##### 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 endedMarch 31, 2007
 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 INFORMATION


3Item 1
    
    Financial Statements


3Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations


17Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk


47Item 4
    
    Controls and Procedures


47PART II
    
    OTHER INFORMATION


48Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds


48Item 6
    
    Exhibits


49Signatures


52Certification by CEOCertification by 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)
 March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    61,821
    
    
    $
    145,765Interest-bearing deposits with financial institutions
    
    
    43,393
    
    
    
    53,106Residual interests
    
    
    9,619
    
    
    
    10,320Investment securities- held-to-maturity (Fair value: $17,766 at March 31, 2007
and $17,893 at December 31, 2006)
    
    
    18,038
    
    
    
    18,066Investment securities- available-for-sale
    
    
    116,659
    
    
    
    110,364Loans held for sale
    
    
    44,906
    
    
    
    237,510Loans and leases, net of unearned income  Note 3
    
    
    5,414,778
    
    
    
    5,238,193Less: Allowance for loan and lease losses  Note 4
    
    
    (84,876
    )
    
    
    (74,468
    )5,329,902
    
    
    
    5,163,725Servicing assets  Note 5
    
    
    30,105
    
    
    
    31,949Accounts receivable
    
    
    70,591
    
    
    
    208,585Accrued interest receivable
    
    
    24,567
    
    
    
    26,470Premises and equipment
    
    
    38,671
    
    
    
    36,211Other assets
    
    
    188,008
    
    
    
    139,314Assets held for sale  Note 2
    
    
    41,456
    
    
    
    56,573Total assets
    
    $
    6,017,736
    
    
    $
    6,237,958Liabilities and Shareholders Equity:DepositsNoninterest-bearing
    
    $
    336,298
    
    
    $
    687,626Interest-bearing
    
    
    1,748,012
    
    
    
    1,756,109Certificates of deposit over $100,000
    
    
    1,363,087
    
    
    
    1,107,7813,447,397
    
    
    
    3,551,516Short-term borrowings  Note 6
    
    
    619,304
    
    
    
    602,443Collateralized debt  Note 7
    
    
    1,102,025
    
    
    
    1,173,012Other long-term debt
    
    
    233,885
    
    
    
    233,889Other liabilities
    
    
    102,256
    
    
    
    146,596Total liabilities
    
    
    5,504,867
    
    
    
    5,707,456Commitments and contingencies  Note 11Shareholders equityPreferred stock, no par value  authorized 4,000,000 shares; none issued
    
    
    
    
    
    
    Noncumulative perpetual preferred stock - 15,000 authorized and issued
    
    
    14,446
    
    
    
    14,518Common stock, no par value  authorized 40,000,000 shares; issued 29,890,917
shares and 29,879,773 shares as of March 31, 2007 and December 31, 2006; 430,316
shares 143,543 shares in treasury as of March 31, 2007 and December 31, 2006
    
    
    116,246
    
    
    
    116,192Additional paid-in capital
    
    
    1,688
    
    
    
    1,583Accumulated other comprehensive loss, net of deferred income tax benefit of
$4,003 and $4,813 as of March 31, 2007 and December 31, 2006
    
    
    (3,785
    )
    
    
    (4,364
    )Retained earnings
    
    
    393,564
    
    
    
    405,835522,159
    
    
    
    533,764Less treasury stock, at cost
    
    
    (9,290
    )
    
    
    (3,262
    )Total shareholders equity
    
    
    512,869
    
    
    
    530,502Total liabilities and shareholders equity
    
    $
    6,017,736
    
    
    $
    6,237,958
  3




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##### Table of Contents



IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 For the Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands, except per share)Interest income:Loans and leases
    
    $
    119,349
    
    
    $
    97,886Loans held for sale
    
    
    4,942
    
    
    
    11,406Residual interests
    
    
    270
    
    
    
    664Investment securities
    
    
    2,457
    
    
    
    1,485Federal funds sold
    
    
    20
    
    
    
    26Total interest income
    
    
    127,038
    
    
    
    111,467Interest expense:Deposits
    
    
    33,451
    
    
    
    29,682Short-term borrowings
    
    
    7,806
    
    
    
    4,106Collateralized debt
    
    
    15,815
    
    
    
    11,111Other long-term debt
    
    
    3,838
    
    
    
    4,990Total interest expense
    
    
    60,910
    
    
    
    49,889Net interest income
    
    
    66,128
    
    
    
    61,578Provision for loan and lease losses  Note 4
    
    
    23,208
    
    
    
    9,193Net interest income after provision for loan and lease losses
    
    
    42,920
    
    
    
    52,385Other income:Loan servicing fees
    
    
    5,912
    
    
    
    8,108Amortization and impairment of servicing assets
    
    
    (4,950
    )
    
    
    (5,902
    )(Loss) gain from sales of loans and loans held for sale
    
    
    (5,907
    )
    
    
    2,768Trading losses
    
    
    (264
    )
    
    
    (219
    )Derivative (losses) gains, net
    
    
    (1,089
    )
    
    
    2,768Other
    
    
    5,484
    
    
    
    6,473(814
    )
    
    
    13,996Other expense:Salaries
    
    
    25,735
    
    
    
    25,303Pension and other employee benefits
    
    
    7,738
    
    
    
    7,773Office expense
    
    
    2,337
    
    
    
    2,094Premises and equipment
    
    
    5,628
    
    
    
    5,035Marketing and development
    
    
    1,209
    
    
    
    668Professional fees
    
    
    2,086
    
    
    
    2,398Other
    
    
    7,552
    
    
    
    9,54352,285
    
    
    
    52,814(Loss) income before income taxes from continuing operations
    
    
    (10,179
    )
    
    
    13,567Provision for income taxes
    
    
    (4,085
    )
    
    
    4,877Net (loss) income from continuing operations
    
    
    (6,094
    )
    
    
    8,690Loss from discontinued operations, net of $2,742 and $7,026 income tax
benefit, respectively  Note 2
    
    
    (4,035
    )
    
    
    (10,548
    )Net loss
    
    $
    (10,129
    )
    
    $
    (1,858
    )Earnings per share from continuing operations:  Note 9Basic
    
    $
    (0.22
    )
    
    $
    0.30Diluted
    
    $
    (0.22
    )
    
    $
    0.30Earnings per share:  Note 9Basic
    
    $
    (0.35
    )
    
    $
    (0.06
    )Diluted
    
    $
    (0.36
    )
    
    $
    (0.07
    )Dividends per share
    
    $
    0.12
    
    
    $
    0.11
  4




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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 March 31, 2007, and 2006
 Accumulated Other Comprehensive IncomeDefined
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    PerpetualRetained
    
    
    Foreign
    
    
    Unrealized Gain/Loss
    
    
    Benefit
    
    
    Paid in
    
    
    Common
    
    
    Treasury
    
    
    PreferredTotal
    
    
    Earnings
    
    
    Currency
    
    
    Securities
    
    
    Derivatives
    
    
    Plans
    
    
    Capital
    
    
    Stock
    
    
    Stock
    
    
    Stock(Dollars in thousands)Balance at January 1, 2007
    
    $
    530,502
    
    
    $
    405,835
    
    
    $
    2,884
    
    
    $
    (344
    )
    
    $
    (30
    )
    
    $
    (6,874
    )
    
    $
    1,583
    
    
    $
    116,192
    
    
    $
    (3,262
    )
    
    $
    14,518Net loss
    
    
    (10,129
    )
    
    
    (10,129
    )Unrealized gain on investment
securities net of $21 tax liability
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Unrealized gain on derivatives
net of $121 tax liability
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183Foreign currency adjustment
    
    
    365
    
    
    
    
    
    
    
    365Other comprehensive income
    
    
    579Total comprehensive income
    
    
    (9,550
    )Cash dividends  common stock
    
    
    (3,533
    )
    
    
    (3,533
    )Cash dividends  preferred stock
    
    
    (352
    )
    
    
    (352
    )FAS 156 adoption
    
    
    1,743
    
    
    
    1,743Tax benefit on stock option exercises
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Stock option expense
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363Stock issuance costs
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )Stock:Purchase of 359,848 shares
    
    
    (7,668
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,668
    )Sales of 74,199 shares
    
    
    1,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (374
    )
    
    
    54
    
    
    
    1,640Balance at March 31, 2007
    
    $
    512,869
    
    
    $
    393,564
    
    
    $
    3,249
    
    
    $
    (313
    )
    
    $
    153
    
    
    $
    (6,874
    )
    
    $
    1,688
    
    
    $
    116,246
    
    
    $
    (9,290
    )
    
    $
    14,446Balance at January 1, 2006
    
    $
    512,334
    
    
    $
    418,784
    
    
    $
    3,341
    
    
    $
    (373
    )
    
    $
    754
    
    
    $
    (274
    )
    
    $
    50
    
    
    $
    112,000
    
    
    $
    (21,948
    )
    
    $
    Net loss
    
    
    (1,858
    )
    
    
    (1,858
    )Unrealized loss on investment
securities net of $79 tax benefit
    
    
    (119
    )
    
    
    
    
    
    
    
    
    
    
    (119
    )Unrealized loss on derivative
net of $4 tax benefit
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Foreign currency adjustment
    
    
    (153
    )
    
    
    
    
    
    
    (153
    )Other comprehensive income
    
    
    (278
    )Total comprehensive income
    
    
    (2,136
    )Cash dividends
    
    
    (3,268
    )
    
    
    (3,268
    )Tax benefit on stock option exercises
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Stock option expense
    
    
    253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    253Conversion of trust preferred shares
to 1,013,938 shares of common stock
    
    
    19,513
    
    
    
    (1,058
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,070
    
    
    
    19,501Stock:Purchase of 48,303 shares
    
    
    (950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (950
    )Sales of 124,386 shares
    
    
    1,628
    
    
    
    (508
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )
    
    
    179
    
    
    
    2,257Balance at March 31, 2006
    
    $
    527,693
    
    
    $
    412,092
    
    
    $
    3,188
    
    
    $
    (492
    )
    
    $
    748
    
    
    $
    (274
    )
    
    $
    322
    
    
    $
    113,249
    
    
    $
    (1,140
    )
    
    $
    
  5




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##### Table of Contents



CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Three Months ended March 31,2007
    
    
    2006(Dollars in thousands)(Loss) Income from continuing operations
    
    $
    (6,094
    )
    
    $
    8,690Loss from discontinued operations
    
    
    (4,035
    )
    
    
    (10,548
    )Net Loss
    
    
    (10,129
    )
    
    
    (1,858
    )Adjustments to reconcile net income to cash provided
by operating activities:Depreciation, amortization, and accretion, net
    
    
    2,356
    
    
    
    1,486Amortization and impairment of servicing assets
    
    
    5,199
    
    
    
    15,562Provision for loan and lease losses
    
    
    23,208
    
    
    
    9,240Loss (gain) from sales of loans held for sale
    
    
    10,155
    
    
    
    (18,117
    )Originations and purchases of loans held for sale
    
    
    (208,830
    )
    
    
    (2,565,909
    )Proceeds from sales and repayments of loans held for sale
    
    
    233,201
    
    
    
    2,622,218Net decrease in residuals
    
    
    971
    
    
    
    8,383Net decrease in accounts receivable
    
    
    137,994
    
    
    
    30,036Other, net
    
    
    (92,243
    )
    
    
    (29,209
    )Net cash provided by operating activities
    
    
    101,882
    
    
    
    71,832Investing activities:Proceeds from maturities/calls of investment securities:Held-to-maturity
    
    
    127
    
    
    
    45Available-for-sale
    
    
    974
    
    
    
    913Purchase of investment securities:Held-to-maturity
    
    
    (100
    )
    
    
    Available-for-sale
    
    
    (7,240
    )
    
    
    (692
    )Net decrease (increase) in interest-bearing deposits
    
    
    9,713
    
    
    
    (14,035
    )Net increase in loans, excluding sales
    
    
    (44,957
    )
    
    
    (353,095
    )Proceeds from sale of loans
    
    
    28,023
    
    
    
    122,635Other, net
    
    
    (4,120
    )
    
    
    (2,729
    )Net cash used by investing activities
    
    
    (17,580
    )
    
    
    (246,958
    )Financing activities:Net (decrease) increase in deposits
    
    
    (104,118
    )
    
    
    175,507Net increase (decrease) in short-term borrowings
    
    
    16,861
    
    
    
    (254,284
    )Proceeds from issuance of collateralized debt
    
    
    27,206
    
    
    
    335,384Repayments of collateralized debt
    
    
    (98,208
    )
    
    
    (90,068
    )Proceeds from the issuance of trust preferred securities
    
    
    
    
    
    
    31,500Redemption of trust preferred securities and other long term debt
    
    
    (4
    )
    
    
    (32,112
    )Purchase of treasury stock for employee benefit plans
    
    
    (7,668
    )
    
    
    (950
    )Proceeds from sale of stock for employee benefit plans
    
    
    1,436
    
    
    
    1,947Dividends paid
    
    
    (3,885
    )
    
    
    (3,268
    )Net cash (used) provided by financing activities
    
    
    (168,380
    )
    
    
    163,656Effect of exchange rate changes on cash
    
    
    134
    
    
    
    (74
    )Net decrease in cash and cash equivalents
    
    
    (83,944
    )
    
    
    (11,544
    )Cash and cash equivalents at beginning of period
    
    
    145,765
    
    
    
    155,486Cash and cash equivalents at end of period
    
    $
    61,821
    
    
    $
    143,942Supplemental disclosures of cash flow information:Cash flow during the period:Interest paid
    
    $
    59,659
    
    
    $
    54,685Income taxes paid
    
    $
    6,152
    
    
    $
    4,103Noncash transactions:Adoption of FAS 156
    
    $
    1,743
    
    
    $
    Loans transferred from held-for-sale to held-for-investment
    
    $
    166,773
    
    
    $
    Other real estate owned
    
    $
    2,664
    
    
    $
    2,103Conversion of trust preferred stock to common stock
    
    $
    
    
    
    $
    19,513
  6




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Summary of Significant Accounting Policies
 Consolidation:
  Use of Estimates:
 Cash and Cash Equivalents Defined:
 Allowance for Loan and Lease Losses:
   Servicing Assets:
 7




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##### Table of Contents



Incentive Servicing Fees:
 Income Taxes:
 Recent Accounting Developments:
    8




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##### Table of Contents



Reclassifications:
 Note 2  Discontinued Operations
   Three Months Ended March 31,2007
    
    
    2006Net revenues
    
    $
    (4,721
    )
    
    $
    8,361Other expense
    
    
    (2,056
    )
    
    
    (25,935
    )Loss before income taxes
    
    
    (6,777
    )
    
    
    (17,574
    )Income taxes
    
    
    2,742
    
    
    
    7,026Net loss from discontinued operations
    
    $
    (4,035
    )
    
    $
    (10,548
    )
 March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Loans, net of allowance, and Loans held for sale
    
    $
    33,983
    
    
    $
    48,555Net servicing asset
    
    
    135
    
    
    
    385Other assets
    
    
    7,338
    
    
    
    7,633Assets held for sale
    
    $
    41,456
    
    
    $
    56,573
 Note 3  Loans and Leases
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,258,059
    
    
    $
    2,249,988Residential real estate-construction
    
    
    379,064
    
    
    
    377,601Residential real estate-mortgage
    
    
    1,685,549
    
    
    
    1,522,616Consumer
    
    
    29,600
    
    
    
    31,581Commercial financingFranchise financing
    
    
    696,445
    
    
    
    699,969Domestic leasing
    
    
    302,080
    
    
    
    296,056Canadian leasing
    
    
    367,687
    
    
    
    358,783Unearned incomeFranchise financing
    
    
    (215,153
    )
    
    
    (211,480
    )Domestic leasing
    
    
    (43,433
    )
    
    
    (42,782
    )Canadian leasing
    
    
    (45,120
    )
    
    
    (44,139
    )Total
    
    $
    5,414,778
    
    
    $
    5,238,193
 9




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##### Table of Contents



Note 4  Allowance for Loan and Lease Losses
  March 31, 2007
    
    
    December 31, 2006And the Quarter
    
    
    And the YearThen Ended
    
    
    Then Ended(Dollars in thousands)Balance at beginning of year
    
    $
    74,468
    
    
    $
    59,223Provision for loan and lease losses
    
    
    23,208
    
    
    
    35,101Charge-offs
    
    
    (15,167
    )
    
    
    (30,810
    )Recoveries
    
    
    2,697
    
    
    
    11,208Reduction due to reclassification or sale of loans
    
    
    (351
    )
    
    
    (246
    )Foreign currency adjustment
    
    
    21
    
    
    
    (8
    )Balance at end of period
    
    $
    84,876
    
    
    $
    74,468
 Note 5  Servicing Assets
    March 31, 2007
    
    
    December 31, 2006And the Quarter
    
    
    And the YearThen Ended
    
    
    Then Ended(Dollars in thousands)Beginning balance
    
    $
    27,725
    
    
    $
    Gain from initial adoption of SFAS 156
    
    
    2,905
    
    
    
    Changes in fair value
    
    
    (4,566
    )
    
    
    Mortgage servicing asset from continuing operations
    
    $
    26,064
    
    
    $
    
  10




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##### Table of Contents



March 31, 2007
    
    
    December 31, 2006And the Quarter
    
    
    And the YearThen Ended
    
    
    Then Ended(Dollars in thousands)Beginning balance
    
    $
    31,949
    
    
    $
    34,445Initial adoption of SFAS 156
    
    
    (27,725
    )
    
    
    Additions
    
    
    201
    
    
    
    17,884Amortization
    
    
    (316
    )
    
    
    (21,027
    )(Impairment) recovery
    
    
    (68
    )
    
    
    647Mortgage servicing asset from continuing operations
    
    $
    4,041
    
    
    $
    31,949
  March 31, 2007
    
    
    December 31, 2006And the Quarter
    
    
    And the YearThen Ended
    
    
    Then EndedBalance at beginning of year
    
    $
    483
    
    
    $
    1,152Transfer of assets from amortizing to fair value
    
    
    (332
    )
    
    
    Impairment (recovery)
    
    
    68
    
    
    
    (647
    )Reclass for sales of servicing and clean up calls
    
    
    
    
    
    
    (22
    )Valuation allowance from continuing operations
    
    $
    219
    
    
    $
    483
 Note 6  Short-Term Borrowings
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Federal Home Loan Bank borrowings
    
    $
    537,211
    
    
    $
    371,693Federal funds
    
    
    82,000
    
    
    
    230,500Other
    
    
    93
    
    
    
    250Total
    
    $
    619,304
    
    
    $
    602,443Weighted average interest rate
    
    
    4.93
    %
    
    
    4.49
    %
    Note 7  Collateralized Debt
  11




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##### Table of Contents



WeightedAverageInterest Rate atContractual
    
    March 31,
    
    March 31,
    
    December 31,Maturity
    
    2007
    
    2007
    
    2006(Dollars in thousands)Commercial finance line of businessDomestic asset backed note
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    5,797Canadian asset backed notes:Note 1
    
    revolving
    
    
    
    5.5
    
    
    
    33,576
    
    
    
    30,611Note 2
    
    
    3/2012
    
    
    
    4.1
    
    
    
    183,113
    
    
    
    179,508Note 3
    
    
    10/2009
    
    
    
    4.5
    
    
    
    6,866
    
    
    
    8,157Home equity line of business2004-1 asset backed notes:Variable rate senior note
    
    
    12/2024-12/2034
    
    
    
    5.7
    
    
    
    40,472
    
    
    
    50,072Variable 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
    
    
    
    28,974
    
    
    
    40,972Fixed rate senior note
    
    
    6/2035
    
    
    
    5.0
    
    
    
    90,487
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (90
    )2006-1 asset backed notes:Variable rate senior note
    
    
    9/2035
    
    
    
    5.5
    
    
    
    85,762
    
    
    
    102,252Fixed rate senior note
    
    
    9/2035
    
    
    
    5.5
    
    
    
    96,561
    
    
    
    96,561Fixed rate lockout senior note
    
    
    9/2035
    
    
    
    5.6
    
    
    
    24,264
    
    
    
    24,264Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (19
    )2006-2 asset backed notes:Variable rate senior note
    
    
    2/2036
    
    
    
    5.4
    
    
    
    121,408
    
    
    
    136,386Fixed rate senior note
    
    
    2/2036
    
    
    
    6.3
    
    
    
    80,033
    
    
    
    80,033Fixed rate lockout senior note
    
    
    2/2036
    
    
    
    6.2
    
    
    
    21,348
    
    
    
    21,348Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    (21
    )2006-3 asset backed notes:Variable rate senior note
    
    
    1/2037-9/2037
    
    
    
    5.5
    
    
    
    116,550
    
    
    
    130,326Fixed rate senior note
    
    
    9/2037
    
    
    
    5.9
    
    
    
    67,050
    
    
    
    67,050Fixed rate lockout senior note
    
    
    9/2037
    
    
    
    5.9
    
    
    
    18,000
    
    
    
    18,000Unamortized premium/discount
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (11
    )Total
    
    
    
    
    
    
    
    
    
    $
    1,102,025
    
    
    $
    1,173,012
 12




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##### Table of Contents



Note 8  Employee Retirement Plans
  For the Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Service cost
    
    $
    1,129
    
    
    $
    1,054Interest cost
    
    
    686
    
    
    
    581Expected return on plan assets
    
    
    (638
    )
    
    
    (603
    )Amortization of prior service cost
    
    
    12
    
    
    
    12Amortization of actuarial loss
    
    
    176
    
    
    
    284Net periodic benefit cost
    
    $
    1,365
    
    
    $
    1,328
  Note 9  Earnings Per Share
  Three Months ended March 31, 2007Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsLoss
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net loss available to common shareholders:From Continuing Operations
    
    $
    (6,094
    )
    
    $
    (352
    )
    
    $
    (6,446
    )
    
    $
    (189
    )
    
    $
    (6,635
    )From Discontinued Operations
    
    
    (4,035
    )
    
    
    
    
    
    
    (4,035
    )
    
    
    
    
    
    
    (4,035
    )Total Net Loss for All Operations
    
    $
    (10,129
    )
    
    $
    (352
    )
    
    
    (10,481
    )
    
    
    (189
    )
    
    
    (10,670
    )Shares
    
    
    
    
    
    
    
    
    
    
    29,623
    
    
    
    134
    
    
    
    29,757Per-share from Continuing Operations
    
    
    
    
    
    
    
    
    
    $
    (0.22
    )
    
    $
    
    
    
    $
    (0.22
    )Per-share amount for All Operations
    
    
    
    
    
    
    
    
    
    $
    (0.35
    )
    
    $
    (0.01
    )
    
    $
    (0.36
    )
 Three Months ended March 31, 2006Basic
    
    
    
    
    
    DilutedNet
    
    Preferred
    
    Earnings
    
    Effect of
    
    EarningsLoss
    
    Dividends
    
    Per Share
    
    Stock Options
    
    Per Share(Dollars in thousands, except per share amounts)Net income available to common shareholders:From Continuing Operations
    
    $
    8,690
    
    
    $
    
    
    
    $
    8,690
    
    
    $
    (70
    )
    
    $
    8,620From Discontinued Operations
    
    
    (10,548
    )
    
    
    
    
    
    
    (10,548
    )
    
    
    
    
    
    
    (10,548
    )Total Net Loss for All Operations
    
    $
    (1,858
    )
    
    $
    
    
    
    
    (1,858
    )
    
    
    (70
    )
    
    
    (1,928
    )Shares
    
    
    
    
    
    
    
    
    
    
    28,939
    
    
    
    208
    
    
    
    29,147Per-share from Continuing Operations
    
    
    
    
    
    
    
    
    
    $
    0.30
    
    
    $
    
    
    
    $
    0.30Per-share amount for All Operations
    
    
    
    
    
    
    
    
    
    $
    (0.06
    )
    
    $
    (0.01
    )
    
    $
    (0.07
    )
  Note 10  Industry Segment Information
  13




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##### Table of Contents



ConsolidatedCommercial
    
    Commercial
    
    Home Equity
    
    
    
    
    
    Continuing
    
    DiscontinuedBanking
    
    Finance
    
    Lending
    
    Other
    
    Operations
    
    Operations
    
    Consolidated(Dollars in thousands)For the Three Months
Ended March 31, 2007Net interest income
    
    $
    25,913
    
    
    $
    17,469
    
    
    $
    17,128
    
    
    $
    (17,590
    )
    
    $
    42,920
    
    
    $
    (340
    )
    
    $
    42,580Intersegment interest
    
    
    (968
    )
    
    
    (8,940
    )
    
    
    (7,652
    )
    
    
    17,560
    
    
    
    
    
    
    
    
    
    
    $
    Other revenue
    
    
    3,947
    
    
    
    2,791
    
    
    
    (6,897
    )
    
    
    (655
    )
    
    
    (814
    )
    
    
    (4,381
    )
    
    $
    (5,195
    )Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    $
    Total net revenues
    
    
    28,892
    
    
    
    11,320
    
    
    
    2,680
    
    
    
    (786
    )
    
    
    42,106
    
    
    
    (4,721
    )
    
    
    37,385Other expense
    
    
    23,440
    
    
    
    6,782
    
    
    
    18,914
    
    
    
    3,149
    
    
    
    52,285
    
    
    
    2,056
    
    
    $
    54,341Intersegment expenses
    
    
    851
    
    
    
    352
    
    
    
    667
    
    
    
    (1,870
    )
    
    
    
    
    
    
    
    
    
    $
    Income (loss) before taxes
    
    
    4,601
    
    
    
    4,186
    
    
    
    (16,901
    )
    
    
    (2,065
    )
    
    
    (10,179
    )
    
    
    (6,777
    )
    
    
    (16,956
    )Income taxes
    
    
    1,438
    
    
    
    1,595
    
    
    
    (6,752
    )
    
    
    (366
    )
    
    
    (4,085
    )
    
    
    (2,742
    )
    
    $
    (6,827
    )Net income (loss)
    
    $
    3,163
    
    
    $
    2,591
    
    
    $
    (10,149
    )
    
    $
    (1,699
    )
    
    $
    (6,094
    )
    
    $
    (4,035
    )
    
    $
    (10,129
    )Assets at March 31, 2007
    
    $
    3,245,400
    
    
    $
    1,071,924
    
    
    $
    1,586,174
    
    
    $
    114,238
    
    
    
    
    
    
    
    
    
    
    $
    6,017,736For the Three Months
Ended March 31, 2006Net interest income
    
    $
    26,511
    
    
    $
    8,910
    
    
    $
    26,837
    
    
    $
    (9,873
    )
    
    $
    52,385
    
    
    $
    6,936
    
    
    $
    59,321Intersegment interest
    
    
    1,875
    
    
    
    (382
    )
    
    
    (9,721
    )
    
    
    8,228
    
    
    
    
    
    
    
    
    
    
    $
    Other revenue
    
    
    4,186
    
    
    
    2,149
    
    
    
    7,387
    
    
    
    274
    
    
    
    13,996
    
    
    
    1,425
    
    
    $
    15,421Intersegment revenues
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    $
    Total net revenues
    
    
    32,654
    
    
    
    10,677
    
    
    
    24,503
    
    
    
    (1,453
    )
    
    
    66,381
    
    
    
    8,361
    
    
    
    74,742Other expense
    
    
    20,787
    
    
    
    5,672
    
    
    
    21,854
    
    
    
    4,501
    
    
    
    52,814
    
    
    
    25,935
    
    
    $
    78,749Intersegment expenses
    
    
    684
    
    
    
    265
    
    
    
    917
    
    
    
    (1,866
    )
    
    
    
    
    
    
    
    
    
    $
    Income (loss) before taxes
    
    
    11,183
    
    
    
    4,740
    
    
    
    1,732
    
    
    
    (4,088
    )
    
    
    13,567
    
    
    
    (17,574
    )
    
    
    (4,007
    )Income taxes
    
    
    4,421
    
    
    
    1,849
    
    
    
    698
    
    
    
    (2,091
    )
    
    
    4,877
    
    
    
    (7,026
    )
    
    $
    (2,149
    )Net income (loss)
    
    $
    6,762
    
    
    $
    2,891
    
    
    $
    1,034
    
    
    $
    (1,997
    )
    
    $
    8,690
    
    
    $
    (10,548
    )
    
    $
    (1,858
    )Assets at March 31, 2006
    
    $
    3,189,066
    
    
    $
    875,405
    
    
    $
    1,651,316
    
    
    $
    1,081,055
    
    
    
    
    
    
    
    
    
    
    $
    6,796,842
 Note 11  Commitments and Contingencies
 Culpepper v. Inland Mortgage Corporation
 th
 14




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##### Table of Contents



Silke v. Irwin Mortgage Corporation
  Cohens v. Inland Mortgage Corporation
  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
 15




---



##### Table of Contents



Kossler
 (Chatfield v. Irwin Union Bank and Trust Company, et al. Ransom v. Irwin
Union Bank and Trust Company, et al.)
 Hobson,
Chatfield Ransom.
 Hobson, Chatfield Ransom Kossler Kessler v. RFC, et al Kessler Kessler Kessler Kessler Kessler
 Putkowski v. Irwin Home Equity Corporation and Irwin Union Bank and Trust Company
  White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation
 (White v. Irwin Union Bank & Trust, et al.).
  16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 About Forward-looking Statements
   
    
    our projected revenues, earnings or earnings per share, as well as managements short-term
and long-term performance goals;
    
    projected trends or potential changes in our asset quality, loan delinquencies,
charge-offs, reserves, asset valuations, capital ratios or financial performance measures;
    
    our plans and strategies, including the expected results or costs and impact of
implementing or changing such plans and strategies;
    
    potential litigation developments and the anticipated impact of potential outcomes of pending legal matters;
    
    the anticipated effects on results of operations or financial condition from recent developments or events; and
    
    any other projections or expressions that are not historical facts.
   
    
    potential changes in direction, volatility and relative movement (basis risk) of interest
rates, which may affect consumer demand for our products and the management and success of
our interest rate risk management strategies;
    
    competition from other financial service providers for experienced managers as well as for customers;
    
    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 the valuation of such portfolios;
    
    borrowers refinancing opportunities, which may affect the prepayment assumptions used in
our valuation estimates and which may affect loan demand;
    
    unanticipated deterioration in the credit quality or collectibility of our loan and lease
assets, including deterioration resulting from the effects of natural disasters;
    
    unanticipated deterioration or changes in estimates of the carrying value of our other assets, including securities;
 17




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##### Table of Contents




    
    difficulties in delivering products to the secondary market as planned;
    
    difficulties in expanding our businesses and obtaining funding sources as needed;
    
    changes in the value of our lines of business, subsidiaries, or companies in which we invest;
    
    changes in variable compensation plans related to the performance and valuation of lines
of business where we tie compensation systems to line-of-business performance;
    
    unanticipated outcomes in litigation;
    
    legislative or regulatory changes, including changes in laws, rules or regulations that
affect tax, consumer or commercial lending, corporate governance and disclosure
requirements, and other laws, rules or regulations affecting the rights and responsibilities
of our Corporation, bank or thrift;
    
    regulatory actions that impact our Corporation, bank or thrift, including the memorandum
of understanding entered into as of March 1, 2007 between Irwin Union Bank and Trust and the
Federal Reserve Bank of Chicago;
    
    changes in the interpretation of regulatory capital or other rules;
    
    the availability of resources to address changes in laws, rules or regulations or to respond to regulatory actions;
    
    changes in applicable accounting policies or principles or their application to our
business or final audit adjustments, including additional guidance and interpretation on
accounting issues and details of the implementation of new accounting methods;
    
    the final disposition of our remaining assets and obligations of our discontinued mortgage banking segment; or
    
    governmental changes in monetary or fiscal policies.
  Strategy
   Identify market niches.
 Attract, develop and retain exceptional management with niche expertise.
 18




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##### Table of Contents



Diversify capital and earnings risk.
 Reinvest for growth.
 Create and maintain risk management systems appropriate to our size, scale and scope.
  Critical Accounting Policies
  Consolidated Overview
 For the Three Months EndedMarch 31,2007
    
    2006
    
    % ChangeNet (loss) income from continuing operations (in thousands)
    
    $
    (6,094
    )
    
    $
    8,690
    
    
    NMNet loss including discontinued operations (in thousands)
    
    
    (10,129
    )
    
    
    (1,858
    )
    
    
    -445.2
    %Basic earnings per share from continuing operations
    
    
    (0.22
    )
    
    
    0.30
    
    
    NMBasic earnings per share including discontinued operations
    
    
    (0.35
    )
    
    
    (0.06
    )
    
    
    -483.3
    %Diluted earnings per share from continuing operations
    
    
    (0.22
    )
    
    
    0.30
    
    
    NMDiluted earnings per share including discontinued operations
    
    
    (0.36
    )
    
    
    (0.07
    )
    
    
    -414.3
    %Return on average equity from continuing operations
    
    
    (4.7
    )%
    
    
    6.8
    %
    
    NMReturn on average assets from continuing operations
    
    
    (0.4
    )%
    
    
    0.5
    %
    
    NM
  Consolidated Income Statement Analysis
 Net Income From Continuing Operations
  19




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##### Table of Contents



Net Interest Income From Continuing Operations
  For the Three Months Ended March 31,2007
    
    
    2006Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest-bearing deposits with financial institutions
    
    $
    56,768
    
    
    $
    680
    
    
    
    4.86
    %
    
    $
    78,254
    
    
    $
    617
    
    
    
    3.20
    %Federal funds sold
    
    
    1,386
    
    
    
    20
    
    
    
    5.85
    %
    
    
    2,774
    
    
    
    26
    
    
    
    3.80
    %Residual interests
    
    
    10,155
    
    
    
    270
    
    
    
    10.78
    %
    
    
    18,797
    
    
    
    664
    
    
    
    14.33
    %Investment securities
    
    
    130,070
    
    
    
    1,777
    
    
    
    5.54
    %
    
    
    107,016
    
    
    
    868
    
    
    
    3.29
    %Loans held for sale
    
    
    269,832
    
    
    
    5,626
    
    
    
    8.46
    %
    
    
    1,236,739
    
    
    
    25,228
    
    
    
    8.27
    %Loans and leases, net of unearned income(1)
    
    
    5,255,104
    
    
    
    119,489
    
    
    
    9.22
    %
    
    
    4,628,111
    
    
    
    98,095
    
    
    
    8.60
    %Total interest earning assets
    
    
    5,723,315
    
    
    $
    127,862
    
    
    
    9.06
    %
    
    
    6,071,691
    
    
    $
    125,498
    
    
    
    8.38
    %Noninterest-earning assets:Cash and due from banks
    
    
    72,781
    
    
    
    
    
    
    
    
    
    
    
    106,670Premises and equipment, net
    
    
    36,782
    
    
    
    
    
    
    
    
    
    
    
    31,485Other assets
    
    
    306,319
    
    
    
    
    
    
    
    
    
    
    
    516,073Less allowance for loan and lease losses
    
    
    (77,096
    )
    
    
    
    
    
    
    
    
    
    
    (61,960
    )Total assets
    
    $
    6,062,101
    
    
    
    
    
    
    
    
    
    
    $
    6,663,959Liabilities and Shareholders EquityInterest-bearing liabilities:Money market checking
    
    $
    298,977
    
    
    $
    1,780
    
    
    
    2.41
    %
    
    $
    428,978
    
    
    $
    2,489
    
    
    
    2.35
    %Money market savings
    
    
    1,128,166
    
    
    
    12,481
    
    
    
    4.49
    %
    
    
    1,143,100
    
    
    
    10,771
    
    
    
    3.82
    %Regular savings
    
    
    125,004
    
    
    
    678
    
    
    
    2.20
    %
    
    
    137,560
    
    
    
    548
    
    
    
    1.62
    %Time deposits
    
    
    1,483,026
    
    
    
    18,512
    
    
    
    5.06
    %
    
    
    1,529,061
    
    
    
    15,874
    
    
    
    4.21
    %Short-term borrowings
    
    
    645,767
    
    
    
    8,428
    
    
    
    5.29
    %
    
    
    718,464
    
    
    
    10,156
    
    
    
    5.73
    %Collateralized debt
    
    
    1,141,472
    
    
    
    15,815
    
    
    
    5.62
    %
    
    
    892,633
    
    
    
    11,111
    
    
    
    5.05
    %Other long-term debt
    
    
    233,887
    
    
    
    4,380
    
    
    
    7.59
    %
    
    
    264,723
    
    
    
    5,988
    
    
    
    9.17
    %Total interest-bearing liabilities
    
    $
    5,056,299
    
    
    $
    62,074
    
    
    
    4.98
    %
    
    $
    5,114,519
    
    
    $
    56,937
    
    
    
    4.51
    %Noninterest-bearing liabilities:Demand deposits
    
    
    369,518
    
    
    
    
    
    
    
    
    
    
    
    744,113Other liabilities
    
    
    109,131
    
    
    
    
    
    
    
    
    
    
    
    286,812Shareholders equity
    
    
    527,153
    
    
    
    
    
    
    
    
    
    
    
    518,515Total liabilities and shareholders equity
    
    $
    6,062,101
    
    
    
    
    
    
    
    
    
    
    $
    6,663,959Net interest income
    
    
    
    
    
    $
    65,788
    
    
    
    
    
    
    
    
    
    
    $
    68,561Net interest income to average
interest earning assets
    
    
    
    
    
    
    
    
    
    
    4.66
    %
    
    
    
    
    
    
    
    
    
    
    4.58
    %Net interest income from discontinued operations
    
    
    
    
    
    
    (340
    )
    
    
    
    
    
    
    
    
    
    
    6,983Net interest income from continuing operations
    
    
    
    
    
    $
    66,128
    
    
    
    
    
    
    
    
    
    
    $
    61,578
 
 (1)
    
    For purposes of these computations, nonaccrual loans are included in daily average loan
amounts outstanding. 20




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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
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)U.S. Treasury and government obligations
    
    $
    13,830
    
    
    $
    13,730Obligations of states and political subdivisions
    
    
    3,436
    
    
    
    3,545Mortgage-backed securities
    
    
    49,937
    
    
    
    45,187Other
    
    
    67,494
    
    
    
    65,968Total
    
    $
    134,697
    
    
    $
    128,430
  Loans Held For Sale
  21




---



##### Table of Contents



Loans and Leases
  March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Commercial, financial and agricultural
    
    $
    2,258,059
    
    
    $
    2,249,988Residential real estate-construction
    
    
    379,064
    
    
    
    377,601Residential real estate-mortgage
    
    
    1,685,549
    
    
    
    1,522,616Consumer
    
    
    29,600
    
    
    
    31,581Commercial financingFranchise financing
    
    
    696,445
    
    
    
    699,969Domestic leasing
    
    
    302,080
    
    
    
    296,056Canadian leasing
    
    
    367,687
    
    
    
    358,783Unearned incomeFranchise financing
    
    
    (215,153
    )
    
    
    (211,480
    )Domestic leasing
    
    
    (43,433
    )
    
    
    (42,782
    )Canadian leasing
    
    
    (45,120
    )
    
    
    (44,139
    )Total
    
    $
    5,414,778
    
    
    $
    5,238,193
 Allowance for Loan and Lease Losses
  March 31, 2007
    
    December 31, 2006And the Quarter
    
    And the YearThen Ended
    
    Then Ended(Dollars in thousands)Balance at beginning of year
    
    $
    74,468
    
    
    $
    59,223Provision for loan and lease losses
    
    
    23,208
    
    
    
    35,101Charge-offs
    
    
    (15,167
    )
    
    
    (30,810
    )Recoveries
    
    
    2,697
    
    
    
    11,208Reduction due to reclassification or sale of loans
    
    
    (351
    )
    
    
    (246
    )Foreign currency adjustment
    
    
    21
    
    
    
    (8
    )Balance at end of period
    
    $
    84,876
    
    
    $
    74,468
 Deposits
   22




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##### Table of Contents



Short-Term Borrowings
    Collateralized and Other Long-Term Debt
   Capital
   March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Tier 1 capital
    
    $
    687,341
    
    
    $
    712,403Tier 2 capital
    
    
    132,283
    
    
    
    125,351Total risk-based capital
    
    $
    819,624
    
    
    $
    837,754Risk-weighted assets
    
    $
    6,095,652
    
    
    $
    6,258,927Risk-based ratios:Tier 1 capital
    
    
    11.3
    %
    
    
    11.4
    %Total capital
    
    
    13.5
    
    
    
    13.4Tier 1 leverage ratio
    
    
    11.3
    
    
    
    11.5Ending shareholders equity to assets
    
    
    8.5
    
    
    
    8.5Average shareholders equity to assets
    
    
    8.7
    
    
    
    8.1
 23




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##### Table of Contents



Cash Flow Analysis
  Earnings Outlook
     24




---



##### Table of Contents



Earnings by Line of Business
  
    
    Commercial Banking
    
    Commercial Finance
    
    Home Equity Lending
  Three Months EndedMarch 31,2007
    
    2006(Dollars in thousands)Net income (loss):Commercial Banking
    
    $
    3,163
    
    
    $
    6,762Commercial Finance
    
    
    2,591
    
    
    
    2,891Home Equity Lending
    
    
    (10,149
    )
    
    
    1,034Other (including consolidating entries)
    
    
    (1,699
    )
    
    
    (1,997
    )Net (loss) income from continuing operations
    
    
    (6,094
    )
    
    
    8,690Discontinued operations
    
    
    (4,035
    )
    
    
    (10,548
    )Net loss
    
    $
    (10,129
    )
    
    $
    (1,858
    )
 Commercial Banking
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Selected Income Statement Data:Interest income
    
    $
    57,473
    
    
    $
    53,485Interest expense
    
    
    (27,887
    )
    
    
    (23,623
    )Net interest income
    
    
    29,586
    
    
    
    29,862Provision for loan and lease losses
    
    
    (4,641
    )
    
    
    (1,476
    )Other income
    
    
    3,947
    
    
    
    4,268Total net revenue
    
    
    28,892
    
    
    
    32,654Operating expense
    
    
    (24,291
    )
    
    
    (21,471
    )Income before taxes
    
    
    4,601
    
    
    
    11,183Income taxes
    
    
    (1,438
    )
    
    
    (4,421
    )Net income
    
    $
    3,163
    
    
    $
    6,762Performance Ratios:Return on Average Equity
    
    
    5.56
    %
    
    
    13.87
    %
 March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Selected Balance Sheet Data at End of Period:Assets
    
    $
    3,245,400
    
    
    $
    3,103,547Securities and short-term investments
    
    
    249,211
    
    
    
    55,116Loans and leases
    
    
    2,895,784
    
    
    
    2,901,029Allowance for loan and lease losses
    
    
    (26,928
    )
    
    
    (27,113
    )Deposits
    
    
    2,816,745
    
    
    
    2,635,380Shareholders equity
    
    
    232,314
    
    
    
    241,556Daily Averages:Assets
    
    $
    3,108,610
    
    
    $
    3,143,439Loans and leases
    
    
    2,894,326
    
    
    
    2,797,853Allowance for loan and lease losses
    
    
    (27,333
    )
    
    
    (26,175
    )Deposits
    
    
    2,721,869
    
    
    
    2,826,446Shareholders equity
    
    
    230,498
    
    
    
    218,076Shareholders equity to assets
    
    
    7.41
    %
    
    
    6.95
    %
 25




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##### Table of Contents



Overview
  Portfolio Characteristics
  March 31,
    
    December 31,2007
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    WeightedLoans
    
    Percent
    
    Average
    
    Loans
    
    Percent
    
    AverageMarkets
    
    Outstanding
    
    of Total
    
    Coupon
    
    Outstanding
    
    of Total
    
    Coupon(Dollars in thousands)Indianapolis
    
    $
    558,370
    
    
    
    19.3
    %
    
    
    7.6
    %
    
    $
    561,343
    
    
    
    19.3
    %
    
    
    7.6
    %Western and Central Michigan
    
    
    497,433
    
    
    
    17.2
    
    
    
    7.7
    
    
    
    519,348
    
    
    
    17.9
    
    
    
    7.7Southern Indiana
    
    
    456,454
    
    
    
    15.8
    
    
    
    7.2
    
    
    
    475,051
    
    
    
    16.4
    
    
    
    7.2Phoenix
    
    
    442,131
    
    
    
    15.3
    
    
    
    7.8
    
    
    
    452,919
    
    
    
    15.6
    
    
    
    7.9Las Vegas
    
    
    160,863
    
    
    
    5.6
    
    
    
    8.2
    
    
    
    154,218
    
    
    
    5.3
    
    
    
    8.1Other
    
    
    780,533
    
    
    
    26.8
    
    
    
    7.8
    
    
    
    738,150
    
    
    
    25.5
    
    
    
    7.9Total
    
    $
    2,895,784
    
    
    
    100.0
    %
    
    
    7.7
    %
    
    $
    2,901,029
    
    
    
    100.0
    %
    
    
    7.7
    %
 Weighted
    
    
    
    
    
    
    
    
    
    WeightedCore
    
    Percent
    
    Average
    
    Core
    
    Percent
    
    AverageDeposits
    
    of Total
    
    Coupon
    
    Deposits
    
    of Total
    
    CouponIndianapolis
    
    $
    230,629
    
    
    
    9.8
    %
    
    
    3.1
    %
    
    $
    259,835
    
    
    
    10.8
    %
    
    
    2.4
    %Western and Central Michigan
    
    
    222,641
    
    
    
    9.4
    
    
    
    3.6
    
    
    
    231,666
    
    
    
    9.7
    
    
    
    3.4Southern Indiana
    
    
    737,131
    
    
    
    31.2
    
    
    
    3.1
    
    
    
    630,060
    
    
    
    26.3
    
    
    
    2.8Phoenix
    
    
    177,878
    
    
    
    7.5
    
    
    
    3.6
    
    
    
    179,502
    
    
    
    7.5
    
    
    
    3.4Las Vegas
    
    
    428,279
    
    
    
    18.1
    
    
    
    4.3
    
    
    
    467,708
    
    
    
    19.5
    
    
    
    4.1Other
    
    
    564,024
    
    
    
    24.0
    
    
    
    3.7
    
    
    
    631,268
    
    
    
    26.2
    
    
    
    3.5Total
    
    $
    2,360,582
    
    
    
    100.0
    %
    
    
    3.5
    %
    
    $
    2,400,039
    
    
    
    100.0
    %
    
    
    3.3
    %
 Net Income
  Net Interest Income
  Three Months Ended March 31,2007
    
    2006(Dollars in thousands)Net interest income
    
    $
    29,586
    
    
    $
    29,862Average interest earning assets
    
    
    3,005,995
    
    
    
    3,039,589Net interest margin
    
    
    3.99
    %
    
    
    3.98
    %
  26




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##### Table of Contents



Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Trust fees
    
    $
    573
    
    
    $
    501Service charges on deposit accounts
    
    
    868
    
    
    
    959Insurance commissions, fees and premiums
    
    
    585
    
    
    
    649Gain from sales of loans
    
    
    457
    
    
    
    429Loan servicing fees
    
    
    384
    
    
    
    386Amortization of servicing assets
    
    
    (279
    )
    
    
    (242
    )Brokerage fees
    
    
    352
    
    
    
    298Other
    
    
    1,007
    
    
    
    1,288Total noninterest income
    
    $
    3,947
    
    
    $
    4,268
  Operating Expenses
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Salaries and employee benefits
    
    $
    14,353
    
    
    $
    13,488Other expenses
    
    
    9,938
    
    
    
    7,983Total operating expenses
    
    $
    24,291
    
    
    $
    21,471Efficiency ratio
    
    
    72.4
    %
    
    
    62.9
    %Number of employees at period end(1)
    
    
    592
    
    
    
    597
 
 (1)
    
    On a full time equivalent basis.  Balance Sheet
  27




---



##### Table of Contents



Credit Quality
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Nonperforming loans
    
    $
    20,445
    
    
    $
    14,455Other real estate owned
    
    
    2,667
    
    
    
    4,423Total nonperforming assets
    
    $
    23,112
    
    
    $
    18,878Nonperforming assets to total assets
    
    
    0.71
    %
    
    
    0.61
    %Allowance for loan losses
    
    $
    26,928
    
    
    $
    27,113Allowance for loan losses to total loans
    
    
    0.93
    %
    
    
    0.93
    %
 March 31,2007
    
    2006For the Period Ended:Provision for loan losses
    
    $
    4,641
    
    
    $
    1,476Net charge-offs
    
    
    4,826
    
    
    
    591Net charge-offs to average loans
    
    
    0.68
    %
    
    
    0.09
    %
  March 31,
    
    December 31,Markets
    
    2007
    
    2006Indianapolis
    
    
    0.73
    %
    
    
    0.24
    %Western and Central Michigan
    
    
    2.97
    %
    
    
    2.72
    %Southern Indiana
    
    
    0.15
    %
    
    
    0.14
    %Phoenix
    
    
    0.38
    %
    
    
    0.52
    %Las Vegas
    
    
    0.00
    %
    
    
    0.00
    %Other
    
    
    0.25
    %
    
    
    0.06
    %Total
    
    
    0.80
    %
    
    
    0.65
    %
 28




---



##### Table of Contents



Commercial Finance
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    12,008
    
    
    $
    9,692Provision for loan and lease losses
    
    
    (3,479
    )
    
    
    (1,164
    )Noninterest income
    
    
    2,791
    
    
    
    2,149Total net revenue
    
    
    11,320
    
    
    
    10,677Operating expense
    
    
    (7,134
    )
    
    
    (5,937
    )Income before taxes
    
    
    4,186
    
    
    
    4,740Income taxes
    
    
    (1,595
    )
    
    
    (1,849
    )Net income
    
    $
    2,591
    
    
    $
    2,891Selected Operating Data:Net charge-offs
    
    $
    1,946
    
    
    $
    747Net interest margin
    
    
    4.64
    %
    
    
    4.67
    %Total funding of loans and leases
    
    $
    128,835
    
    
    $
    120,082Loans sold
    
    
    27,393
    
    
    
    12,074Return on average equity
    
    
    11.83
    %
    
    
    18.48
    %
 March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Selected Balance Sheet Data at End of Period:Total assets
    
    $
    1,071,924
    
    
    $
    1,073,552Loans and leases
    
    
    1,062,506
    
    
    
    1,056,406Allowance for loan and lease losses
    
    
    (14,730
    )
    
    
    (13,525
    )Shareholders equity
    
    
    90,827
    
    
    
    88,587
 Overview
   29




---



##### Table of Contents



Portfolio Characteristics
  March 31,
    
    December 31,2007
    
    2006United StatesCalifornia
    
    
    12.9
    %
    
    
    12.4
    %Texas
    
    
    6.4
    
    
    
    5.9New York
    
    
    4.6
    
    
    
    5.0Florida
    
    
    4.0
    
    
    
    4.0All other states
    
    
    41.8
    
    
    
    42.8Total United States
    
    
    69.6
    %
    
    
    70.1
    %CanadaOntario
    
    
    7.3
    %
    
    
    7.3
    %British Columbia
    
    
    7.2
    
    
    
    7.0Quebec
    
    
    7.0
    
    
    
    7.1Alberta
    
    
    6.0
    
    
    
    5.8All other provinces
    
    
    2.8
    
    
    
    2.6Total Canada
    
    
    30.4
    %
    
    
    29.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %Total Portfolio
    
    $
    1,062,506
    
    
    $
    1,056,406
  March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Domestic franchise loans
    
    $
    481,291
    
    
    $
    488,489Weighted average coupon
    
    
    9.45
    %
    
    
    8.79
    %Delinquency ratio
    
    
    0.21
    
    
    
    0.16Domestic leases
    
    $
    258,647
    
    
    $
    253,274Weighted average coupon
    
    
    10.76
    %
    
    
    10.32
    %Delinquency ratio
    
    
    1.79
    
    
    
    1.72Canadian leases (1)
    
    $
    322,568
    
    
    $
    314,644Weighted average coupon
    
    
    9.17
    %
    
    
    9.13
    %Delinquency ratio
    
    
    0.31
    
    
    
    0.36
 
 (1)
    
    In U.S. dollars. 30




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##### Table of Contents



Net Income
  Net Interest Income
  Three Months Ended March 31,2007
    
    2006(Dollars in thousands)Net interest income
    
    $
    12,008
    
    
    $
    9,692Average interest earning assets
    
    
    1,049,950
    
    
    
    841,260Net interest margin
    
    
    4.64
    %
    
    
    4.67
    %
   Provision for Loan and Lease Losses
  Noninterest Income
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Gain from sales of loans
    
    $
    1,571
    
    
    $
    754Derivative losses, net
    
    
    (16
    )
    
    
    (53
    )Other
    
    
    1,236
    
    
    
    1,448Total noninterest income
    
    $
    2,791
    
    
    $
    2,149
  31




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##### Table of Contents



Operating Expenses
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Salaries and employee benefits
    
    $
    4,583
    
    
    $
    3,527Other
    
    
    2,551
    
    
    
    2,410Total operating expenses
    
    $
    7,134
    
    
    $
    5,937Efficiency ratio
    
    
    52.54
    %
    
    
    50.14
    %Number of employees at period end (1)
    
    
    211
    
    
    
    177
 
 (1)
    
    On a full time equivalent basis.  Credit Quality
   March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Nonperforming loans
    
    $
    5,752
    
    
    $
    5,374Allowance for loan losses
    
    
    14,730
    
    
    
    13,525Allowance for loan losses to total loans
    
    
    1.39
    %
    
    
    1.28
    %
 March 31,2007
    
    2006For the Period Ended:
    
    (Dollars in thousands)Provision for loan losses
    
    $
    3,479
    
    
    $
    1,164Net charge-offs
    
    
    1,946
    
    
    
    747Annualized net charge-offs to average loans
    
    
    0.76
    %
    
    
    0.36
    %
 32




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##### Table of Contents



Home Equity Lending
  Three Months Ended March 31,2007
    
    2006(Dollars in thousands)Selected Income Statement Data:Net interest income
    
    $
    24,564
    
    
    $
    23,669Provision for loan and lease losses
    
    
    (15,088
    )
    
    
    (6,553
    )Noninterest income
    
    
    (6,796
    )
    
    
    7,387Total net revenues
    
    
    2,680
    
    
    
    24,503Operating expenses
    
    
    (19,581
    )
    
    
    (22,771
    )Income (loss) before taxes
    
    
    (16,901
    )
    
    
    1,732Income taxes
    
    
    6,752
    
    
    
    (698
    )Net income (loss)
    
    $
    (10,149
    )
    
    $
    1,034Selected Operating Data:Loan volume:Lines of credit
    
    $
    12,611
    
    
    $
    63,303Loans
    
    
    176,609
    
    
    
    221,072Net home equity charge-offs to average
managed portfolio
    
    
    3.01
    %
    
    
    1.01
    %Gain on sale of loans to loans sold
    
    
    0.17
    %
    
    
    1.70
    %
 March 31,
    
    December 31,2007
    
    2006(Dollars in thousands)Selected Balance Sheet Data:Total assets
    
    $
    1,586,174
    
    
    $
    1,617,219Home equity loans and lines of credit(1)
    
    
    1,456,230
    
    
    
    1,280,497Allowance for loan losses
    
    
    (43,004
    )
    
    
    (33,614
    )Home equity loans held for sale
    
    
    44,549
    
    
    
    236,636Residual interests
    
    
    2,530
    
    
    
    2,760Mortgage servicing assets
    
    
    26,465
    
    
    
    28,231Short-term borrowings
    
    
    478,787
    
    
    
    446,163Collateralized debt
    
    
    878,470
    
    
    
    948,939Shareholders equity
    
    
    150,288
    
    
    
    155,791Selected Operating Data:Total managed portfolio balance
    
    
    1,675,660
    
    
    
    1,708,975Delinquency ratio(2)
    
    
    3.0
    %
    
    
    3.2
    %Weighted average coupon rate:Lines of credit
    
    
    11.12
    %
    
    
    11.13
    %Loans
    
    
    10.82
    
    
    
    10.75
 
 (1)
    
    Includes $1.0 billion and $1.1 billion of collateralized loans at March 31, 2007 and December
31, 2006, respectively, as part of securitized financings.(2)
    
    Nonaccrual loans are included in the delinquency ratio. Overview
   33




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##### Table of Contents



Production and Portfolio Characteristics
   March 31, 2007
    
    
    December 31,2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageAmount
    
    
    % of Total
    
    
    Coupon
    
    
    Amount
    
    
    % of Total
    
    
    Coupon(Dollars in thousands)Loans < 100% CLTV
    
    $
    478,821
    
    
    
    28.58
    %
    
    
    9.02
    %
    
    $
    536,387
    
    
    
    31.39
    %
    
    
    9.10
    %Lines of credit < 100% CLTV
    
    
    297,098
    
    
    
    17.72
    
    
    
    9.95
    
    
    
    319,415
    
    
    
    18.69
    
    
    
    9.96First mortgages < 100% CLTV
    
    
    54,604
    
    
    
    3.26
    
    
    
    7.59
    
    
    
    44,727
    
    
    
    2.62
    
    
    
    7.37Total < 100% CLTV
    
    
    830,523
    
    
    
    49.56
    
    
    
    9.26
    
    
    
    900,529
    
    
    
    52.70
    
    
    
    9.32Loans > 100% CLTV
    
    
    720,215
    
    
    
    42.98
    
    
    
    12.34
    
    
    
    677,119
    
    
    
    39.62
    
    
    
    12.36Lines of credit > 100% CLTV
    
    
    94,587
    
    
    
    5.65
    
    
    
    14.55
    
    
    
    101,683
    
    
    
    5.95
    
    
    
    14.55First mortgages > 100% CLTV
    
    
    24,197
    
    
    
    1.44
    
    
    
    8.52
    
    
    
    22,916
    
    
    
    1.34
    
    
    
    8.48Total > 100% CLTV
    
    
    838,999
    
    
    
    50.07
    
    
    
    12.48
    
    
    
    801,718
    
    
    
    46.91
    
    
    
    12.53Other (including discontinued products)
    
    
    6,138
    
    
    
    0.37
    
    
    
    14.98
    
    
    
    6,728
    
    
    
    0.39
    
    
    
    15.03Total managed portfolio
    
    $
    1,675,660
    
    
    
    100.00
    %
    
    
    10.89
    %
    
    $
    1,708,975
    
    
    
    100.00
    %
    
    
    10.85
    %
 
 (1)
    
    We define our Managed Portfolio as the portfolio of loans ($1.7 billion) that we service
and on which we carry credit risk. At March 31, 2007, we also serviced another $1.1 billion of
loans for which the credit risk is held by others. 34




---



##### Table of Contents



Three Months Ended March 31,Product
    
    2007
    
    2006(Funding amount in thousands)First mortgage loansFunding Amount
    
    
    43,776
    
    
    
    9,202Weighted Average Disposable Income
    
    
    4,912
    
    
    
    4,640Weighted Average FICO score
    
    
    687
    
    
    
    702Weighted Average Coupon
    
    
    8.14
    %
    
    
    8.04
    %First mortgage loans up to 110%Funding Amount
    
    
    1,839
    
    
    
    Weighted Average Disposable Income
    
    
    3,722
    
    
    
    Weighted Average FICO score
    
    
    701
    
    
    
    Weighted Average Coupon
    
    
    9.29
    %
    
    
    Home equity loans up to 100% CLTVFunding Amount
    
    
    53,276
    
    
    
    112,229Weighted Average Disposable Income
    
    
    5,479
    
    
    
    5,466Weighted Average FICO score
    
    
    695
    
    
    
    705Weighted Average Coupon
    
    
    10.27
    %
    
    
    9.81
    %Home equity loans up to 125% CLTVFunding Amount
    
    
    77,719
    
    
    
    99,641Weighted Average Disposable Income
    
    
    4,648
    
    
    
    4,297Weighted Average FICO score
    
    
    700
    
    
    
    696Weighted Average Coupon
    
    
    12.29
    %
    
    
    12.26
    %Home equity lines of credit up to 100% CLTVFunding Amount
    
    
    9,281
    
    
    
    58,515Weighted Average Disposable Income
    
    
    5,900
    
    
    
    6,583Weighted Average FICO score
    
    
    684
    
    
    
    700Weighted Average Coupon
    
    
    10.86
    %
    
    
    8.95
    %Home equity lines of credit up to 125% CLTVFunding Amount
    
    
    3,330
    
    
    
    4,788Weighted Average Disposable Income
    
    
    5,275
    
    
    
    5,115Weighted Average FICO score
    
    
    684
    
    
    
    700Weighted Average Coupon
    
    
    15.36
    %
    
    
    14.16
    %All ProductsFunding Amount
    
    
    189,220
    
    
    
    284,375Weighted Average Disposable Income
    
    
    4,997
    
    
    
    5,246Weighted Average FICO score
    
    
    695
    
    
    
    701Weighted Average Coupon
    
    
    10.72
    %
    
    
    10.50
    %
 Net Income
  35




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##### Table of Contents



Net Revenue
   For the Three Months Ended March 31,2007
    
    2006(Dollars in thousands)Total originations
    
    $
    189,220
    
    
    $
    284,375Percent broker
    
    
    50
    %
    
    
    26
    %Percent correspondent
    
    
    38
    
    
    
    31Percent retail loans
    
    
    7
    
    
    
    25Percent other
    
    
    5
    
    
    
    18
   Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Net interest income
    
    $
    24,564
    
    
    $
    23,669Provision for loan losses
    
    
    (15,088
    )
    
    
    (6,553
    )Gain on sales of whole loans
    
    
    191
    
    
    
    2,386Valuation adjustment on loans held for sale
    
    
    (7,913
    )
    
    
    (453
    )(Loss) gain on sales of loans
    
    
    (7,722
    )
    
    
    1,933Loan servicing fees
    
    
    5,528
    
    
    
    7,722Amortization and impairment of servicing assets
    
    
    (4,671
    )
    
    
    (5,661
    )Derivative (losses) gains
    
    
    (294
    )
    
    
    2,907Other income
    
    
    363
    
    
    
    486Total net revenue
    
    $
    2,680
    
    
    $
    24,503
    36




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##### Table of Contents



Operating Expenses
  Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Salaries and employee benefits
    
    $
    12,162
    
    
    $
    13,600Other
    
    
    7,419
    
    
    
    9,171Total operating expenses
    
    $
    19,581
    
    
    $
    22,771Number of employees at period end (1)
    
    
    483
    
    
    
    611
 
 (1)
    
    On a full time equivalent basis.  Home Equity Servicing
  37




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##### Table of Contents



March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006(Dollars in thousands)Managed PortfolioTotal Loans
    
    $
    1,675,660
    
    
    $
    1,708,975
    
    
    $
    1,621,28630 days past due
    
    
    2.95
    %
    
    
    3.16
    %
    
    
    2.29
    %90 days past due
    
    
    1.22
    
    
    
    1.19
    
    
    
    0.93Annualized QTD Net Chargeoff Rate
    
    
    3.01
    
    
    
    1.50
    
    
    
    1.01Unsold LoansTotal Loans (1)
    
    $
    1,497,567
    
    
    $
    1,515,881
    
    
    $
    1,538,37030 days past due
    
    
    3.25
    %
    
    
    3.54
    %
    
    
    1.90
    %90 days past due
    
    
    1.35
    
    
    
    1.32
    
    
    
    0.80Annualized QTD Net Chargeoff Rate
    
    
    3.35
    
    
    
    1.71
    
    
    
    0.84Loan Loss Reserve
    
    $
    43,004
    
    
    $
    33,614
    
    
    $
    26,944Owned ResidualTotal Loans
    
    $
    178,093
    
    
    $
    193,094
    
    
    $
    82,91730 days past due
    
    
    0.44
    %
    
    
    0.20
    %
    
    
    9.64
    %90 days past due
    
    
    0.06
    
    
    
    0.18
    
    
    
    3.25Annualized QTD Net Chargeoff Rate
    
    
    0.22
    
    
    
    
    
    
    
    3.62Residual Undiscounted Losses
    
    $
    420
    
    
    $
    430
    
    
    $
    430Credit Risk Sold, Potential Incentive
Servicing Fee Retained PortfolioTotal Loans
    
    $
    576,349
    
    
    $
    627,838
    
    
    $
    871,34830 days past due
    
    
    4.60
    %
    
    
    5.40
    %
    
    
    3.42
    %90 days past due
    
    
    2.08
    
    
    
    2.30
    
    
    
    1.36
 
 (1)
    
    Excludes deferred fees and costs. Discontinued OperationsMortgage Banking
  38




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##### Table of Contents



Parent and Other
   Risk Management
  
    
    Credit risk
    
    Liquidity risk
    
    Market risk (including interest rate and foreign exchange risk)
    
    Operational risk
    
    Compliance risk
    39




---



##### Table of Contents



Credit Risk
      40




---



##### Table of Contents



March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Accruing loans past due 90 days or more:Commercial, financial and
agricultural loans
    
    $
    208
    
    
    $
    Consumer loans
    
    
    
    
    
    
    73Commercial financingDomestic leasing
    
    
    56
    
    
    
    83Foreign leasing
    
    
    172
    
    
    
    236436
    
    
    
    392Nonaccrual loans and leases:Commercial, financial and
agricultural loans
    
    
    19,061
    
    
    
    13,296Real estate mortgages
    
    
    21,773
    
    
    
    18,125Consumer loans
    
    
    740
    
    
    
    696Commercial financingFranchise financing
    
    
    1,152
    
    
    
    791Domestic leasing
    
    
    2,848
    
    
    
    2,495Foreign leasing
    
    
    1,524
    
    
    
    1,76847,098
    
    
    
    37,171Total nonperforming
loans and leases
    
    
    47,534
    
    
    
    37,563Nonperforming Loans held for Sale not guaranteed
    
    
    1,535
    
    
    
    5,564Other real estate owned
    
    
    14,055
    
    
    
    15,170Total nonperforming assets
    
    $
    63,124
    
    
    $
    58,297Nonperforming loans and leases to total
loans and leases
    
    
    0.9
    %
    
    
    0.7
    %Nonperforming assets to total
assets
    
    
    1.1
    %
    
    
    0.9
    %
   March 31,2007
    
    Commercial banking
    
    $
    23
    
    Commercial finance
    
    
    6
    
    Home equity lending
    
    
    24
    
    Mortgage banking (discontinued operations)
    
    
    10
  41




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##### Table of Contents



Liquidity Risk
          42




---



##### 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
    
    Lines of credit with non-correspondent banks: $82 million outstanding
    
    Warehouse lines of credit and conduits to fund Canadian sourced small ticket leases: $224
million outstanding on $338 million of borrowing facilities
 Market Risk (including Interest Rate and Foreign Exchange Risk)
       43




---



##### Table of Contents




    
    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 March 31, 2007 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.
    
    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 March 31, 2007Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets
    
    $
    6,193,973
    
    
    $
    6,120,932
    
    
    $
    6,042,755
    
    
    $
    5,961,905
    
    
    $
    5,881,019Loans held for sale
    
    
    46,446
    
    
    
    46,019
    
    
    
    45,470
    
    
    
    44,536
    
    
    
    43,362Mortgage servicing rights
    
    
    23,137
    
    
    
    27,071
    
    
    
    31,150
    
    
    
    35,317
    
    
    
    38,064Residual interests
    
    
    9,501
    
    
    
    9,484
    
    
    
    9,619
    
    
    
    9,421
    
    
    
    9,539Interest sensitive financial derivatives
    
    
    (5,286
    )
    
    
    (2,228
    )
    
    
    882
    
    
    
    4,403
    
    
    
    8,448Total interest sensitive assets
    
    
    6,267,771
    
    
    
    6,201,278
    
    
    
    6,129,876
    
    
    
    6,055,582
    
    
    
    5,980,432Interest Sensitive LiabilitiesDeposits
    
    
    (3,364,521
    )
    
    
    (3,338,804
    )
    
    
    (3,314,308
    )
    
    
    (3,286,336
    )
    
    
    (3,256,023
    )Short-term borrowings (1)
    
    
    (1,371,829
    )
    
    
    (1,360,625
    )
    
    
    (1,350,656
    )
    
    
    (1,341,140
    )
    
    
    (1,332,055
    )Long-term debt
    
    
    (1,105,933
    )
    
    
    (1,098,290
    )
    
    
    (1,086,051
    )
    
    
    (1,073,995
    )
    
    
    (1,062,708
    )Total interest sensitive liabilities
    
    
    (5,842,283
    )
    
    
    (5,797,719
    )
    
    
    (5,751,015
    )
    
    
    (5,701,471
    )
    
    
    (5,650,786
    )Net market value as of March 31, 2007
    
    $
    425,488
    
    
    $
    403,559
    
    
    $
    378,861
    
    
    $
    354,111
    
    
    $
    329,646Change from current
    
    $
    46,627
    
    
    $
    24,698
    
    
    $
    
    
    
    $
    (24,750
    )
    
    $
    (49,215
    )Net market value as of December 31, 2006
    
    $
    306,903
    
    
    $
    293,703
    
    
    $
    277,491
    
    
    $
    260,236
    
    
    $
    240,367Potential change
    
    $
    29,412
    
    
    $
    16,212
    
    
    $
    
    
    
    $
    (17,255
    )
    
    $
    (37,124
    )
 
 (1)
    
    Includes certain debt which is categorized as collateralized borrowings in other sections
of this document 44




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##### Table of Contents



GAAP-Based Value Change Method
 Present Value at March 31, 2007Change in Interest Rates of:-2%
    
    
    -1%
    
    
    Current
    
    
    +1%
    
    
    +2%(In Thousands)Interest Sensitive AssetsLoans and other assets (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans held for sale
    
    
    44,906
    
    
    
    44,906
    
    
    
    44,906
    
    
    
    43,972
    
    
    
    42,798Mortgage servicing rights
    
    
    22,093
    
    
    
    26,026
    
    
    
    30,105
    
    
    
    34,273
    
    
    
    37,020Residual interests
    
    
    9,501
    
    
    
    9,484
    
    
    
    9,619
    
    
    
    9,421
    
    
    
    9,539Interest sensitive financial derivatives
    
    
    (5,286
    )
    
    
    (2,228
    )
    
    
    882
    
    
    
    4,403
    
    
    
    8,448Total interest sensitive assets
    
    
    71,214
    
    
    
    78,188
    
    
    
    85,512
    
    
    
    92,069
    
    
    
    97,805Interest Sensitive LiabilitiesDeposits (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term borrowings (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest sensitive liabilities (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net market value as of March 31, 2007
    
    $
    71,214
    
    
    $
    78,188
    
    
    $
    85,512
    
    
    $
    92,069
    
    
    $
    97,805Potential change
    
    $
    (14,298
    )
    
    $
    (7,324
    )
    
    $
    
    
    
    $
    6,557
    
    
    $
    12,293Net market value as of December 31, 2006
    
    $
    264,698
    
    
    $
    272,986
    
    
    $
    279,737
    
    
    $
    279,659
    
    
    $
    279,200Potential change
    
    $
    (15,039
    )
    
    $
    (6,751
    )
    
    $
    
    
    
    $
    (78
    )
    
    $
    (537
    )
 
 (1)
    
    Value does not change in GAAP presentation Off-Balance Sheet Instruments
   Derivative Financial Instruments
   45




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##### Table of Contents



Operational and Compliance Risk.
    46




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
   47




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##### Table of Contents



PART II. Other Information.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Number of Shares
    
    
    Approximate Dollar ValueTotal Number
    
    
    Average
    
    
    Purchased as Part of
    
    
    of Shares that May Yet Beof Shares
    
    
    Price Paid
    
    
    Publicly Announced Plan
    
    
    Purchased under the PlanCalendar Month
    
    Purchased(1)
    
    
    per Share
    
    
    or Program
    
    
    or ProgramJanuary
    
    
    129
    
    
    $
    22.63
    
    
    
    n/a
    
    
    
    n/aFebruary
    
    
    277,604
    
    
    $
    21.63
    
    
    
    277,600
    
    
    
    40,991,059March
    
    
    82,115
    
    
    $
    20.22
    
    
    
    47,392
    
    
    $
    39,986,316Total
    
    
    359,848
    
    
    $
    21.31
    
    
    
    324,992
 
 (1)
    
    Includes shares repurchased in connection with the Corporations equity-based compensation
plans. 48




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##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Description of Exhibit2.1
    
    Asset Purchase Agreement by and among Irwin Financial Corporation, Irwin Mortgage Corporation and Freedom
Mortgage Corporation dated as of August 7, 2006. (Incorporated by reference to Exhibits 2.1 and 2.2 of Form 8-K
filed October 2, 2006, File No. 001-16691.)3.1
    
    Restated Articles of Incorporation of Irwin Financial Corporation, as amended December 20, 2006. (Incorporated
by reference to Exhibit 3.1 of Form 10-K filed March 9, 2007, File No. 001-16691.)3.2
    
    Code of By-laws of Irwin Financial Corporation, as amended, February 15, 2007. (Incorporated by reference to
Exhibit 3.2 of Form 10-K filed March 9, 2007, File No. 001-16691.)4.1
    
    Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 of Form 10-K filed March 9, 2007,
File No. 001-16691.)4.2
    
    Certain instruments defining the rights of the holders of long-term debt of Irwin Financial Corporation and
certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits.
The Corporation hereby agrees to furnish a copy of any of these agreements to the Commission upon request.4.3
    
    Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank and Trust.
(Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No. 000-06835.)4.4
    
    Appointment of Successor Rights Agent dated as of May 11, 2001 between Irwin Financial Corporation and National
City Bank. (Incorporated by reference to Exhibit 4.5 to Form S-8 filed on September 7, 2001, File No.
333-69156.)10.1
    
    *Irwin Financial Corporation 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(h) to Form 10-K
Report for year ended December 31, 1992, File No. 000-06835.)10.2
    
    *Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10 to Form 10-Q
Report for period ended June 30, 1997, File No. 000-06835.)10.3
    
    *Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10(i) to
Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)10.4
    
    *Irwin Financial Corporation Amended and Restated 2001 Stock Plan, as amended November 28, 2006. (Incorporated
by reference to Exhibit 10.4 of Form 10-K filed March 9, 2007, 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 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.)10.8
    
    *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.)10.9
    
    *Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for period
ended June 30, 1999, File No. 000-06835.)10.10
    
    *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.)10.11
    
    *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.)10.12
    
    *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.)10.13
    
    *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.)
 49




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.14
    
    *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.)10.15
    
    *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.)10.16
    
    *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.)10.17
    
    *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.)10.18
    
    *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.)10.19
    
    *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.)10.20
    
    *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.)10.21
    
    *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.)10.22
    
    *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.)10.23
    
    *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.)10.24
    
    *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.)10.25
    
    *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.)10.26
    
    *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.)10.27
    
    *Irwin Commercial Finance Amended and Restated Short Term Incentive Plan effective January 1, 2006.
(Incorporated by reference to Exhibit 10.28 of Form 10-Q for the quarter ended June 30, 2006, File No.
001-16691.)10.28
    
    *Irwin Home Equity Amended and Restated Short Term Incentive Plan effective January 1, 2006. (Incorporated by
reference to Exhibit 10.29 of Form 10-Q for the quarter ended June 30, 2006, File No. 001-16691.)10.29
    
    *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.)10.30
    
    *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.)
 50




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.31
    
    *Onset Capital Corporation Employment Agreement. (Incorporated by reference to Exhibit 10.26 to Form 10-Q Report
for period ended June 30, 2002, File No. 000-06835.)10.32
    
    *Irwin Financial Corporation Restated Supplemental Executive Retirement Plan for Named Executives. (Incorporated
by reference to Exhibit 10.27 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)10.33
    
    *Irwin Financial Corporation Supplemental Executive Retirement Plan for Named Executives. (Incorporated by
reference to Exhibit 10.28 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)10.34
    
    *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.).10.35
    
    *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.)10.36
    
    *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.)10.37
    
    *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.)10.38
    
    *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.)10.39
    
    *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.)10.40
    
    *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.)10.41
    
    *First Amendment to the Irwin Commercial Finance Amended and Restated Performance Unit Plan, dated October 31,
2006. (Incorporated by reference to Exhibit 10.41 of Form 10-K filed March 9, 2007, 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.)10.45
    
    *Supplemental Performance Unit Grant-Jocelyn Martin-Leano, dated February 6, 2007. (Incorporated by reference to
Exhibit 10.45 of Form 10-K filed March 9, 2007, File No. 001-16691.)10.46
    
    *Irwin Financial Corporation 2007 Performance Unit Plan. (Incorporated by reference to Appendix B of the
Corporations Proxy Statement for its 2007 Annual Meeting, filed April 16, 2007, 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. 51




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##### Table of Contents



SIGNATURES
  DATE:May 4, 2007
    IRWIN FINANCIAL CORPORATIONBy:
    /s/ Gregory F. EhlingerGREGORY F. EHLINGERCHIEF FINANCIAL OFFICER By:
    /s/ Jody A. LittrellJODY A. LITTRELLCORPORATE CONTROLLER (Chief Accounting Officer)  52