##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period endedJune 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to.
 Commission File Number: 0-6835
 IRWIN FINANCIAL CORPORATION
 (Exact Name of Corporation as Specified in its Charter)
 Indiana
    
    35-1286807(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)500 Washington Street Columbus, Indiana
    
    47201(Address of Principal Executive Offices)
    
    (Zip Code)(812) 376-1909
    
    www.irwinfinancial.com(Corporations Telephone Number, Including Area Code)
    
    (Web Site)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ




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##### Table of Contents



FORM 10-Q
TABLE OF CONTENTS
  
 PAGENO.PART I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial Statements
    
    
    3Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    58Item 4
    
    Controls and Procedures
    
    
    58PART II
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    58Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    59Item 6
    
    Exhibits
    
    
    60Signatures
    
    
    63Irwin Financial Corporation Amended and Restated Short Term Incentive PlanIrwin Commercial Finance Amended and Restated Short Term Incentive PlanIrwin Home Equity Amended and Restated Short Term Incentive PlanIrwin Union Bank and Trust Company Amended and Restated Short Term Incentive PlanCertification Pursuant to Section 302 - CEOCertification Pursuant to Section 302 - CFOCertification of the CEO under Section 906Certification of the CFO under Section 906
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION.
 
 Item 1. Financial Statements.
 IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    154,619
    
    
    $
    155,417Interest-bearing deposits with financial institutions
    
    
    45,226
    
    
    
    44,430Residual interests
    
    
    15,036
    
    
    
    22,116Investment securities- held-to-maturity (Fair value: $17,245 at June 30,
2006 and $17,031 at December 31, 2005)
    
    
    17,579
    
    
    
    17,046Investment securities- available-for-sale
    
    
    111,010
    
    
    
    100,296Loans held for sale
    
    
    148,561
    
    
    
    513,554Loans and leases, net of unearned income  Note 4
    
    
    4,909,930
    
    
    
    4,477,943Less: Allowance for loan and lease losses  Note 5
    
    
    (66,921
    )
    
    
    (59,223
    )4,843,009
    
    
    
    4,418,720Servicing assets  Note 6
    
    
    33,308
    
    
    
    34,445Accounts receivable
    
    
    38,557
    
    
    
    83,369Accrued interest receivable
    
    
    21,993
    
    
    
    21,925Premises and equipment
    
    
    32,542
    
    
    
    29,721Other assets
    
    
    96,850
    
    
    
    86,572Assets held for sale  Note 2
    
    
    957,701
    
    
    
    1,118,913Total assets
    
    $
    6,515,991
    
    
    $
    6,646,524Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    801,861
    
    
    $
    754,778Interest-bearing
    
    
    1,766,501
    
    
    
    1,921,369Certificates of deposit over $100,000
    
    
    1,299,991
    
    
    
    1,222,8463,868,353
    
    
    
    3,898,993Short-term borrowings  Note 7
    
    
    753,880
    
    
    
    997,444Collateralized debt  Note 8
    
    
    854,233
    
    
    
    668,984Other long-term debt  Note 9
    
    
    249,360
    
    
    
    270,160Other liabilities
    
    
    173,721
    
    
    
    210,773Liabilities held for sale  Note 2
    
    
    86,863
    
    
    
    87,836Total liabilities
    
    
    5,986,410
    
    
    
    6,134,190Commitments and contingencies  Note 14Shareholders equity
    
    
    
    
    
    
    Preferred stock, no par value  authorized 4,000,000 shares; none issuedCommon stock, no par value  authorized 40,000,000 shares;
issued 29,748,973 shares as of June 30, 2006 and 29,612,080 as of
December 31, 2005; 993,643 shares in treasury as of December 31, 2005
    
    
    113,890
    
    
    
    112,000Additional paid-in capital
    
    
    
    
    
    
    Deferred compensation
    
    
    
    
    
    
    (759
    )Accumulated other comprehensive income, net of deferred income tax credit of
$144 at June 30, 2006 and liability of $71 as of December 31, 2005
    
    
    4,037
    
    
    
    3,448Retained earnings
    
    
    411,654
    
    
    
    418,784529,581
    
    
    
    533,473Less treasury stock, at cost
    
    
    
    
    
    
    (21,139
    )Total shareholders equity
    
    
    529,581
    
    
    
    512,334Total liabilities and shareholders equity
    
    $
    6,515,991
    
    
    $
    6,646,524
  3




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Three Months Ended June 30,2006
    
    
    2005(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    105,096
    
    
    $
    71,794Loans held for sale
    
    
    9,804
    
    
    
    9,781Residual interests
    
    
    321
    
    
    
    1,994Investment securities
    
    
    1,711
    
    
    
    1,403Federal funds sold
    
    
    21
    
    
    
    178Total interest income
    
    
    116,953
    
    
    
    85,150Interest expense:Deposits
    
    
    34,619
    
    
    
    18,124Short-term borrowings
    
    
    3,393
    
    
    
    2,555Collateralized debt
    
    
    11,596
    
    
    
    4,484Other long-term debt
    
    
    4,130
    
    
    
    4,168Total interest expense
    
    
    53,738
    
    
    
    29,331Net interest income
    
    
    63,215
    
    
    
    55,819Provision for loan and lease losses  Note 5
    
    
    6,826
    
    
    
    8,966Net interest income after provision for loan and lease losses
    
    
    56,389
    
    
    
    46,853Other income:Loan servicing fees
    
    
    10,849
    
    
    
    10,445Amortization of servicing assets  Note 6
    
    
    (6,052
    )
    
    
    (8,108
    )Recovery of servicing assets  Note 6
    
    
    409
    
    
    
    356Net loan administration income
    
    
    5,206
    
    
    
    2,693(Loss) gain from sales of loans
    
    
    (3,591
    )
    
    
    4,535Trading (losses) gains
    
    
    (492
    )
    
    
    2,316Derivative gains, net
    
    
    672
    
    
    
    248Other
    
    
    5,910
    
    
    
    5,8777,705
    
    
    
    15,669Other expense:Salaries
    
    
    28,372
    
    
    
    26,479Pension and other employee benefits
    
    
    7,627
    
    
    
    6,540Office expense
    
    
    2,190
    
    
    
    2,196Premises and equipment
    
    
    5,398
    
    
    
    5,031Marketing and development
    
    
    722
    
    
    
    1,445Professional fees
    
    
    2,444
    
    
    
    2,078Other
    
    
    4,062
    
    
    
    9,23950,815
    
    
    
    53,008Income before income taxes from continuing operations
    
    
    13,279
    
    
    
    9,514Provision for income taxes
    
    
    5,221
    
    
    
    4,245Net income from continuing operations
    
    
    8,058
    
    
    
    5,269Loss from discontinued operations, net of $3,447 and $6,364 income tax credit, respectively  Note 2
    
    
    (5,187
    )
    
    
    (8,680
    )Net income (loss)
    
    $
    2,871
    
    
    $
    (3,411
    )Earnings per share from continuing operations:  Note 11Basic
    
    $
    0.27
    
    
    $
    0.18Diluted
    
    $
    0.27
    
    
    $
    0.18Earnings per share:  Note 11Basic
    
    $
    0.10
    
    
    $
    (0.12
    )Diluted
    
    $
    0.09
    
    
    $
    (0.12
    )Dividends per share
    
    $
    0.11
    
    
    $
    0.10
  4




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Six Months Ended June 30,2006
    
    
    2005(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    202,981
    
    
    $
    137,120Loans held for sale
    
    
    21,210
    
    
    
    17,996Residual interests
    
    
    843
    
    
    
    4,333Investment securities
    
    
    3,039
    
    
    
    2,633Federal funds sold
    
    
    48
    
    
    
    228Total interest income
    
    
    228,121
    
    
    
    162,310Interest expense:Deposits
    
    
    64,299
    
    
    
    32,798Short-term borrowings
    
    
    7,499
    
    
    
    3,986Collateralized debt
    
    
    22,707
    
    
    
    8,798Other long-term debt
    
    
    9,121
    
    
    
    8,418Total interest expense
    
    
    103,626
    
    
    
    54,000Net interest income
    
    
    124,495
    
    
    
    108,310Provision for loan and lease losses  Note 5
    
    
    16,019
    
    
    
    12,447Net interest income after provision for loan and lease losses
    
    
    108,476
    
    
    
    95,863Other income:Loan servicing fees
    
    
    18,957
    
    
    
    19,763Amortization of servicing assets  Note 6
    
    
    (12,528
    )
    
    
    (14,216
    )Recovery of servicing assets  Note 6
    
    
    983
    
    
    
    267Net loan administration income
    
    
    7,412
    
    
    
    5,814(Loss) gain from sales of loans
    
    
    (823
    )
    
    
    14,087Trading (losses) gains
    
    
    (265
    )
    
    
    2,796Derivative gains, net
    
    
    3,439
    
    
    
    350Other
    
    
    11,404
    
    
    
    10,80121,167
    
    
    
    33,848Other expense:Salaries
    
    
    54,902
    
    
    
    55,473Pension and other employee benefits
    
    
    15,400
    
    
    
    13,919Office expense
    
    
    4,284
    
    
    
    4,185Premises and equipment
    
    
    10,394
    
    
    
    10,801Marketing and development
    
    
    1,390
    
    
    
    2,774Professional fees
    
    
    4,818
    
    
    
    5,488Other
    
    
    11,966
    
    
    
    15,807103,154
    
    
    
    108,447Income before income taxes from continuing operations
    
    
    26,489
    
    
    
    21,264Provision for income taxes
    
    
    9,955
    
    
    
    8,764Net income from continuing operations
    
    
    16,534
    
    
    
    12,500Loss from discontinued operations, net of $10,330 and $12,488 income tax credit, respectively  Note 2
    
    
    (15,521
    )
    
    
    (18,457
    )Net income (loss)
    
    $
    1,013
    
    
    $
    (5,957
    )Earnings per share from continuing operations:  Note 11Basic
    
    $
    0.56
    
    
    $
    0.44Diluted
    
    $
    0.56
    
    
    $
    0.43Earnings per share:  Note 11Basic
    
    $
    0.03
    
    
    $
    (0.21
    )Diluted
    
    $
    0.03
    
    
    $
    (0.21
    )Dividends per share
    
    $
    0.22
    
    
    $
    0.20
  5




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Three Months Ended June 30, 2006, and 2005
 Accumulated Other Comprehensive IncomeMinimum
    
    
    
    
    
    
    AdditionalRetained
    
    
    Foreign
    
    
    Unrealized Gain/Loss
    
    
    SERP
    
    
    Deferred
    
    
    Paid in
    
    
    Common
    
    
    TreasuryTotal
    
    
    Earnings
    
    
    Currency
    
    
    Securities
    
    
    Derivatives
    
    
    Liability
    
    
    Compensation
    
    
    Capital
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at April 1, 2006
    
    $
    527,693
    
    
    $
    411,274
    
    
    $
    3,188
    
    
    $
    (492
    )
    
    $
    748
    
    
    $
    (274
    )
    
    $
    
    
    
    $
    
    
    
    $
    113,249
    
    
    $
    Net income
    
    
    2,871
    
    
    
    2,871Unrealized loss on investment
securities net of $170 tax
benefit
    
    
    (255
    )
    
    
    
    
    
    
    
    
    
    
    (255
    )Unrealized loss on derivative
net of $34 tax benefit
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51
    )Foreign currency adjustment
    
    
    1,173
    
    
    
    
    
    
    
    1,173Other comprehensive
income
    
    
    867Total comprehensive income
    
    
    3,738Deferred compensation
    
    
    (77
    )
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends
    
    
    (3,273
    )
    
    
    (3,273
    )Tax benefit on stock option
exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock option expense
    
    
    854
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854Stock:Purchase of 1,253 shares
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Sales of 35,231 shares
    
    
    671
    
    
    
    859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (854
    )
    
    
    641
    
    
    
    25Balance at June 30, 2006
    
    $
    529,581
    
    
    $
    411,654
    
    
    $
    4,361
    
    
    $
    (747
    )
    
    $
    697
    
    
    $
    (274
    )
    
    $
    
    
    
    $
    
    
    
    $
    113,890
    
    
    $
    Balance at April 1, 2005
    
    $
    496,221
    
    
    $
    406,406
    
    
    $
    2,527
    
    
    $
    (237
    )
    
    $
    
    
    
    $
    (254
    )
    
    $
    (679
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (23,542
    )Net loss
    
    
    (3,411
    )
    
    
    (3,411
    )Unrealized gain on investment
securities net of $110 tax
liability
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    165Unrealized gain on derivative
net of $19 tax liability
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29Foreign currency adjustment
    
    
    (208
    )
    
    
    
    
    
    
    (208
    )Other comprehensive loss
    
    
    (14
    )Total comprehensive loss
    
    
    (3,425
    )Deferred compensation
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Cash dividends
    
    
    (2,855
    )
    
    
    (2,855
    )Tax benefit on stock option
exercises
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Treasury stock:Purchase of 7,240 shares
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )Sales of 40,824 shares
    
    
    758
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    940Balance at June 30, 2005
    
    $
    490,576
    
    
    $
    399,986
    
    
    $
    2,319
    
    
    $
    (72
    )
    
    $
    29
    
    
    $
    (254
    )
    
    $
    (677
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (22,755
    )
  6




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Six Months Ended June 30, 2006, and 2005
 Accumulated Other Comprehensive IncomeMinimum
    
    
    
    
    
    
    AdditionalRetained
    
    
    Foreign
    
    
    Unrealized Gain/Loss
    
    
    SERP
    
    
    Deferred
    
    
    Paid in
    
    
    Common
    
    
    TreasuryTotal
    
    
    Earnings
    
    
    Currency
    
    
    Securities
    
    
    Derivatives
    
    
    Liability
    
    
    Compensation
    
    
    Capital
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at January 1, 2006
    
    $
    512,334
    
    
    $
    418,784
    
    
    $
    3,341
    
    
    $
    (373
    )
    
    $
    754
    
    
    $
    (274
    )
    
    $
    (759
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (21,139
    )Net income
    
    
    1,013
    
    
    
    1,013Unrealized loss on investment
securities net of $249 tax
benefit
    
    
    (374
    )
    
    
    
    
    
    
    
    
    
    
    (374
    )Unrealized loss on derivative
net of $37 tax benefit
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Foreign currency adjustment
    
    
    1,020
    
    
    
    
    
    
    
    1,020Other comprehensive
income
    
    
    589Total comprehensive income
    
    
    1,602Deferred compensation
    
    
    (87
    )
    
    
    (846
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759Cash dividends
    
    
    (6,541
    )
    
    
    (6,541
    )Tax benefit on stock option
exercises
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Stock option expense
    
    
    1,107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,107Stock:Purchase of 49,556 shares
    
    
    (975
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (975
    )Sales of 1,180,092 shares
    
    
    21,822
    
    
    
    (756
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,426
    )
    
    
    1,890
    
    
    
    22,114Balance at June 30, 2006
    
    $
    529,581
    
    
    $
    411,654
    
    
    $
    4,361
    
    
    $
    (747
    )
    
    $
    697
    
    
    $
    (274
    )
    
    $
    
    
    
    $
    
    
    
    $
    113,890
    
    
    $
    Balance at January 1, 2005
    
    $
    501,185
    
    
    $
    412,027
    
    
    $
    2,648
    
    
    $
    60
    
    
    $
    
    
    
    $
    (254
    )
    
    $
    (660
    )
    
    $
    383
    
    
    $
    112,000
    
    
    $
    (25,019
    )Net loss
    
    
    (5,957
    )
    
    
    (5,957
    )Unrealized loss on investment
securities net of $87 tax
benefit
    
    
    (131
    )
    
    
    
    
    
    
    
    
    
    
    (132
    )Unrealized gain on derivative
net of $19 tax liability
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29Foreign currency adjustment
    
    
    (329
    )
    
    
    
    
    
    
    (329
    )Other comprehensive loss
    
    
    (432
    )Total comprehensive loss
    
    
    (6,389
    )Deferred compensation
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Cash dividends
    
    
    (5,706
    )
    
    
    (5,706
    )Tax benefit on stock option
exercises
    
    
    527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    527Treasury stock:Purchase of 44,379 shares
    
    
    (1,061
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,061
    )Sales of 144,615 shares
    
    
    2,037
    
    
    
    (378
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (910
    )
    
    
    
    
    
    
    3,325Balance at June 30, 2005
    
    $
    490,576
    
    
    $
    399,986
    
    
    $
    2,319
    
    
    $
    (72
    )
    
    $
    29
    
    
    $
    (254
    )
    
    $
    (677
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (22,755
    )
  7




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended June 30,2006
    
    
    2005(Dollars in thousands)Income from continuing operations, net of taxes
    
    
    16,534
    
    
    
    12,500Loss from discontinued operations, net of taxes
    
    
    (15,521
    )
    
    
    (18,457
    )Net income
    
    $
    1,013
    
    
    $
    (5,957
    )Adjustments to reconcile net income to cash provided (used)
by operating activities:Depreciation, amortization, and accretion, net
    
    
    3,229
    
    
    
    5,962Amortization and (recovery) impairment of servicing assets
    
    
    30,663
    
    
    
    71,570Provision for loan and lease losses
    
    
    16,048
    
    
    
    12,163Gain on sale of mortgage servicing assets
    
    
    
    
    
    
    (6,656
    )Gain from sales of loans and loans held for sale
    
    
    (32,333
    )
    
    
    (56,062
    )Originations and purchases of loans held for sale
    
    
    (5,063,058
    )
    
    
    (6,474,996
    )Proceeds from sales and repayments of loans held for sale
    
    
    5,573,814
    
    
    
    6,329,058Proceeds from sale of mortgage servicing assets
    
    
    
    
    
    
    59,424Net decrease in residuals
    
    
    8,210
    
    
    
    11,979Net decrease (increase) in accounts receivable
    
    
    50,136
    
    
    
    (28,632
    )Other, net
    
    
    (40,416
    )
    
    
    (55,801
    )Net cash provided (used) by operating activities
    
    
    547,306
    
    
    
    (137,948
    )Lending and investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    895
    
    
    
    274Available-for-sale
    
    
    1,810
    
    
    
    2,712Purchase of investment securities:Held-to-maturity
    
    
    (1,426
    )
    
    
    Available-for-sale
    
    
    (13,184
    )
    
    
    (2,751
    )Net decrease (increase) in interest-bearing deposits
    
    
    855
    
    
    
    (19,102
    )Net increase in loans, excluding sales
    
    
    (463,668
    )
    
    
    (652,444
    )Proceeds from sale of loans
    
    
    26,062
    
    
    
    21,271Other, net
    
    
    (5,938
    )
    
    
    (4,429
    )Net cash used by lending and investing activities
    
    
    (454,594
    )
    
    
    (654,469
    )Financing activities:Net (decrease) increase in deposits
    
    
    (30,640
    )
    
    
    445,700Net (decrease) increase in short-term borrowings
    
    
    (243,564
    )
    
    
    165,214Proceeds from issuance of long term debt
    
    
    31,500
    
    
    
    Repayments of long-term debt
    
    
    (32,116
    )
    
    
    (6
    )Proceeds from issuance of collateralized borrowings
    
    
    351,325
    
    
    
    425,154Repayments of collateralized borrowings
    
    
    (166,109
    )
    
    
    (162,958
    )Tax benefit on stock option exercises
    
    
    319
    
    
    
    Purchase of treasury stock for employee benefit plans
    
    
    (975
    )
    
    
    (1,061
    )Proceeds from sale of stock for employee benefit plans
    
    
    2,745
    
    
    
    2,037Dividends paid
    
    
    (6,541
    )
    
    
    (5,706
    )Net cash (used) provided by financing activities
    
    
    (94,056
    )
    
    
    868,374Effect of exchange rate changes on cash
    
    
    538
    
    
    
    358Net (decrease) increase in cash and cash equivalents
    
    
    (806
    )
    
    
    76,315Cash and cash equivalents at beginning of period
    
    
    155,486
    
    
    
    97,101Cash and cash equivalents at end of period
    
    $
    154,680
    
    
    $
    173,416Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    115,450
    
    
    $
    58,552Income taxes paid
    
    $
    21,231
    
    
    $
    4,366Noncash transactions:Liability for loans held for sale eligible for repurchase
    
    $
    2,011
    
    
    $
    17,346Other real estate owned
    
    $
    4,437
    
    
    $
    6,450Conversion of trust preferred to common stock
    
    $
    20,184
    
    
    $
    
  8




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Accounting Policies, Management Judgments and Accounting Estimates
 Consolidation:
  Use of Estimates:
 Cash and Cash Equivalents Defined:
 Residual Interests:
 Allowance for Loan and Lease Losses:
  9




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##### Table of Contents



Servicing Assets:
  Incentive Servicing Fees:
 Income Taxes:
 Recent Accounting Developments:
  Accounting for Income Taxes.
 10




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##### Table of Contents



Reclassifications:
 Note 2  Discontinued Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net revenues
    
    $
    23,151
    
    
    $
    11,864
    
    
    $
    32,343
    
    
    $
    37,638Other expense
    
    
    (31,785
    )(1)
    
    
    (26,908
    )
    
    
    (58,194
    )(1)
    
    
    (68,583
    )Loss before income taxes
    
    
    (8,634
    )
    
    
    (15,044
    )
    
    
    (25,851
    )
    
    
    (30,945
    )Income taxes
    
    
    3,447
    
    
    
    6,364
    
    
    
    10,330
    
    
    
    12,488Net loss from discontinued operations
    
    $
    (5,187
    )
    
    $
    (8,680
    )
    
    $
    (15,521
    )
    
    $
    (18,457
    )
 June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Cash
    
    $
    62
    
    
    $
    69Interest bearing deposits
    
    
    4,270
    
    
    
    5,920Loans held for sale
    
    
    611,671
    
    
    
    779,966Loans, net of allowance for loan loss
    
    
    18,683
    
    
    
    20,359Net servicing asset
    
    
    285,591
    
    
    
    261,309Accounts receivable
    
    
    22,940
    
    
    
    28,264Other assets
    
    
    14,484
    
    
    
    23,026Assets held for sale
    
    $
    957,701
    
    
    $
    1,118,913Liabilities held for sale
    
    $
    86,863
    
    
    $
    87,836
 
 (1)
    
    Included in other expense is $5.7 million of costs related to the planned
sale of the segment.  11




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##### Table of Contents



Note 3  Restructuring
  Three Months Ended June 30,2006(Dollars in thousands)Salaries
    
    $
    3,596Other expense
    
    
    340Total
    
    $
    3,936
 Note 4  Loans and Leases
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,107,357
    
    
    $
    2,016,228Real estate-construction
    
    
    409,029
    
    
    
    379,831Real estate-mortgage
    
    
    1,410,942
    
    
    
    1,232,958Consumer
    
    
    30,153
    
    
    
    31,718Commercial financingFranchise financing
    
    
    568,166
    
    
    
    462,413Domestic leasing
    
    
    276,002
    
    
    
    237,968Canadian leasing
    
    
    355,532
    
    
    
    313,581Unearned incomeFranchise financing
    
    
    (164,779
    )
    
    
    (125,474
    )Domestic leasing
    
    
    (39,313
    )
    
    
    (33,267
    )Canadian leasing
    
    
    (43,159
    )
    
    
    (38,013
    )Total
    
    $
    4,909,930
    
    
    $
    4,477,943
 Note 5  Allowance for Loan and Lease Losses
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    59,223
    
    
    $
    43,441Provision for loan and lease losses
    
    
    16,019
    
    
    
    27,307Charge-offs
    
    
    (13,843
    )
    
    
    (20,201
    )Recoveries
    
    
    5,371
    
    
    
    8,960Addition (reduction) due to reclassification or sale of loans
    
    
    5
    
    
    
    (403
    )Foreign currency adjustment
    
    
    146
    
    
    
    119Balance at end of period
    
    $
    66,921
    
    
    $
    59,223
 12




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##### Table of Contents



Note 6  Servicing Assets
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Beginning balance
    
    $
    295,754
    
    
    $
    367,032Additions
    
    
    53,808
    
    
    
    74,731Amortization
    
    
    (39,553
    )
    
    
    (100,322
    )Recovery of impairment
    
    
    8,890
    
    
    
    19,625Reduction for servicing sales
    
    
    
    
    
    
    (65,312
    )318,899
    
    
    
    295,754Less servicing asset from discontinued operations
    
    
    285,591
    
    
    
    261,309Mortgage servicing asset from continuing operations
    
    $
    33,308
    
    
    $
    34,445
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    27,243
    
    
    $
    54,134Recovery of impairment
    
    
    (8,890
    )
    
    
    (19,625
    )Reclass for sales of servicing and clean up calls
    
    
    (13
    )
    
    
    (154
    )Other than temporary impairment (1)
    
    
    
    
    
    
    (7,112
    )Balance at end of period
    
    
    18,340
    
    
    
    27,243Less valuation allowance from discontinued operations
    
    
    18,184
    
    
    
    26,091Valuation allowance from continuing operations
    
    $
    156
    
    
    $
    1,152
 
 (1)
    
    Other than temporary impairment was recorded to reflect our view that the originally recorded
value of certain servicing rights and subsequent impairment associated with those rights is
unlikely to be recovered in market value. There was no related direct impact on net income as
this other than temporary impairment affected only balance sheet accounts. However, the
write-down will result in a reduction of amortization expense and potentially reduced recovery
of impairment in future periods. Note 7  Short-Term Borrowings
  June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    609,411
    
    
    $
    641,785Drafts payable related to mortgage loan closings
    
    
    61,736
    
    
    
    64,278Lines of credit and other
    
    
    4,133
    
    
    
    1,081Federal funds
    
    
    78,600
    
    
    
    290,300Total
    
    $
    753,880
    
    
    $
    997,444Weighted average interest rate
    
    
    4.74
    %
    
    
    3.05
    %
 13




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##### Table of Contents



Note 8  Collateralized Debt
  WeightedAverageInterest Rate atJune 30,
    
    June 30,
    
    December 31,Maturity
    
    2006
    
    2006
    
    2005(Dollars in thousands)Commercial finance line of businessDomestic asset backed note
    
    
    5/2010
    
    
    
    5.1
    
    
    $
    8,739
    
    
    $
    13,600Canadian asset backed notes:Note 1
    
    revolving
    
    
    
    5.5
    
    
    
    28,273
    
    
    
    32,385Note 2
    
    
    4/2010
    
    
    
    3.8
    
    
    
    180,047
    
    
    
    155,544Note 3
    
    
    10/2009
    
    
    
    4.5
    
    
    
    11,808
    
    
    
    14,839Home equity line of business2004-1 asset backed notes:Variable rate senior note
    
    
    12/2024-12/2034
    
    
    
    5.4
    
    
    
    84,515
    
    
    
    132,692Variable rate subordinate note
    
    
    12/2034
    
    
    
    6.3
    
    
    
    24,775
    
    
    
    24,7752005-1 asset backed notes:Variable rate senior note
    
    
    6/2025-6/2035
    
    
    
    5.3
    
    
    
    85,281
    
    
    
    138,244Fixed rate senior note
    
    
    6/2035
    
    
    
    5.0
    
    
    
    94,129
    
    
    
    94,129Variable rate subordinate note
    
    
    6/2035
    
    
    
    6.9
    
    
    
    10,785
    
    
    
    10,785Fixed rate subordinate note
    
    
    6/2035
    
    
    
    5.6
    
    
    
    52,127
    
    
    
    52,127Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (110
    )
    
    
    (136
    )2006-1 asset backed notes:Variable rate senior note
    
    
    9/2035
    
    
    
    5.3
    
    
    
    153,063
    
    
    
    Fixed rate senior note
    
    
    9/2035
    
    
    
    5.5
    
    
    
    96,561
    
    
    
    Fixed rate lockout senior note
    
    
    9/2035
    
    
    
    5.6
    
    
    
    24,264
    
    
    
    Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    854,233
    
    
    $
    668,984
 Note 9  Long-term Debt
  14




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##### Table of Contents



Note 10  Employee Retirement Plans
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Service cost
    
    $
    867
    
    
    $
    747
    
    
    $
    1,862
    
    
    $
    1,428Interest cost
    
    
    551
    
    
    
    455
    
    
    
    1,038
    
    
    
    871Expected return on plan assets
    
    
    (523
    )
    
    
    (510
    )
    
    
    (1,126
    )
    
    
    (956
    )Amortization of prior service
cost
    
    
    9
    
    
    
    10
    
    
    
    19
    
    
    
    19Amortization of actuarial loss
    
    
    176
    
    
    
    179
    
    
    
    435
    
    
    
    343Net periodic benefit cost
    
    $
    1,080
    
    
    $
    881
    
    
    $
    2,228
    
    
    $
    1,705
  Note 11  Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30, 2006Basic
    
    
    
    
    
    
    Diluted
    
    
    Basic
    
    
    
    
    
    
    DilutedEarnings
    
    
    Effect of
    
    
    Earnings
    
    
    Earnings
    
    
    Effect of
    
    
    EarningsPer Share
    
    
    Stock Options
    
    
    Per Share
    
    
    Per Share
    
    
    Stock Options
    
    
    Per Share(Dollars in thousands, except per share amounts)Net income (loss) available to common
shareholders:From Continuing Operations
    
    $
    8,058
    
    
    $
    (71
    )
    
    $
    7,987
    
    
    $
    16,534
    
    
    $
    (140
    )
    
    $
    16,394From Discontinued Operations
    
    
    (5,187
    )
    
    
    
    
    
    
    (5,187
    )
    
    
    (15,521
    )
    
    
    
    
    
    
    (15,521
    )Total Net Income for All Operations
    
    
    2,871
    
    
    
    (71
    )
    
    
    2,800
    
    
    
    1,013
    
    
    
    (140
    )
    
    
    873Shares
    
    
    29,694
    
    
    
    168
    
    
    
    29,862
    
    
    
    29,318
    
    
    
    190
    
    
    
    29,508Per-share from Continuing Operations
    
    $
    0.27
    
    
    $
    
    
    
    $
    0.27
    
    
    $
    0.56
    
    
    $
    
    
    
    $
    0.56Per-share amount for All Operations
    
    $
    0.10
    
    
    $
    (0.01
    )
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    
    
    
    $
    0.03
 Three Months Ended
    
    
    Six Months EndedJune 30, 2005Basic
    
    
    
    
    
    
    Diluted
    
    
    Basic
    
    
    
    
    
    
    DilutedEarnings
    
    
    Effect of
    
    
    Earnings
    
    
    Earnings
    
    
    Effect of
    
    
    EarningsPer Share
    
    
    Stock Options
    
    
    Per Share
    
    
    Per Share
    
    
    Stock Options
    
    
    Per Share(Dollars in thousands, except per share amounts)Net income (loss) available to common
shareholders:From Continuing Operations
    
    $
    5,269
    
    
    $
    
    
    
    $
    5,269
    
    
    $
    12,500
    
    
    $
    
    
    
    $
    12,500From Discontinued Operations
    
    
    (8,680
    )
    
    
    
    
    
    
    (8,680
    )
    
    
    (18,457
    )
    
    
    
    
    
    
    (18,457
    )Total Net Loss for All Operations
    
    
    (3,411
    )
    
    
    
    
    
    
    (3,411
    )
    
    
    (5,957
    )
    
    
    
    
    
    
    (5,957
    )Shares
    
    
    28,506
    
    
    
    240
    
    
    
    28,746
    
    
    
    28,482
    
    
    
    288
    
    
    
    28,770Per-share from Continuing Operations
    
    $
    0.18
    
    
    $
    
    
    
    $
    0.18
    
    
    $
    0.44
    
    
    $
    (0.01
    )
    
    $
    0.43Per-share amount for All Operations
    
    $
    (0.12
    )
    
    $
    
    
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    
    
    
    $
    (0.21
    )
  15




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##### Table of Contents



Note 12  Equity Based Compensation
    June 30, 2006WeightedNumber of
    
    
    average grantShares
    
    
    date fair valueUnvested at the
beginning of the year
    
    
    41,726
    
    
    $
    22.45Awarded
    
    
    18,518
    
    
    
    18.98Vested
    
    
    (10,155
    )
    
    
    20.69Forfeited
    
    
    (1,666
    )
    
    
    17.98Unvested at the end of the period
    
    
    48,423
    
    
    $
    21.65
   16




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##### Table of Contents



Six Months Ended June 30,2006
    
    2005Risk-free interest rates
    
    
    4.93
    %
    
    
    3.94
    %Dividend yield
    
    
    2.41
    %
    
    
    1.75
    %Expected volatility
    
    
    32
    %
    
    
    35
    %Expected lives (in years)
    
    
    6
    
    
    
    6
  June 30, 2006WeightedWeighted
    
    
    averageaverage
    
    
    remainingNumber of
    
    
    exercise
    
    
    contractual
    
    
    AggregateShares
    
    
    price
    
    
    term
    
    
    Intrinsic ValueOutstanding at the
beginning of the year
    
    
    2,441,771
    
    
    $
    20.55Granted
    
    
    419,109
    
    
    
    18.23Exercised
    
    
    (112,919
    )
    
    
    12.76CancelledForfeited
    
    
    (11,563
    )
    
    
    20.54Expired
    
    
    (24,254
    )
    
    
    26.77Outstanding at the end of the period
    
    
    2,712,144
    
    
    
    20.46
    
    
    
    6.60
    
    
    $
    2,658,461Exercisable at the end of the period
    
    
    2,212,384
    
    
    $
    20.75
    
    
    
    5.96
    
    
    $
    2,268,114
  Three Months Ended June 30,
    
    Six Months Ended June 30,2006
    
    2006Impact of
    
    
    
    
    
    Impact ofAdopting SFAS
    
    
    
    
    
    Adopting SFASAs Reported
    
    123(R)
    
    As Reported
    
    123(R)(Dollars in thousands, except per share amounts)Net income from Continuing Operations before taxes
    
    $
    13,279
    
    
    $
    (867
    )
    
    $
    26,489
    
    
    $
    (1,131
    )Net income from Continuing Operations
    
    
    8,058
    
    
    
    (520
    )
    
    
    16,534
    
    
    
    (679
    )Net Income
    
    
    2,871
    
    
    
    (530
    )
    
    
    1,013
    
    
    
    (701
    )Basic earnings per shareFrom Continuing Operations
    
    $
    0.27
    
    
    $
    (0.02
    )
    
    $
    0.56
    
    
    $
    (0.02
    )From All Operations
    
    
    0.10
    
    
    
    (0.02
    )
    
    
    0.03
    
    
    
    (0.02
    )Diluted earnings per shareFrom Continuing Operations
    
    $
    0.27
    
    
    $
    (0.02
    )
    
    $
    0.56
    
    
    $
    (0.02
    )From All Operations
    
    
    0.09
    
    
    
    (0.02
    )
    
    
    0.03
    
    
    
    (0.02
    )
  17




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2005(Dollars in thousands, except per share amounts)Net income from continuing operations as reported
    
    $
    5,269
    
    
    $
    12,500Equity based compensation expense included in net
earnings, net of tax
    
    $
    79
    
    
    $
    160Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (622
    )
    
    
    (1,233
    )Net income from continuing operations pro forma
    
    
    4,726
    
    
    
    11,427Net loss from discontinued operations
    
    
    (8,680
    )
    
    
    (18,457
    )Pro forma net income
    
    $
    (3,954
    )
    
    $
    (7,030
    )Basic earnings per share from continuing operationsAs reported
    
    $
    0.18
    
    
    $
    0.44Pro forma
    
    $
    0.17
    
    
    $
    0.40Basic earnings per shareAs reported
    
    $
    (0.12
    )
    
    $
    (0.21
    )Pro forma
    
    $
    (0.14
    )
    
    $
    (0.25
    )Diluted earnings per share continuing operationsAs reported
    
    $
    0.18
    
    
    $
    0.43Pro forma
    
    $
    0.16
    
    
    $
    0.40Diluted earnings per shareAs reported
    
    $
    (0.12
    )
    
    $
    (0.21
    )Pro forma
    
    $
    (0.14
    )
    
    $
    (0.24
    )
 Note 13  Industry Segment Information
   18




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##### Table of Contents



ConsolidatedCommercial
    
    
    Commercial
    
    
    Home Equity
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Discontinued
    
    
    ContinuingBanking
    
    
    Finance
    
    
    Lending
    
    
    Banking(1)
    
    
    Other
    
    
    Consolidated
    
    
    Operations(1)
    
    
    Operations(Dollars in thousands)Three Months Ended
June 30, 2006Net interest income
    
    $
    26,753
    
    
    $
    15,262
    
    
    $
    29,817
    
    
    $
    (1,814
    )
    
    $
    (5,529
    )
    
    $
    64,489
    
    
    $
    8,100
    
    
    $
    56,389Intersegment interest
    
    
    3,321
    
    
    
    (6,940
    )
    
    
    (10,597
    )
    
    
    9,914
    
    
    
    4,302
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    4,593
    
    
    
    1,999
    
    
    
    3,580
    
    
    
    14,990
    
    
    
    (2,406
    )
    
    
    22,756
    
    
    
    15,051
    
    
    
    7,705Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    34,667
    
    
    
    10,321
    
    
    
    22,800
    
    
    
    23,151
    
    
    
    (3,694
    )
    
    
    87,245
    
    
    
    23,151
    
    
    
    64,094Other expense
    
    
    20,898
    
    
    
    5,421
    
    
    
    22,628
    
    
    
    31,540
    
    
    
    2,113
    
    
    
    82,600
    
    
    
    31,785
    
    
    
    50,815Intersegment expenses
    
    
    687
    
    
    
    289
    
    
    
    791
    
    
    
    245
    
    
    
    (2,012
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss)
before taxes
    
    
    13,082
    
    
    
    4,611
    
    
    
    (619
    )
    
    
    (8,634
    )
    
    
    (3,795
    )
    
    
    4,645
    
    
    
    (8,634
    )
    
    
    13,279Income taxes
    
    
    5,230
    
    
    
    1,679
    
    
    
    (238
    )
    
    
    (3,447
    )
    
    
    (1,450
    )
    
    
    1,774
    
    
    
    (3,447
    )
    
    
    5,221Net income (loss)
    
    $
    7,852
    
    
    $
    2,932
    
    
    $
    (381
    )
    
    $
    (5,187
    )
    
    $
    (2,345
    )
    
    $
    2,871
    
    
    $
    (5,187
    )
    
    $
    8,058Three Months Ended
June 30, 2005Net interest income
    
    $
    22,401
    
    
    $
    7,129
    
    
    $
    22,294
    
    
    $
    10,411
    
    
    $
    (6,262
    )
    
    $
    55,973
    
    
    $
    9,120
    
    
    $
    46,853Intersegment interest
    
    
    3,001
    
    
    
    (412
    )
    
    
    (7,282
    )
    
    
    (1,291
    )
    
    
    5,984
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    3,742
    
    
    
    1,351
    
    
    
    9,838
    
    
    
    2,710
    
    
    
    772
    
    
    
    18,413
    
    
    
    2,744
    
    
    
    15,669Intersegment revenues
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    (98
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    29,208
    
    
    
    8,068
    
    
    
    24,850
    
    
    
    11,864
    
    
    
    396
    
    
    
    74,386
    
    
    
    11,864
    
    
    
    62,522Other expense
    
    
    19,416
    
    
    
    5,453
    
    
    
    24,981
    
    
    
    26,849
    
    
    
    3,217
    
    
    
    79,916
    
    
    
    26,908
    
    
    
    53,008Intersegment expenses
    
    
    428
    
    
    
    193
    
    
    
    747
    
    
    
    861
    
    
    
    (2,229
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss)
before taxes
    
    
    9,364
    
    
    
    2,422
    
    
    
    (878
    )
    
    
    (15,846
    )
    
    
    (592
    )
    
    
    (5,530
    )
    
    
    (15,044
    )
    
    
    9,514Income taxes
    
    
    3,750
    
    
    
    993
    
    
    
    (341
    )
    
    
    (6,685
    )
    
    
    164
    
    
    
    (2,119
    )
    
    
    (6,364
    )
    
    
    4,245Net income (loss)
    
    $
    5,614
    
    
    $
    1,429
    
    
    $
    (537
    )
    
    $
    (9,161
    )
    
    $
    (756
    )
    
    $
    (3,411
    )
    
    $
    (8,680
    )
    
    $
    5,269
 ConsolidatedCommercial
    
    
    Commercial
    
    
    Home Equity
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Discontinued
    
    
    ContinuingBanking
    
    
    Finance
    
    
    Lending
    
    
    Banking(1)
    
    
    Other
    
    
    Consolidated
    
    
    Operations(1)
    
    
    Operations(Dollars in thousands)Six Months Ended
June 30, 2006Net interest income
    
    $
    53,264
    
    
    $
    29,781
    
    
    $
    56,653
    
    
    $
    (3,475
    )
    
    $
    (12,413
    )
    
    $
    123,810
    
    
    $
    15,334
    
    
    $
    108,476Intersegment interest
    
    
    5,196
    
    
    
    (12,931
    )
    
    
    (20,318
    )
    
    
    18,809
    
    
    
    9,244
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    8,862
    
    
    
    4,149
    
    
    
    10,968
    
    
    
    16,757
    
    
    
    (2,560
    )
    
    
    38,176
    
    
    
    17,009
    
    
    
    21,167Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252
    
    
    
    (252
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    67,322
    
    
    
    20,999
    
    
    
    47,303
    
    
    
    32,343
    
    
    
    (5,981
    )
    
    
    161,986
    
    
    
    32,343
    
    
    
    129,643Other expense
    
    
    41,685
    
    
    
    11,094
    
    
    
    44,483
    
    
    
    57,949
    
    
    
    6,137
    
    
    
    161,348
    
    
    
    58,194
    
    
    
    103,154Intersegment expenses
    
    
    1,371
    
    
    
    554
    
    
    
    1,707
    
    
    
    245
    
    
    
    (3,877
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before
taxes
    
    
    24,266
    
    
    
    9,351
    
    
    
    1,113
    
    
    
    (25,851
    )
    
    
    (8,241
    )
    
    
    638
    
    
    
    (25,851
    )
    
    
    26,489Income taxes
    
    
    9,652
    
    
    
    3,528
    
    
    
    460
    
    
    
    (10,330
    )
    
    
    (3,685
    )
    
    
    (375
    )
    
    
    (10,330
    )
    
    
    9,955Net income (loss)
    
    $
    14,614
    
    
    $
    5,823
    
    
    $
    653
    
    
    $
    (15,521
    )
    
    $
    (4,556
    )
    
    $
    1,013
    
    
    $
    (15,521
    )
    
    $
    16,534Assets at
June 30, 2006
    
    $
    3,004,403
    
    
    $
    969,876
    
    
    $
    1,398,377
    
    
    $
    1,099,965
    
    
    $
    43,370
    
    
    $
    6,515,991Six Months Ended
June 30, 2005Net interest income
    
    $
    44,303
    
    
    $
    13,067
    
    
    $
    47,305
    
    
    $
    20,217
    
    
    $
    (11,997
    )
    
    $
    112,895
    
    
    $
    17,032
    
    
    $
    95,863Intersegment interest
    
    
    4,659
    
    
    
    (847
    )
    
    
    (12,231
    )
    
    
    (3,185
    )
    
    
    11,604
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    8,057
    
    
    
    3,259
    
    
    
    22,363
    
    
    
    20,548
    
    
    
    227
    
    
    
    54,454
    
    
    
    20,606
    
    
    
    33,848Intersegment revenues
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    (188
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    57,149
    
    
    
    15,479
    
    
    
    57,437
    
    
    
    37,638
    
    
    
    (354
    )
    
    
    167,349
    
    
    
    37,638
    
    
    
    129,711Other expense
    
    
    37,742
    
    
    
    11,447
    
    
    
    53,422
    
    
    
    68,486
    
    
    
    5,933
    
    
    
    177,030
    
    
    
    68,583
    
    
    
    108,447Intersegment expenses
    
    
    857
    
    
    
    385
    
    
    
    1,473
    
    
    
    1,702
    
    
    
    (4,417
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before
taxes
    
    
    18,550
    
    
    
    3,647
    
    
    
    2,542
    
    
    
    (32,550
    )
    
    
    (1,870
    )
    
    
    (9,681
    )
    
    
    (30,945
    )
    
    
    21,264Income taxes
    
    
    7,467
    
    
    
    1,522
    
    
    
    1,034
    
    
    
    (13,130
    )
    
    
    (617
    )
    
    
    (3,724
    )
    
    
    (12,488
    )
    
    
    8,764Net income (loss)
    
    $
    11,083
    
    
    $
    2,125
    
    
    $
    1,508
    
    
    $
    (19,420
    )
    
    $
    (1,253
    )
    
    $
    (5,957
    )
    
    $
    (18,457
    )
    
    $
    12,500Assets at
June 30, 2005
    
    $
    3,031,659
    
    
    $
    711,355
    
    
    $
    1,395,869
    
    
    $
    1,298,455
    
    
    $
    (358,222
    )
    
    $
    6,079,116
 19




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##### Table of Contents



(1)
    
    The amounts in the table above do not perfectly correspond with the amounts in our line of
business reporting of the mortgage banking line of business for 2005. On the income statement
accounts, the three and six months ending June 30, 2005 mortgage banking segment results
include a management fee charged by the parent to the mortgage banking business totaling $0.5
million and $1.0 million, net of tax, respectively. Under Emerging Issues Task Force statement
number 87-24 (EITF 87-24), corporate overhead charges must be reclassified out of the
discontinued operations presentation. As a result of EITF 87-24, there were no management fee
charges to the mortgage bank during 2006. In addition, the assets held for sale category on
the consolidated balance sheet does not agree with the mortgage banks total assets under
segment reporting as certain assets are unlikely to be included in the future sale including,
but not limited to, Federal Home Loan Bank of Indianapolis (FHLBI) stock, FHLBI lender risk
account and cash. Note 14  Commitments and Contingencies
 Culpepper v. Inland Mortgage Corporation
    Silke v. Irwin Mortgage Corporation
  Cohens v. Inland Mortgage Corporation
  20




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##### Table of Contents



Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia
  Hobson v. Irwin Union Bank and Trust Company Hobson Hobson Hobson
 Kossler v. Community Bank of Northern Virginia Kossler Kossler Kossler
 Hobson Kossler Hobson Hobson
 Hobson Kossler Hobson Hobson Kossler
 (Chatfield v. Irwin Union Bank and Trust Company, et al. Ransom v. Irwin
Union Bank and Trust Company, et al.)
 Hobson,
Chatfield Ransom.
 Hobson, Chatfield Ransom Kossler
 Putkowski v. Irwin Home Equity Corporation and Irwin Union Bank and Trust Company
  21




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##### Table of Contents



White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation
 (White v. Irwin Union Bank & Trust, et al.).
  22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 About Forward-looking Statements
   
    
    our projected revenues, earnings or earnings per share, as well as managements
short-term and long-term performance goals;
    
    projected trends or potential changes in our asset quality, loan delinquencies,
charge-offs, reserves, asset valuations, capital ratios or financial performance measures;
    
    our plans and strategies, including the expected results or impact of implementing such plans and strategies;
    
    potential litigation developments and the anticipated impact of potential outcomes of pending legal matters;
    
    the anticipated effects on results of operations or financial condition from recent developments or events; and
    
    any other projections or expressions that are not historical facts.
   
    
    potential changes in direction, volatility and relative movement (basis risk) of interest
rates, which may affect consumer demand for our products and the management and success of
our interest rate risk management strategies;
    
    staffing fluctuations in response to product demand or the implementation of corporate
strategies that affect our work force;
    
    the relative profitability of our lending operations;
    
    the valuation and management of our residual, servicing and derivative portfolios,
including assumptions we embed in the valuation and short-term swings in valuation of such
portfolios due to quarter-end movements in secondary market interest rates, which are
inherently volatile;
    
    borrowers refinancing opportunities, which may affect the prepayment assumptions used in
our valuation estimates and which may affect loan demand;
    
    unanticipated deterioration in the credit quality of our loan and lease assets, including
deterioration resulting from the effects of natural disasters;
    
    unanticipated deterioration or changes in estimates of the carrying value of our other assets, including securities;
    
    difficulties in delivering products to the secondary market as planned;
    
    difficulties in expanding our businesses and obtaining funding sources as needed;
    
    competition from other financial service providers for experienced managers as well as for customers;
    
    changes in the value of companies in which we invest;
    
    changes in variable compensation plans related to the performance and valuation of lines
of business where we tie compensation systems to line-of-business performance;
    
    unanticipated outcomes in litigation;
    
    legislative or regulatory changes, including changes in tax laws or regulations, changes
in the interpretation of regulatory capital rules, changes in consumer or commercial lending
rules, disclosure rules, or rules affecting corporate governance, and the availability of
resources to address these rules;
    
    changes in applicable accounting policies or principles or their application to our business or final audit adjustments;
    
    additional guidance and interpretation on accounting
issues and details of the implementation of new accounting methods;
    
    the final outcome and implications of the sale and discontinuance of operations for our
conventional mortgage banking segment; or
    
    governmental changes in monetary or fiscal policies.
 23




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##### Table of Contents



Strategy
  
    
    Identify market niches.We focus on product or market niches in financial serviceswhere
our understanding of customer needs and ability to meet them creates added value that
permits us not to have to compete primarily on price. We dont believe it is necessary to be
the largest or leading market share company in any of our product lines to earn an adequate
risk-adjusted return, but we do believe it is important that we are viewed as a preferred
provider in niche segments of those product offerings.
    
    Hire exceptional management with niche expertise.We enter niches only when we have
attracted senior managers who have proven track records in the niche for which they are
responsible. Our structure allows the senior managers of each line of business to focus
their efforts on understanding their customers and meeting the needs of the markets they
serve. This structure also promotes accountability among managers of each enterprise. We
attempt to create a mix of short-term and long-term incentives that provide these managers
with the incentive to achieve creditworthy, profitable growthover the long term.
    
    Diversify capital and earnings risk.We diversifyour revenuesand allocate our capital
across complementary lines of business and across different regions as a key part of our
risk management. For example, our commercial bank has a different profile of customers in
the Midwest and Western states. These economies have performed differently over the past
five years due to differences in local economies. These differences have affected demand and
credit quality of our products. In addition, our home equity segment lends to consumers on a
national basis, building a diversified portfolio where demand and credit quality fluctuate
depending, in part, on local market conditions. Our customers businesses and needs are
cyclical, but when combined in an appropriate mix, we believe they provide sources of
diversification and opportunities for growth in a variety of economic conditions.
    
    Reinvest in new opportunities.We reinveston an ongoing basis in the development of new
and existing opportunities. As a result of our attention to long-term value creation, we
believe it is important at times to dampen short-term earnings growth by investing for
future return. We are biased toward seeking new growth through organic expansion of existing
lines of business. At times we will initiate a new line through a start-up, with highly
qualified managers we select to focus on a single line of business. Over the past ten years,
we have made only a few acquisitions. Those have typically not been in competitive bidding
situations.
   24




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##### Table of Contents



Critical Accounting Policies
  Consolidated Overview
  Three Months Ended June 30,
    
    Six Months Ended June 30,2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeNet income from continuing operations (thousands)
    
    $
    8,058
    
    
    $
    5,269
    
    
    
    52.9
    %
    
    $
    16,534
    
    
    $
    12,500
    
    
    
    32.3
    %Net income (thousands)
    
    
    2,871
    
    
    
    (3,411
    )
    
    
    184.2
    %
    
    
    1,013
    
    
    
    (5,957
    )
    
    
    117.0
    %Basic earnings per share from continuing operations
    
    $
    0.27
    
    
    $
    0.18
    
    
    
    50.0
    %
    
    $
    0.56
    
    
    $
    0.44
    
    
    
    27.3
    %Basic earnings per share
    
    
    0.10
    
    
    
    (0.12
    )
    
    
    183.3
    %
    
    
    0.03
    
    
    
    (0.21
    )
    
    
    114.3
    %Diluted earnings per share from continuing
operations
    
    
    0.27
    
    
    
    0.18
    
    
    
    50.0
    %
    
    
    0.56
    
    
    
    0.43
    
    
    
    30.2
    %Diluted earnings per share
    
    
    0.09
    
    
    
    (0.12
    )
    
    
    175.0
    %
    
    
    0.03
    
    
    
    (0.21
    )
    
    
    114.3
    %Return on average equity from continuing operations
    
    
    6.0
    %
    
    
    4.3
    %
    
    
    
    
    
    
    6.4
    %
    
    
    5.0
    %Return on average assets from continuing operations
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    
    
    
    
    0.5
    %
    
    
    0.5
    %
 Consolidated Income Statement Analysis
 Net Income from Continuing Operations
  Net Interest Income from Continuing Operations
  25




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##### Table of Contents



Six Months Ended June 30,2006
    
    
    2005Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest-bearing deposits with
financial institutions
    
    $
    79,889
    
    
    $
    1,311
    
    
    
    3.31
    %
    
    $
    75,650
    
    
    $
    658
    
    
    
    1.75
    %Federal funds sold
    
    
    2,244
    
    
    
    48
    
    
    
    4.31
    %
    
    
    20,143
    
    
    
    228
    
    
    
    2.28
    %Residual interests
    
    
    16,207
    
    
    
    1,130
    
    
    
    14.06
    %
    
    
    50,142
    
    
    
    4,334
    
    
    
    17.43
    %Investment securities(1)
    
    
    106,282
    
    
    
    2,395
    
    
    
    4.54
    %
    
    
    108,072
    
    
    
    2,893
    
    
    
    5.40
    %Loans held for sale
    
    
    1,236,293
    
    
    
    50,180
    
    
    
    8.19
    %
    
    
    1,067,982
    
    
    
    40,167
    
    
    
    7.58
    %Loans and leases, net of unearned
income(2)
    
    
    4,681,482
    
    
    
    203,526
    
    
    
    8.77
    %
    
    
    3,554,203
    
    
    
    137,431
    
    
    
    7.80
    %Total interest earning assets
    
    
    6,122,397
    
    
    $
    258,590
    
    
    
    8.52
    %
    
    
    4,876,192
    
    
    $
    185,711
    
    
    
    7.68
    %Noninterest-earning assets:Cash and due from banks
    
    
    111,564
    
    
    
    
    
    
    
    
    
    
    
    102,685Premises and equipment, net
    
    
    32,312
    
    
    
    
    
    
    
    
    
    
    
    30,057Other assets
    
    
    528,918
    
    
    
    
    
    
    
    
    
    
    
    596,762Less allowance for loan and lease
losses
    
    
    (64,106
    )
    
    
    
    
    
    
    
    
    
    
    (45,730
    )Total assets
    
    $
    6,731,085
    
    
    
    
    
    
    
    
    
    
    $
    5,559,966Liabilities and Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    410,471
    
    
    $
    4,923
    
    
    
    2.42
    %
    
    $
    489,485
    
    
    $
    4,692
    
    
    
    1.93
    %Money market savings
    
    
    1,199,666
    
    
    
    23,849
    
    
    
    4.01
    %
    
    
    1,099,007
    
    
    
    11,950
    
    
    
    2.19
    %Regular savings
    
    
    135,916
    
    
    
    1,154
    
    
    
    1.71
    %
    
    
    99,697
    
    
    
    600
    
    
    
    1.21
    %Time deposits
    
    
    1,574,336
    
    
    
    34,373
    
    
    
    4.40
    %
    
    
    1,003,364
    
    
    
    15,556
    
    
    
    3.13
    %Short-term borrowings
    
    
    686,757
    
    
    
    20,818
    
    
    
    6.11
    %
    
    
    303,331
    
    
    
    7,267
    
    
    
    4.83
    %Collateralized debt
    
    
    893,536
    
    
    
    22,707
    
    
    
    5.12
    %
    
    
    508,324
    
    
    
    8,798
    
    
    
    3.49
    %Other long-term debt
    
    
    260,414
    
    
    
    10,908
    
    
    
    8.45
    %
    
    
    270,169
    
    
    
    11,789
    
    
    
    8.80
    %Total interest-bearing liabilities
    
    
    5,161,096
    
    
    $
    118,732
    
    
    
    4.64
    %
    
    
    3,773,377
    
    
    $
    60,652
    
    
    
    3.24
    %Noninterest-bearing liabilities:Demand deposits
    
    
    768,056
    
    
    
    
    
    
    
    
    
    
    
    1,000,818Other liabilities
    
    
    277,920
    
    
    
    
    
    
    
    
    
    
    
    286,523Shareholders equity
    
    
    524,013
    
    
    
    
    
    
    
    
    
    
    
    499,248Total liabilities and
shareholders equity
    
    $
    6,731,085
    
    
    
    
    
    
    
    
    
    
    $
    5,559,966Net interest income
    
    
    
    
    
    $
    139,858
    
    
    
    
    
    
    
    
    
    
    $
    125,059Net interest income to average
interest earning assets
    
    
    
    
    
    
    
    
    
    
    4.61
    %
    
    
    
    
    
    
    
    
    
    
    5.17
    %Net interest income from discontinued operations
    
    
    
    
    
    
    15,363
    
    
    
    
    
    
    
    
    
    
    
    16,749Net interest income from continuing operations
    
    
    
    
    
    $
    124,495
    
    
    
    
    
    
    
    
    
    
    $
    108,310
 
 (1)
    
    We do not show interest income on a tax equivalent basis because the contribution from
tax-exempt income is immaterial.(2)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan
amounts outstanding. 26




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##### Table of Contents



Provision for Loan and Lease Losses from Continuing Operations
  Noninterest Income from Continuing Operations
  Noninterest Expense from Continuing Operations
  Income Tax Provision from Continuing Operations
  Consolidated Balance Sheet Analysis
  Investment Securities
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)U.S. Treasury and government obligations
    
    $
    13,174
    
    
    $
    12,571Obligations of states and political subdivisions
    
    
    3,545
    
    
    
    3,544Mortgage-backed securities
    
    
    37,223
    
    
    
    28,331Other
    
    
    74,647
    
    
    
    72,896Total
    
    $
    128,589
    
    
    $
    117,342
 27




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##### Table of Contents



Loans Held For Sale
  Loans and Leases
  June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,107,357
    
    
    $
    2,016,228Real estate-construction
    
    
    409,029
    
    
    
    379,831Real estate-mortgage
    
    
    1,410,942
    
    
    
    1,232,958Consumer
    
    
    30,153
    
    
    
    31,718Commercial financingFranchise financing
    
    
    568,166
    
    
    
    462,413Domestic leasing
    
    
    276,002
    
    
    
    237,968Canadian leasing
    
    
    355,532
    
    
    
    313,581Unearned incomeFranchise financing
    
    
    (164,779
    )
    
    
    (125,474
    )Domestic leasing
    
    
    (39,313
    )
    
    
    (33,267
    )Canadian leasing
    
    
    (43,159
    )
    
    
    (38,013
    )Total
    
    $
    4,909,930
    
    
    $
    4,477,943
 Allowance for Loan and Lease Losses
  June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    59,223
    
    
    $
    43,441Provision for loan and lease losses
    
    
    16,019
    
    
    
    27,307Charge-offs
    
    
    (13,843
    )
    
    
    (20,201
    )Recoveries
    
    
    5,371
    
    
    
    8,960Addition (reduction) due to reclassification or sale of loans
    
    
    5
    
    
    
    (403
    )Foreign currency adjustment
    
    
    146
    
    
    
    119Balance at end of period
    
    $
    66,921
    
    
    $
    59,223
 Assets Held for Sale
  28




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##### Table of Contents



Deposits
   Short-Term Borrowings
    Collateralized Debt
  Other Long-Term Debt
   29




---



##### Table of Contents



Capital
   June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Tier 1 capital
    
    $
    702,457
    
    
    $
    675,316Tier 2 capital
    
    
    119,878
    
    
    
    154,128Total risk-based capital
    
    $
    822,335
    
    
    $
    829,444Risk-weighted assets
    
    $
    6,279,789
    
    
    $
    6,317,797Risk-based ratios:Tier 1 capital
    
    
    11.2
    %
    
    
    10.7
    %Total capital
    
    
    13.1
    
    
    
    13.1Tier 1 leverage ratio
    
    
    10.3
    
    
    
    10.3Ending shareholders equity to assets
    
    
    8.1
    
    
    
    7.7Average shareholders equity to assets
    
    
    7.8
    
    
    
    8.0
  Cash Flow Analysis
  Earnings Outlook
  30




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##### Table of Contents



Earnings by Line of Business
  
    
    Commercial Banking
    
    Commercial Finance
    
    Home Equity Lending
    
    Mortgage Banking
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net income (loss):Commercial Banking
    
    $
    7,852
    
    
    $
    5,614
    
    
    $
    14,614
    
    
    $
    11,083Commercial Finance
    
    
    2,932
    
    
    
    1,429
    
    
    
    5,823
    
    
    
    2,125Home Equity Lending
    
    
    (381
    )
    
    
    (537
    )
    
    
    653
    
    
    
    1,508Mortgage Banking (discontinued)
    
    
    (5,187
    )
    
    
    (9,161
    )
    
    
    (15,521
    )
    
    
    (19,420
    )Other (including consolidating entries)
    
    
    (2,345
    )
    
    
    (756
    )
    
    
    (4,556
    )
    
    
    (1,253
    )Net loss
    
    
    2,871
    
    
    
    (3,411
    )
    
    
    1,013
    
    
    
    (5,957
    )Discontinued Operations
    
    
    (5,187
    )
    
    
    (8,680
    )
    
    
    (15,521
    )
    
    
    (18,457
    )Net Income from Continuing Operations
    
    $
    8,058
    
    
    $
    5,269
    
    
    $
    16,534
    
    
    $
    12,500
 31




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##### Table of Contents



Commercial Banking
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    58,583
    
    
    $
    43,135
    
    
    $
    112,068
    
    
    $
    81,184Interest expense
    
    
    (27,172
    )
    
    
    (16,158
    )
    
    
    (50,795
    )
    
    
    (29,647
    )Net interest income
    
    
    31,411
    
    
    
    26,977
    
    
    
    61,273
    
    
    
    51,537Provision for loan and lease losses
    
    
    (1,337
    )
    
    
    (1,575
    )
    
    
    (2,813
    )
    
    
    (2,575
    )Other income
    
    
    4,593
    
    
    
    3,806
    
    
    
    8,862
    
    
    
    8,187Total net revenue
    
    
    34,667
    
    
    
    29,208
    
    
    
    67,322
    
    
    
    57,149Operating expense
    
    
    (21,585
    )
    
    
    (19,844
    )
    
    
    (43,056
    )
    
    
    (38,599
    )Income before taxes
    
    
    13,082
    
    
    
    9,364
    
    
    
    24,266
    
    
    
    18,550Income taxes
    
    
    (5,230
    )
    
    
    (3,750
    )
    
    
    (9,652
    )
    
    
    (7,467
    )Net income
    
    $
    7,852
    
    
    $
    5,614
    
    
    $
    14,614
    
    
    $
    11,083
 June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data at End of Period:Assets
    
    $
    3,004,403
    
    
    $
    3,162,398Securities and short-term investments
    
    
    54,188
    
    
    
    340,811
    (1)Loans and leases
    
    
    2,797,872
    
    
    
    2,680,220Allowance for loan and lease losses
    
    
    (26,176
    )
    
    
    (24,670
    )Deposits
    
    
    2,697,093
    
    
    
    2,797,635Shareholders equity
    
    
    222,266
    
    
    
    195,381Daily Averages:Assets
    
    $
    3,210,010
    
    
    $
    3,025,717Securities and short-term investments
    
    
    342,885
    
    
    
    453,361
    (1)Loans and leases
    
    
    2,758,515
    
    
    
    2,460,560Allowance for loan and lease losses
    
    
    (25,814
    )
    
    
    (23,656
    )Deposits
    
    
    2,910,334
    
    
    
    2,766,289Shareholders equity
    
    
    207,792
    
    
    
    157,545
 
 (1)
    
    Includes $317 million at December 31, 2005 and an
average of $361 million for the year ended December 31,
2005 of intra-company investments that are the result of excess liquidity at the commercial banking line of business
related to deposit growth in excess of their asset deployment needs. The funds were redeployed
in earning assets at our other lines of business. There were no such
intra-company
investments at June 30, 2006. Overview
  32




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedLoans
    
    
    Percent
    
    
    Average
    
    
    Loans
    
    
    Percent
    
    
    AverageMarkets
    
    Outstanding
    
    
    of Total
    
    
    Coupon
    
    
    Outstanding
    
    
    of Total
    
    
    Coupon(Dollars in thousands)Indianapolis
    
    $
    557,173
    
    
    
    19.9
    %
    
    
    6.8
    %
    
    $
    560,775
    
    
    
    20.9
    %
    
    
    7.0
    %Central and Western Michigan
    
    
    513,736
    
    
    
    18.4
    
    
    
    7.8
    
    
    
    516,444
    
    
    
    19.3
    
    
    
    7.1Southern Indiana
    
    
    463,226
    
    
    
    16.6
    
    
    
    7.0
    
    
    
    454,236
    
    
    
    16.9
    
    
    
    6.5Phoenix
    
    
    455,294
    
    
    
    16.3
    
    
    
    8.2
    
    
    
    447,548
    
    
    
    16.7
    
    
    
    7.6Las Vegas
    
    
    126,912
    
    
    
    4.5
    
    
    
    8.0
    
    
    
    112,761
    
    
    
    4.2
    
    
    
    7.5Other
    
    
    681,531
    
    
    
    24.3
    
    
    
    7.9
    
    
    
    588,456
    
    
    
    22.0
    
    
    
    7.2Total
    
    $
    2,797,872
    
    
    
    100.0
    
    
    
    7.7
    
    
    $
    2,680,220
    
    
    
    100.0
    
    
    
    7.1
 Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedCore
    
    
    Percent
    
    
    Average
    
    
    Core
    
    
    Percent
    
    
    AverageDeposits
    
    
    of Total
    
    
    Coupon
    
    
    Deposits
    
    
    of Total
    
    
    CouponIndianapolis
    
    $
    256,323
    
    
    
    10.7
    %
    
    
    2.2
    %
    
    $
    259,196
    
    
    
    10.4
    %
    
    
    2.1
    %Central and Western Michigan
    
    
    216,200
    
    
    
    9.0
    
    
    
    3.0
    
    
    
    238,742
    
    
    
    9.6
    
    
    
    2.6Southern Indiana
    
    
    697,097
    
    
    
    29.1
    
    
    
    2.7
    
    
    
    674,923
    
    
    
    27.1
    
    
    
    2.1Phoenix
    
    
    174,481
    
    
    
    7.3
    
    
    
    2.6
    
    
    
    190,428
    
    
    
    7.6
    
    
    
    2.4Las Vegas
    
    
    449,899
    
    
    
    18.8
    
    
    
    4.3
    
    
    
    413,541
    
    
    
    16.6
    
    
    
    3.5Other
    
    
    604,641
    
    
    
    25.1
    
    
    
    3.5
    
    
    
    713,233
    
    
    
    28.7
    
    
    
    3.3Total
    
    $
    2,398,641
    
    
    
    100.0
    %
    
    
    3.2
    %
    
    $
    2,490,063
    
    
    
    100.0
    %
    
    
    2.7
    %
 Net Income
  Net Interest Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net interest income
    
    $
    31,411
    
    
    $
    26,977
    
    
    $
    61,273
    
    
    $
    51,537Average interest
earning assets
    
    
    3,164,181
    
    
    
    2,844,542
    
    
    
    3,102,229
    
    
    
    2,751,839Net interest margin
    
    
    3.98
    %
    
    
    3.80
    %
    
    
    3.98
    %
    
    
    3.78
    %
  33




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##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Trust fees
    
    $
    478
    
    
    $
    475
    
    
    $
    979
    
    
    $
    1,008Service charges on deposit accounts
    
    
    1,102
    
    
    
    1,009
    
    
    
    2,061
    
    
    
    2,005Insurance commissions, fees and
premiums
    
    
    509
    
    
    
    427
    
    
    
    1,158
    
    
    
    960Gain from sales of loans
    
    
    582
    
    
    
    615
    
    
    
    1,011
    
    
    
    1,424Loan servicing fees
    
    
    377
    
    
    
    367
    
    
    
    763
    
    
    
    722Amortization of servicing assets
    
    
    (293
    )
    
    
    (308
    )
    
    
    (534
    )
    
    
    (627
    )Impairment of servicing assets
    
    
    
    
    
    
    (311
    )
    
    
    
    
    
    
    (97
    )Brokerage fees
    
    
    362
    
    
    
    303
    
    
    
    660
    
    
    
    604Derivative gains
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    72Other
    
    
    1,476
    
    
    
    998
    
    
    
    2,764
    
    
    
    2,116Total noninterest income
    
    $
    4,593
    
    
    $
    3,806
    
    
    $
    8,862
    
    
    $
    8,187
  Operating Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    13,280
    
    
    $
    12,363
    
    
    $
    26,767
    
    
    $
    24,310Other expenses
    
    
    8,305
    
    
    
    7,481
    
    
    
    16,289
    
    
    
    14,289Total operating expenses
    
    $
    21,585
    
    
    $
    19,844
    
    
    $
    43,056
    
    
    $
    38,599Efficiency ratio
    
    
    60.0
    %
    
    
    64.5
    %
    
    
    61.4
    %
    
    
    64.6
    %Number of employees at period
end(1)
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    553
 
 (1)
    
    On a full time equivalent basis.  Balance Sheet
  34




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##### Table of Contents



Credit Quality
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Nonperforming loans
    
    $
    21,480
    
    
    $
    19,483Other real estate owned
    
    
    8,926
    
    
    
    7,892Total nonperforming assets
    
    $
    30,406
    
    
    $
    27,375Nonperforming assets to
total assets
    
    
    1.01
    %
    
    
    0.87
    %Allowance for loan losses
    
    $
    26,176
    
    
    $
    24,670Allowance for loan losses
to total loans
    
    
    0.94
    %
    
    
    0.92
    %
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)For the Period Ended:Provision for loan losses
    
    $
    1,337
    
    
    $
    1,575
    
    
    $
    2,813
    
    
    $
    2,575Net charge-offs
    
    
    715
    
    
    
    743
    
    
    
    1,307
    
    
    
    1,155Net charge-offs to average loans
    
    
    0.10
    
    
    
    0.13
    %
    
    
    0.10
    
    
    
    0.10
    %
  June 30,
    
    December 31,Markets
    
    2006
    
    2005Indianapolis
    
    
    0.08
    %
    
    
    0.58
    %Central and Western Michigan
    
    
    3.67
    %
    
    
    3.76
    %Southern Indiana
    
    
    0.18
    %
    
    
    0.24
    %Phoenix
    
    
    2.12
    %
    
    
    0.60
    %Las Vegas
    
    
    0.00
    %
    
    
    0.00
    %Other
    
    
    0.09
    %
    
    
    0.16
    %Total
    
    
    1.09
    %
    
    
    1.02
    %
 35




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##### Table of Contents



Commercial Finance
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    10,107
    
    
    $
    7,928
    
    
    $
    19,799
    
    
    $
    15,541Provision for loan and lease losses
    
    
    (1,785
    )
    
    
    (1,211
    )
    
    
    (2,949
    )
    
    
    (3,321
    )Noninterest income
    
    
    1,999
    
    
    
    1,351
    
    
    
    4,149
    
    
    
    3,259Total net revenue
    
    
    10,321
    
    
    
    8,068
    
    
    
    20,999
    
    
    
    15,479Operating expense
    
    
    (5,710
    )
    
    
    (5,646
    )
    
    
    (11,648
    )
    
    
    (11,832
    )Income before taxes
    
    
    4,611
    
    
    
    2,422
    
    
    
    9,351
    
    
    
    3,647Income taxes
    
    
    (1,679
    )
    
    
    (993
    )
    
    
    (3,528
    )
    
    
    (1,522
    )Net income
    
    $
    2,932
    
    
    $
    1,429
    
    
    $
    5,823
    
    
    $
    2,125Selected Operating Data:Net charge-offs
    
    $
    868
    
    
    $
    1,448
    
    
    $
    1,615
    
    
    $
    2,816Net interest margin
    
    
    4.50
    %
    
    
    4.77
    %
    
    
    4.58
    %
    
    
    4.81
    %Total funding of loans and leases
    
    $
    164,399
    
    
    $
    110,273
    
    
    $
    284,481
    
    
    $
    193,635Loans sold
    
    
    10,789
    
    
    
    2,028
    
    
    
    22,863
    
    
    
    14,428
 June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    969,876
    
    
    $
    831,657Loans and leases
    
    
    952,449
    
    
    
    817,208Allowance for loan and lease losses
    
    
    (12,241
    )
    
    
    (10,756
    )Shareholders equity
    
    
    78,985
    
    
    
    71,568
 Overview
   Net Income
  36




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##### Table of Contents



Net Interest Income
  Three Months June 30,

    
    

Six Months June 30,2006
    
    
    
    

    2005
    
    
    2006
    
    2005(Dollars in thousands)Net interest income
    
    $
    10,107
    
    
    
    
    
    
    $
    7,928
    
    
    $
    19,799
    
    
    $
    15,541Average interest
earning assets
    
    
    900,148
    
    
    
    
    
    
    
    667,300
    
    
    
    870,866
    
    
    
    651,735Net interest margin
    
    
    4.50
    %
    
    
    
    
    
    
    4.77
    %
    
    
    4.58
    %
    
    
    4.81
    %
   Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Gain from sales of loans
    
    
    498
    
    
    
    104
    
    
    
    1,252
    
    
    
    783Derivative losses, net
    
    
    (165
    )
    
    
    (159
    )
    
    
    (218
    )
    
    
    (306
    )Other
    
    
    1,666
    
    
    
    1,406
    
    
    
    3,115
    
    
    
    2,782Total noninterest income
    
    $
    1,999
    
    
    $
    1,351
    
    
    $
    4,149
    
    
    $
    3,259
  Operating Expenses
  37




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    5,362
    
    
    $
    4,409
    
    
    $
    10,528
    
    
    $
    8,357Other
    
    
    348
    
    
    
    1,237
    
    
    
    1,120
    
    
    
    3,475Total operating expenses
    
    $
    5,710
    
    
    $
    5,646
    
    
    $
    11,648
    
    
    $
    11,832Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    180
 
 (1)
    
    On a full time equivalent basis. Credit Quality
   June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Nonperforming loans and leases
    
    $
    4,852
    
    
    $
    3,700Allowance for loan and lease losses
    
    
    12,241
    
    
    
    10,756Allowance for loan and lease losses to total loans and leases
    
    
    1.29
    %
    
    
    1.32
    %
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Provision for loan and lease losses
    
    $
    1,785
    
    
    $
    1,211
    
    
    $
    2,949
    
    
    $
    3,321Net charge-offs
    
    
    868
    
    
    
    1,448
    
    
    
    1,615
    
    
    
    2,816Annualized net charge-offs to
average loans and leases
    
    
    0.39
    %
    
    
    0.88
    %
    
    
    0.38
    %
    
    
    0.88
    %
  June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Domestic franchise loans
    
    $
    403,387
    
    
    $
    336,939Weighted average coupon
    
    
    8.01
    %
    
    
    7.82
    %Delinquency ratio
    
    
    
    
    
    
    0.37Domestic leases
    
    $
    236,690
    
    
    $
    204,701Weighted average coupon
    
    
    10.86
    %
    
    
    10.72
    %Delinquency ratio
    
    
    1.20
    
    
    
    1.26Canadian leases (1)
    
    $
    312,373
    
    
    $
    275,568Weighted average coupon
    
    
    8.99
    %
    
    
    8.80
    %Delinquency ratio
    
    
    0.33
    
    
    
    0.53
 
 (1)
    
    In U.S. dollars. 38




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##### Table of Contents



Home Equity Lending
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    22,924
    
    
    $
    21,193
    
    
    $
    46,593
    
    
    $
    41,625Provision for loan and lease losses
    
    
    (3,704
    )
    
    
    (6,181
    )
    
    
    (10,258
    )
    
    
    (6,551
    )Noninterest income
    
    
    3,580
    
    
    
    9,838
    
    
    
    10,968
    
    
    
    22,363Total net revenues
    
    
    22,800
    
    
    
    24,850
    
    
    
    47,303
    
    
    
    57,437Operating expenses
    
    
    (23,419
    )
    
    
    (25,728
    )
    
    
    (46,190
    )
    
    
    (54,895
    )Income (loss) before taxes
    
    
    (619
    )
    
    
    (878
    )
    
    
    1,113
    
    
    
    2,542Income taxes
    
    
    238
    
    
    
    341
    
    
    
    (460
    )
    
    
    (1,034
    )Net income (loss)
    
    $
    (381
    )
    
    $
    (537
    )
    
    $
    653
    
    
    $
    1,508Selected Operating Data:Loan volume:Lines of credit
    
    $
    31,617
    
    
    $
    190,448
    
    
    $
    94,919
    
    
    $
    282,774Loans
    
    
    179,717
    
    
    
    309,835
    
    
    
    400,789
    
    
    
    647,123Net home equity charge-offs to average
managed portfolio
    
    
    0.58
    %
    
    
    0.83
    %
    
    
    0.80
    %
    
    
    0.85
    %(Loss) gain on sale of loans to loans sold
    
    
    -1.33
    %
    
    
    3.47
    %
    
    
    -0.53
    %
    
    
    2.80
    %
 June 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data:Total assets
    
    $
    1,398,377
    
    
    $
    1,602,400Home equity loans and lines of credit(1)
    
    
    1,159,309
    
    
    
    980,406Allowance for loan losses
    
    
    (28,262
    )
    
    
    (23,552
    )Home equity loans held for sale
    
    
    147,810
    
    
    
    513,231Residual interests
    
    
    7,770
    
    
    
    15,580Mortgage servicing assets
    
    
    29,451
    
    
    
    30,502Short-term borrowings
    
    
    565,001
    
    
    
    920,636Collateralized debt
    
    
    625,366
    
    
    
    452,615Shareholders equity
    
    
    153,932
    
    
    
    151,677Selected Operating Data:Total managed portfolio balance
    
    
    1,600,288
    
    
    
    1,593,509Delinquency ratio(2)
    
    
    2.7
    %
    
    
    3.0
    %Weighted average coupon rate:Lines of credit
    
    
    10.75
    %
    
    
    10.17
    %Loans
    
    
    10.49
    
    
    
    10.18
 
 (1)
    
    Includes $691 million and $486 million of collateralized loans at June 30, 2006 and December
31, 2005, respectively, as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. Overview
   39




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##### Table of Contents



June 30, 2006
    
    
    December 31, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageAmount
    
    
    % of Total
    
    
    Coupon
    
    
    Amount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)Home Equity PortfolioLoans
£ 100% CLTV
    
    $
    496,924
    
    
    
    31.05
    %
    
    
    8.53
    %
    
    $
    494,462
    
    
    
    31.03
    %
    
    
    7.90
    %Lines of credit £ 100% CLTV
    
    
    342,916
    
    
    
    21.43
    
    
    
    9.53
    
    
    
    327,164
    
    
    
    20.53
    
    
    
    8.77Total £ 100% CLTV
    
    
    839,840
    
    
    
    52.48
    
    
    
    8.94
    
    
    
    821,626
    
    
    
    51.56
    
    
    
    8.24Loans > 100% CLTV
    
    
    600,080
    
    
    
    37.50
    
    
    
    12.30
    
    
    
    582,536
    
    
    
    36.56
    
    
    
    12.31Lines of credit > 100% CLTV
    
    
    120,009
    
    
    
    7.50
    
    
    
    13.97
    
    
    
    142,315
    
    
    
    8.93
    
    
    
    13.10Total > 100% CLTV
    
    
    720,089
    
    
    
    45.00
    
    
    
    12.57
    
    
    
    724,851
    
    
    
    45.49
    
    
    
    12.47First mortgages
    
    
    31,786
    
    
    
    1.99
    
    
    
    7.05
    
    
    
    36,377
    
    
    
    2.28
    
    
    
    7.10Other
    
    
    8,573
    
    
    
    0.53
    
    
    
    14.55
    
    
    
    10,655
    
    
    
    0.67
    
    
    
    14.03Total managed portfolio (1)
    
    $
    1,600,288
    
    
    
    100.00
    %
    
    
    10.57
    %
    
    $
    1,593,509
    
    
    
    100.00
    %
    
    
    10.18
    %
 
 (1)
    
    We define our Managed portfolio as the portfolio ($1.6 billion) that we service and on
which we carry credit risk. At June 30, 2006, we also serviced another $1.5 billion of loans
for which the credit risk is held by others. 40




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##### Table of Contents



Three Months Ended June 30,Product
    
    2006
    
    
    2005(Funding amount in thousands)First mortgage loansFunding Amount
    
    $
    8,952
    
    
    $
    31,546Weighted Average Disposable Income
    
    
    4,988
    
    
    
    5,604Weighted Average FICO score
    
    
    689
    
    
    
    692Weighted Average Coupon
    
    
    8.10
    %
    
    
    6.80
    %First mortgage loans up to 110%Funding Amount
    
    $
    943
    
    
    
    Weighted Average Disposable Income
    
    
    4,000
    
    
    
    Weighted Average FICO score
    
    
    688
    
    
    
    Weighted Average Coupon
    
    
    8.77
    %
    
    
    Home equity loans up to 100% CLTVFunding Amount
    
    $
    103,434
    
    
    $
    160,925Weighted Average Disposable Income
    
    
    6,629
    
    
    
    5,177Weighted Average FICO score
    
    
    700
    
    
    
    725Weighted Average Coupon
    
    
    11.08
    %
    
    
    7.23
    %Home equity loans up to 125% CLTVFunding Amount
    
    $
    66,388
    
    
    $
    117,364Weighted Average Disposable Income
    
    
    4,306
    
    
    
    4,378Weighted Average FICO score
    
    
    698
    
    
    
    688Weighted Average Coupon
    
    
    12.69
    %
    
    
    11.76
    %Home equity lines of credit up to 100% CLTVFunding Amount
    
    $
    28,556
    
    
    $
    176,981Weighted Average Disposable Income
    
    
    5,765
    
    
    
    6,233Weighted Average FICO score
    
    
    694
    
    
    
    711Weighted Average Coupon
    
    
    9.65
    %
    
    
    7.39
    %Home equity lines of credit up to 125% CLTVFunding Amount
    
    $
    3,061
    
    
    $
    13,467Weighted Average Disposable Income
    
    
    4,393
    
    
    
    4,570Weighted Average FICO score
    
    
    693
    
    
    
    700Weighted Average Coupon
    
    
    14.93
    %
    
    
    11.49
    %All ProductsFunding Amount
    
    $
    211,334
    
    
    $
    500,283Weighted Average Disposable Income
    
    
    5,557
    
    
    
    5,181Weighted Average FICO score
    
    
    698
    
    
    
    709Weighted Average Coupon
    
    
    11.31
    %
    
    
    8.44
    %
 41




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##### Table of Contents



Net Income
  Net Revenue
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Total originations
    
    $
    211,334
    
    
    $
    500,283
    
    
    $
    495,708
    
    
    $
    929,897Percent correspondent
    
    
    26
    %
    
    
    15
    %
    
    
    29
    %
    
    
    17
    %Percent retail loans
    
    
    14
    
    
    
    33
    
    
    
    20
    
    
    
    36Percent brokered
    
    
    29
    
    
    
    22
    
    
    
    27
    
    
    
    23Percent other
    
    
    31
    
    
    
    30
    
    
    
    24
    
    
    
    24
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net interest income
    
    $
    22,924
    
    
    $
    21,193
    
    
    $
    46,593
    
    
    $
    41,625Provision for loan losses
    
    
    (3,704
    )
    
    
    (6,181
    )
    
    
    (10,258
    )
    
    
    (6,551
    )Gain on sales of loans
    
    
    (4,470
    )
    
    
    3,861
    
    
    
    (2,537
    )
    
    
    12,129Loan servicing fees
    
    
    10,472
    
    
    
    10,207
    
    
    
    18,194
    
    
    
    19,043Amortization of servicing assets
    
    
    (5,760
    )
    
    
    (7,800
    )
    
    
    (11,994
    )
    
    
    (13,590
    )Recovery of servicing assets
    
    
    409
    
    
    
    667
    
    
    
    983
    
    
    
    364Derivative gains (losses)
    
    
    2,934
    
    
    
    (240
    )
    
    
    5,841
    
    
    
    337Other
    
    
    (5
    )
    
    
    3,143
    
    
    
    481
    
    
    
    4,080Total net revenue
    
    $
    22,800
    
    
    $
    24,850
    
    
    $
    47,303
    
    
    $
    57,437
   42




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##### Table of Contents



Operating Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    15,127
    
    
    $
    15,244
    
    
    $
    28,727
    
    
    $
    34,492Other
    
    
    8,292
    
    
    
    10,484
    
    
    
    17,463
    
    
    
    20,403Total operating expenses
    
    $
    23,419
    
    
    $
    25,728
    
    
    $
    46,190
    
    
    $
    54,895Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    662
 
 (1)
    
    On a full time equivalent basis.  Home Equity Servicing
  43




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##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,600,288
    
    
    $
    1,593,509
    
    
    $
    1,434,10830 days past due
    
    
    2.67
    %
    
    
    3.04
    %
    
    
    3.14
    %90 days past due
    
    
    1.01
    
    
    
    1.10
    
    
    
    1.15Annualized QTD Net Chargeoff Rate
    
    
    0.58
    
    
    
    0.35
    
    
    
    0.83Unsold LoansTotal Loans (1)
    
    $
    1,301,618
    
    
    $
    1,480,224
    
    
    $
    1,208,43630 days past due
    
    
    2.61
    %
    
    
    2.23
    %
    
    
    1.70
    %90 days past due
    
    
    1.04
    
    
    
    0.86
    
    
    
    0.75Annualized QTD Net Chargeoff Rate
    
    
    0.68
    
    
    
    0.26
    
    
    
    0.43Loan Loss Reserve
    
    $
    28,262
    
    
    $
    23,552
    
    
    $
    16,452Owned ResidualTotal Loans
    
    $
    298,670
    
    
    $
    113,286
    
    
    $
    225,67230 days past due
    
    
    2.94
    %
    
    
    13.60
    %
    
    
    10.83
    %90 days past due
    
    
    0.88
    
    
    
    4.32
    
    
    
    3.31Annualized QTD Net Chargeoff Rate
    
    
    (0.53
    )
    
    
    1.34
    
    
    
    2.46Residual Undiscounted Losses
    
    $
    470
    
    
    $
    930
    
    
    $
    4,580Credit Risk Sold, Potential Incentive
Servicing Fee Retained PortfolioTotal Loans
    
    $
    772,066
    
    
    $
    972,775
    
    
    $
    1,297,01630 days past due
    
    
    3.83
    %
    
    
    4.30
    %
    
    
    2.40
    %90 days past due
    
    
    1.38
    
    
    
    1.74
    
    
    
    0.88
 
 (1)
    
    Excludes deferred fees and costs.  44




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##### Table of Contents



Mortgage Banking
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    8,082
    
    
    $
    9,026
    
    
    $
    15,363
    
    
    $
    16,749Recovery of (provision for) loan loss
    
    
    18
    
    
    
    94
    
    
    
    (29
    )
    
    
    283Noninterest income
    
    
    15,051
    
    
    
    2,744
    
    
    
    17,009
    
    
    
    20,606Total net revenue
    
    
    23,151
    
    
    
    11,864
    
    
    
    32,343
    
    
    
    37,638Operating expense
    
    
    (31,785
    )
    
    
    (27,710
    )
    
    
    (58,194
    )
    
    
    (70,188
    )Income before taxes
    
    
    (8,634
    )
    
    
    (15,846
    )
    
    
    (25,851
    )
    
    
    (32,550
    )Income taxes
    
    
    3,447
    
    
    
    6,685
    
    
    
    10,330
    
    
    
    13,130Net income
    
    $
    (5,187
    )
    
    $
    (9,161
    )
    
    $
    (15,521
    )
    
    $
    (19,420
    )Selected Operating Data:Mortgage loan originations
    
    $
    2,236,589
    
    
    $
    2,643,669
    
    
    $
    4,482,265
    
    
    $
    5,456,081Servicing sold as a % of originations
    
    
    23
    %
    
    
    183
    %
    
    
    41
    %
    
    
    145
    %
 June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    1,099,965
    
    
    $
    1,306,041Mortgage loans held for sale
    
    
    611,671
    
    
    
    779,966Mortgage servicing assets
    
    
    285,591
    
    
    
    261,309Deposits
    
    
    405,134
    
    
    
    412,444Short-term borrowing
    
    
    308,531
    
    
    
    467,470Shareholders equity
    
    
    127,206
    
    
    
    125,888Selected Operating Data:Servicing portfolio:Balance at end of period
    
    
    19,189,343
    
    
    
    18,265,288Weighted average coupon rate
    
    
    5.93
    %
    
    
    5.79
    %Weighted average servicing fee
    
    
    0.35
    
    
    
    0.35
 Overview
  Net Income
  45




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##### Table of Contents



Net Revenue
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    8,082
    
    
    $
    9,026
    
    
    $
    15,363
    
    
    $
    16,749(Provision for) recovery of loan losses
    
    
    18
    
    
    
    94
    
    
    
    (29
    )
    
    
    283Gain on sales of loans
    
    
    17,806
    
    
    
    17,002
    
    
    
    33,155
    
    
    
    41,976Servicing fees
    
    
    16,645
    
    
    
    23,784
    
    
    
    34,166
    
    
    
    49,410Amortization expense
    
    
    (13,625
    )
    
    
    (18,269
    )
    
    
    (27,025
    )
    
    
    (39,479
    )Recovery of (impairment on) servicing
assets
    
    
    4,167
    
    
    
    (50,630
    )
    
    
    7,907
    
    
    
    (18,142
    )(Loss) gain on derivatives
    
    
    (11,435
    )
    
    
    23,687
    
    
    
    (33,394
    )
    
    
    (23,698
    )Gain on sales of servicing assets
    
    
    21
    
    
    
    5,471
    
    
    
    (2
    )
    
    
    6,656Other income
    
    
    1,472
    
    
    
    1,699
    
    
    
    2,202
    
    
    
    3,883Total net revenue
    
    $
    23,151
    
    
    $
    11,864
    
    
    $
    32,343
    
    
    $
    37,638
       46




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##### Table of Contents



Operating Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    10,882
    
    
    $
    13,709
    
    
    $
    23,351
    
    
    $
    30,890Incentive and commission pay
    
    
    3,886
    
    
    
    2,334
    
    
    
    5,793
    
    
    
    9,021Other expenses
    
    
    17,017
    
    
    
    11,667
    
    
    
    29,050
    
    
    
    30,277Total operating expenses
    
    $
    31,785
    
    
    $
    27,710
    
    
    $
    58,194
    
    
    $
    70,188Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    799
    
    
    
    854
 
 (1)
    
    On a full time equivalent basis  47




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##### Table of Contents



Mortgage Servicing
  Six Months Ended
    
    
    Year EndedJune 30,
    
    
    December 31,2006
    
    
    2005(Portfolio in billions)Beginning servicing portfolio
    
    $
    18.3
    
    
    $
    26.2Mortgage loan closings(1)
    
    
    4.5
    
    
    
    10.6Bulk sales of servicing rights
    
    
    
    
    
    
    (6.2
    )Flow sales of servicing rights
    
    
    (1.8
    )
    
    
    (6.8
    )Run-off(2)
    
    
    (1.8
    )
    
    
    (5.5
    )Ending servicing portfolio
    
    $
    19.2
    
    
    $
    18.3Number of loans (end of period)
    
    
    148,944
    
    
    
    142,956Average loan size
    
    $
    128,836
    
    
    $
    127,769Weighted average coupon
    
    
    5.93
    %
    
    
    5.79
    %Percent Government National Mortgage Association
(GNMA) and state housing programs
    
    
    26
    
    
    
    26Percent conventional and other
    
    
    74
    
    
    
    74Delinquency ratio
    
    
    4.6
    
    
    
    5.4Mortgage servicing assets to related servicing
portfolio(3)
    
    
    1.48
    
    
    
    1.41
 
 (1)
    
    Excludes brokered loans that are closed, funded and owned by unrelated third parties.(2)
    
    Run-off is primarily the reduction in principal balance of the servicing portfolio due to
regular principal payments made by mortgagees and early repayments of entire loans.(3)
    
    For this calculation, deferred service release premiums on warehouse loans are excluded from
mortgage servicing assets, and loans held for sale (i.e. warehouse loans) are excluded from
the servicing portfolio.  Parent and Other
  48




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##### Table of Contents



Risk Management
  
    
    Credit risk
    
    Liquidity risk
    
    Interest rate risk
    
    Operational risk
    Credit Risk
     49




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Accruing loans past due 90 days or more:Real estate mortgages
    
    $
    6,959
    
    
    $
    222Consumer loans
    
    
    101
    
    
    
    233Commercial financingDomestic leasing
    
    
    138
    
    
    
    73Foreign leasing
    
    
    9
    
    
    
    717,207
    
    
    
    599Nonaccrual loans and leases:Commercial, financial and
agricultural loans
    
    
    12,928
    
    
    
    17,693Real estate mortgages
    
    
    14,496
    
    
    
    14,237Consumer loans
    
    
    1,075
    
    
    
    1,335Commercial financingFranchise financing
    
    
    1,772
    
    
    
    720Domestic leasing
    
    
    1,357
    
    
    
    1,383Foreign leasing
    
    
    1,576
    
    
    
    1,45233,204
    
    
    
    36,820Total nonperforming
loans and leases
    
    
    40,411
    
    
    
    37,419Nonperforming Loans held for Sale not guaranteed
    
    
    3,202
    
    
    
    965Other real estate owned
    
    
    17,862
    
    
    
    15,226Total nonperforming assets
    
    $
    61,475
    
    
    $
    53,610Nonperforming loans and leases to total
loans and leases
    
    
    0.8
    %
    
    
    0.8
    %Nonperforming assets to total
assets
    
    
    0.9
    %
    
    
    0.8
    %
 50




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005(In millions)
    
    Commercial banking
    
    $
    30.4
    
    
    $
    27.4
    
    Commercial finance
    
    
    4.9
    
    
    
    3.7
    
    Home equity lending
    
    
    18.3
    
    
    
    17.1
    
    Mortgage banking
    
    
    7.9
    
    
    
    5.5
  Liquidity Risk
       51




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##### Table of Contents




    
    Warehouse lines of credit to fund primarily home equity loans: none outstanding on a $300
million borrowing facility, of which $150 million is committed
    
    Warehouse borrowing facilities to fund first mortgage loans: $10 million outstanding on a
$100 million committed borrowing facility
    
    Lines of credit with correspondent banks, including fed funds lines: $29 million
outstanding out of $225 million available but not committed
    
    Fed funds lines with non-correspondent banks in which $50 million were outstanding
    
    Warehouse lines of credit and conduits to fund Canadian sourced small ticket leases: $229
million outstanding on $349 million of borrowing facilities
  
    
    Committed warehouse sale facility: $161 million unsettled on a $600 million facility
    
    Uncommitted warehouse sale facility: none unsettled on a $150 million facility
 52




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##### Table of Contents




    
    Investor warehouse sale facility: $104 million unsettled
 Interest Rate Risk
      
    
    the type of risk we are trying to mitigate;
    
    offsetting factors elsewhere in the Corporation;
    
    the level of current capital above our target minimums;
    
    time remaining in the quarter (i.e., days until quarter end);
    
    current level of derivative gain or loss relative to accounting and economic basis;
    
    basis risk: the degree to which the interest rates underlying our derivative instruments
might not move parallel to the interest rate driving our asset valuation;
    
    convexity: the degree to which asset values, or risk management derivative instrument
values, do not change in a linear fashion as interest rates change;
    
    volatility: the level of volatility in market interest rates and the related impact on
our asset values and derivatives instrument values; and
 53




---



##### Table of Contents




    
    planned sales of mortgage servicing rights.
  1.
    
    Provide adequate hedge coverage for falling rates;2.
    
    minimize premium costs to establish hedge positions;3.
    
    provide a moderate amount of net impairment recapture if interest rates rise;4.
    
    when near or above the MSR LOCOM cap, maintain an acceptable range over which interest
rates may rise without causing hedge losses to significantly exceed accounting gains.
      
    
    The net asset value sensitivities do not necessarily represent the changes in the lines
of business net asset value that would actually occur under the given interest rate
scenarios, as sensitivities do not reflect changes in value of the companies as a going
concern, nor consider potential rebalancing or other management actions that might be taken
in the future under asset/liability management as interest rates change.
    
    The information in the tables below both as of 6/30/06 and 12/31/05 exclude the interest
rate sensitivity of our first mortgage subsidiary as a discontinued operation. Note that
these tables only include the market values and sensitivities of interest-sensitive assets
and liabilities.
    
    The tables below show modeled changes in interest rates for individual asset classes.
Asset classes in our portfolio have interest rate sensitivity tied to different underlying
indices or instruments. While the rate sensitivity of individual asset classes presented
below is our best estimate of changes in value due to interest rate changes, the total
potential change figures are subject to basis risk between value changes of individual
assets and liabilities which have not been included in the model.
    
    Few of the asset classes shown react to interest rate changes in a linear fashion. That
is, the point estimates we have made at Current and +/2% and +/1% are good estimates
at those amounts of rate change, but it may not be accurate to
 54




---



##### Table of Contents



interpolate linearly between
those points. This is most evident in products that contain optionality in payment timing or
pricing such as mortgage servicing or nonmaturity transaction deposits.
    
    Finally, the tables show theoretical outcomes for dramatic changes in interest rates
which do not consider potential rebalancing or repositioning of hedges.
 Economic Value Change Method
 Present Value at June 30, 2006Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    5,172,504
    
    
    $
    5,109,650
    
    
    $
    5,043,858
    
    
    $
    4,976,979
    
    
    $
    4,912,630Loans held for sale
    
    
    152,027
    
    
    
    150,493
    
    
    
    148,243
    
    
    
    145,454
    
    
    
    142,320Mortgage servicing rights
    
    
    32,837
    
    
    
    36,915
    
    
    
    41,207
    
    
    
    44,662
    
    
    
    45,910Residual interests
    
    
    15,037
    
    
    
    15,037
    
    
    
    15,037
    
    
    
    15,037
    
    
    
    15,037Interest sensitive financial
derivatives
    
    
    (9,279
    )
    
    
    (3,067
    )
    
    
    3,487
    
    
    
    9,860
    
    
    
    15,946Total interest sensitive assets
    
    
    5,363,126
    
    
    
    5,309,028
    
    
    
    5,251,832
    
    
    
    5,191,992
    
    
    
    5,131,843Interest Sensitive LiabilitiesDeposits
    
    
    (3,387,639
    )
    
    
    (3,361,836
    )
    
    
    (3,336,643
    )
    
    
    (3,306,830
    )
    
    
    (3,276,799
    )Short-term borrowings (1)
    
    
    (625,252
    )
    
    
    (621,329
    )
    
    
    (617,928
    )
    
    
    (614,688
    )
    
    
    (611,597
    )Long-term debt
    
    
    (843,176
    )
    
    
    (834,211
    )
    
    
    (822,132
    )
    
    
    (808,864
    )
    
    
    (790,279
    )Total interest sensitive liabilities
    
    
    (4,856,067
    )
    
    
    (4,817,376
    )
    
    
    (4,776,703
    )
    
    
    (4,730,382
    )
    
    
    (4,678,675
    )Net market value as of June 30, 2006
    
    $
    507,059
    
    
    $
    491,652
    
    
    $
    475,129
    
    
    $
    461,610
    
    
    $
    453,168Change from current
    
    $
    31,930
    
    
    $
    16,523
    
    
    $
    
    
    
    $
    (13,519
    )
    
    $
    (21,961
    )Net market value as of March 31, 2006
    
    $
    471,810
    
    
    $
    470,398
    
    
    $
    456,773
    
    
    $
    437,496
    
    
    $
    416,986Potential change
    
    $
    15,037
    
    
    $
    13,625
    
    
    $
    
    
    
    $
    (19,277
    )
    
    $
    (39,787
    )
 
 (1)
    
    Includes certain debt which is categorized as collateralized borrowings in other sections
of this document GAAP-Based Value Change Method
 Present Value at June 30, 2006Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans held for sale
    
    
    148,561
    
    
    
    148,561
    
    
    
    148,561
    
    
    
    145,772
    
    
    
    142,638Mortgage servicing rights
    
    
    27,015
    
    
    
    30,562
    
    
    
    33,308
    
    
    
    36,129
    
    
    
    37,235Residual interests
    
    
    15,037
    
    
    
    15,037
    
    
    
    15,037
    
    
    
    15,037
    
    
    
    15,037Interest sensitive financial
derivatives
    
    
    (9,279
    )
    
    
    (3,067
    )
    
    
    3,487
    
    
    
    9,860
    
    
    
    15,946Total interest sensitive assets
    
    
    181,334
    
    
    
    191,093
    
    
    
    200,393
    
    
    
    206,798
    
    
    
    210,856Interest Sensitive LiabilitiesDeposits (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term borrowings (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities
(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of June 30, 2006
    
    $
    181,334
    
    
    $
    191,093
    
    
    $
    200,393
    
    
    $
    206,798
    
    
    $
    210,856Potential change
    
    $
    (19,059
    )
    
    $
    (9,300
    )
    
    $
    
    
    
    $
    6,405
    
    
    $
    10,463Net market value as of March 31, 2006
    
    $
    487,474
    
    
    $
    501,226
    
    
    $
    514,188
    
    
    $
    519,368
    
    
    $
    521,217Potential change
    
    $
    (26,714
    )
    
    $
    (12,962
    )
    
    $
    
    
    
    $
    5,180
    
    
    $
    7,029
 
 (1)
    
    Value does not change in GAAP presentation 55




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##### Table of Contents



Operational risk
    Regulatory Environment
   Off-Balance Sheet Instruments
   56




---



##### Table of Contents



Derivative Financial Instruments
         57




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
 
 PART II. Other Information.
 
 Item 1. Legal Proceedings
 Since the time we filed our Report on Form 10-Q for the quarter ended March 31, 2006, we
experienced developments as noted in the litigation described below. For a full description of the
litigation, see Note 14, Commitments and Contingencies, in the Notes to Consolidated Financial
Statements, Part I, Item 1, of this Report.
 White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation
 (White v. Irwin Union Bank & Trust, et al.).
  58




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
 a)
    
    We held our Annual Meeting of Shareholders on April 6, 2006.b)
    
    Proposal No. 1. The following Director Nominees were elected to serve on the Board
until the 2009 Annual Meeting, by the votes set forth below.
 Nominees
    
    Shares For
    
    Shares WithheldDavid W. Goodrich
    
    
    26,228,791
    
    
    
    546,506Brenda J. Lauderback
    
    
    25,222,169
    
    
    
    1,553,128John C. McGinty, Jr.
    
    
    25,186,903
    
    
    
    1,588,394Marita Zuraitis
    
    
    26,423,826
    
    
    
    351,471
  Sally A. Dean
    
    
    2007R. David Hoover
    
    
    2008William H. Kling
    
    
    2007William I. Miller
    
    
    2008Lance R. Odden
    
    
    2007Theodore M. Solso
    
    
    2008
 c)
    
    In addition to the election of directors, the shareholders voted on and approved the
following proposals:
 Matter
    
    Shares For
    
    Shares Against
    
    Shares AbstainedProposal No. 2.
Approval of the Irwin
Union Bank Amended
and Restated
Performance Unit Plan
    
    
    25,672,762
    
    
    
    913,091
    
    
    
    188,918Proposal No. 3.
Approval of the Irwin
Commercial Finance
Amended and Restated
Performance Unit Plan
    
    
    25,607,006
    
    
    
    1,002,827
    
    
    
    164,938Proposal No. 4.
Approval of the Irwin
Home Equity
Corporation
Performance Unit Plan
    
    
    25,667,461
    
    
    
    941,996
    
    
    
    165,653
 59




---



##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Restated Articles of Incorporation of Irwin Financial Corporation, as amended April 7, 2005.
(Incorporated by reference to Exhibit 3.1 of Form 10-Q Report for the quarter ended March 31, 2005,
File No. 001-16691.)3.2
    
    Code of By-laws of Irwin Financial Corporation, as amended, May 4, 2005. (Incorporated by reference
to Exhibit 3.2 of Form 10-Q Report for the quarter ended June 30, 2005, File No. 001-16691.)4.1
    
    Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4(a) to Form 10-K report for
year ended December 31, 1994, File No. 0-06835.)4.2
    
    Certain instruments defining the rights of the holders of long-term debt of Irwin Financial
Corporation and certain of its subsidiaries, none of which authorize a total amount of indebtedness
in excess of 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis,
have not been filed as Exhibits. The Corporation hereby agrees to furnish a copy of any of these
agreements to the Commission upon request.4.3
    
    Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank
and Trust. (Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No.
000-06835.)4.4
    
    Appointment of Successor Rights Agent dated as of May 11, 2001 between Irwin Financial Corporation
and National City Bank. (Incorporated by reference to Exhibit 4.5 to Form S-8 filed on September 7,
2001, File No. 333-69156.)10.1
    
    *Irwin Financial Corporation 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(h) to
Form 10-K Report for year ended December 31, 1992, File No. 000-06835.)10.2
    
    *Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10 to Form
10-Q Report for period ended June 30, 1994, File No. 000-06835.)10.3
    
    *Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to
Exhibit 10(i) to Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)10.4
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan. (Incorporated by reference to
Exhibit 1 to the Corporations proxy statement for its 2004 Annual Meeting, filed with the Commission
on March 18, 2004, File No. 001-16691.)10.5
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement. (Incorporated by
reference to Exhibit 99.1 of the Corporations 8-K Current Report, dated May 9, 2005, File No.
001-16691.)10.6
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Agreement (Incorporated by
reference to Exhibit 99.2 of the Corporations 8-K Current Report, dated May 9, 2005, File No.
001-16691.)10.7
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan revised August 24, 2005
(Incorporated by reference to Exhibit 10.7 of the Corporations 10-Q Report for period ended
September 30, 2005, File No. 001-16691.)10.8
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement (Canada). (Incorporated
by reference to Exhibit 10.8 of the Corporations 10-Q Report for period ended September 30, 2005,
File No. 001-16691.)10.9
    
    *Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated
by reference to Exhibit 2 to the Corporations proxy statement for its 2004 Annual Meeting, filed
with the Commission on March 18, 2004, File No. 001-16691.)10.10
    
    *Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report
for period ended June 30, 1999, File No. 000-06835.)10.11
    
    *Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K
Report for year ended December 31, 1986, File No. 000-06835.)10.12
    
    *Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K
Report for year ended December 31, 1986, File No. 000-06835.)10.13
    
    *Inland Mortgage Corporation Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(j) to
Form 10-K Report for year ended December 31, 1995, File No. 000-06835.)
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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.14
    
    *Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K
Report for year ended December 31, 1986, File No. 000-06835.)10.15
    
    *Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit
10(a) to Form 10-Q/A Report for period ended March 31, 2001, File No. 000-06835.)10.16
    
    *Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC, effective as of April
20, 2001. (Incorporated by reference to Exhibit 10.17 to Form S-1/A filed February 14, 2002, File No.
333-69586.)10.17
    
    *Promissory Note dated January 30, 2002 from Elena Delgado to Irwin Financial Corporation.
(Incorporated by reference to Exhibit 10.19 to Form S-1/A filed February 14, 2002, File No.
333-69586.)10.18
    
    *Consumer Pledge Agreement dated January 30, 2002 between Elena Delgado and Irwin Financial
Corporation. (Incorporated by reference to Exhibit 10.20 to Form S-1/A filed February 14, 2002, File
No. 333-69586.)10.19
    
    *Redemption and Loan Repayment Agreement dated December 22, 2004 between Irwin Financial Corporation,
Irwin Home Equity Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.15 of Form
10-K Report for year ended December 31, 2004, File No. 001-16691.)10.20
    
    *Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated December 22,
2004 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado.
(Incorporated by reference to Exhibit 10.16 of Form 10-K Report for year ended December 31, 2004,
File No. 001-16691.)10.21
    
    *Deferred Compensation Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin
Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.17 of Form 10-K
Report for year ended December 31, 2004, File No. 001-16691.)10.22
    
    *Tax Gross-up Agreement dated December 22, 2004 between Irwin Financial Corporation and Elena Delgado
as Shareholder. (Incorporated by reference to Exhibit 10.18 of Form 10-K Report for year ended
December 31, 2004, File No. 001-16691.)10.23
    
    *Amendment No. 1 to Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement
dated April 7, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena
Delgado. (Incorporated by reference to Exhibit 10.19 of Form 10-Q Report for the quarter ended March
31, 2005, File No. 001-16691.)10.24
    
    *Amendment No. 1 to the Deferred Compensation Agreement dated April 7, 2005 between Irwin Home Equity
Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit
10.20 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)10.25
    
    *Amendment No. 2 to the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home
Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to
Exhibit 99.1 of Form 8-K Current Report dated November 18, 2005, File No. 001-16691.)10.26
    
    *Election to Terminate the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home
Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to
Exhibit 99.2 of Form 8-K Current Report dated November 18, 2005, File No. 001-16691.)10.27
    
    *Irwin Financial Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2006.10.28
    
    *Irwin Commercial Finance Amended and Restated Short Term Incentive Plan effective January 1, 2006.10.29
    
    *Irwin Home Equity Amended and Restated Short Term Incentive Plan effective January 1, 2006.10.30
    
    *Irwin Mortgage Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002.
(Incorporated by reference to Exhibit 6 of the Corporations proxy statement for its 2004 Annual
Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)10.31
    
    *Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan effective January
1, 2006.10.32
    
    *Onset Capital Corporation Employment Agreement. (Incorporated by reference to Exhibit 10.26 to Form
10-Q Report for period ended June 30, 2002, File No. 000-06835.)10.33
    
    *Irwin Financial Corporation Restated Supplemental Executive Retirement Plan for Named Executives.
(Incorporated by reference to Exhibit 10.27 to Form 10-Q Report for period ended June 30, 2002, File
No. 000-06835.)
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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.34
    
    *Irwin Financial Corporation Supplemental Executive Retirement Plan for Named Executives.
(Incorporated by reference to Exhibit 10.28 to Form 10-Q Report for period ended June 30, 2002, File
No. 000-06835.)10.35
    
    *Stock Purchase Agreement by and between Onset Holdings Inc. and Irwin International Corporation
dated December 23, 2005. (Incorporated by reference to Exhibit 10.36 of Form 10-K Report for period
ended December 31, 2005, File No. 001-16691.)10.36
    
    *Shareholder Agreement Termination Agreement by and between Irwin Commercial Finance Canada
Corporation and Irwin International Corporation dated December 23, 2005. (Incorporated by reference
to Exhibit 10.37 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.37
    
    *Irwin Commercial Finance Corporation Shareholder Agreement dated December 23, 2005. (Incorporated by
reference to Exhibit 10.38 of Form 10-K Report for period ended December 31, 2005, File No.
001-16691.)10.38
    
    *Irwin Commercial Finance Corporation 2005 Stock Option Agreement Grant of Option to Joseph LaLeggia
dated December 23, 2005. (Incorporated by reference to Exhibit 10.39 of Form 10-K Report for period
ended December 31, 2005, File No. 001-16691.)10.39
    
    *Irwin Commercial Finance Corporation 2005 Notice of Stock Option Grant to Joseph LaLeggia dated
December 23, 2005. (Incorporated by reference to Exhibit 10.40 of Form 10-K Report for period ended
December 31, 2005, File No. 001-16691.)10.40
    
    *Irwin Union Bank Amended and Restated Performance Unit Plan. (Incorporated by reference to Exhibit
10.41 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.41
    
    *Irwin Commercial Finance Amended and Restated Performance Unit Plan. (Incorporated by reference to
Exhibit 10.42 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.42
    
    *Irwin Home Equity Corporation Performance Unit Plan. (Incorporated by reference to Exhibit 10.43 of
Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.43
    
    *First Amendment to Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by
reference to Exhibit 10.44 of Form 10-K Report for period ended December 31, 2005, File No.
001-16691.)10.44
    
    *Second Amendment to Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC.
(Incorporated by reference to Exhibit 10.45 of Form 10-K Report for period ended December 31, 2005,
File No. 001-16691.)11.1
    
    Computation of Earnings Per Share is included in the footnotes to the financial statements.31.1
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief
Executive Officer.31.2
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief
Financial Officer.32.1
    
    Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates management contract or compensatory plan or arrangement. 62




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##### Table of Contents



SIGNATURES
  DATE:August 2, 2006
    
    IRWIN FINANCIAL CORPORATIONBy:
    
    /s/ Gregory F. Ehlinger

GREGORY F. EHLINGERCHIEF FINANCIAL OFFICERBy:
    
    /s/ Jody A. LittrellJODY A. LITTRELLCORPORATE CONTROLLER (Chief
Accounting Officer)
 63