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




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##### 



FORM 10-Q
TABLE OF CONTENTS
 PAGENO.PART I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial Statements
    
    
    3Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    59Item 4
    
    Controls and Procedures
    
    
    59PART II
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    59Item 6
    
    Exhibits
    
    
    61Signatures
    
    
    64Certification by the CEOCertification by the CFOSection 906 Certification of the CEOSection 906 Certification of the CFO
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION.
 
 Item 1. Financial Statements.
 IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    131,177
    
    
    $
    155,417Interest-bearing deposits with financial institutions
    
    
    50,734
    
    
    
    44,430Residual interests
    
    
    10,344
    
    
    
    22,116Investment securities- held-to-maturity (Fair value: $17,506
at September 30, 2006 and $17,031 at December 31, 2005)
    
    
    17,858
    
    
    
    17,046Investment securities- available-for-sale
    
    
    114,104
    
    
    
    100,296Loans held for sale
    
    
    175,531
    
    
    
    513,554Loans and leases, net of unearned income  Note 4
    
    
    5,101,135
    
    
    
    4,477,943Less: Allowance for loan and lease losses  Note 5
    
    
    (70,635
    )
    
    
    (59,223
    )5,030,500
    
    
    
    4,418,720Servicing assets  Note 6
    
    
    32,017
    
    
    
    34,445Accounts receivable  Note 2
    
    
    216,801
    
    
    
    83,369Accrued interest receivable
    
    
    25,063
    
    
    
    21,925Premises and equipment
    
    
    36,132
    
    
    
    29,721Other assets
    
    
    81,750
    
    
    
    86,572Assets held for sale  Note 2
    
    
    74,484
    
    
    
    1,118,913Total assets
    
    $
    5,996,495
    
    
    $
    6,646,524Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    713,668
    
    
    $
    754,778Interest-bearing
    
    
    1,684,682
    
    
    
    1,921,369Certificates of deposit over $100,000
    
    
    1,391,850
    
    
    
    1,222,8463,790,200
    
    
    
    3,898,993Short-term borrowings  Note 7
    
    
    264,239
    
    
    
    997,444Collateralized debt  Note 8
    
    
    1,042,952
    
    
    
    668,984Other long-term debt  Note 9
    
    
    233,892
    
    
    
    270,160Other liabilities
    
    
    142,157
    
    
    
    210,773Liabilities held for sale  Note 2
    
    
    
    
    
    
    87,836Total liabilities
    
    
    5,473,440
    
    
    
    6,134,190Commitments and contingencies  Note 14Shareholders equityPreferred stock, no par value  authorized 4,000,000 shares; none issued
    
    
    
    
    
    
    Common stock, no par value  authorized 40,000,000 shares;
issued 29,794,221 shares as of September 30, 2006 and 29,612,080 as of
December 31, 2005; 993,643 shares in treasury as of December 31, 2005
    
    
    114,689
    
    
    
    112,000Additional paid-in capital
    
    
    
    
    
    
    Deferred compensation
    
    
    
    
    
    
    (759
    )Accumulated other comprehensive income, net of deferred income tax benefit of
$185 at September 30, 2006 and liability of $71 as of December 31, 2005
    
    
    3,970
    
    
    
    3,448Retained earnings
    
    
    404,396
    
    
    
    418,784523,055
    
    
    
    533,473Less treasury stock, at cost
    
    
    
    
    
    
    (21,139
    )Total shareholders equity
    
    
    523,055
    
    
    
    512,334Total liabilities and shareholders equity
    
    $
    5,996,495
    
    
    $
    6,646,524
  3




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Three Months Ended September 30,2006
    
    
    2005(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    113,923
    
    
    $
    85,550Loans held for sale
    
    
    7,075
    
    
    
    10,726Residual interests
    
    
    279
    
    
    
    1,491Investment securities
    
    
    2,422
    
    
    
    1,961Federal funds sold
    
    
    89
    
    
    
    56Total interest income
    
    
    123,788
    
    
    
    99,784Interest expense:Deposits
    
    
    34,322
    
    
    
    21,780Short-term borrowings
    
    
    4,114
    
    
    
    2,769Collateralized debt
    
    
    14,306
    
    
    
    8,550Other long-term debt
    
    
    5,520
    
    
    
    7,323Total interest expense
    
    
    58,262
    
    
    
    40,422Net interest income
    
    
    65,526
    
    
    
    59,362Provision for loan and lease losses  Note 5
    
    
    9,135
    
    
    
    5,955Net interest income after provision for loan and lease losses
    
    
    56,391
    
    
    
    53,407Other income:Loan servicing fees
    
    
    6,207
    
    
    
    11,060Amortization of servicing assets  Note 6
    
    
    (5,338
    )
    
    
    (9,037
    )(Impairment) recovery of servicing assets  Note 6
    
    
    (5
    )
    
    
    886Net loan administration income
    
    
    864
    
    
    
    2,909Gain from sales of loans
    
    
    1,640
    
    
    
    6,131Trading gains
    
    
    968
    
    
    
    333Derivative losses, net
    
    
    (2,302
    )
    
    
    (2,036
    )Other
    
    
    6,177
    
    
    
    6,9817,347
    
    
    
    14,318Other expense:Salaries
    
    
    25,903
    
    
    
    27,513Pension and other employee benefits
    
    
    6,586
    
    
    
    6,476Office expense
    
    
    2,413
    
    
    
    2,178Premises and equipment
    
    
    5,040
    
    
    
    5,091Marketing and development
    
    
    614
    
    
    
    710Professional fees
    
    
    2,479
    
    
    
    2,441Other
    
    
    7,829
    
    
    
    4,56050,864
    
    
    
    48,969Income before income taxes from continuing operations
    
    
    12,874
    
    
    
    18,756Provision for income taxes
    
    
    3,641
    
    
    
    5,520Net income from continuing operations
    
    
    9,233
    
    
    
    13,236(Loss) income from discontinued operations, net of $8,976
tax benefit and $3,562 income tax expense, respectively 
Note 2
    
    
    (13,440
    )
    
    
    5,257Net (loss) income
    
    $
    (4,207
    )
    
    $
    18,493Earnings per share from continuing operations:  Note 11Basic
    
    $
    0.31
    
    
    $
    0.46Diluted
    
    $
    0.31
    
    
    $
    0.46Earnings per share:  Note 11Basic
    
    $
    (0.14
    )
    
    $
    0.65Diluted
    
    $
    (0.14
    )
    
    $
    0.64Dividends per share
    
    $
    0.11
    
    
    $
    0.10
  4




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Nine Months Ended September 30,2006
    
    
    2005(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    316,904
    
    
    $
    222,670Loans held for sale
    
    
    28,285
    
    
    
    28,722Residual interests
    
    
    1,409
    
    
    
    5,824Investment securities
    
    
    6,129
    
    
    
    5,513Federal funds sold
    
    
    137
    
    
    
    284Total interest income
    
    
    352,864
    
    
    
    263,013Interest expense:Deposits
    
    
    98,621
    
    
    
    54,578Short-term borrowings
    
    
    11,613
    
    
    
    5,282Collateralized debt
    
    
    37,013
    
    
    
    17,348Other long-term debt
    
    
    14,641
    
    
    
    15,741Total interest expense
    
    
    161,888
    
    
    
    92,949Net interest income
    
    
    190,976
    
    
    
    170,064Provision for loan and lease losses  Note 5
    
    
    25,154
    
    
    
    18,402Net interest income after provision for loan and lease losses
    
    
    165,822
    
    
    
    151,662Other income:Loan servicing fees
    
    
    25,164
    
    
    
    30,824Amortization of servicing assets  Note 6
    
    
    (17,866
    )
    
    
    (23,253
    )Recovery of servicing assets  Note 6
    
    
    978
    
    
    
    1,153Net loan administration income
    
    
    8,276
    
    
    
    8,724Gain from sales of loans
    
    
    816
    
    
    
    20,218Trading gains
    
    
    751
    
    
    
    3,942Derivative gains (losses), net
    
    
    1,138
    
    
    
    (1,686
    )Other
    
    
    19,408
    
    
    
    19,58630,389
    
    
    
    50,784Other expense:Salaries
    
    
    81,632
    
    
    
    83,820Pension and other employee benefits
    
    
    21,985
    
    
    
    20,394Office expense
    
    
    6,698
    
    
    
    6,363Premises and equipment
    
    
    15,513
    
    
    
    15,972Marketing and development
    
    
    2,004
    
    
    
    3,484Professional fees
    
    
    7,346
    
    
    
    7,979Other
    
    
    19,794
    
    
    
    20,367154,972
    
    
    
    158,379Income before income taxes from continuing operations
    
    
    41,239
    
    
    
    44,067Provision for income taxes
    
    
    14,347
    
    
    
    15,903Net income from continuing operations
    
    
    26,892
    
    
    
    28,164Loss from discontinued operations, net of $20,056 and $10,545
income tax benefit, respectively  Note 2
    
    
    (30,086
    )
    
    
    (15,628
    )Net (loss) income
    
    $
    (3,194
    )
    
    $
    12,536Earnings per share from continuing operations:  Note 11Basic
    
    $
    0.91
    
    
    $
    0.99Diluted
    
    $
    0.90
    
    
    $
    0.98Earnings per share:  Note 11Basic
    
    $
    (0.11
    )
    
    $
    0.44Diluted
    
    $
    (0.12
    )
    
    $
    0.44Dividends per share
    
    $
    0.33
    
    
    $
    0.30
  5




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Three Months Ended September 30, 2006, and 2005
 Accumulated Other Comprehensive IncomeMinimum
    
    
    
    
    
    
    AdditionalRetained
    
    
    Foreign
    
    
    Unrealized Gain/Loss
    
    
    SERP
    
    
    Deferred
    
    
    Paid in
    
    
    Common
    
    
    TreasuryTotal
    
    
    Earnings
    
    
    Currency
    
    
    Securities
    
    
    Derivatives
    
    
    Liability
    
    
    Compensation
    
    
    Capital
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at July 1, 2006
    
    $
    529,581
    
    
    $
    411,654
    
    
    $
    4,361
    
    
    $
    (747
    )
    
    $
    697
    
    
    $
    (274
    )
    
    $
    
    
    
    $
    
    
    
    $
    113,890
    
    
    $
    Net loss
    
    
    (4,207
    )
    
    
    (4,207
    )Unrealized gain on investment
securities net of $199 tax liability
    
    
    299
    
    
    
    
    
    
    
    
    
    
    
    299Unrealized loss on derivative
net of $212 tax benefit
    
    
    (318
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318
    )Foreign currency adjustment
    
    
    (48
    )
    
    
    
    
    
    
    (48
    )Other comprehensive loss
    
    
    (67
    )Total comprehensive loss
    
    
    (4,274
    )Deferred compensation
    
    
    (63
    )
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends
    
    
    (3,277
    )
    
    
    (3,277
    )Tax benefit on stock option exercises
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Stock option expense
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312Stock:Purchase of 2,674 shares
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )Sales of 47,922 shares
    
    
    798
    
    
    
    289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (342
    )
    
    
    799
    
    
    
    52Balance at September 30, 2006
    
    $
    523,055
    
    
    $
    404,396
    
    
    $
    4,313
    
    
    $
    (448
    )
    
    $
    379
    
    
    $
    (274
    )
    
    $
    
    
    
    $
    
    
    
    $
    114,689
    
    
    $
    Balance at July 1, 2005
    
    $
    490,575
    
    
    $
    399,985
    
    
    $
    2,319
    
    
    $
    (72
    )
    
    $
    29
    
    
    $
    (254
    )
    
    $
    (677
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (22,755
    )Net income
    
    
    18,493
    
    
    
    18,493Unrealized loss on investment
securities net of $61 tax benefit
    
    
    (90
    )
    
    
    
    
    
    
    
    
    
    
    (90
    )Unrealized gain on derivative
net of $394 tax liability
    
    
    590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    590Foreign currency adjustment
    
    
    983
    
    
    
    
    
    
    
    983Other comprehensive income
    
    
    1,483Total comprehensive income
    
    
    19,976Deferred compensation
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Cash dividends
    
    
    (2,859
    )
    
    
    (2,859
    )Tax benefit on stock option exercises
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Treasury stock:Purchase of 6,544 shares
    
    
    (137
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137
    )Sales of 53,938 shares
    
    
    885
    
    
    
    (339
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    1,313Balance at September 30, 2005
    
    $
    508,379
    
    
    $
    415,280
    
    
    $
    3,302
    
    
    $
    (162
    )
    
    $
    619
    
    
    $
    (254
    )
    
    $
    (827
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (21,579
    )
  6




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
For the Nine Months Ended September 30, 2006, and 2005
 Accumulated Other Comprehensive IncomeMinimum
    
    
    
    
    
    
    AdditionalRetained
    
    
    Foreign
    
    
    Unrealized Gain/Loss
    
    
    SERP
    
    
    Deferred
    
    
    Paid in
    
    
    Common
    
    
    TreasuryTotal
    
    
    Earnings
    
    
    Currency
    
    
    Securities
    
    
    Derivatives
    
    
    Liability
    
    
    Compensation
    
    
    Capital
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at January 1, 2006
    
    $
    512,334
    
    
    $
    418,784
    
    
    $
    3,341
    
    
    $
    (373
    )
    
    $
    754
    
    
    $
    (274
    )
    
    $
    (759
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (21,139
    )Net loss
    
    
    (3,194
    )
    
    
    (3,194
    )Unrealized loss on investment
securities net of $50 tax benefit
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    (75
    )Unrealized loss on derivative
net of $250 tax benefit
    
    
    (375
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (375
    )Foreign currency adjustment
    
    
    972
    
    
    
    
    
    
    
    972Other comprehensive income
    
    
    522Total comprehensive loss
    
    
    (2,672
    )Deferred compensation
    
    
    (151
    )
    
    
    (910
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759Cash dividends
    
    
    (9,818
    )
    
    
    (9,818
    )Tax benefit on stock option exercises
    
    
    349
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    349Stock option expense
    
    
    1,419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,419Stock:Purchase of 52,230 shares
    
    
    (1,027
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,027
    )Sales of 1,228,014 shares
    
    
    22,621
    
    
    
    (466
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,768
    )
    
    
    2,689
    
    
    
    22,166Balance at September 30, 2006
    
    $
    523,055
    
    
    $
    404,396
    
    
    $
    4,313
    
    
    $
    (448
    )
    
    $
    379
    
    
    $
    (274
    )
    
    $
    
    
    
    $
    
    
    
    $
    114,689
    
    
    $
    Balance at January 1, 2005
    
    $
    501,186
    
    
    $
    412,028
    
    
    $
    2,648
    
    
    $
    60
    
    
    $
    
    
    
    $
    (254
    )
    
    $
    (660
    )
    
    $
    383
    
    
    $
    112,000
    
    
    $
    (25,019
    )Net income
    
    
    12,536
    
    
    
    12,536Unrealized loss on investment
securities net of $87 tax benefit
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    (222
    )Unrealized gain on derivative
net of $19 tax liability
    
    
    619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    619Foreign currency adjustment
    
    
    654
    
    
    
    
    
    
    
    654Other comprehensive income
    
    
    1,051Total comprehensive income
    
    
    13,587Deferred compensation
    
    
    (167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167
    )Cash dividends
    
    
    (8,564
    )
    
    
    (8,564
    )Tax benefit on stock option exercises
    
    
    616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    616Treasury stock:Purchase of 44,379 shares
    
    
    (1,198
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,198
    )Sales of 144,615 shares
    
    
    2,919
    
    
    
    (720
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (999
    )
    
    
    
    
    
    
    4,638Balance at September 30, 2005
    
    $
    508,379
    
    
    $
    415,280
    
    
    $
    3,302
    
    
    $
    (162
    )
    
    $
    619
    
    
    $
    (254
    )
    
    $
    (827
    )
    
    $
    
    
    
    $
    112,000
    
    
    $
    (21,579
    )
  7




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended September 30,2006
    
    
    2005(Dollars in thousands)Income from continuing operations, net of taxes
    
    
    26,892
    
    
    
    28,164Loss from discontinued operations, net of taxes
    
    
    (30,086
    )
    
    
    (15,628
    )Net (loss) income
    
    $
    (3,194
    )
    
    $
    12,536Adjustments to reconcile net income to cash provided (used)
by operating activities:Depreciation, amortization, and accretion, net
    
    
    6,071
    
    
    
    8,746Amortization and impairment of servicing assets
    
    
    57,878
    
    
    
    61,805Provision for loan and lease losses
    
    
    25,183
    
    
    
    17,935Loss (gain) on sale of mortgage servicing assets
    
    
    15,829
    
    
    
    (15,241
    )Gain from sales of loans and loans held for sale
    
    
    (44,237
    )
    
    
    (80,711
    )Originations and purchases of loans held for sale
    
    
    (6,969,021
    )
    
    
    (10,163,992
    )Proceeds from sales and repayments of loans held for sale
    
    
    8,014,813
    
    
    
    9,506,670Proceeds from sale of mortgage servicing assets
    
    
    79,395
    
    
    
    79,684Net decrease in residuals
    
    
    13,181
    
    
    
    26,218Net decrease (increase) in accounts receivable
    
    
    65,540
    
    
    
    (7,932
    )Other, net
    
    
    (139,727
    )
    
    
    (17,560
    )Net cash provided (used) by operating activities
    
    
    1,121,711
    
    
    
    (571,842
    )Lending and investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    1,055
    
    
    
    307Available-for-sale
    
    
    9,015
    
    
    
    4,281Purchase of investment securities:Held-to-maturity
    
    
    (2,648
    )
    
    
    Available-for-sale
    
    
    (23,006
    )
    
    
    (3,565
    )Net decrease (increase) in interest-bearing deposits
    
    
    396
    
    
    
    (30,181
    )Net increase in loans, excluding sales
    
    
    (677,505
    )
    
    
    (623,334
    )Proceeds from sale of loans
    
    
    46,728
    
    
    
    41,423Other, net
    
    
    (9,663
    )
    
    
    (6,579
    )Net cash used by lending and investing activities
    
    
    (655,628
    )
    
    
    (617,648
    )Financing activities:Net (decrease) increase in deposits
    
    
    (108,793
    )
    
    
    735,027Net (decrease) increase in short-term borrowings
    
    
    (733,205
    )
    
    
    311,067Proceeds from issuance of long term debt
    
    
    31,500
    
    
    
    51,750Repayments of long-term debt
    
    
    (47,583
    )
    
    
    (51,759
    )Proceeds from issuance of collateralized borrowings
    
    
    650,808
    
    
    
    440,609Repayments of collateralized borrowings
    
    
    (276,832
    )
    
    
    (241,246
    )Tax benefit on stock option exercises
    
    
    349
    
    
    
    Purchase of treasury stock for employee benefit plans
    
    
    (1,027
    )
    
    
    (1,198
    )Proceeds from sale of stock for employee benefit plans
    
    
    3,704
    
    
    
    2,919Dividends paid
    
    
    (9,818
    )
    
    
    (8,564
    )Net cash (used) provided by financing activities
    
    
    (490,897
    )
    
    
    1,238,605Effect of exchange rate changes on cash
    
    
    505
    
    
    
    1,130Net (decrease) increase in cash and cash equivalents
    
    
    (24,309
    )
    
    
    50,245Cash and cash equivalents at beginning of period
    
    
    155,486
    
    
    
    97,101Cash and cash equivalents at end of period
    
    $
    131,177
    
    
    $
    147,346Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    178,360
    
    
    $
    100,401Income taxes paid
    
    $
    35,150
    
    
    $
    16,241Noncash transactions:Liability for loans held for sale eligible for repurchase  Note 1
    
    $
    87,837
    
    
    $
    7,174Other real estate owned
    
    $
    6,805
    
    
    $
    10,562Conversion of trust preferred to common stock
    
    $
    20,184
    
    
    $
    
  8




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##### Table of Contents



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




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##### Table of Contents



Incentive Servicing Fees:
 Income Taxes:
 Recent Accounting Developments:
   .
 10




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##### Table of Contents



Reclassifications:
 Note 2  Discontinued Operations
     11




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net revenues
    
    $
    6,527
    
    
    $
    39,573
    
    
    $
    36,040
    
    
    $
    72,201Other expense
    
    
    (28,943
    )
    
    
    (30,754
    )
    
    
    (86,182
    )
    
    
    (98,374
    )(Loss) income before income taxes
    
    
    (22,416
    )
    
    
    8,819
    
    
    
    (50,142
    )
    
    
    (26,173
    )Income taxes
    
    
    8,976
    
    
    
    (3,562
    )
    
    
    20,056
    
    
    
    10,545Net (loss) income from
discontinued operations
    
    $
    (13,440
    )
    
    $
    5,257
    
    
    $
    (30,086
    )
    
    $
    (15,628
    )
 September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Loans held for sale
    
    
    32,844
    
    
    
    779,966Loans, net of allowance for loan loss
    
    
    16,244
    
    
    
    20,359Net servicing asset
    
    
    20,967
    
    
    
    261,309Other assets
    
    
    4,429
    
    
    
    57,279Assets held for sale
    
    $
    74,484
    
    
    $
    1,118,913
  12




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##### Table of Contents



Three Months Ended March 31,
    
    
    Three Months Ended June 30,2006
    
    
    2006As reported
    
    
    As reclassified
    
    
    As reported
    
    
    As reclassified(Dollars in thousands)Net revenues
    
    $
    65,549
    
    
    $
    66,381
    
    
    $
    64,094
    
    
    $
    66,092Other expense
    
    
    (52,339
    )
    
    
    (52,814
    )
    
    
    (50,815
    )
    
    
    (51,295
    )Loss before income taxes
    
    
    13,210
    
    
    
    13,567
    
    
    
    13,279
    
    
    
    14,797Income taxes
    
    
    (4,734
    )
    
    
    (4,877
    )
    
    
    (5,221
    )
    
    
    (5,828
    )Net income from continued operations
    
    
    8,476
    
    
    
    8,690
    
    
    
    8,058
    
    
    
    8,969Net loss from discontinued operations
    
    
    (10,334
    )
    
    
    (10,548
    )
    
    
    (5,187
    )
    
    
    (6,098
    )Net (loss) income
    
    $
    (1,858
    )
    
    $
    (1,858
    )
    
    $
    2,871
    
    
    $
    2,871Earnings per shareBasic from continued operations
    
    $
    0.29
    
    
    $
    0.30
    
    
    $
    0.27
    
    
    $
    0.30Basic
    
    
    -0.06
    
    
    
    -0.06
    
    
    
    0.10
    
    
    
    0.10Diluted from continued operations
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.27
    
    
    
    0.30Diluted
    
    
    -0.07
    
    
    
    -0.07
    
    
    
    0.09
    
    
    
    0.09
 Three Months Ended March 31,
    
    
    Three Months Ended June 30,2005
    
    
    2005As reported
    
    
    As reclassified
    
    
    As reported
    
    
    As reclassified(Dollars in thousands)Net revenues
    
    $
    67,189
    
    
    $
    69,887
    
    
    $
    62,522
    
    
    $
    64,833Other expense
    
    
    (55,438
    )
    
    
    (55,860
    )
    
    
    (53,008
    )
    
    
    (53,549
    )Income before income taxes
    
    
    11,751
    
    
    
    14,027
    
    
    
    9,514
    
    
    
    11,284Income taxes
    
    
    (4,519
    )
    
    
    (5,430
    )
    
    
    (4,245
    )
    
    
    (4,953
    )Net income from continued operations
    
    
    7,232
    
    
    
    8,597
    
    
    
    5,269
    
    
    
    6,331Net loss from discontinued operations
    
    
    (9,777
    )
    
    
    (11,142
    )
    
    
    (8,680
    )
    
    
    (9,742
    )Net loss
    
    $
    (2,545
    )
    
    $
    (2,545
    )
    
    $
    (3,411
    )
    
    $
    (3,411
    )Earnings per shareBasic from continued operations
    
    $
    0.25
    
    
    $
    0.30
    
    
    $
    0.18
    
    
    $
    0.22Basic
    
    
    -0.09
    
    
    
    -0.09
    
    
    
    -0.12
    
    
    
    -0.12Diluted from continued operations
    
    
    0.25
    
    
    
    0.30
    
    
    
    0.18
    
    
    
    0.22Diluted
    
    
    -0.09
    
    
    
    -0.09
    
    
    
    -0.12
    
    
    
    -0.12
 Note 3  Restructuring
   Nine Months Ended September 30,2006(Dollars in thousands)Salaries
    
    $
    3,596Other expense
    
    
    340Total
    
    $
    3,936
 13




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##### Table of Contents



Note 4  Loans and Leases
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,159,093
    
    
    $
    2,016,228Real estate-construction
    
    
    407,858
    
    
    
    379,831Real estate-mortgage
    
    
    1,509,338
    
    
    
    1,232,958Consumer
    
    
    33,169
    
    
    
    31,718Commercial financingFranchise financing
    
    
    612,890
    
    
    
    462,413Domestic leasing
    
    
    283,042
    
    
    
    237,968Canadian leasing
    
    
    365,494
    
    
    
    313,581Unearned incomeFranchise financing
    
    
    (184,639
    )
    
    
    (125,474
    )Domestic leasing
    
    
    (40,433
    )
    
    
    (33,267
    )Canadian leasing
    
    
    (44,677
    )
    
    
    (38,013
    )Total
    
    $
    5,101,135
    
    
    $
    4,477,943
 Note 5  Allowance for Loan and Lease Losses
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    59,223
    
    
    $
    43,441Provision for loan and lease losses
    
    
    25,154
    
    
    
    27,307Charge-offs
    
    
    (21,705
    )
    
    
    (20,201
    )Recoveries
    
    
    7,995
    
    
    
    8,960Reduction due to reclassification or sale of loans
    
    
    (172
    )
    
    
    (403
    )Foreign currency adjustment
    
    
    140
    
    
    
    119Balance at end of period
    
    $
    70,635
    
    
    $
    59,223
 Note 6  Servicing Assets
  14




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##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Beginning balance
    
    $
    295,754
    
    
    $
    367,032Additions
    
    
    81,519
    
    
    
    74,731Amortization
    
    
    (58,538
    )
    
    
    (100,322
    )Recovery of impairment
    
    
    660
    
    
    
    19,625Reduction for servicing sales
    
    
    (266,411
    )
    
    
    (65,312
    )Ending balance
    
    
    52,984
    
    
    
    295,754Less servicing asset from discontinued operations
    
    
    20,967
    
    
    
    261,309Mortgage servicing asset from continuing operations
    
    $
    32,017
    
    
    $
    34,445
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    27,243
    
    
    $
    54,134Recovery of impairment
    
    
    (660
    )
    
    
    (19,625
    )Reclass for sales of servicing and clean up calls
    
    
    (26,431
    )
    
    
    (154
    )Other than temporary impairment (1)
    
    
    
    
    
    
    (7,112
    )Balance at end of period
    
    
    152
    
    
    
    27,243Less valuation allowance from discontinued operations
    
    
    
    
    
    
    26,091Valuation allowance from continuing operations
    
    $
    152
    
    
    $
    1,152
 
 (1)
    
    Other than temporary impairment was recorded to reflect our view that the originally recorded
value of certain servicing rights and subsequent impairment associated with those rights is
unlikely to be recovered in market value. There was no related direct impact on net income as
this other than temporary impairment affected only balance sheet accounts.. Note 7  Short-Term Borrowings
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    263,861
    
    
    $
    641,785Drafts payable related to mortgage loan closings
    
    
    378
    
    
    
    64,278Lines of credit and other
    
    
    
    
    
    
    1,081Federal funds
    
    
    
    
    
    
    290,300Total
    
    $
    264,239
    
    
    $
    997,444Weighted average interest rate
    
    
    4.42
    %
    
    
    3.05
    %
   15




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##### Table of Contents



Note 8  Collateralized Debt
  WeightedAverageInterest Rate atSeptember 30,
    
    
    September 30,
    
    
    December 31,Maturity
    
    
    2006
    
    
    2006
    
    
    2005(Dollars in thousands)Commercial finance line of businessDomestic asset backed note
    
    
    5/2010
    
    
    
    6.2
    
    
    $
    7,079
    
    
    $
    13,600Canadian asset backed notes:Note 1
    
    revolving

    
    
    
    5.5
    
    
    
    28,305
    
    
    
    32,385Note 2
    
    
    9/2011
    
    
    
    3.9
    
    
    
    183,896
    
    
    
    155,544Note 3
    
    
    10/2009
    
    
    
    4.5
    
    
    
    10,089
    
    
    
    14,839Home equity line of business2004-1 asset backed notes:Variable rate senior note
    
    
    12/2024-12/2034
    
    
    
    5.7
    
    
    
    65,425
    
    
    
    132,692Variable rate subordinate note
    
    
    12/2034
    
    
    
    6.5
    
    
    
    24,775
    
    
    
    24,7752005-1 asset backed notes:Variable rate senior note
    
    
    6/2025-6/2035
    
    
    
    5.5
    
    
    
    61,697
    
    
    
    138,244Fixed rate senior note
    
    
    6/2035
    
    
    
    5.0
    
    
    
    94,129
    
    
    
    94,129Variable rate subordinate note
    
    
    6/2035
    
    
    
    7.1
    
    
    
    10,785
    
    
    
    10,785Fixed rate subordinate note
    
    
    6/2035
    
    
    
    5.6
    
    
    
    52,127
    
    
    
    52,127Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    (136
    )2006-1 asset backed notes:Variable rate senior note
    
    
    9/2035
    
    
    
    5.5
    
    
    
    126,352
    
    
    
    Fixed rate senior note
    
    
    9/2035
    
    
    
    5.5
    
    
    
    96,561
    
    
    
    Fixed rate lockout senior note
    
    
    9/2035
    
    
    
    5.6
    
    
    
    24,264
    
    
    
    Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    2006-2 asset backed notes:Variable rate senior note
    
    
    2/2036
    
    
    
    5.4
    
    
    
    156,231
    
    
    
    Fixed rate senior note
    
    
    2/2036
    
    
    
    6.3
    
    
    
    80,033
    
    
    
    Fixed rate lockout senior note
    
    
    2/2036
    
    
    
    6.2
    
    
    
    21,348
    
    
    
    Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    1,042,952
    
    
    $
    668,984
 16




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##### Table of Contents



Note 9  Long-term Debt
  Note 10  Employee Retirement Plans
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Service cost
    
    $
    931
    
    
    $
    714
    
    
    $
    2,793
    
    
    $
    2,142Interest cost
    
    
    519
    
    
    
    435
    
    
    
    1,558
    
    
    
    1,306Expected return on plan assets
    
    
    (563
    )
    
    
    (478
    )
    
    
    (1,689
    )
    
    
    (1,434
    )Amortization of prior service cost
    
    
    9
    
    
    
    9
    
    
    
    28
    
    
    
    28Amortization of actuarial loss
    
    
    218
    
    
    
    172
    
    
    
    653
    
    
    
    515Net periodic benefit cost
    
    $
    1,114
    
    
    $
    852
    
    
    $
    3,343
    
    
    $
    2,557
  17




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##### Table of Contents



Note 11  Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006Basic
    
    
    Effect of
    
    
    Diluted
    
    
    Basic
    
    
    Effect of
    
    
    DilutedEarnings
    
    
    Stock
    
    
    Earnings
    
    
    Earnings
    
    
    Stock
    
    
    EarningsPer Share
    
    
    Options
    
    
    Per Share
    
    
    Per Share
    
    
    Options
    
    
    Per Share(Dollars in thousands, except per share amounts)Net income (loss) available to
common shareholders:From continuing operations
    
    $
    9,233
    
    
    $
    (79
    )
    
    $
    9,154
    
    
    $
    26,892
    
    
    $
    (219
    )
    
    $
    26,673From discontinued operations
    
    
    (13,440
    )
    
    
    
    
    
    
    (13,440
    )
    
    
    (30,086
    )
    
    
    
    
    
    
    (30,086
    )Total net loss for all operations
    
    
    (4,207
    )
    
    
    (79
    )
    
    
    (4,286
    )
    
    
    (3,194
    )
    
    
    (219
    )
    
    
    (3,413
    )Shares
    
    
    29,716
    
    
    
    164
    
    
    
    29,880
    
    
    
    29,448
    
    
    
    183
    
    
    
    29,631Per-share from continuing operations
    
    $
    0.31
    
    
    $
    
    
    
    $
    0.31
    
    
    $
    0.91
    
    
    $
    (0.01
    )
    
    $
    0.90Per-share amount for all operations
    
    $
    (0.14
    )
    
    $
    
    
    
    $
    (0.14
    )
    
    $
    (0.11
    )
    
    $
    (0.01
    )
    
    $
    (0.12
    )
 Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005Basic
    
    
    Effect of
    
    
    Diluted
    
    
    Basic
    
    
    Effect of
    
    
    DilutedEarnings
    
    
    Stock
    
    
    Earnings
    
    
    Earnings
    
    
    Stock
    
    
    EarningsPer Share
    
    
    Options
    
    
    Per Share
    
    
    Per Share
    
    
    Options
    
    
    Per Share(Dollars in thousands, except per share amounts)Net income (loss) available to
common shareholders:From continuing operations
    
    $
    13,236
    
    
    $
    
    
    
    $
    13,236
    
    
    $
    28,164
    
    
    $
    
    
    
    $
    28,164From discontinued operations
    
    
    5,257
    
    
    
    
    
    
    
    5,257
    
    
    
    (15,628
    )
    
    
    
    
    
    
    (15,628
    )Total net income for all operations
    
    
    18,493
    
    
    
    
    
    
    
    18,493
    
    
    
    12,536
    
    
    
    
    
    
    
    12,536Shares
    
    
    28,540
    
    
    
    233
    
    
    
    28,773
    
    
    
    28,503
    
    
    
    267
    
    
    
    28,770Per-share from continuing operations
    
    $
    0.46
    
    
    $
    
    
    
    $
    0.46
    
    
    $
    0.99
    
    
    $
    (0.01
    )
    
    $
    0.98Per-share amount for all operations
    
    $
    0.65
    
    
    $
    (0.01
    )
    
    $
    0.64
    
    
    $
    0.44
    
    
    $
    
    
    
    $
    0.44
    Note 12  Equity Based Compensation
   18




---



##### Table of Contents



September 30, 2006WeightedNumber of
    
    
    average grantShares
    
    
    date fair valueUnvested at the
beginning of the year
    
    
    41,726
    
    
    $
    22.45Awarded
    
    
    31,658
    
    
    
    19.00Vested
    
    
    (15,038
    )
    
    
    20.90Forfeited
    
    
    (4,210
    )
    
    
    26.12Unvested at the end of the period
    
    
    54,136
    
    
    $
    20.58
    Nine Months Ended September30,2006
    
    2005Risk-free interest rates
    
    
    4.93
    %
    
    
    3.94
    %Dividend yield
    
    
    2.41
    %
    
    
    1.75
    %Expected volatility
    
    
    32
    %
    
    
    35
    %Expected lives (in years)
    
    
    6
    
    
    
    6
 19




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##### Table of Contents



September 30, 2006Weightedaverage
    
    
    Weighted average
    
    
    AggregateNumber of
    
    
    exercise
    
    
    remaining
    
    
    IntrinsicShares
    
    
    price
    
    
    contractual term
    
    
    ValueOutstanding at the
beginning of the year
    
    
    2,441,771
    
    
    $
    20.55Granted
    
    
    425,725
    
    
    
    18.25Exercised
    
    
    (132,455
    )
    
    
    13.09CancelledForfeited
    
    
    (26,125
    )
    
    
    20.66Expired
    
    
    (72,165
    )
    
    
    24.24Outstanding at the end of the period
    
    
    2,636,751
    
    
    
    20.45
    
    
    
    6.37
    
    
    $
    2,740,076Exercisable at the end of the period
    
    
    2,156,554
    
    
    $
    20.76
    
    
    
    5.74
    
    
    $
    2,298,371
  Three Months Ended September
    
    Nine Months Ended September30, 2006
    
    30, 2006Impact of
    
    
    
    
    
    Impact ofAdopting SFAS
    
    
    
    
    
    Adopting SFASAs Reported
    
    123(R)
    
    As Reported
    
    123(R)(Dollars in thousands, except per share amounts)Net income from Continuing Operations before taxes
    
    $
    12,874
    
    
    $
    330
    
    
    $
    41,239
    
    
    $
    1,461Net income from Continuing Operations
    
    
    9,233
    
    
    
    198
    
    
    
    26,892
    
    
    
    877Net loss
    
    
    (4,207
    )
    
    
    206
    
    
    
    (3,194
    )
    
    
    907Basic earnings per shareFrom Continuing Operations
    
    $
    0.31
    
    
    $
    (0.01
    )
    
    $
    0.91
    
    
    $
    (0.03
    )From All Operations
    
    
    (0.14
    )
    
    
    (0.01
    )
    
    
    (0.11
    )
    
    
    (0.03
    )Diluted earnings per shareFrom Continuing Operations
    
    $
    0.31
    
    
    $
    (0.01
    )
    
    $
    0.90
    
    
    $
    (0.03
    )From All Operations
    
    
    (0.14
    )
    
    
    (0.01
    )
    
    
    (0.12
    )
    
    
    (0.03
    )
  20




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005(Dollars in thousands, except per share amounts)Net income from continuing operations as reported
    
    $
    13,236
    
    
    $
    28,164Equity based compensation expense included in net earnings, net of tax
    
    
    125
    
    
    
    322Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (696
    )
    
    
    (1,966
    )Net income from continuing operations pro forma
    
    
    12,665
    
    
    
    26,520Net income (loss) from discontinued operations
    
    
    5,257
    
    
    
    (15,628
    )Pro forma net income
    
    $
    17,922
    
    
    $
    10,892Basic earnings per share from continuing operationsAs reported
    
    $
    0.46
    
    
    $
    0.99Pro forma
    
    
    0.44
    
    
    
    0.93Basic earnings per shareAs reported
    
    $
    0.65
    
    
    $
    0.44Pro forma
    
    
    0.63
    
    
    
    0.38Diluted earnings per share continuing operationsAs reported
    
    $
    0.46
    
    
    $
    0.98Pro forma
    
    
    0.44
    
    
    
    0.92Diluted earnings per shareAs reported
    
    $
    0.64
    
    
    $
    0.44Pro forma
    
    
    0.62
    
    
    
    0.38
 Note 13  Industry Segment Information
   21




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##### Table of Contents



ConsolidatedCommercial
    
    
    Commercial
    
    
    Home Equity
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Discontinued
    
    
    ContinuingBanking
    
    
    Finance
    
    
    Lending
    
    
    Banking(1)
    
    
    Other
    
    
    Consolidated
    
    
    Operations(1)
    
    
    Operations(Dollars in thousands)Three Months Ended September 30, 2006Net interest income
    
    $
    29,652
    
    
    $
    16,759
    
    
    $
    26,935
    
    
    $
    (1,383
    )
    
    $
    (9,946
    )
    
    $
    62,017
    
    
    $
    5,626
    
    
    $
    56,391Intersegment interest
    
    
    618
    
    
    
    (7,955
    )
    
    
    (7,574
    )
    
    
    7,874
    
    
    
    7,037
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    4,691
    
    
    
    2,536
    
    
    
    (820
    )
    
    
    1,710
    
    
    
    131
    
    
    
    8,248
    
    
    
    901
    
    
    
    7,347Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    34,961
    
    
    
    11,340
    
    
    
    18,541
    
    
    
    8,280
    
    
    
    (2,857
    )
    
    
    70,265
    
    
    
    6,527
    
    
    
    63,738Other expense
    
    
    22,418
    
    
    
    5,783
    
    
    
    18,198
    
    
    
    29,439
    
    
    
    3,969
    
    
    
    79,807
    
    
    
    28,943
    
    
    
    50,864Intersegment expenses
    
    
    691
    
    
    
    286
    
    
    
    812
    
    
    
    
    
    
    
    (1,789
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    11,852
    
    
    
    5,271
    
    
    
    (469
    )
    
    
    (21,159
    )
    
    
    (5,037
    )
    
    
    (9,542
    )
    
    
    (22,416
    )
    
    
    12,874Income taxes
    
    
    3,594
    
    
    
    1,997
    
    
    
    (177
    )
    
    
    (8,473
    )
    
    
    (2,276
    )
    
    
    (5,335
    )
    
    
    (8,976
    )
    
    
    3,641Net income (loss)
    
    $
    8,258
    
    
    $
    3,274
    
    
    $
    (292
    )
    
    $
    (12,686
    )
    
    $
    (2,761
    )
    
    $
    (4,207
    )
    
    $
    (13,440
    )
    
    $
    9,233Three Months Ended September 30, 2005Net interest income
    
    $
    25,440
    
    
    $
    12,256
    
    
    $
    29,056
    
    
    $
    14,026
    
    
    $
    (17,035
    )
    
    $
    63,743
    
    
    $
    10,336
    
    
    $
    53,407Intersegment interest
    
    
    1,838
    
    
    
    (4,778
    )
    
    
    (8,769
    )
    
    
    (2,539
    )
    
    
    14,248
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    4,377
    
    
    
    2,313
    
    
    
    7,825
    
    
    
    30,115
    
    
    
    (1,075
    )
    
    
    43,555
    
    
    
    29,237
    
    
    
    14,318Intersegment revenues
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    (391
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    31,720
    
    
    
    9,791
    
    
    
    28,112
    
    
    
    41,928
    
    
    
    (4,253
    )
    
    
    107,298
    
    
    
    39,573
    
    
    
    67,725Other expense
    
    
    18,862
    
    
    
    5,220
    
    
    
    23,369
    
    
    
    31,236
    
    
    
    1,036
    
    
    
    79,723
    
    
    
    30,754
    
    
    
    48,969Intersegment expenses
    
    
    429
    
    
    
    193
    
    
    
    1,003
    
    
    
    861
    
    
    
    (2,486
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    12,429
    
    
    
    4,378
    
    
    
    3,740
    
    
    
    9,831
    
    
    
    (2,803
    )
    
    
    27,575
    
    
    
    8,819
    
    
    
    18,756Income taxes
    
    
    4,795
    
    
    
    1,840
    
    
    
    1,503
    
    
    
    3,967
    
    
    
    (3,023
    )
    
    
    9,082
    
    
    
    3,562
    
    
    
    5,520Net income (loss)
    
    $
    7,634
    
    
    $
    2,538
    
    
    $
    2,237
    
    
    $
    5,864
    
    
    $
    220
    
    
    $
    18,493
    
    
    $
    5,257
    
    
    $
    13,236
 ConsolidatedCommercial
    
    
    Commercial
    
    
    Home Equity
    
    
    Mortgage
    
    
    
    
    
    
    
    
    
    
    Discontinued
    
    
    ContinuingBanking
    
    
    Finance
    
    
    Lending
    
    
    Banking(1)
    
    
    Other
    
    
    Consolidated
    
    
    Operations(1)
    
    
    Operations(Dollars in thousands)Nine Months Ended
September 30, 2006Net interest income
    
    $
    82,916
    
    
    $
    46,541
    
    
    $
    83,374
    
    
    $
    (4,857
    )
    
    $
    (22,146
    )
    
    $
    185,828
    
    
    $
    20,006
    
    
    $
    165,822Intersegment interest
    
    
    5,814
    
    
    
    (20,886
    )
    
    
    (27,678
    )
    
    
    26,682
    
    
    
    16,068
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    13,553
    
    
    
    6,684
    
    
    
    10,149
    
    
    
    18,467
    
    
    
    (2,429
    )
    
    
    46,424
    
    
    
    16,035
    
    
    
    30,389Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    (331
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    102,283
    
    
    
    32,339
    
    
    
    65,845
    
    
    
    40,623
    
    
    
    (8,838
    )
    
    
    232,252
    
    
    
    36,041
    
    
    
    196,211Other expense
    
    
    64,104
    
    
    
    16,877
    
    
    
    62,683
    
    
    
    87,633
    
    
    
    9,858
    
    
    
    241,155
    
    
    
    86,183
    
    
    
    154,972Intersegment expenses
    
    
    2,062
    
    
    
    840
    
    
    
    2,519
    
    
    
    
    
    
    
    (5,421
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    36,117
    
    
    
    14,622
    
    
    
    643
    
    
    
    (47,010
    )
    
    
    (13,275
    )
    
    
    (8,903
    )
    
    
    (50,142
    )
    
    
    41,239Income taxes
    
    
    13,245
    
    
    
    5,525
    
    
    
    283
    
    
    
    (18,803
    )
    
    
    (5,959
    )
    
    
    (5,709
    )
    
    
    (20,056
    )
    
    
    14,347Net income (loss)
    
    $
    22,872
    
    
    $
    9,097
    
    
    $
    360
    
    
    $
    (28,207
    )
    
    $
    (7,316
    )
    
    $
    (3,194
    )
    
    $
    (30,086
    )
    
    $
    26,892Assets at September 30, 2006
    
    $
    3,058,334
    
    
    $
    1,012,502
    
    
    $
    1,536,519
    
    
    $
    365,660
    
    
    $
    23,480
    
    
    $
    5,996,495Nine Months Ended
September 30, 2005Net interest income
    
    $
    69,742
    
    
    $
    32,773
    
    
    $
    76,361
    
    
    $
    34,242
    
    
    $
    (36,480
    )
    
    $
    176,638
    
    
    $
    24,976
    
    
    $
    151,662Intersegment interest
    
    
    6,497
    
    
    
    (13,075
    )
    
    
    (21,001
    )
    
    
    (5,723
    )
    
    
    33,302
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    12,434
    
    
    
    5,573
    
    
    
    30,189
    
    
    
    50,663
    
    
    
    (850
    )
    
    
    98,009
    
    
    
    47,225
    
    
    
    50,784Intersegment revenues
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    (579
    )
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    88,868
    
    
    
    25,271
    
    
    
    85,549
    
    
    
    79,566
    
    
    
    (4,607
    )
    
    
    274,647
    
    
    
    72,201
    
    
    
    202,446Other expense
    
    
    56,603
    
    
    
    16,668
    
    
    
    76,791
    
    
    
    99,722
    
    
    
    6,969
    
    
    
    256,753
    
    
    
    98,374
    
    
    
    158,379Intersegment expenses
    
    
    1,286
    
    
    
    578
    
    
    
    2,476
    
    
    
    2,563
    
    
    
    (6,903
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before taxes
    
    
    30,979
    
    
    
    8,025
    
    
    
    6,282
    
    
    
    (22,719
    )
    
    
    (4,673
    )
    
    
    17,894
    
    
    
    (26,173
    )
    
    
    44,067Income taxes
    
    
    12,262
    
    
    
    3,362
    
    
    
    2,537
    
    
    
    (9,163
    )
    
    
    (3,640
    )
    
    
    5,358
    
    
    
    (10,545
    )
    
    
    15,903Net income (loss)
    
    $
    18,717
    
    
    $
    4,663
    
    
    $
    3,745
    
    
    $
    (13,556
    )
    
    $
    (1,033
    )
    
    $
    12,536
    
    
    $
    (15,628
    )
    
    $
    28,164Assets at September 30, 2005
    
    $
    3,177,757
    
    
    $
    774,072
    
    
    $
    1,584,416
    
    
    $
    1,312,998
    
    
    $
    (351,637
    )
    
    $
    6,497,606
 22




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##### Table of Contents



(1)
    
    The amounts reported as discontinued operations in the table above do not exactly
correspond with the amounts in our segment reporting of the mortgage banking line of business as
certain items within the mortgage segment have not been and will not be eliminated from our
continuing operations as contemplated in SFAS 144. These items include management fees and other
allocations charged by the parent to the segment; the reinsurance subsidiary included in the
segment; certain residual interests associated with loan sales to the Federal Home Loan Bank of
Indianapolis; and earnouts associated with the 2005 divestiture of this segments retail division.
In addition, the assets held for sale category on the consolidated balance sheet does not agree
with the mortgage banks total assets under segment reporting as certain assets are unlikely to be
included in the future sale including, but not limited to, Federal Home Loan Bank of Indianapolis
(FHLBI) stock , FHLBI lender risk account, accounts receivable and cash. Note 14  Commitments and Contingencies
 Culpepper v. Inland Mortgage Corporation
    Silke v. Irwin Mortgage Corporation
  Cohens v. Inland Mortgage Corporation
  23




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##### Table of Contents



Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia
  Hobson v. Irwin Union Bank and Trust Company Hobson Hobson Hobson
 Kossler v. Community Bank of Northern Virginia Kossler Kossler Kossler
 Hobson Kossler Hobson Hobson
 Hobson Kossler Hobson Hobson Kossler
 (Chatfield v. Irwin Union Bank and Trust Company, et al. Ransom v. Irwin
Union Bank and Trust Company, et al.)
 Hobson,
Chatfield Ransom.
 Hobson, Chatfield Ransom Kossler
 Putkowski v. Irwin Home Equity Corporation and Irwin Union Bank and Trust Company
  24




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##### Table of Contents



White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation
 (White v. Irwin Union Bank & Trust, et al.).
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 About Forward-looking Statements
   
    
    our projected revenues, earnings or earnings per share, as well as managements
short-term and long-term performance goals;
    
    projected trends or potential changes in our asset quality, loan delinquencies,
charge-offs, reserves, asset valuations, capital ratios or financial performance measures;
    
    our plans and strategies, including the expected results or impact of implementing such plans and strategies;
    
    potential litigation developments and the anticipated impact of potential outcomes of pending legal matters;
 25




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##### Table of Contents




    
    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.
  Actual future results may differ materially from what is projected due to a variety of factors,
including, but not limited to:
 
    
    potential changes in direction, volatility and relative movement (basis risk) of interest
rates, which may affect consumer demand for our products and the management and success of
our interest rate risk management strategies;
    
    staffing fluctuations in response to product demand or the implementation of corporate
strategies that affect our work force;
    
    the relative profitability of our lending operations;
    
    the valuation and management of our portfolios, including the use of external and
internal modeling assumptions we embed in the valuation of those portfolios and short-term
swings in valuation of such portfolios due to quarter-end movements in secondary market
interest rates, which are inherently volatile;
    
    borrowers refinancing opportunities, which may affect the prepayment assumptions used in
our valuation estimates and which may affect loan demand;
    
    unanticipated deterioration in the credit quality of our loan and lease assets, including
deterioration resulting from the effects of natural disasters;
    
    unanticipated deterioration or changes in estimates of the carrying value of our other assets, including securities;
    
    difficulties in delivering products to the secondary market as planned;
    
    difficulties in expanding our businesses and obtaining funding sources as needed;
    
    competition from other financial service providers for experienced managers as well as for customers;
    
    changes in the value of companies in which we invest;
    
    changes in variable compensation plans related to the performance and valuation of lines
of business where we tie compensation systems to line-of-business performance;
    
    unanticipated outcomes in litigation;
    
    legislative or regulatory changes, including changes in tax laws or regulations,
regulatory actions that impact our corporation or bank, changes in the interpretation of
regulatory capital rules, other changes in regulatory rules, rights, or responsibilities of
our bank or thrift, changes in consumer or commercial lending rules, disclosure rules, or
rules affecting corporate governance, and the availability of resources to address these
rules;
    
    changes in applicable accounting policies or principles or their application to our business or final audit adjustments;
    
    additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;
    
    the final outcome and implications of the sale and discontinuance of operations for our
conventional mortgage banking segment; or
    
    governmental changes in monetary or fiscal policies.
 26




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##### Table of Contents



Strategy
  
    
    Identify market niches.We focus on product or market niches in financial services where
our understanding of customer needs and ability to meet them creates added value that
permits us not to have to compete primarily on price. We dont believe it is necessary to be
the largest or leading market share company in any of our product lines to earn an adequate
risk-adjusted return, but we do believe it is important that we are viewed as a preferred
provider in niche segments of those product offerings.
    
    Hire exceptional management with niche expertise. We enter niches only when we have
attracted senior managers who have proven track records in the niche for which they are
responsible. Our structure allows the senior managers of each line of business to focus
their efforts on understanding their customers and meeting the needs of the markets they
serve. This structure also promotes accountability among managers of each enterprise. We
attempt to create a mix of short-term and long-term incentives that provide these managers
with the incentive to achieve creditworthy, profitable growth over the long term.
    
    Diversify capital and earnings risk.We diversify our revenues and allocate our capital
across complementary lines of business and across different regions as a key part of our
risk management. For example, our commercial bank has a different profile of customers in
the Midwest and Western states. These economies have performed differently over the past
five years due to differences in local economies. These differences have affected demand and
credit quality of our products. In addition, our home equity segment lends to consumers on a
national basis, building a diversified portfolio where demand and credit quality fluctuate
depending, in part, on local market conditions. Our customers businesses and needs are
cyclical, but when combined in an appropriate mix, we believe they provide sources of
diversification and opportunities for growth in a variety of economic conditions.
    
    Reinvest in new opportunities.We reinvest on an ongoing basis in the development of new
and existing opportunities. As a result of our attention to long-term value creation, we
believe it is important at times to dampen short-term earnings growth by investing for
future return. We are biased toward seeking new growth through organic expansion of existing
lines of business. At times we will initiate a new line through a start-up, with highly
qualified managers we select to focus on a single line of business. Over the past ten years,
we have made only a few acquisitions. Those have typically not been in competitive bidding
situations.
   27




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##### Table of Contents



Critical Accounting Policies
  Consolidated Overview
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeNet income from continuing operations (thousands)
    
    $
    9,233
    
    
    $
    13,236
    
    
    
    -30.2
    %
    
    $
    26,892
    
    
    $
    28,164
    
    
    
    -4.5
    %Net income (thousands)
    
    
    (4,207
    )
    
    
    18,493
    
    
    
    -122.7
    %
    
    
    (3,194
    )
    
    
    12,536
    
    
    
    -125.5
    %Basic earnings per share from continuing operations
    
    $
    0.31
    
    
    $
    0.46
    
    
    
    -32.6
    %
    
    $
    0.91
    
    
    $
    0.99
    
    
    
    -8.1
    %Basic earnings per share
    
    
    (0.14
    )
    
    
    0.65
    
    
    
    -121.5
    %
    
    
    (0.11
    )
    
    
    0.44
    
    
    
    -125.0
    %Diluted earnings per share from continuing operations
    
    
    0.31
    
    
    
    0.46
    
    
    
    -32.6
    %
    
    
    0.90
    
    
    
    0.98
    
    
    
    -8.2
    %Diluted earnings per share
    
    
    (0.14
    )
    
    
    0.64
    
    
    
    -121.9
    %
    
    
    (0.12
    )
    
    
    0.44
    
    
    
    -127.3
    %Return on average equity from continuing operations
    
    
    6.8
    %
    
    
    10.4
    %
    
    
    
    
    
    
    6.8
    %
    
    
    7.5
    %Return on average assets from continuing operations
    
    
    0.6
    %
    
    
    0.8
    %
    
    
    
    
    
    
    0.5
    %
    
    
    0.6
    %
 Consolidated Income Statement Analysis
 Net Income from Continuing Operations
  Net Interest Income from Continuing Operations
  28




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##### Table of Contents



Nine Months Ended September 30,2006
    
    
    
    
    
    
    
    
    
    
    2005Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest-bearing deposits with
financial institutions
    
    $
    73,841
    
    
    $
    2,089
    
    
    
    3.78
    %
    
    $
    79,431
    
    
    $
    1,207
    
    
    
    2.03
    %Federal funds sold
    
    
    4,600
    
    
    
    137
    
    
    
    3.98
    %
    
    
    15,597
    
    
    
    284
    
    
    
    2.43
    %Residual interests
    
    
    14,408
    
    
    
    1,409
    
    
    
    13.07
    %
    
    
    44,717
    
    
    
    5,824
    
    
    
    17.41
    %Investment securities(1)
    
    
    112,582
    
    
    
    4,040
    
    
    
    4.80
    %
    
    
    107,756
    
    
    
    4,306
    
    
    
    5.34
    %Loans held for sale
    
    
    1,059,537
    
    
    
    67,610
    
    
    
    8.53
    %
    
    
    1,159,392
    
    
    
    66,117
    
    
    
    7.62
    %Loans and leases, net of unearned
income(2)
    
    
    4,776,255
    
    
    
    318,088
    
    
    
    8.90
    %
    
    
    3,761,679
    
    
    
    223,294
    
    
    
    7.94
    %Total interest earning assets
    
    
    6,041,223
    
    
    $
    393,373
    
    
    
    8.71
    %
    
    
    5,168,572
    
    
    $
    301,032
    
    
    
    7.79
    %Noninterest-earning assets:Cash and due from banks
    
    
    109,991
    
    
    
    
    
    
    
    
    
    
    
    106,425Premises and equipment, net
    
    
    33,293
    
    
    
    
    
    
    
    
    
    
    
    30,388Other assets
    
    
    518,659
    
    
    
    
    
    
    
    
    
    
    
    593,912Less allowance for loan and lease
losses
    
    
    (65,865
    )
    
    
    
    
    
    
    
    
    
    
    (48,056
    )Total assets
    
    $
    6,637,301
    
    
    
    
    
    
    
    
    
    
    $
    5,851,241Liabilities and Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    376,826
    
    
    $
    6,772
    
    
    
    2.40
    %
    
    $
    487,803
    
    
    $
    7,277
    
    
    
    1.99
    %Money market savings
    
    
    1,174,114
    
    
    
    35,936
    
    
    
    4.09
    %
    
    
    1,099,108
    
    
    
    19,706
    
    
    
    2.40
    %Regular savings
    
    
    133,501
    
    
    
    1,799
    
    
    
    1.80
    %
    
    
    113,942
    
    
    
    1,043
    
    
    
    1.22
    %Time deposits
    
    
    1,585,335
    
    
    
    54,115
    
    
    
    4.56
    %
    
    
    1,073,074
    
    
    
    26,552
    
    
    
    3.31
    %Short-term borrowings
    
    
    619,367
    
    
    
    29,564
    
    
    
    6.38
    %
    
    
    390,548
    
    
    
    14,297
    
    
    
    4.89
    %Collateralized debt
    
    
    941,966
    
    
    
    37,013
    
    
    
    5.25
    %
    
    
    601,681
    
    
    
    17,348
    
    
    
    3.85
    %Other long-term debt
    
    
    250,866
    
    
    
    17,164
    
    
    
    9.15
    %
    
    
    275,502
    
    
    
    20,236
    
    
    
    9.82
    %Total interest-bearing liabilities
    
    
    5,081,975
    
    
    $
    182,363
    
    
    
    4.80
    %
    
    
    4,041,658
    
    
    $
    106,459
    
    
    
    3.52
    %Noninterest-bearing liabilities:Demand deposits
    
    
    767,614
    
    
    
    
    
    
    
    
    
    
    
    1,023,483Other liabilities
    
    
    256,579
    
    
    
    
    
    
    
    
    
    
    
    284,698Shareholders equity
    
    
    531,133
    
    
    
    
    
    
    
    
    
    
    
    501,402Total liabilities and shareholders
equity
    
    $
    6,637,301
    
    
    
    
    
    
    
    
    
    
    $
    5,851,241Net interest income
    
    
    
    
    
    $
    211,010
    
    
    
    
    
    
    
    
    
    
    $
    194,573Net interest income to average
interest earning assets
    
    
    
    
    
    
    
    
    
    
    4.67
    %
    
    
    
    
    
    
    
    
    
    
    5.03
    %Net interest income from discontinued operations
    
    
    
    
    
    
    20,034
    
    
    
    
    
    
    
    
    
    
    
    24,509Net interest income from continuing operations
    
    
    
    
    
    $
    190,976
    
    
    
    
    
    
    
    
    
    
    $
    170,064
 
 (1)
    
    We do not show interest income on a tax equivalent basis because the contribution from
tax-exempt income is immaterial.(2)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan
amounts outstanding. 29




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##### Table of Contents



Provision for Loan and Lease Losses from Continuing Operations
  Noninterest Income from Continuing Operations
  Noninterest Expense from Continuing Operations
  Income Tax Provision from Continuing Operations
  Consolidated Balance Sheet Analysis
  Investment Securities
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)U.S. Treasury and government obligations
    
    $
    13,495
    
    
    $
    12,571Obligations of states and political subdivisions
    
    
    3,545
    
    
    
    3,544Mortgage-backed securities
    
    
    46,016
    
    
    
    28,331Other
    
    
    68,906
    
    
    
    72,896Total
    
    $
    131,962
    
    
    $
    117,342
 30




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##### Table of Contents



Loans Held For Sale
  Loans and Leases
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,159,093
    
    
    $
    2,016,228Real estate-construction
    
    
    407,858
    
    
    
    379,831Real estate-mortgage
    
    
    1,509,338
    
    
    
    1,232,958Consumer
    
    
    33,169
    
    
    
    31,718Commercial financingFranchise financing
    
    
    612,890
    
    
    
    462,413Domestic leasing
    
    
    283,042
    
    
    
    237,968Canadian leasing
    
    
    365,494
    
    
    
    313,581Unearned incomeFranchise financing
    
    
    (184,639
    )
    
    
    (125,474
    )Domestic leasing
    
    
    (40,433
    )
    
    
    (33,267
    )Canadian leasing
    
    
    (44,677
    )
    
    
    (38,013
    )Total
    
    $
    5,101,135
    
    
    $
    4,477,943
 Allowance for Loan and Lease Losses
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    59,223
    
    
    $
    43,441Provision for loan and lease losses
    
    
    25,154
    
    
    
    27,307Charge-offs
    
    
    (21,705
    )
    
    
    (20,201
    )Recoveries
    
    
    7,995
    
    
    
    8,960Reduction due to reclassification or sale of loans
    
    
    (172
    )
    
    
    (403
    )Foreign currency adjustment
    
    
    140
    
    
    
    119Balance at end of period
    
    $
    70,635
    
    
    $
    59,223
 Deposits
  31




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##### Table of Contents



Short-Term Borrowings
    Collateralized Debt
  Other Long-Term Debt
  Capital
  32




---



##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Tier 1 capital
    
    $
    694,534
    
    
    $
    675,316Tier 2 capital
    
    
    125,913
    
    
    
    154,128Total risk-based capital
    
    $
    820,447
    
    
    $
    829,444Risk-weighted assets
    
    $
    6,066,667
    
    
    $
    6,317,797Risk-based ratios:Tier 1 capital
    
    
    11.5
    %
    
    
    10.7
    %Total capital
    
    
    13.5
    
    
    
    13.1Tier 1 leverage ratio
    
    
    10.8
    
    
    
    10.3Ending shareholders equity to assets
    
    
    8.7
    
    
    
    7.7Average shareholders equity to assets
    
    
    8.0
    
    
    
    8.0
   Cash Flow Analysis
  Earnings Outlook
  33




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##### Table of Contents



Earnings by Line of Business
  
    
    Commercial Banking
    
    Commercial Finance
    
    Home Equity Lending
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net income (loss):Commercial Banking
    
    $
    8,258
    
    
    $
    7,634
    
    
    $
    22,872
    
    
    $
    18,717Commercial Finance
    
    
    3,274
    
    
    
    2,538
    
    
    
    9,097
    
    
    
    4,663Home Equity Lending
    
    
    (292
    )
    
    
    2,237
    
    
    
    360
    
    
    
    3,745Mortgage Banking
    
    
    (12,686
    )
    
    
    5,864
    
    
    
    (28,207
    )
    
    
    (13,556
    )Other (including consolidating entries)
    
    
    (2,761
    )
    
    
    220
    
    
    
    (7,316
    )
    
    
    (1,033
    )Net (loss) income
    
    
    (4,207
    )
    
    
    18,493
    
    
    
    (3,194
    )
    
    
    12,536Discontinued Operations
    
    
    (13,440
    )
    
    
    5,257
    
    
    
    (30,086
    )
    
    
    (15,628
    )Net Income from Continuing Operations
    
    $
    9,233
    
    
    $
    13,236
    
    
    $
    26,892
    
    
    $
    28,164
 34




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##### Table of Contents



Commercial Banking
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    58,445
    
    
    $
    47,891
    
    
    $
    170,513
    
    
    $
    129,074Interest expense
    
    
    (26,507
    )
    
    
    (19,252
    )
    
    
    (77,302
    )
    
    
    (48,899
    )Net interest income
    
    
    31,938
    
    
    
    28,639
    
    
    
    93,211
    
    
    
    80,175Provision for loan and lease losses
    
    
    (1,668
    )
    
    
    (1,361
    )
    
    
    (4,481
    )
    
    
    (3,936
    )Other income
    
    
    4,691
    
    
    
    4,442
    
    
    
    13,553
    
    
    
    12,629Total net revenue
    
    
    34,961
    
    
    
    31,720
    
    
    
    102,283
    
    
    
    88,868Operating expense
    
    
    (23,109
    )
    
    
    (19,291
    )
    
    
    (66,166
    )
    
    
    (57,889
    )Income before taxes
    
    
    11,852
    
    
    
    12,429
    
    
    
    36,117
    
    
    
    30,979Income taxes
    
    
    (3,594
    )
    
    
    (4,795
    )
    
    
    (13,245
    )
    
    
    (12,262
    )Net income
    
    $
    8,258
    
    
    $
    7,634
    
    
    $
    22,872
    
    
    $
    18,717Performance Ratios:Return on average Equity
    
    
    14.76
    %
    
    
    17.98
    %
    
    
    14.38
    %
    
    
    17.08
    %
 September 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data at End of Period:Assets
    
    $
    3,058,334
    
    
    $
    3,162,398Securities and short-term investments
    
    
    87,939
    
    
    
    340,811
    (1)Loans and leases
    
    
    2,843,007
    
    
    
    2,680,220Allowance for loan and lease losses
    
    
    (26,529
    )
    
    
    (24,670
    )Deposits
    
    
    2,728,013
    
    
    
    2,797,635Shareholders equity
    
    
    223,832
    
    
    
    195,381Daily Averages:Assets
    
    $
    3,162,858
    
    
    $
    3,025,717Securities and short-term investments
    
    
    278,557
    
    
    
    453,361
    (1)Loans and leases
    
    
    2,776,174
    
    
    
    2,460,560Allowance for loan and lease losses
    
    
    (25,955
    )
    
    
    (23,656
    )Deposits
    
    
    2,856,656
    
    
    
    2,766,289Shareholders equity
    
    
    212,591
    
    
    
    157,545
 
 (1)
    
    Includes $317 million at December 31, 2005 and an average of $361 million for the year
ended December 31, 2005 of intra-company investments that are the result of excess liquidity
at the commercial banking line of business related to deposit growth in excess of their asset
deployment needs. The funds were redeployed in earning assets at our other lines of business.
There were no such intra-company investments at September 30, 2006. Overview
  35




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##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005Weighted
    
    
    
    
    
    
    
    
    
    
    
    WeightedLoans
    
    
    Percent
    
     Average
    
    
    Loans
    
    
    Percent
    
    
    AverageMarkets
    
    Outstanding
    
    
    of Total
    
    Coupon
    
    
    Outstanding
    
    
    of Total
    
    
    Coupon(Dollars in thousands)Indianapolis
    
    $
    558,974
    
    
    
    19.7
    %
    
    
    7.6
    %
    
    $
    560,775
    
    
    
    20.9
    %
    
    
    7.0
    %Central and Western Michigan
    
    
    525,752
    
    
    
    18.5
    
    
    
    7.7
    
    
    
    516,444
    
    
    
    19.3
    
    
    
    7.1Southern Indiana
    
    
    464,490
    
    
    
    16.3
    
    
    
    7.1
    
    
    
    454,236
    
    
    
    16.9
    
    
    
    6.5Phoenix
    
    
    455,275
    
    
    
    16.0
    
    
    
    8.0
    
    
    
    447,548
    
    
    
    16.7
    
    
    
    7.6Las Vegas
    
    
    142,098
    
    
    
    5.0
    
    
    
    8.1
    
    
    
    112,761
    
    
    
    4.2
    
    
    
    7.5Other
    
    
    696,418
    
    
    
    24.5
    
    
    
    7.9
    
    
    
    588,456
    
    
    
    22.0
    
    
    
    7.2Total
    
    $
    2,843,007
    
    
    
    100.0
    
    
    
    7.7
    
    
    $
    2,680,220
    
    
    
    100.0
    
    
    
    7.1
 Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedCore
    
    
    Percent
    
    
    Average
    
    
    Core
    
    
    Percent
    
    
    AverageDeposits
    
    
    of Total
    
    
    Coupon
    
    
    Deposits
    
    
    of Total
    
    
    CouponIndianapolis
    
    $
    237,811
    
    
    
    10.3
    %
    
    
    2.8
    %
    
    $
    259,196
    
    
    
    10.4
    %
    
    
    2.1
    %Central and Western Michigan
    
    
    248,503
    
    
    
    10.7
    
    
    
    3.4
    
    
    
    238,742
    
    
    
    9.6
    
    
    
    2.6Southern Indiana
    
    
    651,569
    
    
    
    28.1
    
    
    
    2.7
    
    
    
    674,923
    
    
    
    27.1
    
    
    
    2.1Phoenix
    
    
    169,781
    
    
    
    7.3
    
    
    
    3.1
    
    
    
    190,428
    
    
    
    7.6
    
    
    
    2.4Las Vegas
    
    
    438,959
    
    
    
    19.0
    
    
    
    4.2
    
    
    
    413,541
    
    
    
    16.6
    
    
    
    3.5Other
    
    
    569,581
    
    
    
    24.6
    
    
    
    3.7
    
    
    
    713,233
    
    
    
    28.7
    
    
    
    3.3Total
    
    $
    2,316,204
    
    
    
    100.0
    %
    
    
    3.3
    %
    
    $
    2,490,063
    
    
    
    100.0
    %
    
    
    2.7
    %
 Net Income
  Net Interest Income
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(Dollars in thousands)Net interest income
    
    $
    31,938
    
    
    $
    28,639
    
    
    $
    93,211
    
    
    $
    80,175Average interest
earning assets
    
    
    2,964,055
    
    
    
    2,967,687
    
    
    
    3,055,665
    
    
    
    2,824,579Net interest margin
    
    
    4.27
    %
    
    
    3.83
    %
    
    
    4.08
    %
    
    
    3.80
    %
  Provision for Loan and Lease Losses
  36




---



##### Table of Contents



Noninterest Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Trust fees
    
    $
    478
    
    
    $
    486
    
    
    $
    1,456
    
    
    $
    1,494Service charges on deposit accounts
    
    
    1,086
    
    
    
    1,002
    
    
    
    3,146
    
    
    
    3,008Insurance commissions, fees and
premiums
    
    
    368
    
    
    
    354
    
    
    
    1,527
    
    
    
    1,314Gain from sales of loans
    
    
    822
    
    
    
    956
    
    
    
    1,834
    
    
    
    2,380Loan servicing fees
    
    
    377
    
    
    
    371
    
    
    
    1,141
    
    
    
    1,092Amortization of servicing assets
    
    
    (297
    )
    
    
    (354
    )
    
    
    (832
    )
    
    
    (981
    )(Impairment) recovery of servicing
assets
    
    
    (6
    )
    
    
    345
    
    
    
    (6
    )
    
    
    248Brokerage fees
    
    
    329
    
    
    
    376
    
    
    
    989
    
    
    
    980Derivative losses
    
    
    
    
    
    
    (336
    )
    
    
    
    
    
    
    (263
    )Other
    
    
    1,534
    
    
    
    1,242
    
    
    
    4,298
    
    
    
    3,357Total noninterest income
    
    $
    4,691
    
    
    $
    4,442
    
    
    $
    13,553
    
    
    $
    12,629
  Operating Expenses
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    13,806
    
    
    $
    11,897
    
    
    $
    40,573
    
    
    $
    36,207Other expenses
    
    
    9,303
    
    
    
    7,394
    
    
    
    25,593
    
    
    
    21,682Total operating expenses
    
    $
    23,109
    
    
    $
    19,291
    
    
    $
    66,166
    
    
    $
    57,889Efficiency ratio
    
    
    63.1
    %
    
    
    58.3
    %
    
    
    62.0
    %
    
    
    62.4
    %Number of employees at period end(1)
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    561
 
 (1)
    
    On a full time equivalent basis.  Balance Sheet
  37




---



##### Table of Contents



Credit Quality
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Nonperforming loans
    
    $
    11,417
    
    
    $
    19,483Other real estate owned
    
    
    5,535
    
    
    
    7,892Total nonperforming assets
    
    $
    16,952
    
    
    $
    27,375Nonperforming assets to total assets
    
    
    0.55
    %
    
    
    0.87
    %Allowance for loan losses
    
    $
    26,529
    
    
    $
    24,670Allowance for loan losses to total loans
    
    
    0.93
    %
    
    
    0.92
    %
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005For the Period Ended:
    
    (Dollars in thousands)Provision for loan losses
    
    $
    1,668
    
    
    $
    1,361
    
    
    $
    4,481
    
    
    $
    3,936Net charge-offs
    
    
    1,315
    
    
    
    590
    
    
    
    2,621
    
    
    
    1,745Net charge-offs to average loans
    
    
    0.19
    %
    
    
    0.09
    %
    
    
    0.13
    %
    
    
    0.10
    %
  September 30,
    
    December 31,Markets
    
    2006
    
    2005Indianapolis
    
    
    0.06
    %
    
    
    0.58
    %Central and Western Michigan
    
    
    2.21
    %
    
    
    3.76
    %Southern Indiana
    
    
    0.18
    %
    
    
    0.24
    %Phoenix
    
    
    0.59
    %
    
    
    0.60
    %Las Vegas
    
    
    0.00
    %
    
    
    0.00
    %Other
    
    
    0.21
    %
    
    
    0.16
    %Total
    
    
    0.60
    %
    
    
    1.02
    %
 38




---



##### Table of Contents



Commercial Finance
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    10,417
    
    
    $
    8,959
    
    
    $
    30,217
    
    
    $
    24,499Provision for loan and lease losses
    
    
    (1,613
    )
    
    
    (1,481
    )
    
    
    (4,562
    )
    
    
    (4,801
    )Noninterest income
    
    
    2,536
    
    
    
    2,313
    
    
    
    6,684
    
    
    
    5,573Total net revenue
    
    
    11,340
    
    
    
    9,791
    
    
    
    32,339
    
    
    
    25,271Operating expense
    
    
    (6,069
    )
    
    
    (5,413
    )
    
    
    (17,717
    )
    
    
    (17,246
    )Income before taxes
    
    
    5,271
    
    
    
    4,378
    
    
    
    14,622
    
    
    
    8,025Income taxes
    
    
    (1,997
    )
    
    
    (1,840
    )
    
    
    (5,525
    )
    
    
    (3,362
    )Net income
    
    $
    3,274
    
    
    $
    2,538
    
    
    $
    9,097
    
    
    $
    4,663Selected Operating Data:Net charge-offs
    
    $
    1,211
    
    
    $
    1,052
    
    
    $
    2,826
    
    
    $
    3,869Net interest margin
    
    
    4.27
    %
    
    
    4.95
    %
    
    
    4.47
    %
    
    
    4.86
    %Total funding of loans and leases
    
    $
    147,056
    
    
    $
    119,345
    
    
    $
    431,537
    
    
    $
    312,980Loans sold
    
    
    17,360
    
    
    
    19,804
    
    
    
    40,211
    
    
    
    34,232Return on average Equity
    
    
    18.02
    %
    
    
    17.25
    %
    
    
    17.75
    %
    
    
    12.10
    %
 September 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    1,012,502
    
    
    $
    831,657Loans and leases
    
    
    991,677
    
    
    
    817,208Allowance for loan and lease losses
    
    
    (12,460
    )
    
    
    (10,756
    )Shareholders equity
    
    
    78,836
    
    
    
    71,568
 Overview
   Net Income
  39




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##### Table of Contents



Net Interest Income
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(Dollars in thousands)Net interest income
    
    $
    10,417
    
    
    $
    8,959
    
    
    $
    30,217
    
    
    $
    24,499Average interest earning assets
    
    
    968,008
    
    
    
    717,364
    
    
    
    903,603
    
    
    
    673,852Net interest margin
    
    
    4.27
    %
    
    
    4.95
    %
    
    
    4.47
    %
    
    
    4.86
    %
   Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Gain from sales of loans
    
    $
    939
    
    
    $
    1,530
    
    
    $
    2,191
    
    
    $
    2,313Derivative gains (losses), net
    
    
    26
    
    
    
    (227
    )
    
    
    (192
    )
    
    
    (533
    )Other
    
    
    1,571
    
    
    
    1,010
    
    
    
    4,685
    
    
    
    3,793Total noninterest income
    
    $
    2,536
    
    
    $
    2,313
    
    
    $
    6,684
    
    
    $
    5,573
  40




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##### Table of Contents



Operating Expenses
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    5,428
    
    
    $
    4,680
    
    
    $
    15,956
    
    
    $
    13,037Other
    
    
    641
    
    
    
    733
    
    
    
    1,761
    
    
    
    4,209Total operating expenses
    
    $
    6,069
    
    
    $
    5,413
    
    
    $
    17,717
    
    
    $
    17,246Number of employees at period end (1)
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    179
 
 (1)
    
    On a full time equivalent basis. Credit Quality
    September 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Nonperforming loans and leases
    
    $
    5,249
    
    
    $
    3,700Allowance for loan and lease losses
    
    
    12,460
    
    
    
    10,756Allowance for loan and lease losses to total loans and leases
    
    
    1.26
    %
    
    
    1.32
    %
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(Dollars in thousands)Provision for loan and lease losses
    
    $
    1,613
    
    
    $
    1,481
    
    
    $
    4,562
    
    
    $
    4,801Net charge-offs
    
    
    1,211
    
    
    
    1,052
    
    
    
    2,826
    
    
    
    3,869Annualized net charge-offs to
average loans and leases
    
    
    0.50
    %
    
    
    0.58
    %
    
    
    0.42
    %
    
    
    0.77
    %
 41




---



##### Table of Contents



September 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Domestic franchise loans
    
    $
    428,251
    
    
    $
    336,939Weighted average coupon
    
    
    8.21
    %
    
    
    7.82
    %Delinquency ratio
    
    
    0.19
    
    
    
    0.37Domestic leases
    
    $
    242,609
    
    
    $
    204,701Weighted average coupon
    
    
    10.88
    %
    
    
    10.72
    %Delinquency ratio
    
    
    1.39
    
    
    
    1.26Canadian leases(1)
    
    $
    320,817
    
    
    $
    275,568Weighted average coupon
    
    
    8.87
    %
    
    
    8.80
    %Delinquency ratio
    
    
    0.45
    
    
    
    0.53
 
 (1)
    
    In U.S. dollars. 42




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##### Table of Contents



Home Equity Lending
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    25,215
    
    
    $
    23,400
    
    
    $
    71,807
    
    
    $
    65,025Provision for loan and lease losses
    
    
    (5,854
    )
    
    
    (3,113
    )
    
    
    (16,111
    )
    
    
    (9,665
    )Noninterest income
    
    
    (820
    )
    
    
    7,825
    
    
    
    10,149
    
    
    
    30,189Total net revenues
    
    
    18,541
    
    
    
    28,112
    
    
    
    65,845
    
    
    
    85,549Operating expenses
    
    
    (19,010
    )
    
    
    (24,372
    )
    
    
    (65,202
    )
    
    
    (79,267
    )Income (loss) before taxes
    
    
    (469
    )
    
    
    3,740
    
    
    
    643
    
    
    
    6,282Income taxes
    
    
    177
    
    
    
    (1,503
    )
    
    
    (283
    )
    
    
    (2,537
    )Net income (loss)
    
    $
    (292
    )
    
    $
    2,237
    
    
    $
    360
    
    
    $
    3,745Selected Operating Data:Return on average equity
    
    
    -0.82
    %
    
    
    6.09
    %
    
    
    0.32
    %
    
    
    3.74
    %Loan volume:Lines of credit
    
    $
    29,940
    
    
    $
    84,142
    
    
    $
    124,859
    
    
    $
    366,915Loans
    
    
    224,250
    
    
    
    359,464
    
    
    
    625,039
    
    
    
    1,006,587Net home equity charge-offs to average
managed portfolio
    
    
    0.86
    %
    
    
    0.44
    %
    
    
    0.82
    %
    
    
    0.70
    %Gain (loss) on sale of loans to loans sold
    
    
    0.12
    %
    
    
    2.48
    %
    
    
    (0.44
    )%
    
    
    2.72
    %
 September 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data:Total assets
    
    $
    1,536,519
    
    
    $
    1,602,400Home equity loans and lines of credit(1)
    
    
    1,266,154
    
    
    
    980,406Allowance for loan losses
    
    
    (31,403
    )
    
    
    (23,552
    )Home equity loans held for sale
    
    
    174,084
    
    
    
    513,231Residual interests
    
    
    2,800
    
    
    
    15,580Mortgage servicing assets
    
    
    28,266
    
    
    
    30,502Short-term borrowings
    
    
    545,922
    
    
    
    920,636Collateralized debt
    
    
    813,583
    
    
    
    452,615Shareholders equity
    
    
    127,722
    
    
    
    151,677Selected Operating Data:Total managed portfolio balance
    
    
    1,648,236
    
    
    
    1,593,509Delinquency ratio(2)
    
    
    3.1
    %
    
    
    3.0
    %Weighted average coupon rate:Lines of credit
    
    
    11.13
    %
    
    
    10.17
    %Loans
    
    
    10.63
    
    
    
    10.18
 
 (1)
    
    Includes $908 million and $486 million of collateralized loans at September 30, 2006 and
December 31, 2005, respectively, as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. Overview
  43




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##### Table of Contents



September 30, 2006
    
    
    December 31, 2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageAmount
    
    
    % of Total
    
    
    Coupon
    
    
    Amount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)Home Equity PortfolioLoans £  100% CLTV
    
    $
    521,035
    
    
    
    31.61
    %
    
    
    8.84
    %
    
    $
    494,462
    
    
    
    31.03
    %
    
    
    7.90
    %Lines of credit £  100% CLTV
    
    
    332,008
    
    
    
    20.14
    
    
    
    9.93
    
    
    
    327,164
    
    
    
    20.53
    
    
    
    8.77First mortgages £  100% CLTV
    
    
    35,542
    
    
    
    2.15
    
    
    
    7.24
    
    
    
    36,377
    
    
    
    2.28
    
    
    
    7.10Total £  100% CLTV
    
    
    888,585
    
    
    
    53.90
    
    
    
    9.18
    
    
    
    858,003
    
    
    
    53.84
    
    
    
    8.20Loans > 100% CLTV
    
    
    630,705
    
    
    
    38.27
    
    
    
    12.34
    
    
    
    582,536
    
    
    
    36.56
    
    
    
    12.31Lines of credit > 100% CLTV
    
    
    109,781
    
    
    
    6.66
    
    
    
    14.49
    
    
    
    142,315
    
    
    
    8.93
    
    
    
    13.10First mortgages > 100% CLTV
    
    
    11,662
    
    
    
    0.71
    
    
    
    8.55
    
    
    
    
    
    
    
    
    
    
    
    Total > 100% CLTV
    
    
    752,148
    
    
    
    45.64
    
    
    
    12.60
    
    
    
    724,851
    
    
    
    45.49
    
    
    
    12.47Other
    
    
    7,503
    
    
    
    0.46
    
    
    
    15.05
    
    
    
    10,655
    
    
    
    0.67
    
    
    
    14.03Total managed portfolio(1)
    
    $
    1,648,236
    
    
    
    100.00
    %
    
    
    10.77
    %
    
    $
    1,593,509
    
    
    
    100.00
    %
    
    
    10.18
    %
 
 (1)
    
    We define our Managed portfolio as the portfolio ($1.6 billion) that we service and on
which we carry credit risk. At September 30, 2006, we also serviced another $1.4 billion of
loans for which the credit risk is held by others. 44




---



##### Table of Contents



Three Months Ended September 30,Product
    
    2006
    
    2005(Funding amount in thousands)First mortgage loansFunding Amount
    
    $
    15,716
    
    
    $
    26,381Weighted Average Disposable Income
    
    
    4,707
    
    
    
    7,300Weighted Average FICO score
    
    
    686
    
    
    
    685Weighted Average Coupon
    
    
    8.43
    %
    
    
    7.14
    %First mortgage loans up to 110%Funding Amount
    
    $
    10,726
    
    
    $
    Weighted Average Disposable Income
    
    
    6,872
    
    
    
    Weighted Average FICO score
    
    
    703
    
    
    
    Weighted Average Coupon
    
    
    8.53
    %
    
    
    Home equity loans up to 100% CLTVFunding Amount
    
    $
    131,859
    
    
    $
    218,020Weighted Average Disposable Income
    
    
    6,788
    
    
    
    4,981Weighted Average FICO score
    
    
    705
    
    
    
    724Weighted Average Coupon
    
    
    11.52
    %
    
    
    7.37
    %Home equity loans up to 125% CLTVFunding Amount
    
    $
    65,949
    
    
    $
    115,063Weighted Average Disposable Income
    
    
    4,346
    
    
    
    4,199Weighted Average FICO score
    
    
    699
    
    
    
    688Weighted Average Coupon
    
    
    12.84
    %
    
    
    11.88
    %Home equity lines of credit up to 100% CLTVFunding Amount
    
    $
    25,439
    
    
    $
    72,987Weighted Average Disposable Income
    
    
    6,582
    
    
    
    6,286Weighted Average FICO score
    
    
    686
    
    
    
    698Weighted Average Coupon
    
    
    10.49
    %
    
    
    7.63
    %Home equity lines of credit up to 125% CLTVFunding Amount
    
    $
    4,501
    
    
    $
    11,154Weighted Average Disposable Income
    
    
    5,118
    
    
    
    4,608Weighted Average FICO score
    
    
    682
    
    
    
    699Weighted Average Coupon
    
    
    15.72
    %
    
    
    12.16
    %All ProductsFunding Amount
    
    $
    254,190
    
    
    $
    443,606Weighted Average Disposable Income
    
    
    5,817
    
    
    
    5,141Weighted Average FICO score
    
    
    700
    
    
    
    707Weighted Average Coupon
    
    
    11.52
    %
    
    
    8.69
    %
 45




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##### Table of Contents



Net Income
  Net Revenue
   Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(Dollars in thousands)Total originations
    
    $
    254,190
    
    
    $
    443,606
    
    
    $
    749,898
    
    
    $
    1,373,502Percent correspondent
    
    
    21
    %
    
    
    16
    %
    
    
    26
    %
    
    
    17
    %Percent retail loans
    
    
    11
    
    
    
    41
    
    
    
    17
    
    
    
    38Percent brokered
    
    
    31
    
    
    
    21
    
    
    
    28
    
    
    
    22Percent other
    
    
    37
    
    
    
    22
    
    
    
    29
    
    
    
    23
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Net interest income
    
    $
    25,215
    
    
    $
    23,400
    
    
    $
    71,807
    
    
    $
    65,025Provision for loan losses
    
    
    (5,854
    )
    
    
    (3,113
    )
    
    
    (16,111
    )
    
    
    (9,665
    )Gain (loss) on sales of loans
    
    
    92
    
    
    
    3,734
    
    
    
    (2,445
    )
    
    
    15,863Loan servicing fees
    
    
    5,830
    
    
    
    10,689
    
    
    
    24,024
    
    
    
    29,732Amortization of servicing assets
    
    
    (5,040
    )
    
    
    (8,682
    )
    
    
    (17,034
    )
    
    
    (22,272
    )Recovery of servicing assets
    
    
    
    
    
    
    541
    
    
    
    984
    
    
    
    905Derivative (losses) gains
    
    
    (2,788
    )
    
    
    268
    
    
    
    3,053
    
    
    
    605Other
    
    
    1,086
    
    
    
    1,275
    
    
    
    1,567
    
    
    
    5,356Total net revenue
    
    $
    18,541
    
    
    $
    28,112
    
    
    $
    65,845
    
    
    $
    85,549
   46




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##### Table of Contents



Operating Expenses
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    11,247
    
    
    $
    15,701
    
    
    $
    39,975
    
    
    $
    50,193Other
    
    
    7,763
    
    
    
    8,671
    
    
    
    25,227
    
    
    
    29,074Total operating expenses
    
    $
    19,010
    
    
    $
    24,372
    
    
    $
    65,202
    
    
    $
    79,267Number of employees at period end(1)
    
    
    
    
    
    
    
    
    
    
    485
    
    
    
    616
 
 (1)
    
    On a full time equivalent basis.  Home Equity Servicing
  47




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##### Table of Contents



September 30,
    
    December 31,
    
    September 30,2006
    
    2005
    
    2005(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,648,236
    
    
    $
    1,593,509
    
    
    $
    1,577,23830 days past due
    
    
    3.07
    %
    
    
    3.04
    %
    
    
    2.92
    %90 days past due
    
    
    1.18
    
    
    
    1.10
    
    
    
    1.02Annualized QTD Net Chargeoff Rate
    
    
    0.86
    
    
    
    0.35
    
    
    
    0.44Unsold
LoansTotal Loans(1)
    
    $
    1,438,952
    
    
    $
    1,480,224
    
    
    $
    1,430,13130 days past due
    
    
    3.49
    %
    
    
    2.23
    %
    
    
    2.01
    %90 days past due
    
    
    1.35
    
    
    
    0.86
    
    
    
    0.76Annualized QTD Net Chargeoff Rate
    
    
    0.98
    
    
    
    0.26
    
    
    
    0.36Loan Loss Reserve
    
    $
    31,403
    
    
    $
    23,552
    
    
    $
    18,343Owned
ResidualTotal Loans
    
    $
    209,285
    
    
    $
    113,286
    
    
    $
    147,10630 days past due
    
    
    0.12
    %
    
    
    13.60
    %
    
    
    11.75
    %90 days past due
    
    
    
    
    
    
    4.32
    
    
    
    3.52Annualized QTD Net Chargeoff Rate
    
    
    0.11
    
    
    
    1.34
    
    
    
    1.06Residual Undiscounted Losses
    
    $
    380
    
    
    $
    930
    
    
    $
    2,680Credit Risk Sold, Potential Incentive
Servicing Fee Retained PortfolioTotal Loans
    
    $
    694,973
    
    
    $
    972,775
    
    
    $
    1,118,50630 days past due
    
    
    4.41
    %
    
    
    4.30
    %
    
    
    3.20
    %90 days past due
    
    
    1.57
    
    
    
    1.74
    
    
    
    1.09
 
 (1)
    
    Excludes deferred fees and costs.  48




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##### Table of Contents



Mortgage Banking
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)Selected Income Statement Data:Net revenue
    
    $
    8,280
    
    
    $
    41,928
    
    
    $
    40,623
    
    
    $
    79,566Operating expense
    
    
    (29,439
    )
    
    
    (32,097
    )
    
    
    (87,633
    )
    
    
    (102,285
    )(Loss) income before taxes
    
    
    (21,159
    )
    
    
    9,831
    
    
    
    (47,010
    )
    
    
    (22,719
    )Income taxes
    
    
    8,473
    
    
    
    (3,967
    )
    
    
    18,803
    
    
    
    9,163Net (loss) income
    
    $
    (12,686
    )
    
    $
    5,864
    
    
    $
    (28,207
    )
    
    $
    (13,556
    )
 September 30,
    
    December 31,2006
    
    2005(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    365,660
    
    
    $
    1,306,041Mortgage loans held for sale
    
    
    32,844
    
    
    
    779,966Mortgage servicing assets
    
    
    20,967
    
    
    
    261,309Accounts receivable
    
    
    212,190
    
    
    
    101,891Shareholders equity
    
    
    114,520
    
    
    
    125,888
    49




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##### Table of Contents



Parent and Other
   Risk Management
  
    
    Credit risk
    
    Liquidity risk
    
    Interest rate risk
    
    Operational risk
    Credit Risk
  50




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##### Table of Contents



51




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##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Accruing loans past due 90 days or more:Real estate mortgages
    
    $
    
    
    
    $
    222Consumer loans
    
    
    3
    
    
    
    233Commercial financingDomestic leasing
    
    
    63
    
    
    
    73Foreign leasing
    
    
    44
    
    
    
    71110
    
    
    
    599Nonaccrual loans and leases:Commercial, financial and
agricultural loans
    
    
    9,752
    
    
    
    17,693Real estate mortgages
    
    
    17,126
    
    
    
    14,237Consumer loans
    
    
    1,205
    
    
    
    1,335Commercial financingFranchise financing
    
    
    1,764
    
    
    
    720Domestic leasing
    
    
    2,140
    
    
    
    1,383Foreign leasing
    
    
    1,237
    
    
    
    1,45233,224
    
    
    
    36,820Total nonperforming
loans and leases
    
    
    33,334
    
    
    
    37,419Nonperforming Loans held for Sale not guaranteed
    
    
    5,917
    
    
    
    965Other real estate owned
    
    
    12,826
    
    
    
    15,226Total nonperforming assets
    
    $
    52,077
    
    
    $
    53,610Nonperforming loans and leases to total
loans and leases
    
    
    0.7
    %
    
    
    0.8
    %Nonperforming assets to total
assets
    
    
    0.9
    %
    
    
    0.8
    %
   September 30,
    
    December 31,2006
    
    2005(In millions)      Commercial banking
    
    $
    17.0
    
    
    $
    27.4      Commercial finance
    
    
    5.2
    
    
    
    3.7      Home equity lending
    
    
    22.2
    
    
    
    17.1      Mortgage banking
    
    
    7.7
    
    
    
    5.5
  52




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##### Table of Contents



Liquidity Risk
         53




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##### Table of Contents




    
    Warehouse lines of credit to fund primarily home equity loans: none outstanding on a $300
million borrowing facility, of which $150 million is committed
    
    Lines of credit with correspondent banks, including fed funds lines: none outstanding out
of $225 million available but not committed
    
    Fed funds lines with non-correspondent banks in which none were outstanding
    
    Warehouse lines of credit and conduits to fund Canadian sourced small ticket leases: $223
million outstanding on $349 million of borrowing facilities
 Interest Rate Risk
     
    
    the type of risk we are trying to mitigate;
    
    offsetting factors elsewhere in the Corporation;
    
    the level of current capital above our target minimums;
    
    time remaining in the quarter (i.e., days until quarter end);
 54




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##### Table of Contents




    
    current level of derivative gain or loss relative to accounting and economic basis;
    
    basis risk: the degree to which the interest rates underlying our derivative instruments
might not move parallel to the interest rate driving our asset valuation;
    
    convexity: the degree to which asset values, or risk management derivative instrument
values, do not change in a linear fashion as interest rates change;
    
    volatility: the level of volatility in market interest rates and the related impact on
our asset values and derivatives instrument values; and
    
    planned sales of mortgage servicing rights.
  1.
    
    provide adequate hedge coverage for falling rates;2.
    
    minimize premium costs to establish hedge positions;3.
    
    provide a moderate amount of net impairment recapture if interest rates rise;4.
    
    when near or above the MSR LOCOM cap, maintain an acceptable range over which interest
rates may rise without causing hedge losses to significantly exceed accounting gains.
      
    
    The net asset value sensitivities do not necessarily represent the changes in the lines
of business net asset value that would actually occur under the given interest rate
scenarios, as sensitivities do not reflect changes in value of the companies as a going
concern, nor consider potential rebalancing or other management actions that might be taken
in the future under asset/liability management as interest rates change.
    
    The information in the tables below both as of
September 30, 2006 and June 30, 2006 exclude the interest
rate sensitivity of our first mortgage subsidiary due to our recent sale of substantially
all its interest-sensitive assets and its status as a discontinued operation. Note that
these tables only include the market values and sensitivities of interest-sensitive assets
and liabilities.
    
    The tables below show modeled changes in interest rates for individual asset classes.
Asset classes in our portfolio have interest rate sensitivity tied to different underlying
indices or instruments. While the rate sensitivity of individual asset classes presented
below is our best estimate of changes in value due to interest rate changes, the total
potential change figures are subject to basis risk between value changes of individual
assets and liabilities which have not been included in the model.
 55




---



##### Table of Contents




    
    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.
 Economic Value Change Method
 Present Value at September 30, 2006Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    5,445,346
    
    
    $
    5,381,195
    
    
    $
    5,312,568
    
    
    $
    5,240,725
    
    
    $
    5,169,648Loans held for sale
    
    
    179,648
    
    
    
    178,108
    
    
    
    176,433
    
    
    
    173,657
    
    
    
    170,083Mortgage servicing rights
    
    
    31,174
    
    
    
    35,404
    
    
    
    39,277
    
    
    
    43,633
    
    
    
    46,027Residual interests
    
    
    10,191
    
    
    
    10,272
    
    
    
    10,344
    
    
    
    10,043
    
    
    
    10,146Interest sensitive financial derivatives
    
    
    (11,597
    )
    
    
    (5,948
    )
    
    
    (455
    )
    
    
    5,148
    
    
    
    10,818Total interest sensitive assets
    
    
    5,654,762
    
    
    
    5,599,031
    
    
    
    5,538,167
    
    
    
    5,473,206
    
    
    
    5,406,722Interest Sensitive LiabilitiesDeposits
    
    
    (3,355,061
    )
    
    
    (3,331,129
    )
    
    
    (3,309,079
    )
    
    
    (3,282,073
    )
    
    
    (3,252,232
    )Short-term borrowings(1)
    
    
    (820,241
    )
    
    
    (810,069
    )
    
    
    (801,532
    )
    
    
    (793,698
    )
    
    
    (786,478
    )Long-term debt
    
    
    (1,030,233
    )
    
    
    (1,021,576
    )
    
    
    (1,007,597
    )
    
    
    (993,596
    )
    
    
    (976,644
    )Total interest sensitive liabilities
    
    
    (5,205,535
    )
    
    
    (5,162,774
    )
    
    
    (5,118,208
    )
    
    
    (5,069,367
    )
    
    
    (5,015,354
    )Net market value as of September 30, 2006
    
    $
    449,227
    
    
    $
    436,257
    
    
    $
    419,959
    
    
    $
    403,839
    
    
    $
    391,368Change from current
    
    $
    29,268
    
    
    $
    16,298
    
    
    $
    
    
    
    $
    (16,120
    )
    
    $
    (28,591
    )Net market value as of June 30, 2006
    
    $
    507,059
    
    
    $
    491,652
    
    
    $
    475,129
    
    
    $
    461,610
    
    
    $
    453,168Potential change
    
    $
    31,930
    
    
    $
    16,523
    
    
    $
    
    
    
    $
    (13,519
    )
    
    $
    (21,961
    )
 
 (1)
    
    Includes certain debt which is categorized as collateralized borrowings in other sections
of this document 56




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##### Table of Contents



GAAP-Based Value Change Method
 Present Value at September 30, 2006Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets(1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans held for sale
    
    
    175,531
    
    
    
    175,531
    
    
    
    175,531
    
    
    
    172,756
    
    
    
    169,182Mortgage servicing rights
    
    
    27,968
    
    
    
    31,031
    
    
    
    32,017
    
    
    
    32,114
    
    
    
    32,114Residual interests
    
    
    10,191
    
    
    
    10,272
    
    
    
    10,344
    
    
    
    10,043
    
    
    
    10,146Interest sensitive financial derivatives
    
    
    (11,597
    )
    
    
    (5,948
    )
    
    
    (455
    )
    
    
    5,148
    
    
    
    10,818Total interest sensitive assets
    
    
    202,093
    
    
    
    210,886
    
    
    
    217,437
    
    
    
    220,061
    
    
    
    222,260Interest Sensitive LiabilitiesDeposits(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term borrowings(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of September 30, 2006
    
    $
    202,093
    
    
    $
    210,886
    
    
    $
    217,437
    
    
    $
    220,061
    
    
    $
    222,260Potential change
    
    $
    (15,344
    )
    
    $
    (6,551
    )
    
    $
    
    
    
    $
    2,624
    
    
    $
    4,823Net market value as of June 30, 2006
    
    $
    181,334
    
    
    $
    191,093
    
    
    $
    200,393
    
    
    $
    206,798
    
    
    $
    210,856Potential change
    
    $
    (19,059
    )
    
    $
    (9,300
    )
    
    $
    
    
    
    $
    6,405
    
    
    $
    10,463
 
 (1)
    
    Value does not change in GAAP presentation Operational risk
    57




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##### Table of Contents



Regulatory Environment
   Off-Balance Sheet Instruments
   Derivative Financial Instruments
     58




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
 
 PART II. Other Information.
 
 Item 1. Legal Proceedings
 Since the time we filed our Report on Form 10-Q for the quarter ended June 30, 2006, we
experienced developments as noted in the litigation described below. For a full description of the
litigation, see Note 14, Commitments and Contingencies, in the Notes to Consolidated Financial
Statements, Part I, Item 1, of this Report.
 Silke v. Irwin Mortgage Corporation
  59




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##### Table of Contents



Cohens v. Inland Mortgage Corporation
  White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation
   60




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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.)3.1
    
    Restated Articles of Incorporation of Irwin Financial Corporation, as amended April 7, 2005. (Incorporated by
reference to Exhibit 3.1 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)3.2
    
    Code of By-laws of Irwin Financial Corporation, as amended, May 4, 2005. (Incorporated by reference to Exhibit
3.2 of Form 10-Q Report for the quarter ended September 30, 2005, File No. 001-16691.)4.1
    
    Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4(a) to Form 10-K report for year ended
December 31, 1994, File No. 0-06835.)4.2
    
    Certain instruments defining the rights of the holders of long-term debt of Irwin Financial Corporation and
certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits.
The Corporation hereby agrees to furnish a copy of any of these agreements to the Commission upon request.4.3
    
    Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank and Trust.
(Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No. 000-06835.)4.4
    
    Appointment of Successor Rights Agent dated as of May 11, 2001 between Irwin Financial Corporation and National
City Bank. (Incorporated by reference to Exhibit 4.5 to Form S-8 filed on September 7, 2001, File No.
333-69156.)10.1
    
    *Irwin Financial Corporation 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(h) to Form 10-K
Report for year ended December 31, 1992, File No. 000-06835.)10.2
    
    *Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10 to Form 10-Q
Report for period ended September 30, 1994, File No. 000-06835.)10.3
    
    *Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10(i) to
Form 10-Q Report for period ended September 30, 1997, File No. 000-06835.)10.4
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan. (Incorporated by reference to Exhibit 1 to
the Corporations proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File
No. 001-16691.)10.5
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement. (Incorporated by reference to
Exhibit 99.1 of the Corporations 8-K Current Report, dated May 9, 2005, File No. 001-16691.)10.6
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Agreement (Incorporated by reference to
Exhibit 99.2 of the Corporations 8-K Current Report, dated May 9, 2005, File No. 001-16691.)10.7
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan revised August 24, 2005 (Incorporated by
reference to Exhibit 10.7 of the Corporations 10-Q Report for period ended September 30, 2005, File No.
001-16691.)10.8
    
    *Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement (Canada). (Incorporated by reference
to Exhibit 10.8 of the Corporations 10-Q Report for period ended September 30, 2005, File No. 001-16691.)10.9
    
    *Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated by
reference to Exhibit 2 to the Corporations proxy statement for its 2004 Annual Meeting, filed with the
Commission on March 18, 2004, File No. 001-16691.)10.10
    
    *Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for period
ended September 30, 1999, File No. 000-06835.)10.11
    
    *Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year
ended December 31, 1986, File No. 000-06835.)10.12
    
    *Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
year ended December 31, 1986, File No. 000-06835.)10.13
    
    *Inland Mortgage Corporation Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(j) to Form 10-K
Report for year ended December 31, 1995, File No. 000-06835.)
 61




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.14
    
    *Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for
year ended December 31, 1986, File No. 000-06835.)10.15
    
    *Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit 10(a) to Form
10-Q/A Report for period ended March 31, 2001, File No. 000-06835.)10.16
    
    *Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC, effective as of April 20, 2001.
(Incorporated by reference to Exhibit 10.17 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.17
    
    *Promissory Note dated January 30, 2002 from Elena Delgado to Irwin Financial Corporation. (Incorporated by
reference to Exhibit 10.19 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.18
    
    *Consumer Pledge Agreement dated January 30, 2002 between Elena Delgado and Irwin Financial Corporation.
(Incorporated by reference to Exhibit 10.20 to Form S-1/A filed February 14, 2002, File No. 333-69586.)10.19
    
    *Redemption and Loan Repayment Agreement dated December 22, 2004 between Irwin Financial Corporation, Irwin Home
Equity Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.15 of Form 10-K Report for year
ended December 31, 2004, File No. 001-16691.)10.20
    
    *Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated December 22, 2004
between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference
to Exhibit 10.16 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)10.21
    
    *Deferred Compensation Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial
Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.17 of Form 10-K Report for year ended
December 31, 2004, File No. 001-16691.)10.22
    
    *Tax Gross-up Agreement dated December 22, 2004 between Irwin Financial Corporation and Elena Delgado as
Shareholder. (Incorporated by reference to Exhibit 10.18 of Form 10-K Report for year ended December 31, 2004,
File No. 001-16691.)10.23
    
    *Amendment No. 1 to Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated April
7, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by
reference to Exhibit 10.19 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)10.24
    
    *Amendment No. 1 to the Deferred Compensation Agreement dated April 7, 2005 between Irwin Home Equity
Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.20 of Form
10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)10.25
    
    *Amendment No. 2 to the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home Equity
Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 99.1 of Form
8-K Current Report dated November 18, 2005, File No. 001-16691.)10.26
    
    *Election to Terminate the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home Equity
Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 99.2 of Form
8-K Current Report dated November 18, 2005, File No. 001-16691.)10.27
    
    *Irwin Financial Corporation Amended and Restated Short Term Incentive Plan effective
January 1, 2006 (Incorporated by reference to Exhibit 10.27 of Form 10-Q Report for the quarter ended June 30, 2006, File
No. 001-16691.)10.28
    
    *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 Report for the quarter ended June 30, 2006, File
No. 001-16691.)10.29
    
    *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 Report for the quarter ended June 30, 2006, File
No. 001-16691.)10.30
    
    *Irwin Mortgage Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002.
(Incorporated by reference to Exhibit 6 of the Corporations proxy statement for its 2004 Annual Meeting, filed
 with the Commission on March 18, 2004, File No. 001-16691.)10.31
    
    *Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan effective
January 1, 2006 (Incorporated by reference to Exhibit 10.31 of Form 10-Q Report for the quarter ended June 30, 2006, File
No. 001-16691.)10.32
    
    *Onset Capital Corporation Employment Agreement. (Incorporated by reference to Exhibit 10.26 to Form 10-Q Report
for period ended September 30, 2002, File No. 000-06835.)10.33
    
    *Irwin Financial Corporation Restated Supplemental Executive Retirement Plan for Named Executives. (Incorporated
by reference to Exhibit 10.27 to Form 10-Q Report for period ended September 30, 2002, File No. 000-06835.)10.34
    
    *Irwin Financial Corporation Supplemental Executive Retirement Plan for Named Executives. (Incorporated by
reference to Exhibit 10.28 to Form 10-Q Report for period ended September 30, 2002, File No. 000-06835.)
 62




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.35
    
    *Stock Purchase Agreement by and between Onset Holdings Inc. and Irwin International Corporation dated December
23, 2005. (Incorporated by reference to Exhibit 10.36 of Form 10-K Report for period ended December 31, 2005,
File No. 001-16691.)10.36
    
    *Shareholder Agreement Termination Agreement by and between Irwin Commercial Finance Canada Corporation and
Irwin International Corporation dated December 23, 2005. (Incorporated by reference to Exhibit 10.37 of Form
10-K Report for period ended December 31, 2005, File No. 001-16691.)10.37
    
    *Irwin Commercial Finance Corporation Shareholder Agreement dated December 23, 2005. (Incorporated by reference
to Exhibit 10.38 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.38
    
    *Irwin Commercial Finance Corporation 2005 Stock Option Agreement Grant of Option to Joseph LaLeggia dated
December 23, 2005. (Incorporated by reference to Exhibit 10.39 of Form 10-K Report for period ended December 31,
2005, File No. 001-16691.)10.39
    
    *Irwin Commercial Finance Corporation 2005 Notice of Stock Option Grant to Joseph LaLeggia dated December 23,
2005. (Incorporated by reference to Exhibit 10.40 of Form 10-K Report for period ended December 31, 2005, File
No. 001-16691.)10.40
    
    *Irwin Union Bank Amended and Restated Performance Unit Plan. (Incorporated by reference to Exhibit 10.41 of
Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.41
    
    *Irwin Commercial Finance Amended and Restated Performance Unit Plan. (Incorporated by reference to Exhibit
10.42 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.42
    
    *Irwin Home Equity Corporation Performance Unit Plan. (Incorporated by reference to Exhibit 10.43 of Form 10-K
Report for period ended December 31, 2005, File No. 001-16691.)10.43
    
    *First Amendment to Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to
Exhibit 10.44 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)10.44
    
    *Second Amendment to Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC. (Incorporated
by reference to Exhibit 10.45 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)11.1
    
    Computation of Earnings Per Share is included in the footnotes to the financial statements.31.1
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer.31.2
    
    Certification pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer.32.1
    
    Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates management contract or compensatory plan or arrangement. 63




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##### Table of Contents



SIGNATURES
  DATE:November 6, 2006
    IRWIN FINANCIAL CORPORATIONBy:
    /s/ Gregory F. EhlingerGREGORY F. EHLINGERCHIEF FINANCIAL OFFICERBy:
    /s/ Jody A. LittrellJODY A. LITTRELLCORPORATE CONTROLLER
(Chief Accounting Officer) 64