##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



FORM 10-Q
TABLE OF CONTENTS
 PAGENO.About Forward-Looking Statements
    
    
    3PART I FINANCIAL INFORMATION
    
    
    5Item 1 Financial Statements
    
    
    5Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    25Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    55Item 4 Controls and Procedures
    
    
    55PART II OTHER INFORMATION
    
    
    56Item 1 Legal Proceedings
    
    
    56Item 1A
Risk Factors
    
    
    57Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 4 Submission of Matters to a Vote of Security Holders
    
    
    58Item 6 Exhibits
    
    
    59Signatures
    
    
    62Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 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 and
equipment leasing businesses including: selling or otherwise reducing risk associated with
home equity loans on our balance sheet; selling the assets or platform of our small-ticket
equipment leasing business, including the completion of due diligence satisfactory to the
purchaser; obtaining third party consents for the transfer of assets, platforms or
servicing; satisfying conditions necessary to release purchase price proceeds from
escrow in the home equity and equipment leasing transactions; obtaining the desired tax
treatment for any dispositions associated with the home equity and equipment leasing
transactions; or encountering regulatory constraints;
    
    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;
 3




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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,;
    
    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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PART I. FINANCIAL INFORMATION.
 
 Item 1. Financial Statements.
 IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 June 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Assets:Cash and cash equivalents  Note 1
    
    $
    155,371
    
    
    $
    78,212Interest-bearing deposits with financial institutions
    
    
    30,043
    
    
    
    31,841Residual interests
    
    
    9,476
    
    
    
    12,047Investment securities- held-to-maturity (Fair value: $18,640June 30, 2008 and $18,134 at December 31, 2007)  Note 2
    
    
    18,168
    
    
    
    18,123Investment securities- available-for-sale  Note 2
    
    
    37,064
    
    
    
    59,684Investment securities- other  Note 2
    
    
    62,588
    
    
    
    62,588Loans and leases held for sale  Note 3
    
    
    324,836
    
    
    
    6,134Loans and leases, net of unearned income  Note 4
    
    
    5,130,212
    
    
    
    5,696,230Less: Allowance for loan and lease losses  Note 5
    
    
    (215,714
    )
    
    
    (144,855
    )4,914,498
    
    
    
    5,551,375Servicing assets  Note 6
    
    
    21,573
    
    
    
    23,234Accounts receivable
    
    
    32,848
    
    
    
    38,710Accrued interest receivable
    
    
    21,462
    
    
    
    26,291Premises and equipment
    
    
    35,005
    
    
    
    38,178Other assets
    
    
    269,234
    
    
    
    215,874Assets held for sale
    
    
    
    
    
    
    3,814Total assets
    
    $
    5,932,166
    
    
    $
    6,166,105Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    326,348
    
    
    $
    306,820Interest-bearing
    
    
    2,525,679
    
    
    
    2,357,050Certificates of deposit over $100,000
    
    
    652,759
    
    
    
    661,6183,504,786
    
    
    
    3,325,488Other borrowings  Note 8
    
    
    633,410
    
    
    
    802,424Collateralized debt  Note 9
    
    
    1,111,422
    
    
    
    1,213,139Other long-term debt
    
    
    233,868
    
    
    
    233,873Other liabilities
    
    
    118,789
    
    
    
    131,881Total liabilities
    
    
    5,602,275
    
    
    
    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 29,898,290
as of June 30, 2008 and 29,896,464 as of December 31, 2007; 563,757 and 670,169
shares in treasury as of June 30, 2008 and December 31, 2007, respectively
    
    
    116,582
    
    
    
    116,542Additional paid-in capital
    
    
    2,364
    
    
    
    2,557Accumulated other comprehensive (loss) income, net of deferred income tax benefit of$6,205 and $4,367 as of June 30, 2008 and December 31, 2007
    
    
    (1,382
    )
    
    
    1,032Retained earnings
    
    
    208,626
    
    
    
    337,524340,631
    
    
    
    472,096Less treasury stock, at cost
    
    
    (10,740
    )
    
    
    (12,796
    )Total shareholders equity
    
    
    329,891
    
    
    
    459,300Total liabilities and shareholders equity
    
    $
    5,932,166
    
    
    $
    6,166,105
  5




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 For the Three Months Ended June 30,2008
    
    
    2007(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    109,503
    
    
    $
    124,198Loans and leases held for sale
    
    
    8
    
    
    
    1,136Residual interests
    
    
    195
    
    
    
    280Investment securities
    
    
    2,035
    
    
    
    2,562Federal funds sold
    
    
    161
    
    
    
    787Total interest income
    
    
    111,902
    
    
    
    128,963Interest expense:Deposits
    
    
    26,521
    
    
    
    34,980Short-term borrowings
    
    
    5,926
    
    
    
    7,096Collateralized debt
    
    
    13,702
    
    
    
    17,113Other long-term debt
    
    
    3,879
    
    
    
    3,930Total interest expense
    
    
    50,028
    
    
    
    63,119Net interest income
    
    
    61,874
    
    
    
    65,844Provision for loan and lease losses  Note 5
    
    
    157,829
    
    
    
    19,454Net interest income after provision for loan and lease losses
    
    
    (95,955
    )
    
    
    46,390Other income:Loan servicing fees
    
    
    2,833
    
    
    
    5,116(Amortization) and recovery (impairment) of servicing assets  Note 6
    
    
    1,939
    
    
    
    (2,288
    )Gain from sales of loans and loans held for sale
    
    
    1,172
    
    
    
    3,268Trading (losses) gains
    
    
    (1,120
    )
    
    
    256Derivative gains (losses), net
    
    
    3,003
    
    
    
    (3,252
    )Other than temporary impairment  Note 2
    
    
    (6,838
    )
    
    
    Other
    
    
    5,532
    
    
    
    6,4816,521
    
    
    
    9,581Other expense:Salaries
    
    
    20,006
    
    
    
    23,538Pension and other employee benefits
    
    
    5,966
    
    
    
    6,696Office expense
    
    
    2,024
    
    
    
    2,539Premises and equipment
    
    
    5,289
    
    
    
    5,288Marketing and development
    
    
    1,207
    
    
    
    1,368Professional fees
    
    
    3,328
    
    
    
    2,681Other
    
    
    6,177
    
    
    
    4,95443,997
    
    
    
    47,064(Loss) income before income taxes from continuing operations
    
    
    (133,431
    )
    
    
    8,907Provision for income taxes
    
    
    (26,699
    )
    
    
    3,436Net (loss) income from continuing operations
    
    
    (106,732
    )
    
    
    5,471Loss from discontinued operations, net of $3,968 income tax benefit
    
    
    
    
    
    
    (5,860
    )Net loss
    
    $
    (106,732
    )
    
    $
    (389
    )Earnings per share from continuing operations:  Note 12Basic
    
    $
    (3.64
    )
    
    $
    0.18Diluted
    
    $
    (3.64
    )
    
    $
    0.17Earnings per share:  Note 12Basic
    
    $
    (3.64
    )
    
    $
    (0.02
    )Diluted
    
    $
    (3.64
    )
    
    $
    (0.03
    )Dividends per share
    
    $
    
    
    
    $
    0.12
  6




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 For the Six Months Ended June 30,2008
    
    
    2007(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    226,846
    
    
    $
    243,547Loans held for sale
    
    
    154
    
    
    
    6,078Residual interests
    
    
    469
    
    
    
    549Investment securities
    
    
    4,325
    
    
    
    5,019Federal funds sold
    
    
    199
    
    
    
    807Total interest income
    
    
    231,993
    
    
    
    256,000Interest expense:Deposits
    
    
    55,459
    
    
    
    68,431Short-term borrowings
    
    
    13,162
    
    
    
    14,902Collateralized debt
    
    
    28,873
    
    
    
    32,928Other long-term debt
    
    
    8,190
    
    
    
    7,768Total interest expense
    
    
    105,684
    
    
    
    124,029Net interest income
    
    
    126,309
    
    
    
    131,971Provision for loan and lease losses  Note 5
    
    
    202,350
    
    
    
    42,662Net interest income after provision for loan and lease losses
    
    
    (76,041
    )
    
    
    89,309Other income:Loan servicing fees
    
    
    5,291
    
    
    
    11,028Amortization and impairment of servicing assets  Note 6
    
    
    (2,280
    )
    
    
    (7,237
    )Gain (loss) from sales of loans and loans held for sale
    
    
    8,003
    
    
    
    (2,639
    )Trading losses
    
    
    (2,177
    )
    
    
    (8
    )Derivative gains (losses), net
    
    
    2,046
    
    
    
    (4,341
    )Other than temporary impaiment  Note 2
    
    
    (19,995
    )
    
    
    Other
    
    
    11,177
    
    
    
    11,9642,065
    
    
    
    8,767Other expense:Salaries
    
    
    42,635
    
    
    
    49,273Pension and other employee benefits
    
    
    13,674
    
    
    
    14,434Office expense
    
    
    4,235
    
    
    
    4,876Premises and equipment
    
    
    11,055
    
    
    
    10,915Marketing and development
    
    
    2,340
    
    
    
    2,577Professional fees
    
    
    5,426
    
    
    
    4,767Other
    
    
    16,586
    
    
    
    12,50795,951
    
    
    
    99,349Loss before income taxes from continuing operations
    
    
    (169,927
    )
    
    
    (1,273
    )Provision for income taxes
    
    
    (41,029
    )
    
    
    (650
    )Loss from continuing operations
    
    
    (128,898
    )
    
    
    (623
    )Loss from discontinued operations, net of $6,710 income tax benefit
    
    
    
    
    
    
    (9,895
    )Net loss
    
    $
    (128,898
    )
    
    $
    (10,518
    )Earnings per share from continuing operations:  Note 12Basic
    
    $
    (4.40
    )
    
    $
    (0.04
    )Diluted
    
    $
    (4.40
    )
    
    $
    (0.06
    )Earnings per share:  Note 12Basic
    
    $
    (4.40
    )
    
    $
    (0.38
    )Diluted
    
    $
    (4.40
    )
    
    $
    (0.39
    )Dividends per share
    
    $
    
    
    
    $
    0.24
  7




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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Six Months Ended June 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
    
    
    (128,898
    )
    
    
    (128,898
    )Unrealized loss on investment
securities net of $214 tax benefit
    
    
    (322
    )
    
    
    
    
    
    
    
    
    
    
    (322
    )Unrealized loss on derivatives
net of $573 tax benefit
    
    
    (860
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (860
    )Foreign currency adjustment
    
    
    (1,232
    )
    
    
    
    
    
    
    (1,232
    )Other comprehensive loss
    
    
    (2,414
    )Total comprehensive loss
    
    
    (131,312
    )Stock compensation expense
    
    
    1,356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,356Stock:Purchase of 3,747 shares
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )Sales of 110,159 shares
    
    
    597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,549
    )
    
    
    40
    
    
    
    2,106Balance at June 30, 2008
    
    $
    329,891
    
    
    $
    208,626
    
    
    $
    7,926
    
    
    $
    (1,767
    )
    
    $
    (2,436
    )
    
    $
    (5,105
    )
    
    $
    2,364
    
    
    $
    116,582
    
    
    $
    (10,740
    )
    
    $
    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
    
    
    (10,518
    )
    
    
    (10,518
    )Unrealized loss on investment
securities net of $307 tax benefit
    
    
    (461
    )
    
    
    
    
    
    
    
    
    
    
    (461
    )Unrealized gain on derivatives
net of $355 tax liability
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    533Foreign currency adjustment
    
    
    3,360
    
    
    
    
    
    
    
    3,360Other comprehensive income
    
    
    3,432Total comprehensive income
    
    
    (7,086
    )Cash dividends  common stock
    
    
    (7,033
    )
    
    
    (7,033
    )Cash dividends  preferred stock
    
    
    (678
    )
    
    
    (678
    )FAS 156 adoption
    
    
    1,743
    
    
    
    1,743Tax benefit on stock option exercises
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114Stock compensation expense
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    986Stock issuance costs
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Stock:Purchase of 668,308 shares
    
    
    (12,753
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,753
    )Sales of 97,376 shares
    
    
    1,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    54
    
    
    
    2,155Balance at June 30, 2007
    
    $
    507,645
    
    
    $
    389,349
    
    
    $
    6,244
    
    
    $
    (805
    )
    
    $
    503
    
    
    $
    (6,874
    )
    
    $
    2,401
    
    
    $
    116,246
    
    
    $
    (13,860
    )
    
    $
    14,441
  8




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Six Months ended June 30,2008
    
    
    2007(Dollars in thousands)Loss from continuing operations
    
    $
    (128,898
    )
    
    $
    (623
    )Loss from discontinued operations
    
    
    
    
    
    
    (9,895
    )Net loss
    
    
    (128,898
    )
    
    
    (10,518
    )Adjustments to reconcile net loss to cash provided
by operating activities:Depreciation, amortization, and accretion, net
    
    
    5,291
    
    
    
    4,834Other than temporary impairment
    
    
    19,995
    
    
    
    Amortization and impairment of servicing assets
    
    
    2,280
    
    
    
    7,487Valuation allowance on deferred taxes
    
    
    24,900
    
    
    
    Provision for loan and lease losses
    
    
    202,350
    
    
    
    42,662Loss (gain) from sales of loans held for sale
    
    
    (8,003
    )
    
    
    10,071Originations and purchases of loans held for sale
    
    
    (116,801
    )
    
    
    (368,697
    )Proceeds from sales and repayments of loans held for sale
    
    
    194,630
    
    
    
    454,244Net decrease in residuals
    
    
    3,041
    
    
    
    456Net decrease in accounts receivable
    
    
    5,862
    
    
    
    137,687Other, net
    
    
    (86,343
    )
    
    
    (90,289
    )Net cash provided by operating activities
    
    
    118,304
    
    
    
    187,937Investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    2,140
    
    
    
    2,114Available-for-sale
    
    
    2,146
    
    
    
    1,962Purchase of investment securities:Held-to-maturity
    
    
    (2,004
    )
    
    
    (1,482
    )Available-for-sale
    
    
    (230
    )
    
    
    (17,278
    )Net decrease in interest-bearing deposits
    
    
    1,797
    
    
    
    12,184Net decrese (increase) in loans, excluding sales
    
    
    46,661
    
    
    
    (156,541
    )Other, net
    
    
    (272
    )
    
    
    (9,213
    )Net cash provided (used) by investing activities
    
    
    50,238
    
    
    
    (168,254
    )Financing activities:Net increase (decrease) in deposits
    
    
    179,299
    
    
    
    (233,733
    )Net increase (decrease) in short-term borrowings
    
    
    (169,014
    )
    
    
    10,757Proceeds from issuance of collateralized debt
    
    
    96,415
    
    
    
    331,781Repayments of collateralized debt
    
    
    (198,154
    )
    
    
    (176,924
    )Repayments of long term debt
    
    
    (5
    )
    
    
    (7
    )Purchase of treasury stock for employee benefit plans
    
    
    (50
    )
    
    
    (12,753
    )Proceeds from sale of stock for employee benefit plans
    
    
    597
    
    
    
    2,091Dividends paid
    
    
    
    
    
    
    (7,711
    )Net cash used by financing activities
    
    
    (90,912
    )
    
    
    (86,499
    )Effect of exchange rate changes on cash
    
    
    (471
    )
    
    
    1,285Net increase (decrease) in cash and cash equivalents
    
    
    77,159
    
    
    
    (65,531
    )Cash and cash equivalents at beginning of period
    
    
    78,212
    
    
    
    145,765Cash and cash equivalents at end of period
    
    $
    155,371
    
    
    $
    80,234Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    100,446
    
    
    $
    122,412Income taxes paid
    
    $
    3,545
    
    
    $
    11,491Noncash transactions:Adoption of FAS 156
    
    $
    
    
    
    $
    2,905Transfer of loans to loans held for sale
    
    $
    322,100
    
    
    $
    Other real estate owned
    
    $
    6,445
    
    
    $
    7,703
  9




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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:
 10




---



##### Table of Contents



Loans:
  Direct Financing Leases:
 Allowance for Loan and Lease Losses:
   Servicing Assets:
   11




---



##### Table of Contents



Incentive Servicing Fees:
  Derivative Instruments:
   Premises and Equipment:
 Other Assets:
 Income Taxes:
 Recent Accounting Developments:
  12




---



##### Table of Contents



Note 2  Investment Securities
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Held-to-Maturity:U.S. Treasury and
government obligations
    
    $
    14,150
    
    
    $
    13,970Obligations of states
and political subdivisions
    
    
    3,321
    
    
    
    3,436Mortgage-backed securities
    
    
    697
    
    
    
    717Total held-to-maturity
    
    
    18,168
    
    
    
    18,123Available-for-Sale:Mortgage-backed securities
    
    
    24,733
    
    
    
    45,499Other
    
    
    12,331
    
    
    
    14,185Total available-for-sale
    
    
    37,064
    
    
    
    59,684Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    62,588
    
    
    
    62,588Total investment securities
    
    $
    117,820
    
    
    $
    140,395
  Note 3  Loans and Leases Held for Sale
  13




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##### Table of Contents



Note 4  Loans and Leases
  June 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,049,958
    
    
    $
    2,099,451Real estate-construction & land development
    
    
    561,644
    
    
    
    586,037Real estate-mortgage
    
    
    1,576,373
    
    
    
    1,691,450Consumer
    
    
    30,673
    
    
    
    32,232Commercial financingFranchise financing
    
    
    965,823
    
    
    
    925,741Domestic leasing
    
    
    10,279
    
    
    
    306,301Foreign leasing
    
    
    288,136
    
    
    
    462,036Unearned incomeFranchise financing
    
    
    (314,468
    )
    
    
    (306,681
    )Domestic leasing
    
    
    (1,335
    )
    
    
    (42,723
    )Foreign leasing
    
    
    (36,871
    )
    
    
    (57,614
    )Total
    
    $
    5,130,212
    
    
    $
    5,696,230
    Note 5  Allowance for Loan and Lease Losses
  June 30,
    
    December 31,2008
    
    2007And the Six Months
    
    And the Year ThenThen Ended
    
    Ended(Dollars in thousands)Balance at beginning of year
    
    $
    144,855
    
    
    $
    74,468Provision for loan and lease losses
    
    
    202,350
    
    
    
    134,988Charge-offs
    
    
    (133,730
    )
    
    
    (73,994
    )Recoveries
    
    
    3,008
    
    
    
    10,099Reduction due to reclassification and sales of loans
    
    
    (638
    )
    
    
    (1,225
    )Foreign currency adjustment
    
    
    (131
    )
    
    
    519Balance at end of period
    
    $
    215,714
    
    
    $
    144,855
  14




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Accruing loans past due 90 days or more
    
    $
    5,528
    
    
    $
    857Nonaccrual loans and leases
    
    
    100,750
    
    
    
    75,453Total nonperforming loans and leases
    
    $
    106,278
    
    
    $
    76,310
 Note 6  Servicing Assets
   June 30,
    
    
    December 31,2008
    
    
    2007And the Six Months Then
    
    
    And the Year ThenEnded
    
    
    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)
    
    
    800
    
    
    
    (1,589
    )Other changes in fair value (2)
    
    
    (2,450
    )
    
    
    (9,317
    )Balance at the end of the period
    
    $
    18,074
    
    
    $
    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.Changes in our amortizing servicing assets are shown below: June 30,
    
    
    December 31,2008
    
    
    2007And the Six Months Then
    
    
    And the Year ThenEnded
    
    
    Ended(Dollars in thousands)Beginning balance
    
    $
    3,510
    
    
    $
    31,949Initial adoption of SFAS 156
    
    
    
    
    
    
    (27,725)Additions
    
    
    619
    
    
    
    530Sales
    
    
    
    
    
    
    (5
    )Amortization
    
    
    (646
    )
    
    
    (1,199
    )Recovery (impairment)
    
    
    16
    
    
    
    (40
    )Balance at the end of the period
    
    $
    3,499
    
    
    $
    3,510
 15




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007And the Six Months Then
    
    
    And the Year ThenEnded
    
    
    Ended(Dollars in thousands)Balance at beginning of year
    
    $
    191
    
    
    $
    483Transfer of assets from amortizing to fair value
    
    
    
    
    
    
    (332
    )(Recovery) impairment
    
    
    (16
    )
    
    
    40Balance at the end of the period
    
    $
    175
    
    
    $
    191
 Note 7  Income Taxes
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Income taxes computed at the statutory rate
    
    $
    (46,701
    )
    
    $
    3,117
    
    
    $
    (59,475
    )
    
    $
    (445
    )Increase (decrease) resulting from:Nontaxable interest from investment securities and loans
    
    
    (28
    )
    
    
    (30
    )
    
    
    (58
    )
    
    
    (59
    )Nontaxable income from bank owned life insurance
    
    
    (158
    )
    
    
    (213
    )
    
    
    (350
    )
    
    
    (271
    )State tax, net of federal benefit
    
    
    (4,536
    )
    
    
    446
    
    
    
    (5,904
    )
    
    
    (64
    )Foreign operations
    
    
    (29
    )
    
    
    13
    
    
    
    44
    
    
    
    (67
    )Reserve adjustment(1)
    
    
    190
    
    
    
    247
    
    
    
    346
    
    
    
    566Federal tax credits
    
    
    (448
    )
    
    
    (271
    )
    
    
    (721
    )
    
    
    (529
    )Other items  net
    
    
    111
    
    
    
    127
    
    
    
    189
    
    
    
    219Valuation allowance (2)
    
    
    24,900
    
    
    
    
    
    
    
    24,900
    
    
    
    $
    (26,699
    )
    
    $
    3,436
    
    
    $
    (41,029
    )
    
    $
    (650
    )
 
 (1)
    
    Tax reserves are adjusted as we align our tax liability to a level commensurate with our
current identified tax exposures.(2)
    
    During second quarter 2008, we recorded a valuation allowance to reduce our deferred tax
asset to an amount that is more likely than not to be realized. 16




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##### Table of Contents



Note 8  Other Borrowings
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    573,410
    
    
    $
    574,424Federal funds
    
    
    60,000
    
    
    
    228,000Total
    
    $
    633,410
    
    
    $
    802,424Weighted average interest rate
    
    
    3.85
    %
    
    
    5.20
    %
   Note 9  Collateralized Debt
   17




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##### Table of Contents



WeightedAverageInterest Rate atContractual
    
    June 30,
    
    June 30,
    
    December 31,Maturity
    
    2008
    
    2008
    
    2007(Dollars in thousands)Commercial finance line of businessCanadian asset backed notes:Note 1
    
    revolving
    
    
    
    
    
    $
    
    
    
    $
    46,183Note 2
    
    
    3/2012
    
    
    
    3.8
    
    
    
    139,211
    
    
    
    192,103Note 3
    
    
    10/2009
    
    
    
    4.5
    
    
    
    2,354
    
    
    
    4,120Note 4
    
    
    12/2013
    
    
    
    3.4
    
    
    
    80,892
    
    
    
    Home equity line of business2004-1 asset backed notes:Variable rate senior note
    
    
    12/2024-12/2034
    
    
    
    2.7
    
    
    
    32,401
    
    
    
    33,733Variable rate subordinate note
    
    
    12/2034
    
    
    
    3.5
    
    
    
    22,611
    
    
    
    24,7752005-1 asset backed notes:Variable rate senior note
    
    
    6/2025-6/2035
    
    
    
    2.6
    
    
    
    21,140
    
    
    
    23,484Fixed rate senior note
    
    
    6/2035
    
    
    
    5.3
    
    
    
    44,682
    
    
    
    59,471Variable rate subordinate note
    
    
    6/2035
    
    
    
    4.2
    
    
    
    10,785
    
    
    
    10,785Fixed rate subordinate note
    
    
    6/2035
    
    
    
    5.6
    
    
    
    52,127
    
    
    
    52,127Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    (62
    )2006-1 asset backed notes:Variable rate senior note
    
    
    9/2035
    
    
    
    2.6
    
    
    
    31,426
    
    
    
    44,302Fixed rate senior note
    
    
    9/2035
    
    
    
    5.5
    
    
    
    96,561
    
    
    
    96,561Fixed rate lockout senior note
    
    
    9/2035
    
    
    
    5.6
    
    
    
    24,264
    
    
    
    24,264Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (12
    )2006-2 asset backed notes:Variable rate senior note
    
    
    2/2036
    
    
    
    2.5
    
    
    
    66,862
    
    
    
    82,945Fixed rate senior note
    
    
    2/2036
    
    
    
    6.3
    
    
    
    80,033
    
    
    
    80,033Fixed rate lockout senior note
    
    
    2/2036
    
    
    
    6.2
    
    
    
    21,348
    
    
    
    21,348Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (13
    )2006-3 asset backed notes:Variable rate senior note
    
    
    1/2037-9/2037
    
    
    
    2.5
    
    
    
    68,184
    
    
    
    83,281Fixed rate senior note
    
    
    9/2037
    
    
    
    5.9
    
    
    
    67,050
    
    
    
    67,050Fixed rate lockout senior note
    
    
    9/2037
    
    
    
    5.9
    
    
    
    18,000
    
    
    
    18,000Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (7
    )2007-1 asset backed notes:Variable rate senior note
    
    
    8/2037
    
    
    
    2.6
    
    
    
    118,222
    
    
    
    135,339Variable funding notes
    
    
    8/2037
    
    
    
    2.6
    
    
    
    11
    
    
    
    Fixed rate senior note
    
    
    8/2037
    
    
    
    6.0
    
    
    
    91,346
    
    
    
    91,346Fixed rate lockout senior note
    
    
    8/2037
    
    
    
    5.9
    
    
    
    22,000
    
    
    
    22,000Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (17
    )Total
    
    
    
    
    
    
    
    
    
    $
    1,111,422
    
    
    $
    1,213,139
 18




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##### Table of Contents



Note 10  Employee Retirement Plans
  Employee Pension Plan
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    1,167
    
    
    $
    957
    
    
    $
    2,335
    
    
    $
    2,027Interest cost
    
    
    683
    
    
    
    627
    
    
    
    1,365
    
    
    
    1,213Expected return on plan assets
    
    
    (657
    )
    
    
    (616
    )
    
    
    (1,314
    )
    
    
    (1,254
    )Amortization of prior service cost
    
    
    9
    
    
    
    10
    
    
    
    19
    
    
    
    19Amortization of actuarial loss
    
    
    71
    
    
    
    116
    
    
    
    142
    
    
    
    273Net periodic benefit cost
    
    $
    1,273
    
    
    $
    1,094
    
    
    $
    2,547
    
    
    $
    2,278
 Supplemental Executive Retirement Plan
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    22
    
    
    $
    59
    
    
    $
    43
    
    
    $
    118Interest cost
    
    
    81
    
    
    
    101
    
    
    
    162
    
    
    
    201Amortization of transition obligation
    
    
    3
    
    
    
    3
    
    
    
    6
    
    
    
    6Amortization of prior service cost
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1Amortization of actuarial loss
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    39Net periodic benefit cost
    
    $
    106
    
    
    $
    184
    
    
    $
    212
    
    
    $
    365
  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




---



##### Table of Contents



Level 1
    
    Level 2
    
    Level 3
    
    Total(Dollars in thousands)June 30, 2008AssetsResidual interests
    
    $
    
    
    
    $
    
    
    
    $
    9,476
    
    
    $
    9,476Investment securities  available-for-sale
    
    
    
    
    
    
    19,377
    
    
    
    17,687
    
    
    
    37,064Servicing assets
    
    
    
    
    
    
    
    
    
    
    18,074
    
    
    
    18,074Total assets
    
    $
    
    
    
    $
    19,377
    
    
    $
    45,237
    
    
    $
    64,614LiabilitiesDerivatives
    
    
    
    
    
    
    4,079
    
    
    
    
    
    
    
    4,079Total liabilities
    
    $
    
    
    
    $
    4,079
    
    
    $
    
    
    
    $
    4,079
   Net realized/unrealized
    
    Purchases,
    
    
    
    Unrealizedgain(losses) included in
    
    issuances and
    
    
    
    gains(losses) stillJanuary 1, 2008
    
    earnings(1)(2)
    
    settlements
    
    June 30, 2008
    

held(3)(Dollars in thousands)AssetsResidual interests
    
    $
    12,047
    
    
    $
    (1,976
    )
    
    $
    (595
    )
    
    $
    9,476
    

    
    $
    (863
    )Investment securities  available-for-sale
    
    
    37,682
    
    
    
    (19,995
    )
    
    
    
    
    
    
    17,687
    

    
    
    Servicing
Assets
    
    
    19,724
    
    
    
    (1,650
    )
    
    
    
    
    
    
    18,074
    

    
    
    (3,880
    )Total assets
    
    $
    69,453
    
    
    $
    (23,621
    )
    
    $
    (595
    )
    
    $
    45,237
    

    
    $
    (4,743
    )
 
 (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 June 30, 2008  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(Dollars in thousands)June 30, 2008AssetsLoans held for investment (1)
    
    $
    
    
    
    $
    
    
    
    $
    36,475
    
    
    $
    36,475Loans and leases held for sale(2)
    
    
    322,100
    
    
    
    
    
    
    
    2,736
    
    
    
    324,836Mortage servicing assets(3)
    
    
    
    
    
    
    
    
    
    
    3,499
    
    
    
    3,499Total assets
    
    $
    322,100
    
    
    $
    
    
    
    $
    42,710
    
    
    $
    364,810
 
 (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 20




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##### Table of Contents



(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 and discounted cash flow models
 Note 12  Earnings Per Share
  Three Months ended June 30, 2008Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsIncome (Loss)
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net income (loss) available to common shareholders:
    
    $
    (106,732
    )
    
    $
    
    
    
    $
    (106,732
    )
    
    $
    
    
    
    $
    (106,732
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,313
    
    
    
    
    
    
    
    29,313Per-share amount
    
    
    
    
    
    
    
    
    
    $
    (3.64
    )
    
    $
    
    
    
    $
    (3.64
    )
 Three Months ended June 30, 2007Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsIncome (Loss)
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net income (loss) available to common shareholders:From Continuing Operations
    
    $
    5,471
    
    
    $
    (326
    )
    
    $
    5,145
    
    
    $
    (215
    )
    
    $
    4,930From Discontinued Operations
    
    
    (5,860
    )
    
    
    
    
    
    
    (5,860
    )
    
    
    
    
    
    
    (5,860
    )Total Net Loss for All Operations
    
    $
    (389
    )
    
    $
    (326
    )
    
    
    (715
    )
    
    
    (215
    )
    
    
    (930
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,361
    
    
    
    14
    
    
    
    29,375Per-share from Continuing Operations
    
    
    
    
    
    
    
    
    
    $
    0.18
    
    
    $
    (0.01
    )
    
    $
    0.17Per-share amount for All Operations
    
    
    
    
    
    
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )
 Six Months ended June 30, 2008Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    Earnings(Loss)
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:
    
    $
    (128,898
    )
    
    $
    
    
    
    $
    (128,898
    )
    
    $
    
    
    
    $
    (128,898
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,281
    
    
    
    
    
    
    
    29,281Per-share amount
    
    
    
    
    
    
    
    
    
    $
    (4.40
    )
    
    $
    
    
    
    $
    (4.40
    )
 Six Months ended June 30, 2007Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    Earnings(Loss)
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:From Continuing Operations
    
    $
    (623
    )
    
    $
    (678
    )
    
    $
    (1,301
    )
    
    $
    (404
    )
    
    $
    (1,705
    )From Discontinued Operations
    
    
    (9,895
    )
    
    
    
    
    
    
    (9,895
    )
    
    
    
    
    
    
    (9,895
    )Total Net Loss for All Operations
    
    $
    (10,518
    )
    
    $
    (678
    )
    
    
    (11,196
    )
    
    
    (404
    )
    
    
    (11,600
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,491
    
    
    
    75
    
    
    
    29,566Per-share from Continuing Operations
    
    
    
    
    
    
    
    
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )Per-share amount for All Operations
    
    
    
    
    
    
    
    
    
    $
    (0.38
    )
    
    $
    (0.01
    )
    
    $
    (0.39
    )
 21




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##### Table of Contents



Note 13  Industry Segment Information
       Commercial
    
    Commercial
    
    Home EquityBanking
    
    Finance
    
    Lending
    
    Other
    
    Consolidated(Dollars in thousands)For the Three Months Ended June 30, 2008Net interest (loss) income
    
    $
    29,555
    
    
    $
    25,248
    
    
    $
    26,056
    
    
    $
    (18,985
    )
    
    $
    61,874Intersegment interest
    
    
    (2,633
    )
    
    
    (11,784
    )
    
    
    (4,445
    )
    
    
    18,862
    
    
    
    Provision
for loan and lease losses
    
    
    (24,481
    )
    
    
    (48,201
    )
    
    
    (85,147
    )
    
    
    
    
    
    
    (157,829
    )Other revenues
    
    
    4,401
    
    
    
    2,825
    
    
    
    3,379
    
    
    
    (4,084
    )
    
    
    6,521Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    (34
    )
    
    
    Total net revenues
    
    
    6,842
    
    
    
    (31,912
    )
    
    
    (60,123
    )
    
    
    (4,241
    )
    
    
    (89,434
    )Other expense
    
    
    20,832
    
    
    
    6,937
    
    
    
    13,290
    
    
    
    2,938
    
    
    
    43,997Intersegment expenses
    
    
    1,113
    
    
    
    460
    
    
    
    620
    
    
    
    (2,193
    )
    
    
    Income (loss) before taxes
    
    
    (15,103
    )
    
    
    (39,309
    )
    
    
    (74,033
    )
    
    
    (4,986
    )
    
    
    (133,431
    )Income taxes
    
    
    (6,309
    )
    
    
    (15,891
    )
    
    
    (29,623
    )
    
    
    25,124
    
    
    
    (26,699
    )Net income (loss)
    
    $
    (8,794
    )
    
    $
    (23,418
    )
    
    $
    (44,410
    )
    
    $
    (30,110
    )
    
    $
    (106,732
    )
 ConsolidatedCommercial
    
    Commercial
    
    Home Equity
    
    
    
    
    
    Continuing
    
    DiscontinuedBanking
    
    Finance
    
    Lending
    
    Other
    
    Operations
    
    Operations
    
    Consolidated(Dollars in thousands)For the Three Months Ended June 30, 2007Net interest (loss) income
    
    $
    29,078
    
    
    $
    22,359
    
    
    $
    30,150
    
    
    $
    (15,743
    )
    
    $
    65,844
    
    
    $
    (876
    )
    
    $
    64,968Intersegment interest
    
    
    814
    
    
    
    (9,436
    )
    
    
    (5,677
    )
    
    
    14,299
    
    
    
    
    
    
    
    
    
    
    
    Provision
for loan and lease losses
    
    
    (800
    )
    
    
    (3,053
    )
    
    
    (15,601
    )
    
    
    
    
    
    
    (19,454
    )
    
    
    
    
    
    
    (19,454
    )Other revenues
    
    
    4,188
    
    
    
    2,947
    
    
    
    3,679
    
    
    
    (1,233
    )
    
    
    9,581
    
    
    
    (3,079
    )
    
    
    6,502Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    1,084
    
    
    
    (1,084
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    33,280
    
    
    
    12,817
    
    
    
    13,635
    
    
    
    (3,761
    )
    
    
    55,971
    
    
    
    (3,955
    )
    
    
    52,016Other expense
    
    
    22,006
    
    
    
    7,477
    
    
    
    16,198
    
    
    
    1,383
    
    
    
    47,064
    
    
    
    5,873
    
    
    
    52,937Intersegment expenses
    
    
    917
    
    
    
    457
    
    
    
    670
    
    
    
    (2,044
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    10,357
    
    
    
    4,883
    
    
    
    (3,233
    )
    
    
    (3,100
    )
    
    
    8,907
    
    
    
    (9,828
    )
    
    
    (921
    )Income taxes
    
    
    4,015
    
    
    
    1,947
    
    
    
    (1,283
    )
    
    
    (1,243
    )
    
    
    3,436
    
    
    
    (3,968
    )
    
    
    (532
    )Net income (loss)
    
    $
    6,342
    
    
    $
    2,936
    
    
    $
    (1,950
    )
    
    $
    (1,857
    )
    
    $
    5,471
    
    
    $
    (5,860
    )
    
    $
    (389
    )
 22




---



##### Table of Contents



Commercial
    
    Commercial
    
    Home EquityBanking
    
    Finance
    
    Lending
    
    Other
    
    Consolidated(Dollars in thousands)For the Six Months Ended June 30, 2008Net interest (loss) income
    
    $
    61,138
    
    
    $
    50,786
    
    
    $
    54,061
    
    
    $
    (39,676
    )
    
    $
    126,309Intersegment interest
    
    
    (6,394
    )
    
    
    (23,383
    )
    
    
    (9,069
    )
    
    
    38,846
    
    
    
    Provision
for loan and lease losses
    
    
    (31,061
    )
    
    
    (52,857
    )
    
    
    (118,432
    )
    
    
    
    
    
    
    (202,350
    )Other revenue
    
    
    9,068
    
    
    
    9,114
    
    
    
    419
    
    
    
    (16,536
    )
    
    
    2,065Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    (76
    )
    
    
    Total net revenues
    
    
    32,751
    
    
    
    (16,340
    )
    
    
    (72,945
    )
    
    
    (17,442
    )
    
    
    (73,976
    )Other expense
    
    
    44,427
    
    
    
    14,619
    
    
    
    26,709
    
    
    
    10,196
    
    
    
    95,951Intersegment expenses
    
    
    2,150
    
    
    
    905
    
    
    
    1,212
    
    
    
    (4,267
    )
    
    
    Income (loss) before taxes
    
    
    (13,826
    )
    
    
    (31,864
    )
    
    
    (100,866
    )
    
    
    (23,371
    )
    
    
    (169,927
    )Income taxes
    
    
    (6,118
    )
    
    
    (12,891
    )
    
    
    (40,355
    )
    
    
    18,335
    
    
    
    (41,029
    )Net income (loss)
    
    $
    (7,708
    )
    
    $
    (18,973
    )
    
    $
    (60,511
    )
    
    $
    (41,706
    )
    
    $
    (128,898
    )Assets at June 30, 2008
    
    $
    3,077,591
    
    
    $
    1,272,671
    
    
    $
    1,280,497
    
    
    $
    301,407
    
    
    $
    5,932,166
 ConsolidatedCommercial
    
    
    Commercial
    
    
    Home Equity
    
    
    
    
    
    
    Continuing
    
    
    DiscontinuedBanking
    
    
    Finance
    
    
    Lending
    
    
    Other
    
    
    Operations
    
    
    Operations
    
    
    Consolidated(Dollars in thousands)For the Six Months Ended June 30, 2007Net interest (loss) income
    
    $
    59,633
    
    
    $
    43,408
    
    
    $
    62,440
    
    
    $
    (33,510
    )
    
    $
    131,971
    
    
    $
    (1,215
    )
    
    $
    130,756Intersegment interest
    
    
    (155
    )
    
    
    (18,477
    )
    
    
    (13,403
    )
    
    
    32,035
    
    
    
    
    
    
    
    
    
    
    
    Provision
for loan and lease losses
    
    
    (5,441
    )
    
    
    (6,532
    )
    
    
    (30,689
    )
    
    
    
    
    
    
    (42,662
    )
    
    
    
    
    
    
    (42,662
    )Other revenue
    
    
    8,135
    
    
    
    5,738
    
    
    
    (3,051
    )
    
    
    (2,055
    )
    
    
    8,767
    
    
    
    (7,461
    )
    
    
    1,306Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    1,017
    
    
    
    (1,017
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    62,172
    
    
    
    24,137
    
    
    
    16,314
    
    
    
    (4,547
    )
    
    
    98,076
    
    
    
    (8,676
    )
    
    
    89,400Other expense
    
    
    45,446
    
    
    
    14,259
    
    
    
    35,153
    
    
    
    4,491
    
    
    
    99,349
    
    
    
    7,929
    
    
    
    107,278Intersegment expenses
    
    
    1,768
    
    
    
    809
    
    
    
    1,296
    
    
    
    (3,873
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    14,958
    
    
    
    9,069
    
    
    
    (20,135
    )
    
    
    (5,165
    )
    
    
    (1,273
    )
    
    
    (16,605
    )
    
    
    (17,878
    )Income taxes
    
    
    5,453
    
    
    
    3,542
    
    
    
    (8,035
    )
    
    
    (1,610
    )
    
    
    (650
    )
    
    
    (6,710
    )
    
    
    (7,360
    )Net income (loss)
    
    $
    9,505
    
    
    $
    5,527
    
    
    $
    (12,100
    )
    
    $
    (3,555
    )
    
    $
    (623
    )
    
    $
    (9,895
    )
    
    $
    (10,518
    )Assets at June 30, 2007
    
    $
    3,099,206
    
    
    $
    1,175,325
    
    
    $
    1,577,785
    
    
    $
    245,606
    
    
    
    
    
    
    
    
    
    
    $
    6,097,922
 Note 14  Commitments and Contingencies
 Culpepper v. Inland Mortgage Corporation
 th
 Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia
  Hobson v. Irwin Union Bank and Trust Company Hobson Hobson Hobson
 23




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##### Table of Contents



Kossler v. Community Bank of Northern Virginia Kossler Kossler Kossler
 Hobson Kossler Hobson Hobson
 Hobson Kossler Hobson Hobson Kossler
 (Chatfield v. Irwin Union Bank and Trust Company, et al. Ransom v. Irwin
Union Bank and Trust Company, et al.)
 Hobson,
Chatfield Ransom.
 Hobson, Chatfield Ransom Kossler Kessler v. RFC, et al Kessler Kessler Kessler Kessler Kessler Kessler Kessler
 Chatfield Ransom Hobson Kossler
 Litigation in Connection with Loans Purchased from Freedom Mortgage Corporation.
 Irwin Union Bank, et
al. v. Freedom Mortgage Corp.
 24




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##### Table of Contents



Freedom Mortgage
Corporation v. Irwin Financial Corporation et al.
 Homer v. Sharp
   Note 15  Subsequent Events
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Strategy
  25




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##### Table of Contents



26




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##### Table of Contents



Critical Accounting Policies
  Consolidated Overview
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Net income (loss) from continuing operations (in thousands)
    
    $
    (106,732
    )
    
    $
    5,471
    
    
    $
    (128,898
    )
    
    $
    (623
    )Basic earnings per share from continuing operations
    
    
    (3.64
    )
    
    
    0.18
    
    
    
    (4.40
    )
    
    
    (0.04
    )Diluted earnings per share from continuing operations
    
    
    (3.64
    )
    
    
    0.17
    
    
    
    (4.40
    )
    
    
    (0.06
    )Return on average equity from continuing operations
    
    
    (109.4
    )%
    
    
    4.3
    %
    
    
    (61.8
    )%
    
    
    (0.2
    )%Return on average assets from continuing operations
    
    
    (7.2
    )%
    
    
    0.4
    %
    
    
    (4.3
    )%
    
    
    0.0
    %
  Outlook
   27




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##### Table of Contents



Consolidated Income Statement Analysis
 Net Income from Continuing Operations
  Net Interest Income from Continuing Operations
  28




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##### Table of Contents



For the Six Months Ended June 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
    
    $
    43,047
    
    
    $
    811
    
    
    
    3.79
    %
    
    $
    54,887
    
    
    $
    1,374
    
    
    
    5.05
    %Federal funds sold
    
    
    16,417
    
    
    
    199
    
    
    
    2.44
    %
    
    
    30,678
    
    
    
    807
    
    
    
    5.30
    %Residual interests
    
    
    10,874
    
    
    
    469
    
    
    
    8.67
    %
    
    
    10,108
    
    
    
    549
    
    
    
    10.95
    %Investment securities
    
    
    132,226
    
    
    
    3,514
    
    
    
    5.34
    %
    
    
    135,968
    
    
    
    3,645
    
    
    
    5.41
    %Loans held for sale
    
    
    7,831
    
    
    
    154
    
    
    
    3.95
    %
    
    
    167,480
    
    
    
    6,091
    
    
    
    7.33
    %Loans and leases, net of unearned income(1)
    
    
    5,592,574
    
    
    
    226,846
    
    
    
    8.16
    %
    
    
    5,351,985
    
    
    
    244,910
    
    
    
    9.23
    %Total interest earning assets
    
    
    5,802,969
    
    
    $
    231,993
    
    
    
    8.04
    %
    
    
    5,751,106
    
    
    $
    257,376
    
    
    
    9.02
    %Noninterest-earning assets:Cash and due from banks
    
    
    69,065
    
    
    
    
    
    
    
    
    
    
    
    72,036Premises and equipment, net
    
    
    38,360
    
    
    
    
    
    
    
    
    
    
    
    38,604Other assets
    
    
    250,027
    
    
    
    
    
    
    
    
    
    
    
    305,064Less allowance for loan and lease losses
    
    
    (157,737
    )
    
    
    
    
    
    
    
    
    
    
    (82,825
    )Total assets
    
    $
    6,002,684
    
    
    
    
    
    
    
    
    
    
    $
    6,083,985Liabilities and Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    316,256
    
    
    $
    2,151
    
    
    
    1.37
    %
    
    $
    290,790
    
    
    $
    3,406
    
    
    
    2.36
    %Money market savings
    
    
    1,033,065
    
    
    
    13,507
    
    
    
    2.63
    %
    
    
    1,152,525
    
    
    
    25,726
    
    
    
    4.50
    %Regular savings
    
    
    116,944
    
    
    
    979
    
    
    
    1.68
    %
    
    
    125,220
    
    
    
    1,375
    
    
    
    2.21
    %Time deposits
    
    
    1,645,936
    
    
    
    38,822
    
    
    
    4.74
    %
    
    
    1,500,068
    
    
    
    37,924
    
    
    
    5.10
    %Other borrowings
    
    
    659,697
    
    
    
    13,162
    
    
    
    4.01
    %
    
    
    633,603
    
    
    
    16,581
    
    
    
    5.28
    %Collateralized debt
    
    
    1,187,289
    
    
    
    28,873
    
    
    
    4.89
    %
    
    
    1,181,911
    
    
    
    32,928
    
    
    
    5.62
    %Other long-term debt
    
    
    233,870
    
    
    
    8,190
    
    
    
    7.04
    %
    
    
    233,955
    
    
    
    8,680
    
    
    
    7.48
    %Total interest-bearing liabilities
    
    $
    5,193,057
    
    
    $
    105,684
    
    
    
    4.09
    %
    
    $
    5,118,072
    
    
    $
    126,620
    
    
    
    4.99
    %Noninterest-bearing liabilities:Demand deposits
    
    
    299,500
    
    
    
    
    
    
    
    
    
    
    
    343,183Other liabilities
    
    
    90,436
    
    
    
    
    
    
    
    
    
    
    
    102,784Shareholders equity
    
    
    419,691
    
    
    
    
    
    
    
    
    
    
    
    519,946Total liabilities and shareholders equity
    
    $
    6,002,684
    
    
    
    
    
    
    
    
    
    
    $
    6,083,985Net interest income
    
    
    
    
    
    $
    126,309
    
    
    
    
    
    
    
    
    
    
    $
    130,756Net interest income to average
interest earning assets
    
    
    
    
    
    
    
    
    
    
    4.38
    %
    
    
    
    
    
    
    
    
    
    
    4.58
    %Less: Net interest income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,215
    )Net interest income from continuing operations
    
    
    
    
    
    $
    126,309
    
    
    
    
    
    
    
    
    
    
    $
    131,971
 
 (1)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan
amounts outstanding. 29




---



##### 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
  30




---



##### Table of Contents



Investment Securities
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Held-to-Maturity:U.S. Treasury and
government obligations
    
    $
    14,150
    
    
    $
    13,970Obligations of states
and political subdivisions
    
    
    3,321
    
    
    
    3,436Mortgage-backed securities
    
    
    697
    
    
    
    717Total held-to-maturity
    
    
    18,168
    
    
    
    18,123Available-for-Sale:Mortgage-backed securities
    
    
    24,733
    
    
    
    45,499Other
    
    
    12,331
    
    
    
    14,185Total available-for-sale
    
    
    37,064
    
    
    
    59,684Federal Home Loan Bank and Federal Reserve Bank stock
    
    
    62,588
    
    
    
    62,588Total investment securities
    
    $
    117,820
    
    
    $
    140,395
  Loans and Leases Held For Sale
  Loans and Leases
   31




---



##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,049,958
    
    
    $
    2,099,451Real estate-construction & land development
    
    
    561,644
    
    
    
    586,037Real estate-mortgage
    
    
    1,576,373
    
    
    
    1,691,450Consumer
    
    
    30,673
    
    
    
    32,232Commercial financingFranchise financing
    
    
    965,823
    
    
    
    925,741Domestic leasing
    
    
    10,279
    
    
    
    306,301Foreign leasing
    
    
    288,136
    
    
    
    462,036Unearned incomeFranchise financing
    
    
    (314,468
    )
    
    
    (306,681
    )Domestic leasing
    
    
    (1,335
    )
    
    
    (42,723
    )Foreign leasing
    
    
    (36,871
    )
    
    
    (57,614
    )Total
    
    $
    5,130,212
    
    
    $
    5,696,230
 Allowance for Loans and Lease Losses
  June 30,
    
    
    December 31,2008
    
    
    2007And the Six Months
    
    
    And the Year ThenThen Ended
    
    
    Ended(Dollars in thousands)Balance at beginning of year
    
    $
    144,855
    
    
    $
    74,468Provision for loan and lease losses
    
    
    202,350
    
    
    
    134,988Charge-offs
    
    
    (133,730
    )
    
    
    (73,994
    )Recoveries
    
    
    3,008
    
    
    
    10,099Reduction due to reclassification and sales of loans
    
    
    (638
    )
    
    
    (1,225
    )Foreign currency adjustment
    
    
    (131
    )
    
    
    519Balance at end of period
    
    $
    215,714
    
    
    $
    144,855
  Deposits
   32




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##### Table of Contents



Other Borrowings
   Collateralized and Other Long-Term Debt
   Capital
   MinimumRegulatoryWell-June 30,
    
    
    December 31,
    
    
    Capitalized
    
    
    June 30, 20082008
    
    
    2007
    
    
    Standard
    
    

Pro
Forma(1)(Dollars in thousands)Tier 1 capital
    
    $
    425,861
    
    
    $
    619,656Tier 2 capital
    
    
    188,822
    
    
    
    150,212Total risk-based capital
    
    $
    614,683
    
    
    $
    769,868Risk-weighted assets
    
    $
    5,770,817
    
    
    $
    6,099,204Risk-based ratios:Tier 1 capital
    
    
    7.4
    %
    
    
    10.2
    %
    
    
    6.0
    %
    
    
    7.7
    %Total capital
    
    
    10.7
    
    
    
    12.6
    
    
    
    10.0
    
    
    
    12.1Tier 1 leverage ratio
    
    
    7.2
    
    
    
    10.2
    
    
    
    5.0
    
    
    
    7.4Ending shareholders equity
to assets
    
    
    5.6
    
    
    
    7.4Average shareholders
equity to assets
    
    
    6.6
    
    
    
    8.3
 (1)
    
    The pro forma adjustments include the removal of the assets
being sold in the third quarter from the balance sheet as of
June 30, 2008 and the recognition of associated exit costs not
yet recognized.
 33




---



##### Table of Contents



Cash Flow Analysis
   Earnings by Line of Business
  
    
    Commercial Banking
    
    Commercial Finance
    
    Home Equity Lending
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Net income (loss):Commercial Banking
    
    $
    (8,794
    )
    
    $
    6,342
    
    
    $
    (7,708
    )
    
    $
    9,505Commercial Finance
    
    
    (23,418
    )
    
    
    2,936
    
    
    
    (18,973
    )
    
    
    5,527Home Equity Lending
    
    
    (44,410
    )
    
    
    (1,950
    )
    
    
    (60,511
    )
    
    
    (12,100
    )Other (including consolidating entries)
    
    
    (30,110
    )
    
    
    (1,857
    )
    
    
    (41,706
    )
    
    
    (3,555
    )Net income (loss) from continuing operations
    
    
    (106,732
    )
    
    
    5,471
    
    
    
    (128,898
    )
    
    
    (623
    )Discontinued operations
    
    
    
    
    
    
    (5,860
    )
    
    
    
    
    
    
    (9,895
    )Net loss
    
    $
    (106,732
    )
    
    $
    (389
    )
    
    $
    (128,898
    )
    
    $
    (10,518
    )
  34




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##### Table of Contents



Commercial Banking
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    45,480
    
    
    $
    59,782
    
    
    $
    95,206
    
    
    $
    117,255Interest expense
    
    
    (18,558
    )
    
    
    (29,890
    )
    
    
    (40,462
    )
    
    
    (57,777
    )Net interest income
    
    
    26,922
    
    
    
    29,892
    
    
    
    54,744
    
    
    
    59,478Provision for loan and lease losses
    
    
    (24,481
    )
    
    
    (800
    )
    
    
    (31,061
    )
    
    
    (5,441
    )Noninterest income
    
    
    4,401
    
    
    
    4,188
    
    
    
    9,068
    
    
    
    8,135Total net revenue
    
    
    6,842
    
    
    
    33,280
    
    
    
    32,751
    
    
    
    62,172Operating expense
    
    
    (21,945
    )
    
    
    (22,923
    )
    
    
    (46,577
    )
    
    
    (47,214
    )(Loss) income before taxes
    
    
    (15,103
    )
    
    
    10,357
    
    
    
    (13,826
    )
    
    
    14,958Income taxes
    
    
    6,309
    
    
    
    (4,015
    )
    
    
    6,118
    
    
    
    (5,453
    )Net (loss) income
    
    $
    (8,794
    )
    
    $
    6,342
    
    
    $
    (7,708
    )
    
    $
    9,505Performance Ratios:Return on Average Equity
    
    
    -15.09
    %
    
    
    10.70
    %
    
    
    -6.58
    %
    
    
    8.19
    %
 June 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Selected Balance Sheet Data at End of Period:Assets
    
    $
    3,077,591
    
    
    $
    3,093,764Loans and leases
    
    
    2,877,047
    
    
    
    2,950,356Allowance for loan and lease losses
    
    
    (50,218
    )
    
    
    (35,148
    )Deposits
    
    
    2,473,335
    
    
    
    2,528,721Shareholders equity
    
    
    226,129
    
    
    
    235,009Daily Averages:Assets
    
    $
    3,053,982
    
    
    $
    3,143,219Loans and leases
    
    
    2,924,051
    
    
    
    2,902,994Allowance for loan and lease losses
    
    
    (40,451
    )
    
    
    (26,984
    )Deposits
    
    
    2,579,385
    
    
    
    2,753,615Shareholders equity
    
    
    235,410
    
    
    
    234,068Shareholders equity to assets
    
    
    7.71
    %
    
    
    7.45
    %
 Overview
  35




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##### Table of Contents



Portfolio Characteristics
  June 30,
    
    December 31,2008
    
    2007Weighted
    
    
    
    
    
    
    
    
    
    WeightedLoans
    
    Percent
    
    Average
    
    Loans
    
    Percent
    
    AverageMarkets
    
    Outstanding
    
    of Total
    
    Yield
    
    Outstanding
    
    of Total
    
    Yield(Dollars in thousands)Indianapolis
    
    $
    515,040
    
    
    
    17.9
    %
    
    
    6.3
    %
    
    $
    539,008
    
    
    
    18.3
    %
    
    
    7.1
    %Central and Western Michigan
    
    
    436,048
    
    
    
    15.2
    %
    
    
    6.2
    
    
    
    465,924
    
    
    
    15.8
    
    
    
    7.3Southern Indiana
    
    
    454,033
    
    
    
    15.8
    %
    
    
    6.4
    
    
    
    463,597
    
    
    
    15.7
    
    
    
    6.7Phoenix
    
    
    468,188
    
    
    
    16.3
    %
    
    
    6.3
    
    
    
    484,985
    
    
    
    16.4
    
    
    
    7.0Las Vegas
    
    
    191,189
    
    
    
    6.6
    %
    
    
    6.5
    
    
    
    188,126
    
    
    
    6.4
    
    
    
    8.2Sacramento
    
    
    118,277
    
    
    
    4.1
    %
    
    
    5.8
    
    
    
    120,149
    
    
    
    4.1
    
    
    
    7.7Other
    
    
    694,272
    
    
    
    24.1
    %
    
    
    6.1
    
    
    
    688,567
    
    
    
    23.3
    
    
    
    7.4Total
    
    $
    2,877,047
    
    
    
    100.0
    %
    
    
    6.2
    %
    
    $
    2,950,356
    
    
    
    100.0
    %
    
    
    7.3
    %
 Weighted
    
    
    
    
    
    
    
    
    
    WeightedCore
    
    Percent
    
    Average
    
    Core
    
    Percent
    
    AverageDeposits
    
    of Total
    
    Yield
    
    Deposits
    
    of Total
    
    YieldIndianapolis
    
    $
    268,108
    
    
    
    12.7
    %
    
    
    2.1
    %
    
    $
    225,075
    
    
    
    10.0
    %
    
    
    3.5
    %Central and Western Michigan
    
    
    165,692
    
    
    
    7.8
    %
    
    
    1.9
    
    
    
    195,818
    
    
    
    8.7
    
    
    
    2.6Southern Indiana
    
    
    738,244
    
    
    
    34.9
    %
    
    
    1.8
    
    
    
    740,686
    
    
    
    33.1
    
    
    
    2.9Phoenix
    
    
    155,948
    
    
    
    7.4
    %
    
    
    2.2
    
    
    
    175,617
    
    
    
    7.8
    
    
    
    3.4Las Vegas
    
    
    360,108
    
    
    
    17.0
    %
    
    
    2.7
    
    
    
    429,693
    
    
    
    19.2
    
    
    
    3.7Sacramento
    
    
    40,743
    
    
    
    1.9
    %
    
    
    1.2
    
    
    
    45,228
    
    
    
    2.0
    
    
    
    2.5Other
    
    
    385,511
    
    
    
    18.3
    %
    
    
    2.0
    
    
    
    428,599
    
    
    
    19.2
    
    
    
    6.3Total
    
    $
    2,114,354
    
    
    
    100.0
    %
    
    
    2.0
    %
    
    $
    2,240,716
    
    
    
    100.0
    %
    
    
    3.1
    %
 Net Income
  Net Interest Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Net interest income
    
    $
    26,922
    
    
    $
    29,892
    
    
    $
    54,744
    
    
    $
    59,478Average interest earning assets
    
    
    2,955,785
    
    
    
    3,104,600
    
    
    
    2,964,535
    
    
    
    3,055,570Net interest margin
    
    
    3.66
    %
    
    
    3.86
    %
    
    
    3.71
    %
    
    
    3.93
    %
  36




---



##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Trust fees
    
    $
    549
    
    
    $
    540
    
    
    $
    1,130
    
    
    $
    1,114Service charges on deposit accounts
    
    
    1,189
    
    
    
    926
    
    
    
    2,273
    
    
    
    1,794Insurance commissions, fees and premiums
    
    
    413
    
    
    
    436
    
    
    
    974
    
    
    
    1,021Gain from sales of loans
    
    
    463
    
    
    
    560
    
    
    
    1,064
    
    
    
    1,016Loan servicing fees
    
    
    334
    
    
    
    366
    
    
    
    670
    
    
    
    750Amortization of servicing assets
    
    
    (293
    )
    
    
    (290
    )
    
    
    (608
    )
    
    
    (569
    )Brokerage fees
    
    
    337
    
    
    
    398
    
    
    
    708
    
    
    
    750Other
    
    
    1,409
    
    
    
    1,252
    
    
    
    2,857
    
    
    
    2,259Total noninterest income
    
    $
    4,401
    
    
    $
    4,188
    
    
    $
    9,068
    
    
    $
    8,135
  Operating Expenses
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Salaries and employee benefits
    
    $
    11,723
    
    
    $
    12,917
    
    
    $
    25,883
    
    
    $
    27,269Other expenses
    
    
    10,222
    
    
    
    10,006
    
    
    
    20,694
    
    
    
    19,945Total operating expenses
    
    $
    21,945
    
    
    $
    22,923
    
    
    $
    46,577
    
    
    $
    47,214Efficiency ratio
    
    
    70.1
    %
    
    
    67.3
    %
    
    
    73.0
    %
    
    
    69.8
    %Number of employees at period end(1)
    
    
    
    
    
    
    
    
    
    
    532
    
    
    
    588
 
 (1)
    
    On a full time equivalent basis.  Balance Sheet
  37




---



##### Table of Contents



Credit Quality
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Nonperforming loans
    
    $
    58,376
    
    
    $
    27,001Other real estate owned
    
    
    7,287
    
    
    
    6,895Total nonperforming assets
    
    $
    65,663
    
    
    $
    33,896Nonperforming assets to total assets
    
    
    2.13
    %
    
    
    1.09
    %Allowance for loan losses
    
    $
    50,218
    
    
    $
    35,148Allowance for loan losses to total loans
    
    
    1.75
    %
    
    
    1.19
    %
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Provision for loan losses
    
    $
    24,481
    
    
    $
    800
    
    
    $
    31,061
    
    
    $
    5,441Net charge-offs
    
    
    14,022
    
    
    
    1,252
    
    
    
    15,991
    
    
    
    6,079Net charge-offs to average loans
    
    
    1.93
    %
    
    
    0.14
    %
    
    
    1.10
    %
    
    
    0.42
    %
  June 30,
    
    
    December 31,Markets
    
    2008
    
    
    2007Indianapolis
    
    
    1.32
    %
    
    
    1.02
    %Central and Western Michigan
    
    
    1.80
    %
    
    
    2.52
    %Southern Indiana
    
    
    0.47
    %
    
    
    0.53
    %Phoenix
    
    
    5.96
    %
    
    
    1.20
    %Las Vegas
    
    
    2.98
    %
    
    
    0.01
    %Sacramento
    
    
    9.70
    %
    
    
    4.15
    %Other
    
    
    0.55
    %
    
    
    0.49
    %Total
    
    
    2.28
    %
    
    
    1.15
    %
  38




---



##### Table of Contents



Commercial Finance
   Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    13,464
    
    
    $
    12,923
    
    
    $
    27,403
    
    
    $
    24,931Provision for loan and lease losses
    
    
    (48,201
    )
    
    
    (3,053
    )
    
    
    (52,857
    )
    
    
    (6,532
    )Noninterest income
    
    
    2,825
    
    
    
    2,947
    
    
    
    9,114
    
    
    
    5,738Total net revenue
    
    
    (31,912
    )
    
    
    12,817
    
    
    
    (16,340
    )
    
    
    24,137Operating expense
    
    
    (7,397
    )
    
    
    (7,934
    )
    
    
    (15,524
    )
    
    
    (15,068
    )(Loss) income before taxes
    
    
    (39,309
    )
    
    
    4,883
    
    
    
    (31,864
    )
    
    
    9,069Income taxes
    
    
    15,891
    
    
    
    (1,947
    )
    
    
    12,891
    
    
    
    (3,542
    )Net (loss) income
    
    $
    (23,418
    )
    
    $
    2,936
    
    
    $
    (18,973
    )
    
    $
    5,527Selected Operating Data:Net charge-offs
    
    $
    57,862
    
    
    $
    2,089
    
    
    $
    60,598
    
    
    $
    4,035Net interest margin
    
    
    4.24
    %
    
    
    4.69
    %
    
    
    4.34
    %
    
    
    4.67
    %Total funding of loans and leases
    
    $
    146,444
    
    
    $
    174,742
    
    
    $
    289,003
    
    
    $
    303,353
 June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    1,272,671
    
    
    $
    1,302,688Leases held for sale
    
    
    322,100
    
    
    
    Loans and leases
    
    
    911,565
    
    
    
    1,287,060Allowance for loan and lease losses
    
    
    (9,282
    )
    
    
    (17,792
    )Shareholders equity
    
    
    104,761
    
    
    
    119,574
 Overview
   39




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##### Table of Contents



Portfolio Characteristics
  June 30,
    
    
    December 31,2008
    
    
    2007California
    
    
    15.5
    %
    
    
    12.9
    %Texas
    
    
    12.1
    
    
    
    12.6New York
    
    
    7.7
    
    
    
    8.7New Jersey
    
    
    6.9
    
    
    
    7.0All other states
    
    
    57.8
    
    
    
    58.8Total
    
    
    100.0
    %
    
    
    100.0
    %Total Portfolio
    
    $
    651,355
    
    
    $
    619,080
  June 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Domestic franchise loans
    
    $
    651,355
    
    
    $
    619,060Weighted average coupon
    
    
    8.83
    %
    
    
    9.38
    %Delinquency ratio
    
    
    0.27
    
    
    
    0.04Domestic leases
    
    $
    188,802
    
    
    $
    263,578Weighted average coupon
    
    
    11.06
    %
    
    
    10.91
    %Delinquency ratio
    
    
    3.08
    
    
    
    2.47Canadian leases (1)
    
    $
    393,508
    
    
    $
    404,422Weighted average coupon
    
    
    9.27
    %
    
    
    9.09
    %Delinquency ratio
    
    
    0.41
    
    
    
    0.51
 
 (1)
    
    In U.S. dollars. Net Income
  Net Interest Income
  Three Months June 30,
    
    Six Months June 30,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)Net interest income
    
    $
    13,464
    
    
    $
    12,923
    
    
    $
    27,403
    
    
    $
    24,931Average interest earning assets
    
    
    1,278,476
    
    
    
    1,104,098
    
    
    
    1,269,979
    
    
    
    1,077,182Net interest margin
    
    
    4.24
    %
    
    
    4.69
    %
    
    
    4.34
    %
    
    
    4.67
    %
 40




---



##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Gain from sales of loans
    
    $
    684
    
    
    $
    1,466
    
    
    $
    6,513
    
    
    $
    3,037Derivative gains (losses), net
    
    
    358
    
    
    
    (258
    )
    
    
    (759
    )
    
    
    (274
    )Other
    
    
    1,783
    
    
    
    1,739
    
    
    
    3,360
    
    
    
    2,975Total noninterest income
    
    $
    2,825
    
    
    $
    2,947
    
    
    $
    9,114
    
    
    $
    5,738
  Operating Expenses
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Salaries and employee benefits
    
    $
    4,433
    
    
    $
    4,901
    
    
    $
    9,567
    
    
    $
    9,483Other
    
    
    2,964
    
    
    
    3,033
    
    
    
    5,957
    
    
    
    5,585Total operating expenses
    
    $
    7,397
    
    
    $
    7,934
    
    
    $
    15,524
    
    
    $
    15,068Efficiency ratio
    
    
    45.41
    %
    
    
    50.00
    %
    
    
    42.51
    %
    
    
    49.10
    %Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    206
    

    
    
    217
 
 (1)
    
    On a full time equivalent basis.  41




---



##### Table of Contents



Credit Quality
    June 30,
    
    December 31,2008
    
    2007(Dollars in thousands)Franchise Loans:Nonperforming loans
    
    $
    5,052
    
    
    $
    3,630Allowance for loan losses
    
    
    6,276
    
    
    
    5,961Allowance for loan losses to total loans
    
    
    0.96
    %
    
    
    0.96
    %
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Provision for loan losses
    
    $
    1,841
    
    
    $
    369
    
    
    $
    3,356
    
    
    $
    793Net charge-offs
    
    
    1,785
    
    
    
    335
    
    
    
    2,381
    
    
    
    371Net charge-offs to average loans
    
    
    1.15
    %
    
    
    0.29
    %
    
    
    0.79
    %
    
    
    0.16
    %
 Home Equity Lending
  1.
    
    We sold the residual interests, mortgage servicing rights, and future draw
obligations on our secured-financed home equity portfolio. Since the securitization
transactions that gave rise to the residuals were treated as secured financings under
SFAS 140, the residual interests were not recorded on our balance sheet. Once the
residual sale transaction is completed and after the receipt of third party consents to the
transfer of the servicing, we will remove approximately $1.0 billion of loans and $0.9
billion of related collateralized debt from our balance sheet.2.
    
    We agreed to securitize approximately $275 million of whole loans. The
securitization will be treated as a financing and, as such, the loans will remain on our
balance sheet. We will record a liability for approximately $90 million representing
debt issued by the securitization trust (which we will consolidate). These loans and
our remaining $40 million of home equity loans will be run-off over time.3.
    
    The buyer of the residual interests has indicated their intention to acquire a
portion of our platform operations and employ our staff. A final determination of the
scope of this acquisition has not been completed. At this time, we estimate these exit
costs to be in the range of $40 to $60 million pre-tax. We expect that the bulk of
these costs will be known and accrued prior to year-end 2008.
  42




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    21,611
    
    
    $
    24,473
    
    
    $
    44,992
    
    
    $
    49,037Provision for loan and lease losses
    
    
    (85,147
    )
    
    
    (15,601
    )
    
    
    (118,432
    )
    
    
    (30,689
    )Noninterest income
    
    
    3,413
    
    
    
    4,763
    
    
    
    495
    
    
    
    (2,034
    )Total net revenues
    
    
    (60,123
    )
    
    
    13,635
    
    
    
    (72,945
    )
    
    
    16,314Operating expenses
    
    
    (13,910
    )
    
    
    (16,868
    )
    
    
    (27,921
    )
    
    
    (36,449
    )Income (loss) before taxes
    
    
    (74,033
    )
    
    
    (3,233
    )
    
    
    (100,866
    )
    
    
    (20,135
    )Income taxes
    
    
    29,623
    
    
    
    1,283
    
    
    
    40,355
    
    
    
    8,035Net income (loss)
    
    $
    (44,410
    )
    
    $
    (1,950
    )
    
    $
    (60,511
    )
    
    $
    (12,100
    )Selected Operating Data:Loan volume:Lines of credit
    
    $
    875
    
    
    $
    7,745
    
    
    $
    4,438
    
    
    $
    20,356Loans
    
    
    6,640
    
    
    
    115,393
    
    
    
    32,438
    
    
    
    292,002Net home equity charge-offs to average
managed portfolio
    
    
    7.71
    %
    
    
    2.18
    %
    
    
    7.13
    %
    
    
    2.61
    %Gain on sale of loans to loans sold
    
    
    1.96
    %
    
    
    1.42
    %
    
    
    2.34
    %
    
    
    0.46
    %
 June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Selected Balance Sheet Data:Total assets
    
    $
    1,280,497
    
    
    $
    1,481,306Home equity loans and lines of credit(1)
    
    
    1,341,351
    
    
    
    1,458,564Allowance for loan losses
    
    
    (156,000
    )
    
    
    (91,700
    )Home equity loans held for sale
    
    
    382
    
    
    
    5,865Residual interests
    
    
    930
    
    
    
    3,120Mortgage servicing assets
    
    
    18,451
    
    
    
    20,071Short-term borrowings
    
    
    235,141
    
    
    
    291,293Collateralized debt
    
    
    888,965
    
    
    
    970,733Shareholders equity
    
    
    131,723
    
    
    
    156,894Selected Operating Data:Total managed portfolio balance
    
    
    1,469,123
    
    
    
    1,605,032Delinquency ratio(2)
    
    
    6.1
    %
    
    
    5.8
    %Weighted average coupon rate:Lines of credit
    
    
    8.69
    %
    
    
    10.62
    %Loans
    
    
    11.08
    
    
    
    11.07
 
 (1)
    
    Includes $1.0 billion and $1.1 billion of loans at June 30, 2008 and December
31, 2007, respectively, pledged as collateral as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. Overview
  43




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##### Table of Contents



Geographic Distribution of our Portfolio and Current Originations
 Portfolio:
 June 30,
    
    
    December 31,State
    
    2008
    
    
    2007California
    
    
    8.3
    %
    
    
    7.9
    %Florida
    
    
    7.9
    
    
    
    9.3Ohio
    
    
    6.0
    
    
    
    6.2Colorado
    
    
    5.7
    
    
    
    5.7Georgia
    
    
    5.4
    
    
    
    5.5All other states
    
    
    66.7
    
    
    
    65.4Total
    
    
    100.0
    %
    
    
    100.0
    %Total portfolio in thousands
    
    $
    316,102
    
    
    $
    340,063
 Portfolio Characteristics
  June 30, 2008
    
    
    June 30, 2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageAmount
    
    
    % of Total
    
    
    Coupon
    
    
    Amount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)
    
    
    (Dollars in thousands)Home Mortgage Portfolio
Loans = 100% CLTV
    
    $
    88,865
    
    
    
    28.11
    %
    
    
    11.28
    %
    
    $
    103,169
    
    
    
    30.34
    %
    
    
    11.42
    %Lines of credit = 100% CLTV
    
    
    34,753
    
    
    
    10.99
    
    
    
    8.57
    
    
    
    37,233
    
    
    
    10.95
    
    
    
    10.38First mortgages = 100% CLTV
    
    
    27,466
    
    
    
    8.69
    
    
    
    8.22
    
    
    
    33,028
    
    
    
    9.71
    
    
    
    8.22FNMA First mortgages = 100% CLTV
    
    
    62
    
    
    
    0.02
    
    
    
    6.13
    
    
    
    
    
    
    
    
    
    
    
    Total = 100% CLTV
    
    
    151,146
    
    
    
    47.81
    
    
    
    10.10
    
    
    
    173,430
    
    
    
    51.00
    
    
    
    10.59Loans > 100% CLTV
    
    
    139,322
    
    
    
    44.08
    
    
    
    13.54
    
    
    
    141,206
    
    
    
    41.52
    
    
    
    13.58Lines of credit > 100% CLTV
    
    
    21,163
    
    
    
    6.70
    
    
    
    12.39
    
    
    
    20,397
    
    
    
    6.00
    
    
    
    13.86Total > 100% CLTV
    
    
    160,485
    
    
    
    50.78
    
    
    
    13.39
    
    
    
    161,603
    
    
    
    47.52
    
    
    
    13.61Other
    
    
    4,471
    
    
    
    1.41
    
    
    
    13.54
    
    
    
    5,030
    
    
    
    1.48
    
    
    
    13.58Total portfolio
    
    $
    316,102
    
    
    
    100.00
    %
    
    
    11.82
    %
    
    $
    340,063
    
    
    
    100.00
    %
    
    
    12.07
    %
 Net Income
  Net Revenue
   44




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Net interest income
    
    $
    21,611
    
    
    $
    24,473
    
    
    $
    44,992
    
    
    $
    49,037Provision for loan losses
    
    
    (85,147
    )
    
    
    (15,601
    )
    
    
    (118,432
    )
    
    
    (30,689
    )Gain on sales of whole loans
    
    
    132
    
    
    
    1,580
    
    
    
    684
    
    
    
    1,771Valuation adjustment on loans held for sale
    
    
    75
    
    
    
    (158
    )
    
    
    70
    
    
    
    (8,071
    )Gain (loss) on sales of loans
    
    
    207
    
    
    
    1,422
    
    
    
    754
    
    
    
    (6,300
    )Loan servicing fees
    
    
    2,541
    
    
    
    4,751
    
    
    
    4,703
    
    
    
    10,278Amortization of servicing assets
    
    
    (14
    )
    
    
    (32
    )
    
    
    (37
    )
    
    
    (68
    )Recovery (impairment) recovery of servicing assets
    
    
    2,246
    
    
    
    (1,966
    )
    
    
    (1,634
    )
    
    
    (6,600
    )Derivative gains (losses)
    
    
    
    
    
    
    12
    
    
    
    (1
    )
    
    
    (282
    )Other
    
    
    (1,567
    )
    
    
    576
    
    
    
    (3,290
    )
    
    
    938Total net revenue
    
    $
    (60,123
    )
    
    $
    13,635
    
    
    $
    (72,945
    )
    
    $
    16,314
     Operating Expenses
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Salaries and employee benefits
    
    $
    8,137
    
    
    $
    10,391
    
    
    $
    15,940
    
    
    $
    22,553Other
    
    
    5,773
    
    
    
    6,477
    
    
    
    11,981
    
    
    
    13,896Total operating expenses
    
    $
    13,910
    
    
    $
    16,868
    
    
    $
    27,921
    
    
    $
    36,449Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    290
    
    
    
    458
 
 (1)
    
    On a full time equivalent basis.  45




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##### Table of Contents



Home Equity Servicing
   June 30,
    
    December 31,
    
    June 30,2008
    
    2007
    
    2007(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,469,123
    
    
    $
    1,605,032
    
    
    $
    1,656,14130 days past due
    
    
    6.06
    %
    
    
    5.78
    %
    
    
    3.64
    %90 days past due
    
    
    2.90
    
    
    
    2.53
    
    
    
    1.52Net Chargeoff Rate
    
    
    7.71
    
    
    
    4.62
    
    
    
    2.18Unsold Loans   FinancedTotal Loans
    
    $
    1,019,412
    
    
    $
    1,118,032
    
    
    $
    1,219,95430 days past due
    
    
    5.77
    %
    
    
    5.56
    %
    
    
    2.91
    %90 days past due
    
    
    2.61
    
    
    
    2.39
    
    
    
    1.13Net Chargeoff Rate
    
    
    7.85
    
    
    
    4.80
    
    
    
    3.04Loan Loss Reserve
    
    $
    96,361
    
    
    $
    58,262
    
    
    $
    31,511Unsold Loans  OtherTotal Loans
    
    $
    316,102
    
    
    $
    340,063
    
    
    
    270,79930 days past due
    
    
    8.50
    %
    
    
    8.22
    %
    
    
    8.74
    %90 days past due
    
    
    4.51
    
    
    
    3.95
    
    
    
    4.11Net Chargeoff Rate
    
    
    10.26
    
    
    
    5.89
    
    
    
    0.70Loan Loss Reserve
    
    $
    59,639
    
    
    $
    33,438
    
    
    
    18,394Owned ResidualTotal Loans
    
    $
    133,609
    
    
    $
    146,937
    
    
    $
    165,38930 days past due
    
    
    2.47
    %
    
    
    1.83
    %
    
    
    0.73
    %90 days past due
    
    
    1.36
    
    
    
    0.29
    
    
    
    0.17Net Chargeoff Rate
    
    
    0.58
    
    
    
    0.35
    
    
    
    Residual Undiscounted Losses
    
    $
    3,120
    
    
    $
    870
    
    
    $
    610Credit Risk Sold, Potential
Incentive Servicing Fee Retained PortfolioTotal Loans
    
    $
    410,025
    
    
    $
    461,237
    
    
    $
    528,84630 days past due
    
    
    6.06
    %
    
    
    7.13
    %
    
    
    5.43
    %90 days past due
    
    
    2.21
    
    
    
    2.69
    
    
    
    2.00
 
 (1)
    
    Excludes deferred fees and costs. Parent and Other
   46




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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
  47




---



##### Table of Contents



Annualized for the Three Months EndedJune 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Commercial Bank
    
    
    1.93
    %
    
    
    0.27
    %Commercial Finance
    
    
    18.35
    
    
    
    0.90Home Equity Lending
    
    
    8.42
    
    
    
    5.05Total
    
    
    7.27
    %
    
    
    1.66
    %
   48




---



##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Accruing loans past due 90 days or more:Commercial, financial and
agricultural loans
    
    $
    5,245
    
    
    $
    177Real estate mortgages
    
    
    253
    
    
    
    151Consumer loans
    
    
    
    
    
    
    41Commercial financing:Franchise financing
    
    
    
    
    
    
    Domestic leasing
    
    
    
    
    
    
    311Canadian leasing
    
    
    30
    
    
    
    1775,528
    
    
    
    857Nonaccrual loans and leases:Commercial, financial and
agricultural loans
    
    
    51,193
    
    
    
    25,797Real estate mortgages
    
    
    40,863
    
    
    
    40,681Consumer loans
    
    
    1,685
    
    
    
    587Commercial financing:Franchise financing
    
    
    5,052
    
    
    
    3,630Domestic leasing
    
    
    
    
    
    
    2,595Canadian leasing
    
    
    1,957
    
    
    
    2,163100,750
    
    
    
    75,453Total nonperforming
loans and leases
    
    
    106,278
    
    
    
    76,310Other real estate owned & other
    
    
    22,579
    
    
    
    16,964Total nonperforming assets
    
    $
    128,857
    
    
    $
    93,274Nonperforming loans and leases to total
loans and leases
    
    
    2.1
    %
    
    
    1.3
    %Nonperforming assets to total
assets
    
    
    2.2
    %
    
    
    1.5
    %
   June 30,
    
    
    December 31,2008
    
    
    2007(In millions)     Commercial banking
    
    $
    66
    
    
    $
    34     Commercial finance
    
    
    13
    
    
    
    10     Home equity lending
    
    
    48
    
    
    
    46     Mortgage banking
    
    
    2
    
    
    
    3
  49




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##### Table of Contents



Liquidity Risk
         
    
    Lines of credit with correspondent banks, including fed funds lines: $10 million
outstanding out of $45 million available but not committed
    
    Lines of credit with non-correspondent banks: $50 million outstanding
    
    Small ticket Canadian leases financed via commercial paper conduits: $222 million This
facility is related to the leases in our Canadian portfolio and will not be available to us
after our sale of those leases in late July 2008.
 50




---



##### Table of Contents




    
    Federal Reserve Bank Discount Window: none outstanding on $245 million of loans 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, nor 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
 51




---



##### Table of Contents



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.
    
    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. Further, 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 June 30, 2008Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    5,680,303
    
    
    $
    5,584,546
    
    
    $
    5,489,705
    
    
    $
    5,395,665
    
    
    $
    5,303,533Loans held for sale
    
    
    334,073
    
    
    
    329,403
    
    
    
    324,836
    
    
    
    320,372
    
    
    
    316,010Mortgage servicing rights
    
    
    16,070
    
    
    
    18,617
    
    
    
    21,573
    
    
    
    24,533
    
    
    
    26,290Residual interests
    
    
    9,904
    
    
    
    9,570
    
    
    
    9,476
    
    
    
    9,453
    
    
    
    9,438Interest sensitive financial derivatives
    
    
    (12,086
    )
    
    
    (8,232
    )
    
    
    (5,579
    )
    
    
    (1,110
    )
    
    
    2,210Total interest sensitive assets
    
    
    6,028,264
    
    
    
    5,933,904
    
    
    
    5,840,011
    
    
    
    5,748,913
    
    
    
    5,657,481Interest Sensitive LiabilitiesDeposits
    
    
    (3,425,812
    )
    
    
    (3,388,146
    )
    
    
    (3,348,505
    )
    
    
    (3,309,565
    )
    
    
    (3,272,021
    )Other borrowings (1)
    
    
    (1,065,793
    )
    
    
    (1,050,855
    )
    
    
    (1,036,515
    )
    
    
    (1,022,740
    )
    
    
    (1,009,498
    )Long-term debt
    
    
    (1,198,865
    )
    
    
    (1,181,564
    )
    
    
    (1,162,541
    )
    
    
    (1,136,060
    )
    
    
    (1,107,741
    )Total interest sensitive liabilities
    
    
    (5,690,470
    )
    
    
    (5,620,565
    )
    
    
    (5,547,561
    )
    
    
    (5,468,365
    )
    
    
    (5,389,260
    )Net 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
    )Net market value as of March 31, 2008
    
    $
    474,077
    
    
    $
    442,332
    
    
    $
    420,876
    
    
    $
    408,144
    
    
    $
    396,281Change from current
    
    $
    53,201
    
    
    $
    21,456
    
    
    $
    
    
    
    $
    (12,732
    )
    
    $
    (24,595
    )
 
 (1)
    
    Includes certain debt which is categorized as collateralized borrowings in other
sections of this document
 52




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##### Table of Contents



GAAP-Based Value Change Method
 Present Value at June 30, 2008Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans held for sale
    
    
    324,836
    
    
    
    324,836
    
    
    
    324,836
    
    
    
    320,372
    
    
    
    316,010Mortgage servicing rights
    
    
    15,831
    
    
    
    18,378
    
    
    
    21,573
    
    
    
    24,295
    
    
    
    26,052Residual interests
    
    
    9,904
    
    
    
    9,570
    
    
    
    9,476
    
    
    
    9,453
    
    
    
    9,438Interest sensitive financial derivatives
    
    
    (12,086
    )
    
    
    (8,232
    )
    
    
    (5,579
    )
    
    
    (1,110
    )
    
    
    2,210Total interest sensitive assets
    
    
    338,485
    
    
    
    344,552
    
    
    
    350,306
    
    
    
    353,010
    
    
    
    353,710Interest Sensitive LiabilitiesDeposits (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other borrowings (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of June 30, 2008
    
    $
    338,485
    
    
    $
    344,552
    
    
    $
    350,306
    
    
    $
    353,010
    
    
    $
    353,710Potential change
    
    $
    (11,821
    )
    
    $
    (5,754
    )
    
    $
    
    
    
    $
    2,704
    
    
    $
    3,404Net market value as of March 31, 2008
    
    $
    2,700
    
    
    $
    12,885
    
    
    $
    23,699
    
    
    $
    33,641
    
    
    $
    42,474Potential change
    
    $
    (20,999
    )
    
    $
    (10,814
    )
    
    $
    
    
    
    $
    9,942
    
    
    $
    18,775
 
  Off-Balance Sheet Instruments
   Derivative Financial Instruments
    53




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Operational and Compliance Risk.
   54




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##### Table of Contents



Supervision and Regulation
     
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
   55




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##### Table of Contents



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.
 Culpepper v. Inland Mortgage Corporation
  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 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.,
  Homer v. Sharp
  56




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##### Table of Contents



Item 1A. Risk Factors.
  The current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations
  
    
    loan delinquencies, problem assets and foreclosures may increase;
    
    demand for our products and services may decline;
    
    deposits may decrease, which would adversely impact our
liquidity position; and
    
    collateral for our loans, especially real estate, may decline in value, in turn reducing
customers borrowing power, and reducing the value of assets and collateral associated with
our existing loans.
 A deterioration in our regulatory capital position could adversely affect us
  57




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 4. Submission of Matters to a Vote of security Holders.
  b)
    
    Proposal No. 1. The following Director Nominees were elected to serve on the Board until
the 2011 Annual Meeting, by the votes set forth below.
 Nominees
    
    Shares For
    
    
    Shares WithheldR. David Hoover
    
    
    21,756,675
    
    
    
    5,154,586William I. Miller
    
    
    26,170,734
    
    
    
    740,527Dayton H. Molendorp
    
    
    26,184,356
    
    
    
    726,905
  Sally A. Dean
    
    
    2010David W. Goodrich
    
    
    2009William H. Kling
    
    
    2010Brenda J. Lauderback
    
    
    2009John C. McGinty, Jr.
    
    
    2009Lance R. Odden
    
    
    2010Marita Zuraitis
    
    
    2009
 c)
    
    In addition to the election of directors, the shareholders voted on and approved the
following proposal:
 Shares
    
    
    Broker Non-Matter
    
    Shares For
    
    
    Shares Against
    
    
    Abstained
    
    
    votesProposal No. 2.
Re-Approval of the
Irwin Financial
Corporation Amended
and Restated 2001
Stock Plan, as
amended
    
    
    19,733,811
    
    
    
    652,461
    
    
    
    102,059
    
    
    
    6,422,934
 SharesMatter
    
    Shares For
    
    
    Shares Against
    
    
    AbstainedProposal No. 3.
Confirmation of
Independent Public
Accountants
    
    
    26,594,348
    
    
    
    209,921
    
    
    
    106,996
 58




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##### Table of Contents



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.)3.1
    
    Restated Articles of Incorporation of Irwin Financial Corporation, as amended December 20, 2006. (Incorporated
by reference to Exhibit 3.1 of Form 10-K for period ended December 31, 2006, and filed March 9, 2007, File No.
001-16691.)3.2
    
    Code of By-laws of Irwin Financial Corporation, as amended, February 15, 2007. (Incorporated by reference to
Exhibit 3.2 of Form 10-K filed March 9, 2007, File No. 001-16691.)3.3
    
    Code of By-laws of Irwin Financial Corporation, as amended November 28, 2007. (Incorporated by reference to
Exhibit 3.1 of Form 8-K filed November 30, 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 June 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 10(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.)
 59




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.10
    
    *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 June 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 June 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 June 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 June 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 June 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 June 30, 2006, File No. 001-16691.)10.23
    
    *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 June 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 June 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 June 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 June 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 June 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 June 30, 2002, File No. 000-06835.)
 60




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.29
    
    *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.)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. 61




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##### Table of Contents



SIGNATURES
  DATE: August 6, 2008
    IRWIN FINANCIAL CORPORATIONBy:
    /s/ Gregory F. EhlingerGREGORY F. EHLINGERCHIEF FINANCIAL OFFICER By:
    /s/ Jody A. LittrellJODY A. LITTRELLCORPORATE CONTROLLER
(Chief Accounting Officer) 62