of Principal Collected                                 |  |                         | (327,845 | ) |                          |   | (322,393 | )    |  |   | (364,610 | )
|Proceeds from Sale of Loans Held for Sale                                                      |  |                         | 348,735  |   |                          |   | 493,416  |      |  |   | 356,899  |  
|Proceeds from Sale of Loan Servicing Assets                                                    |  |                         | 2,392    |   |                          |   |         |      |  |   |         |  
|Tax Benefit of Option Compensation                                                             |  |                         | 852      |   |                          |   | 398      |      |  |   | 103      |  
|Stock Compensation                                                                             |  |                         | 624      |   |                          |   | 119      |      |  |   | 324      |  
|Change in:                                                                                     |  |                         |          |   |                          |   |          |      |  |   |          |  
|Accrued Interest Receivable                                                                    |  |                         | (2,280   | ) |                          |   | 1,159    |      |  |   | 2,086    |  
|Other Assets                                                                                   |  |                         | (1,505   | ) |                          |   | 5,685    |      |  |   | (16,961  | )
|Accrued Interest Payable                                                                       |  |                         | 12       |   |                          |   | (338     | )    |  |   | (766     | )
|Other Liabilities                                                                              |  |                         | (7       | ) |                          |   | 188      |      |  |   | (3,000   | )
|Operating Cash Flows of Discontinued Operations                                                |  |                         | 781      |   |                          |   | 5,437    |      |  |   | 1,447    |  
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Net Cash Provided by Operating Activities                                                      |  |                         | 44,558   |   |                          |   | 207,045  |      |  |   | 13,907   |  
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Cash Flows from Investing Activities                                                           |  |                         |          |   |                          |   |          |      |  |   |          |  
|Proceeds from Sale of Securities Available for Sale                                            |  |                         | 36,164   |   |                          |   | 20,280   |      |  |   | 12,650   |  
|Proceeds from Maturities of Securities Available for Sale                                      |  |                         | 89,263   |   |                          |   | 38,029   |      |  |   | 24,708   |  
|Purchase of Securities Available for Sale                                                      |  |                         | (144,966 | ) |                          |   | (65,000  | )    |  |   | (92,044  | )
|Purchase of Other Investments                                                                  |  |                         |         |   |                          |   |         |      |  |   | (582     | )
|Principal Collected on Loans, Net of Originations                                              |  |                         | (100,290 | ) |                          |   | 166,865  |      |  |   | 234,477  |  
|Proceeds from Sale of Loans and OREO                                                           |  |                         | 11,745   |   |                          |   | 18,071   |      |  |   | 4,667    |  
|Purchase of Loans                                                                              |  |                         |         |   |                          |   | (41,813  | )    |  |   | (110,747 | )
|Acquisition of MetroBanCorp, Net of Cash Acquired                                              |  |                         |         |   |                          |   | (8       | )    |  |   | 14,691   |  
|Acquisition of Somerset, Net of Cash Acquired                                                  |  |                         |         |   |                          |   |         |      |  |   | (7       | )
|Investment in Limited Partnership                                                              |  |                         | (571     | ) |                          |   | (572     | )    |  |   |         |  
|Investment in Bank-Owned Life Insurance                                                        |  |                         | (6,300   | ) |                          |   |         |      |  |   |         |  
|Purchase of Premises and Equipment                                                             |  |                         | (2,839   | ) |                          |   | (3,583   | )    |  |   | (5,376   | )
|Proceeds from Sale of Premises and Equipment                                                   |  |                         | 3        |   |                          |   | 799      |      |  |   | 337      |  
|Investing Cash Flows of Discontinued Operations                                                |  |                         | (35      | ) |                          |   | (185     | )    |  |   | (342     | )
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Investing Activities                                               |  |                         | (117,826 | ) |                          |   | 132,883  |      |  |   | 82,432   |  
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Cash Flows from Financing Activities                                                           |  |                         |          |   |                          |   |          |      |  |   |          |  
|Net Change in Deposits                                                                         |  |                         | 78,772   |   |                          |   | (118,988 | )    |  |   | (11,733  | )
|Net Change in Short-Term Borrowings                                                            |  |                         | 58,524   |   |                          |   | 15,134   |      |  |   | (31,526  | )
|Net Change in Advances by Borrowers for Taxes and Insurance                                    |  |                         | (302     | ) |                          |   | (358     | )    |  |   | (292     | )
|Repayment of Federal Home Loan Bank Advances                                                   |  |                         | (887,790 | ) |                          |   | (563,130 | )    |  |   | (822,122 | )
|Borrowings of Federal Home Loan Bank Advances                                                  |  |                         | 815,675  |   |                          |   | 412,200  |      |  |   | 732,000  |  
|Issuance of Subordinated Notes                                                                 |  |                         |         |   |                          |   |         |      |  |   | 34,295   |  
|Stock Option Proceeds                                                                          |  |                         | 3,655    |   |                          |   | 1,988    |      |  |   | 542      |  
|Deferred Compensation                                                                          |  |                         | (21      | ) |                          |   | (58      | )    |  |   | (35      | )
|Purchase of Common Stock                                                                       |  |                         | (23      | ) |                          |   | (40,901  | )    |  |   |         |  
|Purchase of Treasury Stock                                                                     |  |                         | (16,859  | ) |                          |   | (472     | )    |  |   | (3,036   | )
|Reissuance of Treasury Stock                                                                   |  |                         | 84       |   |                          |   | 73       |      |  |   | 100      |  
|Dividends Paid                                                                                 |  |                         | (10,544  | ) |                          |   | (10,569  | )    |  |   | (10,277  | )
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Financing Activities                                               |  |                         | 41,171   |   |                          |   | (305,081 | )    |  |   | (112,084 | )
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Net Change in Cash and Cash Equivalents                                                        |  |                         | (32,097  | ) |                          |   | 34,847   |      |  |   | (15,745  | )
|Cash and Cash Equivalents at Beginning of Year                                                 |  |                         | 95,151   |   |                          |   | 60,304   |      |  |   | 76,049   |  
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  
|Cash and Cash Equivalents at End of Period                                                     |  | $                       | 63,054   |   |                          | $ | 95,151   |      |  | $ | 60,304   |  
|                                                                                               |  |                         |          |   |                          |   |          |      |  |   |          |  



See Notes to
Consolidated Financial Statements



9



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



First Indiana Corporation (First Indiana or the
Corporation) is a bank holding company, which has elected to be a financial holding company. First Indiana Bank, N.A. and its subsidiaries (collectively the Bank), the principal asset of the Corporation, is a federally
chartered national bank insured by the Federal Deposit Insurance Corporation. First Indiana is the largest commercial bank or bank holding company based in Indianapolis. The Bank is engaged primarily in the business of attracting deposits from the
general public and originating commercial and consumer loans. The Bank offers a full range of banking services from 30 banking centers located throughout Central Indiana. In addition, the Bank has consumer loan offices in Indiana, Florida, Illinois,
and Ohio.



On January 3, 2006, the Corporation and the
Bank sold the assets related to its trust business. On October 25, 2004, First Indiana Corporation sold substantially all the assets of Somerset Financial. Both sales and the related accounting are more fully described in Note 2.



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



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



Certain amounts in the 2004 and 2003 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 and 2003 Statements of Cash Flows. In 2005, the Corporation has separately disclosed the operating and investing
portions of the cash flows attributable to its discontinued operations, which in prior periods were 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.



10



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(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 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.First Indiana Bank issues commitments to
originate residential mortgage loans for sale into the secondary market. These commitments are designated as free-standing derivatives and net changes in their fair value are recorded as either assets or liabilities on the balance sheet and income
or expense in current earnings. At the time the Bank issues these commitments, it 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, 2005, First Indiana had $123,500 in commitments to originate residential mortgage loans for sale and held no mandatory commitments to sell residential mortgage loans.



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 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, 2005 and 2004, the balance of OREO included in other assets was $78,000 and $1,673,000, respectively.



11



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(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. 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)                                                                                                                                                                      |  | 2005                            |            | 2004 |   | 2003      
|Basic Earnings Per Share                                                                                                                                                                                           |  |                                 |            |      |   |            |  |   |           
|Net Income (Numerator)                                                                                                                                                                                             |  | $                               | 25,271     |      | $ | 14,678     |  | $ | 2,529     
|Average Basic Shares Outstanding (Denominator)                                                                                                                                                                     |  |                                 | 17,158,145 |      |   | 19,484,426 |  |   | 19,463,135
|Basic Earnings Per Share                                                                                                                                                                                           |  | $                               | 1.47       |      | $ | 0.75       |  | $ | 0.13      
|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|Diluted Earnings Per Share                                                                                                                                                                                         |  |                                 |            |      |   |            |  |   |           
|Net Income (Numerator)                                                                                                                                                                                             |  | $                               | 25,271     |      | $ | 14,678     |  | $ | 2,529     
|Average Basic Shares Outstanding                                                                                                                                                                                   |  |                                 | 17,158,145 |      |   | 19,484,426 |  |   | 19,463,135
|Add: Dilutive Effect of Stock Options, Deferred Shares and Restricted Stock                                                                                                                                        |  |                                 | 391,818    |      |   | 251,026    |  |   | 187,729   
|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|Average Diluted Shares Outstanding (Denominator)                                                                                                                                                                   |  |                                 | 17,549,963 |      |   | 19,735,452 |  |   | 19,650,864
|Diluted Earnings Per Share                                                                                                                                                                                         |  | $                               | 1.44       |      | $ | 0.74       |  | $ | 0.13      
|                                                                                                                                                                                                                   |  |                                 |            |      |   |            |  |   |           
|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) |  |                                 |           |      |   |           |  |   | 398,998   
|Weighted Average Exercise Price of Anti-dilutive Option Shares                                                                                                                                                     |  |                                 |            |      |   |            |  | $ | 15.40     



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



(P) Recent Accounting Pronouncements.In December 2004, The Financial Accounting Standards Board (FASB) issued a revised SFAS
No. 123 Share-Based Payment (SFAS 123(R)). This Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 12 (R) requires an entity to measure the cost of employee services received in exchange for an award of equity instruments (e.g., stock options,
stock grants) based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award  the requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. SFAS 123(R) eliminates the alternative use of Opinion No. 25s intrinsic value method of accounting that was
provided in the original SFAS 123. First Indiana currently accounts for stock-based



12



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



compensation under the recognition and measurement principles of Opinion No. 25. Under Opinion No. 25, issuing stock options to employees generally
resulted in recognition of no compensation cost. SFAS 123(R) was effective for the Corporation as of January 1, 2006. SFAS 123(R) applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled
after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date. First Indiana adopted SFAS 123(R) on January 1, 2006, using the modified prospective application. The
cumulative effect of adopting this Statement for the Corporation was not material. Upon adoption of SFAS 123(R), First Indianas results of operations will reflect additional compensation expense relating to stock options which is expected to
reduce net earnings by one cent per diluted share in 2006.



On
November 3, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. The FSP provides guidance on the determination of other-than-temporary impairment for debt and equity securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
and cost method investments. The new guidance prescribes a three-step process to identify impairment of investment securities, classify impairment as either temporary or other-than-temporary, and recognize loss in the case of other-than-temporary
impairment of investment securities. The FSP also requires financial statement disclosures for all investments in an unrealized loss position. The guidance in this FSP shall be applied to reporting periods beginning after December 15, 2005 with
earlier application permitted. The Corporation adopted the provisions of this FSP in January 2006 with no effect on the financial statements.



(Q) Stock-Based Compensation.At December 31, 2005, First Indiana had stock-based employee compensation plans which are described more fully
in Note 15. First Indiana accounts for those plans under recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations. No stock-based employee compensation cost has been recognized in respect to stock option grants under the plans, except for deferred compensation expense in connection with certain Somerset Financial options that were being
amortized over the life of the respective options and compensation expense recognized in 2003 in connection with the retirement of an executive officer of the Corporation. Amortization expense relating to restricted stock grants has been recognized
in each period presented as the restricted stock grants vest. The following table illustrates the effect on net earnings and earnings per share if the Corporation had applied the fair value recognition provisions of Statement of Financial 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 |   |        | 2003 | 
|Net Income, As Reported                                                                                                                     |  | $                               | 25,271 |   |      | $ | 14,678 |      |  | $ | 2,529  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                                 | 1,612  |   |      |   | 655    |      |  |   | 524    |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (1,081 | ) |      |   | (521   | )    |  |   | (1,310 | )
|                                                                                                                                            |  |                                 |        |   |      |   |        |      |  |   |        |  
|Pro Forma Net Income                                                                                                                        |  | $                               | 25,802 |   |      | $ | 14,812 |      |  | $ | 1,743  |  
|                                                                                                                                            |  |                                 |        |   |      |   |        |      |  |   |        |  
|Basic Earnings Per Share                                                                                                                    |  |                                 |        |   |      |   |        |      |  |   |        |  
|As Reported                                                                                                                                 |  | $                               | 1.47   |   |      | $ | 0.75   |      |  | $ | 0.13   |  
|Pro Forma                                                                                                                                   |  |                                 | 1.50   |   |      |   | 0.76   |      |  |   | 0.09   |  
|Diluted Earnings Per Share                                                                                                                  |  |                                 |        |   |      |   |        |      |  |   |        |  
|As Reported                                                                                                                                 |  | $                               | 1.44   |   |      | $ | 0.74   |      |  | $ | 0.13   |  
|Pro Forma                                                                                                                                   |  |                                 | 1.47   |   |      |   | 0.75   |      |  |   | 0.09   |  



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.



13



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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 and 2003, respectively: dividend yield of 3.0 percent for both years; expected volatility of 23.0 percent and 20.0 percent; weighted average risk-free interest rates of 4.4 percent and
3.9 percent; and expected lives of seven years for both years. No options were granted in 2005.



14



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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.



|                                 |  |                         |       |      |   |       |  |   |      
|-------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                 |  | Years Ended December 31
|(Dollars in Thousands)           |  | 2005                    |       | 2004 |   | 2003 
|Non-Interest Income              |  |                         |       |      |   |       |  |   |      
|Trust Fees                       |  | $                       | 3,736 |      | $ | 3,584 |  | $ | 3,028
|                                 |  |                         |       |      |   |       |  |   |      
|Total Non-Interest Income        |  |                         | 3,736 |      |   | 3,584 |  |   | 3,028
|                                 |  |                         |       |      |   |       |  |   |      
|Non-Interest Expense             |  |                         |       |      |   |       |  |   |      
|Salaries and Benefits            |  |                         | 1,612 |      |   | 1,495 |  |   | 1,430
|Net Occupancy                    |  |                         | 153   |      |   | 116   |  |   | 116  
|Equipment                        |  |                         | 46    |      |   | 51    |  |   | 65   
|Professional Services            |  |                         | 400   |      |   | 353   |  |   | 379  
|Marketing                        |  |                         |      |      |   | 5     |  |   | 9    
|Telephone, Supplies, and Postage |  |                         | 39    |      |   | 46    |  |   | 36   
|Other                            |  |                         | 190   |      |   | 189   |  |   | 179  
|                                 |  |                         |       |      |   |       |  |   |      
|Total Non-Interest Expense       |  |                         | 2,440 |      |   | 2,255 |  |   | 2,214
|                                 |  |                         |       |      |   |       |  |   |      
|Income before Tax                |  |                         | 1,296 |      |   | 1,329 |  |   | 814  
|Income Tax                       |  |                         | 525   |      |   | 539   |  |   | 329  
|                                 |  |                         |       |      |   |       |  |   |      
|Net Income                       |  | $                       | 771   |      | $ | 790   |  | $ | 485  
|                                 |  |                         |       |      |   |       |  |   |      



The following is
condensed balance sheet information for Trust.



|                       |  |                 |       |                 |   |    
|---------------------- |  | --------------- | ----- | --------------- | - | ---
|(Dollars in Thousands) |  | December 312005 |       | December 312004
|Assets                 |  |                 |       |                 |   |    
|Premises and Equipment |  | $               | 165   |                 | $ | 172
|Other Assets           |  |                 | 855   |                 |   | 824
|                       |  |                 |       |                 |   |    
|Total Assets           |  | $               | 1,020 |                 | $ | 996
|                       |  |                 |       |                 |   |    



On October 25,
2004, First Indiana Corporation sold substantially all the assets of Somerset Financial Services, LLC (Somerset Financial), to Somerset CPAs, P.C. Somerset Financial is a subsidiary of the Corporation and represented a majority of the
operations of The Somerset Group, Inc., which was acquired by the Corporation in September, 2000. Somerset CPAs was formed by a management group from Somerset Financial and assumed substantially all the liabilities of Somerset Financial. The sales
price was $6,000,000 excluding $5,405,000 of existing cash at Somerset Financial which was paid to the Corporation as a distribution before the sale. Somerset Financial 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. 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



15



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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.



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



On January 13,
2003, First Indiana acquired Carmel, Indiana-based MetroBanCorp through a merger. MetroBanCorp was the holding company for MetroBank, with assets of $196,000,000 and seven offices in Carmel, Fishers, and Noblesville, Indiana. The acquisition was
accounted for using the purchase method of accounting, and accordingly, the financial results of the acquired entity were included in First Indianas consolidated financial statements from the January 13, 2003, acquisition date. In the
merger, MetroBanCorp shareholders received $17.00 in cash in exchange for each share of MetroBanCorp stock. The cost of the acquisition was approximately $37,500,000. Goodwill of $23,997,000, a core deposit intangible of $4,357,000, and a
non-compete agreement intangible of $1,000,000 were recorded in connection with the merger. The goodwill has been assigned to the community bank segment. The weighted average life of the core deposit intangible and the non-compete agreement
intangible were 7.2 years and 1.5 years, respectively. The weighted average life of these intangible assets in total was 6.1 years.



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



The following table shows the change in the carrying amount of capitalized loan servicing rights. 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 |   |        | 2003 | 
|Balance at Beginning of Period   |  | $                       | 4,260  |   |      | $ | 5,985  |      |  | $ | 9,065  |  
|Additions                        |  |                         |       |   |      |   | 431    |      |  |   | 1,612  |  
|Amortization of Servicing Rights |  |                         | (421   | ) |      |   | (1,780 | )    |  |   | (2,306 | )
|Sale of Servicing Rights         |  |                         | (3,878 | ) |      |   |       |      |  |   |       |  
|Change in Valuation Reserves     |  |                         | 39     |   |      |   | (376   | )    |  |   | (2,386 | )
|                                 |  |                         |        |   |      |   |        |      |  |   |        |  
|Balance at End of Period         |  | $                       |       |   |      | $ | 4,260  |      |  | $ | 5,985  |  
|                                 |  |                         |        |   |      |   |        |      |  |   |        |  



16



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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 in 2005,
2004, and 2003.



|                               |  |                         |        |   |      |   |       |  |   |      
|------------------------------ |  | ----------------------- | ------ | - | ---- | - | ----- |  | - | -----
|                               |  | Years Ended December 31
|(Dollars in Thousands)         |  | 2005                    |        |   | 2004 |   | 2003 
|Balance at Beginning of Period |  | $                       | 3,291  |   |      | $ | 2,915 |  | $ | 529  
|Net Additions (Reductions)     |  |                         | (3,291 | ) |      |   | 376   |  |   | 2,386
|                               |  |                         |        |   |      |   |       |  |   |      
|Balance at End of Period       |  | $                       |       |   |      | $ | 3,291 |  | $ | 2,915
|                               |  |                         |        |   |      |   |       |  |   |      



The Corporation had no
loans serviced for others at 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, 2005,
2004, and 2003, 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, 2005 and 2004.



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



Projected annual
intangible amortization for the years 2006 through 2010 is $342,000, $321,000, $300,000, $280,000, and $260,000, respectively.



17



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(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, 2005 |         | December 31, 2004
|                                             |  | Amortized Cost    |         | Gross Unrealized  |        | Fair Value (Book Value) |  | Amortized Cost |       | Gross Unrealized |        | Fair Value (Book Value)
|(Dollars in Thousands)                       |  |                   | Gains   |                   | Losses |                         |  |                | Gains |                  | Losses |                        
|U.S. Government Treasuries, Agencies & Other |  | $                 | 165,660 |                   | $      |                        |  | $              | 2,199 |                  | $      | 163,461                 |  | $ | 137,702 |  | $ | 579 |  | $ | 1,013 |  | $ | 137,268
|Mortgage-Backed Securities                   |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |     |  |   |       |  |   |        
|FHLMC                                        |  |                   | 53,982  |                   |        | 87                      |  |                | 2,238 |                  |        | 51,831                  |  |   | 57,575  |  |   | 190 |  |   | 1,614 |  |   | 56,151 
|FNMA                                         |  |                   | 18,423  |                   |        | 36                      |  |                | 776   |                  |        | 17,684                  |  |   | 24,307  |  |   | 121 |  |   | 578   |  |   | 23,850 
|                                             |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |     |  |   |       |  |   |        
|Total                                        |  | $                 | 238,065 |                   | $      | 123                     |  | $              | 5,213 |                  | $      | 232,976                 |  | $ | 219,584 |  | $ | 890 |  | $ | 3,205 |  | $ | 217,269
|                                             |  |                   |         |                   |        |                         |  |                |       |                  |        |                         |  |   |         |  |   |     |  |   |       |  |   |        



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



Securities totaling $232,976,000 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, 2005.



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, 2005
|(Dollars in Thousands)                 |  | AmortizedCost     |         | FairValue
|Due in one year or less                |  | $                 | 11,303  |           | $ | 11,295 
|Due after one year through five years  |  |                   | 202,649 |           |   | 198,372
|Due after five years through ten years |  |                   | 23,495  |           |   | 22,687 
|Due after ten years                    |  |                   | 618     |           |   | 622    
|                                       |  |                   |         |           |   |        
|Total                                  |  | $                 | 238,065 |           | $ | 232,976
|                                       |  |                   |         |           |   |        



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)                   |  | 2005 |      |   | 2004 |   |      | 2003
|Realized Gains                           |  | $    |     |   |      | $ | 280  |      |  | $ | 7
|Realized Losses                          |  |      | 813  |   |      |   |     |      |  |   | 
|Other-Than-Temporary Impairment Losses   |  |      |     |   |      |   | (299 | )    |  |   | 
|                                         |  |      |      |   |      |   |      |      |  |   |  
|Net Investment Securities Gains (Losses) |  | $    | (813 | ) |      | $ | (19  | )    |  | $ | 7
|                                         |  |      |      |   |      |   |      |      |  |   |  



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, 2005 and
December 31, 2004, the following schedules identify the length of time (in consecutive months) these securities fair values had been below their amortized cost.



18



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                             |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   
|-------------------------------------------- |  | ------------------- | ------- | ------------------- | - | ---------- |  | ---------------- | ------ | ---------- | - | ---------------- |  | -------------- | ------- |  | - | ----- |  | --
|                                             |  | Less than 12 Months |         | 12 Months or Longer |   | Total     
|(Dollars in Thousands)                       |  | Fair Value          |         | UnrealizedLosses    |   | Fair Value |  | UnrealizedLosses |        | Fair Value |   | UnrealizedLosses |  | # ofSecurities
|December 31, 2005                            |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   
|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
|                                             |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   
|December 31, 2004                            |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   
|U.S. Government Treasuries, Agencies & Other |  | $                   | 80,513  |                     | $ | 681        |  | $                | 14,750 |            | $ | 332              |  | $              | 95,263  |  | $ | 1,013 |  | 9 
|Mortgage-Backed Securities                   |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   
|FHLMC                                        |  |                     | 35,675  |                     |   | 1,051      |  |                  | 12,013 |            |   | 563              |  |                | 47,688  |  |   | 1,614 |  | 8 
|FNMA                                         |  |                     | 12,900  |                     |   | 257        |  |                  | 6,585  |            |   | 321              |  |                | 19,485  |  |   | 578   |  | 8 
|                                             |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   
|Total                                        |  | $                   | 129,088 |                     | $ | 1,989      |  | $                | 33,348 |            | $ | 1,216            |  | $              | 162,436 |  | $ | 3,205 |  | 25
|                                             |  |                     |         |                     |   |            |  |                  |        |            |   |                  |  |                |         |  |   |       |  |   



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, 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,
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 $5,569,000. 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.



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



19



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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)           |  | 2005        |           | 2004
|Commercial Loans                 |  |             |           |      |   |          
|Business Loans                   |  | $           | 545,215   |      | $ | 466,703  
|Commercial Real Estate Loans     |  |             | 167,715   |      |   | 175,145  
|Single-Family Construction Loans |  |             | 92,451    |      |   | 58,680   
|Consumer Loans                   |  |             |           |      |   |          
|Home Equity Loans                |  |             | 485,111   |      |   | 505,702  
|Other Consumer Loans             |  |             | 14,354    |      |   | 14,909   
|Residential Mortgage Loans       |  |             | 262,340   |      |   | 279,051  
|                                 |  |             |           |      |   |          
|                                 |  | $           | 1,567,186 |      | $ | 1,500,190
|                                 |  |             |           |      |   |          



Loans were net of
deferred costs and net unearned discounts of $6,041,000 and $7,353,000 at December 31, 2005 and 2004, respectively.



The weighted average yield on loans was 6.93 percent and 5.91 percent at December 31, 2005 and 2004, respectively.



Home equity loans totaling $328,515,000, $339,595,000, and $344,638,000 were
sold in 2005, 2004, and 2003, respectively. The Bank had $32,342,000, $44,137,000, and $69,041,000 in home equity loans held for sale at December 31, 2005, 2004, and 2003, respectively. The Bank sold $10,051,000, $6,481,000, and $1,439,000 of
residential loans in 2005, 2004, and 2003, respectively. In addition, the Corporation sold $5,893,000 and $7,285,000 of non-performing residential and home equity loans in 2005 and 2004, respectively, and sold $3,925,000 of non-performing commercial
loans in 2005. The Corporation sold $134,373,000 of residential construction loans in 2004.



During 2005, 2004, and 2003, the Bank transferred $683,000, $9,749,000, and $6,783,000, respectively, from loans to other real estate owned.



The geographic distribution of loans at December 31, 2005, is presented below.



|                            |  |         |  
|--------------------------- |  | ------- | -
|Location                    |  | Percent |  
|Indiana                     |  | 65      | %
|Contiguous States           |  | 6       |  
|California                  |  | 4       |  
|Florida                     |  | 4       |  
|Arizona                     |  | 3       |  
|Other States (less than 3%) |  | 18      |  
|                            |  |         |  
|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 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.



20



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                       |  |             |        |               |   |         |  |               |        |  |   |       
|---------------------- |  | ----------- | ------ | ------------- | - | ------- |  | ------------- | ------ |  | - | ------
|                       |  | December 31
|                       |  | 2005        |        | 2004         
|(Dollars in Thousands) |  | Balance     |        | TotalExposure |   | Balance |  | TotalExposure
|Sub-Prime              |  | $           | 57,483 |               | $ | 64,511  |  | $             | 74,640 |  | $ | 82,907
|High Loan-to-Value     |  |             | 87,329 |               |   | 94,816  |  |               | 90,680 |  |   | 98,855
|Interest-Only          |  |             | 81,693 |               |   | 81,693  |  |               | 20,158 |  |   | 20,158



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)                            |  | 2005        |       | 2004
|Impaired Loans with Related Specific Allowance    |  | $           |      |      | $ | 7,520 
|Impaired Loans with No Related Specific Allowance |  |             | 1,045 |      |   | 3,647 
|                                                  |  |             |       |      |   |       
|Total Impaired Loans                              |  | $           | 1,045 |      | $ | 11,167
|                                                  |  |             |       |      |   |       
|Specific Allowance on Impaired Loans              |  | $           |      |      | $ | 5,045 
|                                                  |  |             |       |      |   |       



|                                             |  |                         |       |      |   |        |  |   |       
|-------------------------------------------- |  | ----------------------- | ----- | ---- | - | ------ |  | - | ------
|                                             |  | Years Ended December 31
|(Dollars in Thousands)                       |  | 2005                    |       | 2004 |   | 2003  
|Average Balance of Impaired Loans            |  | $                       | 6,181 |      | $ | 14,648 |  | $ | 22,857
|Interest Income Recognized on Impaired Loans |  |                         | 311   |      |   | 1,200  |  |   | 102   



Non-accrual loans
totaled $3,404,000 on December 31, 2005, and $15,905,000 on December 31, 2004. Loans past due 90 days or more and still accruing interest totaled $1,151,000 on December 31, 2005, and $3,859,000 on December 31, 2004.



(7) Allowance for Loan Losses



A summary of activity in the allowance for loan losses for the three years
ended December 31, 2005, follows.



|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(Dollars in Thousands)                    |  | 2005 |         |   | 2004 |   |         | 2003 | 
|Balance at Beginning of Year              |  | $    | 53,172  |   |      | $ | 53,197  |      |  | $ | 44,469  |  
|Charge-Offs                               |  |      | (14,158 | ) |      |   | (17,526 | )    |  |   | (33,841 | )
|Recoveries                                |  |      | 3,354   |   |      |   | 5,951   |      |  |   | 2,328   |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net Charge-Offs                           |  |      | (10,804 | ) |      |   | (11,575 | )    |  |   | (31,513 | )
|Provision for Loan Losses                 |  |      | (3,200  | ) |      |   | 11,550  |      |  |   | 38,974  |  
|Addition Related to Bank Acquired         |  |      |        |   |      |   |        |      |  |   | 1,709   |  
|Transfer to Reserve for Off-Balance Sheet |  |      |         |   |      |   |         |      |  |   |         |  
|Credit Exposures                          |  |      |        |   |      |   |        |      |  |   | (442    | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Balance at End of Year                    |  | $    | 39,168  |   |      | $ | 53,172  |      |  | $ | 53,197  |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  



21



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(8) Premises and Equipment



|                         |  |             |         |   |      |   |         |  
|------------------------ |  | ----------- | ------- | - | ---- | - | ------- | -
|                         |  | December 31 |        
|(Dollars in Thousands)   |  | 2005        |         |   | 2004 |  
|Land                     |  | $           | 6,978   |   |      | $ | 5,706   |  
|Buildings                |  |             | 14,105  |   |      |   | 13,700  |  
|Leasehold Improvements   |  |             | 1,366   |   |      |   | 1,371   |  
|Furniture and Equipment  |  |             | 21,296  |   |      |   | 21,536  |  
|                         |  |             |         |   |      |   |         |  
|                         |  |             | 43,745  |   |      |   | 42,313  |  
|Accumulated Depreciation |  |             | (19,473 | ) |      |   | (17,530 | )
|                         |  |             |         |   |      |   |         |  
|                         |  | $           | 24,272  |   |      | $ | 24,783  |  
|                         |  |             |         |   |      |   |         |  



(9) Interest-Bearing Deposits



|                                            |  |             |           |      |   |          
|------------------------------------------- |  | ----------- | --------- | ---- | - | ---------
|                                            |  | December 31
|(Dollars in Thousands)                      |  | 2005        |           | 2004
|Interest-Bearing Demand                     |  | $           | 229,876   |      | $ | 189,911  
|Savings                                     |  |             | 489,713   |      |   | 463,679  
|Certificates of Deposit under $ 100,000     |  |             | 285,205   |      |   | 262,168  
|Certificates of Deposit $100,000 or Greater |  |             | 175,800   |      |   | 189,736  
|                                            |  |             |           |      |   |          
|                                            |  | $           | 1,180,594 |      | $ | 1,105,494
|                                            |  |             |           |      |   |          



Following is a table
of maturities for certificates of deposit outstanding at December 31, 2005.



|                       |  |        |        
|---------------------- |  | ------ | -------
|(Dollars in Thousands) |  | Amount
|2006                   |  | $      | 252,707
|2007                   |  |        | 158,594
|2008                   |  |        | 31,950 
|2009                   |  |        | 15,970 
|2010                   |  |        | 1,784  
|Thereafter             |  |        |       
|                       |  |        |        
|                       |  | $      | 461,005
|                       |  |        |        



Cash paid during the
year for interest on deposits, advances, and other borrowed money was $38,058,000, $32,541,000, and $37,563,000 for 2005, 2004, and 2003, respectively.



(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, 2005 and December 31, 2004 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, 2005 had contractual maturities of one day. The amount of securities pledged for repurchase agreements at December 31, 2005 was $224,391,000.



22



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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



|                                      |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(Dollars in Thousands)                |  | 2005 |         |   | 2004 |   |         | 2003 | 
|Balance at Year-End                   |  | $    | 220,732 |   |      | $ | 162,208 |      |  | $ | 141,074 |  
|Average during the Year               |  |      | 159,755 |   |      |   | 119,863 |      |  |   | 115,212 |  
|Maximum Month-End Balance             |  |      | 220,732 |   |      |   | 162,208 |      |  |   | 149,332 |  
|Weighted Average Rate during the Year |  |      | 2.70    | % |      |   | 1.15    | %    |  |   | 0.99    | %
|Weighted Average Rate at Year-End     |  |      | 3.39    |   |      |   | 1.68    |      |  |   | 0.84    |  



At December 31,
2005, the Bank had $100,000,000 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, 2005, the Corporation had a $10,000,000
unused revolving line of credit on which it paid $25,000 in fees in 2005.



(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,
2005, were as follows.



|                       |  |        |       
|---------------------- |  | ------ | ------
|(Dollars in Thousands) |  | Amount
|2006                   |  | $      | 45    
|2007                   |  |        |      
|2008                   |  |        | 10,000
|2009                   |  |        |      
|2010                   |  |        |      
|Thereafter             |  |        | 32,320
|                       |  |        |       
|                       |  | $      | 42,365
|                       |  |        |       



FHLB advances
outstanding at December 31, 2005, mature from January 2006 through November 2023. Of the $42,365,000 in advances, the FHLB has the option to require the Bank to repay $35,000,000 at certain designated dates. The advances bear fixed rates
ranging from 2.75 percent to 8.57 percent. The weighted average interest rate at December 31, 2005 and 2004 was 4.84 percent and 5.07 percent, respectively. The FHLB advances are collateralized with FHLB stock and other qualifying assets
totaling $439,245,000. As of December 31, 2005 and 2004, 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.



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



|                                     |  |      |        |      |   |       
|------------------------------------ |  | ---- | ------ | ---- | - | ------
|(Dollars in Thousands)               |  | 2005 |        | 2004
|Subordinated Notes due November 2013 |  | $    | 22,234 |      | $ | 22,200
|Subordinated Notes due October 2032  |  |      | 12,295 |      |   | 12,253
|Subordinated Notes due June 2033     |  |      | 12,252 |      |   | 12,204
|                                     |  |      |        |      |   |       
|                                     |  | $    | 46,781 |      | $ | 46,657
|                                     |  |      |        |      |   |       



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



23



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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 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, 2005 and 2004, the balance of trust preferred securities, net
of discount, was $24,547,000 and $24,457,000, respectively.



24



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(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, 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  |  
|                             |  |         |       |   |          |   |        |       |  |   |        |  
|Year Ended December 31, 2003 |  |         |       |   |          |   |        |       |  |   |        |  
|Federal                      |  | $       | 5,825 |   |          | $ | (4,943 | )     |  | $ | 882    |  
|State and Local              |  |         | 517   |   |          |   | (848   | )     |  |   | (331   | )
|                             |  |         |       |   |          |   |        |       |  |   |        |  
|                             |  | $       | 6,342 |   |          | $ | (5,791 | )     |  | $ | 551    |  
|                             |  |         |       |   |          |   |        |       |  |   |        |  



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



|                       |  |                         |   |  |      |   |  |      |  
|---------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                       |  | Years Ended December 31 |  
|                       |  | 2005                    |   |  | 2004 |   |  | 2003 |  
|Statutory Rate         |  | 35.0                    | % |  | 35.0 | % |  | 35.0 | %
|State Income Taxes     |  | 1.6                     |   |  | 1.3  |   |  | (9.2 | )
|Nondeductible Expenses |  | 0.2                     |   |  | 0.8  |   |  | 6.4  |  
|Tax Credits            |  | (0.3                    | ) |  | (0.8 | ) |  |     |  
|Net Other              |  |                        |   |  | (0.5 | ) |  | (4.9 | )
|                       |  |                         |   |  |      |   |  |      |  
|Effective Rate         |  | 36.5                    | % |  | 35.8 | % |  | 27.3 | %
|                       |  |                         |   |  |      |   |  |      |  



25



---

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)                   |  | 2005        |        | 2004
|Deferred Tax Assets                      |  |             |        |      |   |       
|Allowance for Loan Losses                |  | $           | 15,261 |      | $ | 20,340
|Pension and Retirement Benefits          |  |             | 3,785  |      |   | 4,430 
|Interest Credited                        |  |             | 144    |      |   | 718   
|Accrued Compensation                     |  |             | 1,203  |      |   | 906   
|Loans Held for Sale                      |  |             | 396    |      |   | 2,431 
|Non-Accrual of Interest                  |  |             | 45     |      |   | 1,145 
|Deposits                                 |  |             | 44     |      |   | 116   
|Unrealized Loss on Investments           |  |             | 2,012  |      |   | 916   
|Indiana Net Operating Loss Carry Forward |  |             | 588    |      |   | 453   
|Other                                    |  |             | 6      |      |   | 103   
|                                         |  |             |        |      |   |       
|                                         |  |             | 23,484 |      |   | 31,558
|                                         |  |             |        |      |   |       
|Deferred Tax Liabilities                 |  |             |        |      |   |       
|Loan Servicing Rights                    |  |             |       |      |   | 1,607 
|FHLB Stock Dividends                     |  |             | 1,377  |      |   | 1,257 
|Net Deferred Loan Fees                   |  |             | 2,630  |      |   | 2,876 
|Core Deposit Intangible                  |  |             | 1,235  |      |   | 1,346 
|Premises and Equipment                   |  |             | 299    |      |   | 256   
|Other                                    |  |             | 225    |      |   | 231   
|                                         |  |             |        |      |   |       
|                                         |  |             | 5,766  |      |   | 7,573 
|                                         |  |             |        |      |   |       
|Net Deferred Tax Assets                  |  | $           | 17,718 |      | $ | 23,985
|                                         |  |             |        |      |   |       



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, 2005, 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 $7,512,000, $5,470,000, and
$7,173,000, for 2005, 2004, and 2003, respectively.



26



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(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 $10,000,000 of the Corporations common stock. In the first quarter of 2005, 186,250 shares were repurchased under this
authorization. On April 20, 2005, 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 937,500 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 2005, 503,286 shares were repurchased under this
authorization.



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. 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).



27



---

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, 2005, and December 31, 2004.



|                                            |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|------------------------------------------- |  | ----------------- | ------- | ----- | ----------------------- | - | ------ | --------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                            |  | December 31, 2005 |        
|(Dollars in Thousands)                      |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|                                            |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 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 | %
|                                            | 
|                                            |  | December 31, 2004 |        
|                                            |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|                                            |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 162,670 |       | 8.47                    | % |        | $                     | 76,854  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 175,910 |       | 9.17                    |   |        |                       | 76,689  |  | 4.00 |        |  | $     | 95,861  |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 162,670 |       | 10.79                   | % |        | $                     | 60,295  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 175,910 |       | 11.69                   |   |        |                       | 60,193  |  | 4.00 |        |  | $     | 90,289  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 204,141 |       | 13.54                   | % |        | $                     | 120,589 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 195,150 |       | 12.97                   |   |        |                       | 120,386 |  | 8.00 |        |  | $     | 150,482 |  | 10.00 | %



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, 2006, the Bank could have paid dividends to the Corporation of approximately $8,845,000 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. The Bank sought and
received approval from the OCC to make its regularly scheduled dividend payments in 2003, not to exceed $28,571,000. The Bank paid dividends of $21,440,000 to the Corporation in 2003.



28



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(14) Commitments and Contingencies



At December 31, 2005 and 2004, the Bank had the following outstanding commitments to fund loans.



|                                 |  |             |         |      |   |        
|-------------------------------- |  | ----------- | ------- | ---- | - | -------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2005        |         | 2004
|Commitments to Fund:             |  |             |         |      |   |        
|Business Loans                   |  | $           | 336,104 |      | $ | 241,771
|Commercial Real Estate Loans     |  |             | 66,580  |      |   | 88,128 
|Single-Family Construction Loans |  |             | 26,005  |      |   | 44,894 
|Consumer Loans                   |  |             |         |      |   |        
|Home Equity Loans                |  |             | 168,371 |      |   | 175,421
|Other                            |  |             | 291     |      |   | 1,440  
|Residential Mortgage Loans       |  |             | 969     |      |   |       
|                                 |  |             |         |      |   |        
|                                 |  | $           | 598,320 |      | $ | 551,654
|                                 |  |             |         |      |   |        



Of the commitments to
fund loans at December 31, 2005, 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, 2005 and December 31, 2004, the Corporation had issued $36,687,000 and $44,085,000, 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, 2005 and December 31, 2004, of $128,000 and $337,000 respectively, relating to these commitments.



At December 31, 2005 and December 31, 2004, the Corporation had a reserve of $442,000, 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 $5,023,000.



The Corporation is a limited partner in three low income housing developments that are not consolidated into these financial statements. As of
December 31, 2005, the Corporations investment in these partnerships was $1,765,000 with no future funding commitments. The maximum risk of loss is equal to the Corporations recorded investment in these partnerships.



Rental Obligations.Obligations under non-cancelable operating leases
(excluding the guarantee on the Somerset CPAs lease) at December 31, 2005, require minimum future payments of $4,967,000 in 2006, $4,132,000 in 2007, $3,697,000 in 2008, $3,123,000 in 2009, $2,231,000 in 2010, and $10,579,000 thereafter.
Minimum future payments have not been reduced by minimum sublease rental income of $39,000 receivable in the future under non-cancelable subleases. Operating lease expenses were $5,818,000, $6,426,000, and $6,397,000 for 2005, 2004, and 2003,
respectively.



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



29



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(15) Employee Benefit Plans



Retirement Plans.First Indiana is a participant in the Financial Institutions Retirement Fund (FIRF).
This is a multi-employer defined benefit pension plan; separate actuarial valuations are not made with respect to each participating employer. According to FIRF administrators, plan contributions of $2,782,000 and $2,255,000 are required for the
plan years beginning July 1, 2005, and July 1, 2004, respectively. The prepaid contribution asset was $1,997,000 at December 31, 2005. The accrued contribution liability was $430,000 at December 31, 2004. First Indianas
pension expense under this plan was $2,519,000, $1,992,000, and $1,437,000 for 2005, 2004, and 2003, respectively.



First Indiana has a voluntary savings plan for eligible employees which qualifies under Section 401(k) of the Internal Revenue Code. Employees can
participate by designating a portion of their compensation to be contributed to the plan. First Indiana in turn matches employee contributions in such uniform amounts or percentages as annually determined by the employer. The Corporations
expenses under its plan for matching contributions in 2005, 2004, and 2003 were $231,000, $277,000, and $259,000, 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.



30



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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)                                                                         |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|Change in Projected Benefit Obligation                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Projected Benefit Obligation at the Beginning of the Year                                      |  | $                       | 11,506  |   |      | $ | 10,744  |      |  | $ | 9,921   |  
|Service Cost                                                                                   |  |                         | 304     |   |      |   | 208     |      |  |   | 285     |  
|Interest Cost                                                                                  |  |                         | 530     |   |      |   | 623     |      |  |   | 613     |  
|Actuarial (Gain) or Loss                                                                       |  |                         | 1,566   |   |      |   | (299    | )    |  |   | 413     |  
|Benefits Paid                                                                                  |  |                         | (809    | ) |      |   | (237    | )    |  |   | (488    | )
|Change in Plan Provisions                                                                      |  |                         | 284     |   |      |   | 467     |      |  |   |        |  
|Adjustment for Growth of Notional Balance                                                      |  |                         | 337     |   |      |   |        |      |  |   |        |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Projected Benefit Obligation at the End of the Year                                            |  | $                       | 13,718  |   |      | $ | 11,506  |      |  | $ | 10,744  |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Accumulated Benefit Obligation at the End of the Year                                          |  | $                       | 11,628  |   |      | $ | 10,263  |      |  | $ | 8,444   |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Change in Plan Assets                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Fair Value of Plan Assets at the Beginning of the Year                                         |  | $                       |        |   |      | $ |        |      |  | $ |        |  
|Benefits Paid                                                                                  |  |                         | (809    | ) |      |   | (237    | )    |  |   | (488    | )
|Employer Contributions                                                                         |  |                         | 809     |   |      |   | 237     |      |  |   | 488     |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Fair Value of Assets at the End of the Year                                                    |  | $                       |        |   |      | $ |        |      |  | $ |        |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Amount Recognized                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Funded Status                                                                                  |  | $                       | (13,718 | ) |      | $ | (11,506 | )    |  | $ | (10,744 | )
|Unrecognized Transition Obligation (Asset)                                                     |  |                         | 85      |   |      |   | 97      |      |  |   | 110     |  
|Unrecognized Prior Service Cost                                                                |  |                         | 654     |   |      |   | 431     |      |  |   |        |  
|Unrecognized Net (Gain) or Loss                                                                |  |                         | 2,506   |   |      |   | 1,005   |      |  |   | 1,303   |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Amount Recognized                                                                          |  | $                       | (10,473 | ) |      | $ | (9,973  | )    |  | $ | (9,331  | )
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Amounts Recognized in the Statement of Financial Position                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Accrued Benefit Cost                                                                           |  | $                       | (11,628 | ) |      | $ | (10,263 | )    |  | $ | (9,331  | )
|Intangible Asset                                                                               |  |                         | 739     |   |      |   | 290     |      |  |   |        |  
|Accumulated Other Comprehensive Income                                                         |  |                         | 416     |   |      |   |        |      |  |   |        |  
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Accrued Benefit Cost                                                                           |  | $                       | (10,473 | ) |      | $ | (9,973  | )    |  | $ | (9,331  | )
|                                                                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets: |  |                         |         |   |      |   |         |      |  |   |         |  
|Projected Benefit Obligation                                                                   |  | $                       | 13,718  |   |      | $ | 11,506  |      |  | $ | 10,744  |  
|Accumulated Benefit Obligation                                                                 |  |                         | 11,628  |   |      |   | 10,263  |      |  |   | 8,444   |  
|Fair Value of Plan Assets                                                                      |  |                         |        |   |      |   |        |      |  |   |        |  
|                                                                                               |  |                         |        
|Weighted Average Assumptions at the End of the Year                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Discount Rate                                                                                  |  |                         | 5.50    | % |      |   | 5.75    | %    |  |   | 6.00    | %
|Rate of Compensation Increase                                                                  |  |                         | 5.00    | % |      |   | 5.00    | %    |  |   | 5.00    | %



31



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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)                                               |  | 2005                    |       |   | 2004 |   |      | 2003 | 
|Service Cost                                                         |  | $                       | 304   |   |      | $ | 208  |      |  | $ | 285  |  
|Interest Cost                                                        |  |                         | 530   |   |      |   | 623  |      |  |   | 613  |  
|Expected Return on Plan Assets                                       |  |                         |      |   |      |   |     |      |  |   |     |  
|Amortization of Net (Gain) or Loss                                   |  |                         | 64    |   |      |   |     |      |  |   |     |  
|Amortization of Prior Service Cost                                   |  |                         | 61    |   |      |   | 36   |      |  |   |     |  
|Amortization of Transition Obligation (Asset)                        |  |                         | 12    |   |      |   | 12   |      |  |   | 12   |  
|Adjustment for Growth in Notional Balance                            |  |                         | 337   |   |      |   |     |      |  |   |     |  
|                                                                     |  |                         |       |   |      |   |      |      |  |   |      |  
|Total FAS 87 Net Periodic Pension Cost                               |  | $                       | 1,308 |   |      | $ | 879  |      |  | $ | 910  |  
|FAS 88 Charges (Credits)                                             |  |                         |       |   |      |   |      |      |  |   |      |  
|Settlement                                                           |  |                         |      |   |      |   |     |      |  |   |     |  
|Curtailment                                                          |  |                         |      |   |      |   |     |      |  |   |     |  
|Special Termination Benefits                                         |  |                         |      |   |      |   |     |      |  |   |     |  
|                                                                     |  |                         |       |   |      |   |      |      |  |   |      |  
|Total                                                                |  |                         |      |   |      |   |     |      |  |   |     |  
|                                                                     |  |                         |       |   |      |   |      |      |  |   |      |  
|Total Net Periodic Pension Cost                                      |  | $                       | 1,308 |   |      | $ | 879  |      |  | $ | 910  |  
|                                                                     |  |                         |       |   |      |   |      |      |  |   |      |  
|Additional Information                                               |  |                         |       |   |      |   |      |      |  |   |      |  
|Increase in Minimum Liability Included in Other Comprehensive Income |  | $                       | 416   |   |      | $ |     |      |  | $ |     |  
|                                                                     |  |                         |      
|Weighted Average Assumptions                                         |  |                         |       |   |      |   |      |      |  |   |      |  
|Discount Rate                                                        |  |                         | 5.75  | % |      |   | 6.00 | %    |  |   | 6.50 | %
|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, 2006                                   |  |   |      
|Expected Employer Contributions                                                                   |  | $ | 876  
|Expected Employee Contributions                                                                   |  |   |     
|Estimated Future Benefit Payments Reflecting Expected Future Service for the Fiscal Years Ending: |  |   |      
|December 31, 2006                                                                                 |  | $ | 876  
|December 31, 2007                                                                                 |  |   | 1,026
|December 31, 2008                                                                                 |  |   | 1,065
|December 31, 2009                                                                                 |  |   | 1,105
|December 31, 2010                                                                                 |  |   | 1,147
|December 31, 2011 through December 31, 2015                                                       |  |   | 5,699



32



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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)                                                         |  | 2005                    |        |   | 2004 |   |        | 2003 | 
|Change in Accumulated Benefit Obligation                                       |  |                         |        |   |      |   |        |      |  |   |        |  
|Accumulated Postretirement Benefit Obligation at the Beginning of the Year     |  | $                       | 1,336  |   |      | $ | 1,041  |      |  | $ | 937    |  
|Service Cost                                                                   |  |                         | 16     |   |      |   | 16     |      |  |   | 12     |  
|Interest Cost                                                                  |  |                         | 52     |   |      |   | 74     |      |  |   | 59     |  
|Actuarial (Gain) or Loss                                                       |  |                         | (420   | ) |      |   | 205    |      |  |   | 33     |  
|Benefits Paid                                                                  |  |                         |       |   |      |   |       |      |  |   |       |  
|                                                                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Accumulated Benefit Obligation at the End of the Year                          |  | $                       | 984    |   |      | $ | 1,336  |      |  | $ | 1,041  |  
|                                                                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Net Amount Recognized                                                          |  |                         |        |   |      |   |        |      |  |   |        |  
|Funded Status                                                                  |  | $                       | (984   | ) |      | $ | (1,336 | )    |  | $ | (1,041 | )
|Unrecognized Transition Obligation (Asset)                                     |  |                         |       |   |      |   |       |      |  |   |       |  
|Unrecognized Prior Service Cost                                                |  |                         |       |   |      |   |       |      |  |   |       |  
|Unrecognized Net (Gain) or Loss                                                |  |                         | (365   | ) |      |   | (5     | )    |  |   | (210   | )
|                                                                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Net Amount Recognized                                                          |  | $                       | (1,349 | ) |      | $ | (1,341 | )    |  | $ | (1,251 | )
|                                                                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Amounts Recognized in the Statement of Financial Position Accrued Benefit Cost |  | $                       | (1,349 | ) |      | $ | (1,341 | )    |  | $ | (1,251 | )
|                                                                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Weighted Average Assumptions at the End of the Year                            |  |                         |        |   |      |   |        |      |  |   |        |  
|Discount Rate                                                                  |  |                         | 5.50   | % |      |   | 5.75   | %    |  |   | 6.00   | %
|Rate of Compensation Increase                                                  |  |                         | N/A    |   |      |   | N/A    |      |  |   | N/A    |  
|                                                                               |  |                         |       
|Assumed Health Care Cost Trend Rates                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|Health Care Trend Rate Assumed for Next Year                                   |  |                         | 8.00   | % |      |   | 9.00   | %    |  |   | 5.50   | %
|Ultimate Rate                                                                  |  |                         | 5.50   | % |      |   | 5.50   | %    |  |   | 5.50   | %
|Year that the Ultimate Rate is Reached                                         |  |                         | 2011   |   |      |   | 2011   |      |  |   | 2003   |  



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.



33



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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)                          |  | 2005                    |      |   | 2004 |   |      | 2003 | 
|Service Cost                                    |  | $                       | 16   |   |      | $ | 16   |      |  | $ | 12   |  
|Interest Cost                                   |  |                         | 52   |   |      |   | 74   |      |  |   | 59   |  
|Expected Return on Plan Assets                  |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Net (Gain) or Loss              |  |                         | (60  | ) |      |   |     |      |  |   | (28  | )
|Amortization of Prior Service Cost              |  |                         |     |   |      |   |     |      |  |   |     |  
|Amortization of Transition Obligation (Asset)   |  |                         |     |   |      |   |     |      |  |   |     |  
|                                                |  |                         |      |   |      |   |      |      |  |   |      |  
|Total Net Periodic Benefit Cost                 |  | $                       | 8    |   |      | $ | 90   |      |  | $ | 43   |  
|                                                |  |                         |      |   |      |   |      |      |  |   |      |  
|Weighted Average Assumptions                    |  |                         |      |   |      |   |      |      |  |   |      |  
|Discount Rate                                   |  |                         | 5.75 | % |      |   | 6.00 | %    |  |   | 6.50 | %
|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 |  |                         | 8.50 | % |      |   | 9.00 | %    |  |   | 5.50 | %
|Ultimate Rate                                   |  |                         | 5.50 | % |      |   | 5.50 | %    |  |   | 5.50 | %
|Year that the Ultimate Rate is Reached          |  |                         | 2011 |   |      |   | 2011 |      |  |   | 2003 |  



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             |  |                      | 121 |          |   | (103 | )



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, 2006                                   |  |   |    
|Expected Employer Contributions                                                                   |  | $ | 47 
|Expected Employee Contributions                                                                   |  |   |   
|Estimated Future Benefit Payments Reflecting Expected Future Service for the Fiscal Years Ending: |  |   |    
|December 31, 2006                                                                                 |  | $ | 47 
|December 31, 2007                                                                                 |  |   | 55 
|December 31, 2008                                                                                 |  |   | 57 
|December 31, 2009                                                                                 |  |   | 57 
|December 31, 2010                                                                                 |  |   | 58 
|December 31, 2011 through December 31, 2015                                                       |  |   | 325



Stock-Based
Incentive Compensation Plans.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. The Corporations shareholders approved the 2004 Plan at the Annual Meeting held on April 20, 2005. In addition to the options and other awards outstanding at
December 31, 2005, 982,396 shares of common stock were available for future grants or awards under the 2004 Plan.



34



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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.



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     |  | 972,424                                                                                   |  | $                                                                         | 14.09 |                                                                                                                                         | 982,396
|Equity compensation plans not approved by security holders |  |                                                                                          |  |                                                                           |      |                                                                                                                                         |       
|                                                           |  |                                                                                           |  |                                                                           |       |                                                                                                                                         |        
|Total                                                      |  | 972,424                                                                                   |  | $                                                                         | 14.09 |                                                                                                                                         | 982,396
|                                                           |  |                                                                                           |  |                                                                           |       |                                                                                                                                         |        



The following table
summarizes information about stock options outstanding at December 31, 2005.



|                         |  |                                |  |                                          |  |                              |       |                                |         |                              |   |      
|------------------------ |  | ------------------------------ |  | ---------------------------------------- |  | ---------------------------- | ----- | ------------------------------ | ------- | ---------------------------- | - | -----
|                         |  | Options Outstanding            |  | Options Exercisable                     
|Range of Exercise Prices |  | Outstandingat December31, 2005 |  | WeightedRemainingContractualLife (Years) |  | WeightedAverageExercisePrice |       | Exercisable atDecember 31,2005 |         | WeightedAverageExercisePrice
|$0.00 - $ 5.00           |  |                               |  |                                         |  | $                            |      |                                |        |                              | $ |     
|5.01 -   10.00           |  | 48,660                         |  | 0.09                                     |  |                              | 8.53  |                                | 48,660  |                              |   | 8.53 
|10.01 -   15.00          |  | 596,698                        |  | 5.29                                     |  |                              | 13.62 |                                | 370,280 |                              |   | 13.15
|15.01 -   20.00          |  | 327,066                        |  | 6.34                                     |  |                              | 15.77 |                                | 166,243 |                              |   | 15.77
|                         |  |                                |  |                                          |  |                              |       |                                |         |                              |   |      
|5.01 -   20.00           |  | 972,424                        |  | 5.39                                     |  |                              | 14.09 |                                | 585,183 |                              |   | 13.51
|                         |  |                                |  |                                          |  |                              |       |                                |         |                              |   |      



A summary of the
status of First Indianas fixed stock option plans as of December 31, 2005, 2004, and 2003, and changes during the years then ended is presented below.



|                                 |  |           |   |      |                              |       |        |           |   |                              |   |        |  |           |                              |  |   |      
|-------------------------------- |  | --------- | - | ---- | ---------------------------- | ----- | ------ | --------- | - | ---------------------------- | - | ------ |  | --------- | ---------------------------- |  | - | -----
|                                 |  | 2005      |   | 2004 |                              | 2003 
|                                 |  | Shares    |   |      | WeightedAverageExercisePrice |       | Shares |           |   | WeightedAverageExercisePrice |   | Shares |  |           | WeightedAverageExercisePrice
|Outstanding at Beginning of Year |  | 1,343,425 |   |      | $                            | 13.72 |        | 1,795,336 |   |                              | $ | 13.39  |  | 1,869,673 |                              |  | $ | 13.14
|Granted                          |  |          |   |      |                              |      |        | 154,688   |   |                              |   | 15.77  |  | 225,750   |                              |  |   | 14.51
|Exercised                        |  | (321,744  | ) |      |                              | 12.42 |        | (216,144  | ) |                              |   | 10.77  |  | (103,628  | )                            |  |   | 8.67 
|Surrendered                      |  | (49,257   | ) |      |                              | 14.64 |        | (390,455  | ) |                              |   | 14.69  |  | (196,459  | )                            |  |   | 14.79
|                                 |  |           |   |      |                              |       |        |           |   |                              |   |        |  |           |                              |  |   |      
|Outstanding at End of Year       |  | 972,424   |   |      |                              | 14.09 |        | 1,343,425 |   |                              |   | 13.72  |  | 1,795,336 |                              |  |   | 13.39
|                                 |  |           |   |      |                              |       |        |           |   |                              |   |        |  |           |                              |  |   |      



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



35



---

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. A summary of the status of First
Indianas restricted stock awards as of December 31, 2005, 2004, and 2003, and changes during the years ended on those dates is presented below.



|                                 |  |      |           |   |      |   |           |      |  |   |         |  
|-------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ------- | -
|                                 |  | 2005 |           |   | 2004 |   |           | 2003 | 
|Outstanding at Beginning of Year |  |      | 229,684   |   |      |   | 143,636   |      |  |   |        |  
|Granted                          |  |      | 14,000    |   |      |   | 117,188   |      |  |   | 158,636 |  
|Vested                           |  |      | (20,123   | ) |      |   |          |      |  |   |        |  
|Forfeited                        |  |      | (938      | ) |      |   | (31,140   | )    |  |   | (15,000 | )
|                                 |  |      |           |   |      |   |           |      |  |   |         |  
|Outstanding at End of Year       |  |      | 222,623   |   |      |   | 229,684   |      |  |   | 143,636 |  
|                                 |  |      |           |   |      |   |           |      |  |   |         |  
|Award Expense                    |  | $    | 1,939,000 |   |      | $ | 1,015,000 |      |  | $ | 453,000 |  
|                                 |  |      |           |   |      |   |           |      |  |   |         |  



Deferred Share
Awards - In 2004, the Compensation Committee of the Board of Directors entered into deferred shares agreements with an officer of First Indiana. These agreements awarded 25,000 deferred shares of First Indiana common stock under the 2002 Stock
Incentive Plan. These deferred shares will vest and become issuable at the expiration of restricted periods ending December 31, 2006, the achievement of specified performance objectives, and the completion of continuous employment during the
restricted periods. No expense was recognized in 2004 on the 25,000 deferred shares awarded in that year because it was probable at that time that the performance conditions would not be achieved. In 2005 it became probable that the performance
conditions would be met and the Corporation recognized expense associated with these shares. As part of their compensation, non-employee members of the Corporations Board of Directors received deferred shares. These deferred shares were
granted in 2005 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. A summary of the status of First Indianas deferred stock awards as of
December 31, 2005, and 2004, and changes, and expense 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
|                                 |  |      |         |      |   |       
|Award Expense                    |  | $    | 591,000 |      | $ |      
|                                 |  |      |         |      |   |       



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 38 percent of eligible
employees participated in the plan in 2005. 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 $178,000, $182,000, and $165,000 for the years ended 2005, 2004, and
2003, respectively.



36



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(16) Parent Company Only Statements



|                                           |  |             |         |      |   |        
|------------------------------------------ |  | ----------- | ------- | ---- | - | -------
|                                           |  | December 31
|(Dollars in Thousands)                     |  | 2005        |         | 2004
|Assets                                     |  |             |         |      |   |        
|Cash and Due from Banks                    |  | $           | 2       |      | $ | 1      
|Certificate of Deposit with the Bank       |  |             |        |      |   | 500    
|Due from the Bank                          |  |             | 4,632   |      |   | 6,665  
|Investment in the Bank                     |  |             | 213,321 |      |   | 209,096
|Investment in Somerset Financial           |  |             | 1       |      |   | 1      
|Investment in Grantor Trusts               |  |             | 744     |      |   | 744    
|Other Assets                               |  |             | 4,294   |      |   | 3,327  
|                                           |  |             |         |      |   |        
|Total Assets                               |  | $           | 222,994 |      | $ | 220,334
|                                           |  |             |         |      |   |        
|Liabilities                                |  |             |         |      |   |        
|Subordinated Notes                         |  | $           | 46,781  |      | $ | 46,657 
|Other Liabilities                          |  |             | 771     |      |   | 1,534  
|                                           |  |             |         |      |   |        
|Total Liabilities                          |  |             | 47,552  |      |   | 48,191 
|Shareholders Equity                       |  |             | 175,442 |      |   | 172,143
|                                           |  |             |         |      |   |        
|Total Liabilities and Shareholders Equity |  | $           | 222,994 |      | $ | 220,334
|                                           |  |             |         |      |   |        



|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|-------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                     |  | Years Ended December 31 |       
|(Dollars in Thousands)                                               |  | 2005                    |        |   | 2004 |   |        | 2003 | 
|Income                                                               |  |                         |        |   |      |   |        |      |  |   |         |  
|Dividends from the Bank                                              |  | $                       | 20,000 |   |      | $ | 16,000 |      |  | $ | 21,440  |  
|Distributions from Somerset Financial                                |  |                         |       |   |      |   | 5,405  |      |  |   |        |  
|Income from Investments                                              |  |                         | 57     |   |      |   | 53     |      |  |   | 47      |  
|Non-Interest Income                                                  |  |                         | 6,693  |   |      |   | 3,277  |      |  |   | 285     |  
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Total Income                                                         |  |                         | 26,750 |   |      |   | 24,735 |      |  |   | 21,772  |  
|Expense                                                              |  |                         |        |   |      |   |        |      |  |   |         |  
|Interest Expense                                                     |  |                         | 3,366  |   |      |   | 3,369  |      |  |   | 1,532   |  
|Non-Interest Expense                                                 |  |                         | 4,446  |   |      |   | 3,064  |      |  |   | 4,392   |  
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Total Expense                                                        |  |                         | 7,812  |   |      |   | 6,433  |      |  |   | 5,924   |  
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Earnings before Income Taxes                                         |  |                         | 18,938 |   |      |   | 18,302 |      |  |   | 15,848  |  
|Income Tax Benefit                                                   |  |                         | (430   | ) |      |   | (1,287 | )    |  |   | (2,106  | )
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Earnings before Equity in Undistributed Net Earnings of Subsidiaries |  |                         | 19,368 |   |      |   | 19,589 |      |  |   | 17,954  |  
|Equity in Undistributed Net Earnings of the Bank                     |  |                         | 5,903  |   |      |   | 2,942  |      |  |   | (16,126 | )
|Equity in Undistributed Net Earnings of Somerset Financial           |  |                         |       |   |      |   | (7,853 | )    |  |   | 701     |  
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|Net Earnings                                                         |  | $                       | 25,271 |   |      | $ | 14,678 |      |  | $ | 2,529   |  
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  



37



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | Years Ended December 31 |        
|(Dollars in Thousands)                                   |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|Cash Flows from Operating Activities                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Earnings                                             |  | $                       | 25,271  |   |      | $ | 14,678  |      |  | $ | 2,529   |  
|Adjustments to Reconcile Net Earnings to Net Cash (Used) |  |                         |         |   |      |   |         |      |  |   |         |  
|Provided by Operating Activities                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Equity in Undistributed Earnings                         |  |                         | (5,903  | ) |      |   | 4,911   |      |  |   | 15,425  |  
|Amortization of Stock Plans                              |  |                         | 1,939   |   |      |   | 1,147   |      |  |   | 321     |  
|Tax Benefit of Option Compensation                       |  |                         | 852     |   |      |   | 398     |      |  |   | 103     |  
|Stock Compensation                                       |  |                         | 624     |   |      |   | 119     |      |  |   | 324     |  
|Change in Other Liabilities                              |  |                         | (640    | ) |      |   | 100     |      |  |   | 1,649   |  
|Change in Due from the Bank and Other Assets             |  |                         | 1,638   |   |      |   | 23,165  |      |  |   | (4,755  | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash Provided by Operating Activities                |  |                         | 23,781  |   |      |   | 44,518  |      |  |   | 15,596  |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Investment in Equity Security                            |  |                         |        |   |      |   |        |      |  |   | (372    | )
|Investment in Limited Partnership                        |  |                         | (572    | ) |      |   | (572    | )    |  |   |        |  
|Acquisition of MetroBanCorp                              |  |                         |        |   |      |   | (8      | )    |  |   | (36,805 | )
|Acquisition of Somerset Financial                        |  |                         |        |   |      |   |        |      |  |   | (7      | )
|Disposition of Somerset Financial                        |  |                         |        |   |      |   | 6,000   |      |  |   |        |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash (Provided) Used by Investing Activities         |  |                         | (572    | ) |      |   | 5,420   |      |  |   | (37,184 | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Financing Activities                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Issuance of Subordinated Notes                           |  |                         |        |   |      |   |        |      |  |   | 34,295  |  
|Stock Option Proceeds                                    |  |                         | 3,655   |   |      |   | 1,988   |      |  |   | 542     |  
|Purchase of Treasury Stock - Net                         |  |                         | (16,775 | ) |      |   | (399    | )    |  |   | (2,936  | )
|Common Stock Issued under Deferred Compensation Plan     |  |                         | (21     | ) |      |   | (58     | )    |  |   | (35     | )
|Purchase of Common Stock                                 |  |                         | (23     | ) |      |   | (40,901 | )    |  |   |        |  
|Dividends Paid                                           |  |                         | (10,544 | ) |      |   | (10,569 | )    |  |   | (10,277 | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash (Used) Provided by Financing Activities         |  |                         | (23,708 | ) |      |   | (49,939 | )    |  |   | 21,589  |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Change in Cash and Cash Equivalents                  |  |                         | (499    | ) |      |   | (1      | )    |  |   | 1       |  
|Cash and Cash Equivalents at the Beginning of the Year   |  |                         | 501     |   |      |   | 502     |      |  |   | 501     |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and Cash Equivalents at the End of the Year         |  | $                       | 2       |   |      | $ | 501     |      |  | $ | 502     |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |  



(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.



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.



38



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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



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



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



Commitments to Extend Credit and 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.



39



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Estimated Fair Value of Financial Instruments



|                                                           |  |                   |         |                     |   |                |  |                     |         |  |   |        
|---------------------------------------------------------- |  | ----------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                                           |  | December 31, 2005 |         | December 31, 2004  
|(Dollars in Thousands)                                     |  | CarryingAmount    |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Assets                                                     |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Cash and Cash Equivalents                                  |  | $                 | 63,054  |                     | $ | 63,054         |  | $                   | 95,151  |  | $ | 95,151 
|Securities Available for Sale                              |  |                   | 232,976 |                     |   | 232,976        |  |                     | 217,269 |  |   | 217,269
|Other Investments                                          |  |                   | 26,540  |                     |   | 26,540         |  |                     | 26,027  |  |   | 26,027 
|Loans                                                      |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Business                                                   |  |                   | 526,482 |                     |   | 527,137        |  |                     | 436,416 |  |   | 436,382
|Commercial Real Estate                                     |  |                   | 166,434 |                     |   | 166,745        |  |                     | 173,433 |  |   | 174,490
|Single-Family Construction                                 |  |                   | 92,036  |                     |   | 92,036         |  |                     | 58,064  |  |   | 58,064 
|Consumer                                                   |  |                   | 491,650 |                     |   | 492,952        |  |                     | 512,256 |  |   | 513,329
|Residential Mortgage                                       |  |                   | 261,980 |                     |   | 258,443        |  |                     | 278,638 |  |   | 281,213
|Liabilities                                                |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Deposits                                                   |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Non-Interest-Bearing Demand Deposits                       |  |                   | 268,682 |                     |   | 268,682        |  |                     | 265,203 |  |   | 265,203
|Interest-Bearing Demand Deposits                           |  |                   | 229,876 |                     |   | 229,876        |  |                     | 189,911 |  |   | 189,911
|Savings Deposits                                           |  |                   | 489,713 |                     |   | 489,713        |  |                     | 463,679 |  |   | 463,679
|Certificates of Deposit under $100,000                     |  |                   | 175,800 |                     |   | 175,336        |  |                     | 262,168 |  |   | 264,512
|Certificates of Deposit $100,000 or Greater                |  |                   | 285,205 |                     |   | 285,238        |  |                     | 189,736 |  |   | 190,051
|Borrowings                                                 |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Short-Term Borrowings                                      |  |                   | 220,732 |                     |   | 220,732        |  |                     | 162,208 |  |   | 162,208
|FHLB Advances                                              |  |                   | 42,365  |                     |   | 43,823         |  |                     | 114,499 |  |   | 116,989
|Subordinated Notes                                         |  |                   | 46,781  |                     |   | 46,865         |  |                     | 46,657  |  |   | 48,698 
|Off-Balance-Sheet Instruments                              |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Commitments to Extend Credit and Standby Letters of Credit |  |                   | 128     |                     |   | 1,208          |  |                     | 337     |  |   | 1,226  



(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 bank segment originates and sells home equity loans and holds home equity loans originated for sale. Non-segment includes investment portfolio management, the servicing of all loans and deposits, the parent company
activities and other items not directly attributable to a specific segment. Revenues in the Corporations segments are generated from loans, loan sales, and fee income. There are no foreign operations. 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.



40



---

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Segment Reporting



|                                                              |  |                |           |   |                       |   |        |             |  |   |                          |   |  |   |           |  
|------------------------------------------------------------- |  | -------------- | --------- | - | --------------------- | - | ------ | ----------- |  | - | ------------------------ | - |  | - | --------- | -
|(Dollars in Thousands)                                        |  | Community Bank |           |   | Consumer Finance Bank |   |        | Non-Segment |  |   | 2005 Consolidated Totals |  
|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    |  
|                                                              |  |                |           |   |                       |   |        |             |  |   |                          |   |  |   |           |  
|                                                              |  |                |           |  
|                                                              |  | Community Bank |           |   | Consumer Finance Bank |   |        | Non-Segment |  |   | 2004 Consolidated Totals |  
|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    |  
|                                                              |  |                |           |   |                       |   |        |             |  |   |                          |   |  |   |           |  
|                                                              |  |                |           |  
|                                                              |  | Community Bank |           |   | Consumer Finance Bank |   |        | Non-Segment |  |   | 2003 Consolidated Totals |  
|Average Segment Assets                                        |  | $              | 1,810,589 |   |                       | $ | 83,966 |             |  | $ | 323,191                  |   |  | $ | 2,217,746 |  
|Net Interest Income (Expense) (1)                             |  |                | 86,340    |   |                       |   | 3,998  |             |  |   | (13,438                  | ) |  |   | 76,900    |  
|Provision for Loan Losses                                     |  |                | (38,974   | ) |                       |   |       |             |  |   |                         |   |  |   | (38,974   | )
|Non-Interest Income                                           |  |                | 21,836    |   |                       |   | 10,537 |             |  |   | 2,262                    |   |  |   | 34,635    |  
|Intangible Amortization                                       |  |                | (736      | ) |                       |   |       |             |  |   |                         |   |  |   | (736      | )
|Other Non-Interest Expense                                    |  |                | (27,378   | ) |                       |   | (3,660 | )           |  |   | (38,769                  | ) |  |   | (69,807   | )
|Intersegment Income (Expense) (2)                             |  |                | (14,489   | ) |                       |   | (1,174 | )           |  |   | 15,663                   |   |  |   |          |  
|                                                              |  |                |           |   |                       |   |        |             |  |   |                          |   |  |   |           |  
|Income (Loss) from Continuing Operations, Before Income Taxes |  | $              | 26,599    |   |                       | $ | 9,701  |             |  | $ | (34,282                  | ) |  | $ | 2,018     |  
|                                                              |  |                |           |   |                       |   |        |             |  |   |                          |   |  |   |           |  

---

|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



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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 |  
|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   |  
|                                                         |  |              |        |  
|2004                                                     |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |  
|Total Interest Income                                    |  | $            | 26,116 |   |               | $ | 25,077 |              |  | $ | 25,592        |   |  | $ | 24,859 |  
|Net Interest Income                                      |  |              | 17,626 |   |               |   | 17,127 |              |  |   | 17,769        |   |  |   | 16,919 |  
|Provision for Loan Losses                                |  |              | 3,000  |   |               |   | 3,250  |              |  |   | 5,300         |   |  |   |       |  
|Non-Interest Income                                      |  |              | 8,995  |   |               |   | 10,814 |              |  |   | 8,949         |   |  |   | 8,093  |  
|Non-Interest Expense                                     |  |              | 17,254 |   |               |   | 17,060 |              |  |   | 19,820        |   |  |   | 15,089 |  
|Income from Continuing Operations, Net of Taxes          |  |              | 4,073  |   |               |   | 4,868  |              |  |   | 1,106         |   |  |   | 6,346  |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |              | 1,332  |   |               |   | 135    |              |  |   | (2,325        | ) |  |   | (857   | )
|Net Income (Loss)                                        |  |              | 5,405  |   |               |   | 5,003  |              |  |   | (1,219        | ) |  |   | 5,489  |  
|                                                         |  |              |        |  
|Basic Earnings (Loss) Per Share                          |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |  
|Income from Continuing Operations, Net of Taxes          |  |              | 0.21   |   |               |   | 0.25   |              |  |   | 0.05          |   |  |   | 0.33   |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |              | 0.07   |   |               |   |       |              |  |   | (0.11         | ) |  |   | (0.05  | )
|Net Income (Loss)                                        |  |              | 0.28   |   |               |   | 0.25   |              |  |   | (0.06         | ) |  |   | 0.28   |  
|                                                         |  |              |        |  
|Diluted Earnings (Loss) Per Share                        |  |              |        |   |               |   |        |              |  |   |               |   |  |   |        |  
|Income from Continuing Operations, Net of Taxes          |  |              | 0.20   |   |               |   | 0.25   |              |  |   | 0.06          |   |  |   | 0.32   |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |              | 0.07   |   |               |   |       |              |  |   | (0.12         | ) |  |   | (0.04  | )
|Net Income (Loss)                                        |  |              | 0.27   |   |               |   | 0.25   |              |  |   | (0.06         | ) |  |   | 0.28   |  



42



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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. WarringtonPresident and ChiefExecutive Officer(Principal Executive Officer)Date: August 23, 2006




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