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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 endedSeptember 30, 2008
 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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



FORM 10-Q
TABLE OF CONTENTS
 PAGENO.About Forward-Looking Statements
    
    
    3Explanatory Note
    
    
    5PART I FINANCIAL INFORMATION
    
    
    6Item 1 Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    58Item 4 Controls and Procedures
    
    
    58PART II OTHER INFORMATION
    
    
    59Item 1 Legal Proceedings
    
    
    59Item 1A Risk Factors
    
    
    59Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    67Item 6 Exhibits
    
    
    67Signatures
    
    
    71EX-2.2EX-2.3EX-2.4EX-2.5EX-3.1EX-3.2EX-10.41EX-10.42EX-10.43EX-31.1EX-31.2EX-32.1EX-32.2
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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 asset quality (particularly with regard to loans or
other exposures including loan repurchase risk, in sectors in which we deal in real estate or
residential mortgage lending), loan delinquencies, charge-offs, reserves, asset valuations,
capital ratios or financial performance measures;
    
    our plans and strategies, including the expected results or costs and impact of implementing or
changing such plans and strategies;
    
    potential litigation developments and the anticipated impact of potential outcomes of pending
legal matters;
    
    predictions about conditions in the national or regional economies, housing markets, industries
associated with housing, mortgage markets or mortgage industry;
    
    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 deterioration or effects of general economic conditions, particularly in
sectors relating to real estate and/or mortgage lending or small business-based
manufacturing and services;
    
    potential effects related to the Corporations decision to suspend the payment of dividends on
its common, preferred and trust preferred securities.
    
    difficulties in completing the transactions for the disposition of our home equity
business including: selling or otherwise reducing risk associated with home equity loans on
our balance sheet; selling the assets or platform of our home equity business, including
the completion of due diligence satisfactory to potential purchasers; obtaining third party
consents for the transfer of assets, platforms or servicing; satisfying conditions
necessary to release purchase price proceeds from escrow; obtaining the desired tax
treatment for any dispositions; or encountering regulatory constraints;
    
    the inability to garner sufficient support for our capital raising efforts, including a
failure to obtain, or a delay in obtaining, any necessary regulatory approvals;
    
    potential changes in direction, volatility and relative movement (basis risk) of interest
rates, which may affect consumer and commercial demand for our products and the management and
success of our interest rate risk management strategies;
    
    competition from other financial service providers for experienced managers as well as for
customers;
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
    
    staffing fluctuations in response to product demand or the implementation of corporate
strategies that affect our work force and potential associated charges;
    
    the relative profitability of our lending and deposit operations;
    
    the valuation and management of our portfolios, including the use of external and internal
modeling assumptions we embed in the valuation of those portfolios and short-term swings in the
valuation of such portfolios;
    
    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 or collectibility of our loan and lease
assets, including deterioration resulting from the effects of natural disasters;
    
    difficulties in accurately estimating any future repurchases of residential mortgage, home
equity, or other loans or leases due to alleged violations of representations and warranties we
made when selling these loans and leases to the secondary market or in securitizations;
    
    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 or retaining deposit or other funding
sources as needed;
    
    changes in the value of our lines of business, subsidiaries, or 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 lawsuits or outcomes in litigation;
    
    legislative or regulatory changes, including changes in laws, rules or regulations that affect
tax, consumer or commercial lending, corporate governance and disclosure requirements, and other
laws, rules or regulations affecting the rights and responsibilities of our Corporation, bank or
thrift;
    
    regulatory actions that impact our Corporation, bank or thrift, including the written
agreement the Corporation and its state-chartered bank subsidiary, Irwin Union Bank and
Trust Company, entered into with the Federal Reserve Bank of Chicago and the Indiana
Department of Financial Institutions on October 10, 2008, and the written agreement the
Corporations federal savings bank subsidiary, Irwin Union Bank, F.S.B., entered into with
the Office of Thrift Supervision on the same day;
    
    the application of or changes in the interpretation of regulatory capital or other rules;
    
    the availability of resources to address changes in laws, rules or regulations or to respond to
regulatory actions;
    
    changes in applicable accounting policies or principles or their application to our business or
final audit adjustments, including additional guidance and interpretation on accounting issues
and details of the implementation of new accounting methods;
    
    the final disposition of the remaining assets and obligations of our discontinued mortgage
banking segment, and, after completion of transactions involving the recent sale of assets, our
home equity and small-ticket leasing segments; or
    
    governmental changes in monetary or fiscal policies.
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Explanatory Note
    5




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PART I. FINANCIAL INFORMATION.
 
 Item 1. Financial Statements.
 IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    250,415
    
    
    $
    78,212Interest-bearing deposits with financial institutions
    
    
    27,018
    
    
    
    31,841Residual interests
    
    
    9,008
    
    
    
    12,047Investment
securities- held-to-maturity (Fair value: $18,911 September 30, 2008 and $18,134 at December 31, 2007)  Note 2
    
    
    18,690
    
    
    
    18,123Investment securities- available-for-sale  Note 2
    
    
    36,140
    
    
    
    59,684Investment securities- other  Note 2
    
    
    62,588
    
    
    
    62,588Loans and leases held for sale  Note 3
    
    
    43,643
    
    
    
    6,134Loans and leases, net of unearned income  Note 4
    
    
    4,651,506
    
    
    
    5,696,230Less: Allowance for loan and lease losses  Note 5
    
    
    (231,802
    )
    
    
    (144,855
    )4,419,704
    
    
    
    5,551,375Servicing assets  Note 6
    
    
    20,003
    
    
    
    23,234Accounts receivable
    
    
    33,608
    
    
    
    38,710Accrued interest receivable
    
    
    21,392
    
    
    
    26,291Premises and equipment
    
    
    34,537
    
    
    
    38,178Other assets  Note 7
    
    
    282,678
    
    
    
    219,688Total assets
    
    $
    5,259,424
    
    
    $
    6,166,105Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    325,676
    
    
    $
    306,820Interest-bearing
    
    
    2,070,745
    
    
    
    2,357,050Certificates of deposit over $100,000
    
    
    769,450
    
    
    
    661,6183,165,871
    
    
    
    3,325,488Other borrowings  Note 8
    
    
    526,657
    
    
    
    802,424Collateralized debt  Note 9
    
    
    946,269
    
    
    
    1,213,139Other long-term debt
    
    
    233,868
    
    
    
    233,873Other liabilities
    
    
    113,210
    
    
    
    131,881Total liabilities
    
    
    4,985,875
    
    
    
    5,706,805Commitments and contingencies  Note 14 and Note 15Shareholders equityPreferred stock, no par value  authorized 4,000,000 shares;
    
    
    
    
    
    
    Noncumulative perpetual preferred stock - 15,000 authorized and issued;
    
    
    14,441
    
    
    
    14,441Common stock, no par value  authorized 40,000,000 shares; issued 29,902,483 as of
September 30, 2008 and 29,896,464 as of December 31, 2007; 509,565 and 670,169
shares in treasury as of September 30, 2008 and December 31, 2007, respectively
    
    
    116,667
    
    
    
    116,542Additional paid-in capital
    
    
    
    
    
    
    2,557Accumulated
other comprehensive (loss) income, net of deferred income tax benefit of $3,704 and $4,367 as of September 30, 2008 and December 31, 2007
    
    
    (1,612
    )
    
    
    1,032Retained earnings
    
    
    153,878
    
    
    
    337,524283,374
    
    
    
    472,096Less treasury stock, at cost
    
    
    (9,825
    )
    
    
    (12,796
    )Total shareholders equity
    
    
    273,549
    
    
    
    459,300Total liabilities and shareholders equity
    
    $
    5,259,424
    
    
    $
    6,166,105
  6




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 For the Three Months Ended September 30,2008
    
    
    2007(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    95,185
    
    
    $
    126,180Loans and leases held for sale
    
    
    2,663
    
    
    
    585Residual interests
    
    
    160
    
    
    
    268Investment securities
    
    
    2,016
    
    
    
    2,738Federal funds sold
    
    
    478
    
    
    
    79Total interest income
    
    
    100,502
    
    
    
    129,850Interest expense:Deposits
    
    
    24,362
    
    
    
    34,747Short-term borrowings
    
    
    5,663
    
    
    
    7,436Collateralized debt
    
    
    18,250
    
    
    
    18,563Other long-term debt
    
    
    4,009
    
    
    
    3,958Total interest expense
    
    
    52,284
    
    
    
    64,704Net interest income
    
    
    48,218
    
    
    
    65,146Provision for loan and lease losses  Note 5
    
    
    58,033
    
    
    
    28,493Net interest (expense) income after provision for loan and lease losses
    
    
    (9,815
    )
    
    
    36,653Other income:Loan servicing fees
    
    
    3,133
    
    
    
    4,415Amortization and impairment of servicing assets  Note 6
    
    
    (1,747
    )
    
    
    (2,686
    )Gain from sales of loans and loans held for sale
    
    
    2,165
    
    
    
    3,329Trading (losses) gains
    
    
    (979
    )
    
    
    876Derivative losses, net
    
    
    (3,494
    )
    
    
    (5,673
    )Other than temporary impairment  Note 2
    
    
    (2,325
    )
    
    
    Other
    
    
    6,771
    
    
    
    6,7713,524
    
    
    
    7,032Other expense:Salaries
    
    
    22,866
    
    
    
    24,043Pension and other employee benefits
    
    
    6,094
    
    
    
    6,478Office expense
    
    
    2,164
    
    
    
    2,126Premises and equipment
    
    
    15,747
    
    
    
    5,500Marketing and development
    
    
    952
    
    
    
    1,354Professional fees
    
    
    4,181
    
    
    
    2,086Other
    
    
    18,325
    
    
    
    4,75870,329
    
    
    
    46,345Loss before income taxes from continuing operations
    
    
    (76,620
    )
    
    
    (2,660
    )Provision for income taxes
    
    
    (22,190
    )
    
    
    (1,857
    )Net loss from continuing operations
    
    
    (54,430
    )
    
    
    (803
    )Loss from discontinued operations, net of $11,540 income tax benefit
    
    
    
    
    
    
    (17,227
    )Net loss
    
    $
    (54,430
    )
    
    $
    (18,030
    )Loss per share from continuing operations:  Note 12Basic
    
    $
    (1.85
    )
    
    $
    (0.04
    )Diluted
    
    $
    (1.85
    )
    
    $
    (0.05
    )Loss per share:  Note 12Basic
    
    $
    (1.85
    )
    
    $
    (0.63
    )Diluted
    
    $
    (1.85
    )
    
    $
    (0.64
    )Dividends per share
    
    $
    
    
    
    $
    0.12
  7




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 For the Nine Months Ended September 30,2008
    
    
    2007(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    322,030
    
    
    $
    369,727Loans held for sale
    
    
    2,817
    
    
    
    6,663Residual interests
    
    
    629
    
    
    
    817Investment securities
    
    
    6,341
    
    
    
    7,757Federal funds sold
    
    
    678
    
    
    
    602Total interest income
    
    
    332,495
    
    
    
    385,566Interest expense:Deposits
    
    
    79,820
    
    
    
    103,178Other borrowings
    
    
    18,825
    
    
    
    22,054Collateralized debt
    
    
    47,123
    
    
    
    51,491Other long-term debt
    
    
    12,199
    
    
    
    11,726Total interest expense
    
    
    157,967
    
    
    
    188,449Net interest income
    
    
    174,528
    
    
    
    197,117Provision for loan and lease losses  Note 5
    
    
    260,384
    
    
    
    71,155Net interest (expense) income after provision for loan and lease losses
    
    
    (85,856
    )
    
    
    125,962Other income:Loan servicing fees
    
    
    8,424
    
    
    
    15,443Amortization and impairment of servicing assets  Note 6
    
    
    (4,027
    )
    
    
    (9,924
    )Gain from sales of loans and loans held for sale
    
    
    10,169
    
    
    
    690Trading (losses) gains
    
    
    (3,156
    )
    
    
    868Derivative losses, net
    
    
    (1,449
    )
    
    
    (10,014
    )Other than temporary impaiment  Note 2
    
    
    (22,320
    )
    
    
    Other
    
    
    17,948
    
    
    
    18,7365,589
    
    
    
    15,799Other expense:Salaries
    
    
    65,501
    
    
    
    73,688Pension and other employee benefits
    
    
    19,768
    
    
    
    20,912Office expense
    
    
    6,399
    
    
    
    7,002Premises and equipment
    
    
    26,803
    
    
    
    16,468Marketing and development
    
    
    3,292
    
    
    
    3,931Professional fees
    
    
    9,607
    
    
    
    6,853Other
    
    
    34,910
    
    
    
    16,839166,280
    
    
    
    145,693Loss before income taxes from continuing operations
    
    
    (246,547
    )
    
    
    (3,932
    )Provision for income taxes
    
    
    (63,220
    )
    
    
    (2,507
    )Loss from continuing operations
    
    
    (183,327
    )
    
    
    (1,425
    )Loss from discontinued operations, net of $18,250 income tax benefit
    
    
    
    
    
    
    (27,123
    )Net loss
    
    $
    (183,327
    )
    
    $
    (28,548
    )Loss per share from continuing operations:  Note 12Basic
    
    $
    (6.25
    )
    
    $
    (0.08
    )Diluted
    
    $
    (6.25
    )
    
    $
    (0.11
    )Loss per share:  Note 12Basic
    
    $
    (6.25
    )
    
    $
    (1.01
    )Diluted
    
    $
    (6.25
    )
    
    $
    (1.03
    )Dividends per share
    
    $
    
    
    
    $
    0.36
  8




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Nine Months Ended September 30, 2008, and 2007
 Accumulated Other Comprehensive IncomeDefined
    
    Additional
    
    
    
    
    
    
    
    
    
    PerpetualRetained
    
    Foreign
    
    Unrealized Gain/Loss
    
    Benefit
    
    Paid in
    
    Common
    
    Treasury
    
    PreferredTotal
    
    Earnings
    
    Currency
    
    Securities
    
    Derivatives
    
    Plans
    
    Capital
    
    Stock
    
    Stock
    
    Stock(Dollars in thousands)Balance at January 1, 2008
    
    $
    459,300
    
    
    $
    337,524
    
    
    $
    9,158
    
    
    $
    (1,445
    )
    
    $
    (1,576
    )
    
    $
    (5,105
    )
    
    $
    2,557
    
    
    $
    116,542
    
    
    $
    (12,796
    )
    
    $
    14,441Net loss
    
    
    (183,327
    )
    
    
    (183,327
    )Unrealized gain on investment
securities net of $663 tax liability
    
    
    995
    
    
    
    
    
    
    
    
    
    
    
    995Unrealized loss on derivatives
net of $206 tax benefit
    
    
    (310
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (310
    )Foreign currency adjustment
    
    
    (3,329
    )
    
    
    
    
    
    
    (3,329
    )Other comprehensive loss
    
    
    (2,644
    )Total comprehensive loss
    
    
    (185,971
    )Stock compensation expense
    
    
    1,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,851Subsidiary stock purchase
    
    
    (2,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,313
    )Stock:Purchase of 6,102 shares
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )Sales of 166,706 shares
    
    
    774
    
    
    
    (319
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,095
    )
    
    
    125
    
    
    
    3,063Balance at September 30, 2008
    
    $
    273,549
    
    
    $
    153,878
    
    
    $
    5,829
    
    
    $
    (450
    )
    
    $
    (1,886
    )
    
    $
    (5,105
    )
    
    $
    
    
    
    $
    116,667
    
    
    $
    (9,825
    )
    
    $
    14,441Balance at January 1, 2007
    
    $
    530,502
    
    
    $
    405,835
    
    
    $
    2,884
    
    
    $
    (344
    )
    
    $
    (30
    )
    
    $
    (6,874
    )
    
    $
    1,583
    
    
    $
    116,192
    
    
    $
    (3,262
    )
    
    $
    14,518Net loss
    
    
    (28,548
    )
    
    
    (28,548
    )Unrealized loss on investment
securities net of $300 tax benefit
    
    
    (450
    )
    
    
    
    
    
    
    
    
    
    
    (450
    )Unrealized loss on derivatives
net of $318 tax benefit
    
    
    (477
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477
    )Foreign currency adjustment
    
    
    6,623
    
    
    
    
    
    
    
    6,623Other comprehensive income
    
    
    5,696Total comprehensive loss
    
    
    (22,852
    )Cash dividends  common stock
    
    
    (10,543
    )
    
    
    (10,543
    )Cash dividends  preferred stock
    
    
    (1,004
    )
    
    
    (1,004
    )FAS 156 adoption
    
    
    1,743
    
    
    
    1,743Tax benefit on stock option exercises
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91Stock compensation expense
    
    
    1,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,296Stock issuance costs
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Stock:Purchase of 671,186 shares
    
    
    (12,781
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,781
    )Sales of 117,715 shares
    
    
    2,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (198
    )
    
    
    100
    
    
    
    2,519Balance at September 30, 2007
    
    $
    488,796
    
    
    $
    367,483
    
    
    $
    9,507
    
    
    $
    (794
    )
    
    $
    (507
    )
    
    $
    (6,874
    )
    
    $
    2,772
    
    
    $
    116,292
    
    
    $
    (13,524
    )
    
    $
    14,441
  9




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Nine Months ended September 30,2008
    
    
    2007(Dollars in thousands)Loss from continuing operations
    
    $
    (183,327
    )
    
    $
    (1,425
    )Loss from discontinued operations
    
    
    
    
    
    
    (27,123
    )Net loss
    
    
    (183,327
    )
    
    
    (28,548
    )Adjustments to reconcile net loss to cash provided
by operating activities:Depreciation, amortization, and accretion, net
    
    
    9,657
    
    
    
    7,742Other than temporary impairment
    
    
    22,320
    
    
    
    Amortization and impairment of servicing assets
    
    
    4,027
    
    
    
    10,174Valuation allowance on deferred taxes
    
    
    32,700
    
    
    
    Provision for loan and lease losses
    
    
    260,384
    
    
    
    71,155(Loss) gain from sales of loans held for sale
    
    
    (18,200
    )
    
    
    11,279Originations and purchases of loans held for sale
    
    
    (218,142
    )
    
    
    (497,707
    )Proceeds from sales and repayments of loans held for sale
    
    
    633,116
    
    
    
    622,568Net decrease in residuals
    
    
    3,668
    
    
    
    132Net decrease in accounts receivable
    
    
    5,102
    
    
    
    163,494Other, net
    
    
    (116,068
    )
    
    
    (64,945
    )Net cash provided by operating activities
    
    
    435,237
    
    
    
    295,344Investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    3,153
    
    
    
    2,438Available-for-sale
    
    
    2,973
    
    
    
    2,818Purchase of investment securities:Held-to-maturity
    
    
    (3,286
    )
    
    
    (2,167
    )Available-for-sale
    
    
    (513
    )
    
    
    (17,316
    )Net decrease in interest-bearing deposits
    
    
    4,822
    
    
    
    20,265Net decrease (increase) in loans, excluding sales
    
    
    437,489
    
    
    
    (337,626
    )Other, net
    
    
    (1,422
    )
    
    
    (7,739
    )Net cash provided (used) by investing activities
    
    
    443,216
    
    
    
    (339,327
    )Financing activities:Net decrease in deposits
    
    
    (159,617
    )
    
    
    (48,445
    )Net decrease in short-term borrowings
    
    
    (275,767
    )
    
    
    (63,170
    )Proceeds from issuance of collateralized debt
    
    
    218,051
    
    
    
    364,579Repayments of collateralized debt
    
    
    (486,571
    )
    
    
    (249,514
    )Repayments of long term debt
    
    
    (5
    )
    
    
    (11
    )Subsidiary stock purchase
    
    
    (2,313
    )
    
    
    Purchase of treasury stock for employee benefit plans
    
    
    (92
    )
    
    
    (12,781
    )Proceeds from sale of stock for employee benefit plans
    
    
    774
    
    
    
    2,512Dividends paid
    
    
    
    
    
    
    (11,547
    )Net cash used by financing activities
    
    
    (705,540
    )
    
    
    (18,377
    )Effect of exchange rate changes on cash
    
    
    (710
    )
    
    
    2,268Net increase (decrease) in cash and cash equivalents
    
    
    172,203
    
    
    
    (60,092
    )Cash and cash equivalents at beginning of period
    
    
    78,212
    
    
    
    145,765Cash and cash equivalents at end of period
    
    $
    250,415
    
    
    $
    85,673Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    147,448
    
    
    $
    187,623Income taxes paid
    
    $
    4,266
    
    
    $
    12,001Noncash transactions:Adoption of FAS 156
    
    $
    
    
    
    $
    2,905Other real estate owned
    
    $
    14,327
    
    
    $
    12,729
  10




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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:
 Foreign Currency:
 Cash and Cash Equivalents:
 Investment Securities:
 Residual Interests:
 Loans Held For Sale:
 11




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##### Table of Contents



Loans:
  Allowance for Loan and Lease Losses:
   Servicing Assets:
   Incentive Servicing Fees:
 12




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##### Table of Contents



Derivative Instruments:
   Premises and Equipment:
 Other Assets:
 Income Taxes:
 Recent Accounting Developments:
   13




---



##### Table of Contents



Note 2  Investment Securities
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Held-to-Maturity:U.S. Treasury and
government obligations
    
    $
    14,443
    
    
    $
    13,970Obligations of states
and political subdivisions
    
    
    3,321
    
    
    
    3,436Mortgage-backed securities
    
    
    926
    
    
    
    717Total held-to-maturity
    
    
    18,690
    
    
    
    18,123Available-for-Sale:Mortgage-backed securities
    
    
    22,912
    
    
    
    45,499Other
    
    
    13,228
    
    
    
    14,185Total available-for-sale
    
    
    36,140
    
    
    
    59,684Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    62,588
    
    
    
    62,588Total investment securities
    
    $
    117,418
    
    
    $
    140,395
  Note 3  Loans and Leases Held for Sale
  Note 4  Loans and Leases
  September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Commercial, financial and agricultural
    
    $
    1,972,507
    
    
    $
    2,099,451Real estate-construction & land development
    
    
    512,971
    
    
    
    586,037Real estate-mortgage
    
    
    1,517,294
    
    
    
    1,691,450Consumer
    
    
    26,608
    
    
    
    32,232Commercial financingFranchise financing
    
    
    904,666
    
    
    
    925,741Domestic leasing
    
    
    12,506
    
    
    
    306,301Foreign leasing
    
    
    
    
    
    
    462,036Unearned incomeFranchise financing
    
    
    (293,677
    )
    
    
    (306,681
    )Domestic leasing
    
    
    (1,369
    )
    
    
    (42,723
    )Foreign leasing
    
    
    
    
    
    
    (57,614
    )Total
    
    $
    4,651,506
    
    
    $
    5,696,230
 14




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##### Table of Contents



Note 5  Allowance for Loan and Lease Losses
  Three Months Ended September 30,
    

Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Balance at beginning of period
    
    $
    215,714
    
    
    $
    92,140
    
    
    $
    144,855
    
    
    $
    74,468Provision for loan and lease losses
    
    
    58,033
    
    
    
    28,493
    
    
    
    260,384
    
    
    
    71,155Charge-offs
    
    
    (42,865
    )
    
    
    (18,782
    )
    
    
    (176,595
    )
    
    
    (48,619
    )Recoveries
    
    
    1,318
    
    
    
    2,555
    
    
    
    4,325
    
    
    
    7,881Reduction due to reclassification and sales of loans
    
    
    (449
    )
    
    
    (210
    )
    
    
    (1,087
    )
    
    
    (1,006
    )Foreign currency adjustment
    
    
    51
    
    
    
    247
    
    
    
    (80
    )
    
    
    564Balance at end of period
    
    $
    231,802
    
    
    $
    104,443
    
    
    $
    231,802
    
    
    $
    104,443
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Accruing loans past due 90 days or more
    
    $
    622
    
    
    $
    857Nonaccrual loans and leases
    
    
    178,779
    
    
    
    75,453Total nonperforming loans and leases
    
    $
    179,401
    
    
    $
    76,310
 Note 6  Servicing Assets
  September 30,
    
    
    December 31,2008
    
    
    2007And the Nine Months
    
    
    And the Year ThenThen Ended
    
    
    Ended(Dollars in thousands)Beginning balance
    
    $
    19,724
    
    
    $
    27,725Gain from initial adoption of SFAS 156
    
    
    
    
    
    
    2,905Changes in fair value:Due to changes in valuation inputs or assumptions (1)
    
    
    490
    
    
    
    (1,589
    )Other changes in fair value (2)
    
    
    (3,640
    )
    
    
    (9,317
    )Balance at the end of the period
    
    $
    16,574
    
    
    $
    19,724
 
 (1)
    
    Principally reflects changes in discount rates and prepayment spread assumptions,
primarily due to changes in interest rates.(2)
    
    Represents changes due to realization of expected cash flows. 15




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007And the Nine Months
    
    
    And the Year ThenThen Ended
    
    
    Ended(Dollars in thousands)Beginning balance
    
    $
    3,510
    
    
    $
    31,949Initial adoption of SFAS 156
    
    
    
    
    
    
    (27,725
    )Additions
    
    
    796
    
    
    
    530Sales
    
    
    
    
    
    
    (5
    )Amortization
    
    
    (885
    )
    
    
    (1,199
    )Recovery (impairment)
    
    
    8
    
    
    
    (40
    )Balance at the end of the period
    
    $
    3,429
    
    
    $
    3,510
  September 30,
    
    
    December 31,2008
    
    
    2007And the Nine Months
    
    
    And the Year ThenThen Ended
    
    
    Ended(Dollars in thousands)Balance at beginning of year
    
    $
    191
    
    
    $
    483Transfer of assets from amortizing to fair value
    
    
    
    
    
    
    (332
    )(Recovery) impairment
    
    
    (8
    )
    
    
    40Balance at the end of the period
    
    $
    183
    
    
    $
    191
 Note 7  Income Taxes
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Income taxes computed at the statutory rate
    
    $
    (26,817
    )
    
    $
    (930
    )
    
    $
    (86,292
    )
    
    $
    (1,376
    )Increase (decrease) resulting from:Nontaxable interest from investment securities and loans
    
    
    (23
    )
    
    
    (29
    )
    
    
    (81
    )
    
    
    (88
    )Nontaxable income from bank owned life insurance
    
    
    (57
    )
    
    
    (216
    )
    
    
    (407
    )
    
    
    (487
    )State tax, net of federal benefit
    
    
    (2,546
    )
    
    
    (133
    )
    
    
    (8,450
    )
    
    
    (197
    )Foreign operations
    
    
    83
    
    
    
    (8
    )
    
    
    127
    
    
    
    (75
    )Reserve adjustment(1)
    
    
    (127
    )
    
    
    (382
    )
    
    
    219
    
    
    
    184Federal tax credits
    
    
    (602
    )
    
    
    (264
    )
    
    
    (1,323
    )
    
    
    (793
    )Other items  net
    
    
    99
    
    
    
    105
    
    
    
    287
    
    
    
    325Valuation allowance (2)
    
    
    7,800
    
    
    
    
    
    
    
    32,700
    
    
    
    $
    (22,190
    )
    
    $
    (1,857
    )
    
    $
    (63,220
    )
    
    $
    (2,507
    )
 16




---



##### Table of Contents



(1)
    
    Tax reserves are adjusted as we align our tax liability to a level commensurate with our
current identified tax exposures.(2)
    
    During the nine month period ended September 30, 2008, we recorded a valuation allowance to
reduce our deferred tax asset to an amount that is more likely than not to be realized. Note 8  Other Borrowings
  September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    526,657
    
    
    $
    574,424Federal funds
    
    
    
    
    
    
    228,000Total
    
    $
    526,657
    
    
    $
    802,424Weighted average interest rate
    
    
    3.70
    %
    
    
    5.20
    %
   Note 9  Collateralized Debt
   17




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##### Table of Contents



WeightedAverageInterest Rate atContractual
    
    September 30,
    
    September 30,
    
    December 31,Maturity
    
    2008
    
    2008
    
    2007(Dollars in thousands)Commercial finance line of businessCanadian asset backed notes:Note 1
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    46,183Note 2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,103Note 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,120Home equity line of business2004-1 variable rate asset backed notes:
    
    
    12/2024-12/2034
    
    
    
    3.1
    
    
    
    53,570
    
    
    
    58,5082005-1 variable and fixed rate asset backed notes:
    
    
    6/2025-6/2035
    
    
    
    4.9
    
    
    
    124,474
    
    
    
    145,8052006-1 variable and fixed rate asset backed notes:
    
    
    9/2035
    
    
    
    5.1
    
    
    
    145,076
    
    
    
    165,1152006-2 variable and fixed rate asset backed notes:
    
    
    2/2036
    
    
    
    4.9
    
    
    
    161,369
    
    
    
    184,3132006-3 variable and fixed rate asset backed notes:
    
    
    1/2037-9/2037
    
    
    
    4.5
    
    
    
    147,127
    
    
    
    168,3242007-1 variable and fixed rate asset backed notes:
    
    
    8/2037
    
    
    
    4.3
    
    
    
    223,735
    
    
    
    248,6682008-1 variable and fixed rate asset backed notes:
    
    
    9/2048
    
    
    
    7.3
    
    
    
    7,594
    
    
    
    2008-2 fixed rate asset backed notes:
    
    
    9/2048
    
    
    
    19.0
    
    
    
    74,872
    
    
    
    2008-3 fixed rate asset backed notes:
    
    
    9/2048
    
    
    
    19.4
    
    
    
    8,452
    
    
    
    0Total
    
    
    
    
    
    
    
    
    
    $
    946,269
    
    
    $
    1,213,139
 Note 10  Employee Retirement Plans
  Employee Pension Plan
 Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    1,167
    
    
    $
    1,014
    
    
    $
    3,501
    
    
    $
    3,040Interest cost
    
    
    683
    
    
    
    606
    
    
    
    2,048
    
    
    
    1,819Expected return on plan assets
    
    
    (657
    )
    
    
    (627
    )
    
    
    (1,971
    )
    
    
    (1,880
    )Amortization of prior service cost
    
    
    9
    
    
    
    9
    
    
    
    28
    
    
    
    28Amortization of actuarial loss
    
    
    71
    
    
    
    136
    
    
    
    213
    
    
    
    409Net periodic benefit cost
    
    $
    1,273
    
    
    $
    1,138
    
    
    $
    3,819
    
    
    $
    3,416
 18




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##### Table of Contents



Supplemental Executive Retirement Plan
 Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    22
    
    
    $
    58
    
    
    $
    65
    
    
    $
    175Interest cost
    
    
    81
    
    
    
    101
    
    
    
    243
    
    
    
    302Amortization of transition obligation
    
    
    3
    
    
    
    3
    
    
    
    8
    
    
    
    8Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Amortization of actuarial loss
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    59Net periodic benefit cost
    
    $
    106
    
    
    $
    182
    
    
    $
    317
    
    
    $
    545
  Note 11  Fair Value
     
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived valuations
in which all significant inputs and significant value drivers are observable in active
markets.
    
    Level 3  Model derived valuations in which one or more significant inputs or significant
value drivers are unobservable.
 19




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##### Table of Contents



Level 1
    
    Level 2
    
    Level 3
    
    Total(Dollars in thousands)September 30, 2008AssetsResidual interests
    
    $
    
    
    
    $
    
    
    
    $
    9,008
    
    
    $
    9,008Investment securities  available-for-sale
    
    
    
    
    
    
    21,267
    
    
    
    14,873
    
    
    
    36,140Servicing assets
    
    
    
    
    
    
    
    
    
    
    16,574
    
    
    
    16,574Total assets
    
    $
    
    
    
    $
    21,267
    
    
    $
    40,455
    
    
    $
    61,722LiabilitiesCollateralized debt
    
    $
    
    
    
    $
    
    
    
    $
    90,918
    
    
    $
    90,918Derivatives
    
    
    
    
    
    
    4,315
    
    
    
    
    
    
    
    4,315Total liabilities
    
    $
    
    
    
    $
    4,315
    
    
    $
    90,918
    
    
    $
    95,233
   Net realized/unrealized
    
    Purchases,gain(losses) included in
    
    issuances and
    
    
    
    
    
    Unrealized gains (losses)January 1, 2008
    
    earnings(1) (2)
    
    settlements
    
    September 30, 2008
    
    still held(3)(Dollars in thousands)AssetsResidual interests
    
    $
    12,047
    
    
    $
    (3,077
    )
    
    $
    38
    
    
    $
    9,008
    
    
    $
    (3,077
    )Investment securities  available-for-sale
    
    
    37,682
    
    
    
    (22,748
    )
    
    
    (61
    )
    
    
    14,873
    
    
    
    (22,748
    )Servicing assets
    
    
    19,724
    
    
    
    (3,150
    )
    
    
    
    
    
    
    16,574
    
    
    
    Total assets
    
    $
    69,453
    
    
    $
    (28,975
    )
    
    $
    38
    
    
    $
    40,455
    
    
    $
    (28,975
    )LiabilitiesCollateralized borrowings
    
    $
    
    
    
    $
    278
    
    
    $
    90,640
    
    
    $
    90,918
    
    
    $
    278Total liabilities
    
    $
    
    
    
    $
    278
    
    
    $
    90,640
    
    
    $
    90,918
    
    
    $
    278
 
 (1)
    
    Unrealized gains (losses) on residual interests are recorded in Trading gains (losses) on
the statement of income(2)
    
    Unrealized gains (losses) on servicing assets are recorded in Amortization and impairment of
servicing assets on the statement of income(3)
    
    Represents the amount of total gains or losses for the period, included in earnings,
attributable to the change in unrealized gains (losses) relating to assets classified as Level
3 that are still held at September 30, 2008 20




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##### Table of Contents



Level 1
    
    Level 2
    
    Level 3
    
    Total(Dollars in thousands)September 30, 2008AssetsLoans held for investment (1)
    
    $
    
    
    
    $
    
    
    
    $
    98,822
    
    
    $
    98,822Loans and leases held for sale(2)
    
    
    
    
    
    
    
    
    
    
    43,643
    
    
    
    43,643Mortage servicing assets(3)
    
    
    
    
    
    
    
    
    
    
    3,429
    
    
    
    3,429Total assets
    
    $
    
    
    
    $
    
    
    
    $
    145,894
    
    
    $
    145,894
 
 (1)
    
    Represents the carrying amount of impaired loans (i.e., unpaid principal balance less
specific loan loss reserves) with impairment calculated based on appraised collateral values(2)
    
    Represents the carrying value of loans and leases held for sale which are valued at lower of
cost or market value. Market value is determined based upon open market bids and discounted
cash flow models adjusted for prepayment assumptions(3)
    
    Represents the carrying value of mortgage servicing assets which are valued at lower of cost
or market. Market value is determined based upon observed pricing on similar, market-traded
servicing rights or discounted cash flow models Note 12  Loss Per Share
  Three Months ended September 30, 2008Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsIncome (Loss)
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:
    
    $
    (54,430
    )
    
    $
    
    
    
    $
    (54,430
    )
    
    $
    
    
    
    $
    (54,430
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,378
    
    
    
    
    
    
    
    29,378Per-share amount
    
    
    
    
    
    
    
    
    
    $
    (1.85
    )
    
    $
    
    
    
    $
    (1.85
    )
 Three Months ended September 30, 2007Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsIncome (Loss)
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:From Continuing Operations
    
    $
    (803
    )
    
    $
    (326
    )
    
    $
    (1,129
    )
    
    $
    (279
    )
    
    $
    (1,408
    )From Discontinued Operations
    
    
    (17,227
    )
    
    
    
    
    
    
    (17,227
    )
    
    
    
    
    
    
    (17,227
    )Total Net Loss for All Operations
    
    $
    (18,030
    )
    
    $
    (326
    )
    
    
    (18,356
    )
    
    
    (279
    )
    
    
    (18,635
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,191
    
    
    
    
    
    
    
    29,191Per-share from Continuing Operations
    
    
    
    
    
    
    
    
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )Per-Share amount for all Operations
    
    
    
    
    
    
    
    
    
    $
    (0.63
    )
    
    $
    (0.01
    )
    
    $
    (0.64
    )
 21




---



##### Table of Contents



Nine Months ended September 30, 2008Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsLoss
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:
    
    $
    (183,327
    )
    
    $
    
    
    
    $
    (183,327
    )
    
    $
    
    
    
    $
    (183,327
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,314
    
    
    
    
    
    
    
    29,314Per-share amount
    
    
    
    
    
    
    
    
    
    $
    (6.25
    )
    
    $
    
    
    
    $
    (6.25
    )
 Nine Months ended September 30, 2007Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsLoss
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:From Continuing Operations
    
    $
    (1,425
    )
    
    $
    (1,004
    )
    
    $
    (2,429
    )
    
    $
    (683
    )
    
    $
    (3,112
    )From Discontinued Operations
    
    
    (27,123
    )
    
    
    
    
    
    
    (27,123
    )
    
    
    
    
    
    
    (27,123
    )Total Net Loss for All Operations
    
    $
    (28,548
    )
    
    $
    (1,004
    )
    
    
    (29,552
    )
    
    
    (683
    )
    
    
    (30,235
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,390
    
    
    
    
    
    
    
    29,390Per-share from Continuing Operations
    
    
    
    
    
    
    
    
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.11
    )Per-share amount for All Operations
    
    
    
    
    
    
    
    
    
    $
    (1.01
    )
    
    $
    (0.02
    )
    
    $
    (1.03
    )
  Note 13  Industry Segment Information
   22




---



##### Table of Contents



Commercial
    
    Commercial
    
    Home Equity
    
    Parent andBanking
    
    Finance
    
    Lending
    
    Other
    
    Consolidated(Dollars in thousands)For the Three Months Ended September 30, 2008Net interest income
    
    $
    29,300
    
    
    $
    18,764
    
    
    $
    18,295
    
    
    $
    (18,141
    )
    
    $
    48,218Intersegment interest
    
    
    (3,522
    )
    
    
    (9,546
    )
    
    
    (3,608
    )
    
    
    16,676
    
    
    
    Provision for loan and leases losses
    
    
    (29,400
    )
    
    
    (1,694
    )
    
    
    (26,940
    )
    
    
    1
    
    
    
    (58,033
    )Other revenues
    
    
    4,414
    
    
    
    3,134
    
    
    
    539
    
    
    
    (4,563
    )
    
    
    3,524Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    792
    
    
    
    10,658
    
    
    
    (11,714
    )
    
    
    (6,027
    )
    
    
    (6,291
    )Other expense
    
    
    25,496
    
    
    
    13,926
    
    
    
    26,891
    
    
    
    4,016
    
    
    
    70,329Intersegment expenses
    
    
    1,129
    
    
    
    376
    
    
    
    652
    
    
    
    (2,157
    )
    
    
    Loss before taxes
    
    
    (25,833
    )
    
    
    (3,644
    )
    
    
    (39,257
    )
    
    
    (7,886
    )
    
    
    (76,620
    )Provision for taxes
    
    
    (10,728
    )
    
    
    (1,465
    )
    
    
    (15,698
    )
    
    
    5,701
    
    
    
    (22,190
    )Net loss
    
    $
    (15,105
    )
    
    $
    (2,179
    )
    
    $
    (23,559
    )
    
    $
    (13,587
    )
    
    $
    (54,430
    )
 ConsolidatedCommercial
    
    Commercial
    
    Home Equity
    
    Parent and
    
    Continuing
    
    DiscontinuedBanking
    
    Finance
    
    Lending
    
    Other
    
    Operations
    
    Operations
    
    Consolidated(Dollars in thousands)For the Three Months Ended September 30, 2007Net interest income
    
    $
    30,918
    
    
    $
    23,779
    
    
    $
    28,280
    
    
    $
    (17,831
    )
    
    $
    65,146
    
    
    $
    (550
    )
    
    $
    64,596Intersegment interest
    
    
    (929
    )
    
    
    (10,521
    )
    
    
    (4,875
    )
    
    
    16,325
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan and leases losses
    
    
    (3,100
    )
    
    
    (2,860
    )
    
    
    (22,533
    )
    
    
    
    
    
    
    (28,493
    )
    
    
    
    
    
    
    (28,493
    )Other revenues
    
    
    4,099
    
    
    
    3,480
    
    
    
    2,150
    
    
    
    (2,697
    )
    
    
    7,032
    
    
    
    (4,577
    )
    
    
    2,455Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    1,058
    
    
    
    (1,058
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    30,988
    
    
    
    13,878
    
    
    
    4,080
    
    
    
    (5,261
    )
    
    
    43,685
    
    
    
    (5,127
    )
    
    
    38,558Other expense
    
    
    22,650
    
    
    
    7,199
    
    
    
    16,968
    
    
    
    (472
    )
    
    
    46,345
    
    
    
    23,640
    
    
    
    69,985Intersegment expenses
    
    
    932
    
    
    
    400
    
    
    
    670
    
    
    
    (2,002
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    7,406
    
    
    
    6,279
    
    
    
    (13,558
    )
    
    
    (2,787
    )
    
    
    (2,660
    )
    
    
    (28,767
    )
    
    
    (31,427
    )Provision for taxes
    
    
    2,697
    
    
    
    2,471
    
    
    
    (5,420
    )
    
    
    (1,605
    )
    
    
    (1,857
    )
    
    
    (11,540
    )
    
    
    (13,397
    )Net income (loss)
    
    $
    4,709
    
    
    $
    3,808
    
    
    $
    (8,138
    )
    
    $
    (1,182
    )
    
    $
    (803
    )
    
    $
    (17,227
    )
    
    $
    (18,029
    )
 23




---



##### Table of Contents



Commercial
    
    Commercial
    
    Home Equity
    
    Parent andBanking
    
    Finance
    
    Lending
    
    Other
    
    Consolidated(Dollars in thousands)For the Nine Months Ended September 30, 2008Net interest income
    
    $
    90,439
    
    
    $
    69,551
    
    
    $
    72,355
    
    
    $
    (57,817
    )
    
    $
    174,528Intersegment interest
    
    
    (9,917
    )
    
    
    (32,929
    )
    
    
    (12,677
    )
    
    
    55,523
    
    
    
    Provision for loan and leases losses
    
    
    (60,461
    )
    
    
    (54,551
    )
    
    
    (145,371
    )
    
    
    (1
    )
    
    
    (260,384
    )Other revenue
    
    
    13,482
    
    
    
    12,248
    
    
    
    958
    
    
    
    (21,099
    )
    
    
    5,589Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    (76
    )
    
    
    Total net revenues
    
    
    33,543
    
    
    
    (5,681
    )
    
    
    (84,659
    )
    
    
    (23,470
    )
    
    
    (80,267
    )Other expense
    
    
    69,922
    
    
    
    28,545
    
    
    
    53,600
    
    
    
    14,213
    
    
    
    166,280Intersegment expenses
    
    
    3,279
    
    
    
    1,281
    
    
    
    1,864
    
    
    
    (6,424
    )
    
    
    Loss before taxes
    
    
    (39,658
    )
    
    
    (35,507
    )
    
    
    (140,123
    )
    
    
    (31,259
    )
    
    
    (246,547
    )Provision for taxes
    
    
    (16,846
    )
    
    
    (14,356
    )
    
    
    (56,053
    )
    
    
    24,035
    
    
    
    (63,220
    )Net loss
    
    $
    (22,812
    )
    
    $
    (21,151
    )
    
    $
    (84,070
    )
    
    $
    (55,294
    )
    
    $
    (183,327
    )Assets at September 30, 2008
    
    $
    3,048,492
    
    
    $
    687,926
    
    
    $
    1,216,206
    
    
    $
    306,800
    
    
    $
    5,259,424
 ConsolidatedCommercial
    
    
    Commercial
    
    
    Home Equity
    
    
    Parent and
    
    
    Continuing
    
    
    DiscontinuedBanking
    
    
    Finance
    
    
    Lending
    
    
    Other
    
    
    Operations
    
    
    Operations
    
    
    Consolidated(Dollars in thousands)For the Nine Months Ended September 30, 2007Net interest income
    
    $
    90,551
    
    
    $
    67,087
    
    
    $
    90,670
    
    
    $
    (51,191
    )
    
    $
    197,117
    
    
    $
    (1,766
    )
    
    $
    195,351Intersegment interest
    
    
    (1,084
    )
    
    
    (28,898
    )
    
    
    (18,228
    )
    
    
    48,210
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan and leases losses
    
    
    (8,541
    )
    
    
    (9,392
    )
    
    
    (53,222
    )
    
    
    
    
    
    
    (71,155
    )
    
    
    
    
    
    
    (71,155
    )Other revenue
    
    
    12,234
    
    
    
    9,218
    
    
    
    (851
    )
    
    
    (4,802
    )
    
    
    15,799
    
    
    
    (12,037
    )
    
    
    3,762Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    2,024
    
    
    
    (2,024
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    93,160
    
    
    
    38,015
    
    
    
    20,393
    
    
    
    (9,807
    )
    
    
    141,761
    
    
    
    (13,803
    )
    
    
    127,958Other expense
    
    
    68,097
    
    
    
    21,458
    
    
    
    52,121
    
    
    
    4,017
    
    
    
    145,693
    
    
    
    31,570
    
    
    
    177,263Intersegment expenses
    
    
    2,700
    
    
    
    1,209
    
    
    
    1,966
    
    
    
    (5,875
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    22,363
    
    
    
    15,348
    
    
    
    (33,694
    )
    
    
    (7,949
    )
    
    
    (3,932
    )
    
    
    (45,373
    )
    
    
    (49,305
    )Provision for taxes
    
    
    8,149
    
    
    
    6,013
    
    
    
    (13,456
    )
    
    
    (3,213
    )
    
    
    (2,507
    )
    
    
    (18,250
    )
    
    
    (20,757
    )Net income (loss)
    
    $
    14,214
    
    
    $
    9,335
    
    
    $
    (20,238
    )
    
    $
    (4,736
    )
    
    $
    (1,425
    )
    
    $
    (27,123
    )
    
    $
    (28,548
    )Assets at September 30, 2007
    
    $
    3,131,124
    
    
    $
    1,251,874
    
    
    $
    1,561,817
    
    
    $
    217,033
    
    
    
    
    
    
    
    
    
    
    $
    6,161,848
 Note 14  Commitments and Contingencies
 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
 24




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##### Table of Contents



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 Kessler v. RFC, et al Kessler Kessler Kessler Kessler Kessler Kessler Kessler
 Chatfield Ransom Chatfield Ransom
 Hobson Kossler
 Litigation in Connection with Loans Purchased from Freedom Mortgage Corporation.
 Irwin Union Bank, et
al. v. Freedom Mortgage Corp.
 Freedom Mortgage
Corporation v. Irwin Financial Corporation et al.
 25




---



##### Table of Contents



Homer v. Sharp
   Note 15  Regulatory Matters
  26




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Strategy
         27




---



##### Table of Contents



Critical Accounting Policies
  Consolidated Overview
 For the Three Months
Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Net loss from continuing operations (in thousands)
    
    $
    (54,430
    )
    
    $
    (803
    )
    
    $
    (183,327
    )
    
    $
    (1,425
    )Basic loss per share from continuing operations
    
    
    (1.85
    )
    
    
    (0.04
    )
    
    
    (6.25
    )
    
    
    (0.08
    )Diluted loss per share from continuing operations
    
    
    (1.85
    )
    
    
    (0.05
    )
    
    
    (6.25
    )
    
    
    (0.11
    )Return on average equity from continuing operations
    
    
    (74.8
    )%
    
    
    (0.6
    )%
    
    
    (64.1
    )%
    
    
    (0.4
    )%Return on average assets from continuing operations
    
    
    (4.0
    )%
    
    
    (0.1
    )%
    
    
    (4.2
    )%
    
    
    0.0
    %
  Outlook
    28




---



##### Table of Contents



Consolidated Income Statement Analysis
 Net Income from Continuing Operations
  Net Interest Income from Continuing Operations
  29




---



##### Table of Contents



For the Nine Months Ended September 30,2008
    
    
    2007Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest-bearing deposits with financial institutions
    
    $
    33,290
    
    
    $
    1,208
    
    
    
    4.85
    %
    
    $
    52,648
    
    
    $
    2,093
    
    
    
    5.32
    %Federal funds sold
    
    
    42,131
    
    
    
    678
    
    
    
    2.15
    %
    
    
    19,667
    
    
    
    602
    
    
    
    4.09
    %Residual interests
    
    
    12,506
    
    
    
    629
    
    
    
    6.72
    %
    
    
    10,196
    
    
    
    817
    
    
    
    10.71
    %Investment securities
    
    
    127,294
    
    
    
    5,133
    
    
    
    5.39
    %
    
    
    137,989
    
    
    
    5,664
    
    
    
    5.49
    %Loans held for sale
    
    
    41,542
    
    
    
    2,817
    
    
    
    9.06
    %
    
    
    124,528
    
    
    
    6,677
    
    
    
    7.17
    %Loans and leases, net of unearned income(1)
    
    
    5,350,332
    
    
    
    322,030
    
    
    
    8.04
    %
    
    
    5,426,759
    
    
    
    371,502
    
    
    
    9.15
    %Total interest earning assets
    
    
    5,607,095
    
    
    $
    332,495
    
    
    
    7.92
    %
    
    
    5,771,787
    
    
    $
    387,355
    
    
    
    8.97
    %Noninterest-earning assets:Cash and due from banks
    
    
    82,220
    
    
    
    
    
    
    
    
    
    
    
    72,880Premises and equipment, net
    
    
    37,292
    
    
    
    
    
    
    
    
    
    
    
    39,092Other assets
    
    
    233,834
    
    
    
    
    
    
    
    
    
    
    
    296,246Less allowance for loan and lease losses
    
    
    (161,494
    )
    
    
    
    
    
    
    
    
    
    
    (87,384
    )Total assets
    
    $
    5,798,947
    
    
    
    
    
    
    
    
    
    
    $
    6,092,621Liabilities and Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    306,611
    
    
    $
    2,950
    
    
    
    1.29
    %
    
    $
    283,746
    
    
    $
    4,890
    
    
    
    2.30
    %Money market savings
    
    
    971,791
    
    
    
    18,358
    
    
    
    2.52
    %
    
    
    1,160,416
    
    
    
    38,954
    
    
    
    4.49
    %Regular savings
    
    
    115,260
    
    
    
    1,400
    
    
    
    1.62
    %
    
    
    124,113
    
    
    
    2,064
    
    
    
    2.22
    %Time deposits
    
    
    1,749,171
    
    
    
    57,112
    
    
    
    4.36
    %
    
    
    1,497,477
    
    
    
    57,270
    
    
    
    5.11
    %Other borrowings
    
    
    562,206
    
    
    
    18,825
    
    
    
    4.47
    %
    
    
    621,873
    
    
    
    24,329
    
    
    
    5.23
    %Collateralized debt
    
    
    1,098,642
    
    
    
    47,123
    
    
    
    5.73
    %
    
    
    1,223,586
    
    
    
    51,491
    
    
    
    5.63
    %Other long-term debt
    
    
    233,869
    
    
    
    12,199
    
    
    
    6.97
    %
    
    
    233,930
    
    
    
    13,005
    
    
    
    7.43
    %Total interest-bearing liabilities
    
    $
    5,037,550
    
    
    $
    157,967
    
    
    
    4.19
    %
    
    $
    5,145,141
    
    
    $
    192,003
    
    
    
    4.99
    %Noninterest-bearing liabilities:Demand deposits
    
    
    298,742
    
    
    
    
    
    
    
    
    
    
    
    334,639Other liabilities
    
    
    80,724
    
    
    
    
    
    
    
    
    
    
    
    98,946Shareholders equity
    
    
    381,931
    
    
    
    
    
    
    
    
    
    
    
    513,895Total liabilities and shareholders equity
    
    $
    5,798,947
    
    
    
    
    
    
    
    
    
    
    $
    6,092,621Net interest income
    
    
    
    
    
    $
    174,528
    
    
    
    
    
    
    
    
    
    
    $
    195,352Net interest income to average
interest earning assets
    
    
    
    
    
    
    
    
    
    
    4.16
    %
    
    
    
    
    
    
    
    
    
    
    4.53
    %Less: Net interest income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,765
    )Net interest income from continuing operations
    
    
    
    
    
    $
    174,528
    
    
    
    
    
    
    
    
    
    
    $
    197,117
 
 (1)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan
amounts outstanding. 30




---



##### 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
  Consolidated Balance Sheet Analysis
  31




---



##### Table of Contents



Investment Securities
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Held-to-Maturity:U.S. Treasury and government obligations
    
    $
    14,443
    
    
    $
    13,970Obligations of states and political subdivisions
    
    
    3,321
    
    
    
    3,436Mortgage-backed securities
    
    
    926
    
    
    
    717Total held-to-maturity
    
    
    18,690
    
    
    
    18,123Available-for-Sale:Mortgage-backed securities
    
    
    22,912
    
    
    
    45,499Other
    
    
    13,228
    
    
    
    14,185Total available-for-sale
    
    
    36,140
    
    
    
    59,684Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    62,588
    
    
    
    62,588Total investment securities
    
    $
    117,418
    
    
    $
    140,395
  Loans and Leases Held For Sale
  Loans and Leases
  32




---



##### Table of Contents



September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Commercial, financial and agricultural
    
    $
    1,972,507
    
    
    $
    2,099,451Real estate-construction & land development
    
    
    512,971
    
    
    
    586,037Real estate-mortgage
    
    
    1,517,294
    
    
    
    1,691,450Consumer
    
    
    26,608
    
    
    
    32,232Commercial financingFranchise financing
    
    
    904,666
    
    
    
    925,741Domestic leasing
    
    
    12,506
    
    
    
    306,301Foreign leasing
    
    
    
    
    
    
    462,036Unearned incomeFranchise financing
    
    
    (293,677
    )
    
    
    (306,681
    )Domestic leasing
    
    
    (1,369
    )
    
    
    (42,723
    )Foreign leasing
    
    
    
    
    
    
    (57,614
    )Total
    
    $
    4,651,506
    
    
    $
    5,696,230
 Allowance for Loans and Lease Losses
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Balance at beginning of period
    
    $
    215,714
    
    
    $
    92,140
    
    
    $
    144,855
    
    
    $
    74,468Provision for loan and lease losses
    
    
    58,033
    
    
    
    28,493
    
    
    
    260,384
    
    
    
    71,155Charge-offs
    
    
    (42,865
    )
    
    
    (18,782
    )
    
    
    (176,595
    )
    
    
    (48,619
    )Recoveries
    
    
    1,318
    
    
    
    2,555
    
    
    
    4,325
    
    
    
    7,881Reduction due to reclassification and sales of loans
    
    
    (449
    )
    
    
    (210
    )
    
    
    (1,087
    )
    
    
    (1,006
    )Foreign currency adjustment
    
    
    51
    
    
    
    247
    
    
    
    (80
    )
    
    
    564Balance at end of period
    
    $
    231,802
    
    
    $
    104,443
    
    
    $
    231,802
    
    
    $
    104,443
  Deposits
   Other Borrowings
  33




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##### Table of Contents



Collateralized and Other Long-Term Debt
   Capital
   34




---



##### Table of Contents



Minimum RegulatoryActual
    

Well-CapitalizedAmount
    
    Ratio
    

StandardAs of September 30, 2008
    
    (Dollars in thousands)Total Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    $
    533,442
    
    
    
    10.8
    %
    
    
    10.0
    %Irwin Union Bank and Trust
    
    
    494,697
    
    
    
    11.3
    
    
    
    10.0Irwin Union Bank, F.S.B.
    
    
    68,897
    
    
    
    12.4
    
    
    
    10.0Tier I Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    
    334,674
    
    
    
    6.8
    
    
    
    6.0Irwin Union Bank and Trust
    
    
    407,608
    
    
    
    9.3
    
    
    
    6.0Irwin Union Bank, F.S.B.
    
    
    61,950
    
    
    
    11.2
    
    
    
    6.0Tier I Capital (to Average Assets):Irwin Financial Corporation
    
    
    334,674
    
    
    
    6.3
    
    
    
    5.0Irwin Union Bank and Trust
    
    
    407,608
    
    
    
    8.6
    
    
    
    5.0Core Capital (to Adjusted Tangible Assets)Irwin Union Bank, F.S.B.
    
    
    61,950
    
    
    
    9.7
    
    
    
    5.0As of December 31, 2007Total Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    $
    779,360
    
    
    
    12.8
    %
    
    
    10.0
    %Irwin Union Bank and Trust
    
    
    692,370
    
    
    
    12.7
    
    
    
    10.0Irwin Union Bank, F.S.B.
    
    
    65,808
    
    
    
    10.7
    
    
    
    10.0Tier I Capital (to Risk-Weighted Assets):Irwin Financial Corporation
    
    
    632,647
    
    
    
    10.4
    
    
    
    6.0Irwin Union Bank and Trust
    
    
    592,981
    
    
    
    10.9
    
    
    
    6.0Irwin Union Bank, F.S.B.
    
    
    60,339
    
    
    
    9.8
    
    
    
    6.0Tier I Capital (to Average Assets):Irwin Financial Corporation
    
    
    632,647
    
    
    
    10.4
    
    
    
    5.0Irwin Union Bank and Trust
    
    
    592,981
    
    
    
    10.7
    
    
    
    5.0Core Capital (to Adjusted Tangible Assets)Irwin Union Bank, F.S.B.
    
    
    60,339
    
    
    
    9.3
    
    
    
    5.0
  Cash Flow Analysis
  35




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##### Table of Contents



Earning
by Line of Business
  
    
    Commercial Banking
    
    Commercial Finance
    
    Home Equity Lending
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Net (loss) income:Commercial Banking
    
    $
    (15,105
    )
    
    $
    4,709
    
    
    $
    (22,812
    )
    
    $
    14,214Commercial Finance
    
    
    (2,179
    )
    
    
    3,808
    
    
    
    (21,151
    )
    
    
    9,335Home Equity Lending
    
    
    (23,559
    )
    
    
    (8,138
    )
    
    
    (84,070
    )
    
    
    (20,238
    )Other (including consolidating entries)
    
    
    (13,587
    )
    
    
    (1,182
    )
    
    
    (55,294
    )
    
    
    (4,736
    )Net loss from continuing operations
    
    
    (54,430
    )
    
    
    (803
    )
    
    
    (183,327
    )
    
    
    (1,425
    )Discontinued operations
    
    
    
    
    
    
    (17,227
    )
    
    
    
    
    
    
    (27,123
    )Net loss
    
    $
    (54,430
    )
    
    $
    (18,030
    )
    
    $
    (183,327
    )
    
    $
    (28,548
    )
  36




---



##### Table of Contents



Commercial Banking
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    43,313
    
    
    $
    58,729
    
    
    $
    138,520
    
    
    $
    175,984Interest expense
    
    
    (17,535
    )
    
    
    (28,740
    )
    
    
    (57,998
    )
    
    
    (86,517
    )Net interest income
    
    
    25,778
    
    
    
    29,989
    
    
    
    80,522
    
    
    
    89,467Provision for loan and lease losses
    
    
    (29,400
    )
    
    
    (3,100
    )
    
    
    (60,461
    )
    
    
    (8,541
    )Noninterest income
    
    
    4,414
    
    
    
    4,099
    
    
    
    13,482
    
    
    
    12,234Total net revenue
    
    
    792
    
    
    
    30,988
    
    
    
    33,543
    
    
    
    93,160Operating expense
    
    
    (26,625
    )
    
    
    (23,582
    )
    
    
    (73,201
    )
    
    
    (70,797
    )(Loss) income before taxes
    
    
    (25,833
    )
    
    
    7,406
    
    
    
    (39,658
    )
    
    
    22,363Income taxes
    
    
    10,728
    
    
    
    (2,697
    )
    
    
    16,846
    
    
    
    (8,149
    )Net (loss) income
    
    $
    (15,105
    )
    
    $
    4,709
    
    
    $
    (22,812
    )
    
    $
    14,214Performance Ratios:Return on Average Equity
    
    
    -27.22
    %
    
    
    8.05
    %
    
    
    -13.22
    %
    
    
    8.14
    %
 September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Selected Balance Sheet Data at End of Period:Assets
    
    $
    3,048,492
    
    
    $
    3,093,764Loans and leases
    
    
    2,747,063
    
    
    
    2,950,356Allowance for loan and lease losses
    
    
    (70,513
    )
    
    
    (35,148
    )Deposits
    
    
    2,110,027
    
    
    
    2,528,721Shareholders equity
    
    
    205,139
    
    
    
    235,009Daily Averages:Assets
    
    $
    3,021,139
    
    
    $
    3,143,219Loans and leases
    
    
    2,891,215
    
    
    
    2,902,994Allowance for loan and lease losses
    
    
    (44,587
    )
    
    
    (26,984
    )Deposits
    
    
    2,493,590
    
    
    
    2,753,615Shareholders equity
    
    
    230,477
    
    
    
    234,068Shareholders equity to assets
    
    
    7.63
    %
    
    
    7.45
    %
 Overview
  37




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##### Table of Contents



Portfolio Characteristics
  September 30,
    
    December 31,2008
    
    2007Weighted
    
    
    
    
    
    
    
    
    
    WeightedLoans
    
    Percent
    
    Average
    
    Loans
    
    Percent
    
    AverageMarkets
    
    Outstanding
    
    of Total
    
    Yield
    
    Outstanding
    
    of Total
    
    Yield(Dollars in thousands)Indianapolis
    
    $
    471,504
    
    
    
    17.2
    %
    
    
    6.2
    %
    
    $
    539,008
    
    
    
    18.3
    %
    
    
    7.1
    %Central and Western Michigan
    
    
    409,223
    
    
    
    14.9
    %
    
    
    5.7
    
    
    
    465,924
    
    
    
    15.8
    
    
    
    7.3Southern Indiana
    
    
    443,555
    
    
    
    16.1
    %
    
    
    6.4
    
    
    
    463,597
    
    
    
    15.7
    
    
    
    6.7Phoenix
    
    
    454,410
    
    
    
    16.5
    %
    
    
    5.6
    
    
    
    484,985
    
    
    
    16.4
    
    
    
    7.0Las Vegas
    
    
    186,451
    
    
    
    6.8
    %
    
    
    5.4
    
    
    
    188,126
    
    
    
    6.4
    
    
    
    8.2Sacramento
    
    
    117,781
    
    
    
    4.3
    %
    
    
    5.7
    
    
    
    120,149
    
    
    
    4.1
    
    
    
    7.7Other
    
    
    664,139
    
    
    
    24.2
    %
    
    
    5.7
    
    
    
    688,567
    
    
    
    23.3
    
    
    
    7.4Total
    
    $
    2,747,063
    
    
    
    100.0
    %
    
    
    5.8
    %
    
    $
    2,950,356
    
    
    
    100.0
    %
    
    
    7.3
    %
 Weighted
    
    
    
    
    
    
    
    
    
    WeightedCore
    
    Percent
    
    Average
    
    Core
    
    Percent
    
    AverageDeposits
    
    of Total
    
    Yield
    
    Deposits
    
    of Total
    
    YieldIndianapolis
    
    $
    235,490
    
    
    
    13.8
    %
    
    
    1.8
    %
    
    $
    225,075
    
    
    
    10.0
    %
    
    
    3.5
    %Central and Western Michigan
    
    
    175,901
    
    
    
    10.3
    %
    
    
    1.9
    
    
    
    195,818
    
    
    
    8.7
    
    
    
    2.6Southern Indiana
    
    
    679,468
    
    
    
    39.9
    %
    
    
    1.9
    
    
    
    740,686
    
    
    
    33.1
    
    
    
    2.9Phoenix
    
    
    119,632
    
    
    
    7.0
    %
    
    
    2.3
    
    
    
    175,617
    
    
    
    7.8
    
    
    
    3.4Las Vegas
    
    
    76,599
    
    
    
    4.5
    %
    
    
    1.6
    
    
    
    429,693
    
    
    
    19.2
    
    
    
    3.7Sacramento
    
    
    42,084
    
    
    
    2.5
    %
    
    
    1.3
    
    
    
    45,228
    
    
    
    2.0
    
    
    
    2.5Other
    
    
    373,968
    
    
    
    22.0
    %
    
    
    2.1
    
    
    
    428,599
    
    
    
    19.2
    
    
    
    6.3Total
    
    $
    1,703,142
    
    
    
    100.0
    %
    
    
    1.9
    %
    
    $
    2,240,716
    
    
    
    100.0
    %
    
    
    3.1%
 Net Income
  Net Interest Income
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Net interest income
    
    $
    25,778
    
    
    $
    29,989
    
    
    $
    80,522
    
    
    $
    89,467Average interest earning assets
    
    
    2,865,884
    
    
    
    2,997,178
    
    
    
    2,931,411
    
    
    
    3,035,892Net interest margin
    
    
    3.58
    %
    
    
    3.97
    %
    
    
    3.67
    %
    
    
    3.94
    %
  38




---



##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Trust fees
    
    $
    512
    
    
    $
    566
    
    
    $
    1,642
    
    
    $
    1,680Service charges on deposit accounts
    
    
    1,137
    
    
    
    1,019
    
    
    
    3,410
    
    
    
    2,814Insurance commissions, fees and premiums
    
    
    371
    
    
    
    405
    
    
    
    1,345
    
    
    
    1,426Gain from sales of loans
    
    
    445
    
    
    
    457
    
    
    
    1,509
    
    
    
    1,474Loan servicing fees
    
    
    337
    
    
    
    351
    
    
    
    1,008
    
    
    
    1,100Amortization of servicing assets
    
    
    (230
    )
    
    
    (268
    )
    
    
    (838
    )
    
    
    (836
    )Brokerage fees
    
    
    439
    
    
    
    468
    
    
    
    1,147
    
    
    
    1,219Other
    
    
    1,403
    
    
    
    1,101
    
    
    
    4,259
    
    
    
    3,357Total noninterest income
    
    $
    4,414
    
    
    $
    4,099
    
    
    $
    13,482
    
    
    $
    12,234
  Operating Expenses
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Salaries and employee benefits
    
    $
    12,899
    
    
    $
    13,048
    
    
    $
    38,782
    
    
    $
    40,318Other expenses
    
    
    13,726
    
    
    
    10,534
    
    
    
    34,419
    
    
    
    30,479Total operating expenses
    
    $
    26,625
    
    
    $
    23,582
    
    
    $
    73,201
    
    
    $
    70,797Efficiency ratio
    
    
    88.2
    %
    
    
    69.2
    %
    
    
    77.9
    %
    
    
    69.6
    %Number of employees at period end(1)
    
    
    
    
    
    
    
    
    
    
    534
    
    
    
    593
 
 (1)
    
    On a full time equivalent basis.  Balance Sheet
  39




---



##### Table of Contents



Credit Quality
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Nonperforming loans
    
    $
    128,918
    
    
    $
    27,001Other real estate owned
    
    
    12,294
    
    
    
    6,895Total nonperforming assets
    
    $
    141,212
    
    
    $
    33,896Nonperforming assets to total assets
    
    
    4.62
    %
    
    
    1.09
    %Allowance for loan losses
    
    $
    70,513
    
    
    $
    35,148Allowance for loan losses to total loans
    
    
    2.57
    %
    
    
    1.19
    %
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Provision for loan losses
    
    $
    29,400
    
    
    $
    3,100
    
    
    $
    60,461
    
    
    $
    8,541Net charge-offs
    
    
    9,105
    
    
    
    2,118
    
    
    
    25,097
    
    
    
    8,197Net charge-offs to average loans
    
    
    1.28
    %
    
    
    0.29
    %
    
    
    1.16
    %
    
    
    0.38
    %
  September 30,
    
    
    December 31,2008
    
    
    2007MarketsIndianapolis
    
    
    3.06
    %
    
    
    1.02
    %Central and Western Michigan
    
    
    2.57
    %
    
    
    2.52
    %Southern Indiana
    
    
    0.49
    %
    
    
    0.53
    %Phoenix
    
    
    11.80
    %
    
    
    1.20
    %Las Vegas
    
    
    11.57
    %
    
    
    0.01
    %Sacramento
    
    
    3.84
    %
    
    
    4.15
    %Other
    
    
    3.32
    %
    
    
    0.49
    %Total
    
    
    4.69
    %
    
    
    1.15
    %
  40




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##### Table of Contents



Commercial Finance
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    9,218
    
    
    $
    13,258
    
    
    $
    36,622
    
    
    $
    38,189Provision for loan and lease losses
    
    
    (1,694
    )
    
    
    (2,860
    )
    
    
    (54,551
    )
    
    
    (9,392
    )Noninterest income
    
    
    3,134
    
    
    
    3,480
    
    
    
    12,248
    
    
    
    9,218Total net revenue
    
    
    10,658
    
    
    
    13,878
    
    
    
    (5,681
    )
    
    
    38,015Operating expense
    
    
    (14,302
    )
    
    
    (7,599
    )
    
    
    (29,826
    )
    
    
    (22,667
    )(Loss) income before taxes
    
    
    (3,644
    )
    
    
    6,279
    
    
    
    (35,507
    )
    
    
    15,348Income taxes
    
    
    1,465
    
    
    
    (2,471
    )
    
    
    14,356
    
    
    
    (6,013
    )Net (loss) income
    
    $
    (2,179
    )
    
    $
    3,808
    
    
    $
    (21,151
    )
    
    $
    9,335Selected Operating Data:Total funding of loans and leases
    
    $
    95,077
    
    
    $
    185,478
    
    
    $
    384,080
    
    
    $
    488,831
 September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    687,926
    
    
    $
    1,302,688Loans and leases held for sale
    
    
    40,495
    
    
    
    Loans and leases
    
    
    622,127
    
    
    
    1,287,060Allowance for loan and lease losses
    
    
    (6,445
    )
    
    
    (17,792
    )Shareholders equity
    
    
    94,142
    
    
    
    119,574
 Overview
   41




---



##### Table of Contents



Portfolio Characteristics
  September 30,
    
    
    December 31,2008
    
    
    2007California
    
    
    14.2
    %
    
    
    12.9
    %Texas
    
    
    11.3
    
    
    
    12.6New York
    
    
    8.7
    
    
    
    8.7New Jersey
    
    
    8.7
    
    
    
    7.0All other states
    
    
    57.1
    
    
    
    58.8Total
    
    
    100.0
    %
    
    
    100.0
    %Total Portfolio
    
    $
    645,471
    
    
    $
    619,060
  September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Franchise loans
    
    $
    645,471
    
    
    $
    619,060Weighted average coupon
    
    
    9.57
    %
    
    
    9.38Delinquency ratio
    
    
    1.31
    
    
    
    0.04
 Net Income
  Net Interest Income
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Net interest income
    
    $
    9,218
    
    
    $
    13,258
    
    
    $
    36,622
    
    
    $
    38,189Average interest earning assets
    
    
    850,857
    
    
    
    1,184,323
    
    
    
    1,129,223
    
    
    
    1,113,288Net interest margin
    
    
    4.31
    %
    
    
    4.44
    %
    
    
    4.33
    %
    
    
    4.59
    %
   42




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##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Gain from sales of loans
    
    $
    1,518
    
    
    $
    1,768
    
    
    $
    8,031
    
    
    $
    4,805Derivative losses, net
    
    
    (903
    )
    
    
    (51
    )
    
    
    (1,662
    )
    
    
    (325
    )Other
    
    
    2,519
    
    
    
    1,763
    
    
    
    5,879
    
    
    
    4,738Total noninterest income
    
    $
    3,134
    
    
    $
    3,480
    
    
    $
    12,248
    
    
    $
    9,218
  Operating Expenses
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Salaries and employee benefits
    
    $
    4,685
    
    
    $
    4,629
    
    
    $
    14,252
    
    
    $
    14,112Other
    
    
    9,617
    
    
    
    2,970
    
    
    
    15,574
    
    
    
    8,555Total operating expenses
    
    $
    14,302
    
    
    $
    7,599
    
    
    $
    29,826
    
    
    $
    22,667Efficiency ratio
    
    
    115.79
    %
    
    
    45.40
    %
    
    
    61.03
    %
    
    
    47.81
    %Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    192
 
 (1)
    
    On a full time equivalent basis.  Credit Quality
   43




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##### Table of Contents



September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Franchise Loans:Nonperforming loans
    
    $
    7,141
    
    
    $
    3,630Allowance for loan losses
    
    
    5,891
    
    
    
    5,961Allowance for loan losses to total loans
    
    
    0.96
    %
    
    
    0.96
    %
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)
    
    (Dollars in thousands)Provision for loan losses
    
    $
    920
    
    
    $
    781
    
    
    $
    4,276
    
    
    $
    1,574Net charge-offs
    
    
    878
    
    
    
    252
    
    
    
    3,259
    
    
    
    623Net charge-offs to average loans
    
    
    1.10
    %
    
    
    0.16
    %
    
    
    0.51
    %
    
    
    0.14
    %
 44




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##### Table of Contents



Home Equity Lending
     Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    14,687
    
    
    $
    23,405
    
    
    $
    59,678
    
    
    $
    72,442Provision for loan and lease losses
    
    
    (26,940
    )
    
    
    (22,533
    )
    
    
    (145,371
    )
    
    
    (53,222
    )Noninterest income
    
    
    539
    
    
    
    3,208
    
    
    
    1,034
    
    
    
    1,173Total net revenues
    
    
    (11,714
    )
    
    
    4,080
    
    
    
    (84,659
    )
    
    
    20,393Operating expenses
    
    
    (27,543
    )
    
    
    (17,638
    )
    
    
    (55,464
    )
    
    
    (54,087
    )Loss before taxes
    
    
    (39,257
    )
    
    
    (13,558
    )
    
    
    (140,123
    )
    
    
    (33,694
    )Income taxes
    
    
    15,698
    
    
    
    5,420
    
    
    
    56,053
    
    
    
    13,456Net loss
    
    $
    (23,559
    )
    
    $
    (8,138
    )
    
    $
    (84,070
    )
    
    $
    (20,238
    )Selected Operating Data:Net home equity charge-offs to average
managed portfolio
    
    
    8.26
    %
    
    
    3.10
    %
    
    
    7.49
    %
    
    
    2.77
    %Gain on sale of loans to loans sold
    
    
    1.81
    %
    
    
    0.94
    %
    
    
    2.25
    %
    
    
    0.53
    %
 September 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Selected Balance Sheet Data:Total assets
    
    $
    1,216,206
    
    
    $
    1,481,306Home equity loans and lines of credit(1)
    
    
    1,282,068
    
    
    
    1,458,564Allowance for loan losses
    
    
    (154,629
    )
    
    
    (91,700
    )Home equity loans held for sale
    
    
    954
    
    
    
    5,865Residual interests
    
    
    
    
    
    
    3,120Mortgage servicing assets
    
    
    16,882
    
    
    
    20,071Short-term borrowings
    
    
    112,027
    
    
    
    291,293Collateralized debt
    
    
    946,269
    
    
    
    970,733Shareholders equity
    
    
    153,082
    
    
    
    156,894Selected Operating Data:Total managed portfolio balance
    
    
    1,403,966
    
    
    
    1,605,032Delinquency ratio (2)
    
    
    7.4
    %
    
    
    5.8
    %Weighted average coupon rate:Lines of credit
    
    
    8.58
    %
    
    
    10.62
    %Loans
    
    
    11.08
    
    
    
    11.07
 
 (1)
    
    Includes $1.2 billion and $1.1 billion of loans at September 30, 2008 and December 31, 2007,
respectively, pledged as collateral as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. 45




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##### Table of Contents



Overview
  Portfolio Characteristics
  September 30, 2008
    
    
    September 30, 2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageAmount
    
    
    % of Total
    
    
    Coupon
    
    
    Amount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)
    
    
    (Dollars in thousands)Home Mortgage PortfolioLoans  £   100% CLTV
    
    $
    360,757
    
    
    
    25.70
    %
    
    
    8.94
    %
    
    $
    445,641
    
    
    
    26.95
    %
    
    
    9.06
    %Lines of credit £  100% CLTV
    
    
    212,290
    
    
    
    15.12
    
    
    
    7.24
    
    
    
    259,976
    
    
    
    15.72
    
    
    
    9.92First mortgages £  100% CLTV
    
    
    39,208
    
    
    
    2.79
    
    
    
    7.61
    
    
    
    47,813
    
    
    
    2.89
    
    
    
    7.67FNMA First mortgages £  100%
CLTV
    
    
    741
    
    
    
    0.05
    
    
    
    6.55
    
    
    
    
    
    
    
    
    
    
    
    Total £  100% CLTV
    
    
    612,996
    
    
    
    43.66
    
    
    
    8.26
    
    
    
    753,430
    
    
    
    45.56
    
    
    
    9.27Loans > 100% CLTV
    
    
    686,640
    
    
    
    48.91
    
    
    
    12.49
    
    
    
    781,372
    
    
    
    47.25
    
    
    
    12.49Lines of credit > 100% CLTV
    
    
    77,363
    
    
    
    5.51
    
    
    
    12.00
    
    
    
    89,660
    
    
    
    5.42
    
    
    
    14.57First mortgages > 100% CLTV
    
    
    22,727
    
    
    
    1.62
    
    
    
    8.47
    
    
    
    23,771
    
    
    
    1.44
    
    
    
    8.48Total > 100% CLTV
    
    
    786,730
    
    
    
    56.04
    
    
    
    12.32
    
    
    
    894,803
    
    
    
    54.11
    
    
    
    12.59Other
    
    
    4,240
    
    
    
    0.30
    
    
    
    13.52
    
    
    
    5,373
    
    
    
    0.33
    
    
    
    14.16Total portfolio
    
    $
    1,403,966
    
    
    
    100.00
    %
    
    
    10.55
    %
    
    $
    1,653,606
    
    
    
    100.00
    %
    
    
    11.08
    %
 Net Income
  Net Revenue
   46




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Net interest income
    
    $
    14,687
    
    
    $
    23,405
    
    
    $
    59,678
    
    
    $
    72,442Provision for loan losses
    
    
    (26,940
    )
    
    
    (22,533
    )
    
    
    (145,371
    )
    
    
    (53,222
    )Gain on sales of whole loans
    
    
    109
    
    
    
    223
    
    
    
    793
    
    
    
    893Gain on sales intercompany transactions
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    2,087Valuation adjustment on loans held for sale
    
    
    66
    
    
    
    (86
    )
    
    
    137
    
    
    
    (8,158
    )Gain (loss) on sales of loans
    
    
    175
    
    
    
    1,122
    
    
    
    930
    
    
    
    (5,178
    )Loan servicing fees
    
    
    2,818
    
    
    
    4,065
    
    
    
    7,521
    
    
    
    14,343Amortization of servicing assets
    
    
    (10
    )
    
    
    (24
    )
    
    
    (47
    )
    
    
    (92
    )Impairment of servicing assets
    
    
    (1,507
    )
    
    
    (2,395
    )
    
    
    (3,142
    )
    
    
    (8,995
    )Derivative losses
    
    
    (71
    )
    
    
    (39
    )
    
    
    (72
    )
    
    
    (321
    )Other
    
    
    (866
    )
    
    
    479
    
    
    
    (4,156
    )
    
    
    1,416Total net revenue
    
    $
    (11,714
    )
    
    $
    4,080
    
    
    $
    (84,659
    )
    
    $
    20,393
    Operating Expenses
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Salaries and employee benefits
    
    $
    9,304
    
    
    $
    11,172
    
    
    $
    25,244
    
    
    $
    33,725Other
    
    
    18,239
    
    
    
    6,466
    
    
    
    30,220
    
    
    
    20,362Total operating expenses
    
    $
    27,543
    
    
    $
    17,638
    
    
    $
    55,464
    
    
    $
    54,087Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    464
 
 (1)
    
    On a full time equivalent basis.  47




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##### Table of Contents



Home Equity Servicing
  September 30,
    
    December 31,
    
    September 30,2008
    
    2007
    
    2007(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,403,966
    
    
    $
    1,605,032
    
    
    $
    1,653,60630 days past due
    
    
    7.43
    %
    
    
    5.78
    %
    
    
    4.72
    %90 days past due
    
    
    3.04
    
    
    
    2.53
    
    
    
    2.06Net Chargeoff Rate
    
    
    8.26
    
    
    
    3.24
    
    
    
    3.10Unsold LoansTotal Loans(1)
    
    $
    1,276,741
    
    
    $
    1,458,095
    
    
    $
    1,498,23930 days past due
    
    
    7.91
    %
    
    
    6.18
    %
    
    
    5.05
    %90 days past due
    
    
    3.22
    
    
    
    2.76
    
    
    
    2.25Net Chargeoff Rate
    
    
    8.62
    
    
    
    3.58
    
    
    
    3.41Loan Loss Reserve
    
    $
    154,629
    
    
    $
    91,700
    
    
    $
    59,981Owned ResidualTotal Loans
    
    $
    127,225
    
    
    $
    146,937
    
    
    $
    155,36830 days past due
    
    
    2.57
    %
    
    
    1.83
    %
    
    
    1.45
    %90 days past due
    
    
    1.26
    
    
    
    0.29
    
    
    
    0.33Net Chargeoff Rate
    
    
    4.61
    
    
    
    0.17
    
    
    
    0.15Credit Risk Sold, Potential Incentive Servicing Fee Retained
PortfolioTotal Loans
    
    $
    390,168
    
    
    $
    461,237
    
    
    $
    491,55130 days past due
    
    
    6.77
    %
    
    
    7.13
    %
    
    
    5.87
    %90 days past due
    
    
    2.20
    
    
    
    2.69
    
    
    
    2.21
 
 (1)
    
    Excludes deferred fees and costs. Parent and Other
    48




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##### Table of Contents



Risk Management
  
    
    Credit risk
    
    Liquidity risk
    
    Market risk (including interest rate and foreign exchange risk)
    
    Operational risk
    
    Compliance risk
     Credit Risk
   49




---



##### Table of Contents



Annualized for the Three Months EndedSeptember 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Commercial Bank
    
    
    1.28
    %
    
    
    0.27
    %Commercial Finance
    
    
    2.23
    
    
    
    0.90Home Equity Lending
    
    
    8.62
    
    
    
    5.05Total
    
    
    3.39
    %
    
    
    1.66
    %
   50




---



##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Accruing loans past due 90 days or more:Commercial, financial and
agricultural loans
    
    $
    40
    
    
    $
    177Real estate mortgages
    
    
    
    
    
    
    151Consumer loans
    
    
    582
    
    
    
    41Commercial financing:Franchise financing
    
    
    
    
    
    
    Domestic leasing
    
    
    
    
    
    
    311Canadian leasing
    
    
    
    
    
    
    177622
    
    
    
    857Nonaccrual loans and leases:Commercial, financial and
agricultural loans
    
    
    126,869
    
    
    
    25,797Real estate mortgages
    
    
    41,120
    
    
    
    40,681Consumer loans
    
    
    1,427
    
    
    
    587Commercial financing:Franchise financing
    
    
    7,142
    
    
    
    3,630Domestic leasing
    
    
    2,221
    
    
    
    2,595Canadian leasing
    
    
    
    
    
    
    2,163178,779
    
    
    
    75,453Total nonperforming
loans and leases
    
    
    179,401
    
    
    
    76,310Other real estate owned & other
    
    
    20,944
    
    
    
    16,964Total nonperforming assets
    
    $
    200,345
    
    
    $
    93,274Nonperforming loans and leases to total
loans and leases
    
    
    3.9
    %
    
    
    1.3
    %Nonperforming assets to total
assets
    
    
    3.8
    %
    
    
    1.5
    %
   September 30,
    
    December 31,2008
    
    2007(In millions)Commercial banking
    
    $
    141
    
    
    $
    34Commercial finance
    
    
    9
    
    
    
    10Home equity lending
    
    
    47
    
    
    
    46Parent and Other
    
    
    3
    
    
    
    3
  51




---



##### Table of Contents



Liquidity Risk
        
    
    Lines of credit with correspondent banks, including fed funds lines: none outstanding
out of $45 million available but not committed.
    
    Lines of credit with non-correspondent banks: none outstanding.
 52




---



##### Table of Contents




    
    Federal Reserve Bank Discount Window: none outstanding on $271 million of loans and
securities pledged
 Market Risk (including Interest Rate and Foreign Exchange Risk)
        
    
    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, or consider potential rebalancing or other management actions that might be taken
in the future under asset/liability management as interest rates change.
    
    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
appropriate estimates at those amounts of rate change, but it may not be accurate to
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.
 53




---



##### Table of Contents




    
    Finally, the tables show theoretical outcomes for dramatic changes in interest rates
which do not consider potential rebalancing or repositioning of hedges and balance sheet
mix. Normal fluctuations in non-interest sensitive assets and liabilities can cause
fluctuations in interest-sensitive assets and liabilities that can cause the market value
of equity to fluctuate from period to period.
 Economic Value Change Method
 Present Value at September 30, 2008Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    5,061,063
    
    
    $
    4,979,206
    
    
    $
    4,897,593
    
    
    $
    4,817,767
    
    
    $
    4,739,881Loans held for sale
    
    
    45,955
    
    
    
    44,760
    
    
    
    43,643
    
    
    
    42,596
    
    
    
    41,615Mortgage servicing rights
    
    
    14,630
    
    
    
    17,361
    
    
    
    20,003
    
    
    
    22,600
    
    
    
    24,433Interest sensitive financial derivatives
    
    
    (9,584
    )
    
    
    (6,401
    )
    
    
    (4,390
    )
    
    
    (533
    )
    
    
    2,198Total interest sensitive assets
    
    
    5,112,064
    
    
    
    5,034,926
    
    
    
    4,956,849
    
    
    
    4,882,430
    
    
    
    4,808,127Interest Sensitive LiabilitiesDeposits
    
    
    (3,082,901
    )
    
    
    (3,045,265
    )
    
    
    (3,007,990
    )
    
    
    (2,971,571
    )
    
    
    (2,935,974
    )Short-term borrowings (1)
    
    
    (466,378
    )
    
    
    (452,842
    )
    
    
    (439,851
    )
    
    
    (427,374
    )
    
    
    (415,383
    )Long-term debt
    
    
    (1,345,114
    )
    
    
    (1,325,084
    )
    
    
    (1,304,238
    )
    
    
    (1,279,409
    )
    
    
    (1,249,633
    )Total interest sensitive liabilities
    
    
    (4,894,393
    )
    
    
    (4,823,191
    )
    
    
    (4,752,079
    )
    
    
    (4,678,354
    )
    
    
    (4,600,990
    )Net market value as of Sept 30, 2008
    
    $
    217,671
    
    
    $
    211,735
    
    
    $
    204,770
    
    
    $
    204,076
    
    
    $
    207,137Change from current
    
    $
    12,901
    
    
    $
    6,965
    
    
    $
    
    
    
    $
    (694
    )
    
    $
    2,367Net market value as of June 30, 2008
    
    $
    337,794
    
    
    $
    313,339
    
    
    $
    292,450
    
    
    $
    280,548
    
    
    $
    268,221Change from current
    
    $
    45,344
    
    
    $
    20,889
    
    
    $
    
    
    
    $
    (11,902
    )
    
    $
    (24,229
    )
 
 (1)
    
    Includes certain debt which is categorized as collateralized borrowings in other sections
of this document 54




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##### Table of Contents



GAAP-Based Value Change Method
 Present Value at Sept 30, 2008Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    6,847
    
    
    $
    6,601
    
    
    $
    6,362
    
    
    $
    6,134
    
    
    $
    5,918Loans held for sale
    
    $
    45,955
    
    
    $
    44,760
    
    
    $
    43,643
    
    
    $
    42,596
    
    
    $
    41,615Mortgage servicing rights
    
    
    14,630
    
    
    
    17,361
    
    
    
    20,003
    
    
    
    22,600
    
    
    
    24,433Interest sensitive financial derivatives
    
    
    (9,584
    )
    
    
    (6,401
    )
    
    
    (4,390
    )
    
    
    (533
    )
    
    
    2,198Total interest sensitive assets
    
    
    57,848
    
    
    
    62,321
    
    
    
    65,618
    
    
    
    70,797
    
    
    
    74,164Interest Sensitive LiabilitiesDeposits (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term borrowings (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of Sept 30, 2008
    
    $
    57,848
    
    
    $
    62,321
    
    
    $
    65,618
    
    
    $
    70,797
    
    
    $
    74,164Potential change
    
    $
    (7,770
    )
    
    $
    (3,297
    )
    
    $
    
    
    
    $
    5,179
    
    
    $
    8,546Net market value as of June 30, 2008
    
    $
    338,485
    
    
    $
    344,552
    
    
    $
    350,306
    
    
    $
    353,010
    
    
    $
    353,710Potential change
    
    $
    (11,821
    )
    
    $
    (5,754
    )
    
    $
    
    
    
    $
    2,704
    
    
    $
    3,404
 Off-Balance Sheet Instruments
   Derivative Financial Instruments
    55




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Operational and Compliance Risk.
     Supervision and Regulation
    56




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##### Table of Contents



Agreement Elements
    
    Our StatusSubmit a plan to strengthen board
oversight of the management and
operations of the holding company
and the bank.
    
    We have submitted this plan to the
FRBC and DFI and are already acting
on it.Submit a report from an independent
consultant regarding the assessment
of the banks management and, as
appropriate, take steps to address
the independent consultants
findings.
    
    The Board has engaged this
consultant; the consultant expects
to complete their assessment in
November.Submit a written liquidity and funds
management plan and a contingency
plan that identifies available
sources of liquidity and includes
adverse scenario planning.
    
    We have submitted this plan to the
FRBC and DFI and are already acting
on it.Submit a capital plan that will
ensure our holding company and our
bank maintain sufficient capital to
comply with regulatory capital
guidelines and address adversely
affected assets, concentration of
credit, adequacy of allowance for
loan and leases losses and planned
growth and anticipated levels of
retained earnings.
    
    We have submitted this plan to the
FRBC and DFI and are already acting
on it. The previously announced
shareholder rights offering, standby
commitments, and possible Trust
Preferred Stock (TruPS) exchange
offers are part of this plan.Review and revise as necessary our
allowance for loan and lease losses
methodology to assure compliance
with relevant supervisory guidance,
submit a written program for the
maintenance of an adequate allowance
for loan and lease losses, and
within 30 days from the receipt of
any regulatory report of
examination, charge off all assets
classified loss.
    
    We have reviewed our allowance
methodology and submitted the
required documentation. We will
submit to the regulators an
allowance program within the
required timeframe and continue our
practice of charging off loans on a
timely basis as required by
regulation.Submit a three-year strategic plan
and a 2009 plan and budget for our
holding company and the bank.
    
    We will submit the 2009 plan and
3-year strategic plan in the fourth
quarter.Do not declare or pay any dividend,
make any distributions of interest
or principal on subordinated
debentures or trust preferred
securities, or incur, increase, or
guarantee any debt or repurchase
stock without prior regulatory
approval.
    
    We suspended dividends earlier in
the year and have no plans for
further debt issuance, nor need to
issue debt to support our on-going
business plan.
  Agreement Elements
    
    Our StatusMaintain capital in the FSB of at
least 9.0% Tier 1 (core) and 11.0%
and Total Capital; do not take on
additional brokered deposits without
prior regulatory approval.
    
    We currently do exceed and plan to
continue to exceed these capital
levels. At September 30, 2008, Tier
1 and Total Capital at the FSB were
11.2% and 12.4%, respectively. We
have less than $100 million in
brokered CDs in the FSB and a
forward
 57




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##### Table of Contents



Agreement Elements
    
    Our Statusbusiness plan that is not
reliant on additional issuance.Submit a revised business plan that
defines strategies for preserving
and enhancing the savings banks
capital, limits high-risk lending
activities, identifies strategies
designed to improve and sustain the
savings banks earnings, and
identifies strategies to stress-test
and adjust earnings forecasts based
on continuing operating results,
economic conditions and the credit
quality of our loan portfolio.
    
    We have submitted this plan to the
OTS and are already acting on it.Do not increase total FSB assets
more than the net interest credited
on deposit liabilities during the
prior quarter; do not make any more
construction loans or land loans
without prior regulatory approval.
    
    We stopped making commercial
construction and land loans in the
third quarter through the FSB. We
have submitted a business plan to
the OTS which manages our growth
within the specified limits.Restructure the
management of the
FSB so that it
operates on an
independent basis
from Irwin Union
Bank and Trust.
Hire a full time
President and Chief
Executive Officer,
Chief Credit
Officer and Chief
Financial Officer
for the FSB and add
at least two
independent
directors who are
not management
officials of our
holding company or
our bank.
    
    We have submitted a plan to the OTS which addresses
each of these points. The new executives and board
members have been identified from senior managers and
independent board members of the holding company. Each
will take their appointments, pending OTS approval.Do not have
employment
agreements or
contracts with the
FSB which contain
severance
provisions, golden
parachute
payments, and
certain other
prohibited payments
without the prior
approval of the
OTS. In addition,
do not enter into,
renew or revise any
third-party
contracts for
services outside
the normal course
of business without
prior approval.
    
    We have and will continue to adhere to these provisions.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
   58




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PART II. Other Information.
 
 Item 1. Legal Proceedings.
 Since the time we filed our Report on Form 10-Q for the period ended June 30, 2008, 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 the Financial Statements,
Part I, Item 1 of this Report.
 Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia Hobson v. Irwin Union Bank and Trust Company Kossler v. Community Bank of Northern
Virginia) (Chatfield v. Irwin Union Bank and Trust
Company, et al. Ransom v. Irwin Union Bank and Trust Company, et al.)).
 Chatfield Ransom
  
 Item 1A. Risk Factors.
  Risks Related to the Common Shares
 The price of our common shares may fluctuate significantly, and this may make it difficult for
shareholders to resell common shares they own at times or at prices they find attractive.
   
    
    quarterly variations in our operating results or the quality of our assets;
    
    operating results that vary from the expectations of management, securities analysts and
investors;
    
    changes in expectations as to our future financial performance;
    
    announcements of innovations, new products, strategic developments, significant
contracts, acquisitions and other material events by us or our competitors;
    
    the operating and securities price performance of other companies that investors believe
are comparable to us;
    
    future sales of our equity or equity-related securities, including our previously
announced rights offering currently in the registration process with the SEC;
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##### Table of Contents




    
    our past and future dividend practice;
    
    our creditworthiness;
    
    interest rates;
    
    the credit, mortgage and housing markets, the markets for securities relating to
mortgages or housing, and developments with respect to financial institutions generally;
    
    the market for similar securities; and
    
    economic, financial, geopolitical, regulatory, congressional or judicial events that
affect us or the financial markets.
   There may be future sales or other dilution of our equity, which may adversely affect the
market price of our common shares.
  You may not receive dividends on the common shares.
  The issuance of additional series of our preferred shares could adversely affect holders of
our common shares which may negatively impact shareholders investment.
  We have regulatory restrictions on our ability to receive dividends from bank subsidiaries.
  60




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Our shareholder rights plan, provisions in our restated articles of incorporation, our
by-laws, and Indiana law may delay or prevent an acquisition of us by a third party.
     Risks Related to the Capital and Credit Markets
 Current levels of market volatility are unprecedented.
  The current economic environment poses significant challenges for us and could adversely
affect our financial condition and results of operations.
  61




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The U.S. governments plan to restore the credit markets and stabilize the financial system
may not be effective and/or it may not be available to us.
  Risks Related to Our Business
 We may be adversely affected by a general deterioration in economic conditions.
   We may be adversely affected by interest rate changes.
   62




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Our operations may be adversely affected if we are unable to secure adequate funding; our use
of wholesale funding sources exposes us to potential liquidity risk.
     If there were an acceleration of the recording of losses on our home equity portfolio from our
current expectations, it could have a material adverse effect on our results of operations and
capital position.
  63




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We have credit risk inherent in our asset portfolios.
   We hold in our portfolio a significant number of construction, land and home equity loans,
which may pose more credit risk than other types of mortgage loans.
   We may be required to repurchase mortgage loans that we previously sold because of the credit
risk inherent in those loans.
  Certain of our consumer mortgage products were not sold by many financial institutions.
  64




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We rely heavily on our management team and key personnel, and the unexpected loss of key
managers and personnel, or significant changes in senior management, may affect our operations
adversely.
   Our future success depends on our ability to compete effectively in a highly competitive
financial services industry.
  Our business may be affected adversely by the highly regulated environment in which we
operate.
     65




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A deterioration in our regulatory capital position could adversely affect us.
   The soundness of other financial institutions could adversely affect us.
  We are the defendant in class actions and other lawsuits that could subject us to material
liability.
 66




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##### Table of Contents



Our business may be affected adversely by Internet fraud.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 6. Exhibits.
 ExhibitNumber
    
    Description of Exhibit2.1
    
    Asset Purchase Agreement by and among Irwin Financial Corporation, Irwin Mortgage Corporation and Freedom
Mortgage Corporation dated as of August 7, 2006. (Incorporated by reference to Exhibits 2.1 and 2.2 of Form 8-K
filed October 2, 2006, File No. 001-16691.)2.2
    
    Asset Purchase Agreement dated as of the 21st day of July, 2008, by and among EQ Acquisitions 2003,
Inc., Equilease Financial Services, Inc., Irwin Commercial Finance Corporation, Equipment Finance, and Irwin
Union Bank and Trust Company.2.3
    
    Letter Amendment to Asset Purchase Agreement dated July 21, 2008 by and among Irwin Commercial Finance
Corporation, Equipment Finance, Irwin Union Bank and Trust Company, EQ Acquisitions 2003, Inc., and Equilease
Financial Services, Inc. dated July 30, 2008.2.4
    
    Asset Purchase Agreement dated as of the 23rd day of July, 2008 by and among Roynat Inc. and Irwin
Commercial Finance Canada Corporation and Onset Alberta Ltd. and Irwin Union Bank and Trust Company.2.5
    
    Amended and Restated Asset Purchase Agreement dated as of July 31, 2008 among Roosevelt Management Company LLC,
Navigator Mortgage Loan Trust 2008, Wells Fargo Bank, N.A. and Irwin Union bank and Trust Company.3.1
    
    Restated Articles of Incorporation of Irwin Financial Corporation, as amended November 3, 2008.3.2
    
    Code of By-laws of Irwin Financial Corporation, as amended November 28, 2007.4.1
    
    Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 of Form 10-K filed March 9, 2007,
File No. 001-16691.)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 of 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 of Form S-8 filed on September 7, 2001, File No.
333-69156.)10.1
    
    *Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10 of Form 10-Q
Report for quarter ended September 30, 1997, and filed August 12, 1997, File No. 000-06835.)10.2
    
    *Amendment Number One to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to
Exhibit
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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10(l) to Form 10-K405 Report for the period ended December 31, 1997, filed March 30, 1998, File No.
000-06835.)10.3
    
    *Irwin Union Bank and Trust Company Business Development Board Compensation Program. (Incorporated by reference
to Form S-8 filed on July 19, 2000, File No. 333-41740.)10.4
    
    *Irwin Union Bank and Trust Company Business Development Board Compensation Program as amended November 28,
2006. (Incorporated by reference to Exhibit 10.4 of the Form 10-K Report for the period ended December 31, 2007,
filed March 14, 2008, File No. 001-16691.)10.5
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan, as amended and restated May 10, 2007.
(Incorporated by reference to Exhibit 99.1 of Form 8-K filed May 16, 2007, File No. 001-16691.)10.6
    
    *Amendment Number One to the Irwin Financial Corporation Amended and Restated 2001 Stock Plan. (Incorporated by
reference to Exhibit 10.1 of Form 8-K filed February 11, 2008, File No. 001-16691.)10.7
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement and Notice of Stock Option Grant.
(Incorporated by reference to Exhibit 99.1 of the Corporations 8-K Current Report, filed May 9, 2005, File No.
001-16691.)10.8
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Agreement and Notice of Restricted Stock
Award. (Incorporated by reference to Exhibit 99.2 of the Corporations 8-K Current Report, filed May 9, 2005,
File No. 001-16691.)10.9
    
    *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 the quarter ended September 30, 2005, File No. 001-16691.)10.10
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Agreement (with Performance Criteria) and
Notice of Restricted Stock Award with Performance Criteria. (Incorporated by reference to Exhibit 99.2 of Form
8-K, filed May 16, 2007, File No. 001-16691.)10.11
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Unit Agreement (with Performance Criteria)
and Notice of Restricted Stock Unit Award with Performance Criteria. (Incorporated by reference to Exhibit 10.2
of Form 8-K, filed February 11, 2008, File No. 001-16691.)10.12
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Unit Agreement (No Performance Criteria)
and Notice of Restricted Stock Unit Award. (Incorporated by reference to Exhibit 10.12 of the Form 10-K Report
for the period ended December 31, 2007, filed March 14, 2008, File No. 001-16691.)10.13
    
    *Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated by
reference to Exhibit 2 of the Corporations 2004 Proxy Statement for the Annual Meeting of Shareholders, filed
March 18, 2004, File No. 001-16691.)10.14
    
    *Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for the
quarter ended September 30, 1999, File No. 000-06835.)10.15
    
    *Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for the
period ended December 31, 1986, File No. 000-06835.)10.16
    
    *Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
the period ended December 31, 1986, File No. 000-06835.)10.17
    
    *Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
the period ended December 31, 1986, File No. 000-06835.)10.18
    
    *Irwin Financial Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2006.
(Incorporated by reference to Exhibit 10.27 of Form 10-Q Report for the quarter ended September 30 2006, File
No. 001-16691.)10.19
    
    *First Amendment to the Irwin Financial Corporation Amended and Restated Short Term Incentive Plan.
(Incorporated by reference to Exhibit 10.28 of Form 10-Q Report for the quarter ended September 30 2007, File
No. 001-16691.)10.20
    
    *Irwin Commercial Finance Amended and Restated Short Term Incentive Plan effective January 1, 2006.
(Incorporated by reference to Exhibit 10.28 of Form 10-Q for the quarter ended September 30, 2006, File No.
001-16691.)10.21
    
    *First Amendment to the Irwin Commercial Finance Amended and Restated Short Term Incentive Plan. (Incorporated
by reference to Exhibit 10.30 of Form 10-Q for the quarter ended September 30, 2007, File No. 001-16691.)10.22
    
    *Irwin Home Equity Amended and Restated Short Term Incentive Plan effective January 1, 2006. (Incorporated by
reference to Exhibit 10.29 of Form 10-Q for the quarter ended September 30, 2006, File No. 001-16691.)
 68




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.23
    
    *First Amendment to the Irwin Home Equity Amended and Restated Short Term Incentive Plan effective January 1,
2006. (Incorporated by reference to Exhibit 10.32 of Form 10-Q for the quarter ended September 30, 2007, File
No. 001-16691.)10.24
    
    *Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan effective January 1, 2006.
(Incorporated by reference to Exhibit 10.31 of Form 10-Q Report for the quarter ended September 30, 2006, File
No. 001-16691.)10.25
    
    *First Amendment to the Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan
(Incorporated by reference to Exhibit 10.35 of Form 10-Q Report for the quarter ended September 30, 2007, File
No. 001-16691.)10.26
    
    *Onset Capital Corporation Employment Agreement. (Incorporated by reference to Exhibit 10.26 to Form 10-Q Report
for the quarter ended September 30, 2002, File No. 000-06835.)10.27
    
    *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 September 30, 2002, File No. 000-06835.)10.28
    
    *Irwin Financial Corporation Supplemental Executive Retirement Plan for Named Executives. (Incorporated by
reference to Exhibit 10.28 to Form 10-Q Report for the quarter ended September 30, 2002, File No. 000-06835.)10.29
    
    *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.)10.30
    
    *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.)10.31
    
    *Irwin Commercial Finance Corporation First Amended and Restated Shareholder Agreement dated May 15, 2007.
(Incorporated by reference to Exhibit 10.41 of Form 10-Q Report for the quarter ended June 30, 2007, File No.
001-16691.)10.32
    
    *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.)10.33
    
    *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.)10.34
    
    *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.)10.35
    
    *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.)10.36
    
    *First Amendment to the Irwin Commercial Finance Amended and Restated Performance Unit Plan, dated October 31,
2006. (Incorporated by reference to Exhibit 10.41 of Form 10-K report for the period ended December 31, 2006,
File No. 001-16691.)10.37
    
    *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.)10.38
    
    *Supplemental Performance Unit Grant-Jocelyn Martin-Leano, dated February 6, 2007. (Incorporated by reference to
Exhibit 10.45 of Form 10-K filed March 9, 2007, File No. 001-16691.)10.39
    
    *Irwin Financial Corporation 2007 Performance Unit Plan. (Incorporated by reference to Appendix B of the
Corporations 2007 Proxy Statement for the Annual Meeting of Shareholders, filed April 16, 2007, File No.
001-16691.)10.40
    
    *Agreement General Release and Covenant Not to Sue between Irwin Financial Corporation, and Thomas D. Washburn
executed December 5, 2007. (Incorporated by reference to Exhibit 99.1 of Form 8-K filed December 13, 2007, File
No. 001-16691.)10.41
    
    *Amendment to 2005 Stock Option Agreement between Irwin Commercial Finance Corporation and Joseph R. LaLeggia,
dated July 28, 2008.10.42
    
    *Letter setting forth the Redemption Agreement between Irwin Commercial Finance Corporation and Joseph R.
LaLeggia, dated July 29, 2008.
 69




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ExhibitNumber
    
    Description of Exhibit10.43
    
    *Retention Incentive Agreement by and among Irwin Home Equity Corporation, Irwin Financial Corporation and
Jocelyn Martin-Leano dated September 10, 2008.10.44
    
    Standby Purchase Agreement, dated as of October 13, 2008, by and between Irwin Financial Corporation and Cummins
Inc. (Incorporated by reference to Form 8-K filed October 14, 2008, File No. 001-16691).10.45
    
    Written Agreement by and among Irwin Financial Corporation, Irwin Union Bank and Trust Company, the Federal
Reserve Bank of Chicago, and the Indiana Department of Financial Institutions, dated October 10, 2008.
(Incorporated by reference to Form 8-K filed October 14, 2008, File No. 001-16691).10.46
    
    Supervisory Agreement by and between Irwin Union Bank, F.S.B. and the Office of Thrift Supervision, dated
October 10, 2008. (Incorporated by reference to Form 8-K filed October 14, 2008, File No. 001-16691).11.1
    
    Computation of Earnings Per Share is included in the notes 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. 70




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SIGNATURES
  DATE:November 7, 2008
    IRWIN FINANCIAL CORPORATIONBy:
    /s/ Gregory F. EhlingerGREGORY F. EHLINGERCHIEF FINANCIAL OFFICERBy:
    /s/ Jody A. LittrellJODY A. LITTRELLCORPORATE CONTROLLER
(Chief Accounting Officer) 71