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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K

(Mark One)



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



For the fiscal year ended December 31, 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



Form 10-K



Table of Contents



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|Part I     |  |                                                                                                              |  |     
|           |  | Forward-Looking Statements                                                                                   |  | 3   
|           |  | Financial Review                                                                                             |  | 4   
|           |  | Five-Year Summary of Selected Financial Data                                                                 |  | 4   
|           |  | Overview                                                                                                     |  | 5   
|           |  | Critical Accounting Policies                                                                                 |  | 6   
|           |  | Statement of Earnings Analysis                                                                               |  | 7   
|           |  | Financial Condition                                                                                          |  | 15  
|           |  | Asset Quality                                                                                                |  | 21  
|           |  | Liquidity and Market Risk Management                                                                         |  | 26  
|           |  | Capital                                                                                                      |  | 30  
|           |  | Impact of Inflation and Changing Prices                                                                      |  | 32  
|           |  | Impact of Accounting Standards Not Yet Adopted                                                               |  | 32  
|           |  | Fourth Quarter Summary                                                                                       |  | 32  
|           |  | Managements Responsibility for Financial Statements                                                         |  | 34  
|           |  | Managements Report on Internal Control over Financial Reporting                                             |  | 34  
|           |  | Report of Independent Registered Public Accounting Firm                                                      |  | 35  
|           |  | Report of Independent Registered Public Accounting Firm                                                      |  | 36  
|           |  | Consolidated Financial Statements                                                                            |  | 37  
|           |  | Notes to Consolidated Financial Statements                                                                   |  | 41  
|Item 1.    |  | Business                                                                                                     |  | 76  
|Item 1A.   |  | Risk Factors                                                                                                 |  | 82  
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 85  
|Item 2.    |  | Properties                                                                                                   |  | 85  
|Item 3.    |  | Legal Proceedings                                                                                            |  | 85  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 85  
|           |  | Executive Officers of the Registrant                                                                         |  | 86  
|Part II    |  |                                                                                                              |  |     
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 87  
|Item 6.    |  | Selected Financial Data                                                                                      |  | 88  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 88  
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 88  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 88  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 88  
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 88  
|Item 9B.   |  | Other Information                                                                                            |  | 89  
|Part III   |  |                                                                                                              |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                           |  | 90  
|Item 11.   |  | Executive Compensation                                                                                       |  | 90  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters               |  | 90  
|Item 13.   |  | Certain Relationships and Related Transactions                                                               |  | 90  
|Item 14.   |  | Principal Accounting Fees and Services                                                                       |  | 90  
|Part IV    |  |                                                                                                              |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules                                                                      |  | 91  
|Signatures |  | 94                                                                                                          



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FORWARD-LOOKING STATEMENTS



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



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FINANCIAL REVIEW



FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA



|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|-------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|(Dollars in Thousands, except Per Share Data)            |  | 2005 |            |   | 2004 |   |            | 2003 |  |   | 2002       |   |  | 2001 |           
|Year-End Balance Sheet Data                              |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total Assets                                             |  | $    | 1,966,356  |   |      | $ | 1,898,263  |      |  | $ | 2,193,137  |   |  | $    | 2,125,590  |   |  | $ | 2,046,657  |  
|Investment Securities                                    |  |      | 259,516    |   |      |   | 243,296    |      |  |   | 240,410    |   |  |      | 161,320    |   |  |   | 170,354    |  
|Loans                                                    |  |      | 1,567,186  |   |      |   | 1,500,190  |      |  |   | 1,814,991  |   |  |      | 1,837,633  |   |  |   | 1,756,486  |  
|Commercial                                               |  |      | 805,381    |   |      |   | 700,528    |      |  |   | 886,144    |   |  |      | 860,159    |   |  |   | 788,872    |  
|Consumer                                                 |  |      | 499,465    |   |      |   | 520,611    |      |  |   | 612,025    |   |  |      | 666,150    |   |  |   | 675,111    |  
|Residential Mortgage                                     |  |      | 262,340    |   |      |   | 279,051    |      |  |   | 316,822    |   |  |      | 311,324    |   |  |   | 292,503    |  
|Deposits                                                 |  |      | 1,449,276  |   |      |   | 1,370,697  |      |  |   | 1,489,972  |   |  |      | 1,339,204  |   |  |   | 1,379,478  |  
|Non-Interest-Bearing Demand                              |  |      | 268,682    |   |      |   | 265,203    |      |  |   | 235,811    |   |  |      | 180,389    |   |  |   | 165,023    |  
|Interest-Bearing Demand                                  |  |      | 229,876    |   |      |   | 189,911    |      |  |   | 217,353    |   |  |      | 179,751    |   |  |   | 140,175    |  
|Savings                                                  |  |      | 489,713    |   |      |   | 463,679    |      |  |   | 400,804    |   |  |      | 398,752    |   |  |   | 447,832    |  
|Certificates of Deposit                                  |  |      | 461,005    |   |      |   | 451,904    |      |  |   | 636,004    |   |  |      | 580,312    |   |  |   | 626,448    |  
|Short-Term Borrowings                                    |  |      | 220,732    |   |      |   | 162,208    |      |  |   | 147,074    |   |  |      | 170,956    |   |  |   | 121,082    |  
|Federal Home Loan Bank Advances                          |  |      | 42,365     |   |      |   | 114,499    |      |  |   | 265,488    |   |  |      | 346,532    |   |  |   | 296,647    |  
|Subordinated Notes                                       |  |      | 46,781     |   |      |   | 46,657     |      |  |   | 46,534     |   |  |      | 12,169     |   |  |   |           |  
|Shareholders Equity                                     |  |      | 175,442    |   |      |   | 172,143    |      |  |   | 208,894    |   |  |      | 221,211    |   |  |   | 209,031    |  
|Selected Operations Data                                 |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net Interest Income                                      |  | $    | 69,110     |   |      | $ | 69,441     |      |  | $ | 76,900     |   |  | $    | 73,780     |   |  | $ | 74,049     |  
|Provision for Loan Losses                                |  |      | (3,200     | ) |      |   | 11,550     |      |  |   | 38,974     |   |  |      | 20,756     |   |  |   | 15,228     |  
|Non-Interest Income                                      |  |      | 29,318     |   |      |   | 36,851     |      |  |   | 34,635     |   |  |      | 33,353     |   |  |   | 32,119     |  
|Non-Interest Expense                                     |  |      | 63,061     |   |      |   | 69,223     |      |  |   | 70,543     |   |  |      | 54,627     |   |  |   | 59,887     |  
|Income from Continuing Operations, Net of Taxes          |  |      | 24,500     |   |      |   | 16,393     |      |  |   | 1,467      |   |  |      | 20,302     |   |  |   | 19,443     |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |      | 771        |   |      |   | (1,715     | )    |  |   | 1,062      |   |  |      | 878        |   |  |   | 566        |  
|Net Income                                               |  |      | 25,271     |   |      |   | 14,678     |      |  |   | 2,529      |   |  |      | 21,180     |   |  |   | 20,009     |  
|Basic Earnings (Loss) Per Share                          |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Income from Continuing Operations, Net of Taxes          |  |      | 1.43       |   |      |   | 0.84       |      |  |   | 0.07       |   |  |      | 1.04       |   |  |   | 1.00       |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |      | 0.04       |   |      |   | (0.09      | )    |  |   | 0.06       |   |  |      | 0.05       |   |  |   | 0.03       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic Net Earnings Per Share                             |  |      | 1.47       |   |      |   | 0.75       |      |  |   | 0.13       |   |  |      | 1.09       |   |  |   | 1.03       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Diluted Earnings (Loss) Per Share                        |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Income from Continuing Operations, Net of Taxes          |  |      | 1.40       |   |      |   | 0.83       |      |  |   | 0.07       |   |  |      | 1.02       |   |  |   | 0.97       |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |      | 0.04       |   |      |   | (0.09      | )    |  |   | 0.06       |   |  |      | 0.05       |   |  |   | 0.03       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Diluted Net Earnings Per Share                           |  |      | 1.44       |   |      |   | 0.74       |      |  |   | 0.13       |   |  |      | 1.07       |   |  |   | 1.00       |  
|                                                         |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Dividends Declared Per Common Share                      |  |      | 0.608      |   |      |   | 0.540      |      |  |   | 0.528      |   |  |      | 0.512      |   |  |   | 0.410      |  
|Selected Ratios                                          |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net Interest Margin                                      |  |      | 3.85       | % |      |   | 3.55       | %    |  |   | 3.69       | % |  |      | 3.73       | % |  |   | 3.69       | %
|Return on Average Total Assets                           |  |      | 1.32       |   |      |   | 0.71       |      |  |   | 0.11       |   |  |      | 1.02       |   |  |   | 0.95       |  
|Return on Average Shareholders Equity                   |  |      | 14.39      |   |      |   | 6.94       |      |  |   | 1.15       |   |  |      | 9.66       |   |  |   | 9.60       |  
|Average Shareholders Equity to Average Total Assets     |  |      | 9.21       |   |      |   | 10.19      |      |  |   | 9.91       |   |  |      | 10.51      |   |  |   | 9.89       |  
|Tangible Equity to Tangible Assets                       |  |      | 7.33       |   |      |   | 7.38       |      |  |   | 8.04       |   |  |      | 10.12      |   |  |   | 9.91       |  
|Dividend Payout Ratio                                    |  |      | 41.36      |   |      |   | 71.81      |      |  |   | 412.50     |   |  |      | 47.06      |   |  |   | 39.69      |  
|Selected Value                                           |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Book Value Per Share                                     |  | $    | 10.22      |   |      | $ | 9.82       |      |  | $ | 10.75      |   |  | $    | 11.39      |   |  | $ | 10.84      |  
|Average Common Shares Outstanding                        |  |      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                    |  |      | 17,158,145 |   |      |   | 19,484,426 |      |  |   | 19,463,135 |   |  |      | 19,421,483 |   |  |   | 19,462,445 |  
|Diluted                                                  |  |      | 17,549,963 |   |      |   | 19,735,453 |      |  |   | 19,650,864 |   |  |      | 19,761,725 |   |  |   | 19,998,720 |  



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



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OVERVIEW



First Indiana Corporation
(First Indiana or the Corporation) is the holding company for First Indiana Bank, N.A. (the Bank), the largest commercial bank headquartered in Indianapolis. First Indiana Bank is a community bank offering a full
range of banking services in Central Indiana. The Bank attracts deposits and originates commercial and consumer loans and offers cash management services through 30 banking centers. Additionally, the Bank originates home equity loans on a national
basis through a network of agents and brokers. These loans are primarily sold to investors.



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



The Corporations success is largely dependent on its ability to manage credit risk and interest rate risk. Making loans is an essential element of the Banks business, and there is a risk that loans will not be repaid. The risk
of loss on a loan is affected by a number of factors, including credit risks of a particular borrower; changes in economic or industry conditions; the duration of the loan; and, in the case of a collateralized loan, uncertainties about the future
value of the collateral. An economic downturn could contribute to deterioration in the quality of the loan portfolio. Loans made up 80 percent of the Corporations assets at year-end 2005. If an economic downturn occurs in the economy as a
whole, or in Indiana where First Indiana has approximately 65 percent of its loans, borrowers may be unable to repay their loans as scheduled and the value of real estate or other collateral that may secure the loans could be adversely affected.



Interest rate risk is defined as the exposure of net interest
income, net earnings, and equity to changes in interest rates. First Indiana manages risk from changes in market interest rates, in part, by controlling the mix of interest rate-sensitive assets and interest rate-sensitive liabilities. Because the
Corporation is in an asset-sensitive position (where assets reprice faster than liabilities), recent rate increases by the Federal Reserve Board were reflected in an improved net interest margin in 2005.



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



Several major initiatives were implemented in 2005. In the first quarter the Banks third-party loan servicing portfolio was sold as the final step
in the Corporations strategic decision to exit the third-party loan servicing business. Credit quality improved during the year and non-performing assets decreased to $4,633,000 at year-end 2005, compared with $21,445,000 at the prior
year-end. The cost reduction plan, announced in the third quarter of 2004, was effective in increasing pre-tax earnings in 2005 beyond the $4,000,000 originally estimated. Business development efforts led to growth of 16.8 percent in business loans
during the year. In the fourth quarter the Corporation announced an agreement to sell its trust business and recorded an after-tax gain of approximately $8,600,000 when the sale closed in January 2006.



The most significant risks and challenges for the Corporation are generating
sufficient deposit growth and recruiting and retaining top talent. Growing deposits at a rate that optimally supports loan growth requires



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improving First Indianas deposit gathering capabilities. Initiatives begun in 2005 to help more aggressively pursue deposits, include hiring
experienced bankers and planning new and relocated banking centers. A second significant challenge for the future is recruiting and retaining top talent. Given the entrance of new competitors into the Central Indiana market, this will only become
more difficult and require a continued effort to find creative ways to maintain the most effective workforce.



An additional challenge in 2006 is achieving a successful conversion of the Banks core systems to a new service provider scheduled for completion in
the third quarter. Non-interest expense in 2006 will include conversion-related expenses and consulting fees related to ongoing process improvement initiatives. However, the core systems conversion will incorporate improvements in associated
business processes and is expected to improve non-interest expense by more than $2,000,000 annually.



CRITICAL ACCOUNTING POLICIES



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



Allowance for
Loan Losses



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



Goodwill



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



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Valuation Allowance for Deferred Taxes



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



STATEMENT OF EARNINGS ANALYSIS



Earnings Summary



First Indiana reported net income of $25,271,000, or
$1.44 per diluted share, in 2005, compared with earnings of $14,678,000, or $0.74 per diluted share, in 2004. Net income in 2003 was $2,529,000 or $0.13 per diluted share. Increases in net income in the past two years were primarily the result of
improvements in credit quality which led to reductions in the provision for loan losses. Non-performing assets decreased to $4,633,000 at December 31, 2005, from $21,445,000 at December 31, 2004, and $38,882,000 at December 31, 2003.
Net charge-offs of loans totaled $10,804,000 in 2005, compared with $11,575,000 in 2004 and $31,513,000 in 2003. Net income in 2005 was also positively impacted by results of the cost reduction program implemented in the third quarter of 2004. Also
included in 2005 results was a pre-tax loss of $1,649,000 on the sale of the Banks third-party loan servicing portfolio. Earnings in 2003 were affected by an increase of $18,218,000 in the provision for loan losses over 2002. The increase in
the provision for loan losses in 2003 reflected an increased level of charge-offs, results from the findings of an independent evaluation of the commercial loan portfolio, the continued evaluation of risks in the portfolio at that time, and the
Banks revised approach for calculating the allowance for loan losses.



In the fourth quarter of 2005, the Corporation announced an agreement to sell the assets related to its trust business. This sale was closed on January 3, 2006. In the fourth quarter of 2004, First Indiana sold
substantially all the assets of Somerset Financial. The results of operations of the trust business and Somerset Financial are reported as discontinued operations. Earnings from continuing operations, net of taxes, were $24,500,000, or $1.40 per
diluted share, in 2005 compared with $16,393,000, or $0.83 per diluted share, in 2004. Earnings from continuing operations, net of taxes in 2003 were $1,467,000, or $0.07 per diluted share. Earnings from discontinued operations, net of taxes, were
$771,000, or $0.04 per diluted share, in 2005 compared with a loss from discontinued operations, net of taxes of $1,715,000, or a loss of $0.09 per diluted share, in 2004. Earnings from discontinued operations, net of taxes in 2003 were $1,062,000,
or $0.06 per diluted share.



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



Net Interest Income



Net interest income was $69,110,000 in 2005, compared with $69,441,000 in 2004 and $76,900,000 in 2003. Net interest income
decreased slightly in 2005 compared with 2004 due to a decrease in earning assets offset by an increase in net interest margin. The decrease in 2004 net interest income compared with 2003



7



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##### Table of Contents

resulted from a decrease in both earning assets and the margin. Earning assets averaged $1,794,154,000 in 2005, compared with $1,955,281,000 in 2004 and
$2,083,300,000 in 2003. The decrease in 2005 average earning assets compared with 2004 primarily consisted of reductions in single-family construction and consumer loans. The reduction in single-family construction loans was the result of the sale
of the non-Indiana construction loan offices in November 2004, which included approximately $134,373,000 in construction loans outstanding, partially offset by new originations in the Indianapolis office. The decrease in 2004 average earning assets,
compared with average earning assets in 2003, primarily consisted of reductions in business and consumer loans. Additionally, the 2004 sale of the non-Indiana construction loan offices reduced average earning assets approximately $22,000,000 in
2004. Net interest margin is calculated as the percentage of net interest income to average earning assets. Net interest margin was 3.85 percent in 2005, compared with 3.55 percent in 2004 and 3.69 percent in 2003. Rate increases by the Federal
Reserve Board which began in mid-2004 led to an increase in net interest margin since First Indianas balance sheet has been in an asset-sensitive position. Yields on consumer and residential mortgage loans fell in 2004, as well as 2003, due to
continued prepayments and repricing of higher coupon loans. Historically low interest rates compressed net interest margin and net interest income in 2003, as deposit rates were unable to fully absorb reductions in market interest rates. See
Asset/Liability Management for a more detailed discussion of the Corporations management of interest rate risk.



Net interest margin consists of two components: interest rate spread and the contribution of interest-free funds, primarily non-interest-bearing demand
deposits and shareholders equity. Interest rate spread is the difference between the yield on total earning assets and the cost of total interest-bearing liabilities. Both the interest rate spread and the contribution of interest-free funds
were impacted positively by rising interest rates and had a positive impact on the 2005 net interest margin. The interest rate spread for 2005 was 3.35 percent, compared with 3.17 percent in 2004 and 3.36 percent in 2003. The contribution of
interest-free funds to net interest margin varies depending on the level of interest-free funds and the level of interest rates. Interest-free funds averaged $341,465,000, or 19.0 percent of earning assets, in 2005, compared with $368,428,000, or
18.8 percent of earning assets, in 2004, and $334,547,000, or 16.1 percent of earning assets, in 2003. Interest-free funds provided 50 basis points to the margin in 2005, compared with 38 basis points in 2004 and 33 basis points in 2003. Although
the contribution from interest-free funds improved in 2004, net interest margin declined due to the decrease in interest rate spread. The decline in yields on consumer and residential mortgage loans in 2004 discussed above, as well as declines in
the yield on securities available for sale, are the principal reasons for this narrowing of interest rate spread.



8



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##### Table of Contents

Net Interest Margin



|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|------------------------------------------ |  | -------------- | --------- | -------- | ---- | ----------- |  | ---- | -------------- |  | -------- | --------- | ----------- | - | ------- | -------------- | ---- | -------- |  | ----------- | --------- |  | - | ------- |  | ---- | -
|                                           |  | 2005           |           |          | 2004 |             |  | 2003 |               
|(Dollars in Thousands)                     |  | AverageBalance |           | Interest |      | Yield /Rate |  |      | AverageBalance |  | Interest |           | Yield /Rate |   |         | AverageBalance |      | Interest |  | Yield /Rate |          
|Assets                                     |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Interest-Bearing Due from Banks            |  | $              | 5,354     |          | $    | 142         |  | 2.64 | %              |  | $        | 29,200    |             | $ | 389     |                | 1.33 | %        |  | $           | 5,014     |  | $ | 61      |  | 1.21 | %
|Federal Funds Sold                         |  |                | 2,853     |          |      | 91          |  | 3.19 |                |  |          |          |             |   |        |                |     |          |  |             | 227       |  |   | 3       |  | 1.18 |  
|Securities Available for Sale              |  |                | 226,513   |          |      | 8,387       |  | 3.70 |                |  |          | 215,159   |             |   | 7,869   |                | 3.66 |          |  |             | 177,898   |  |   | 8,035   |  | 4.52 |  
|Other Investments                          |  |                | 26,447    |          |      | 1,159       |  | 4.38 |                |  |          | 25,573    |             |   | 1,170   |                | 4.57 |          |  |             | 24,194    |  |   | 1,252   |  | 5.18 |  
|Loans (1)                                  |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Business                                   |  |                | 504,388   |          |      | 33,236      |  | 6.59 |                |  |          | 491,490   |             |   | 25,577  |                | 5.20 |          |  |             | 562,138   |  |   | 28,716  |  | 5.11 |  
|Commercial Real Estate                     |  |                | 167,287   |          |      | 11,497      |  | 6.87 |                |  |          | 176,641   |             |   | 10,238  |                | 5.80 |          |  |             | 161,352   |  |   | 8,919   |  | 5.53 |  
|Single-Family Construction                 |  |                | 80,652    |          |      | 5,379       |  | 6.67 |                |  |          | 166,416   |             |   | 8,111   |                | 4.87 |          |  |             | 204,068   |  |   | 9,333   |  | 4.57 |  
|Consumer                                   |  |                | 509,471   |          |      | 34,625      |  | 6.80 |                |  |          | 554,570   |             |   | 34,177  |                | 6.16 |          |  |             | 648,890   |  |   | 42,448  |  | 6.54 |  
|Residential Mortgage                       |  |                | 271,189   |          |      | 12,664      |  | 4.67 |                |  |          | 296,232   |             |   | 14,113  |                | 4.76 |          |  |             | 299,519   |  |   | 15,563  |  | 5.20 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Loans                                |  |                | 1,532,987 |          |      | 97,401      |  | 6.35 |                |  |          | 1,685,349 |             |   | 92,216  |                | 5.47 |          |  |             | 1,875,967 |  |   | 104,979 |  | 5.60 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Earning Assets                       |  |                | 1,794,154 |          |      | 107,180     |  | 5.97 |                |  |          | 1,955,281 |             |   | 101,644 |                | 5.20 |          |  |             | 2,083,300 |  |   | 114,330 |  | 5.49 |  
|Other Assets                               |  |                | 113,388   |          |      |             |  |      |                |  |          | 119,780   |             |   |         |                |      |          |  |             | 134,446   |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Assets                               |  | $              | 1,907,542 |          |      |             |  |      |                |  | $        | 2,075,061 |             |   |         |                |      |          |  | $           | 2,217,746 |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Liabilities and Shareholders Equity       |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Interest-Bearing Deposits                  |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Demand Deposits                            |  | $              | 189,297   |          | $    | 877         |  | 0.46 | %              |  | $        | 185,050   |             | $ | 635     |                | 0.34 | %        |  | $           | 210,922   |  | $ | 1,096   |  | 0.52 | %
|Savings Deposits                           |  |                | 477,500   |          |      | 8,835       |  | 1.85 |                |  |          | 472,006   |             |   | 3,977   |                | 0.84 |          |  |             | 423,401   |  |   | 3,076   |  | 0.73 |  
|Certificates of Deposit                    |  |                | 473,150   |          |      | 16,218      |  | 3.43 |                |  |          | 565,940   |             |   | 15,821  |                | 2.80 |          |  |             | 697,478   |  |   | 20,992  |  | 3.01 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Interest-Bearing Deposits            |  |                | 1,139,947 |          |      | 25,930      |  | 2.27 |                |  |          | 1,222,996 |             |   | 20,433  |                | 1.67 |          |  |             | 1,331,801 |  |   | 25,164  |  | 1.89 |  
|Short-Term Borrowings                      |  |                | 181,930   |          |      | 5,121       |  | 2.81 |                |  |          | 128,676   |             |   | 1,521   |                | 1.18 |          |  |             | 132,886   |  |   | 1,390   |  | 1.05 |  
|Federal Home Loan Bank Advances            |  |                | 84,087    |          |      | 3,653       |  | 4.34 |                |  |          | 188,581   |             |   | 6,880   |                | 3.65 |          |  |             | 262,666   |  |   | 9,360   |  | 3.56 |  
|Subordinated Notes                         |  |                | 46,725    |          |      | 3,366       |  | 7.20 |                |  |          | 46,600    |             |   | 3,369   |                | 7.23 |          |  |             | 21,400    |  |   | 1,516   |  | 7.08 |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Interest-Bearing Liabilities         |  |                | 1,452,689 |          |      | 38,070      |  | 2.62 |                |  |          | 1,586,853 |             |   | 32,203  |                | 2.03 |          |  |             | 1,748,753 |  |   | 37,430  |  | 2.13 |  
|Non-Interest-Bearing Demand Deposits       |  |                | 246,113   |          |      |             |  |      |                |  |          | 241,941   |             |   |         |                |      |          |  |             | 209,126   |  |   |         |  |      |  
|Other Liabilities                          |  |                | 33,124    |          |      |             |  |      |                |  |          | 34,723    |             |   |         |                |      |          |  |             | 40,122    |  |   |         |  |      |  
|Shareholders Equity                       |  |                | 175,616   |          |      |             |  |      |                |  |          | 211,544   |             |   |         |                |      |          |  |             | 219,745   |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Total Liabilities and Shareholders Equity |  | $              | 1,907,542 |          |      |             |  |      |                |  | $        | 2,075,061 |             |   |         |                |      |          |  | $           | 2,217,746 |  |   |         |  |      |  
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Net Interest Income/Spread                 |  |                |           |          | $    | 69,110      |  | 3.35 | %              |  |          |           |             | $ | 69,441  |                | 3.17 | %        |  |             |           |  | $ | 76,900  |  | 3.36 | %
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  
|Net Interest Margin                        |  |                |           |          |      |             |  | 3.85 | %              |  |          |           |             |   |         |                | 3.55 | %        |  |             |           |  |   |         |  | 3.69 | %
|                                           |  |                |           |          |      |             |  |      |                |  |          |           |             |   |         |                |      |          |  |             |           |  |   |         |  |      |  

---

|(1) | Included in loans are loans held for sale totaling $32.3 million, $44.1 million, and $69.0 million in 2005, 2004, and 2003, respectively, and non-accrual loans.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|----------------------------- |  | ----------------------------------- | ------ | - | ----------------------- | - | ------ | ----------------------------------- |  | - | ------ | - |  | ------ | ------ | - | --------- | - | ------- | - |  | - | ------- | -
|                              |  | 2005 Compared with 2004             |        |   | 2004 Compared with 2003 |  
|                              |  | Increase (Decrease)Due to Change in |        |   |                         |   |        | Increase (Decrease)Due to Change in |  |   |        |  
|(Dollars in Thousands)        |  | Rate                                |        |   | Volume                  |   |        | NetChange                           |  |   | Rate   |   |  | Volume |        |   | NetChange |  
|Interest Income               |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|Interest-Bearing Deposits     |  | $                                   | 214    |   |                         | $ | (461   | )                                   |  | $ | (247   | ) |  | $      | 7      |   |           | $ | 321     |   |  | $ | 328     |  
|Federal Funds Sold            |  |                                     |       |   |                         |   | 91     |                                     |  |   | 91     |   |  |        |       |   |           |   | (3      | ) |  |   | (3      | )
|Securities Available for Sale |  |                                     | 98     |   |                         |   | 420    |                                     |  |   | 518    |   |  |        | (1,681 | ) |           |   | 1,515   |   |  |   | (166    | )
|Other Investments             |  |                                     | (50    | ) |                         |   | 39     |                                     |  |   | (11    | ) |  |        | (151   | ) |           |   | 69      |   |  |   | (82     | )
|Loans                         |  |                                     | 14,005 |   |                         |   | (8,820 | )                                   |  |   | 5,185  |   |  |        | (2,290 | ) |           |   | (10,473 | ) |  |   | (12,763 | )
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|                              |  |                                     | 14,267 |   |                         |   | (8,731 | )                                   |  |   | 5,536  |   |  |        | (4,115 | ) |           |   | (8,571  | ) |  |   | (12,686 | )
|Interest Expense              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|Interest-Bearing Deposits     |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|Demand Deposits               |  |                                     | 227    |   |                         |   | 15     |                                     |  |   | 242    |   |  |        | (339   | ) |           |   | (122    | ) |  |   | (461    | )
|Savings Deposits              |  |                                     | 4,811  |   |                         |   | 47     |                                     |  |   | 4,858  |   |  |        | 524    |   |           |   | 377     |   |  |   | 901     |  
|Certificates of Deposit       |  |                                     | 3,238  |   |                         |   | (2,841 | )                                   |  |   | 397    |   |  |        | (1,417 | ) |           |   | (3,754  | ) |  |   | (5,171  | )
|Short-Term Borrowings         |  |                                     | 2,771  |   |                         |   | 829    |                                     |  |   | 3,600  |   |  |        | 176    |   |           |   | (45     | ) |  |   | 131     |  
|FHLB Advances                 |  |                                     | 1,126  |   |                         |   | (4,353 | )                                   |  |   | (3,227 | ) |  |        | 217    |   |           |   | (2,697  | ) |  |   | (2,480  | )
|Subordinated Notes            |  |                                     | (12    | ) |                         |   | 9      |                                     |  |   | (3     | ) |  |        | 32     |   |           |   | 1,821   |   |  |   | 1,853   |  
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|                              |  |                                     | 12,161 |   |                         |   | (6,294 | )                                   |  |   | 5,867  |   |  |        | (807   | ) |           |   | (4,420  | ) |  |   | (5,227  | )
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  
|Net Interest Income           |  | $                                   | 2,106  |   |                         | $ | (2,437 | )                                   |  | $ | (331   | ) |  | $      | (3,308 | ) |           | $ | (4,151  | ) |  | $ | (7,459  | )
|                              |  |                                     |        |   |                         |   |        |                                     |  |   |        |   |  |        |        |   |           |   |         |   |  |   |         |  



Non-Interest Income



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



|                                      |  |                         |        |   |                     |   |        |         |  |          |                     |  |   |        |   |  |         |        |   |      |        |   |  |   |        |  
|------------------------------------- |  | ----------------------- | ------ | - | ------------------- | - | ------ | ------- |  | -------- | ------------------- |  | - | ------ | - |  | ------- | ------ | - | ---- | ------ | - |  | - | ------ | -
|                                      |  | Years Ended December 31 |       
|                                      |  |                         |        |   | Increase (Decrease) |   |        |         |  |          | Increase (Decrease) |  |   |        |  
|(Dollars in Thousands)                |  | 2005                    |        |   | Amount              |   |        | Percent |  |          | 2004                |  |   | Amount |   |  | Percent |        |   | 2003 |       
|Deposit Charges                       |  | $                       | 16,760 |   |                     | $ | (486   | )       |  | (2.8     | )%                  |  | $ | 17,246 |   |  | $       | 351    |   |      | 2.1    | % |  | $ | 16,895 |  
|Loan Servicing Income (Expense)       |  |                         | 58     |   |                     |   | 294    |         |  | 124.6    |                     |  |   | (236   | ) |  |         | 1,843  |   |      | 88.6   |   |  |   | (2,079 | )
|Loan Fees                             |  |                         | 1,818  |   |                     |   | (1,221 | )       |  | (40.2    | )                   |  |   | 3,039  |   |  |         | 429    |   |      | 16.4   |   |  |   | 2,610  |  
|Investment Product Sales Commissions  |  |                         | 581    |   |                     |   | (1,123 | )       |  | (65.9    | )                   |  |   | 1,704  |   |  |         | (13    | ) |      | (0.8   | ) |  |   | 1,717  |  
|Sale of Loans                         |  |                         | 10,188 |   |                     |   | (1,350 | )       |  | (11.7    | )                   |  |   | 11,538 |   |  |         | 716    |   |      | 6.6    |   |  |   | 10,822 |  
|Sale of Loan Servicing                |  |                         | (1,649 | ) |                     |   | (1,649 | )       |  |         |                     |  |   |       |   |  |         |       |   |      |       |   |  |   |       |  
|Net Investment Securities Gain (Loss) |  |                         | (813   | ) |                     |   | (794   | )       |  | (4,178.9 | )                   |  |   | (19    | ) |  |         | (26    | ) |      | (371.4 | ) |  |   | 7      |  
|Other                                 |  |                         | 2,375  |   |                     |   | (1,204 | )       |  | (33.6    | )                   |  |   | 3,579  |   |  |         | (1,084 | ) |      | (23.2  | ) |  |   | 4,663  |  
|                                      |  |                         |        |   |                     |   |        |         |  |          |                     |  |   |        |   |  |         |        |   |      |        |   |  |   |        |  
|                                      |  | $                       | 29,318 |   |                     | $ | (7,533 | )       |  | (20.4    | )%                  |  | $ | 36,851 |   |  | $       | 2,216  |   |      | 6.4    | % |  | $ | 34,635 |  
|                                      |  |                         |        |   |                     |   |        |         |  |          |                     |  |   |        |   |  |         |        |   |      |        |   |  |   |        |  



Non-interest income
totaled $29,318,000 in 2005, compared with $36,851,000 in 2004 and $34,635,000 in 2003. Non-interest income in 2005 includes a loss of $1,649,000 on the sale of the Banks third-party loan servicing portfolio at the end of the first quarter.



Deposit charges in 2005 decreased 2.8 percent to $16,760,000
following a 2.1 percent increase to $17,246,000 in 2004. The decrease in deposit charges in 2005 compared with 2004 was primarily due to a



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##### Table of Contents

reduction in account analysis fees resulting from a higher earnings credit rate in 2005 and a decline in overdraft charges. Growth in deposit charges in 2004
consisted of growth in overdraft fees and debit card fees partially offset by a decrease in account analysis fees from business demand accounts.



Loan servicing income was $58,000 in 2005, compared with loan servicing expense of $236,000 in 2004 and loan servicing expense of $2,079,000 in 2003.
Following the sale of the Banks third-party loan servicing portfolio in the first quarter of 2005, the transfer of the servicing of the loans to the purchaser was completed in the second quarter. All loans have been sold servicing released
since the second quarter of 2004, and the Bank expects to continue this practice. The Corporation is no longer servicing loans for others and, therefore, does not expect to record loan servicing income in the future. Residential and home equity
loans serviced for others were $320,994,000 at December 31, 2004, and $432,920,000 at December 31, 2003. Loan servicing income consists of three related elements: fees received from servicing residential mortgage and home equity loans,
amortization of capitalized servicing right assets, and changes in the valuation allowance on servicing right assets. Rapid repayments accelerated the amortization of loan servicing rights and increased valuation impairment charges in 2004 and 2003.
In addition, fees collected from servicing loans were reduced in 2004 and 2003 due to the lower loan servicing volume. Valuation impairment charges totaled $376,000 in 2004 compared with $2,386,000 in 2003. The valuation impairment loss in 2003
reflected high prepayments and adjustments to certain assumptions used in determining the estimated market value of the loan servicing rights portfolio. Additional information relating to loan servicing rights can be found in Note 3 of the Notes to
the Consolidated Financial Statements.



Loan fees were
$1,818,000 in 2005, compared with $3,039,000 in 2004 and $2,610,000 in 2003. The primary reason for the decrease in loan fees in 2005 compared with 2004 was a reduction in construction loan fees due to the sale of the non-Indiana construction loan
offices in November 2004. The increase in loan fees in 2004 over 2003 was primarily the result of the transition to a new method of recognizing standby letter of credit fees as prescribed by Financial Accounting Standards Board Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which reduced loan fees recorded in 2003 as these fees were required to be recognized over the
life of the guarantee as opposed to recognition when the agreement was issued.



Investment and insurance product sales commissions generated by First Indiana Investor Services, Inc., the Banks investment products and insurance sales subsidiary, were $581,000 in 2005, compared with
$1,704,000 in 2004 and $1,717,000 in 2003. Annuity sales revenues have declined due to the elimination of the existing sales channel as part of the cost reduction plan implemented in the third quarter of 2004.



Gain on the sale of loans in 2005 was $10,188,000, a decrease of $1,350,000
from comparable revenues in 2004 of $11,538,000, which included a net gain of $958,000 from the sale of the non-Indiana construction loan offices. Gain on the sale of loans in 2003 was $10,822,000. Gain on the sale of consumer loans was $9,998,000
in 2005, compared with $10,476,000 in 2004 and $10,806,000 in 2003. Gain on the sale of consumer loans decreased in 2005 from 2004 levels due to a reduction in loans sold as more loans were retained in the Banks portfolio. As a result of
shifts in market demand and an increase in retail production in 2005, a greater share of originated loans met the criteria for the Banks portfolio. Consumer loan sales revenue in 2004 was affected by a lower volume of consumer loan sales
compared with 2003. Consumer loans sold were $328,515,000 in 2005, compared with $339,595,000 in 2004 and $344,638,000 in 2003. Gain on the sale of residential loans was $191,000 in 2005, compared with $104,000 in 2004 and $16,000 in 2003.
Residential loans sold were $10,051,000 in 2005, compared with $6,481,000 in 2004 and $1,439,000 in 2003. Gain on the sale of residential loans increased in 2005 from 2004 in part due to a shift in the method of delivering residential loans to the
secondary market. In 2005 a greater percentage of residential loans were delivered by the Bank as correspondent with the gain recorded in gain on the sale of loans rather than as a broker with the gain recorded in other non-interest income.



In 2005 the net investment securities loss was $813,000,
compared with a net loss of $19,000 in 2004 and a net gain of $7,000 in 2003. In addition to the sale of $35,000,000 in Federal Home Loan Bank bonds in the first



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quarter of 2005 resulting in a loss of $804,000, the Bank sold its holding of Fannie Mae and Freddie Mac preferred stock in the same quarter at a loss of
$9,000. The Bank had previously recognized impairment losses of $299,000 in 2004 on this preferred stock. The Bank recorded a gain of $280,000 on the sale of $20,000,000 in treasury securities in 2004.



Other non-interest income in 2005 was $2,375,000, compared with $3,579,000 in
2004 and $4,663,000 in 2003. Income from late charges, prepayment penalties, and other consumer and residential loan fees in 2005 was reduced from the previous year due to the sale of the loan servicing portfolio, the contraction in the consumer and
mortgage loan portfolios, and the expiration of the prepayment penalty period on aging consumer loans. In 2005 the net loss on the sale of premises and equipment was $134,000, compared with a net gain of $125,000 in 2004. In the second quarter of
2005, the Bank invested $6,300,000 in life insurance contracts. The earnings on this investment are intended to offset market value fluctuations in select accrued supplemental pension benefits. This investment is included in other assets. Earnings
from this investment added $248,000 to other non-interest income in 2005. Broker loan fees decreased in 2005 to $66,000 from $207,000 in 2004 in part due to a shift in the method of delivering residential loans to the secondary market. In 2005 a
greater percentage of residential loans were delivered by the Bank as correspondent with the gain recorded in gain on the sale of loans rather than as a broker with the gain recorded in other non-interest income. Other non-interest income in 2004
included $175,000 of one-time items. Customer fee revenue included in other non-interest income decreased in 2004 from 2003 primarily due to a slow-down in prepayment activity in consumer loans, both owned by the Bank and serviced for others. Broker
loan fees decreased $266,000 in 2004 compared with 2003, due to a slow-down in refinancing activity. Included in 2003 other non-interest income was $309,000 from a one-time item.



Non-Interest Expense



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



|                                         |  |                         |        |   |                    |   |        |         |  |                     |      |  |        |        |  |         |        |   |      |       |    |  |   |       
|---------------------------------------- |  | ----------------------- | ------ | - | ------------------ | - | ------ | ------- |  | ------------------- | ---- |  | ------ | ------ |  | ------- | ------ | - | ---- | ----- | -- |  | - | ------
|                                         |  | Years Ended December 31
|                                         |  |                         |        |   | Increase(Decrease) |   |        |         |  | Increase (Decrease) |      |  |       
|(Dollars in Thousands)                   |  | 2005                    |        |   | Amount             |   |        | Percent |  |                     | 2004 |  | Amount |        |  | Percent |        |   | 2003
|Salaries                                 |  | $                       | 27,968 |   |                    | $ | (1,941 | )       |  | (6.5                | )%   |  | $      | 29,909 |  | $       | (1,431 | ) |      | (4.6  | )% |  | $ | 31,340
|Benefits                                 |  |                         | 9,327  |   |                    |   | 423    |         |  | 4.8                 |      |  |        | 8,904  |  |         | 1,074  |   |      | 13.7  |    |  |   | 7,830 
|Net Occupancy                            |  |                         | 4,330  |   |                    |   | 357    |         |  | 9.0                 |      |  |        | 3,973  |  |         | (8     | ) |      | (0.2  | )  |  |   | 3,981 
|Equipment                                |  |                         | 5,368  |   |                    |   | (578   | )       |  | (9.7                | )    |  |        | 5,946  |  |         | (300   | ) |      | (4.8  | )  |  |   | 6,246 
|Professional Services                    |  |                         | 4,118  |   |                    |   | (710   | )       |  | (14.7               | )    |  |        | 4,828  |  |         | (726   | ) |      | (13.1 | )  |  |   | 5,554 
|Marketing                                |  |                         | 2,144  |   |                    |   | 9      |         |  | 0.4                 |      |  |        | 2,135  |  |         | (354   | ) |      | (14.2 | )  |  |   | 2,489 
|Telephone, Supplies, and Postage         |  |                         | 3,004  |   |                    |   | (425   | )       |  | (12.4               | )    |  |        | 3,429  |  |         | (305   | ) |      | (8.2  | )  |  |   | 3,734 
|Other Intangible Asset Amortization      |  |                         | 696    |   |                    |   | (22    | )       |  | (3.1                | )    |  |        | 718    |  |         | (18    | ) |      | (2.4  | )  |  |   | 736   
|Other Real Estate Owned Operations  Net |  |                         | (94    | ) |                    |   | (1,309 | )       |  | (107.7              | )    |  |        | 1,215  |  |         | 524    |   |      | 75.8  |    |  |   | 691   
|Deposit Insurance                        |  |                         | 190    |   |                    |   | (31    | )       |  | (14.0               | )    |  |        | 221    |  |         | (15    | ) |      | (6.4  | )  |  |   | 236   
|Miscellaneous                            |  |                         | 6,010  |   |                    |   | (1,935 | )       |  | (24.4               | )    |  |        | 7,945  |  |         | 239    |   |      | 3.1   |    |  |   | 7,706 
|                                         |  |                         |        |   |                    |   |        |         |  |                     |      |  |        |        |  |         |        |   |      |       |    |  |   |       
|                                         |  | $                       | 63,061 |   |                    | $ | (6,162 | )       |  | (8.9                | )%   |  | $      | 69,223 |  | $       | (1,320 | ) |      | (1.9  | )% |  | $ | 70,543
|                                         |  |                         |        |   |                    |   |        |         |  |                     |      |  |        |        |  |         |        |   |      |       |    |  |   |       



Non-interest expense
in 2005 was $63,061,000, compared with $69,223,000 in 2004. Included in non-interest expense in 2004 were charges totaling $1,197,000 associated with the expense reduction plan announced in the third quarter of that year. A significant portion of
the remaining decrease in 2005 non-interest expense compared with 2004 was the result of the cost reduction plan and the sale of the non-Indiana construction loan offices in the fourth quarter of 2004.



Salary expense decreased $1,941,000 in 2005, compared with 2004. Included in
2004 salary expense was severance expense of $932,000 associated with the plan to reduce operating expenses. Additionally, the decrease in salary expense in 2005 was the result of a lower number of employees as part of the cost reduction plan and



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the sale of the non-Indiana construction loan offices in 2004. The Corporation had 529 full-time equivalent employees at year-end 2005, compared with 579
full-time equivalent employees at the end of 2004. Partially offsetting these decreases was an increase in compensation expense related to restricted and deferred stock awards due to an increase in the Corporations stock price since First
Indiana accounted for these awards as variable awards under the principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and an increase in the level of management performance bonuses. Salary
expense in 2004 declined $1,431,000 from 2003. The Corporation had 668 full-time equivalent employees at year-end 2003. Included in 2003 salary expense was a $1,053,000 increase in salary expense resulting from an adjustment in the accrual for
salaries and $1,387,000 for expenses associated with the retirement of the Banks president and chief executive officer.



Employee benefits expense in 2005 increased $423,000 or 4.8 percent over comparable expense in 2004. Increases in pension plan expense in 2005, compared
with 2004, were partially offset by decreases in group insurance expense and payroll taxes. Group insurance expense declined due to a reduction in the number of covered associates and lower group premium rates. Employee benefits expense in 2004
increased $1,074,000 over 2003 and is explained by higher group medical insurance premiums, increased defined benefit pension plan expense, and higher payroll taxes.



Net occupancy expense in 2005, which included a write-off of $400,000 for a lease on land previously held for banking center
expansion, was $357,000 higher than in 2004.



Equipment expense
in 2005 was $578,000 lower than equipment expense in 2004. Decreases were achieved in equipment lease expense, repairs and maintenance, and depreciation. Equipment expense in 2004 was $300,000 lower than in 2003. This decrease primarily reflects
one-time expenses incurred in 2003 for the merger with MetroBanCorp.



Professional services expense in 2005 decreased 14.7 percent or $710,000 from comparable expense in 2004, primarily due to a reduction in legal fees and a non-recurring charge of $296,000 incurred in 2004 related to the cancellation of a
consulting agreement. Partially offsetting these reductions in 2005 was approximately $470,000 of one-time expense related to the imaging of the Banks loan files. An increase in audit fees expense in 2005 reflects the increased cost of
compliance with laws and regulations. Professional services expense in 2004 decreased $726,000 from 2003. During 2003, First Indiana incurred higher legal expenses associated with loan delinquencies and foreclosures and executive search service
fees.



Marketing expense in 2005 was relatively flat compared
with 2004. This follows a $354,000 decrease in 2004 compared with 2003, primarily due to cost reduction efforts.



Telephone, supplies, and postage expense was $425,000 lower in 2005 than in 2004, and was $305,000 lower in 2004 than in 2003. These decreases reflect
cost reduction efforts in both years.



Other intangible asset
amortization was $696,000 in 2005. Other intangible asset amortization is expected to decrease in 2006 to $342,000 primarily because the non-compete agreement intangible was fully amortized by the end of 2005. Additional information relating to
other intangible asset amortization expense can be found in Note 3 of the Notes to Consolidated Financial Statements.



Net revenue on other real estate owned (OREO) operations in 2005 was $94,000, compared with net expense of $1,215,000 in 2004 and $691,000 in
2003. In the third quarter of 2004, First Indiana expensed $1,128,000 as a fair value adjustment on a group of OREO properties associated with one credit relationship. In the third quarter of 2005 a gain of $364,000 was recorded on the disposal of
some of those properties. Lower OREO maintenance, taxes, and other operating expenses were incurred in 2004 compared with 2003.



Miscellaneous expense in 2005 was $6,010,000, compared with $7,945,000 in 2004 and $7,706,000 in 2003. Decreases in debit card, ATM, personnel, charitable
contributions, and other miscellaneous expenses in 2005 are



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primarily the result of the cost reduction plan implemented in the third quarter of 2004. In 2005, the Corporation began to charge net losses on overdrafts
against the allowance for loan losses, in addition to reserving for estimated losses on overdrafts within the allowance for loan losses, in accordance with the Joint Guidance on Overdraft Protection Programs issued by the federal
financial institution regulators in February 2005. Previously these losses were included in non-interest expense. The increase in miscellaneous expense in 2004 over 2003 was primarily due to increased insurance and surety bond premiums.



The Corporations efficiency ratio was 64.07 percent in 2005,
compared with 65.13 percent in 2004 and 63.25 percent in 2003. The loss on the servicing sale and the loss on the sale of securities reduced non-interest income and had the effect of increasing the 2005 efficiency ratio by 157 basis points. The
charges incurred as part of the expense reduction plan had a 113 basis point negative effect on the 2004 efficiency ratio.



Income Tax Expense



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



|                                    |  |      |        |   |      |   |        |      |  |   |       |  
|----------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|(Dollars in Thousands)              |  | 2005 |        |   | 2004 |   |        | 2003 | 
|Earnings from Continuing Operations |  | $    | 38,567 |   |      | $ | 25,519 |      |  | $ | 2,018 |  
|Income Taxes                        |  |      | 14,067 |   |      |   | 9,126  |      |  |   | 551   |  
|Effective Tax Rate                  |  |      | 36.5   | % |      |   | 35.8   | %    |  |   | 27.3  | %



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



Discontinued
Operations



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



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



Earnings from discontinued operations, net of taxes, were $771,000, or $0.04
per diluted share, in 2005 compared with a loss from discontinued operations, net of taxes, of $1,715,000, or a loss of $0.09 per diluted



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share, in 2004. Earnings from discontinued operations, net of taxes in 2003 were $1,062,000, or $0.06 per diluted share. The 2004 pre-tax income from
discontinued operations of $239,000 included a goodwill impairment loss of $1,852,000 related to Somerset Financial and $300,000 in costs incurred to sell that business. The Somerset Financial sale resulted in a taxable gain and no tax benefit was
accrued for the goodwill impairment or the costs to sell the business. Tax expense of $981,000 was recorded in connection with the sale. Additional information on discontinued operations can be found in Note 2 of the Notes to Consolidated Financial
Statements.



FINANCIAL CONDITION



First
Indianas total assets at December 31, 2005 were $1,966,356,000, compared with $1,898,263,000 at December 31, 2004, and $2,193,137,000 at December 31, 2003. The increase in total assets at year-end 2005 over total assets at
year-end 2004 was due to growth in loans. Growth occurred in business and single-family construction loans in 2005. The decrease in total assets at year-end 2004 compared with year-end 2003 is attributable to a reduction in loans. An expected
outcome of the initiatives undertaken in 2004 to improve credit quality and reduce risk was a reduction in the loan portfolio. The sale of the non-Indiana construction loan offices reduced total assets approximately $134,373,000 in 2004 with
decreases also occurring in business, consumer and residential mortgage loans.



Loans



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



|                           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|-------------------------- |  | -------------- | --------- | ------- | ----- | - | ------ | ---- | --------- |  | ----- | ------ |  | ------- | --------- |  | ------ | - | ------- | - | --------- | ------ | ----- | ------- |  | - | --------- |  | ----- | -
|                           |  | At December 31 |          
|                           |  | 2005           |           |         | 2004  |   |        | 2003 |           |  | 2002  |        |  | 2001    |          
|(Dollars in Thousands)     |  | Amount         |           | Percent |       |   | Amount |      | Percent   |  |       | Amount |  | Percent |           |  | Amount |   | Percent |   |           | Amount |       | Percent | 
|Commercial Loans           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|Business                   |  | $              | 545,215   |         | 34.8  | % |        | $    | 466,703   |  | 31.1  | %      |  | $       | 515,316   |  | 28.4   | % |         | $ | 501,213   |        | 27.3  | %       |  | $ | 443,461   |  | 25.2  | %
|Commercial Real Estate     |  |                | 167,715   |         | 10.7  |   |        |      | 175,145   |  | 11.7  |        |  |         | 178,378   |  | 9.8    |   |         |   | 146,174   |        | 8.0   |         |  |   | 120,485   |  | 6.9   |  
|Single-Family Construction |  |                | 92,451    |         | 5.9   |   |        |      | 58,680    |  | 3.9   |        |  |         | 192,450   |  | 10.6   |   |         |   | 212,772   |        | 11.6  |         |  |   | 224,926   |  | 12.8  |  
|Consumer Loans             |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|Home Equity                |  |                | 485,111   |         | 31.0  |   |        |      | 505,702   |  | 33.7  |        |  |         | 591,565   |  | 32.6   |   |         |   | 654,930   |        | 35.6  |         |  |   | 664,692   |  | 37.8  |  
|Other Consumer             |  |                | 14,354    |         | 0.9   |   |        |      | 14,909    |  | 1.0   |        |  |         | 20,460    |  | 1.1    |   |         |   | 11,220    |        | 0.6   |         |  |   | 10,419    |  | 0.6   |  
|Residential Mortgage Loans |  |                | 262,340   |         | 16.7  |   |        |      | 279,051   |  | 18.6  |        |  |         | 316,822   |  | 17.5   |   |         |   | 311,324   |        | 16.9  |         |  |   | 292,503   |  | 16.7  |  
|                           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  
|Total Loans                |  | $              | 1,567,186 |         | 100.0 | % |        | $    | 1,500,190 |  | 100.0 | %      |  | $       | 1,814,991 |  | 100.0  | % |         | $ | 1,837,633 |        | 100.0 | %       |  | $ | 1,756,486 |  | 100.0 | %
|                           |  |                |           |         |       |   |        |      |           |  |       |        |  |         |           |  |        |   |         |   |           |        |       |         |  |   |           |  |       |  



Commercial Loans.The Bank offers a variety of commercial loans, including business loans, commercial real estate loans, and single-family construction loans. Business loans increased $78,512,000 from $466,703,000 at December 31, 2004, to $545,215,000 at
December 31, 2005. Efforts to identify and exit riskier loan relationships have been completed and the Bank has begun to concentrate its efforts on business development and expects continued expansion of the business loan portfolio in 2006.



The majority of business loans are loans to small and
middle-market companies in Central Indiana. Business loans as a percentage of total loans have grown from 14.8 percent in 2000 to 34.8 percent in 2005. Strategies for 2005 and beyond call for continued growth in this market segment, as well as an
overall increase in the market share of the Indianapolis area.



The majority of First Indianas business loans have variable rates, which provide immediate adjustments when interest rate changes occur. This portfolio of loans is widely diversified with loans to companies in a variety of industries,
including distribution, manufacturing, transportation, finance, and various services. The



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Bank had 11.4 percent of business loan commitments to a single industry group (specialty finance) at December 31, 2005. The next highest industry group
concentration was 7.3 percent of business loan commitments (mortgage bankers and brokers). At December 31, 2005, the Bank had 64 loan relationships with commitments over $5,000,000.



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



Single-family construction loans are made both to
builders and to individuals. The impact of the 2004 sale of the out-of-state residential construction loan business, which included $134,373,000 of outstanding residential construction loans, is now fully reflected in the balance sheet and no
further reduction in the construction loan portfolio is expected as a result of the sale. The Bank continues to originate construction loans through its lending office in Indianapolis, Indiana. At December 31, 2005 and 2004, the Banks
construction loans outstanding equaled $92,451,000 and $58,680,000, respectively.



The following table presents the remaining maturities and interest rate sensitivity of commercial loans at December 31, 2005.



|                           |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  
|-------------------------- |  | -------------------- | ------- | --------------------------- | - | --------------- |  | ----- | ------ | ------- | - | ------- |  | ----- | -
|                           |  | Remaining Maturities |         |                             |   |                 | 
|(Dollars in Thousands)     |  | One Year or Less     |         | Over One Year to Five Years |   | Over Five Years |  | Total |        | Percent |  
|Type of Loan:              |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  
|Business                   |  | $                    | 441,879 |                             | $ | 103,336         |  | $     |       |         | $ | 545,215 |  | 67.7  | %
|Commercial Real Estate     |  |                      | 138,361 |                             |   | 17,614          |  |       | 11,740 |         |   | 167,715 |  | 20.8  |  
|Single-Family Construction |  |                      | 92,451  |                             |   |                |  |       |       |         |   | 92,451  |  | 11.5  |  
|                           |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  
|Total                      |  | $                    | 672,691 |                             | $ | 120,950         |  | $     | 11,740 |         | $ | 805,381 |  | 100.0 | %
|                           |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  
|Rate Sensitivity:          |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  
|Fixed Rate                 |  | $                    | 53,364  |                             | $ | 120,950         |  | $     | 11,740 |         | $ | 186,054 |  | 23.1  | %
|Adjustable Rate            |  |                      | 619,327 |                             |   |                |  |       |       |         |   | 619,327 |  | 76.9  |  
|                           |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  
|Total                      |  | $                    | 672,691 |                             | $ | 120,950         |  | $     | 11,740 |         | $ | 805,381 |  | 100.0 | %
|                           |  |                      |         |                             |   |                 |  |       |        |         |   |         |  |       |  



Consumer Loans.First Indiana Banks consumer bank operates both a retail lending network and a wholesale lending network. The retail network essentially functions through the Banks 30 banking centers located throughout the Central Indiana market
area. The wholesale network originates loans nationally, currently in 44 states. Consistent with the Banks strategy to become a more focused Indiana community bank, retail loan originations will be emphasized with the intent to increase the
retail portfolio. Wholesale loan originations are targeted to increase with a large majority sold into the secondary market. Home equity loans accounted for 97.1 percent of consumer loans at December 31, 2005.



The Bank originates a full range of fixed rate and adjustable rate consumer
loans with varying levels of credit risk. These range from A to sub-prime credits. The sub-prime loans typically involve lower credit scores with higher loan-to-value ratios up to 115 percent. New sub-prime loans originated are generally
sold to investors. A credit quality loans with typically lower loan-to-value ratios may be retained in the Banks portfolio or sold to investors.



Home equity loan originations in 2005 totaled $461,809,000, of which 24.7 percent were home equity lines of credit
(HELOCs). This compares with 2004 home equity loan originations of $408,031,000, of which 59.1



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percent were HELOCs, and 2003 home equity loan originations of $481,828,000, of which 50.3 percent were HELOCs. As market interest rates increased in 2005,
borrowers preferences moved away from HELOCs with a prime-based interest rate to closed-end home equity loans which offer a fixed rate alternative including term adjustable rates. This trend is expected to continue in 2006.



The Bank has developed a niche in selling both closed-end and line of credit
home equity loans into the secondary market. First Indianas strategies in 2006 call for continued expansion of consumer originations and sales by maintaining existing relationships and expanding the loan origination network. During 2005, the
Bank sold $328,515,000 in home equity loans, compared with sales of $339,595,000 in 2004 and $344,638,000 in 2003. Of the home equity loans sold in 2005, $161,270,000 consisted of HELOCs, compared with $169,251,000 in 2004, and $160,788,000 in 2003.



At December 31, 2005, consumer loans totaled
$499,465,000, compared with $520,611,000 and $612,025,000 at December 31, 2004 and 2003, respectively. The consumer loan portfolio continues to contract due to prepayments although prepayment activity has shifted from the higher rate closed end
consumer loans to HELOCs. Reflecting this trend and the trend previously discussed, HELOC balances at December 31, 2005 totaled $217,075,000, or 43.5 percent, of consumer loans compared with $308,272,000, or 59.2 percent, of consumer loans at
December 31, 2004 and $342,236,000, or 55.9 percent, of consumer loans at December 31, 2003. Consumer loans generally have shorter terms and higher interest rates than residential loans, but involve higher credit risk. Of the Banks
consumer loans outstanding at December 31, 2005, 97.1 percent were secured by first or second mortgages on real property. At December 31, 2005, the Bank had $26,697,000 in closed-end consumer loans held for sale and $5,645,000 in home
equity lines of credit held for sale. At December 31, 2004, the Bank had $18,393,000 in closed-end consumer loans held for sale and $25,744,000 in home equity lines of credit held for sale. At December 31, 2003, the Bank had $35,160,000 in
closed-end consumer loans held for sale and $33,881,000 in home equity lines of credit held for sale.



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



Residential Mortgage Loans.First Indiana Banks residential loan strategy in 2005 emphasized mortgage production from the Banks internal referral sources. The retail banking centers market mortgage
purchase and refinance products to the Banks client base. In addition, mortgages are originated in partnership with selected Realtors, builders, and mortgage correspondents. Fixed rate mortgages continue to be brokered or sold into the
secondary market while adjustable rate mortgages are primarily retained for the Banks portfolio. The overall strategy is to maintain a low risk mortgage portfolio that helps to diversify the Banks overall asset mix.



Residential mortgage loans outstanding totaled $262,340,000 at
December 31, 2005, compared with $279,051,000 and $316,822,000 at year-end 2004 and 2003, respectively. The prepayment rate slowed in this portfolio in 2005 compared with 2004 and 2003. In 2005, the Bank originated $48,355,000 in primarily
adjustable rate residential mortgage loans and purchased no residential loans. In 2004, the Bank originated $16,173,000 and purchased $41,814,000 in primarily adjustable rate residential mortgage loans. In 2003, the Bank originated $55,876,000 and
purchased $110,747,000 in primarily adjustable rate residential mortgage loans. Sales of fixed rate residential mortgage loans into the secondary market in 2005, 2004, and 2003 were $10,051,000, $6,481,000, and $1,439,000, respectively. Gains on
residential loan sales in 2005 were $191,000, compared with $104,000 in 2004 and $16,000 in 2003.



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



As part of its residential loan origination activities, First Indiana developed a network of residential loan brokers with whom the Bank links prospective
borrowers. First Indiana does not fund these mortgages, but



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collects a fee for this service. In 2005, First Indiana produced $3,573,000 of residential loans for brokers and fees of $66,000 were recognized. In 2004,
First Indiana produced $12,458,000 of residential loans for brokers and fees of $207,000 were recognized. In 2003, First Indiana produced $29,455,000 of residential loans for brokers and fees of $473,000 were recognized. Broker loan fees decreased
in 2005 from 2004 in part due to a shift in the method of delivering residential loans to the secondary market. In 2005 a greater percentage of residential loans were delivered by the Bank as correspondent with the gain recorded in gain on the sale
of loans rather than as a broker with the gain recorded in other non-interest income. Broker loan fees decreased in 2004 compared with 2003 due to a slow-down in refinancing activity.



Investments



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



At December 31, 2005, First Indianas investments totaled $259,516,000, or 13.2 percent of total assets, and
consisted of securities available for sale, carried at fair market value, and other investments carried at cost.



The distribution of securities available for sale is detailed below.



|                                             |  |             |         |      |   |         |  |   |        
|-------------------------------------------- |  | ----------- | ------- | ---- | - | ------- |  | - | -------
|                                             |  | December 31
|(Dollars in Thousands)                       |  | 2005        |         | 2004 |   | 2003   
|U.S. Government Treasuries, Agencies & Other |  | $           | 163,461 |      | $ | 137,268 |  | $ | 130,543
|Mortgage-Backed Securities                   |  |             | 69,515  |      |   | 80,001  |  |   | 84,910 
|                                             |  |             |         |      |   |         |  |   |        
|Total                                        |  | $           | 232,976 |      | $ | 217,269 |  | $ | 215,453
|                                             |  |             |         |      |   |         |  |   |        



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



At December 31, 2005, securities available for sale had the following maturity and yield characteristics.



|                                             |  |                         |        |       |                                      |   |           |                                       |         |  |                    |             |  |       |        |  |           |   |       |   |     |           |      |       |  |   |         |  |      |  
|-------------------------------------------- |  | ----------------------- | ------ | ----- | ------------------------------------ | - | --------- | ------------------------------------- | ------- |  | ------------------ | ----------- |  | ----- | ------ |  | --------- | - | ----- | - | --- | --------- | ---- | ----- |  | - | ------- |  | ---- | -
|                                             |  | Due in One Year or Less |        |       | Due after One Year through FiveYears |   |           | Due after Five Yearsthrough Ten Years |         |  | Due afterTen Years |             |  | Total |       
|(Dollars in Thousands)                       |  | BookValue               |        | Yield |                                      |   | BookValue |                                       | Yield   |  |                    | Book  Value |  | Yield |        |  | BookValue |   | Yield |   |     | BookValue |      | Yield | 
|U.S. Government Treasuries, Agencies & Other |  | $                       | 10,984 |       | 4.69                                 | % |           | $                                     | 152,477 |  | 4.76               | %           |  | $     |       |  |          | % |       | $ |    |           |     | %     |  | $ | 163,461 |  | 4.75 | %
|Mortgage-Backed Securities                   |  |                         | 311    |       | 5.56                                 |   |           |                                       | 45,895  |  | 4.83               |             |  |       | 22,687 |  | 4.84      |   |       |   | 622 |           | 5.46 |       |  |   | 69,515  |  | 4.85 |  
|                                             |  |                         |        |       |                                      |   |           |                                       |         |  |                    |             |  |       |        |  |           |   |       |   |     |           |      |       |  |   |         |  |      |  
|Total                                        |  | $                       | 11,295 |       | 4.72                                 | % |           | $                                     | 198,372 |  | 4.77               | %           |  | $     | 22,687 |  | 4.84      | % |       | $ | 622 |           | 5.46 | %     |  | $ | 232,976 |  | 4.78 | %
|                                             |  |                         |        |       |                                      |   |           |                                       |         |  |                    |             |  |       |        |  |           |   |       |   |     |           |      |       |  |   |         |  |      |  



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



Included in other investments are Federal Reserve Bank stock, Federal Home Loan Bank stock, and Common Securities in the Corporations grantor
trusts: First Indiana Capital Trust I and First Indiana Capital Statutory Trust II. The Bank is required by the Federal Reserve Board to own shares of Federal Reserve Bank



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(FRB) stock. FRB stock, which is a restricted investment security, is carried at its cost. In addition, as a member of the Federal Home Loan Bank
of Indianapolis (FHLB), the Bank is required to own shares of capital stock in the FHLB. FHLB stock is carried at its cost, since it is a restricted investment security. The Bank is required to hold FHLB stock with a 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 First Indiana Capital Trust I (Trust I) and First Indiana Capital
Statutory Trust II (Trust II), Trust I and Trust II issued Common Securities to the Corporation. The Common Securities for each trust are carried at their cost since they are restricted investment securities. The Common Securities are
not redeemable until the related subordinated notes are redeemed (according to the subordinated note terms).



The composition of other investments is summarized as follows.



|                                 |  |             |        |      |   |        |  |   |       
|-------------------------------- |  | ----------- | ------ | ---- | - | ------ |  | - | ------
|                                 |  | December 31
|(Dollars in Thousands)           |  | 2005        |        | 2004 |   | 2003  
|FRB Stock                        |  | $           | 1,110  |      | $ | 1,110  |  | $ | 1,110 
|FHLB Stock                       |  |             | 24,686 |      |   | 24,173 |  |   | 23,103
|Capital Trusts Common Securities |  |             | 744    |      |   | 744    |  |   | 744   
|                                 |  |             |        |      |   |        |  |   |       
|                                 |  | $           | 26,540 |      | $ | 26,027 |  | $ | 24,957
|                                 |  |             |        |      |   |        |  |   |       



Sources of Funds



General.Deposits are an important source of the Banks funds
for use in lending and for other general business purposes. In addition to deposits, the Bank derives funds from repayments of loans and investment securities, Federal Home Loan Bank advances, federal funds purchased, repurchase agreements, and
sales of loans. Repayments of loans and investment securities are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may be used to
compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, or to support expanded activities. At December 31, 2005, First Indiana Corporations outside sources of funds included a
$10,000,000 line of credit with a commercial bank and subordinated notes.



Deposits.Growth in deposits has reduced funding costs, improved the liquidity position of the Bank, and lowered the ratio of loans to deposits. Deposits totaled $1,449,276,000 at December 31, 2005, an
increase of 5.7 percent over December 31, 2004. Growth in deposits in 2005 was primarily the result of increases in commercial interest-bearing checking and money market savings accounts and the introduction of a retail prime rate-based savings
product. Strategies to support future expansion of deposits include building new branches, weighting incentive plan payouts towards deposit growth, and earmarking a significant portion of the marketing budget toward retail deposits.



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



|                            |  |                            |           |                            |   |         |                            |  |                            |           |  |                            |          |                            |  |                            |           |  |   |         |  |   |          
|--------------------------- |  | -------------------------- | --------- | -------------------------- | - | ------- | -------------------------- |  | -------------------------- | --------- |  | -------------------------- | -------- | -------------------------- |  | -------------------------- | --------- |  | - | ------- |  | - | ---------
|(Dollars in Thousands)      |  | Balance atDecember 31,2005 |           | 2005Net Increase(Decrease) |   |         | Balance atDecember 31,2004 |  | 2004Net Increase(Decrease) |           |  | Balance atDecember 31,2003 |          | 2003Net Increase(Decrease) |  | Balance atDecember 31,2002
|Non-Interest-Bearing Demand |  | $                          | 268,682   |                            | $ | 3,479   |                            |  | $                          | 265,203   |  | $                          | 29,392   |                            |  | $                          | 235,811   |  | $ | 55,422  |  | $ | 180,389  
|Interest-Bearing Demand     |  |                            | 229,876   |                            |   | 39,965  |                            |  |                            | 189,911   |  |                            | (27,442  | )                          |  |                            | 217,353   |  |   | 37,602  |  |   | 179,751  
|Savings                     |  |                            | 489,713   |                            |   | 26,034  |                            |  |                            | 463,679   |  |                            | 62,875   |                            |  |                            | 400,804   |  |   | 2,052   |  |   | 398,752  
|CDs under $100,000          |  |                            | 285,205   |                            |   | 23,037  |                            |  |                            | 262,168   |  |                            | (49,883  | )                          |  |                            | 312,051   |  |   | 1,681   |  |   | 310,370  
|CDs $100,000 and Greater    |  |                            | 175,800   |                            |   | (13,936 | )                          |  |                            | 189,736   |  |                            | (134,217 | )                          |  |                            | 323,953   |  |   | 54,011  |  |   | 269,942  
|                            |  |                            |           |                            |   |         |                            |  |                            |           |  |                            |          |                            |  |                            |           |  |   |         |  |   |          
|Total Deposits              |  | $                          | 1,449,276 |                            | $ | 78,579  |                            |  | $                          | 1,370,697 |  | $                          | (119,275 | )                          |  | $                          | 1,489,972 |  | $ | 150,768 |  | $ | 1,339,204
|                            |  |                            |           |                            |   |         |                            |  |                            |           |  |                            |          |                            |  |                            |           |  |   |         |  |   |          



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The Bank currently issues certificates of deposit in denominations of $100,000 and greater to public
entities such as municipalities and to retail customers. Certificates of deposit of $100,000 or more totaled $175,800,000 at December 31, 2005, compared with $189,736,000 at December 31, 2004 and $323,953,000 at December 31, 2003. At
December 31, 2005, these certificates of deposit included no brokered funds, $122,448,000 in public funds, and $53,352,000 in retail funds. At December 31, 2004, these certificates of deposit included $19,844,000 in brokered funds,
$93,044,000 in public funds, and $76,848,000 in retail funds. At December 31, 2003, these certificates of deposit included $47,227,000 in brokered funds, $191,201,000 in public funds, and $85,511,000 in retail funds. The Banks
certificates of deposit of $100,000 or more at December 31, 2005, the maturities of such deposits, and the percentage of total deposits represented by these certificates are set forth in the table below.



|                                             |  |                    |        |                               |   |                           |  |              |        |       |   |                    |  |   |         |  |      |  
|-------------------------------------------- |  | ------------------ | ------ | ----------------------------- | - | ------------------------- |  | ------------ | ------ | ----- | - | ------------------ |  | - | ------- |  | ---- | -
|(Dollars in Thousands)                       |  | ThreeMonths orLess |        | Over ThreeMonths to SixMonths |   | Over SixMonths toOne Year |  | Over OneYear |        | Total |   | Percent ofDeposits | 
|Certificates of Deposit $100,000 and Greater |  | $                  | 91,458 |                               | $ | 10,717                    |  | $            | 21,281 |       | $ | 52,344             |  | $ | 175,800 |  | 12.1 | %
|                                             |  |                    |        |                               |   |                           |  |              |        |       |   |                    |  |   |         |  |      |  



Borrowings.The
Federal Home Loan Bank of Indianapolis functions as a central reserve bank providing credit for depository institutions in Indiana and Michigan. As a member of the FHLB, the Bank is required to own capital stock in the FHLB and is authorized to
apply for advances on the security of such stock and certain of the Banks residential mortgage loans, low loan-to-value home equity loans, and other assets, subject to credit standards. The FHLB advances are made pursuant to several different
credit programs, each with its own interest rate and range of maturities. At December 31, 2005, the Bank had $42,365,000 in FHLB advances, with a weighted average interest rate of 4.84 percent. All of these advances carried fixed interest
rates. The FHLB had the right to require the Bank to repay $35,000,000 of putable advances at certain designated dates.



The Bank and approved correspondent banks from time to time enter into short-term borrowing agreements that are classified as federal funds purchased.
These borrowings are not collateralized and generally have maturities from one to 30 days. At December 31, 2005, the Bank did not have federal funds purchased borrowings.



The Bank enters into repurchase agreements with registered government securities dealers as a short-term source of
borrowing. In addition, First Indiana has repurchase agreements with depositors, under which clients funds are invested daily into a non-FDIC-insured, interest-bearing account. At December 31, 2005, the Bank had repurchase agreements
totaling $220,732,000, with a weighted average interest rate of 3.39 percent. First Indianas repurchase agreements are collateralized by qualifying investment securities. Additional information relating to short-term borrowings may be found in
Note 10 of the Notes to Consolidated Financial Statements.



In
October 2002, the Corporation formed First Indiana Capital Trust I (Trust I) for the purpose of issuing $12,000,000 of trust preferred securities to the public. This unconsolidated grantor trusts sole assets are junior subordinated
notes issued by the Corporation. The notes have a stated term of 30 years (October 30, 2032) but may be redeemed at par in part or in full beginning October 30, 2007, and any calendar quarter end date thereafter, subject to approval by the
Federal Reserve Board. The notes have a fixed rate of interest of 6.92 percent through October 30, 2007, and a floating rate of interest, reset quarterly, equal to the London interbank offered rate (LIBOR) plus 3.35 percent
thereafter to maturity. Interest is payable quarterly and the distribution rate of the trust preferred securities is equal to the interest rate of the notes. The balance of the Trust I junior subordinated notes, net of unamortized discount, was
$12,295,000 at December 31, 2005, and $12,253,000 at December 31, 2004.



In June 2003, First Indiana formed First Indiana Capital Statutory Trust II (Trust II) for the purpose of issuing $12,000,000 in trust preferred securities through a private placement. This unconsolidated
grantor trusts sole assets are junior subordinated notes issued by the Corporation. The notes have a stated term of 30 years (June 26, 2033) but may be redeemed at par in part or in full beginning June 26, 2008, and quarterly thereafter,



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subject to approval by the Federal Reserve Board. The notes have a fixed rate of interest of 5.55 percent through June 26, 2008, and a floating rate of
interest, reset quarterly, equal to LIBOR plus 3.10 percent thereafter to maturity. Interest on the notes is payable quarterly in arrears. The distribution rate on the trust preferred securities equals the interest rate of the notes. The balance of
the Trust II junior subordinated notes, net of unamortized discount, was $12,252,000 at December 31, 2005, and $12,204,000 at December 31, 2004.



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



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



In November 2003, the Corporation issued $22,500,000 in
ten-year subordinated notes with a 7.50 percent fixed rate of interest. Interest is payable semi-annually and the notes qualify as Tier 2 capital for regulatory purposes. The balance of these subordinated notes, net of discount, was $22,234,000 at
December 31, 2005, and $22,200,000 at December 31, 2004.



ASSET QUALITY



General



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



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



Non-Performing Assets



Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and foreclosed assets, primarily other
real estate owned (OREO). The level of non-performing assets continued to decrease in 2005 with all categories showing improvement. Non-performing assets were



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$4,633,000, or 0.30 percent of loans and foreclosed assets, at December 31, 2005; $21,445,000, or 1.43 percent of loans and foreclosed assets, at
December 31, 2004; and $38,882,000, or 2.14 percent of loans and foreclosed assets at December 31, 2003. Non-performing business loans decreased to $1,586,000 at December 31, 2005, compared with $11,096,000 at December 31, 2004.
During the second quarter of 2005, one business relationship totaling $6,000,000 was added to non-performing loans of which $5,240,000 was subsequently charged-off. This net addition to non-performing business loans was more than offset by the
receipt of loan payments, the sale of two non-performing business loans with a carrying amount of $2,741,000, and other liquidation activity in 2005. Non-performing consumer loans were $2,148,000 at year-end 2005, compared with $5,103,000 at
year-end 2004. The decrease in foreclosed assets in 2005 to $78,000 from $1,681,000 at December 31, 2004, is primarily the result of the open market sale of OREO properties. Non-performing single-family construction loans totaled $539,000 at
December 31, 2004, compared with $7,519,000 at December 31, 2003, a decrease of $6,980,000. The decrease was due to the resolution of several non-performing single-family construction loans in conjunction with payments received and, in
some instances, additional charge-offs due to deterioration of the value of the underlying collateral securing the loans. Net charge-offs of single-family construction loans in 2004 were $1,488,000. Additionally, a loss of $1,128,000 is reflected in
OREO expense in 2004 as the Corporation positioned certain single-family construction loan properties transferred to OREO for disposal. Consumer and residential mortgage non-performing loans were $6,064,000 at December 31, 2004 compared with
$12,304,000 at December 31, 2003. The decrease in residential and consumer non-performing loans is largely due to the sale of $7,925,000 in non-performing assets in 2004. Non-performing commercial real estate loans totaled $2,065,000 at
December 31, 2004, compared with $4,743,000 at December 31, 2003, a decrease of $2,678,000. This reduction in non-performing commercial real estate loans was primarily due to the receipt of payments.



The amount of interest on non-accrual loans that was contractually due in
2005 totaled $881,000. Interest received on these loans in 2005 totaled $443,000.



Non-Performing Assets



|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------ |  | ----------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                       |  | December 31 |      
|(Dollars in Thousands)                                 |  | 2005        |       |   | 2004 |   |        | 2003 |  |   | 2002   |   |  | 2001 |       
|Non-Performing Loans                                   |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-Accrual Loans                                      |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                               |  | $           | 1,383 |   |      | $ | 10,637 |      |  | $ | 9,483  |   |  | $    | 20,234 |   |  | $ | 5,880  |  
|Commercial Real Estate                                 |  |             |      |   |      |   | 1,184  |      |  |   | 4,743  |   |  |      | 2,059  |   |  |   | 2,475  |  
|Single-Family Construction                             |  |             |      |   |      |   | 45     |      |  |   | 7,165  |   |  |      | 4,286  |   |  |   | 8,165  |  
|Consumer                                               |  |             | 1,323 |   |      |   | 3,078  |      |  |   | 7,402  |   |  |      | 9,405  |   |  |   | 13,532 |  
|Residential Mortgage                                   |  |             | 698   |   |      |   | 961    |      |  |   | 2,211  |   |  |      | 2,474  |   |  |   | 6,447  |  
|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Accrual Loans                                |  |             | 3,404 |   |      |   | 15,905 |      |  |   | 31,004 |   |  |      | 38,458 |   |  |   | 36,499 |  
|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Accruing Loans Past Due 90 Days or More                |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                               |  |             | 203   |   |      |   | 459    |      |  |   | 1,053  |   |  |      | 1,535  |   |  |   | 307    |  
|Commercial Real Estate                                 |  |             |      |   |      |   | 881    |      |  |   |       |   |  |      |       |   |  |   |       |  
|Single-Family Construction                             |  |             |      |   |      |   | 494    |      |  |   | 354    |   |  |      |       |   |  |   |       |  
|Consumer                                               |  |             | 825   |   |      |   | 2,025  |      |  |   | 2,691  |   |  |      | 3,093  |   |  |   | 3,005  |  
|Residential Mortgage                                   |  |             | 123   |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Accruing Loans Past Due 90 Days or More          |  |             | 1,151 |   |      |   | 3,859  |      |  |   | 4,098  |   |  |      | 4,628  |   |  |   | 3,312  |  
|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Performing Loans                             |  |             | 4,555 |   |      |   | 19,764 |      |  |   | 35,102 |   |  |      | 43,086 |   |  |   | 39,811 |  
|Foreclosed Assets                                      |  |             | 78    |   |      |   | 1,681  |      |  |   | 3,780  |   |  |      | 8,670  |   |  |   | 6,992  |  
|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Non-Performing Assets                            |  | $           | 4,633 |   |      | $ | 21,445 |      |  | $ | 38,882 |   |  | $    | 51,756 |   |  | $ | 46,803 |  
|                                                       |  |             |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-Performing Loans to Loans at End of Year           |  |             | 0.29  | % |      |   | 1.32   | %    |  |   | 1.93   | % |  |      | 2.34   | % |  |   | 2.27   | %
|Non-Performing Assets to Loans and OREO at End of Year |  |             | 0.30  |   |      |   | 1.43   |      |  |   | 2.14   |   |  |      | 2.80   |   |  |   | 2.65   |  



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Potential Problem Assets



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



The Bank had $33,342,000 in potential problem loans at December 31, 2005. Of this amount, $30,588,000 represented loans to 23 separate business
credits with an average loan amount of $1,330,000. These business loans are collateralized with real estate and other assets. Five of the business credits have a current loan amount over $1,000,000. The remaining potential problem loans totaled
$2,754,000 and consisted of eight construction and commercial real estate credits. These construction and commercial real estate loans are collateralized with completed residential and commercial real estate and developed lots.



Active management of this risk segment of the portfolio throughout 2005
resulted in the significant decrease in the Banks potential problem loans at December 31, 2005. The net decrease from December 31, 2004 is $25,426,000. Included in the net decrease are nine credits totaling $4,513,000 that were added
to potential problem loans during 2005. The average loan amount for these nine credits is $501,000.



Allowance for Loan Losses



An analysis of the adequacy of the allowance is completed each quarter and reviewed and approved by the Risk Committee of the Board of Directors. The allowance for loan losses is maintained at the level deemed adequate to cover losses
inherent in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. While management uses available information to recognize losses on
loans, future additions to the allowance for loan losses may be necessary based on changes to one or more risk factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review this allowance
and may require the Corporation to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.



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



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



The reserve requirement for each loan portfolio is segmented into four
components: (i) the required reserve on pass loans; (ii) the required reserve on performing criticized loans; (iii) the required reserve on non-performing loans; and (iv) the qualitative management adjustment (Management
Factors). The loans and



23



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groups of loans in the criticized risk rating categories that are both performing and non-performing loans inherently have a higher degree of risk and are
generally assigned a higher reserve requirement, or in the case of impaired collateral dependent loans, the amount of the impairment may be charged off. The allowance is allocated to each portfolio based on the sum of the reserve requirement
established for each of the four components.



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



Allocation of Allowance for Loan Losses



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



|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|--------------------------------------- |  | ----------- | ------ | -------------------------------- | ----- | - | ------ | ---- | -------------------------------- |  | ----- | ------ |  | -------------------------------- | ------ |  | ------ | - | -------------------------------- | - | ------ | ------ | ----- | -------------------------------- |  | - | ------ |  | ----- | -
|                                        |  | December 31 |       
|                                        |  | 2005        |        |                                  | 2004  |   |        | 2003 |                                  |  | 2002  |        |  | 2001                             |       
|(Dollars in Thousands)                  |  | Amount      |        | Percent ofLoan Typeto TotalLoans |       |   | Amount |      | Percent ofLoan Typeto TotalLoans |  |       | Amount |  | Percent ofLoan Typeto TotalLoans |        |  | Amount |   | Percent ofLoan Typeto TotalLoans |   |        | Amount |       | Percent ofLoan Typeto TotalLoans | 
|Balance at End of Period Applicable to: |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|Business Loans                          |  | $           | 18,733 |                                  | 34.8  | % |        | $    | 30,287                           |  | 31.1  | %      |  | $                                | 30,449 |  | 28.4   | % |                                  | $ | 15,959 |        | 27.3  | %                                |  | $ | 9,664  |  | 25.2  | %
|Commercial Real Estate Loans            |  |             | 1,281  |                                  | 10.7  |   |        |      | 1,712                            |  | 11.7  |        |  |                                  | 1,400  |  | 9.8    |   |                                  |   | 2,154  |        | 8.0   |                                  |  |   | 19,170 |  | 38.4  |  
|Single-Family Construction Loans        |  |             | 415    |                                  | 5.9   |   |        |      | 616                              |  | 3.9   |        |  |                                  | 5,798  |  | 10.6   |   |                                  |   | 1,797  |        | 11.6  |                                  |  |   | 1,067  |  | 16.7  |  
|Consumer Loans                          |  |             | 7,815  |                                  | 31.9  |   |        |      | 8,355                            |  | 34.7  |        |  |                                  | 10,463 |  | 33.7   |   |                                  |   | 17,576 |        | 36.2  |                                  |  |   | 2,516  |  | 12.8  |  
|Residential Mortgage Loans              |  |             | 360    |                                  | 16.7  |   |        |      | 413                              |  | 18.6  |        |  |                                  | 656    |  | 17.5   |   |                                  |   | 546    |        | 16.9  |                                  |  |   | 2,124  |  | 6.9   |  
|Unallocated                             |  |             | 10,564 |                                  |      |   |        |      | 11,789                           |  |      |        |  |                                  | 4,431  |  |       |   |                                  |   | 6,437  |        |      |                                  |  |   | 2,594  |  |      |  
|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  
|                                        |  | $           | 39,168 |                                  | 100.0 | % |        | $    | 53,172                           |  | 100.0 | %      |  | $                                | 53,197 |  | 100.0  | % |                                  | $ | 44,469 |        | 100.0 | %                                |  | $ | 37,135 |  | 100.0 | %
|                                        |  |             |        |                                  |       |   |        |      |                                  |  |       |        |  |                                  |        |  |        |   |                                  |   |        |        |       |                                  |  |   |        |  |       |  



Summary of Allowance for Loan Loss
Activity



The provision for loan losses was a negative
$3,200,000 for 2005, compared with a charge of $11,550,000 for 2004 and a charge of $38,974,000 for 2003. Continued improvement in the credit quality of the loan portfolio is reflected in the negative provision for loan losses for 2005. Net loan
charge-offs for 2005 totaled $10,804,000, compared with $11,575,000 for 2004 and $31,513,000 for 2003. Business loan charge-offs in 2005 included $5,240,000 related to one non-accrual business loan. Net consumer loan charge-offs were $5,265,000 for
2005, compared with $4,095,000 for 2004. The Bank continually reviews the assumptions used in determining the allowance for loan losses and charge-offs. In the second quarter of 2005, the initial charge-off percentage for consumer loans secured by
residential real estate was updated based on historical experience resulting in an increase in charge-offs for that quarter. The decreased provision for loan losses in 2004, compared with 2003, reflected the improved credit quality of the loan
portfolio and lower net loan charge-offs. Throughout 2004, the Bank developed and implemented specific initiatives to actively manage and resolve non-performing loans and improve credit quality by reducing risk in the loan portfolio through asset
selection and management. The provision for loan losses in 2003 reflected the elevated level of net loan charge-offs, risks identified in the loan portfolio by First Indiana and an independent third party, and the Banks revised approach for
calculating the allowance for loan losses.



The unallocated
portion of the allowance for loan losses decreased to $10,564,000 at December 31, 2005, compared with $11,789,000 at December 31, 2004. Although the unallocated portion of the allowance for loan losses decreased in absolute dollars in
2005, the percent of unallocated allowance to total allowance increased to 27.0 percent at year-end 2005 compared with 22.2 percent at year-end 2004 because the range for the Management Factors utilized in determining the allowance remained
consistent, reflecting managements continued views on overall economic conditions. The decrease in the unallocated reserve in absolute dollars is



24



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consistent with the improving credit quality trends within the loan portfolio. The allowance for loan losses, including the current level of the unallocated
reserve, is adequate and is within the policy and methodology discussed above.



The ratio of the allowance for loan losses to loans at December 31, 2005, was 2.50 percent, compared with 3.54 percent and 2.93 percent at December 31, 2004, and 2003. The decrease in this ratio for 2005 is
directly attributable to the decreases in the level of non-performing loans, a $15,209,000 decrease, and potential problem loans, a $25,426,000 decrease, from 2004. These decreases evidence the credit quality improvement in the Banks loan
portfolio that results in a lower allowance for loan losses. Net charge-offs to average loans in 2005 was 0.70 percent compared with a net charge-off ratio of 0.69 percent in 2004 and 1.68 percent in 2003. The significant decrease in this ratio in
2004 is primarily due to the $16,454,000 decrease in business loan net charge-offs. The allowance for loan losses was $39,168,000 at December 31, 2005, or 859.89 percent of non-performing loans.



Changes in Allowance for Loan Losses



|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|---------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                           |  | Years Ended December 31 |       
|(Dollars in Thousands)                                     |  | 2005                    |        |   | 2004 |   |        | 2003 |  |   | 2002   |   |  | 2001 |       
|Balance of Allowance for Loan Losses at Beginning of Year  |  | $                       | 53,172 |   |      | $ | 53,197 |      |  | $ | 44,469 |   |  | $    | 37,135 |   |  | $ | 33,578 |  
|Charge-Offs                                                |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                                   |  |                         | 6,719  |   |      |   | 9,963  |      |  |   | 22,820 |   |  |      | 6,813  |   |  |   | 4,464  |  
|Commercial Real Estate                                     |  |                         |       |   |      |   | 630    |      |  |   | 101    |   |  |      | 729    |   |  |   | 855    |  
|Single-Family Construction                                 |  |                         |       |   |      |   | 1,973  |      |  |   | 5,026  |   |  |      | 641    |   |  |   | 764    |  
|Consumer                                                   |  |                         | 7,215  |   |      |   | 4,760  |      |  |   | 5,737  |   |  |      | 6,323  |   |  |   | 6,528  |  
|Residential Mortgage                                       |  |                         | 224    |   |      |   | 200    |      |  |   | 157    |   |  |      | 150    |   |  |   | 160    |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Charge-Offs                                          |  |                         | 14,158 |   |      |   | 17,526 |      |  |   | 33,841 |   |  |      | 14,656 |   |  |   | 12,771 |  
|Recoveries                                                 |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Business                                                   |  |                         | 889    |   |      |   | 4,752  |      |  |   | 1,155  |   |  |      | 293    |   |  |   | 181    |  
|Commercial Real Estate                                     |  |                         | 278    |   |      |   | 49     |      |  |   | 34     |   |  |      | 15     |   |  |   | 1      |  
|Single-Family Construction                                 |  |                         | 237    |   |      |   | 485    |      |  |   | 254    |   |  |      | 72     |   |  |   | 188    |  
|Consumer                                                   |  |                         | 1,950  |   |      |   | 665    |      |  |   | 878    |   |  |      | 851    |   |  |   | 729    |  
|Residential Mortgage                                       |  |                         |       |   |      |   |       |      |  |   | 7      |   |  |      | 3      |   |  |   | 1      |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total Recoveries                                           |  |                         | 3,354  |   |      |   | 5,951  |      |  |   | 2,328  |   |  |      | 1,234  |   |  |   | 1,100  |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net Charge-Offs                                            |  |                         | 10,804 |   |      |   | 11,575 |      |  |   | 31,513 |   |  |      | 13,422 |   |  |   | 11,671 |  
|Provision for Loan Losses                                  |  |                         | (3,200 | ) |      |   | 11,550 |      |  |   | 38,974 |   |  |      | 20,756 |   |  |   | 15,228 |  
|Allowance Related to Bank Acquired                         |  |                         |       |   |      |   |       |      |  |   | 1,709  |   |  |      |       |   |  |   |       |  
|Transfer to Reserve for Off-Balance Sheet Credit Exposures |  |                         |       |   |      |   |       |      |  |   | (442   | ) |  |      |       |   |  |   |       |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Balance of Allowance for Loan Losses at End of Year        |  | $                       | 39,168 |   |      | $ | 53,172 |      |  | $ | 53,197 |   |  | $    | 44,469 |   |  | $ | 37,135 |  
|                                                           |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net Charge-Offs to Average Loans                           |  |                         | 0.70   | % |      |   | 0.69   | %    |  |   | 1.68   | % |  |      | 0.74   | % |  |   | 0.64   | %
|Allowance for Loan Losses to Loans at End of Year          |  |                         | 2.50   |   |      |   | 3.54   |      |  |   | 2.93   |   |  |      | 2.42   |   |  |   | 2.11   |  
|Allowance for Loan Losses to Non-Performing Loans          |  |                         | 859.89 |   |      |   | 269.03 |      |  |   | 151.55 |   |  |      | 103.21 |   |  |   | 93.28  |  



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LIQUIDITY AND MARKET RISK MANAGEMENT



Liquidity
Management



First Indiana Corporation is a financial
holding company and has conducted substantially all of its operations through the Bank and, until the sale in October 2004, Somerset Financial. As a result, the ability to finance the Corporations activities and fund interest on its debt
depends primarily upon the receipt of earnings from the Bank that it pays to the holding company in the form of dividends, management fees, and other distributions. The Corporation had no significant assets other than its investment in the Bank and
a receivable of $4,632,000 due from the Bank at December 31, 2005. Additionally, First Indiana Corporation has a $10,000,000 line of credit with a commercial bank. In connection with the sale of Somerset Financial, the holding company received
$11,405,000 in cash in 2004. In the fourth quarter of 2004, the Corporation repurchased 2,162,500 shares of its common stock for $40,901,000 through a self-tender offer. This repurchase was funded by the cash received from Somerset Financial and
existing liquidity in the parent company. In 2005 the Corporation purchased on the open market 689,536 shares of its common stock for $16,859,000 and received $3,655,000 in proceeds from the exercise of stock options.



The Corporation is not subject to any bank regulatory restrictions on the
payment of dividends to its shareholders although Federal Reserve Board policy and capital maintenance requirements may impose practical limits on the amount of dividends that can be paid. See Part I, Item 1, Business  Supervision and
Regulation. However, applicable laws and regulations limit the amount of dividends the Bank may pay. Prior regulatory approval is required if dividends to be declared by the Bank in any year would exceed net earnings of the current year (as
defined under the National Bank Act) plus retained net profits for the preceding two years. At January 1, 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 Office of the Comptroller of the Currency (OCC) to make its regularly scheduled dividend
payments in 2005, not to exceed $20,000,000. The Bank paid dividends of $20,000,000 to the Corporation in 2005. The Bank sought and received approval from the OCC to make its regularly scheduled dividend payments in 2004, not to exceed $19,000,000.
The Bank paid dividends of $16,000,000 to the Corporation in 2004. 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. Under federal law, a depository institution is prohibited from paying a dividend if the depository institution would thereafter be undercapitalized as determined by the federal bank regulatory agencies. While the
Bank is currently classified as well-capitalized and should have sufficient net income to fund projected liquidity needs, any failure by the Bank in the future to generate sufficient net income or maintain sufficient levels of capital to
permit payment of dividends would result in its inability to pay dividends to the Corporation.



The Banks primary source of funds is deposits, which were $1,449,276,000 at December 31, 2005, and $1,370,697,000 at December 31, 2004. The Bank also relies on advances from the Federal Home Loan Bank
of Indianapolis, short term borrowings, loan payments, loan payoffs, and sale of loans as sources of funds. Although the Bank continues to rely on deposits as its chief source of funds, the use of borrowed funds continues to be an important
component of the Banks liquidity. Scheduled loan payments are a relatively stable source of funds, but loan payoffs, the sale of loans, and deposit inflows and outflows fluctuate, depending on interest rates and economic conditions. However,
management does not expect any of these fluctuations to occur in amounts that would affect the Corporations ability to meet consumer demand for liquidity or regulatory liquidity requirements.



The Banks primary use of funds is loans, which totaled $1,567,186,000
at December 31, 2005, and $1,500,190,000 at December 31, 2004. In addition, the Bank invests in short-term investments and securities available for sale.



26



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The Corporation and its subsidiaries had the following obligations to make payments under long term debt
(excluding interest), lease agreements, and pension plans at December 31, 2005.



|                                   |  |      |       |             |   |             |  |            |       |       |   |        |  |   |        
|---------------------------------- |  | ---- | ----- | ----------- | - | ----------- |  | ---------- | ----- | ----- | - | ------ |  | - | -------
|(Dollars in Thousands)             |  | 2006 |       | 2007 - 2008 |   | 2009 - 2010 |  | After 2010 |       | Total
|FHLB Advances (1)                  |  | $    | 45    |             | $ | 10,000      |  | $          |      |       | $ | 32,320 |  | $ | 42,365 
|Subordinated Notes                 |  |      |      |             |   |            |  |            |      |       |   | 46,781 |  |   | 46,781 
|Operating Leases                   |  |      | 4,967 |             |   | 7,829       |  |            | 5,354 |       |   | 10,579 |  |   | 28,729 
|Defined Benefit Pension Plan (2)   |  |      | 3,000 |             |   |            |  |            |      |       |   |       |  |   | 3,000  
|Supplemental Pension (3)           |  |      | 876   |             |   | 2,091       |  |            | 2,252 |       |   | 5,699  |  |   | 10,918 
|                                   |  |      |       |             |   |             |  |            |       |       |   |        |  |   |        
|Total Contractual Cash Obligations |  | $    | 8,888 |             | $ | 19,920      |  | $          | 7,606 |       | $ | 95,379 |  | $ | 131,793
|                                   |  |      |       |             |   |             |  |            |       |       |   |        |  |   |        

---

|(1) | The FHLB has the option to require the Bank to repay $35,000,000 at certain designated dates.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Estimated cash contributions for 2006 were based upon actuarial estimates. The Corporation was unable to develop a reasonable estimate for future contributions for years after 2006.
Future contributions are impacted by future levels of interest rates, investment fund performance, and increases in beneficiary compensation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



At December 31, 2005, the Bank had the following outstanding commitments
to fund lines of credit, letters of credit, and loans.



|                                     |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        
|------------------------------------ |  | ---------------- | ------- | ------------------------------------------ | - | --------- |  | --------- | ------ | ---------- | - | ------ |  | - | -------
|                                     |  |                  |         | Amount of Commitment Expiration per Period
|(Dollars in Thousands)               |  | TotalCommitments |         | Less thanOne Year                          |   | 1-3 years |  | 3-5 years |        | Thereafter
|Lines of Credit:                     |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        
|Business Loans                       |  | $                | 223,775 |                                            | $ | 173,610   |  | $         | 37,090 |            | $ | 10,992 |  | $ | 2,083  
|Commercial Real Estate Loans         |  |                  | 39,508  |                                            |   | 679       |  |           | 18,690 |            |   | 19,085 |  |   | 1,054  
|Single-Family Construction Loans     |  |                  | 26,005  |                                            |   | 12,422    |  |           | 13,583 |            |   |       |  |   |       
|Home Equity Loans                    |  |                  | 153,685 |                                            |   | 6,155     |  |           | 11,170 |            |   | 16,143 |  |   | 120,217
|                                     |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        
|Total Lines of Credit                |  |                  | 442,973 |                                            |   | 192,866   |  |           | 80,533 |            |   | 46,220 |  |   | 123,354
|                                     |  |                  |         |                                            |  
|Standby Letters of Credit            |  |                  | 36,687  |                                            |   | 25,397    |  |           | 10,536 |            |   | 430    |  |   | 324    
|                                     |  |                  |         |                                            |  
|Commitments to Originate Loans:      |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        
|Business Loans                       |  |                  | 112,329 |                                            |   | 112,329   |  |           |       |            |   |       |  |   |       
|Commercial Real Estate Loans         |  |                  | 27,072  |                                            |   | 27,072    |  |           |       |            |   |       |  |   |       
|Home Equity Loans                    |  |                  | 14,686  |                                            |   | 14,686    |  |           |       |            |   |       |  |   |       
|Other Consumer Loans                 |  |                  | 291     |                                            |   | 291       |  |           |       |            |   |       |  |   |       
|Residential Loans                    |  |                  | 969     |                                            |   | 969       |  |           |       |            |   |       |  |   |       
|                                     |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        
|Total Commitments to Originate Loans |  |                  | 155,347 |                                            |   | 155,347   |  |           |       |            |   |       |  |   |       
|                                     |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        
|Total Commercial Commitments         |  | $                | 635,007 |                                            | $ | 373,610   |  | $         | 91,069 |            | $ | 46,650 |  | $ | 123,678
|                                     |  |                  |         |                                            |   |           |  |           |        |            |   |        |  |   |        



Of the lines of credit
and commitments to fund loans at December 31, 2005, substantially all are variable interest rate products.



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



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



Asset/Liability Management



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



The Corporation uses a model that measures interest rate sensitivity to
determine the impact on net interest income of immediate and sustained upward and downward movements in interest rates. Incorporated into the model are assumptions regarding the current and anticipated interest rate environment, estimated prepayment
rates of certain assets and liabilities, forecasted loan and deposit originations, contractual maturities and renewal rates on certificates of deposit, estimated borrowing needs, expected repricing spreads on variable-rate products, and contractual
maturities and repayments on lending and investment products. The model incorporates interest rate sensitive instruments that are held to maturity or available for sale. The Corporation has no trading assets. Based on the information and assumptions
in effect at December 31, 2005, the model forecasts that a 100 basis point increase in interest rates over a 12-month period would result in a 3.4 percent increase in net interest income while a 100 basis point decrease in interest rates would
result in a 4.3 percent decrease in net interest income. Because of the numerous assumptions used in the computation of interest rate sensitivity, and the fact that the model does not assume any actions ALCO could take in response to the change in
interest rates, the model forecasts may not be indicative of actual results.



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



The Corporation also monitors interest rate sensitivity using traditional gap analysis. Gap analysis is a static management tool used to identify
mismatches in the repricing of assets and liabilities within specified periods of time. Since it is a static indicator it does not attempt to predict the net interest income of a dynamic business in a rapidly changing environment. Significant
adjustments may be made when the rate outlook changes. At December 31, 2005, First Indianas six-month and one-year cumulative gaps stood at a positive 7.41 percent and a positive 9.25 percent of total interest-earning assets. This means
that 7.41 and 9.25 percent of First Indianas assets will reprice within six months and one year, respectively, without a corresponding repricing of funding liabilities. This compares with a positive six-month gap of 12.37 percent and a
positive one-year gap of 17.17 percent at December 31, 2004. The Corporation became less asset sensitive in 2005 as assets which formerly repriced within six months and one year lengthened out to the one-to-five year range. As market interest
rates increased in 2005, borrowers preferences moved away from HELOCs with a prime-based interest rate to closed-end home equity loans which offer a fixed rate alternative including term adjustable rates. A similar shift occurred in
residential mortgage loans. Additionally, as securities available for sale matured or repaid, they were replaced with securities with maturities in the one-to-five year range.



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Interest Rate Sensitivity



The following table shows First Indianas interest rate sensitivity at December 31, 2005 and 2004.



|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|--------------------------------------------------- |  | ---- | - |  | ------- | --------- | -------------- | ------ | - | -------------- | - | --------- | ------------------------- |  | - | --------------------------- | - |  | ------------- | ------- | - |  | - | -------- | -
|(Dollars in Thousands)                              |  | Rate |   |  | Balance |           | PercentofTotal |        |   | Within180 Days |   |           | Over 180 Days to One Year |  |   | Over One Year to Five Years |   |  | OverFiveYears |        
|Interest-Earning Assets                             |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Interest-Bearing Due from Banks                     |  | 3.70 | % |  | $       | 3,151     |                | 0.17   | % |                | $ | 3,151     |                           |  | $ |                            |   |  | $             |        |   |  | $ |         |  
|Federal Funds Sold                                  |  | 4.25 |   |  |         | 10,000    |                | 0.54   |   |                |   | 10,000    |                           |  |   |                            |   |  |               |        |   |  |   |         |  
|Securities Available for Sale                       |  | 4.78 |   |  |         | 232,976   |                | 12.66  |   |                |   | 17,589    |                           |  |   | 25,703                      |   |  |               | 189,684 |   |  |   |         |  
|Other Investments                                   |  | 4.50 |   |  |         | 26,540    |                | 1.44   |   |                |   |          |                           |  |   |                            |   |  |               |        |   |  |   | 26,540   |  
|Loans (1)                                           |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Business                                            |  | 7.27 |   |  |         | 545,215   |                | 29.63  |   |                |   | 429,561   |                           |  |   | 12,318                      |   |  |               | 103,336 |   |  |   |         |  
|Commercial Real Estate                              |  | 7.64 |   |  |         | 167,715   |                | 9.12   |   |                |   | 136,233   |                           |  |   | 2,128                       |   |  |               | 17,614  |   |  |   | 11,740   |  
|Single-Family Construction                          |  | 7.36 |   |  |         | 92,451    |                | 5.03   |   |                |   | 92,451    |                           |  |   |                            |   |  |               |        |   |  |   |         |  
|Consumer                                            |  | 7.25 |   |  |         | 499,465   |                | 27.15  |   |                |   | 279,880   |                           |  |   | 30,293                      |   |  |               | 150,784 |   |  |   | 38,508   |  
|Residential Mortgage                                |  | 5.00 |   |  |         | 262,340   |                | 14.26  |   |                |   | 56,211    |                           |  |   | 48,750                      |   |  |               | 124,655 |   |  |   | 32,724   |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|                                                    |  | 6.60 |   |  | $       | 1,839,853 |                | 100.00 | % |                |   | 1,025,076 |                           |  |   | 119,192                     |   |  |               | 586,073 |   |  |   | 109,512  |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Interest-Bearing Liabilities                        |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Deposits                                            |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Demand Deposits (2)                                 |  | 0.85 |   |  | $       | 229,876   |                | 15.42  | % |                |   | 61,636    |                           |  |   |                            |   |  |               |        |   |  |   | 168,240  |  
|Savings Deposits (2)                                |  | 2.52 |   |  |         | 489,713   |                | 32.86  |   |                |   | 435,557   |                           |  |   | 1,389                       |   |  |               | 11,109  |   |  |   | 41,658   |  
|Certificates of Deposit under $100,000              |  | 3.84 |   |  |         | 285,205   |                | 19.14  |   |                |   | 68,430    |                           |  |   | 62,666                      |   |  |               | 154,109 |   |  |   |         |  
|Certificates of Deposit $100,000 or Greater         |  | 4.00 |   |  |         | 175,800   |                | 11.79  |   |                |   | 102,275   |                           |  |   | 21,287                      |   |  |               | 52,238  |   |  |   |         |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|                                                    |  | 2.73 |   |  |         | 1,180,594 |                | 79.21  |   |                |   | 667,898   |                           |  |   | 85,342                      |   |  |               | 217,456 |   |  |   | 209,898  |  
|Borrowings                                          |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Short-Term Borrowings                               |  | 3.39 |   |  |         | 220,732   |                | 14.81  |   |                |   | 220,732   |                           |  |   |                            |   |  |               |        |   |  |   |         |  
|FHLB Advances                                       |  | 4.84 |   |  |         | 42,365    |                | 2.84   |   |                |   | 43        |                           |  |   |                            |   |  |               | 10,000  |   |  |   | 32,322   |  
|Subordinated Notes                                  |  | 7.23 |   |  |         | 46,781    |                | 3.14   |   |                |   |          |                           |  |   |                            |   |  |               | 46,781  |   |  |   |         |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|                                                    |  | 3.03 |   |  |         | 1,490,472 |                | 100.00 | % |                |   | 888,673   |                           |  |   | 85,342                      |   |  |               | 274,237 |   |  |   | 242,220  |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Net  Other (3)                                     |  |      |   |  |         | 349,381   |                |        |   |                |   |          |                           |  |   |                            |   |  |               |        |   |  |   | 349,381  |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Total                                               |  |      |   |  | $       | 1,839,853 |                |        |   |                |   | 888,673   |                           |  |   | 85,342                      |   |  |               | 274,237 |   |  |   | 591,601  |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Rate Sensitivity Gap                                |  |      |   |  |         |           |                |        |   |                | $ | 136,403   |                           |  | $ | 33,850                      |   |  | $             | 311,836 |   |  | $ | (482,089 | )
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|December 31, 2005  Cumulative Rate Sensitivity Gap |  |      |   |  |         |           |                |        |   |                | $ | 136,403   |                           |  | $ | 170,253                     |   |  | $             | 482,089 |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Percent of Total Interest-Earning Assets            |  |      |   |  |         |           |                |        |   |                |   | 7.41      | %                         |  |   | 9.25                        | % |  |               | 26.20   | % |  |   |          |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|December 31, 2004  Cumulative Rate Sensitivity Gap |  |      |   |  |         |           |                |        |   |                | $ | 221,011   |                           |  | $ | 306,697                     |   |  | $             | 517,110 |   |  |   |          |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  
|Percent of Total Interest-Earning Assets            |  |      |   |  |         |           |                |        |   |                |   | 12.37     | %                         |  |   | 17.17                       | % |  |               | 28.95   | % |  |   |          |  
|                                                    |  |      |   |  |         |           |                |        |   |                |   |           |                           |  |   |                             |   |  |               |         |   |  |   |          |  

---

|(1) | The distribution of fixed rate loans and mortgage-backed securities is based upon contractual maturity and scheduled contractual repayments adjusted for estimated prepayments. The
distribution of adjustable rate loans is based upon the earliest repricing date for each loan. Included in consumer loans are $32.3 million of home equity loans held for sale.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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CAPITAL



At December 31,
2005, shareholders equity was $175,442,000, or 8.92 percent of total assets, compared with $172,143,000, or 9.07 percent of total assets, at December 31, 2004, and $208,894,000, or 9.52 percent of total assets, at December 31, 2003.
At December 31, 2005, the Corporations tangible capital (shareholders equity minus the sum of goodwill and other intangible assets) was $141,554,000, or 7.33 percent of tangible assets (total assets minus the sum of goodwill and
other intangible assets), compared with $137,559,000, or 7.38 percent of tangible assets at December 31, 2004, and $173,591,000, or 8.04 percent of tangible assets at December 31, 2003. In 2005, shareholders equity was reduced by the
Corporations purchase of 689,536 shares of its common stock on the open market for $16,859,000. Shareholders equity decreased in 2004 primarily due to the fourth quarter repurchase of 2,162,500 shares of common stock through a
self-tender offer which reduced shareholders equity by $40,901,000. The decrease in the equity ratios in 2004 due to the stock repurchase was partially offset by the reduction in total assets during the year.



First Indiana paid a dividend of $0.144 per common share in each of the first
two quarters in 2005 and increased the dividend 11.1 percent to $0.16 per common share in the third and fourth quarters of 2005. On January 18, 2006, the Board of Directors approved a five-for-four stock split. The stock split is effective
February 27, 2006, to shareholders of record as of February 13, 2006. All share and per share information herein has been restated to reflect the stock split. Also on January 18, 2006, the Board of Directors approved a quarterly
dividend of $0.20 per common share payable March 15, 2006, to shareholders of record as of March 6, 2006. This will be the 77th consecutive quarter First Indiana has paid a cash dividend.



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



Regulatory Capital Requirements



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



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



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



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



The Federal Reserve Board, the FDIC, and the OCC
have incorporated market and interest rate risk components into their risk-based capital standards. Under these market risk requirements, capital is allocated to support the amount of market risk related to a financial institutions ongoing
trading activities. The Federal Reserve Board also requires a minimum leverage ratio (Tier 1 capital to adjusted average assets) of three



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##### Table of Contents

percent for bank holding companies that have the highest regulatory rating or have implemented the risk-based capital measures for market risk, or four
percent for holding companies that do not meet either of these requirements. The Bank is subject to similar requirements adopted by the OCC.



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



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



The Corporation formed
statutory trusts for the purpose of issuing trust preferred securities. These trust preferred securities are included in the Corporations Tier 1 capital and total capital at December 31, 2005 and December 31, 2004. In December 2003,
the Financial Accounting Standards Board issued a revision of FIN 46 that required the deconsolidation of these statutory trusts. In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding
companies to continue to include the trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the contrary. In May 2004, the Federal Reserve issued a proposal to allow the continued inclusion of
trust preferred securities in Tier 1 capital. There can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier 1 capital for regulatory capital purposes. At December 31, 2005
and 2004, the balance of trust preferred securities, net of discount, was $24,547,000 and $24,457,000, respectively.



The following table shows the Corporations and the Banks capital levels and compliance with all capital requirements at December 31,
2005. In addition, the Bank exceeds the capital levels set by FDICIA for a bank to be considered well-capitalized.



|                                            |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|------------------------------------------- |  | ----------------- | ------- | ----- | ----------------------- | - | ------ | --------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                            |  | December 31, 2005 |        
|                                            |  | Actual            |         |       | MinimumCapital Adequacy |   |        | To beWell-Capitalized |        
|(Dollars in Thousands)                      |  | Amount            |         | Ratio |                         |   | Amount |                       | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 168,434 |       | 8.70                    | % |        | $                     | 77,401  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 182,509 |       | 9.45                    |   |        |                       | 77,283  |  | 4.00 |        |  | $     | 96,604  |  | 5.00  | %
|Tier 1 Capital to Risk-Weighted Assets      |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 168,434 |       | 10.78                   | % |        | $                     | 62,495  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 182,509 |       | 11.70                   |   |        |                       | 62,371  |  | 4.00 |        |  | $     | 93,556  |  | 6.00  | %
|Total Capital to Risk-Weighted Assets       |  |                   |         |       |                         |   |        |                       |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 210,446 |       | 13.47                   | % |        | $                     | 124,990 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|First Indiana Bank, N.A.                    |  |                   | 202,248 |       | 12.97                   |   |        |                       | 124,742 |  | 8.00 |        |  | $     | 155,927 |  | 10.00 | %
|                                            | 
|                                            |  | 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 | %



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IMPACT OF INFLATION AND CHANGING PRICES



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



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



IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED



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



FOURTH QUARTER SUMMARY



First
Indiana recorded net income of $6,751,000, or $0.38 per diluted share, in the fourth quarter of 2005, compared with income of $5,489,000, or $0.28 per diluted share, for the same period of 2004. Fourth quarter earnings in 2004 were affected by two
non-recurring items. First Indiana recognized a $958,000 pre-tax gain on the sale of non-Indiana construction loan offices, and the sale of Somerset Financial Services, LLC resulted in an after-tax net loss of $1,068,000, both in the fourth quarter
of 2004. The loss on the sale of Somerset Financial is included in the results of discontinued operations.



Net interest income for the fourth quarter of 2005 was $17,799,000, with a net interest margin of 3.85 percent, compared with fourth quarter 2004 net
interest income of $16,919,000 and a net interest margin of 3.66 percent. Due to the Corporations asset-sensitive position, rate increases by the Federal Reserve Board during 2005 resulted in an increase in the net interest margin in the
fourth quarter of 2005 when compared with the same period of 2004, although increasing pricing pressures on loans and deposits in the second half of 2005 began to offset some of the benefit of rising interest rates. Earning assets averaged
$1,847,463,000 in the fourth quarter of 2005, compared with $1,845,795,000 for the same quarter in 2004. Loans outstanding averaged $1,582,859,000 for the fourth quarter of 2005, compared with $1,549,426,000 for the fourth quarter of 2004. The
increase in average loans outstanding was due to an increase in business loans, partially offset by a decrease in residential



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mortgages and construction and land development loans. Interest-bearing liabilities in the fourth quarter of 2005 averaged $1,511,456,000 compared with
$1,462,571,000 in the fourth quarter of 2004. Average core deposits, including demand, savings and retail certificates of deposits, in the fourth quarter of 2005 were $1,305,371,000, compared with $1,254,417,000 in the fourth quarter of 2004.



No provision for loan losses was recorded in the fourth
quarter of 2005 or the fourth quarter of 2004. Net loan charge-offs were $1,878,000 in the fourth quarter of 2005, compared with net recoveries of $661,000 for the fourth quarter of 2004. Non-performing assets decreased to $4,633,000 at
December 31, 2005, from $6,447,000 at September 30, 2005, and $21,445,000 at December 31, 2004. The ratio of the allowance for loan losses to loans at December 31, 2005, was 2.50 percent, compared with 2.59 percent at
September 30, 2005, and 3.54 percent at December 31, 2004. The ratio of the allowance for loan losses to non-performing loans at December 31, 2005, was 859.9 percent, compared with 643.8 percent at September 30, 2005, and 269.0
at December 31, 2004.



Non-interest income for the fourth
quarter of 2005 was $7,619,000, compared with $8,094,000 for the same period in 2004. Gain on the sale of loans was $2,402,000 for the fourth quarter of 2005, compared with $3,032,000 for the fourth quarter of 2004, which included a gain of $958,000
from the sale of the non-Indiana construction loan offices. In the fourth quarter of 2004, the Corporation recorded an impairment charge of $299,000 related to its holdings of Fannie Mae and Freddie Mac preferred stock. The Banks third-party
loan servicing portfolio was sold in the first quarter of 2005. Net loan servicing income was $1,000 in the fourth quarter of 2005, compared with a loss of $347,000 in the fourth quarter of 2004. Loan fees decreased to $308,000 for the fourth
quarter of 2005 from $688,000 for the fourth quarter of 2004, primarily due to a reduction in construction loan fees and commitment fees. Other income decreased to $517,000 for the fourth quarter of 2005 from $715,000 for the same quarter of 2004,
primarily due to the elimination of loan servicing assets as a result of the sale of the loan servicing portfolio, the contraction in the consumer and mortgage loan portfolios, the expiration of the prepayment penalty period on aging consumer loans,
and a reduction in residential loan broker fees.



Non-interest
expense for the fourth quarter of 2005 was $15,261,000, compared with $15,089,000 for the fourth quarter of 2004. The implementation of the cost reduction plan announced in September 2004, and the reduction in operating expenses after the sale of
the non-Indiana construction loan offices in November 2004 favorably impacted most categories of non-interest expense. The categories of net occupancy, equipment, professional services, marketing, telephone, supplies and postage, and other
non-interest expense all declined from the fourth quarter of 2004. Salary expense was $6,726,000 for the fourth quarter of 2005, compared with $6,009,000 for the fourth quarter of 2004. The increase in salary expense was related to restricted and
deferred stock awards due to an increase in the Corporations stock price, since First Indiana accounts for these awards under the principles of APB 25, and an increase in the level of performance bonuses. These increases were partially offset
by a decrease in regular wages due to headcount reductions. Employee benefits expense was $2,375,000 for the fourth quarter of 2005, compared with $2,131,000 for the fourth quarter of the previous year. The increase in employee benefits expense was
primarily attributable to an increase in pension plan expense.



Additional information relating to the fourth quarter of 2005 and 2004 can be found in Note 19 of the Notes to the Consolidated Financial Statements.



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##### Table of Contents

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS



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



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



The Board of Directors exercises its responsibility for the financial
statements and related information through the Audit Committee, which is composed entirely of independent directors. The Audit Committee meets regularly with management, the 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.



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

First Indiana Corporation:



We have audited
managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that First Indiana Corporation maintained effective internal control over financial reporting as of December 31,
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.



Indianapolis, Indiana

March 1, 2006



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##### Table of Contents

Report of Independent Registered Public Accounting
Firm



The Board
of Directors and Shareholders

First Indiana Corporation:



We have audited the accompanying consolidated balance sheets of First Indiana Corporation and subsidiaries as of December 31, 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.



Indianapolis, Indiana

March 1, 2006



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##### Table of Contents

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



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF EARNINGS



|                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | Years Ended December 31 |        
|(Dollars in Thousands, except Per Share Data)              |  | 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



38



---

##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                                                                               |  |                   |   |  |                |     |   |                  |   |         |                                            |  |   |               |   |  |                          |        |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | -------------- | --- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ------------- | - |  | ------------------------ | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                               |  | Common Stock      |   |  | CapitalSurplus |     |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TreasuryStock |   |  | TotalShareholdersEquity |       
|(Dollars in Thousands, except Per Share Data)                                                                                                  |  | OutstandingShares |   |  | Amount         |     |   |                  |   |         |                                           
|Balance at December 31, 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



39



---

##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                               |  |                         |          |   |                         |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ----------------------- | - | -------- | ---- |  | - | -------- | -
|                                                                                               |  | Years Ended December 31 |         
|(Dollars in Thousands)                                                                         |  | 2005                    |          |   | 2004                    |   |          | 2003 | 
|                                                                                               |  |                         |          |   | 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



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##### Table of Contents

FIRST INDIANA CORPORATION AND
SUBSIDIARIES



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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



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



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



security below cost that is deemed other-than-temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. The
Corporation has no assets classified as trading.



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



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



(E) Loans.Loans originated for portfolio are recorded at cost, with any discount or premium amortized to maturity using the level-yield method.
Loans are 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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(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.



(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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(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 123(R) requires an entity to measure the cost of employee services received in exchange for an award of equity instruments (e.g., stock options,
stock grants) based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award  the requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. SFAS 123(R) eliminates the alternative use of Opinion No. 25s intrinsic value method of accounting that was
provided in the original SFAS 123. First Indiana currently accounts for stock-based 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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



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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.



(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  
|                                 |  |                         |       |      |   |       |  |   |      



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 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   
|                                    |  |                         |        |   |      |   |       



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##### Table of Contents

FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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  |  
|                                 |  |                         |        |   |      |   |        |      |  |   |        |  



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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



(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
|                                             |  | AmortizedCost     |         | Gross Unrealized  |        | Fair Value (Book Value) |  | AmortizedCost |       | Gross Unrealized |        | Fair Value (Book Value)
|(Dollars in Thousands)                       |  |                   | Gains   |                   | Losses |                         |  |               | Gains |                  | Losses |                        
|U.S. Government Treasuries, Agencies & Other |  | $                 | 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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                       |  |                   |         |           |   |        
|-------------------------------------- |  | ----------------- | ------- | --------- | - | -------
|                                       |  | December 31, 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.



|                                             |  |                     |         |                     |   |            |  |                   |        |           |   |                  |  |                 |         |  |   |       |  |   
|-------------------------------------------- |  | ------------------- | ------- | ------------------- | - | ---------- |  | ----------------- | ------ | --------- | - | ---------------- |  | --------------- | ------- |  | - | ----- |  | --
|                                             |  | Less than 12 Months |         | 12 Months or Longer |   | Total     
|December 31, 2005 (Dollars in
Thousands)     |  | FairValue           |         | Unrealized Losses   |   | Fair Value |  | Unrealized Losses |        | FairValue |   | UnrealizedLosses |  | # of Securities
|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
|                                             |  |                     |         |                     |   |            |  |                   |        |           |   |                  |  |                 |         |  |   |       |  |   



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



|                       |  |             |        |                |   |         |  |                |        |  |   |       
|---------------------- |  | ----------- | ------ | -------------- | - | ------- |  | -------------- | ------ |  | - | ------
|                       |  | December 31
|(Dollars in Thousands) |  | 2005        |        | 2004          
|                       |  | Balance     |        | Total Exposure |   | Balance |  | Total Exposure
|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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(7) Allowance for Loan Losses



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



(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
|                       |  |        |        



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Cash paid during the year for interest on deposits, advances, and other borrowed money was
$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.



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



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



(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 | %
|                       |  |                         |   |  |      |   |  |      |  



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                         |  |             |        |      |   |       
|---------------------------------------- |  | ----------- | ------ | ---- | - | ------
|                                         |  | December 31
|(Dollars in Thousands)                   |  | 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.



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FIRST INDIANA CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



(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).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Federal Deposit Insurance Corporation Improvement Act of 1999 (FDICIA) established
ratios and guidelines for banks to be considered well-capitalized. The Bank exceeds the capital levels set by FDICIA to be considered well-capitalized. The following tables show the Corporations and the Banks compliance with
all capital requirements at December 31, 2005, and December 31, 2004.



|                                            |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|------------------------------------------- |  | ----------------- | ------- | ----- | ------------------------ | - | ------ | ---------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                            |  | December 31, 2005 |        
|                                            |  | Actual            |         |       | Minimum Capital Adequacy |   |        | To be Well-Capitalized |        
|(Dollars in Thousands)                      |  | Amount            |         | Ratio |                          |   | Amount |                        | Ratio   |  |      | Amount |  | Ratio |        
|Leverage (Tier 1 Capital to Average Assets) |  |                   |         |       |                          |   |        |                        |         |  |      |        |  |       |         |  |       |  
|First Indiana Corporation                   |  | $                 | 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            |         |       | Minimum Capital Adequacy |   |        | To be Well-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.



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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,



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



$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.



(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.



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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    | %



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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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                           |  | Years Ended December 31 |       
|(Dollars in Thousands)                                                     |  | 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                                |  |                         |      |   |      |   |      |      |  |   |      |  
|----------------------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                |  | Years Ended December 31 |     
|(Dollars in Thousands)                          |  | 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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



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 ExercisePrices |  | Outstandingat December 31,2005 |  | 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
|                                 |  |           |   |      |                              |       |        |           |   |                              |   |        |  |           |                              |  |   |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.



(16) Parent Company Only Statements



Condensed Balance Sheets



|                                           |  |             |         |      |   |        
|------------------------------------------ |  | ----------- | ------- | ---- | - | -------
|                                           |  | 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
|                                           |  |             |         |      |   |        



Condensed Statements of Earnings



|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  
|-------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                     |  | 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   |  
|                                                                     |  |                         |        |   |      |   |        |      |  |   |         |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Condensed Statements of Cash Flows



|                                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                          |  | 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



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



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



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



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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Estimated Fair Value of Financial Instruments



|                                                                                        |  |                   |         |                     |   |                |  |                     |         |  |   |        
|--------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                                                                        |  | December 31, 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 InstrumentsCommitments to Extend Credit and Standby Letters of Credit |  |                   | 128     |                     |   | 1,208          |  |                     | 337     |  |   | 1,226  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(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.



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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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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)            |  | First Quarter |        |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|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          |  |               | 0.26   |   |                |   | 0.31   |               |  |   | 0.06           |   |  |   | 0.41   |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |               | 0.09   |   |                |   |       |               |  |   | (0.14          | ) |  |   | (0.06  | )
|Net Income (Loss)                                        |  |               | 0.35   |   |                |   | 0.31   |               |  |   | (0.08          | ) |  |   | 0.35   |  
|Diluted Earnings (Loss) Per Share                        |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |  
|Income from Continuing Operations, Net of Taxes          |  |               | 0.25   |   |                |   | 0.31   |               |  |   | 0.07           |   |  |   | 0.40   |  
|Income (Loss) from Discontinued Operations, Net of Taxes |  |               | 0.09   |   |                |   |       |               |  |   | (0.15          | ) |  |   | (0.05  | )
|Net Income (Loss)                                        |  |               | 0.34   |   |                |   | 0.31   |               |  |   | (0.08          | ) |  |   | 0.35   |  



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PART I



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



Description of Business



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



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



The Corporation had total assets of $1.97 billion at December 31, 2005, an increase of $68.1 million from $1.90 billion at December 31, 2004.
Loans outstanding were $1.57 billion and deposits were $1.45 billion at December 31, 2005.



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



The Bank is engaged primarily in the business of attracting deposits from the general public and originating commercial and consumer loans. The Bank offers a full range of banking services through its offices in
Central Indiana. The Bank also originates home equity loans in 44 states through Bank loan officers and an independent agent network. The Bank has consumer loan service offices in Indiana, Florida, Illinois, and Ohio. One Investment Partners, a
subsidiary of the Bank, holds loans originated outside of Indiana.



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



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



Business Segments



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



Competition



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



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



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



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



Supervision and Regulation



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



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



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



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



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



There
are various statutory restrictions on the ability of the Bank to pay dividends or make other payments to First Indiana Corporation, which are described below. Prior regulatory approval is required if dividends to be declared by the Bank in any year
would exceed net earnings of the current year (as defined under the National Bank Act) plus retained net profits for the preceding two years. 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



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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.



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



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



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



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



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



First Indiana, like other bank holding companies, is
required to maintain Tier 1 capital and total capital equal to at least 4 percent and 8 percent, respectively, of total risk-weighted assets. As of December 31, 2005, the Corporation met both requirements, with Tier 1 and total capital equal to
10.78 percent and 13.47 percent, respectively, of total risk-weighted assets. The Bank was also in compliance with its applicable minimum capital requirement at December 31, 2005, with Tier 1 capital and total capital equal to 11.70 percent and
12.97 percent, respectively, of its total risk-weighted assets.



The Federal Reserve Board, the FDIC, and the OCC have incorporated market and interest rate risk components into their risk-based capital standards. Under these market risk requirements, capital is allocated to support the amount of market
risk related to a financial institutions ongoing trading activities. The Federal Reserve Board also requires a minimum leverage ratio (Tier 1 capital to adjusted average assets) of 3 percent for bank holding companies that have the
highest regulatory rating or have implemented the risk-based capital measures for market risk, or 4 percent for holding companies that do not meet either of these requirements. The Bank is subject to similar requirements adopted by the OCC. As of
December 31, 2005, the Corporations leverage ratio was 8.70 percent, and the Banks was 9.45 percent.



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



Source of Strength Doctrine.Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to its subsidiary bank and to stand prepared to commit resources to
support



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



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



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



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



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



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



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



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



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



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



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



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



FDICIA also contains a variety of other provisions
that may affect First Indianas operations, including reporting requirements, regulatory standards for real estate lending, truth in savings provisions, and the requirement that a depository institution give notice to customers and
regulatory authorities before closing any branch. As of December 31, 2005, the Bank exceeded the required capital ratios for classification as well-capitalized.



FDIC Insurance and Financing Corporation Assessments.The FDICs deposit insurance assessments currently are
calculated under a risk-based system. The risk-based system places a bank in one of nine risk categories, principally on the basis of its capital level and an evaluation of the banks risk to the relevant deposit



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insurance fund, and bases premiums on the probability of loss to the FDIC with respect to each individual bank. Under the Federal Deposit Insurance Act, a
depository institution may not pay interest on indebtedness, if such interest is required to be paid out of net profits, or distribute any of its capital assets while it remains in default on any assessment due to the FDIC.



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



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



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



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



Patriot Act.On
October 26, 2001, President Bush signed into law the USA Patriot Act of 2001 (the Patriot Act). The Patriot Act substantially broadened the existing anti-money laundering legislation. In particular, the



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Patriot Act requires financial institutions, as defined by the Patriot Act, to create and maintain certain anti-money laundering programs. One such
program relates to the opening of new accounts. Financial institutions must include in their programs procedures to open new accounts in conjunction with the specific information that must be obtained before the account may be opened by the
financial institution.



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



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



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



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



Employees



At December 31, 2005, the Corporation and its subsidiaries employed 570 persons, including part-time employees. The
Corporations full-time equivalent headcount at December 31, 2005 was 529.



Reports on Corporation Website



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



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



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



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



As loan growth accelerates,
the Corporation must also generate significant deposit growth. In the fourth quarter of 2005, core deposits averaged $1.3 billion, only 4.06 percent over the same time period in 2004. The growth rate in deposits which has been realized is not
adequate to support expanded loan growth. In the absence of sufficient deposit growth the Corporation will need to rely on higher cost borrowings to fund loan growth.



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



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



The Corporations conversion of its core systems to a new service provider in 2006 could result in a loss of revenue.



In 2006 the Corporation will convert its core systems to a new service
provider. This will change many of the processes used to deliver products and services to the Corporations customers. There is a risk that customer service interruptions could occur at the time of the conversion which could result in a loss of
customers and revenue.



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



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



We could
experience a decrease in net interest income if interest rates decrease. Currently, the Corporation is in an asset-sensitive position (assets re-price faster than liabilities). If we are in an asset-sensitive position at the same time that interest
rates decline, we could experience a decrease in net interest income.



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



The Corporation continually encounters technological change, and it may have fewer resources than many of its competitors to continue to invest in
technological improvements, which could reduce its ability to compete. The financial services industry is undergoing rapid technological changes with frequent introduction of new



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



The banking and
financial services industry is highly competitive.



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



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



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



The Corporation is heavily regulated by federal and state agencies.



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



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



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



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



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



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



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



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



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



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



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



The Corporation is dependent on senior
management.



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



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The Corporations stock price can be volatile.



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



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



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



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



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



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



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



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



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



The Corporation and
its subsidiaries may be involved from time to time in a variety of litigation arising out of the Corporations business. The Corporations insurance may not cover all claims that may be asserted against it, and any claims asserted against
the Corporation, regardless of merit or eventual outcome, may harm the Corporations reputation. Should the ultimate judgments or settlements in any litigation exceed the Corporations insurance coverage, they could have a material adverse
effect on the Corporations business, operating results and financial condition. In addition, the Corporation may not be able to obtain appropriate types or levels of insurance in the future, nor may the Corporation be able to obtain adequate
replacement policies with acceptable terms, if at all.



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



None.



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



At December 31, 2005, the Corporation operated through 30 full-service banking centers in Central Indiana and three loan origination offices in
addition to its headquarters and operations locations. The Corporation leases its headquarters location in downtown Indianapolis and owns the Banks operations facilities in Greenwood, Indiana. FirstTrust Indiana, the Banks investment
advisory and trust division, which was sold effective January 2006, leases its facility on the north side of Indianapolis. The Corporation leases 14 of its branches and two origination offices and owns the remaining locations. The aggregate carrying
value at December 31, 2005, of the properties owned or leased, including headquarters properties and leasehold improvements at the leased offices, was $17,800,000. See Notes 8 and 14 of the Notes to Consolidated Financial Statements.



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



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



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



No matters were submitted to a vote of the Corporations security holders during the three months ended December 31, 2005.



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Executive Officers of the Registrant



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



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



|                   |  |                                                                                                                                                                 |  |     |  |                           
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | --------------------------
|Name               |  | Position                                                                                                                                                        |  | Age |  | Year First Elected Officer
|William J. Brunner |  | Vice President and Treasurer, Chief Financial Officer of the Corporation; Chief Financial Officer and Executive Vice President Financial Management of the Bank |  | 46  |  | 2000                      
|                   |  |                                                                                                                                                                 | 
|David A. Lindsey   |  | Executive Vice President Retail/Consumer Banking Division of the Bank                                                                                           |  | 56  |  | 1983                      
|                   |  |                                                                                                                                                                 | 
|David L. Maraman   |  | Executive Vice President and Chief Credit Officer of the Bank                                                                                                   |  | 58  |  | 2003                      
|                   |  |                                                                                                                                                                 | 
|Reagan K. Rick     |  | Secretary of the Corporation; Executive Vice
President Commercial Banking and Secretary of the Bank                                                             |  | 44  |  | 2004                      



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



David
A. Lindsey has been with the Bank since 1983, and is currently serving as executive vice president retail/consumer of the Bank. He oversees the Banks national consumer lending operations, the retail branch bank network, and the marketing
department.



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



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



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PART II



On January 18, 2006,
the Corporation declared a five-for-four stock split to be effected on February 27, 2006, to shareholders of record as of February 13, 2006. All share and per share information in this Form 10-K has been restated to reflect the stock
split. However, the share and per share information in the Corporations Proxy Statement has not been restated to reflect the stock split.



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



The Corporations stock is traded on the Nasdaq National Market under
the ticker symbol FINB. As of February 10, 2006, there were approximately 1,257 holders of record of the Corporations common stock. The following table contains high and low bid information as reported by Nasdaq.



|               |  |      |       |      |   |            |  |      |       |     |   |            |  |   |       |  |   |      
|-------------- |  | ---- | ----- | ---- | - | ---------- |  | ---- | ----- | --- | - | ---------- |  | - | ----- |  | - | -----
|               |  | 2005 |       | 2004
|               |  | High |       | Low  |   | Book Value |  | High |       | Low |   | Book Value
|First Quarter  |  | $    | 20.39 |      | $ | 16.88      |  | $    | 9.93  |     | $ | 17.75      |  | $ | 14.92 |  | $ | 10.88
|Second Quarter |  |      | 23.85 |      |   | 18.98      |  |      | 10.15 |     |   | 16.48      |  |   | 14.01 |  |   | 10.84
|Third Quarter  |  |      | 27.52 |      |   | 23.25      |  |      | 10.19 |     |   | 16.58      |  |   | 14.40 |  |   | 10.71
|Fourth Quarter |  |      | 29.08 |      |   | 26.06      |  |      | 10.22 |     |   | 19.08      |  |   | 15.90 |  |   | 9.82 



The Corporation paid a
cash dividend of $0.144 per common share in each of the first two quarters of 2005 and increased the dividend to $0.16 per common share in the third and fourth quarters of 2005. The Corporation paid a cash dividend of $0.132 per common share in each
of the first three quarters of 2004 and paid a cash dividend of $0.144 per common share outstanding for the fourth quarter of 2004. All share and per share data has been restated to reflect the five-for-four stock split declared on January 18,
2006.



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



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



ISSUER PURCHASES OF FIRST INDIANA COMMON STOCK



|                                      |  |                                                   |  |                                      |       |                                                                                            |         |                                                                                                                       |        
|------------------------------------- |  | ------------------------------------------------- |  | ------------------------------------ | ----- | ------------------------------------------------------------------------------------------ | ------- | --------------------------------------------------------------------------------------------------------------------- | -------
|Period                                |  | Total Number ofShares (or Units)Purchased (1) (2) |  | Average PricePaid per Share(or Unit) |       | Total Number ofShares (or Units)Purchased as Partof PubliclyAnnounced Plansor Programs (2) |         | Maximum Number(or ApproximateDollar Value) ofShares (or Units) thatMay Yet BePurchased Under
thePlans or Programs (2)
|October 1, 2005 to October 31, 2005   |  | 46,070                                            |  | $                                    | 27.56 |                                                                                            | 46,070  |                                                                                                                       | 596,743
|November 1, 2005 to November 30, 2005 |  | 162,841                                           |  | $                                    | 28.67 |                                                                                            | 162,841 |                                                                                                                       | 433,901
|December 1, 2005 to December 31, 2005 |  | 185                                               |  | $                                    | 27.75 |                                                                                            |        |                                                                                                                       | 433,901
|                                      |  |                                                   |  |                                      |       |                                                                                            |         |                                                                                                                       |        
|Total                                 |  | 209,096                                           |  | $                                    | 28.42 |                                                                                            | 208,911 |                                                                                                                       | 433,901
|                                      |  |                                                   |  |                                      |       |                                                                                            |         |                                                                                                                       |        

---

|(1) | Shares of common stock are purchased by the Corporation in the open market and held in trust for certain of the Corporations Directors under the Directors Deferred Fee
Plan. In the fourth quarter of 2005, 185 shares were purchased under this plan. At December 31, 2005, $132,000 of outstanding common stock had been repurchased under this plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(2) | 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
the fourth quarter of 2005, 208,911 shares were repurchased under this authorization. At December 31, 2005, 503,286 shares of common stock had been purchased under this plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



| |  |  | Capital
| | - |  | -------



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



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



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



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



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



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



Information required by this item is shown in Financial Review under the headings Consolidated Financial Statements, Notes
to Consolidated Financial Statements, and Report of Independent Registered Public Accounting Firm, and is incorporated by reference to the Corporations Proxy Statement under the heading Report of the Compensation and
Governance Committee of the Board of Directors on Executive CompensationCompensation and Governance Committee Interlocks and Insider Participation. The Corporations unaudited quarterly financial information for each of the years in
the two-year period ended December 31, 2005 is shown in Note 19 of Notes to Consolidated Financial Statements under the heading Financial Review.



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



None.



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



Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in the
Corporations reports filed under the Securities Exchange Act of 1934, such as this



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



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



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



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



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



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



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



None.



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PART III



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



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



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



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



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



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



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



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



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



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



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



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



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PART IV



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



|                                                                                            |  |      
|------------------------------------------------------------------------------------------- |  | -----
|                                                                                            |  | Pages
|(a) (1) Financial Statements                                                                |  |      
|Report of Independent Registered Public Accounting Firm                                     |  | 36   
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                |  | 37   
|Consolidated Statements of Earnings for the Three Years Ended December 31, 2005             |  | 38   
|Consolidated Statements of Shareholders Equity for the Three Years Ended December 31, 2005 |  | 39   
|Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2005           |  | 40   
|Notes to the Consolidated Financial Statements                                              |  | 41-75



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



None.



(3) Exhibits



|   |     |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3  | (a) |  | Articles of Incorporation of First Indiana Corporation, incorporated by reference to Exhibit 3(a) of the Registrants Form 10-K filed on March 12, 2001.                                                                                                                                                                                                                                           
|   |    
|3  | (b) |  | Amended and Restated Bylaws of First Indiana Corporation, as amended by amendment adopted January 21, 2004, incorporated by reference to Exhibit 3(b) of the Registrants Form 10-K filed
on March 3, 2004.                                                                                                                                                                                        
|   |    
|4  | (a) |  | Form of Certificate of Common Stock of Registrant, incorporated by reference to Exhibit 4(c) of the Registrants registration statement on Form S-1, filed as No. 33-46547 on
March 20, 1992.                                                                                                                                                                                                      
|   |    
|4  | (b) |  | Rights Agreement dated as of November 14, 1997, incorporated by reference to Exhibit 4 of the Registrants Form 8-A filed December 2, 1997, and Amendment to Rights Agreement,
incorporated by reference to Exhibit 4 of the Registrants Form 10-Q filed on May 13, 2002.                                                                                                                         
|   |    
|10 | (a) |  | Form of data processing services contract between First Indiana Bank, N.A. and Metavante Corporation dated October 19, 2005. *A                                                                                                                                                                                                                                                                    
|   |    
|10 | (b) |  | First Indiana Corporation 1991 Stock Option and Incentive Plan, incorporated by reference to Exhibit A of the Registrants March 20, 1991 Proxy Statement, Pages A-1 to A-8.
*B                                                                                                                                                                                                                    
|   |    
|10 | (c) |  | First Indiana Corporation 1998 Stock Incentive Plan, incorporated by reference to Exhibit 10(c) of the Registrants Annual Report on Form 10-K for the year ended December 31, 1997.
*B                                                                                                                                                                                                            
|   |    
|10 | (d) |  | First Indiana Corporation 1992 Director Stock Option Plan, incorporated by reference to Exhibit A of the Registrants March 13, 1992 Proxy Statement, Pages A-1 to A-3.
*B                                                                                                                                                                                                                         
|   |    
|10 | (e) |  | First Indiana Corporation Supplemental Benefit Plan effective May 1, 1997, incorporated by Reference to Exhibit 10(f) of the Registrants Annual Report on Form 10-K for the year ended
December 31, 1997. *B                                                                                                                                                                                      
|   |    
|10 | (f) |  | First Indiana Corporation Supplemental Benefit Plan Agreement effective May 1, 1997 between the Registrant and Robert H. McKinney, incorporated by reference to Exhibit 10(g) of the
Registrants Annual Report on Form 10-K for the year ended December 31, 1997 as amended October 20, 2004 and incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K filed October 22, 2004. *B



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



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|   |      |  |                                                                                                                                                                                                                                         
|-- | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10 | (w)  |  | Form of 2004-2006 Incentive Program for Robert H. Warrington, incorporated by reference to Exhibit 10.8 of the Registrants Form 8-K filed October 22, 2004. *B                                                                         
|   |     
|10 | (x)  |  | Form of Restricted Stock Agreement for Revised 2003-2005 Incentive Program, incorporated by reference to Exhibit 10.9 of the Registrants Form 8-K filed October 22, 2004.
*B                                                           
|   |     
|10 | (y)  |  | Form of Deferred Stock Agreement, incorporated by reference to Exhibit 10.10 of the Registrants Form 8-K filed October 22, 2004. *B                                                                                                    
|   |     
|10 | (z)  |  | Form of Restricted Stock Agreement for 2004-2006 Incentive Program, incorporated by reference to Exhibit 10.11 of the Registrants Form 8-K filed October 22, 2004. *B                                                                  
|   |     
|10 | (aa) |  | Asset Purchase Agreement between Registrant and Somerset CPAs, P.C., incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated October 25, 2004.                                                                     
|   |     
|10 | (ab) |  | Asset Purchase Agreement between Registrant and TierOne Bank, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated November 1, 2004.                                                                            
|   |     
|10 | (ac) |  | Form of Restricted Stock Agreement with William J. Brunner, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated December 22, 2004. *B                                                                          
|   |     
|10 | (ad) |  | Form of Restricted Stock Agreement with Robert H. Warrington, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated December 22, 2004. *B                                                                        
|   |     
|10 | (ae) |  | Form of Restricted Stock Agreement with Marni McKinney, incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K dated December 22, 2004. *B                                                                              
|   |     
|10 | (af) |  | Form of Restricted Stock Agreement with David A. Lindsey, incorporated by reference to Exhibit 10.4 of the Registrants Form 8-K dated December 22, 2004. *B                                                                            
|   |     
|10 | (ag) |  | Form of First Amendment to Restricted Stock Agreements by and between the Registrant and David L. Maraman incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K dated
January 3, 2005. *B                              
|   |     
|10 | (ah) |  | Definitive agreement between First Indiana Bank, N.A. and Marshall & Ilsley Corporation for the sale of First Indianas trust business incorporated by reference to Exhibit 10.1 of
the Registrants Form 8-K dated October 21, 2005. *B
|   |     
|10 | (ai) |  | Form of First Indiana Corporation Employment Agreement between Registrant and Reagan K. Rick, incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K filed January 5,
2006. *B                                          
|   |     
|10 | (aj) |  | Form of Supplemental Benefit Plan Agreement between the Registrant and Reagan K. Rick, incorporated by reference to Exhibit 10.2 of the Registrants Form 8-K dated January 5, 2006.
*B                                                 
|   |     
|10 | (ak) |  | First Indiana Corporation Employee Stock Purchase Plan, incorporated by reference to Exhibit A of the Registrants Form DEF 14A filed March 11, 2005. *B                                                                                
|   |     
|10 | (al) |  | Form of Restricted Stock Agreement under the 2006-2008 Long-Term Incentive Program. *A                                                                                                                                                  
|   |     
|10 | (am) |  | Form of Deferred Share Agreement under the 2006-2008 Long-Term Incentive Program. *A                                                                                                                                                    
|   |     
|10 | (an) |  | Form of Director Deferred Share Agreement under the 2004 Executive Compensation Plan and the 2006 Director Compensation Program.*A                                                                                                      
|   |     
|21 |      |  | Subsidiaries of First Indiana Corporation and First Indiana Bank. *A                                                                                                                                                                    
|   |     
|23 |      |  | Consent of KPMG LLP. *A                                                                                                                                                                                                                 
|   |     
|31 | (a)  |  | Rule 13a-14(a) Certification of Principal Executive Officer. *A                                                                                                                                                                         
|   |     
|31 | (b)  |  | Rule 13a-14(a) Certification of Principal Financial Officer. *A                                                                                                                                                                         
|   |     
|32 | (a)  |  | Section 1350 Certification of Chief Executive Officer. *A                                                                                                                                                                               
|   |     
|32 | (b)  |  | Section 1350 Certification of Chief Financial Officer. *A                                                                                                                                                                               
|  
|  
|   |     
|*A |      |  | These have been filed as an exhibit to this Form 10-K.                                                                                                                                                                                  
|*B |      |  | Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K.                                                                                                                           



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SIGNATURES



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



FIRST INDIANA CORPORATIONBy:

/s/    ROBERT H.
WARRINGTONRobert H. Warrington President and Chief Executive Officer (Principal Executive Officer) Date: March 1, 2006




Pursuant to the
requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following officers and directors on behalf of the Registrant and in the capacities indicated on March 1, 2006.



Officers



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



Directors



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



94