10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal Year Ended December 31, 2005

or

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)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of Class:	Common Stock*
Title of Class:	8.75% Cumulative Convertible Trust Preferred Securities issued by IFC Capital Trust III and the guarantee with respect thereto.
Title of Class	8.70% Cumulative Trust Preferred Securities issued by IFC Capital Trust VI and the guarantee with respect thereto.

               Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes o         No þ

               If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes o         No þ

               Indicate by check mark whether the Corporation: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Corporation was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Corporation’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o         Accelerated filer þ         Non-accelerated filer o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o         No þ

         The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price for the registrant’s common stock on the New York Stock Exchange on June 30, 2005, was approximately $394,818,948.

         The aggregate market value of the voting stock held by non-affiliates of the Corporation was $359,628,302 as of February 17, 2006. As of February 17, 2006, there were outstanding 28,683,634 common shares of the Corporation.

         *  Includes associated rights.

Documents Incorporated by Reference

Selected Portions of the Following Documents	Part of Form 10-K Into Which Incorporated
Definitive Proxy Statement for Annual Meeting Shareholders to be held April 6, 2006 Exhibit Index on Pages 119 through 122	Part III

FORM 10-K

TABLE OF CONTENTS

Part I
	Item 1	—	Business	2
	Item 1A	—	Risk Factors	12
	Item 2	—	Properties	17
	Item 3	—	Legal Proceedings	18
	Item 4	—	Submission of Matters to a Vote of Security Holders	22
Part II
	Item 5	—	Market for Corporation’s Common Equity and Related Stockholder Matters	23
	Item 6	—	Selected Financial Data	24
	Item 7	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 7A	—	Quantitative and Qualitative Disclosures about Market Risk	74
	Item 8	—	Financial Statements and Supplementary Data	75
	Item 9	—	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	117
	Item 9A	—	Controls and Procedures	117
	Item 9B	—	Other Information	117
Part III
	Item 10	—	Directors and Executive Officers of the Corporation	118
	Item 11	—	Executive Compensation	118
	Item 12	—	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	118
	Item 13	—	Certain Relationships and Related Transactions	118
	Item 14	—	Principal Accountant Fees and Services	118
Part IV
	Item 15	—	Exhibits, Financial Statement Schedules	119
SIGNATURES				123
Stock Purchase Agreement
Shareholder Agreement Termination Agreement
Shareholder Agreement
2005 Stock Option Agreement
2005 Notice of Stock Option Grant
Amended and Restated Performance Unit Plan
Amended and Restated Performance Unit Plan
Performance Unit Plan
First Amendment to Limited Liability Company Agreement
Second Amendment to Limited Liability Company Agreement
Computation of Earnings Per Share
Computation of Ratio of Earnings to Fixed Charges
Code of Conduct
Subsidiaries
Consent of Independent Public Account Firm
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

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PART I

Item 1. Business

General

      We are a diversified financial services company headquartered in Columbus, Indiana with $360 million of net revenues in 2005 and $6.6 billion in assets at December 31, 2005. We focus primarily on the extension of credit to consumers and small businesses as well as providing the ongoing servicing of those customer accounts. Through our direct and indirect subsidiaries, we currently operate four major lines of business: commercial banking, commercial finance, home equity lending, and mortgage banking. In January 2006, we announced that we are considering strategic alternatives for our conventional first mortgage banking business, including the potential sale of that line of business.

      We are a regulated bank holding company and we conduct our consumer and commercial lending businesses through various operating subsidiaries. Our banking subsidiary, Irwin Union Bank and Trust Company, was organized in 1871. We formed the holding company in 1972. Our direct and indirect major subsidiaries include Irwin Union Bank and Trust Company, a commercial bank, which together with Irwin Union Bank, F.S.B., a federal savings bank, conduct our commercial banking activities; Irwin Commercial Finance Corporation, a commercial finance subsidiary; Irwin Home Equity Corporation, a consumer home equity lending company; and Irwin Mortgage Corporation, a mortgage banking company.

      Our strategy is to position the Corporation as an interrelated group of specialized financial services companies serving niche markets of consumers and small businesses and optimizing the productivity of our capital. At the parent level, we work actively to add value to our lines of business by interacting with the management teams, capitalizing on interrelationships, providing centralized services and coordinating overall organizational decisions. Additionally, as discussed in more detail later in this report on “Risk Management” the parent company also provides risk management oversight and controls for our subsidiaries. Under this organizational structure, the majority of our commercial finance, home equity lending and mortgage banking lines of business operate as direct and indirect subsidiaries of Irwin Union Bank and Trust. This structure provides additional liquidity and results in regulatory oversight of our business.

      Our Internet address is http://www.irwinfinancial.com.

      We make available free of charge through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file the material with the Securities and Exchange Commission (SEC). Our Internet website and the information contained or incorporated in it are not intended to be incorporated into this Annual Report on Form 10-K.

Major Lines of Business

Commercial Banking

      Our commercial banking line of business provides credit, cash management and personal banking products primarily to small businesses and business owners. We offer commercial banking services through our banking subsidiaries, Irwin Union Bank and Trust Company, an Indiana state-chartered commercial bank, and Irwin Union Bank, F.S.B., a federal savings bank. The commercial banking line of business offers a full line of consumer, mortgage and commercial loans, as well as personal and commercial checking accounts, savings and time deposit accounts, personal and business loans, credit card services, money transfer services, financial counseling, property, casualty, life and health insurance agency services, trust services, securities brokerage and safe deposit facilities. This line of business operates through two charters, each headquartered in Columbus, Indiana:

•  Irwin Union Bank and Trust Company — organized in 1871, is a full service Indiana state-chartered commercial bank with offices currently located throughout nine counties in central and southern

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	Indiana, as well as in Kalamazoo, Grandville (near Grand Rapids), Traverse City and Lansing, Michigan; Carson City and Las Vegas, Nevada; and Salt Lake City, Utah.
•	Irwin Union Bank, F.S.B. — is a full-service federal savings bank that began operations in December 2000. Currently we have offices located in Clayton, Missouri (near St. Louis); Louisville, Kentucky; Milwaukee Wisconsin; Phoenix, Arizona; and, Costa Mesa and Sacramento, California.

      We discuss this line of business further in the “Commercial Banking” section of Management’s Discussion and Analysis of Financial Condition and Results of Operation (MD&A) of this report.

Commercial Finance

      Established in 1999, our commercial finance line of business originates small-ticket equipment leases throughout the U.S. and Canada through an established network of vendors and third-party originators and provides financing for franchisees of qualified quick service and casual dining restaurant concepts in the United States. The majority of our leases are full payout (no residual), small-ticket assets secured by commercial equipment. We finance a variety of commercial and office equipment types while limiting the industry and geographic concentrations in our lease and loan portfolios. Loans to franchisees often include the financing of real estate as well as equipment.

      In July 2000, the commercial finance line of business acquired an ownership interest in approximately 78 percent of the common stock of Onset Capital Corporation, now Irwin Commercial Finance Canada Corporation (ICF-Canada), a Canadian small-ticket equipment leasing company headquartered in Vancouver, British Columbia. [In December 2001, Onset Capital established Onset Alberta Ltd. as a subsidiary to facilitate its leasing business.] In October 2001, we formed Irwin Franchise Capital Corporation to conduct our franchise lending business. We established Irwin Commercial Finance Corporation (formerly, Irwin Capital Holdings) in April 2001 as a subsidiary of Irwin Union Bank and Trust to serve as the parent company for both our United States and Canadian commercial finance companies.

      In December 2005, this line of business acquired the remaining 22 percent interest in the common stock of ICF-Canada, and provided the former minority interest holders and the head of the franchise lending business with stock options at the line-of-business level.

      We discuss this line of business further in the “Commercial Finance” section of the MD&A of this report.

Home Equity Lending

      We established this line of business when we formed Irwin Home Equity Corporation as our subsidiary in 1994. It is headquartered in San Ramon, California. Irwin Home Equity became a subsidiary of Irwin Union Bank and Trust in 2001. In conjunction with Irwin Union Bank and Trust, Irwin Home Equity originates, purchases, securitizes and services home equity loans and lines of credit and first mortgages nationwide. We also periodically purchase servicing rights for home equity loans. Our target customers are principally creditworthy, home owning consumers who are active, unsecured credit card debt users. We market our home equity products (with loan-to-value ratios up to 125%) and first mortgage refinance programs (with loan-to-value ratios up to 100%) through direct mail, the Internet, mortgage brokers and correspondent lenders nationwide. Irwin Home Equity’s core competencies are credit risk assessment and specialized home loan servicing.

      We established Irwin Residual Holdings Corporation and Irwin Residual Holdings Corporation II in 2001 to hold residual interests that Irwin Union Bank and Trust Company transferred to Irwin Financial Corporation. The residual interests were created as a result of securitizations in our home equity line of business.

      We discuss this line of business further in the “Home Equity Lending” section of the MD&A of this report.

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Mortgage Banking

      We established our mortgage banking line of business when we acquired our subsidiary, Irwin Mortgage Corporation, formerly Inland Mortgage Corporation, in 1981. Irwin Mortgage became a subsidiary of Irwin Union Bank and Trust in October, 2002. In this line of business, Irwin Mortgage originates, purchases, sells, and services primarily conventional and government agency-backed residential mortgage loans throughout the United States. Most of our first mortgage originations either are insured or guaranteed by an agency of the federal government, such as the Federal Housing Authority (FHA) or the Veterans Administration (VA) or, in the case of conventional mortgages, meet requirements for resale to the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) or the Federal Home Loan Bank (FHLB). We originate mortgage loans through retail offices and through direct marketing. We also purchase mortgage loans through mortgage brokers and loan correspondents. Our relationships with realtors, homebuilders, brokers and correspondents help us identify potential borrowers. Irwin Mortgage also engages in the mortgage reinsurance business through its subsidiary, Irwin Reinsurance Corporation, a Vermont corporation. We sell mortgage loans to institutional and private investors but may retain servicing rights to the loans we originate or purchase. Irwin Mortgage collects and accounts for the monthly payments on each loan serviced and pays the real estate taxes and insurance necessary to protect the integrity of the mortgage lien, for which it receives a servicing fee.

      At January 31, 2006, Irwin Mortgage operated 48 production and satellite offices in 27 states. We discuss this line of business further in the “Mortgage Banking” section of the MD&A of this report.

      In January 2006, we announced that we were considering strategic alternatives for the conventional first mortgage business, including the potential sale of the mortgage banking line of business. We believe our mortgage banking line of business, particularly the servicing function, has grown to a size where it can be managed and grown more effectively within another organization. We are actively searching for an alternative home for the segment and its employees.

Customer Base

      No single part of our business is dependent upon a single customer or upon a very few customers and the loss of any one customer would not have a materially adverse effect upon our business. In those instances where we have significant single customer relationships, we examine each relationship more intensively than others and have developed contingency plans for the loss of these significant customer relationships.

Competition

      We compete nationally in the U.S. in each business, except for commercial banking where our market focus is in selected markets in the Midwest and Western states. In our commercial finance line of business, our products are also offered throughout Canada. We compete against commercial banks, savings banks, credit unions and savings and loan associations, and with a number of non-bank companies including mortgage banks and brokers, other finance companies, and real estate investment trusts.

      Some of our competitors are not subject to the same degree of regulation as that imposed on bank holding companies, state banking organizations and federal saving banks. In addition, many larger banking organizations, mortgage companies, mortgage banks, insurance companies and securities firms have significantly greater resources than we do. As a result, some of our competitors have advantages over us in name recognition and market penetration.

Financial Information About Geographic Areas

      We conduct part of our commercial finance line of business in Canadian markets. Net revenues for the last three years in this line of business attributable to Canadian customers were $11.5 million, $11.5 million and $7.9 million in 2005, 2004 and 2003, respectively.

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Supervision and Regulation

General

      We and our subsidiaries are each extensively regulated under state and federal law. The following is a summary of certain statutes and regulations that apply to us and to our subsidiaries. These summaries are not complete, and you should refer to the statutes and regulations for more information. Also, these statutes and regulations may change in the future, and we cannot predict what effect these changes, if made, will have on our operations.

      We are regulated at both the holding company and subsidiary level and subject to both state and federal examination on matters relating to “safety and soundness,” including risk management, asset quality and capital adequacy, as well as a broad range of other regulatory concerns including: insider transactions, the adequacy of the reserve for loan losses, intercompany transactions, regulatory reporting, adequacy of systems of internal controls and limitations on permissible activities. We also are subject to the Sarbanes-Oxley Act of 2002, which imposes (i) requirements for audit committee members, including independence and financial expertise (ii) responsibilities regarding financial statements for chief executive officers and chief financial officers; (iii) standards for auditors and audits; (iv) increased disclosure and reporting obligations for public companies and their directors and executive officers; and (v) civil and criminal penalties for violation of the securities laws.

      Our product and service offerings are subject to a number of consumer protection laws and regulations. In many instances these rules contain specific requirements regarding the content and timing of disclosures and the manner in which we must process and execute transactions. Some of these rules provide consumers with rights and remedies, including the right to initiate private litigation.

      In addition, we are required to establish and administer a variety of processes and programs to address other regulatory requirements, including: community reinvestment provisions; protection of customer information; identification of suspicious activities, including possible money laundering; proper identification of customers when performing transactions; maintenance of information and site security; and other bank compliance provisions. In a number of instances board and/or management oversight is required as well as employee training on specific regulations.

      Regulatory agencies have a broad range of sanctions and enforcement powers if an institution fails to meet regulatory requirements, including civil money penalties, formal agreements, and cease and desist orders.

Bank Holding Company Regulation

      We are registered as a bank holding company with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended and the related regulations, referred to as the BHC Act. We are subject to regulation, supervision and examination by the Federal Reserve, and as part of this process, we must file reports and additional information with the Federal Reserve.

Minimum Capital Requirements

      The Federal Reserve has imposes risk-based capital requirements on us as a bank holding company. Under these requirements, capital is classified into two categories:

      Tier 1 capital, or core capital, consists of

•  common stockholders’ equity;

•  qualifying noncumulative perpetual preferred stock;

•  qualifying cumulative perpetual preferred stock (subject to some limitations, and including our Trust Preferred securities, of which $169 million qualified as Tier 1 capital as of December 31, 2005); and

•  minority interests in the common equity accounts of consolidated subsidiaries;

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      less

•  goodwill;

•  credit-enhancing interest-only strips (certain amounts only); and

•  specified intangible assets (including $0.8 million of disqualified Mortgage Servicing Assets (MSRs) as of December 31, 2005).

      Tier 2 capital, or supplementary capital, consists of

•  allowance for loan and lease losses;

•  perpetual preferred stock and related surplus;

•  hybrid capital instruments (including Trust Preferred securities, of which $64 million qualified as Tier 2 capital as of December 31, 2005);

•  unrealized holding gains on equity securities;

•  perpetual debt and mandatory convertible debt securities;

•  term subordinated debt, including related surplus; and

•  intermediate-term preferred stock, including related securities.

      The Federal Reserve’s capital adequacy guidelines require bank holding companies to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8 percent, at least 4 percent of which must be in the form of Tier 1 capital. Risk-weighted assets include assets and credit equivalent amounts of off-balance sheet items of bank holding companies that are assigned to one of several risk categories, based on the obligor or the nature of the collateral. The Federal Reserve has established a minimum “leverage” ratio of Tier 1 capital (less any intangible capital items) to total assets (less any intangible assets), of 3 percent for strong bank holding companies (those rated a composite “1” under the Federal Reserve’s rating system). For all other bank holding companies, the minimum ratio of Tier 1 capital to total assets is 4 percent. The Federal Reserve continues to consider the Tier 1 leverage ratio in evaluating proposals for expansion or new activities.

      As of December 31, 2005, we had regulatory capital in excess of all the Federal Reserve’s minimum levels and our internal minimum target of 11.75% for risk-adjusted capital. Our ratio of total capital to risk weighted assets at December 31, 2005 was 13.1% and our Tier 1 leverage ratio was 10.3%.

Expansion

      Under the BHC Act, we must obtain prior Federal Reserve approval for certain activities, such as the acquisition of more than 5% of the voting shares of any company, including a bank or bank holding company. The BHC Act permits a bank holding company to engage in activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to be a proper incident to those banking activities, such as operating a mortgage bank or a savings association, conducting leasing and venture capital investment activities, performing trust company functions, or acting as an investment or financial advisor. See the section on “Interstate Banking and Branching” below.

Dividends

      The Federal Reserve has policies on the payment of cash dividends by bank holding companies. The Federal Reserve believes that a bank holding company experiencing earnings weaknesses should not pay cash dividends (1) exceeding its net income or (2) which only could be funded in ways that would weaken a bank holding company’s financial health, such as by borrowing. Also, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to prohibit or limit the payment of dividends by banks (including dividends to bank holding companies) and bank holding companies. See “Dividend Limitations” below.

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      The Federal Reserve expects us to act as a source of financial strength to our banking subsidiaries and to commit resources to support them. In implementing this policy, the Federal Reserve could require us to provide financial support when we otherwise would not consider ourselves able to do so.

      In addition to the restrictions on fundamental corporate actions such as acquisitions and dividends imposed by the Federal Reserve, Indiana law also places limitations on our authority with respect to such activities.

Bank and Thrift Regulation

      Indiana law subjects Irwin Union Bank and Trust and its subsidiaries to supervision and examination by the Indiana Department of Financial Institutions. Irwin Union Bank and Trust is a member of the Federal Reserve System and, along with its subsidiaries, is also subject to regulation, examination and supervision by the Federal Reserve. Subsidiaries routinely subject to examination include Irwin Mortgage, Irwin Home Equity and Irwin Commercial Finance.

      Irwin Union Bank, F.S.B., a direct subsidiary of the bank holding company, is a federally chartered savings bank. Accordingly, it is subject to regulation, examination and supervision by the Office of Thrift Supervision (OTS).

      The deposits of Irwin Union Bank and Trust are insured by the Bank Insurance Fund, and the deposits of Irwin Union Bank, F.S.B. are insured by the Savings Association Insurance Fund under the provisions of the Federal Deposit Insurance Act (FDIA). As a result, Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. are subject to supervision by the Federal Deposit Insurance Corporation (FDIC).

      Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. must file reports with the Federal Reserve and the OTS, respectively, and with the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals before establishing branches or entering into certain transactions such as mergers with, or acquisitions of, other financial institutions.

Mortgage Banking and Residential Lending Regulation

      The residential lending activities of Irwin Union Bank and Trust, the mortgage banking activities of its subsidiary, Irwin Mortgage, and the home equity lending business of Irwin Union Bank and Trust’s subsidiary Irwin Home Equity, are regulated by the Federal Reserve. The Federal Reserve has broad authority to oversee the banking activities of Irwin Union Bank and Trust and its subsidiaries as the primary federal regulator of the bank, pursuant to the Federal Reserve Act, and the nonbanking subsidiaries of Irwin Financial Corporation, pursuant to the BHC Act. Federal Reserve regulations and policies, such as restrictions on affiliate transactions and real estate lending policies relating to asset quality and prudent underwriting of loans, apply to our residential lending activities. The Indiana Department of Financial Institutions has comparable supervisory and examination authority over Irwin Mortgage, Irwin Home Equity and Irwin Commercial Finance due to their status as subsidiaries of Irwin Union Bank and Trust.

Capital Requirements

      The Federal Reserve imposes requirements on state member banks such as Irwin Union Bank and Trust regarding the maintenance of adequate capital substantially identical to the capital regulations applicable to bank holding companies described in the section on “Bank Holding Company Regulation — Minimum Capital Requirements.” While retaining the authority to set capital ratios for individual banks, these regulations prescribe minimum total risk-based capital, Tier 1 risk-based capital and leverage (Tier 1 capital divided by average total assets) ratios. The Federal Reserve requires banks to hold capital commensurate with the level and nature of all of the risks, including the volume and severity of problem loans, to which they are exposed.

      As with the regulations applicable to bank holding companies, the Federal Reserve requires all state member banks to meet a minimum ratio of qualifying total capital to weighted risk assets of 8 percent, of which at least 4 percent should be in the form of Tier 1 capital.

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      The minimum ratio of Tier 1 capital to total assets, or the leverage ratio, for strong banking institutions (rated composite “1” under the uniform rating system of banks) is 3 percent. For all other institutions, the minimum ratio of Tier 1 capital to total assets is 4 percent. Banking institutions with supervisory, financial, operational, or managerial weaknesses are expected to maintain capital ratios well above the minimum levels, as are institutions with high or inordinate levels of risk. Banks experiencing or anticipating significant growth are also expected to maintain capital, including tangible capital positions, well above the minimum levels. A majority of such institutions generally have operated at capital levels ranging from 1 to 2 percent above the stated minimums. Higher capital ratios could be required if warranted by the particular circumstances to risk profiles of individual banks. The standards set forth above specify minimum supervisory ratios based primarily on broad credit risk considerations. The risk-based ratio does not take explicit account of the quality of individual asset portfolios or the range of other types of risks to which banks may be exposed, such as interest rate, liquidity, market or operational risks. For this reason, banks are generally expected to operate with capital positions above the minimum ratios.

      At December 31, 2005, Irwin Union Bank and Trust had a total risk-based capital ratio of 12.3%, a Tier 1 capital ratio of 10.8%, and a leverage ratio of 10.4%.

      The risk-based capital guidelines also provide that an institution’s exposure to declines in the economic value of the institution’s capital due to changes in interest rates must be considered as a factor by the agencies in evaluating the capital adequacy of a bank or savings association. This assessment of interest rate risk management is incorporated into the banks’ overall risk management rating and used to determine management’s effectiveness.

Insurance of Deposit Accounts

      As FDIC-insured institutions, Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. are required to pay deposit insurance premiums based on the risk they pose to the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF), respectively. Currently, the amount of FDIC assessments paid by an insured depository institution ranges from zero to $0.27 per $100 of insured deposits, based on the institution’s relative risk to the deposit insurance funds, as measured by the institution’s regulatory capital position and other supervisory factors. The FDIC also has the authority to raise or lower assessment rates on insured deposits to achieve the statutorily required reserve ratios in insurance funds and to impose special additional assessments.

      In addition to deposit insurance fund assessments, the FDIC assesses both BIF and SAIF insured deposits a special assessment to fund the repayment of debt obligations of the Financing Corporation (FICO). FICO is a government-sponsored entity that was formed to borrow the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation. At December 31, 2005, the annualized rate established by the FDIC for the FICO assessment on both BIF and SAIF deposits was 1.34 basis points per $100 of insured deposits.

      On February 1, 2006, Congress enacted the FDIC Reform Act of 2005. This legislation, among other changes, will merge the BIF and SAIF into one fund, increase insurance coverage for retirement accounts to $250,000 and index the insurance levels for inflation.

Dividend Limitations

      Under Indiana law, certain dividends require notice to, or approval by, the Indiana Department of Financial Institutions, and Irwin Union Bank and Trust may not pay dividends in an amount greater than its net profits then available, after deducting losses and bad debts.

      In addition, as a state member bank, Irwin Union Bank and Trust may not, without the approval of the Federal Reserve, declare a dividend if the total of all dividends declared in a calendar year, including the proposed dividend, exceeds the total of its net income for that year, combined with its retained net income of the preceding two years, less any required transfers to the surplus account. During the past two years, Irwin Union Bank and Trust dividends have exceeded net income during the same period primarily due to “clean-up

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calls” related to residuals held by our home equity segment. When the bond pools on which we have residual interests decline in size to less than 10 percent of their original balances, we have the right, but not the obligation to purchase the remaining loans from the bond pools. We typically do this to lower the administrative costs to both us and bond investors of continuing to service relatively small pools of loans and bonds. Our residual interests, and the right to call the bonds, are housed in a non-bank subsidiary. However, when we call (“clean-up”) the loans from pools, we wish to fund them permanently at Irwin Union Bank and Trust due to its lower cost funding. Once the loans are repurchased by the non-bank subsidiary, they are infused to Irwin Union Bank as a capital contribution. To restore liquidity to the non-bank subsidiary, we dividend a similar dollar amount from Irwin Union Bank and Trust to the parent. This process has used dividend capacity beyond the Bank’s earnings in 2004 and 2005. As a result, the bank cannot declare a dividend to us without regulatory approval until such time that current year earnings plus earnings from the last two years exceeds dividends during the same periods. We expect to be able to declare dividends from the Irwin Union Bank and Trust to the holding company without prior approval by mid-year 2006.

      In most cases, savings and loan associations, such as Irwin Union Bank, F.S.B., are required either to apply to or to provide notice to the OTS regarding the payment of dividends. The savings association must seek approval if it does not qualify for expedited treatment under OTS regulations, or if the total amount of all capital distributions for the applicable calendar year exceeds net income for that year to date plus retained net income for the preceding two years, or the savings association would not be adequately capitalized following the dividend, or the proposed dividend would violate a prohibition in any statute, regulation or agreement with the OTS. In other circumstances, a simple notice is sufficient.

      Our ability and the ability of Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. to pay dividends also may be affected by the various capital requirements and the prompt corrective action standards described below under “Other Safety and Soundness Regulations.”. Our rights and the rights of our shareholders and our creditors to participate in any distribution of the assets or earnings of our subsidiaries also is subject to the prior claims of creditors of our subsidiaries including the depositors of a bank subsidiary.

Interstate Banking and Branching

      Under federal law, banks are permitted, if they are adequately or well-capitalized, in compliance with Community Reinvestment Act requirements and in compliance with state law requirements (such as age-of-bank limits and deposit caps), to merge with one another across state lines and to create a main bank with branches in separate states. After establishing branches in a state through an interstate merger transaction, a bank may establish and acquire additional branches at any location in the state where any bank involved in the interstate merger could have established or acquired branches under applicable federal and state law.

      As a federally chartered savings bank, Irwin Union Bank, F.S.B. has greater flexibility in pursuing interstate branching than an Indiana state bank. Subject to certain exceptions, a federal savings association generally may establish or operate a branch in any state outside the state of its home office if the association meets certain statutory requirements.

Community Reinvestment

      Under the Community Reinvestment Act (CRA), banking and thrift institutions have a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods. Institutions are rated on their performance in meeting the needs of their communities. Performance is tested in three areas: (a) lending, which evaluates the institution’s record of making loans in its assessment areas; (b) investment, which evaluates the institution’s record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and business; and (c) service, which evaluates the institution’s delivery of services through its branches, ATMs and other activities. The CRA requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the institution’s record of meeting the credit needs of its community and to take this record into account in evaluating certain applications by the institution, including applications for charters, branches and

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other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions. Both Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. received a “satisfactory” rating on their most recent CRA performance evaluations.

Other Safety and Soundness Regulations

      Under current law, the federal banking agencies possess broad powers to take “prompt corrective action” in connection with depository institutions and their bank holding companies that do not meet minimum capital requirements. The law establishes five capital categories for insured depository institutions for this purpose: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered “well-capitalized” under these standards, an institution must maintain a total risk-based capital ratio of 10% or greater; a Tier 1 risk-based capital ratio of 6% or greater; a leverage capital ratio of 5% or greater; and not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” institution must have a Tier 1 capital ratio of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at least 4%. Federal law also requires the bank regulatory agencies to implement systems for “prompt corrective action” for institutions that fail to meet minimum capital requirements within the five capital categories, with progressively more severe restrictions on operations, management and capital distributions according to the category in which an institution is placed. Failure to meet capital requirements can also cause an institution to be directed to raise additional capital. Federal law also mandates that the agencies adopt safety and soundness standards relating generally to operations and management, asset quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards.

Brokered Deposits

      Brokered deposits include funds obtained, directly or indirectly, by or through a deposit broker for deposit into one or more deposit accounts. Well-capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are not permitted to accept brokered deposits. Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. are permitted to accept brokered deposits.

Anti-Money Laundering Laws

      Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. are subject to the Bank Secrecy Act and its implementing regulations and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. Among other things, these laws and regulations require Irwin Union Bank and Trust and Irwin Union Bank F.S.B to take steps to prevent the use of each institution for facilitating the flow of illegal or illicit money, to report large currency transactions and to file suspicious activity reports. Each bank also is required to develop and implement a comprehensive anti-money laundering compliance program. Banks also must have in place appropriate “know your customer” policies and procedures. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

Compliance with Consumer Protection Laws

      Our subsidiaries also are subject to federal and state consumer protection statutes and regulations including the Equal Credit Opportunity Act, the Fair Housing Act, the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act. Among other things, these acts:

•  require lenders to disclose credit terms in meaningful and consistent ways;

•  prohibit discrimination against an applicant in any consumer or business credit transaction;

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•  prohibit discrimination in housing-related lending activities;

•  require certain lenders to collect and report applicant and borrower data regarding loans for home purchases or improvement projects;

•  require lenders to provide borrowers with information regarding the nature and cost of real estate settlements;

•  prohibit certain lending practices and limit escrow account amounts with respect to real estate transactions; and

•  prescribe possible penalties for violations of the requirements of consumer protection statutes and regulations.

      In addition, banking subsidiaries are subject to a number of federal and state regulations that offer consumer protections to depositors, including account terms and disclosures, funds availability and electronic funds transfers.

      As part of the home equity line of business in conjunction with its subsidiary, Irwin Home Equity, Irwin Union Bank and Trust originates home equity loans through its branch in Carson City, Nevada. Irwin Union Bank and Trust uses interest rates and loan terms in its home equity loans and lines of credit that are authorized by Nevada law, but might not be authorized by the laws of the states in which the borrowers are located. As a FDIC-insured, state member bank, Irwin Union Bank and Trust is authorized by Section 27 of the FDIA to charge interest at rates allowed by the laws of the state where the bank is located regardless of any inconsistent state law, and to apply these rates to loans to borrowers in other states. The FDIC has opined that a state bank with branches outside of the state in which it is chartered may also be located in a state in which it maintains an interstate branch. Irwin Union Bank and Trust relies on Section 27 of the FDIA and the FDIC opinion in conducting its home equity lending business described above. From time to time, state regulators have questioned the application of Section 27 of the FDIA to credit practices affecting citizens of their states. Any change in Section 27 of the FDIA or in the FDIC’s interpretation of this provision, or any successful challenge as to the permissibility of these activities, could require that we change the terms of some of our loans or the manner in which we conduct our home equity line of business.

Employees and Labor Relations

      At January 31, 2006 we and our subsidiaries had a total of 2,445 employees, including full-time and part-time employees. We continue a commitment of equal employment opportunity for all job applicants and staff members, and management regards its relations with its employees as satisfactory.

Executive Officers

      Our executive officers are elected annually by the Board of Directors and serve until their successors are qualified and elected. In addition to our Chairman and Chief Executive Officer, Mr. William I. Miller (49), who also serves as a director, our executive officers are listed below.

      Gregory F. Ehlinger (43) has been our Senior Vice President and Chief Financial Officer since August of 1999. He has been one of our officers since August 1992.

      Jose M. Gonzalez (47) has been our Vice President-Director Internal Audit since October 1995.

      Robert H. Griffith (47) has been President and Chief Executive Officer of Irwin Mortgage since January 2001. He has been an officer of Irwin Mortgage since 1993.

      Theresa L. Hall (53) has been our Vice President-Human Resources since 1988 and one of our officers since 1980.

      Bradley J. Kime (45) has been President of Irwin Union Bank’s commercial line of business since May 2003 and President of Irwin Union Bank F.S.B. since December 2000. He has been an officer of Irwin Union Bank and Trust since 1987 and one of our officers since 1986.

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      Joseph R. LaLeggia (44) has been President of Irwin Commercial Finance Corporation since July of 2002. He has been the President and Chief Executive Officer of Irwin Commercial Finance Canada Corporation (formerly, Onset Capital Corporation) since April 1998.

      Jody A. Littrell (38) has been our Vice President and Controller since March 2000.

      Jocelyn Martin-Leano (44) has served as Interim President of Irwin Home Equity since December 30, 2005. She has served in several executive officer positions since joining Irwin Home Equity in 1995.

      David S. Meyercord (38) has been Senior Vice President of Irwin Ventures since 2000 and President of Irwin Shared Services since June 2005. He has held several management and executive positions at the parent company since 1997.

      Steven R. Schultz (41) re-joined us as Vice President-General Counsel in January of 2006. He served as General Counsel to the Governor of Indiana during 2005. He joined us as Vice President-Legal in January 2002. From August 1999 through December 2001 he was an attorney in the London office of Fried, Frank, Harris, Shriver & Jacobson, focusing primarily on mergers and acquisitions, capital markets financings and private equity transactions

      Matthew F. Souza (48) has been our Senior Vice President-Ethics since August 1999 and our Secretary since 1986. He has been one of our officers since 1986.

      Brett R. Vanderkolk (40) has been our Vice President-Treasurer since September 2000.

      Thomas D. Washburn (58) has been our Executive Vice President since August 1999 and one of our officers since 1976. From 1981 to August 1999 he served as our Senior Vice President and Chief Financial Officer.

Item 1A.      Risk Factors

      An investment in our securities involves a number of risks. We urge you to read all of the information contained in this Report on Form 10-K. In addition, we urge you to consider carefully the following factors in evaluating an investment in our common shares.

Risks Relating to General Economic Conditions and Interest Rates.

      We may be adversely affected by a general deterioration in economic conditions.

      The risks associated with our business become more acute in periods of a slowing economy or slow growth. Economic declines may be accompanied by a decrease in demand for consumer and commercial credit and declining real estate and other asset values. Delinquencies, foreclosures and losses generally increase during economic slowdowns or periods of slow growth. We expect that our servicing costs and credit losses will increase during periods of economic slowdown or slow growth.

      In our consumer mortgage lines of business, a material decline in real estate values may reduce the ability of borrowers to use home equity to support borrowings and could increase the loan-to-value ratios of loans we have previously made, thereby weakening collateral coverage and increasing the possibility of a loss in the event of a default. A decline in real estate values could also materially reduce the amount of home equity loans we produce.

      We may be adversely affected by interest rate changes.

      We and our subsidiaries are subject to interest rate risk. Changes in interest rates will affect the value of loans, deposits and other interest-sensitive assets and liabilities on our balance sheet. Our income may be at risk because changes in interest rates also affect our net interest margin and the value of assets and derivatives that we sell from time to time or that are subject to either mark-to-market accounting or lower-of-cost-or-market accounting, such as loans held for sale, mortgage servicing rights and derivatives instruments.

      Reductions in interest rates expose us to write-downs in the carrying value of the mortgage servicing and other servicing assets we hold on our balance sheet. These assets are recorded at the lower of their cost or

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market value and a valuation allowance is recorded for any impairment. Decreasing interest rates often lead to increased prepayments in the underlying loans which requires that we write down the carrying value of these servicing assets. The change in value of these assets, if improperly hedged or mismanaged, could adversely affect our operating results in the period in which the impairment occurs.

      Our commercial lending and commercial finance lines of business mainly depend on earnings derived from net interest income. Net interest income is the difference between interest earned on loans and investments and the interest expense paid on other borrowings, including deposits at our banks and other funding liabilities we have. Our interest income and interest expense are affected by general economic conditions and by the policies of regulatory authorities, including the monetary policies of the Federal Reserve that cause our funding costs and yields on new or variable rate assets to change.

      Although we take measures intended to manage the risks of operating in changing interest rate environments, we cannot eliminate interest rate sensitivity. Our goal is to ensure that interest rate sensitivity does not exceed prudent levels as determined by our Board of Directors in certain policies. Our risk management techniques include modeling interest rate scenarios, using financial hedging instruments, match-funding certain loan assets, selling selected servicing rights and maintaining a strong loan production operation to offset interest rate risk. There are costs and risks associated with our risk management techniques, and these could be substantial.

      Finally, to reduce the effect interest rates have on our businesses, we periodically invest in derivatives and other interest-sensitive instruments. While our intent in purchasing these instruments is to reduce our overall interest rate sensitivity, the performance of these instruments can, at times, cause volatility in our results either due to factors such as basis risk between the derivatives and the hedged item, timing of accounting recognition differences or other such factors.

Risks Relating to an Investment in Us.

      We have recently had financial performance below that of peers and have lost money in two of the past four quarters.

      In the first and second quarters of 2005, we lost money and in the fourth quarter of 2005 earned substantially less as a percentage of assets than peers. While we believe we are addressing the factors that caused this underperformance, there can be no assurance if and when our results will surpass that of our peers.

      We may need additional capital in the future and adequate financing may not be available to us on acceptable terms, or at all.

      We anticipate that we will be able to access capital markets as necessary to fund the growth of our business. However, we have recently been growing at a rate that exceeds our ability to generate internally capital sufficient to maintain our desired capital levels. We intend to seek additional capital in the future to fund growth of our operations and to maintain our regulatory capital above well-capitalized standards. We may not be able to obtain additional debt or equity financing, or, if available, it may not be in amounts and on terms acceptable to us. If we are unable to obtain the funding we need, we may be unable to develop our products and services, take advantage of future opportunities or respond to competitive pressures, which could have a material adverse effect on us.

      Our operations may be adversely affected if we are unable to secure adequate funding; our use of wholesale funding sources and securitizations exposes us to potential liquidity risk.

      Due to balance sheet growth, in recent quarters we have increased our reliance on wholesale funding, such as short-term credit facilities, Federal Home Loan Bank borrowings and brokered deposits. Because wholesale funding sources are affected by general capital market conditions, the availability of funding from wholesale lenders may be dependent on the confidence these investors have in commercial and consumer finance businesses. The continued availability to us of these funding sources is uncertain, and we could be adversely impacted if our business segments become disfavored by wholesale lenders. In addition, brokered deposits may be difficult for us to retain or replace at attractive rates as they mature. Our financial flexibility

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could be severely constrained if we are unable to renew our wholesale funding or if adequate financing is not available in the future at acceptable rates of interest. We may not have sufficient liquidity to continue to fund new loans or lease originations and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature.

      We regularly sell the majority of our first and second mortgage loan originations into the secondary market through the use of securitizations. At times, some of our financial assets, such as nontraditional, high loan-to-value home equity loans or residuals, may not be readily marketable, and we may not be able to sell assets at favorable prices when necessary. This could adversely affect our liquidity and funding for future originations and purchases of loans.

      We have announced our intention to seek strategic alternatives, including the possible sale of the operation of our conventional mortgage segment. This segment has been a net provider of liquidity to the Corporation and our divestiture of it would cause us to seek alternative funding sources to contribute to our other lines of business.

      We have credit risk inherent in our asset portfolios.

      In our businesses, some borrowers may not repay loans that we make to them. As all financial institutions do, we maintain an allowance for loan and lease losses to absorb the level of losses that we think is probable in our portfolios. However, our allowance for loan and lease losses may not be sufficient to cover the loan and lease losses that we actually may incur. While we maintain a reserve at a level management believes is adequate, our charge-offs could exceed these reserves. If we experience defaults by borrowers in any of our businesses to a greater extent than anticipated, our earnings could be negatively impacted.

      Certain of our consumer mortgage products are not sold by many financial institutions.

      Product design is important to us to differentiate us in consumer mortgage lending. We have developed our lines of business by identifying niches that we believe offer us a competitive opportunity. For this reason, the performance of our financial assets may be less predictable than those of other lenders. We may not have the same history of delinquency and loss experience to utilize in pricing and structuring some of our products as do lenders offering more seasoned asset types, and it may be more difficult to sell or securitize certain, more innovative, products.

      The generally accepted accounting principals (GAAP) for our activities have evolved in a meaningful manner in the past decade and we expect continued change.

      We may also be impacted by changes in evolving generally accepted accounting principles, unanticipated financial reporting requirements and regulatory uncertainties since accounting and regulatory treatment may not be well established for some of our strategies. We have had a recent history of unintentional, but material misstatement in our financial statement filings in connection with a novel asset and were required to file amended periodic filings for 2004 and the first and second quarters of 2005. While we believe we have appropriate safeguards in place to prevent a recurrence of these misstatements, we cannot guarantee that a subsequent error will not be made.

      We rely heavily on our management team and key personnel, and the unexpected loss of key managers and personnel may affect our operations adversely.

      Each line of our lines of business has a management team that operates its niche as a separate business unit. Our overall financial performance depends heavily on the results of these different specialized financial services businesses. Our success to date has been influenced strongly by our ability to attract and to retain senior management that is experienced in banking and financial services. Our ability to retain executive officers and the current management teams of each of our lines of business will continue to be important to implement our strategies successfully.

      Ownership of our common stock is concentrated in persons affiliated with us.

      Our Chairman and CEO, William I. Miller, currently has voting control, including common shares beneficially held through employee stock options that are exercisable within 60 days of the record date, of

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approximately 38% of our common shares. Together with Mr. Miller, directors and executive officers of Irwin beneficially own, including the right to acquire common stock through employee stock options that are exercisable within 60 days of the record date, more than 40% of our common shares. These persons likely have the ability to substantially control the outcome of all shareholder votes and to direct our affairs and business. This voting power would enable them to cause actions to be taken that may prove to be inconsistent with the interests of non-affiliated shareholders.

      Our future success depends on our ability to compete effectively in highly competitive financial services industry.

      The financial services industry, including commercial banking, mortgage banking, home equity lending and equipment leasing, is highly competitive, and we and our operating subsidiaries encounter strong competition for deposits, loans and other financial services in all of our market areas in each of our lines of business. Our principal competitors include other commercial banks, savings banks, savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing companies, credit unions, mortgage companies, real estate investment trusts (REITs), private issuers of debt obligations, venture capital firms, and suppliers of other investment alternatives, such as securities firms. Many of our non-bank competitors are not subject to the same degree of regulation as we and our subsidiaries are and have advantages over us in providing certain services. Many of our competitors are significantly larger than we are and have greater access to capital and other resources. Also, our ability to compete effectively in our lines of business is dependent on our ability to adapt successfully to technological changes within the banking and financial services industry generally.

      Our shareholder rights plan, provisions in our restated articles of incorporation, our by-laws, and Indiana law may delay or prevent an acquisition of us by a third party.

      Our Board of Directors has implemented a shareholder rights plan. The rights have certain anti-takeover effects. The overall effects of the plan may be to render more difficult or to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a larger block of our shares and the removal of incumbent directors and key management even if such removal would be beneficial to shareholders generally. If triggered, the rights will cause substantial dilution to a person or group that attempts to acquire us without approval of our Board of Directors, and under certain circumstances, the rights beneficially owned by the person or group may become void. The plan also may have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers whether or not such transactions are favored by incumbent directors and key management. In addition, our executive officers may be more likely to retain their positions with us as a result of the plan, even if their removal would be beneficial to shareholders generally.

      Our restated articles of incorporation and our by-laws as well as Indiana law contain provisions that make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions also could discourage proxy contests and may make it more difficult for you and other shareholders to elect your own representatives as directors and take other corporate actions.

      Our by-laws do not permit cumulative voting of shareholders in the election of directors, allowing the holders of a majority of our outstanding shares to control the election of all our directors. We have a staggered board which means that only one-third of our board can be replaced by shareholders at any annual meeting. Directors may not be removed by shareholders. As a result of his share ownership position, our Chairman, William I. Miller, will likely be able to exercise effective control over the outcome of any shareholder vote. Our by-laws also provide that only our Board of Directors, and not our shareholders, may adopt, alter, amend and repeal our by-laws.

      Indiana law provides several limitations that may discourage potential acquirers from purchasing our common shares. In particular, Indiana law prohibits business combinations with a person who acquires 10% or more of our common shares during the five-year period after the acquisition of 10% by that person or entity, unless the acquirer receives prior approval for the acquisition of the shares or business combination from our Board of Directors.

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      These and other provisions of Indiana law and our governing documents could provide the Board of Directors with the negotiating leverage to achieve a more favorable outcome for our shareholders in the event of an offer for the Company. On the other hand, these same anti-takeover provisions could have the effect of delaying, deferring or preventing a transaction or a change in control that might be in the best interest of our shareholders.

      We are the defendant in class actions and other lawsuits that could subject us to material liability.

      Our subsidiaries have been named as defendants in lawsuits that allege we violated state and federal laws in the course of making loans and leases. Among the allegations are that we charged impermissible and excessive rates and fees, participated in fraudulent financing, and are responsible for injuries to renters whose landlord had a mortgage with our subsidiary. Most of these cases either seek or have attained class action status, which generally involves a large number of plaintiffs and could result in potentially increased amounts of loss. We have not established reserves in the majority of these lawsuits due to either lack of probability of loss or inability to accurately estimate potential loss. If decided against us, the lawsuits have the potential to affect us materially. The Legal Proceedings section in Part I, Item 3 of this Report describes in more detail the lawsuits in which we are named as defendants that potentially could result in material liability.

      Our business may be affected adversely by the highly regulated environment in which we operate.

      We and our subsidiaries are subject to extensive federal and state regulation and supervision. Our failure to comply with these requirements can lead to, among other remedies, administrative enforcement actions, termination or suspension of our licenses, rights of rescission for borrowers, and class action lawsuits. Recently enacted, proposed and future legislation and regulations have had, will continue to have or may have significant impact on the financial services industry. Regulatory or legislative changes could make regulatory compliance more difficult or expensive for us, causing us to change or limit some of our consumer loan products or the way we operate our different lines of business. Future changes could affect the profitability of some or all of our lines of business.

      The consumer lending business in which we engage is highly regulated and has been the subject of increasing legislative and regulatory initiatives. Federal, state and local government agencies and/or legislators have adopted and continue to consider legislation to restrict lenders’ ability to charge rates and fees in connection with residential mortgage loans. In general, these proposals involve lowering the existing federal Homeownership and Equity Protection Act thresholds for defining a “high-cost” loan, and establishing enhanced protections and remedies for borrowers who receive these loans. Frequently referred to as “predatory lending” legislation, many of these laws and rules also restrict commonly accepted lending activities, including some of our activities, such as offering balloon loan features and prepayment charges. These laws, regulations and initiatives have, and could further, limit our ability to impose various fees and charge what we believe are risk-based interest rates on various types of consumer loans, and may impose additional regulatory restrictions on our business in certain states.

      Because we originate home equity loans from our banking branch in Nevada, federal law permits us to charge interest rates and certain fees associated with the interest rate permitted by Nevada law regardless of where the borrowers may reside. Nonetheless, from time to time regulators and customers from other states have questioned our ability to charge certain fees, such as prepayment penalties, to residents of their states. At least one of the lawsuits pending against us challenges our ability to charge these fees to borrowers in another state. A change in federal or state law or regulation, or an adverse interpretation or decision by a court in litigation on this issue, may affect the rates and fees we charge on home equity loans made to borrowers outside Nevada.

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      Our regulators have policies that can restrict the payment of cash dividends from our banking subsidiaries to us and from us to our shareholders. We have paid dividends on our common stock in the past but there is no certainty that we will continue to do so.

      Like other registrants, we are subject to the requirements of the Sarbanes-Oxley Act of 2002. Failure to have in place adequate programs and procedures could cause us to have gaps in our internal control environment, putting the Corporation and its shareholders at risk of loss.

      These and other potential changes in government regulation or policies could increase our costs of doing business and could adversely affect our operations and the manner in which we conduct our business.

Item 2. Properties

      Our main office is located at 500 Washington Street, Columbus, Indiana, in space leased from Irwin Union Bank and Trust. The location and general character of our other materially important physical properties as of January 31, 2006 are as follows:

Irwin Union Bank and Trust

      The main office is located in four buildings at 435, 500, 520 and 526 Washington Street, Columbus, Indiana. Irwin Union Realty Corporation, a wholly-owned subsidiary of Irwin Union Bank and Trust, owns these buildings in fee and leases them to Irwin Union Bank and Trust. One or the other of Irwin Union Bank and Trust or Irwin Union Realty owns the branch properties in fee at seven locations in Bartholomew County, Indiana. These properties have no major encumbrances. Irwin Union Bank and Trust or Irwin Union Realty owns or leases nine other branch offices in Central and Southern Indiana, four offices in Michigan, two offices in Nevada, and one in Utah.

Irwin Union Bank, F.S.B.

      The home office is located at 500 Washington Street, Columbus Indiana. Irwin Union Bank, F.S.B. has six branch offices located in Arizona, California (2), Kentucky Missouri, and Wisconsin. All offices are leased.

Irwin Commercial Finance Corporation

      The main office of Irwin Commercial Finance Corporation is located at 500 Washington Street, Columbus, Indiana. The office of our domestic commercial finance operation, Irwin Commercial Finance Corporation, Equipment Finance, formerly Irwin Business Finance Corporation is located at 330 120th Avenue NE, Bellevue, Washington and is leased. Our Canadian commercial finance subsidiary, Irwin Commercial Finance Canada Corporation (formerly Onset Capital Corporation), leases its main office at Suite 300 Park Place, 666 Burrard Street, Vancouver, British Columbia, Canada, and leases its three processing centers in Calgary, Alberta; Toronto, Ontario; and Montreal, Quebec. The main offices of our franchise lending subsidiary, Irwin Franchise Capital Corporation, are located at 10 Paragon Drive, Montvale, New Jersey and 2700 Westchester Avenue, Purchase, New York and are both leased. In addition, Irwin Franchise Capital owns the building that houses its telesales center at 2715 13th Street, Columbus, Nebraska.

Irwin Home Equity

      The main office is located at 12677 Alcosta Boulevard, Suite 500, San Ramon, California. Irwin Home Equity occupies one other office at this location in San Ramon, California and an office located at 2550 West Tyvola Rd., Suite 290, Charlotte, North Carolina. All three offices are leased.

Irwin Mortgage

      The main office, where administrative and servicing activities are centered, is located at 10500 Kincaid Drive, Fishers, Indiana, and is leased. Loan production and satellite offices, which are leased, are operated from approximately 48 locations in 27 states.

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Item 3. Legal Proceedings

Culpepper v. Inland Mortgage Corporation

      Our indirect subsidiary, Irwin Mortgage Corporation (formerly Inland Mortgage Corporation), is a defendant in a class action lawsuit in the United States District Court for the Northern District of Alabama, filed in April 1996, alleging that Irwin Mortgage violated the federal Real Estate Settlement Procedures Act (RESPA) relating to Irwin Mortgage’s payment of broker fees to mortgage brokers. In June 2001, the Court of Appeals for the 11th Circuit upheld the district court’s certification of a plaintiff class. In November 2001, the parties filed supplemental briefs analyzing the impact of an October 18, 2001 policy statement issued by the Department of Housing and Urban Development (HUD) that explicitly disagreed with the judicial interpretation of RESPA by the Court of Appeals for the 11th Circuit in its ruling upholding class certification in this case.

      Subsequently, the 11th Circuit subsequently decided three other RESPA cases. In one of those cases, the 11th Circuit concluded that the trial court had abused its discretion in certifying a class action under RESPA. Further, in that decision, the 11th Circuit expressly recognized it was, in effect, overruling its previous decision upholding class certification in our case. In March 2003, Irwin Mortgage filed a motion to decertify the class. Irwin Mortgage and the plaintiffs also filed motions for summary judgment.

      On February 7, 2006, the trial court denied the plaintiffs’ motion for summary judgment and granted Irwin Mortgage’s motions to decertify the class and for summary judgment, thereby dismissing this case. The plaintiffs then filed a notice of appeal with the Court of Appeals for the 11th Circuit. If the plaintiffs were to prevail on their appeal and also prevail at a subsequent trial on the merits, Irwin Mortgage could be liable for RESPA damages that could be material to our financial position. However, Irwin Mortgage believes the 11th Circuit’s RESPA ruling in a similar case argued before it would support a decision in this case affirming the trial court in favor of Irwin Mortgage. We therefore have not established any reserves for this case.

Silke v. Irwin Mortgage Corporation

      In April 2003, our indirect subsidiary, Irwin Mortgage Corporation, was named as a defendant in a class action lawsuit filed in the Marion County, Indiana, Superior Court. The complaint alleges that Irwin Mortgage charged a document preparation fee in violation of Indiana law for services performed by clerical personnel in completing legal documents related to mortgage loans. Irwin Mortgage filed an answer on June 11, 2003 and a motion for summary judgment on October 27, 2003. On June 18, 2004, the court certified a plaintiff class consisting of Indiana borrowers who were allegedly charged the fee by Irwin Mortgage any time after April 17, 1997. This date was later clarified by stipulation of the parties to be April 14, 1997. In November 2004, the court heard arguments on Irwin Mortgage’s motion for summary judgment and plaintiffs’ motion seeking to send out class notice. On January 23, 2006, the court ruled that dissemination of class notice can proceed before the court addresses the motion for summary judgment. We are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin Mortgage could suffer. We have not established any reserves for this case.

Cohens v. Inland Mortgage Corporation

      In October 2003, our indirect subsidiary, Irwin Mortgage Corporation (formerly Inland Mortgage Corporation), was named as a defendant, along with others, in an action filed in the Supreme Court of New York, County of Kings. The plaintiffs, a mother and two children, allege they were injured from lead contamination while living in premises allegedly owned by the defendants. The suit seeks approximately $41 million in damages and alleges negligence, breach of implied warranty of habitability and fitness for intended use, loss of services and the cost of medical treatment. On June 15, 2005, Irwin Mortgage filed an answer and cross-claims seeking dismissal of the complaint. We are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin Mortgage could suffer. We have not established any reserves for this case.

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Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia

      Our subsidiary, Irwin Union Bank and Trust Company, is a defendant in several actions in connection with loans Irwin Union Bank purchased from Community Bank of Northern Virginia (Community).

      Hobson v. Irwin Union Bank and Trust Company was filed on July 30, 2004 in the United States District Court for the Northern District of Alabama. As amended on August 30, 2004, the Hobson complaint, seeks certification of both a plaintiffs’ and a defendants’ class, the plaintiffs’ class to consist of all persons who obtained loans from Community and whose loans were purchased by Irwin Union Bank. Hobson alleges that defendants violated the Truth-in-Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), the Real Estate Settlement Procedures Act (RESPA) and the Racketeer Influenced and Corrupt Organizations Act (RICO). On October 12, 2004, Irwin filed a motion to dismiss the Hobson claims as untimely filed and substantively defective.

      Kossler v. Community Bank of Northern Virginia was originally filed in July 2002 in the United States District Court for the Western District of Pennsylvania. Irwin Union Bank and Trust was added as a defendant in December 2004. The Kossler complaint seeks certification of a plaintiffs’ class and seeks to void the mortgage loans as illegal contracts. Plaintiffs also seek recovery against Irwin for alleged RESPA violations and for conversion. On September 9, 2005, the Kossler plaintiffs filed a Third Amended Class Action Complaint. On October 21, 2005, Irwin filed a renewed motion seeking to dismiss the Kossler action.

      The plaintiffs in Hobson and Kossler claim that Community was allegedly engaged in a lending arrangement involving the use of its charter by certain third parties who charged high fees that were not representative of the services rendered and not properly disclosed as to the amount or recipient of the fees. The loans in question are allegedly high cost/high interest loans under Section 32 of HOEPA. Plaintiffs also allege illegal kickbacks and fee splitting. In Hobson, the plaintiffs allege that Irwin was aware of Community’s alleged arrangement when Irwin purchased the loans and that Irwin participated in a RICO enterprise and conspiracy related to the loans. Because Irwin bought the loans from Community, the Hobson plaintiffs are alleging that Irwin has assignee liability under HOEPA.

      If the Hobson and Kossler plaintiffs are successful in establishing a class and prevailing at trial, possible RESPA remedies could include treble damages for each service for which there was an unearned fee, kickback or overvalued service. Other possible damages in Hobson could include TILA remedies, such as rescission, actual damages, statutory damages not to exceed the lesser of $500,000 or 1% of the net worth of the creditor, and attorneys’ fees and costs; possible HOEPA remedies could include the refunding of all closing costs, finance charges and fees paid by the borrower; RICO remedies could include treble plaintiffs’ actually proved damages. In addition, the Hobson plaintiffs are seeking unspecified punitive damages. Under TILA, HOEPA, RESPA and RICO, statutory remedies include recovery of attorneys’ fees and costs. Other possible damages in Kossler could include the refunding of all origination fees paid by the plaintiffs.

      Irwin Union Bank and Trust Company is also a defendant, along with Community, in two individual actions (Chatfield v. Irwin Union Bank and Trust Company, et al. and Ransom v. Irwin Union Bank and Trust Company, et al.) filed on June 9, 2004 in the Circuit Court of Frederick County, Maryland, involving mortgage loans Irwin Union Bank purchased from Community. On July 16, 2004, both of these lawsuits were removed to the United States District Court for the District of Maryland. The complaints allege that the plaintiffs did not receive disclosures required under HOEPA and TILA. The lawsuits also allege violations of Maryland law because the plaintiffs were allegedly charged or contracted for a prepayment penalty fee. Irwin believes the plaintiffs received the required disclosures and that Community, a Virginia-chartered bank, was permitted to charge prepayment fees to Maryland borrowers. Under the loan purchase agreements between Irwin and Community, Irwin has the right to demand repurchase of the mortgage loans and to seek indemnification from Community for the claims in these lawsuits. On September 17, 2004, Irwin made a demand for indemnification and a defense to Hobson, Chatfield and Ransom. Community denied this request as premature.

      In response to a motion by Irwin, the Judicial Panel On Multidistrict Litigation consolidated Hobson, Chatfield and Ransom with Kossler in the Western District of Pennsylvania for all pretrial proceedings.

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We have established a reserve for the Community litigation based upon SFAS 5 guidance and the advice of legal counsel.

Litigation Related to NorVergence, Inc.

      Irwin Commercial Finance Corporation, Equipment Finance (“Equipment Finance”) (formerly known as Irwin Business Finance), our indirect subsidiary, is involved on a national basis in equipment leasing finance and maintains a diverse portfolio of leases, including leases in the telecommunications field. A portion of Equipment Finance’s telecommunications portfolio involves leases of equipment acquired from NorVergence, Inc., a New Jersey-based telecommunications company. After assigning leases to Equipment Finance and other lenders, NorVergence became a debtor in a Chapter 7 bankruptcy, which is currently pending in the United States Bankruptcy Court in New Jersey. The sudden failure of NorVergence left many of its customers without telecommunications service. These customers became very angry when commitments made to them by NorVergence went unfulfilled.

      Complaints by former NorVergence customers have led to investigations by the attorneys general of several states. Equipment Finance has been named as a defendant in several lawsuits connected with NorVergence. Exquisite Caterers, LLC et al. v. Popular Leasing et al. is a lawsuit filed in the Superior Court of New Jersey, Monmouth County, and was amended to include Equipment Finance and others on September 1, 2004. The Exquisite Caterers plaintiffs seek certification of a class of persons who leased network computer equipment from NorVergence, whose leases were assigned to defendants. The complaint alleges that NorVergence misrepresented the services and equipment provided, that the lessees were defrauded and the lease agreements should not be enforced. The action alleges violations of, among other things, the New Jersey Consumer Fraud Act; the New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act; the FTC Holder Rule; the FTC Act; and breach of contract and implied warranties. The plaintiffs seek compensatory, statutory and punitive damages, and injunctive relief, including rescission of the leases and cessation of collections. On June 16, 2005, the judge in the Exquisite Caterers lawsuit denied plaintiffs’ alternative motions for certification of either a nationwide class or a class of New Jersey residents only. Plaintiffs then filed a motion for reconsideration of the order denying certification of a class limited to New Jersey residents. At a hearing on September 14, 2005, the judge granted plaintiffs’ motion for reconsideration and certified a class limited to New Jersey residents. Equipment Finance has fewer than ten lessees who may qualify as members of the New Jersey class certified in the Exquisite Caterers lawsuit.

      Equipment Finance was also named as a defendant, along with other lenders, in Delanco Board of Education et al. v. IFC Credit Corporation, a lawsuit filed in the Superior Court of New Jersey, Essex County, Chancery Division, in October 2004 in connection with leases assigned to the lenders by NorVergence. (IFC Credit Corporation is not affiliated with Irwin Financial Corporation or Equipment Finance.) The suit involved more than one thousand plaintiffs and alleged fraud, misrepresentation and violations of the New Jersey Consumer Fraud law based on alleged conduct similar to that in Exquisite Caterers, with the addition of a count under the New Jersey RICO statute. Plaintiffs also alleged unjust enrichment and conversion and sought rescission of the leases plus punitive and other damages. After failing in an attempt to obtain a temporary injunction, the plaintiffs agreed to withdraw the complaint filed in the Superior Court and commenced actions in the NorVergence bankruptcy proceeding, seeking similar relief. Equipment Finance filed a motion to dismiss it from the adversary proceeding and is awaiting the court’s ruling on the motion.

      Equipment Finance was also named as a defendant, along with other lenders, in Sterling Asset & Equity Corp. et al. v. Preferred Capital, Inc. et al., an action filed in the United States District Court for the Southern District of Florida in October 2004, which was voluntarily dismissed in January 2005. The plaintiffs then filed a similar complaint in the Circuit Court of the 11th Judicial Circuit, Miami-Dade County, Florida on January 14, 2005 seeking class certification on behalf of Florida persons or entities who leased equipment from NorVergence and whose agreement was assigned to one of the named lenders. The plaintiffs allege that NorVergence engaged in false, misleading and deceptive sales and billing practices. The complaint alleges violations of the Florida Deceptive and Unfair Trade Practices Act, the FTC Holder Rule, and breach of contract and warranties. Plaintiffs seek, among other relief, compensatory and punitive damages, injunctive and/or declaratory relief prohibiting enforcement of the leases, rescission, return of payments, interest,

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attorneys’ fees and costs. Plaintiffs voluntarily dismissed this action in June of 2005 after Equipment Finance had filed its motion to dismiss the complaint.

      In connection with investigations by various state attorneys general, Equipment Finance and other lenders were asked to produce information about their relationships with NorVergence and to refrain from enforcing NorVergence leases. Equipment Finance is pursuing discussions with most of the states in which it has customers who executed agreements with NorVergence and has discontinued collection activities while discussions are in progress. Equipment Finance has now executed agreements with: the Attorney General of California, providing for recovery of 15% of outstanding balances on California leases as of July 15, 2004, and with the Attorney General of Florida, entitling Equipment Finance to lease payments through January 31, 2005. In November of 2005, Equipment Finance extended the benefits of the California settlement to NorVergence customers residing in Texas. Equipment Finance recently executed an agreement with a multi-state group of attorneys general. The multi-state agreement requires that NorVergence lessees be offered the opportunity to pay Equipment Finance all amounts due on their leases through July 15, 2004, plus 15% of the then-outstanding balance in full satisfaction of their lease obligations.

      On October 21, 2004, the Attorney General of Florida filed a complaint against twelve lenders, including Equipment Finance, in the Circuit Court of the Second Judicial Circuit, Leon County, Florida (State of Florida v. Commerce Commercial Leasing, LLC et al.) This suit was stayed by agreement of the parties while they discussed resolution of the concerns expressed by the Florida Attorney General. The complaint alleged that the agreements assigned by NorVergence to the lenders were unconscionable under the Florida Deceptive and Unfair Trade Practices Act. The suit also sought to prohibit collection activities by the lenders and asked for repayment of revenues, rescission of the agreements, restitution, recovery of actual damages, and civil money penalties. On April 29, 2005, acting on defendants’ motion to dismiss, the judge in the Commerce Commercial Leasing action dismissed the action in its entirety. The Attorney General of Florida appealed the order of dismissal. Equipment Finance was dismissed from the appeal as a result of its settlement with the State of Florida.

      The individual lawsuit filed against Equipment Finance in September 2004 in the Superior Court of Massachusetts was put on hold pending discussions with the multi-state group of attorneys general, of which the Attorney General of Massachusetts is a participant. The plaintiff in this action has been offered the opportunity to participate in the multi-state settlement program, and Equipment Finance is awaiting a response to its offer.

      Agreements with state attorneys general and recent favorable court rulings have significantly reduced the risk that damages might be awarded against Equipment Finance in NorVergence-related class actions and other lawsuits. We have established loss reserves for customer reimbursements required under agreements already closed with various states’ attorneys general. We have not established reserves in connection with NorVergence-related litigation.

Putkowski v. Irwin Home Equity Corporation and Irwin Union Bank and Trust Company

      On August 12, 2005, our indirect subsidiary, Irwin Home Equity Corporation, and our direct subsidiary, Irwin Union Bank and Trust Company (collectively, “Irwin”), were named as defendants in litigation seeking class action status in the United States District Court for the Northern District of California. The plaintiffs allege Irwin violated the Fair Credit Reporting Act (“FCRA”) by using or obtaining plaintiffs’ consumer reports for credit transactions not initiated by plaintiffs and for which they did not receive firm offers of credit. The plaintiffs also allege that Irwin failed to provide clear and conspicuous disclosures as required by the FCRA. The complaint seeks declaratory and injunctive relief, statutory damages of $1,000 per each separate violation and punitive damages for alleged willful violations of the FCRA. Plaintiffs filed an Amended Complaint on October 4, 2005. On October 18, 2005, Irwin moved to dismiss the Amended Complaint for failure to state a claim. Irwin believes it has strong defenses to plaintiffs’ claims; however, we are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin could suffer and have not established any reserves for this case.

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White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation

      On January 5, 2006, our direct subsidiary, Irwin Union Bank and Trust Company, and our indirect subsidiary, Irwin Home Equity Corporation, (collectively, “Irwin”) were named as defendants in litigation in the Circuit Court for Baltimore City, Maryland. The plaintiffs allege that Irwin charged or caused plaintiffs to pay certain fees, costs and other charges that were excessive or illegal under Maryland law in connection with loans made to plaintiffs by Irwin. The plaintiffs seek certification of a class consisting of Maryland residents who received mortgage loans from Irwin secured by real property in the State of Maryland and who claim injury due to Irwin’s lending practices. The plaintiffs are seeking damages under the Maryland Mortgage Lending Laws and the Maryland Consumer Protection Act for, among other things, relief from further interest payments on their loans, reimbursement of interest, charges, fees and costs already paid, including prepayment penalties paid by the class, and damages of three times the amount of all allegedly excessive or illegal charges paid, plus attorneys’ fees, expenses and costs. In the alternative, the plaintiffs seek arbitration as provided for in their mortgage notes. On February 17, 2006, Irwin filed a notice of removal, and removed the case from state to federal court. At this stage of the litigation, we are unable to form a reasonable estimate of the amount of potential loss, if any, that Irwin could suffer and have not established any reserves for this case.

      We and our subsidiaries are from time to time engaged in various matters of litigation, including the matters described above, other assertions of improper or fraudulent loan practices or lending violations, and other matters, and we have a number of unresolved claims pending. In addition, as part of the ordinary course of business, we and our subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral, and foreclosure interests, that is incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, we believe that damages, if any, and other amounts relating to pending matters are not likely to be material to our consolidated financial position or results of operations, except as described above. Reserves are established for these various matters of litigation, when appropriate under SFAS 5, based in part upon the advice of legal counsel.

Item 4. Submission of Matters to a Vote of Security Holders

      During the fourth quarter of 2005, no matters were submitted to a vote of our security holders, through the solicitation of proxies or otherwise.

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PART II

Item 5. Market for Corporation’s Common Equity and Related Stockholder Matters

      Our stock is listed on the New York Stock Exchange under the symbol “IFC.” The following table sets forth certain information regarding trading in, and cash dividends paid with respect to, the shares of our common stock in each quarter of the two most recent calendar years. The approximate number of shareholders of record on February 17, 2006, was 2,129.

Stock Prices and Dividends:

	Price Range								Total
					Quarter		Cash		Dividends
	High		Low		End		Dividends		For Year
2004
First quarter	$	36.17	$	26.63	$	26.98	$	0.08
Second quarter		27.43		23.10		26.40	$	0.08
Third Quarter		27.58		25.05		25.82	$	0.08
Fourth Quarter		28.85		23.80		28.39	$	0.08	$	0.32
2005
First quarter	$	28.53	$	22.11	$	23.02	$	0.10
Second quarter		22.94		19.58		22.19	$	0.10
Third Quarter		22.75		20.12		20.39	$	0.10
Fourth Quarter		23.32		19.68		21.42	$	0.10	$	0.40

      We expect to continue our policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements, and financial condition. On February 10, 2006, our Board of Directors approved an increase in the first quarter dividend to $0.11 per share, payable in March 2006. Dividends paid by Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. to the Corporation are restricted by banking law.

Sales of Unregistered Securities:

      In 2004, we issued 5,955 shares of common stock pursuant to elections made by eight of our outside directors to receive board compensation under the 1999 Outside Director Restricted Stock Compensation Plan in lieu of cash fees. All of these shares were issued in reliance on the private placement exemption from registration provided in Section 4(2) of the Securities Act.

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Item 6. Selected Financial Data

Five-Year Selected Financial Data

			At or For Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands except per share data)
For the year:
	Net revenues		$	359,524		$	521,412		$	530,445		$	403,788		$	387,019
	Noninterest expense			331,555			407,235			412,043			317,557			312,819
	Income before income taxes			27,969			114,177			118,402			86,231			74,200
	Provision for income taxes			8,982			45,732			45,585			33,398			28,859
	Income before cumulative effect of change in accounting principle			18,987			68,445			72,817			52,833			45,341
	Cumulative effect of change in accounting principle, net of tax			—			—			—			495			175
	Net income		$	18,987		$	68,445		$	72,817		$	53,328		$	45,516
	Mortgage loan originations		$	11,029,183		$	13,093,082		$	22,669,246		$	11,411,875		$	9,225,991
	Home equity loan originations			1,691,636			1,442,314			1,133,316			1,067,227			1,149,410
Common Share Data:
	Earnings per share:(1)
		Basic	$	0.67		$	2.42		$	2.61		$	1.99		$	2.15
		Diluted		0.66			2.28			2.45			1.89			2.00
	Cash dividends per share			0.40			0.32			0.28			0.27			0.26
	Book value per share			17.90			17.61			15.36			12.98			10.81
	Dividend payout ratio			60.18	%		13.24	%		10.76	%		14.01	%		12.13	%
	Weighted average shares — basic			28,518			28,274			27,915			26,823			21,175
	Weighted average shares — diluted			28,841			31,278			30,850			29,675			24,173
	Shares outstanding — end of period			28,618			28,452			28,134			27,771			21,305
At year end:
	Assets		$	6,646,524		$	5,235,820		$	4,988,359		$	4,910,392		$	3,446,602
	Residual interests			22,116			56,101			71,491			157,514			199,071
	Loans held for sale			1,293,519			890,711			883,895			1,314,849			502,086
	Loans and leases			4,498,829			3,450,440			3,161,054			2,815,276			2,137,822
	Allowance for loan and lease losses			59,749			44,443			64,285			50,936			22,283
	Servicing assets			295,754			367,032			380,123			174,935			228,624
	Deposits			3,898,993			3,395,263			2,899,662			2,693,810			2,308,962
	Short-term borrowings			997,444			237,277			429,758			993,124			487,963
	Collateralized debt			668,984			547,477			590,131			391,425			—
	Other long-term debt(2)			270,160			270,172			270,184			30,070			30,000
	Trust preferred securities(2)			—			—			—			233,000			198,500
	Shareholders’ equity			512,334			501,185			432,260			360,555			231,665
	Managed mortgage banking servicing portfolio			18,265,288			26,196,627			29,640,122			16,792,669			12,875,532
Selected Financial Ratios:
Performance Ratios:
	Return on average assets			0.3	%		1.3	%		1.4	%		1.3	%		1.5	%
	Return on average equity			4.0			14.5			18.4			16.7			21.8
	Net interest margin(3)			4.97			5.46			5.82			6.01			5.35

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			At or For Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands except per share data)
	Noninterest income to revenues(4)			31.2			52.9			53.0			52.3			64.8
	Efficiency ratio(5)			85.8			76.0			71.3			70.9			78.1
	Loans and leases and loans held for sale to deposits(6)			110.4			91.4			94.1			89.9			79.1
	Average interest-earning assets to average interest-bearing liabilities			125.5			132.4			132.2			121.7			117.2
Asset Quality Ratios:
	Allowance for loan and lease losses to:
		Total loans and leases		1.3	%		1.3	%		2.0	%		1.8	%		1.0	%
		Non-performing loans and leases		159.7			131.9			144.9			163.6			116.3
	Net charge-offs to average loans and leases			0.3			0.7			1.1			0.7			0.7
	Non-performing assets to total assets			0.8			0.9			1.1			0.8			0.7
	Non-performing assets to total loans and leases and other real estate owned			1.2			1.3			1.7			1.3			1.1
Ratio of Earnings to Fixed Charges:
	Including deposit interest			1.2	x		2.2	x		2.2	x		1.9	x		1.6	x
	Excluding deposit interest			1.4			3.4			3.1			3.0			2.5
Capital Ratios:
	Average shareholders’ equity to average assets			8.0	%		9.0	%		7.6	%		8.0	%		6.7	%
	Tier 1 capital ratio			10.7			13.0			11.4			9.3			6.8
	Tier 1 leverage ratio			10.3			11.6			11.2			9.7			9.4
	Total risk-based capital ratio			13.1			15.9			15.1			13.2			10.8

(1)	Earnings per share of common stock before cumulative effect of change in accounting principle related to SFAS 142, “Goodwill and Other Intangible Assets,” for the year ended December 31, 2002 was $1.97 basic and $1.87 diluted. Earnings per share of common stock before cumulative effect of change in accounting principle related to SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” for the year ended December 31, 2001 was $2.14 basic and $1.99 diluted.
(2)	Beginning at December 31, 2003, the Trusts holding trust preferred securities were no longer consolidated in accordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” See “Collateralized and Other Long-Term Debt” and footnote 1 to the consolidated financial statements for further discussion.
(3)	Net interest income divided by average interest-earning assets.
(4)	Revenues consist of net interest income plus noninterest income.
(5)	Noninterest expense divided by net interest income plus noninterest income.
(6)	Excludes first (but not second) mortgage loans held for sale and loans collateralizing secured financings.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

About Forward-looking Statements

      You should read the following discussion in conjunction with our consolidated financial statements, footnotes, and tables. This discussion and other sections of this report, including the “Risk Factors” in Item 1A, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of invoking these safe harbor provisions.

      Forward-looking statements are based on management’s expectations, estimates, projections, and assumptions. These statements involve inherent risks and uncertainties that are difficult to predict and are not guarantees of future performance. In addition, our past results of operations do not necessarily indicate our future results. Words that convey our beliefs, views, expectations, assumptions, estimates, forecasts, outlook and projections or similar language, or that indicate events we believe could, would, should, may or will occur (or might not occur) or are likely (or unlikely) to occur, and similar expressions, are intended to identify forward-looking statements. These may include, among other things, statements and assumptions about:

•  our projected revenues, earnings or earnings per share, as well as management’s short-term and long-term performance goals;

•  projected trends or potential changes in our asset quality, loan delinquencies, charge-offs, reserves, asset valuations, capital ratios or financial performance measures;

•  our plans and strategies, including the expected results or impact of implementing such plans and strategies;

•  potential litigation developments and the anticipated impact of potential outcomes of pending legal matters;

•  the anticipated effects on results of operations or financial condition from recent developments or events; and

•  any other projections or expressions that are not historical facts.

We qualify any forward-looking statements entirely by these cautionary factors.

Actual future results may differ materially from what is projected due to a variety of factors, including, but not limited to:

•  potential changes in direction, volatility and relative movement (basis risk) of interest rates, which may affect consumer demand for our products and the success of our interest rate risk management strategies;

•  staffing fluctuations in response to product demand;

•  the relative profitability of our lending operations;

•  the valuation and management of our residual, servicing, and derivative portfolios, including assumptions we embed in the valuation and short-term swings in the valuation of such portfolios due to quarter-end movements in secondary market interest rates, which are inherently volatile;

•  borrowers’ refinancing opportunities, which may affect the prepayment assumptions used in our valuation estimates and which may affect loan demand;

•  unanticipated deterioration in the credit quality of our loan and lease assets, including deterioration resulting from the effects of recent natural disasters;

•  unanticipated deterioration or changes in estimates of the carrying value of our other assets, including securities;

•  difficulties in delivering products to the secondary market as planned;

•  difficulties in expanding our businesses and obtaining funding as needed;

•  competition from other financial service providers for experienced managers as well as for customers;

•  changes in the value of companies in which we invest;

•  changes in variable compensation plans related to the performance and valuation of lines of business where we tie compensation systems to line-of-business performance;

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•  unanticipated outcomes in litigation;

•  legislative or regulatory changes, including changes in tax laws or regulations, changes in the interpretation of regulatory capital rules, changes in consumer or commercial lending rules, disclosure rules, or rules affecting corporate governance, and the availability of resources to address these rules;

•  changes in applicable accounting policies or principles or their application to our business or final audit adjustments;

•  additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

•  the final outcome and implications of our consideration of strategic alternatives for our conventional, mortgage banking segment;

•  or governmental changes in monetary or fiscal policies.

      We undertake no obligation to update publicly any of these statements in light of future events, except as required in subsequent periodic reports we file with the Securities and Exchange Commission (SEC).

Strategy

      Our strategy is to position the Corporation as an interrelated group of specialized financial services companies serving niche markets of consumers and small businesses and optimizing the productivity of our capital. Our operational objectives are premised on simultaneously achieving three goals: creditworthiness, profitability and growth. We believe we must continually balance these goals in order to deliver long-term value to all of our stakeholders. We have developed a four-part strategy to meet these goals:

•  Identify market niches. We focus on product or market niches in financial services where our understanding of customer needs and ability to meet them create added value that permits us not to have to compete primarily on price. We don’t believe it is necessary to be the largest or leading market share company in any of our product lines, but we do believe it is important that we are viewed as a preferred provider in niche segments of those product offerings.

•  Hire exceptional management with niche expertise. We enter niches only when we have attracted senior managers who have proven track records in the niche for which they are responsible. Our structure allows the senior managers of each line of business to focus their efforts on understanding their customers and meeting the needs of the markets they serve. This structure also promotes accountability among managers of each enterprise. We attempt to create a mix of short-term and long-term incentives that provide these managers with the incentive to achieve creditworthy, profitable growth over the long term.

•  Diversify capital and earnings risk. We diversify our revenues and allocate our capital across complementary lines of business and across different regions as a key part of our risk management. For example, our commercial bank has a different profile of customers in the Midwest and Western states. These economies have performed differently over the past five years due to differences in local economies. These differences have affected demand and credit quality of our products. In addition, our home equity segment lends to consumers on a national basis and there too, demand and credit quality has fluctuated depending, in part, on local market conditions. Our customers’ businesses and needs are cyclical, but when combined in an appropriate mix, we believe they provide sources of diversification and opportunities for growth in a variety of economic conditions.

•  Reinvest in new opportunities. We reinvest on an ongoing basis in the development of new and existing opportunities. As a result of our attention to long-term value creation, we believe it is important at times to dampen short-term earnings growth by investing for future return. We are biased toward seeking new growth through organic expansion of existing lines of business. At times we will initiate a new line through a start-up, with highly qualified managers we select to focus on a single line of business. Over the past ten years, we have made only a few acquisitions. Those have typically not been in competitive bidding situations.

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      Consistent with this strategy and in light of the changing environment for conventional first mortgage loans, we announced in January 2006 that we are examining our strategic alternatives for this line of business, including the possible sale of Irwin Mortgage. Over the past several years, we have been monitoring changes in the environment for mortgage banking that began to raise questions about the best strategic approach for the Corporation. These changes are influenced primarily by the increasing commoditization of conventional first mortgages. As margins have shrunk, the environment has required ever larger scale in production to be more price-competitive and to afford additional capital investments in technology. The relative size of IMC to the rest of the Corporation has made it increasingly difficult for us as a parent company to support growth at IMC to gain scale advantages. In addition, the volatility of both production and the value of mortgage servicing rights has also increased, as interest rates have traded in a narrow range now for a prolonged period of time. Our intent is to find a new home for Irwin Mortgage and its employees so that we can redeploy our capital to our other three lines of business, each of which continues to represent a good fit with our corporate strategy.

      We believe long-term growth and profitability will result from our endeavors to pursue consumer and commercial lending niches through our bank holding company structure, our experienced management, our diverse product and geographic markets, and our willingness and ability to align the compensation structure of each of our lines of business with the interests of our stakeholders.

Critical Accounting Policies/ Management Judgments and Accounting Estimates

      Accounting estimates are an integral part of our financial statements and are based upon our current judgments. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from our current judgments or that our use of different assumptions could result in materially different estimates. The following is a description of the critical accounting policies we apply to material financial statement items, all of which require the use of accounting estimates and/or judgment:

Valuation of Mortgage Servicing Rights

      Mortgage servicing rights are recorded at the lower of their allocated cost basis or fair value and a valuation allowance is recorded for any stratum that is impaired. We estimate the fair value of the servicing assets each month using a cash flow model to project future expected cash flows based upon a set of valuation assumptions we believe market participants would use for similar assets. The primary assumptions we use for valuing our mortgage servicing assets include prepayment speeds, default rates, cost to service and discount rates. We review these assumptions on a regular basis to ensure that they remain consistent with current market conditions. Additionally, we periodically receive third party estimates of the portfolio value from independent valuation firms. Inaccurate assumptions in valuing mortgage servicing rights could result in additional impairment and inappropriate hedging decisions and could adversely affect our results of operations. We also review mortgage servicing rights for other-than-temporary impairment each quarter and recognize a direct write-down when the recoverability of a recorded valuation allowance is determined to be remote. Unlike a valuation allowance, a direct write-down permanently reduces the unamortized cost of the mortgage servicing rights asset and the valuation allowance, precluding subsequent reversals. See footnote 7 to the consolidated financial statements for further discussion.

Allowance for Loan and Lease Losses

      The allowance for loan and lease losses (ALLL) reflects our estimate of the adequacy of reserves needed to cover probable loan and lease losses inherent in our loan portfolio. The ALLL is an estimate based on our judgment applying the principles of Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies,” SFAS 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” In determining a proper level of loss reserves, management evaluates the adequacy of the allowance on a quarterly basis based on our past loan loss experience, known and inherent risks in the loan portfolio, levels of delinquencies, adverse situations that may affect a borrower’s ability to repay, trends in volume and terms of

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loans and leases, estimated value of any underlying collateral, changes in underwriting standards, changes in credit concentrations, and current economic and industry conditions.

      Within the allowance, there are specific and expected loss components. The specific loss component is assessed for loans we believe to be impaired under SFAS 114. We have defined impairment for this purpose as loans on which we no longer accrue interest due to likelihood of non-collectibility. For loans determined to be impaired, we measure the level of impairment by comparing the loan’s carrying value to fair value using one of the following fair value measurement techniques: present value of expected future cash flows, observable market price, or fair value of the associated collateral. An allowance is established when the fair value implies a value that is lower than the carrying value. In addition to establishing allowance levels for specifically identified impaired loans, management determines an allowance for all other loans in the portfolio for which historical experience and/or expected performance indicates that certain losses exist. These loans are segregated by major product type, and in some instances, by aging, with an estimated loss ratio applied against each product type and aging category. The loss ratio is generally based upon historic loss experience for each loan type as adjusted for certain environmental factors management believes to be relevant. Loans and leases that are determined by management to be uncollectible are charged against the allowance. The allowance is increased by provisions against income and recoveries of loans and leases previously charged off. See the “Credit Risk” section of Management’s Discussion and Analysis and footnote 6 to the consolidated financial statements for further discussion.

      In addition to the ALLL, at our mortgage banking segment we record a reserve for potential losses resulting from origination errors. Such errors include inaccurate appraisals, errors in underwriting, and ineligibility for inclusion in loan programs of government-sponsored entities which relieve us of future credit losses. In determining reserve levels for origination errors, we estimate the number of loans with such errors, the year in which the loss will occur, and the severity of the loss upon occurrence applied to an average loan amount. Inaccurate assumptions in setting this reserve could result in changes in future reserves.

Valuation of Residual Interests

      Residual interests from securitizations treated as sales under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” are classified as trading assets and as such, we record them at fair value on the balance sheet. We record the changes in fair value of these residuals as trading gains or losses in our statement of income in the period of change. We use a discounted cash flow analysis to determine the fair value of these residuals. Cash flows are projected over the lives of the residuals using prepayment, default, and interest rate assumptions that we believe market participants would use for similar financial instruments. Inaccurate assumptions in valuing residual interests could result in additional impairment and adversely affect our results of operations. We have not created these types of residuals since early 2002. See footnote 3 to the consolidated financial statements for further discussion. We are considering the use of gain-on-sale accounting again in 2006 on a limited basis to help us align economic and regulatory capital for high credit quality home equity loans and lines of credit. We do not anticipate gains from these transactions will become a significant proportion of consolidated income and our Board has approved a Policy to limit such residual interests to less than 15 percent of Irwin Union Bank and Trust’s Tier 1 capital. Such treatment will result in the creation of new residual interests being recorded.

Accounting for Deferred Taxes

      Deferred tax assets and liabilities are determined based on temporary differences between the time income or expense items are recognized for book purposes and in our tax return. We make this measurement using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We recognize deferred tax assets based on estimates of future taxable income. Events may occur in the future that could cause the realizability of these deferred tax assets to be in doubt, requiring the need for a valuation allowance.

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Incentive Servicing Fees

      For whole loan sales of certain home equity loans, in addition to our normal servicing fee, we have the right to an incentive servicing fee (ISF) that will provide cash payments to us if a pre-established return for the certificate holders and certain structure-specific loan credit and servicing performance metrics are met. These ISF arrangements are accounted for in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” When ISF agreements are entered into simultaneously with the whole loan sales, the fair value of the ISFs is estimated and considered when determining the initial gain or loss on sale. That allocated fair value of the ISF is periodically evaluated for impairment and amortized in accordance with SFAS 140. As long as the fair value is above the lower of cost or market (LOCOM) cap, revenue is recognized as pre-established performance metrics are met and cash is due. When ISF agreements are entered into subsequent to the whole loan sale, these assets are assigned a zero value and revenue is recognized as pre-established performance metrics are met and cash is due.

Consolidated Overview

	2005			% Change			2004			% Change			2003
Net income (millions)	$	19.0			(72.3	)%	$	68.4			(6.0	)%	$	72.8
Basic earnings per share		0.67			(72.3	)		2.42			(7.3	)		2.61
Diluted earnings per share		0.66			(71.1	)		2.28			(6.9	)		2.45
Return on average equity		4.0	%		—			14.5	%		—			18.4	%
Return on average assets		0.3	%		—			1.3	%		—			1.4	%

Consolidated Income Statement Analysis

Net Income

      We recorded net income of $19 million for the year ended December 31, 2005, down 72% from net income of $68 million for the year ended December 31, 2004, and compared to $73 million in 2003. Net income per share (diluted) was $0.66 for the year ended December 31, 2005, down 71% from $2.28 per share in 2004 and down 73% from $2.45 per share in 2003. Return on equity was 4.0% for the year ended December 31, 2005, 14.5% in 2004 and 18.4% in 2003. The significant decline in 2005 earnings relates to our mortgage banking business. See discussion below under “Noninterest Income” and in the mortgage banking line of business section. The effective income tax rate for 2005 was 32.1%, compared to 40.1% in 2004 and 38.5% in 2003. The lower effective rate in 2005 resulted primarily from the release of $1.9 million in tax reserves as we aligned our tax liability to a level commensurate with our currently identified tax exposures. The majority of the reserves related to our 2001 tax returns. The statute on these returns expired during the third quarter of 2005 triggering the reversal of these reserves.

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Net Interest Income

      Net interest income for the year ended December 31, 2005 totaled $266 million, up 5% from 2004 net interest income of $252 million and down 2% from 2003. The following table shows our daily average consolidated balance sheet and interest rates at the dates indicated:

				December 31,
				2005								2004								2003
				Average					Yield/			Average					Yield/			Average					Yield/
				Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
				(Dollars in thousands)
Assets
Interest-earning assets:
	Interest-bearing deposits with financial institutions			$	80,508		$	1,816		2.26	%	$	85,304		$	794		0.93	%	$	74,216		$	550		0.74	%
	Federal funds sold				15,064			387		2.57			15,340			173		1.13			10,824			118		1.10
	Residual interests				39,942			6,948		17.40			67,544			12,509		18.52			108,351			20,651		19.06
	Investment securities				107,220			5,813		5.42			88,254			4,536		5.14			68,602			3,723		5.43
	Loans held for sale				1,217,367			94,324		7.75			1,034,032			80,003		7.74			1,237,963			104,350		8.43
	Loans and leases, net of unearned income(1)				3,890,077			312,970		8.05			3,324,333			246,288		7.41			3,168,776			241,592		7.62
			Total interest earning assets		5,350,178		$	422,258		7.89	%		4,614,807		$	344,303		7.46	%		4,668,732		$	370,984		7.95	%
Noninterest-earning assets:
	Cash and due from banks				109,837								104,115								103,581
	Premises and equipment, net				30,543								31,219								32,644
	Other assets				572,028								582,978								440,164
	Less allowance for loan and lease losses				(50,322	)							(56,311	)							(57,986	)
			Total assets	$	6,012,264							$	5,276,808							$	5,187,135
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
	Money market checking			$	479,621		$	9,789		2.04	%	$	333,772		$	4,487		1.34	%	$	169,674		$	913		0.54	%
	Money market savings				1,118,655			29,631		2.65			1,071,617			15,127		1.41			866,241			11,085		1.28
	Regular savings				119,349			1,547		1.30			60,800			873		1.44			62,756			1,249		1.99
	Time deposits				1,204,421			42,894		3.56			907,736			24,000		2.64			992,954			29,118		2.93
	Short-term borrowings				421,085			21,244		5.05			307,929			9,583		3.11			595,243			14,889		2.50
	Collateralized debt				629,503			25,587		4.06			534,660			15,259		2.85			578,656			15,369		2.66
	Other long-term debt				290,188			25,676		8.85			270,178			22,896		8.47			30,060			2,325		7.74
	Trust preferred securities distributions(3)				—			—		n/a			—			—		n/a			236,823			24,151		10.20
			Total interest-bearing liabilities	$	4,262,822		$	156,368		3.67	%	$	3,486,692		$	92,225		2.65	%	$	3,532,407		$	99,099		2.81	%
Noninterest-bearing liabilities:
	Demand deposits				989,234								1,006,558								1,042,403
	Other liabilities				279,784								311,017								216,111
Shareholders’ equity					480,424								472,541								396,214
	Total liabilities and shareholders’ equity			$	6,012,264							$	5,276,808							$	5,187,135
		Net interest income					$	265,890							$	252,078							$	271,885
		Net interest margin								4.97	%							5.46	%							5.82	%

(1)	For purposes of these computations, nonaccrual loans are included in daily average loan amounts outstanding.
(2)	We do not show interest income on a tax equivalent basis because it is immaterial
(3)	These securities were re-classified beginning in 2004 to “Other long-term debt”.

      Net interest margin for the year ended December 31, 2005 was 4.97% compared to 5.46% in 2004 and 5.82% in 2003. The decline in margin in 2005 relates to our increasing cost of funds which have risen at a faster pace than our yields on loans. We attribute the tighter margins to competitive pressures and to our strategic decision at the home equity business to move into more higher quality but lower yielding loans.

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      The following table sets forth, for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and rates for the major components of interest-earning assets and interest-bearing liabilities:

			For the Year Ended December 31,
			2005 Over 2004									2004 Over 2003
			Volume			Rate			Total			Volume			Rate			Total
			(Dollars and thousands)
Interest Income
	Loans and leases		$	41,914		$	24,768		$	66,682		$	11,860		$	(7,164	)	$	4,696
	Mortgage loans held for sale			14,184			137			14,321			(17,189	)		(7,158	)		(24,347	)
	Investment securities			975			302			1,277			1,066			(253	)		813
	Residual interests			(5,112	)		(449	)		(5,561	)		(7,777	)		(365	)		(8,142	)
	Interest bearing deposits with financial institutions			(45	)		1,067			1,022			82			162			244
	Federal funds sold			(4	)		218			214			50			5			55
		Total		51,912			26,043			77,955			(11,908	)		(14,773	)		(26,681	)
Interest Expense
	Money market checking			1,961			3,341			5,302			883			2,691			3,574
	Money market savings			664			13,840			14,504			2,628			1,414			4,042
	Regular savings			841			(167	)		674			(39	)		(337	)		(376	)
	Time deposits			7,845			11,049			18,894			(2,499	)		(2,619	)		(5,118	)
	Short-term borrowings			3,522			8,139			11,661			(7,187	)		1,881			(5,306	)
	Collateralized debt			2,707			7,621			10,328			(1,169	)		1,059			(110	)
	Other long-term debt			1,695			1,085			2,780			18,575			1,996			20,571
	Trust preferred securities distribution			—			—			—			(24,151	)		—			(24,151	)
		Total		19,235			44,908			64,143			(12,959	)		6,085			(6,874	)
	Net Interest Income		$	32,677		$	(18,865	)	$	13,812		$	1,051		$	(20,858	)	$	(19,807	)

      The variance not due solely to rate or volume has been allocated on the basis of the absolute relationship between volume and rate variances.

Provision for Loan and Lease Losses

      The consolidated provision for loan and lease losses for the year 2005 was $27 million, compared to $14 million and $48 million in 2004 and 2003, respectively. More information on this subject is contained in the section on “credit risk.”

Noninterest Income

      Noninterest income during the year 2005 totaled $120 million, compared to $284 million for 2004 and $306 million in 2003. The decrease in 2005 versus 2004 related primarily to the mortgage banking line of business. Contributing to the decrease were $68 million of losses on derivative instruments used to hedge our servicing assets during 2005 compared to $19 million in derivative gains in 2004. We also recorded recoveries of $19 million and impairment of $4 million on servicing assets in 2005 and 2004, respectively. Also contributing to the decline were lower gains from sales of loans which declined from $151 million in 2004 to $75 million in 2005. Details related to these fluctuations are discussed later in the “Mortgage Banking” and “Home Equity” sections of this document.

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Noninterest Expense

      Noninterest expenses for the year ended December 31, 2005 totaled $332 million, compared to $407 million and $412 million in 2004 and 2003, respectively. The decrease in consolidated noninterest expense in 2005 is primarily related to lower personnel costs associated with our decreased production at the mortgage banking line of business.

Consolidated Balance Sheet Analysis

      Total assets at December 31, 2005 were $6.6 billion, up 27% from December 2004. Average assets for 2005 were $6.0 billion up 14% from December 31, 2004, and up 16% from December 31, 2003. The growth in the consolidated balance sheet reflects increases in portfolio loans and leases at the commercial banking, commercial finance and home equity lines of business.

Loans Held For Sale

      Loans held for sale totaled $1.3 billion at December 31, 2005, up 45% from December 31, 2004 and 46% from December 31, 2003. This increase, primarily at the home equity line of business, reflects our strategic decision to sell more home equity product in the coming year.

      Included in loans held for sale at the mortgage line of business at December 31, 2005 and 2004 were $88 million and $68 million, respectively, of loans for which we have the right, but not the obligation, to repurchase due to default, under the terms of the government servicing agency contracts. Upon default, we have the non-contingent right to repurchase these loans which causes “repurchase accounting” under Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The liability associated with these loans is reflected in “other liabilities” on our Consolidated Balance Sheet.

Loans and Leases

      Our commercial loans and leases are originated throughout the United States and Canada. At December 31, 2005, 94% of our loan and lease portfolio was associated with our U.S. operations. We also extend credit to consumers nationally through mortgages, installment loans and revolving credit arrangements. Loans by major category for the periods presented were as follows:

			December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Commercial, financial and agricultural			$	2,016,253		$	1,697,651		$	1,503,619		$	1,347,962		$	1,055,307
Real estate construction				399,089			287,496			306,669			314,851			287,228
Real estate mortgage				1,234,561			808,875			859,541			777,865			490,186
Consumer				31,718			31,166			27,370			27,857			38,489
Commercial financing:
	Franchise financing			462,413			330,496			207,341			130,247			47,447
	Domestic leasing			237,968			174,035			157,072			161,464			185,080
	Canadian leasing			313,581			265,780			207,355			133,784			91,816
Unearned income:
	Franchise financing			(125,474	)		(86,638	)		(56,837	)		(34,494	)		(11,497	)
	Domestic leasing			(33,267	)		(23,924	)		(22,038	)		(24,793	)		(32,686	)
	Canadian leasing			(38,013	)		(34,497	)		(29,038	)		(19,467	)		(13,548	)
		Total	$	4,498,829		$	3,450,440		$	3,161,054		$	2,815,276		$	2,137,822

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      The following table shows our contractual maturity distribution of loans at December 31, 2005. Actual principal payments may differ depending on customer prepayments:

					After One
			Within		But Within		After Five
			One Year		Five Years		Years		Total
			(Dollars in thousands)
Commercial, financial and agricultural			$	617,176	$	967,361	$	431,716	$	2,016,253
Real estate construction				270,737		104,569		23,783		399,089
Real estate mortgage				32,375		103,720		1,098,466		1,234,561
Consumer				12,949		14,272		4,497		31,718
Commercial financing:
	Franchise financing			22,363		55,456		259,120		336,939
	Domestic leasing			9,519		193,515		1,666		204,700
	Canadian leasing			14,371		243,878		17,320		275,569
		Total	$	979,490	$	1,682,771	$	1,836,568	$	4,498,829
Loans due after one year with:
	Fixed interest rates								$	1,909,172
	Variable interest rates									1,610,167
		Total							$	3,519,339

Allowance for Loan and Lease Losses

      Changes in the allowance for loan and lease losses are summarized below:

	December 31,
	2005			2004			2003
	(Dollars in thousands)
Balance at beginning of year	$	44,443		$	64,285		$	50,936
Provision for loan and lease losses		26,852			14,195			47,583
Charge-offs		(20,201	)		(28,180	)		(37,312	)
Recoveries		8,960			5,335			3,420
Reduction due to sale of loans and leases and other		—			(627	)		(234	)
Reduction due to reclassification of loans		(424	)		(10,808	)		(690	)
Foreign currency adjustment		119			243			582
Balance at end of year	$	59,749		$	44,443		$	64,285

      The 2004 roll forward of allowance for loan and lease losses above includes the effect of the transfer and sale of portfolio loans at our home equity lending line of business. We transferred $355 million in loans to loans held for sale when the decisions were made to sell these loans from the portfolio. These loans had an associated allowance of $21 million. The loans were transferred with an allowance of $11 million to reduce their carrying value to fair market value. After the transfers, the remaining $10 million of excess allowance was reversed through the provision for loan and lease losses.

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Investment Securities

      The following table shows the composition of our investment securities at the dates indicated:

		December 31,
		2005		2004		2003
		(Dollars in thousands)
U.S. Treasury and government obligations		$	—	$	3,556	$	20,994
Obligations of states and political subdivisions			3,544		3,746		3,960
Mortgage-backed securities			28,331		31,556		2,039
Other			72,896		69,364		65,532
	Total	$	104,771	$	108,222	$	92,525

      Included within the “other” category is $70 million, $66 million, and $63 million of FHLBI and Federal Reserve Bank stock at December 31, 2005, 2004, and 2003, respectively, for which there is no readily determinable market value. The following table shows maturity distribution of our investment securities at December 31, 2005:

											Mortgage-backed
											Securities and
					After Five						FHLB & Federal
		Within			But Within			After Ten			Reserve Bank
		One Year			Ten Years			Years			Stock			Total
		(Dollars in thousands)
Obligations of states and political subdivisions			—			530			3,014			—			3,544
Other			3,199			—			—			—			3,199
	Total		3,199			530			3,014			—			6,743
Mortgage-backed securities												28,331			28,331
FHLBI & Federal Reserve Bank stock												69,697			69,697
		$	3,199		$	530		$	3,014		$	98,028		$	104,771
Weighted Average Yield
	Held-to-maturity		—			5.18	%		5.35	%		4.98	%
	Available-for-sale		0.35	%		—			—			4.65	%

      Average yield represents the weighted average yield to maturity computed based on average historical cost balances. The yield information on available-for-sale securities does not give effect to changes in fair value that are reflected as a component of shareholders’ equity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Deposits

      Total deposits in 2005 averaged $3.9 billion compared to average deposits in 2004 of $3.4 billion, and average deposits in 2003 of $3.1 billion. Demand deposits in 2005 averaged $1.0 billion, unchanged from the 2004 and 2003 average balances. A significant portion of demand deposits is related to deposits at Irwin Union Bank and Trust associated with escrow accounts held on loans in the servicing portfolio at the mortgage banking line of business. During 2005, these escrow accounts averaged $0.7 billion, unchanged from 2004 and down from a 2003 average of $0.8 billion. Average core deposits at our commercial bank, which exclude jumbo and brokered CDs and public funds, increased to $2.5 billion in 2005 compared to $2.2 billion in 2004.

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      We use broker-sourced deposits as funding from time to time to supplement deposits solicited through branches and other wholesale funding sources. At December 31, 2005, these broker-sourced deposits totaled $638 million compared to a balance of $279 million at December 31, 2004.

      The following table shows maturities of certificates of deposit (CDs) of $100,000 or more, brokered deposits, escrows and core deposits at the dates indicated:

		December 31,
		2005		2004		2003
		(Dollars in thousands)
Under 3 months		$	419,574	$	266,200	$	284,095
3 to 6 months			230,024		117,339		60,786
6 to 12 months			231,397		91,276		98,746
after 12 months			341,851		169,796		252,743
	Total Certificates of deposit over $100,000	$	1,222,846	$	644,611	$	696,370
Brokered deposits		$	638,007	$	279,102	$	339,417
Mortgage banking escrow deposits		$	412,444	$	680,812	$	566,956
Demand deposits		$	342,913	$	295,195	$	283,794
Money market accounts			1,602,337		1,545,700		1,109,514
Savings and time deposits			544,814		356,776		359,153
Commercial banking core deposits		$	2,490,064	$	2,197,671	$	1,752,461

Short-Term Borrowings

      Short-term borrowings during 2005 averaged $421 million compared to an average of $308 million in 2004, and $595 million in 2003. Short-term borrowings increased to $997 million at December 31, 2005 compared to $237 million at December 31, 2004. The increase in short-term borrowings relates primarily to our decision to sell less home equity loans at the end of 2005. These loans totaling $333 million were moved to our loan portfolio in January 2006 and funded through a secured financing.

      Federal Home Loan Bank borrowings averaged $199 million for the year ended December 31, 2005, with an average rate of 3.56%. The balance at December 31, 2005 of $642 million at an interest rate of 4.39%, was also the maximum outstanding during any month end during 2005. At December 31, 2004, Federal Home Loan Bank borrowings averaged $186 million, with an average rate of 1.69%. The balance at December 31, 2004 was $72 million at an interest rate of 3.15%. The maximum outstanding at any month end during 2004 was $536 million.

Collateralized and Other Long-Term Debt

      Collateralized borrowings totaled $669 million at December 31, 2005 compared to $547 million at December 31, 2004. The bulk of these borrowings have resulted from securitization structures that result in loans remaining as assets and debt being recorded on our balance sheet. This securitization debt represents match-term funding for these loans and leases.

      Other long-term debt totaled $270 million at December 31, 2005, unchanged from 2004. We have obligations represented by subordinated debentures totaling $240 million with our wholly-owned trusts that were created for the purpose of issuing these securities. The subordinated debentures were the sole assets of the trusts at December 31, 2005. In accordance with FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” (revised December 2003), at the end of 2003 we deconsolidated the wholly-owned trusts that issued the trust preferred securities. As a result, these securities are no longer consolidated

36

on our balance sheet. Instead, the subordinated debentures held by the trusts are disclosed on the balance sheet as “other long-term debt.” We called the trust preferred securities of Capital Trust II in 2005 with the proceeds from the issuance of Capital Trust VIII. We recently announced our intent to redeem the entire $51.75 million par value of 8.75 percent securities due September 30, 2030, underlying $51.75 million of 8.75 percent cumulative trust preferred securities (NYSE: IFC.N) issued by IFC Capital Trust III in 2000. We provided notice to the trustee of our plans to redeem these securities in March 2006. In lieu of redemption for cash, the trust preferred securities are convertible at the option of the holder into common stock at a ratio of 1.2610 common shares per share of convertible trust preferred, which equates to a common stock conversion price of $19.825 per share. If the securities are not converted by the holders into common stock, we intend to issue, prior to March 31, 2006, replacement trust preferred securities for a like dollar amount as those being redeemed.

Capital

      Shareholders’ equity averaged $480 million during 2005, up 2% compared to 2004, and up 21% from 2003. Shareholders’ equity balance of $512 million at December 31, 2005 represented $17.90 per common share, compared to $17.61 per common share at December 31, 2004, and compared to $15.36 per common share at year-end 2003. We paid an aggregate of $11.4 million in dividends during 2005, compared to $9.1 million during 2004 and $7.8 million during 2003.

      The following table sets forth our capital and capital ratios at the dates indicated:

			December 31,
			2005			2004			2003
			(Dollars in thousands)
Tier 1 capital			$	675,316		$	637,875		$	556,793
Tier 2 capital				154,128			143,612			183,738
		Total risk-based capital	$	829,444		$	781,487		$	740,531
Risk-weighted assets			$	6,317,797		$	4,908,012		$	4,917,622
Risk-based ratios:
	Tier 1 capital			10.7	%		13.0	%		11.4	%
	Total capital			13.1			15.9			15.1
	Tier 1 leverage ratio			10.3			11.6			11.2
Ending shareholders’ equity to assets				7.7			9.6			8.7
Average shareholders’ equity to assets				8.0			9.0			7.6

      At December 31, 2005, our total risk-based capital ratio was 13.1%, exceeding our internal minimum target of 11.75%. At December 31, 2004 and 2003, our total risk-based capital ratio was 15.9% and 15.1%, respectively. Our ending equity to assets ratio at December 31, 2005 was 7.7% compared to 9.6% at December 31, 2004. However, temporary conditions that existed at year end can make the average balance sheet ratio a more accurate measure of capital. Our average equity to assets for the year ended December 31, 2005 was 8.0% compared to 9.0% for the year 2004. Our Tier 1 capital totaled $675 million as of December 31, 2005, or 10.7% of risk-weighted assets. For an explanation of capital requirements and categories applicable to financial institutions, see the discussion in this Report under the subsection “Other Safety and Soundness Regulations” in Part 1, “Business.”

      We have issued $233 million in trust preferred securities through five IFC Capital Trusts and one IFC Statutory Trust as of December 31, 2005. All securities are callable at par after five years. These funds are all Tier 1 qualifying capital under current regulatory guidance. The sole assets of these trusts are our subordinated debentures. See further discussion in the “Collateralized and Other Long-Term Debt” section above. As of

37

December 31, 2003, we no longer consolidated these trusts in our consolidated financial statements. Highlights about these trusts are listed below:

Interest Rate

at

Origination

December 31,

Maturity

$ Amount in

Name

Date

2005

Date

thousands

Dividend

Other

IFC Capital Trust III (1)

Nov 2000

8.75

%

Sep 2030

$

51,707

quarterly

conversion ratio of 1.261 shares of common stock to 1 convertible preferred security

IFC Capital Trust IV

Jul 2001

10.25

Jul 2031

15,000

semiannual

IFC Capital Trust V

Nov 2001

9.95

Nov 2031

30,000

semiannual

IFC Capital Trust VI

Oct 2002

8.70

Sep 2032

34,500

quarterly

IFC Statutory Trust VII

Nov 2003

7.43

Nov 2033

50,000

quarterly

rate changes quarterly at three month LIBOR plus 290 basis points

IFC Capital Trust VIII

Aug 2005

5.96

Aug 2035

51,750

quarterly

fixed rate for 5 years, variable rate of 3 month LIBOR plus 153 basis points thereafter

$

232,957

⁽¹⁾  Call notice issued on February 6, 2006.

      In July 1999, we raised $30 million of 7.58%, 15-year subordinated debt that is callable in 2009 at par. The debt was privately placed. These funds qualify as Tier 2 capital. The securities are not convertible into our common shares.

      In connection with our stock option plans, we repurchased 51 thousand common shares in 2005 with a market value of $1.2 million. In 2004, we repurchased 13 thousand shares with a market value of $0.4 million.

      In order to maintain product price competitiveness with other national banks, we allocate capital to our subsidiaries in a manner which reflects their relative risk and as if they were stand-alone businesses. The allocated amount of capital varies according to the risk characteristics of the individual business segments and the products they offer. Capital is allocated separately based on the following types of risk: credit, interest rate (market) and operational. We adjust this allocation, as necessary, to assure that we meet regulatory and internal policy standards for minimum capitalization. We utilize internal risk measurement models, calibrated with a public-domain model from a nationally recognized rating agency, and capital requirements from our banking regulators to arrive at the capitalization required by line of business. We re-allocate capital to subsidiaries on a quarterly basis based on their risk and growth plans.

Inflation

      Since substantially all of our assets and liabilities are monetary in nature, such as cash, securities, loans and deposits, their values are less sensitive to the effects of inflation than to changes in interest rates. We attempt to control the impact of interest rate fluctuations by managing the relationship between interest rate sensitive assets and liabilities and by hedging certain interest sensitive assets with financial derivatives or forward commitments.

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Cash Flow Analysis

      Our cash and cash equivalents increased $58 million in 2005 compared to decreases of $44 million during 2004 and $17 million in 2003. Cash flows from operating activities used $251 million in cash and cash equivalents in 2005 compared to providing $16 million in 2004. Changes in loans held for sale impact cash flows from operations. In a period in which loan production exceeds sales such as we experienced in 2005, operating cash flows will decrease. In 2005, our loans held for sale increased $403 million, thus increasing the cash used by operating activities. In 2004, our loans held for sale balance was relatively unchanged throughout the year.

Earnings Outlook

      We do not provide quantitative earnings guidance, as we do not believe it to be in the best interest of our long-term stakeholders. Our strategy is to seek opportunities for credit-worthy, profitable growth by serving niche markets while attempting to mitigate the impact of changes in interest rates and economic conditions on our credit retained portfolios. Historically, a meaningful amount of our earnings have come from our mortgage banking segment. In January 2006, we announced that we were considering strategic alternatives for the conventional first mortgage business, including the potential sale of the mortgage banking line of business. We believe that our mortgage banking line of business, particularly our servicing activities, have grown to a size where they can be managed and grown more effectively within another organization. We are actively searching for an alternative home for this segment and its employees. At the same time, our opportunities in our other three segments continue to grow across the U.S. and, in our commercial finance segment, also in Canada. This growth will require capital and management focus and, we believe, has the potential to contribute in a meaningful way to the Corporation’s growth. Our focus in 2006 and beyond will be to grow these three segments in a credit-worthy, profitable manner. We believe our earnings in 2005 were not indicative of the underlying potential of the Corporation and expect to be able to report substantially improved results in 2006 and subsequent years. In 2006, we will report the results of mortgage banking business as a discontinued operation.

Summary of Quarterly Financial Information

			2005
			Fourth			Third			Second			First
			Quarter			Quarter			Quarter			Quarter
			(Dollars in thousands)
Summary Income Information
	Interest Income		$	121,226		$	115,322		$	97,543		$	88,166
	Interest expense			(49,909	)		(45,807	)		(32,698	)		(27,953	)
	Provision for loan and lease losses			(8,916	)		(5,772	)		(8,872	)		(3,291	)
	Non-interest income(2)			22,476			43,555			18,413			36,041
	Non-interest expense			(74,802	)		(79,723	)		(79,916	)		(97,113	)
	Income taxes			(3,624	)		(9,082	)		2,119			1,605
	Net income		$	6,451		$	18,493		$	(3,411	)	$	(2,545	)
	Earnings per share of common stock:
		Basic(1)	$	0.23		$	0.65		$	(0.12	)	$	(0.09	)
		Diluted(1)		0.23			0.61			(0.12	)		(0.09	)

39

			2004
			Fourth			Third			Second			First
			Quarter			Quarter			Quarter			Quarter
			(Dollars in thousands)
Summary Income Information
	Interest Income		$	89,439		$	89,965		$	85,096		$	79,803
	Interest expense			(26,480	)		(24,305	)		(20,840	)		(20,600	)
	Provision for loan and lease losses			(2,357	)		(1,898	)		(1,794	)		(8,146	)
	Non-interest income			60,016			65,913			76,519			81,081
	Non-interest expense			(96,550	)		(102,492	)		(107,757	)		(100,436	)
	Income taxes			(10,132	)		(10,858	)		(12,942	)		(11,800	)
	Net income		$	13,936		$	16,325		$	18,282		$	19,902
	Earnings per share of common stock:
		Basic(1)	$	0.49		$	0.58		$	0.65		$	0.71
		Diluted(1)		0.47			0.54			0.61			0.66

⁽¹⁾  Our quarterly earnings per share are based on actual quarterly data and may not add up exactly to year-to-date earnings per share due to rounding and the impact of antidilutive shares.

Earnings by Line of Business

      Irwin Financial Corporation is composed of four principal lines of business:

•  Commercial Banking

•  Commercial Finance

•  Home Equity Lending

•  Mortgage Banking

      The following table summarizes our net income (loss) by line of business for the periods indicated:

		Year Ended December 31,
		2005			2004			2003
		(Dollars in thousands)
Net income (loss):
	Commercial Banking	$	27,379		$	23,424		$	22,477
	Commercial Finance		7,433			3,217			1,793
	Home Equity Lending		2,252			28,067			(19,890	)
	Mortgage Banking		(16,176	)		20,266			78,100
	Other (including consolidating entries)		(1,901	)		(6,529	)		(9,663	)
		$	18,987		$	68,445		$	72,817

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Commercial Banking

      The following table shows selected financial information for our commercial banking line of business:

			Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Selected Income Statement Data:
	Interest income		$	183,052		$	127,029		$	112,679		$	110,107		$	104,514
	Interest expense			(72,294	)		(37,412	)		(33,663	)		(40,253	)		(53,515	)
		Net interest income		110,758			89,617			79,016			69,854			50,999
	Provision for loan and lease losses			(5,286	)		(3,307	)		(5,913	)		(9,812	)		(7,900	)
	Other income			16,945			18,316			21,070			16,081			14,981
		Total net revenue		122,417			104,626			94,173			76,123			58,080
	Operating expense			(77,062	)		(65,450	)		(56,699	)		(50,029	)		(43,482	)
		Income before taxes		45,355			39,176			37,474			26,094			14,598
	Income taxes			(17,976	)		(15,752	)		(14,997	)		(10,009	)		(5,680	)
		Net income	$	27,379		$	23,424		$	22,477		$	16,085		$	8,918
Selected Balance Sheet Data at End of Period:
	Assets		$	3,162,398		$	2,622,877		$	2,203,965		$	1,969,956		$	1,648,294
	Securities and short-term investments			340,811 (1	)		327,664 (1	)		107,668			44,433			43,278
	Loans and leases			2,680,220			2,223,474			1,988,633			1,823,304			1,514,957
	Allowance for loan and lease losses			(24,670	)		(22,230	)		(22,055	)		(20,725	)		(14,644	)
	Deposits			2,797,635			2,390,839			1,964,274			1,733,864			1,456,376
	Shareholder’s equity			195,381			143,580			162,050			154,423			129,179
Daily Averages:
	Assets		$	3,025,717		$	2,476,835		$	2,119,944		$	1,802,896		$	1,402,589
	Loans and leases			2,460,560			2,094,190			1,914,608			1,693,426			1,276,003
	Allowance for loan and lease losses			(23,656	)		(22,304	)		(21,895	)		(17,823	)		(11,038	)
	Deposits			2,766,289			2,258,538			1,894,406			1,583,926			1,253,725
	Shareholder’s equity			157,545			147,759			147,886			140,249			85,312
	Shareholder’s equity to assets			5.21	%		5.97	%		6.98	%		7.78	%		6.08	%

⁽¹⁾  Includes $317 million and $293 million of inter-company investments in 2005 and 2004, respectively, the result of excess liquidity at the commercial banking line of business related to deposit growth in excess of its asset deployment needs. The funds have been redeployed in earning assets at our other lines of business.

Overview

      Our commercial banking line of business focuses on providing credit, cash management and personal banking products to small businesses and business owners. We offer commercial banking services through our banking subsidiaries, Irwin Union Bank and Trust, an Indiana state-chartered commercial bank, and Irwin Union Bank, F.S.B., a federal savings bank. In September 2005, we changed the designation of the home office of Irwin Union Bank, F.S.B. from Louisville, Kentucky to Columbus, Indiana. We continue to maintain the full service branch in Louisville, Kentucky. In 2005, we opened a new banking office in Costa Mesa, California. This office contributed an immaterial amount to revenues and expenses in 2005.

Strategy

      Our strategy is to provide superior service to our existing small business customers and to expand those services into selected new markets. We target metropolitan markets with strong economies where we believe recent bank consolidation has negatively impacted customers. We believe this consolidation has led to disenchantment with the delivery of financial services to the small business community among the owners of

41

those small businesses and the senior banking officers who had been providing services to them. In markets that management identifies as attractive opportunities, the bank seeks to hire senior commercial loan officers and cash management personnel who have strong local ties and who can focus on providing personalized services to small businesses in that market. Having integrated into our operations the new markets we opened in the late 1990s, we are once again looking at market expansion opportunities. Our strategy is to expand in markets that satisfy the following criteria:

•  the market is a metropolitan area with attractive business demographics and diversification displaying evidence of sustainable growth;

•  recent banking merger and acquisition activity has occurred in the market and management believes that the acquirer is viewed by customers as an outsider and/or not responsive to local small business needs; and

•  we are able to attract experienced, senior banking staff from the new market to manage our operation there.

      We expect consolidation to continue in the banking and financial services industry and plan to capitalize on the opportunities brought about in this environment by continuing the bank’s growth strategy for small business banking in new markets throughout the United States. Our focus will be to provide personalized banking services to small businesses, using experienced local staff with a strong presence in cities affected by the industry-wide consolidations. In addition to its market expansion, our commercial bank continues to develop its banking, insurance, and investment products to provide a full range of financial services to its small business customers.

      On average, we anticipate our de novo banking offices will break even approximately 18 months after they are opened, and we estimate that a banking office will achieve targeted levels of profitability in approximately five years in an average market. Some markets will experience growth and profitability at greater or lesser rates than we currently expect because of many factors, including execution of our strategy, accuracy in assessing market potential, and success in recruiting senior lenders, cash management officers, and other staff. Over time, we may choose to leave certain markets if these factors limit profitability. Our expansion into new markets is subject to regulatory approval.

      The following tables show the geographic composition of our commercial banking loans and our core deposits:

		December 31,
		2005								2004								2003
							Weighted								Weighted								Weighted
		Loans		Percent			Average			Loans		Percent			Average			Loans		Percent			Average
Markets		Outstanding		of Total			Coupon			Outstanding		of Total			Coupon			Outstanding		of Total			Coupon
		(Dollars in thousands)
Indianapolis		$	560,775		20.9	%		7.0	%	$	504,853		22.7	%		5.9	%	$	477,432		24.0	%		5.4	%
Central and western			516,444		19.3			7.1			488,587		22.0			5.9			491,670		24.7			5.1
Southern Indiana			454,236		16.9			6.5			445,981		20.1			5.8			420,519		21.1			5.6
Phoenix			447,548		16.7			7.6			288,555		13.0			6.3			238,515		12.0			5.3
Las Vegas			112,761		4.2			7.5			70,109		3.2			6.1			37,251		1.9			5.5
Other			588,456		22.0			7.2			425,389		19.0			5.7			323,246		16.3			4.8
	Total	$	2,680,220		100.0			7.1		$	2,223,474		100.0			5.9		$	1,988,633		100.0			5.2

42

		December 31,
		2005								2004								2003
							Weighted								Weighted								Weighted
		Core		Percent			Average			Core		Percent			Average			Core		Percent			Average
		Deposits		of Total			Coupon			Deposits		of Total			Coupon			Deposits		of Total			Coupon
Indianapolis		$	259,196		10.4	%		2.1	%	$	278,785		12.7	%		1.4	%	$	258,875		14.8	%		1.1	%
Central and western			238,742		9.6			2.6			221,917		10.1			1.7			176,441		10.1			1.5
Southern Indiana			674,923		27.1			2.1			671,342		30.5			1.3			645,297		36.8			1.2
Phoenix			190,428		7.6			2.4			155,475		7.1			1.6			74,900		4.3			1.0
Las Vegas			413,541		16.6			3.5			287,910		13.1			2.0			210,437		12.0			1.0
Other			713,233		28.7			3.3			582,242		26.5			2.1			386,808		22.0			1.2
	Total	$	2,490,063		100.0	%		2.7	%	$	2,197,671		100.0	%		1.7	%	$	1,752,758		100.0	%		1.2	%

Net Income

      Commercial banking net income increased to $27 million during 2005 up 17%, compared to $23 million in 2004, and up 22% compared to 2003 net income of $22 million.

Net Interest Income

      The following table shows information about net interest income for our commercial banking line of business:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Net interest income	$	110,758		$	89,617		$	79,016
Average interest earning assets		2,914,352			2,392,049			2,046,658
Net interest margin		3.80	%		3.75	%		3.86	%

      Net interest income was $111 million, an increase of 24% over 2004, and an increase of 40% from 2003. The 2005 improvement in net interest income resulted primarily from an increase in our commercial banking loan portfolio as a result of growth and expansion efforts. Net interest margin is computed by dividing net interest income by average interest earning assets. Net interest margin during 2005 was 3.80%, compared to 3.75% in 2004, and 3.86% in 2003. The improvement in 2005 margin is due to higher loan volumes and loan yields, which more than offset the increased deposit volumes and deposit rates. In addition the investment of excess funds in intercompany investments contributed positively to year-over-year net interest income.

Provision for Loan and Lease Losses

      Provision for loan and lease losses was $5.3 million in 2005, compared to provisions of $3.3 million and $5.9 million in 2004 and 2003, respectively. The increased provision relates to portfolio growth and is aligned with our on-going expectations. See further discussion in “Credit Quality” section later in this document. We believe this segment has negligible exposure to losses arising from hurricanes Katrina and Rita.

43

Noninterest Income

      The following table shows the components of noninterest income for our commercial banking line of business:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Service charges on deposit accounts	$	4,008		$	5,071		$	5,095
Gain from sales of loans		2,943			2,947			7,814
Trust fees		1,964			1,902			1,817
Insurance commissions, fees and premiums		1,827			2,143			2,009
Brokerage fees		1,452			1,465			1,264
Loan servicing fees		1,473			1,374			1,237
Amortization of servicing assets		(1,306	)		(1,559	)		(2,705	)
Recovery of servicing assets		248			582			744
Other		4,336			4,391			3,795
Total noninterest income	$	16,945		$	18,316		$	21,070

      Noninterest income during 2005 decreased 7% over 2004 and decreased 20% over 2003. This decrease was due primarily to lower service charges on deposit accounts. The lower charges resulted from higher earnings credits on commercial customer accounts due to increasing interest rates. These lower service charges were partially offset by lower servicing asset amortization. The commercial banking line of business has a first mortgage servicing portfolio that has increased to $463 million, principally a result of mortgage loan production in its south-central Indiana markets. Those servicing rights are carried on the balance sheet at the lower of cost or market, estimated at December 31, 2005, to be $3.9 million.

Operating Expenses

      The following table shows the components of operating expenses for our commercial banking line of business:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Salaries and employee benefits	$	47,934		$	40,422		$	34,853
Other expenses		29,128			25,028			21,846
Total operating expenses	$	77,062		$	65,450		$	56,699
Efficiency ratio		60.3	%		60.6	%		56.7	%
Number of employees at year end(1)		586			525			493

⁽¹⁾  On a full time equivalent basis

      Operating expenses during 2005 totaled $77 million, an increase of 18% over 2004, and an increase of 36% from 2003. The increased operating expenses in 2005 is primarily related to higher personnel and premises and equipment costs due to our recent office expansions and support staff.

Balance Sheet

      Total assets for the year ended December 31, 2005 averaged $3.0 billion compared to $2.5 billion in 2004, and $2.1 billion in 2003. Average earning assets for the year ended December 31, 2005 were $2.9 billion compared to $2.4 billion in 2004, and $2.0 billion in 2003. The most significant component of the increase was an increase in commercial loans as a result of the commercial bank’s continued growth and expansion efforts

44

into new markets. In addition, average investments have increased from $202 million in 2004 to $389 million in 2005. This increase relates primarily to inter-company investments, the result of excess liquidity related to deposit growth in excess of asset deployment needs. The funds have been redeployed in earning assets at our other lines of business. Earnings credited to the commercial banking line of business from these investments approximate alternative external investment rates. Average core deposits for the year totaled $2.4 billion, an increase of 18% over average core deposits in 2004, and an increase of 46% from 2003.

Credit Quality

      Nonperforming assets to total assets was unchanged compared to December 31, 2004 and the allowance for loan losses to total loans decreased at December 31, 2005, compared to December 31, 2004. Other real estate owned increased $6.4 million over the 2004 balance. This increase relates to five new properties carried at $7.0 million. Nonperforming loans are not significantly concentrated in any industry category. The decrease in the allowance for loan losses as a percent of total loans reflects our belief that overall loss experience has declined due to improving economic conditions, improved overall loan quality and successful workouts of several nonperforming loans in 2005. The following table shows information about our nonperforming assets in this line of business and our allowance for loan losses.

	December 31,
	2005			2004			2003
	(Dollars in thousands)
Nonperforming loans	$	19,483		$	21,247		$	25,614
Other real estate owned		7,892			1,533			995
Total nonperforming assets	$	27,375		$	22,780		$	26,609
Nonperforming assets to total assets		0.87	%		0.87	%		1.21	%
Allowance for loan losses	$	24,670		$	22,230		$	22,055
Allowance for loan losses to total loans		0.92	%		1.00	%		1.11	%
For the Period Ended:
Provision for loan losses	$	5,286		$	3,307		$	5,913
Net charge-offs		2,847			3,133			4,583
Net charge-offs to average loans		0.12	%		0.15	%		0.24	%

      The following table shows information about our nonperforming assets by market:

		December 31,
		2005		2004		2003
		Loans		Loans		Loans
Markets		Outstanding		Outstanding		Outstanding
		(Dollars in thousands)
Indianapolis		$	3,256	$	495	$	1,337
Central and western			19,426		16,827		18,600
Southern Indiana			1,095		1,143		2,383
Phoenix			2,679		3,442		4,040
Las Vegas			—		—		—
Other			919		873		249
	Total	$	27,375	$	22,780	$	26,609

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Commercial Finance

			Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Selected Income Statement Data:
	Net interest income		$	33,683		$	28,084		$	22,766		$	15,140		$	9,481
	Provision for loan and lease losses			(6,211	)		(6,798	)		(11,308	)		(8,481	)		(6,939	)
	Noninterest income			7,437			6,275			5,868			4,397			1,695
		Total net revenue		34,909			27,561			17,326			11,056			4,237
	Operating expense			(22,224	)		(18,782	)		(15,072	)		(12,122	)		(8,424	)
		Income (loss) before taxes		12,685			8,779			2,254			(1,066	)		(4,187	)
	Income taxes			(5,252	)		(5,562	)		(461	)		513			1,309
		Income (loss) before cumulative effect of change in accounting principle		7,433			3,217			1,793			(553	)		(2,878	)
	Cumulative effect of change in accounting principle			—			—			—			495			—
		Net income (loss)	$	7,433		$	3,217		$	1,793		$	(58	)	$	(2,878	)
Selected Balance Sheet Data at End of Period:
	Total assets		$	831,657		$	636,604		$	474,915		$	343,384		$	266,670
	Loans and leases			817,208			625,140			463,423			345,844			264,827
	Allowance for loan and lease losses			(10,756	)		(9,624	)		(11,445	)		(7,657	)		(4,587	)
	Shareholders’ equity			71,568			55,993			44,255			29,236			18,741
Selected Operating Data:
	Net charge-offs		$	4,806		$	8,235		$	7,868		$	5,401		$	4,653
	Net interest margin			4.80	%		5.33	%		5.63	%		5.07	%		4.64	%
	Total funding of loans and leases		$	451,754		$	366,545		$	272,685		$	207,087		$	190,716

Overview

      We established this line of business in 1999. In this segment, we provide small ticket, full payout lease financing on a variety of small business equipment in the United States and Canada as well as equipment and leasehold improvement financing for franchisees (mainly in the quick service restaurant sector) in the United States.

Strategy

      Our strategy is to provide cost-competitive, service-oriented financing alternatives to small businesses generally and to franchisees. We utilize direct and indirect sales forces to distribute our products. In the small ticket lease channel our sales efforts focus on providing lease solutions for vendors and manufacturers. The majority of our leases are full payout (no residual), small-ticket assets secured by commercial equipment. We finance a variety of commercial, light industrial and office equipment types and try to limit the concentrations in our loan and lease portfolios. Within the franchise channel, the financing of equipment and real estate are documented as loans and the loan amounts are higher than in our small-ticket business. The franchise channel may also finance real estate for select franchise systems.

Net Income

      Commercial finance net income increased to $7.4 million during 2005, a 131% increase compared to net income of $3.2 during 2004. In 2003, net income totaled $1.8 thousand. Results in 2005 reflect growth of

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$6 million in net interest income over 2004. Net interest income in 2004 increased 23% over 2003. Provision for loan and lease losses decreased to $6.2 million in 2005, compared to provisions of $6.8 million and $11.3 million in 2004 and 2003, respectively. The 2005 earnings growth is attributable to higher net interest income due to portfolio growth, improvements in credit quality, and higher gains from the sale of loans.

Net Interest Income

      The following table shows information about net interest income for our commercial finance line of business:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Net interest income	$	33,683		$	28,084		$	22,766
Average interest earning assets		701,423			526,754			404,089
Net interest margin		4.80	%		5.33	%		5.63	%

      Net interest income was $33 million for 2005, an increase of 20% over 2004, and an increase of 48% from 2003. The improvement in net interest income resulted from an increase in our commercial finance portfolio. The total loan and lease portfolio has increased to $817 million at December 31, 2005, an increase of 31% and 76% over year-end 2004 and 2003 balances, respectively. This line of business originated $452 million in loans and leases during 2005, compared to $367 million during 2004 and $273 million in 2003.

      Net interest margin is computed by dividing net interest income by average interest earning assets. Net interest margin during 2005 was 4.80%, compared to 5.33% in 2004, and 5.63% in 2003. The decreasing margin is due primarily to increasing cost of funds.

Provision for Loan and Lease Losses

      The provision for loan and lease losses decreased to $6.2 million in 2005 compared to $6.8 million in 2004 and $11.3 million in 2003. The decreased provisioning levels relate primarily to improvements in credit quality in our lease portfolio. We believe this segment has negligible exposure to losses arising from hurricanes Katrina and Rita.

Noninterest Income

      The following table shows the components of noninterest income for our commercial finance line of business:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Gain from sales of loans	$	2,642		$	1,796		$	2,630
Derivative losses, net		(717	)		(536	)		(803	)
Other		5,512			5,015			4,041
Total noninterest income	$	7,437		$	6,275		$	5,868

      Noninterest income during 2005 increased 19% over 2004 and 27% over 2003. Included in noninterest income were gains from sales of leases and whole loans that totaled $2.6 million in 2005 compared to $1.8 million in 2004 and $2.6 million in 2003. Also included in noninterest income during 2005, 2004 and 2003 was $0.7 million, $0.5 million and $0.8 million of interest rate derivative mark to market valuation losses in our Canadian operation related to managing interest rate risk exposure in our funding of that operation.

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Operating Expenses

      The following table shows the components of operating expenses for our commercial finance line of business:

		Year Ended December 31,
		2005		2004		2003
		(Dollars in thousands)
Salaries and employee benefits		$	17,531	$	14,333	$	11,606
Other			4,693		4,449		3,466
	Total operating expenses	$	22,224	$	18,782	$	15,072
Number of employees at year end(1)			184		162		133

⁽¹⁾  On a full time equivalent basis

      Operating expenses during 2005 totaled $22 million, an increase of 18% over 2004, and an increase of 48% from 2003. The increased operating expenses relate to the continued growth in this business since its inception in 1999, including compensation costs related to higher production levels, infrastructure and staffing development, as well as incentive compensation costs related to the achievement of profitability.

Credit Quality

      The commercial finance line of business had nonperforming loans and leases at December 31, 2005 totaling $3.7 million, compared to non-performing loans and leases at December 31, 2004 and 2003 totaling $3.9 million and $4.1 million, respectively. Net charge-offs recorded by this line of business totaled $4.8 million in 2005 compared to $8.2 million in 2004 and $7.9 million in 2003. Allowance for loan and lease losses at December 31, 2005 totaled $10.8 million, representing 1.32% of loans and leases, compared to a balance at December 31, 2004 of $9.6 million, representing 1.54% of loans and leases and a balance of $11.4 million or 2.47% of the portfolio at December 31, 2003.

      The following table shows information about our nonperforming loans and leases in this line of business and our allowance for loan and lease losses:

	December 31,
	2005			2004			2003
	(Dollars in thousands)
Nonperforming loans	$	3,700		$	3,936		$	4,083
Allowance for loan losses		10,756			9,624			11,445
Allowance for loan losses to total loans		1.32	%		1.54	%		2.47	%
For the Period Ended:
Provision for loan losses	$	6,211		$	6,798		$	11,308
Net charge-offs		4,806			8,235			7,868
Net charge-offs to average loans		0.69	%		1.59	%		1.97	%

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      The following table provides delinquency information about the loan and lease portfolio of our commercial finance line of business at the dates shown:

		December 31,
		2005			2004
		(Dollars in thousands)
Domestic franchise loans		$	336,939		$	243,859
	Delinquency ratio		0.37	%		0.35	%
Domestic leases		$	204,701		$	149,999
	Delinquency ratio		1.26	%		1.09	%
Canadian leases(1)		$	275,568		$	231,282
	Delinquency ratio		0.53	%		0.82	%

⁽¹⁾  In U.S. dollars.

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Home Equity Lending

      The following table shows selected financial information for the home equity lending line of business:

			Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Selected Income Statement Data:
Net interest income			$	88,290		$	98,983		$	106,545		$	94,068		$	61,803
Provision for loan and lease losses				(15,811	)		(4,369	)		(29,575	)		(25,596	)		(2,320	)
Noninterest income				33,667			67,847			(19,525	)		11,791			64,786
		Total net revenues		106,146			162,461			57,445			80,263			124,269
Operating expenses				(102,339	)		(114,779	)		(90,538	)		(78,588	)		(97,189	)
Income (loss) before taxes				3,807			47,682			(33,093	)		1,675			27,080
Income taxes				(1,555	)		(19,615	)		13,203			(670	)		(10,832	)
Net income (loss)			$	2,252		$	28,067		$	(19,890	)	$	1,005		$	16,248
Selected Balance Sheet Data:
Total assets			$	1,602,400		$	992,979		$	1,070,634		$	939,494		$	602,226
Home equity loans and lines of credit(1)				980,406			590,175			692,637			626,355			346,192
Allowance for loan losses				(23,552	)		(11,330	)		(29,251	)		(21,689	)		(2,220	)
Home equity loans held for sale				513,231			227,740			202,627			75,540			—
Residual interests				15,580			51,542			70,519			157,065			199,071
Mortgage servicing assets				30,502			44,000			28,425			26,444			15,265
Short-term borrowings				920,636			359,902			368,640			201,328			138,527
Collateralized debt				452,615			352,625			460,535			391,425			—
Shareholders’ equity				151,677			136,260			128,555			155,831			135,493
Selected Operating Data:
Loan volume:
	Lines of credit		$	436,451		$	508,287		$	324,094		$	443,323		$	317,579
	Loans			1,255,185			934,027			809,222			623,903			831,830
Total managed portfolio balance				1,593,509			1,147,137			1,513,289			1,830,339			2,064,542
Delinquency ratio(2)				3.0	%		4.8	%		5.9	%		6.0	%		5.1	%
Total managed portfolio balance Including credit risk sold			$	3,058,842		$	2,807,367		$	2,568,356		$	2,502,685		$	2,317,975
Weighted average coupon rate:
	Lines of credit			10.17	%		9.18	%		9.71	%		10.79	%		11.11	%
	Loans			10.18			11.87			12.07			13.50			13.38
Gain on sale of loans to loans sold				2.39			2.24			3.81			4.70			8.47
Net home equity charge-offs to average managed portfolio				0.60			2.48			4.37			2.87			1.82

(1)	Includes $486 million, $361 million, $479 million and $392 million of collateralized loans at December 31, 2005, 2004, 2003 and 2002, respectively, as part of securitized financings.
(2)	Nonaccrual loans are included in the delinquency ratio.

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Overview

      Our home equity lending line of business originates, purchases, sells and services a variety of home equity lines of credit and fixed-rate home equity loan products nationwide. We periodically purchase servicing rights for home equity loans. We market our home equity products (generally using second mortgage liens) through a combination of brokers, the Internet, and correspondent channels. We seek creditworthy homeowners who are active credit users.

Strategy

      We offer home equity loans with combined loan-to-value (CLTV) ratios of up to 125% of their collateral value. Home equity loans are priced using a proprietary model, taking into account, among other factors, the credit history of our customer and the relative loan-to-value (LTV) ratio of the loan at origination. For the year ended December 31, 2005, loans with loan-to-value ratios greater than 100% (high LTVs, or HLTVs) home equity loans made up 33% of our loan originations and 46% of our managed portfolio. HLTVs constituted 47% of our managed portfolio at December 31, 2004. In an effort to manage portfolio concentration risk and to comply with existing banking regulations, we have policies in place governing the size of our investment in loans secured by real estate where the LTV is greater than 90%.

      For most of our home equity product offerings, we offer customers the choice to accept an early repayment fee in exchange for a lower interest rate. A typical early repayment option provides for a fee equal to up to six months’ interest that is payable if the borrower chooses to repay the loan during the first three to five years of its term. Approximately 71%, or $1.1 billion, of our home equity managed portfolio at December 31, 2005 was originated with early repayment provisions, reflecting such customer choice.

      Generally we either sell loans through whole loan sales or we fund these loans on balance sheet through warehouse lines or secured, term financings. We balance our loan portfolio growth objectives with cash flow and profit targets, as well as a desire to manage our capital accounts. In addition, regulated banks holding more than their total regulatory capital in certain mortgage exposures where the underlying loan to value exceeds 90 percent are subject to a higher level of regulatory scrutiny. This regulation factors into our sale decisions. Our long-term expectations for whole loan sales are in the 60% range. We generally retain the servicing rights for the loans we sell.

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Portfolio Mix

      Our home equity products are designed to appeal to homeowners who have high levels of unsecured (e.g., credit card) debt, who through the use of a debt consolidating mortgage loan can meaningfully reduce their after-tax monthly cash outflows. We underwrite our loans using unsecured debt criteria, while adjusting for relative risk by LTV level and credit profile through our pricing. We believe that the mortgage lien associated with the loan has a meaningful, positive influence on the payment priority of our customers. We lend nationally in our home equity lending line of business to avoid concentrations that may be subject to local real estate market conditions. The following table provides a breakdown of our home equity lending managed portfolio by product type, outstanding principal balance and weighted average coupon:

		December 31,
		2005								2004
							Weighted								Weighted
							Average								Average
		Amount		% of Total			Coupon			Amount		% of Total			Coupon
		(Dollars in thousands)
Home Equity portfolio
Loans<  = 100% CLTV		$	494,462		31.03	%		7.90	%	$	182,817		15.94	%		9.79	%
Lines of credit<  = 100% CLTV			327,164		20.53			8.77			384,547		33.52			7.82
Total<  = 100% CLTV			821,626		51.56			8.24			567,364		49.46			8.46
Loans> 100% CLTV			582,536		36.56			12.31			349,791		30.49			13.27
Lines of credit> 100% CLTV			142,315		8.93			13.10			175,082		15.26			11.70
Total> 100% CLTV			724,851		45.49			12.47			524,873		45.75			12.75
First mortgages			36,377		2.28			7.10			36,694		3.20			7.18
Other			10,655		0.67			14.03			18,206		1.59			13.88
	Total managed portfolio(1)	$	1,593,509		100.00	%		10.18	%	$	1,147,137		100.00	%		10.46	%

⁽¹⁾  We define our “Managed Portfolio” as the portfolio of loans ($1.6 billion) that we service and on which we carry credit risk. At December 31, 2005, we also serviced another $1.5 billion of loans for which the credit risk is held by others.

      The following table shows the geographic composition of our home equity lending managed portfolio on a percentage basis as of December 31, 2005 and December 31, 2004:

		December 31,
State		2005			2004
California			11.4	%		15.4	%
Michigan			8.5			6.0
Florida			6.9			7.4
Colorado			6.2			4.7
Ohio			5.8			5.3
All other states			61.2			61.2
	Total		100.0	%		100.0	%
Total managed portfolio in thousands		$	1,593,509		$	1,147,137

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      The following table shows the geographic composition of our home equity loan originations on a percentage basis for the periods indicated:

		For the Year Ended
		December 31,
State		2005			2004
California			15.2	%		16.1	%
Florida			8.2			6.2
Michigan			7.1			5.5
Arizona			5.6			2.4
Colorado			5.5			5.8
All other states			58.4			64.0
	Total		100.0	%		100.0	%
Total originations in thousands		$	1,691,636		$	1,442,314

Securitizations

      Since inception in 1995, we have used secondary markets to assist in the funding of the loans we make. These securitizations have provided a stable, relatively low cost source of matched maturity funding for us. The securitizations can be accounted for in one of two methods:

•  As off balance sheet, “SFAS 140”, structures where both the loans and securitization liabilities are off balance sheet. We record a gain on sale of loans at the time of securitization, retain a residual interest and record subsequent trading gains/losses throughout the life of the loans as our assumptions of future performance change. We engaged in such securitizations from 1995 through 2001. We are considering the use of gain-on-sale accounting again in 2006 on a limited basis in order to align regulatory and economic capital requirements. The internally imposed limitations relate to credit quality and loan-to-value ratios of the underlying loans (e.g., loans must meet certain minimum FICO scores and combined loan-to-values will not exceed 100%) as well as a limitation that the amount of residuals we will have as a percentage of capital at Irwin Union Bank and Trust will not exceed 15% of the Bank’s Tier 1 capital. Such treatment would result in the creation of new residual interests.

•  As on balance sheet structures (“secured financings”) where the loans are left on balance sheet and the securitization liabilities are brought on balance sheet as collateralized debt. We then report net interest income on an accrual basis over the life of the loans. We have used these structures since 2001.

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Net Income

      Our home equity lending business recorded net income of $2.3 million during the year ended December 31, 2005, compared to net income of $28.1 million in 2004 and a net loss of $19.9 million in 2003. The most significant factors in the decreased earnings during 2005 were lower coupons from the origination of higher credit quality loans, reduced trading gains on our residual interest, higher loan loss provision and reduced gain on sale of loans.

Net Revenue

      Net revenue in 2005 totaled $106 million, compared to net revenue in 2004 and 2003 of $162 million and $57 million, respectively. Higher servicing asset amortization reduced net revenues in 2005 compared to 2004 as a result of the growth in the servicing portfolio. In addition, net interest income declined by $11 million in 2005 due to shrinking net interest margins. Another contributing factor to the decline in revenues is the decrease in trading gains with respect to residual interests. Also, provision for loan losses increased to $15.8 million in 2005 compared to $4.4 million in 2004 and down from $29.6 million in 2003.

      Our home equity lending business produced $1.7 billion of home equity loans in 2005 compared to $1.4 in 2004 and $1.1 billion in 2003. Our home equity lending business had $1.5 billion of loans and loans held for sale at December 31, 2005, compared to $0.8 billion at December 31, 2004, and $0.9 billion at the same date in 2003. Included in the loan balance at December 31, 2005, 2004 and 2003 were $0.5 billion, $0.4 billion and $0.5 billion of collateralized loans as part of secured financings.

      The following table sets forth certain information regarding net revenue for the periods indicated:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Net interest income	$	88,290		$	98,983		$	106,545
Provision for loan losses		(15,811	)		(4,369	)		(29,575	)
Gain on sales of loans		17,849			29,180			26,069
Loan servicing fees		38,206			29,774			21,835
Amortization of servicing assets		(29,708	)		(19,863	)		(13,894	)
Recovery (impairment) of servicing assets		643			1,148			(1,684	)
Trading gains (losses)		2,399			25,176			(52,209	)
Other income		4,278			2,432			358
Total net revenue	$	106,146		$	162,461		$	57,445

      Net interest income decreased to $88 million for the year ended December 31, 2005, compared to 2004 net interest income of $99 million, and $107 million in 2003. This line of business earns interest income on loans held on the balance sheet and the accretion of the discount applied to its residual interests. The decrease in the net interest income in 2005 is primarily due to shrinking net interest margins and product mix.

      Provision for loan losses increased to $15.8 million in 2005 compared to $4.4 million in 2004, but decreased from $29.6 million in 2003. The increased provision in 2005 relates to the buildup of the home equity on-balance sheet loan portfolio and the seasoning of the portfolio. Included in the 2005 provision is approximately $0.5 million that relates to hurricane Katrina and Rita related exposures.

      Gains on sales of loans for the year ended December 31, 2005 totaled $18 million, compared to $29 million and $26 million during the same period in 2004 and 2003, respectively. We completed whole loan sales during 2005 of $0.7 billion compared to sales in 2004 of $1.3 billion. The gain relative to the amount of loans sold was higher than in the prior year due to product mix sold and the related loan yields.

      Whole loan sales are cash sales for which we receive a premium, generally record a servicing asset, recognize any points and fees, and recognize any previously capitalized expenses relating to the sold loans at

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the time of sale. For certain sales, we have the right to an incentive servicing fee (ISF) that will provide cash payments to us once a pre-established return for the certificate holders and certain structure-specific loan credit and servicing performance metrics are met. At December 31, 2005, we were receiving incentive fees for two transactions that had met these performance metrics. During 2005, we collected $2.3 million in cash from these ISFs, compared to $0.9 million in 2004. These ISF arrangements are accounted for in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

      When ISF agreements are entered into subsequent to the whole loan sale, these assets are assigned a zero value and revenue is recognized on a contingent basis as pre-established performance metrics are met and cash is due.

      Loan servicing fees totaled $38 million in 2005 compared to $30 million in 2004 and $22 million in 2003. The servicing portfolio underlying the mortgage servicing asset at our home equity lending line of business totaled $2.0 billion and $2.3 billion at December 31, 2005 and 2004, respectively. The increase in loan servicing fees in 2005 relates to higher prepayment penalty income and increased servicing income on our servicing portfolio.

      Amortization and impairment of servicing assets includes amortization expenses and valuation adjustments relating to the carrying value of servicing assets. Our home equity lending business determines fair value of its servicing asset using discounted cash flows and assumptions as to estimated future servicing income and cost that we believe market participants would use to value similar assets. In addition, we periodically assess these modeled assumptions for reasonableness through independent third-party valuations. At December 31, 2005, net servicing assets totaled $31 million, compared to a balance of $44 million at December 31, 2004, and $28 million at December 31, 2003. Servicing asset amortization expense, net of impairment, totaled $29 million during 2005, compared to $20 million in 2004, and $14 million in 2003. The increased amortization is a result of the increase in the size of the underlying servicing portfolio and increased prepayment speeds.

      Trading gains (losses) represent unrealized gains (losses) as a result of adjustments to the carrying values of our residual interests. Trading gains totaled $2.4 million in 2005 compared to gains of $25.2 million in 2004 and losses of $52.2 million in 2003. Residual interests had a balance of $16 million at December 31, 2005 and $52 million at December 31, 2004, compared to $70 million at the same date in 2003. The decrease in residual interest balance reflects a combination of cash receipts, runoff and performance-based valuation adjustments. The $15.6 million valuation at December 31, 2005 reflects $16.3 million of anticipated undiscounted cash flows of which $13.9 million represents existing securitization overcollateralization and reserve funds, and the remaining $2.4 million represents expected future net spread and prepayment penalties. Included in the valuation are assumptions for estimated prepayments, expected losses, and discount rates that we believe market participants would use to value similar assets. To the extent our expectations of future loss rates, prepayment speeds and other factors change as we gather additional data over time, these residual valuations may be subject to additional adjustments in the future.

Operating Expenses

      The following table shows operating expenses for our home equity lending line of business for the periods indicated:

		Year Ended December 31,
		2005		2004		2003
		(Dollars in thousands)
Salaries and employee benefits		$	64,432	$	75,649	$	52,074
Other			37,907		39,130		38,464
	Total operating expenses	$	102,339	$	114,779	$	90,538
Number of employees at year end(1)			615		642		663

⁽¹⁾  On a full time equivalent basis.

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      Operating expenses were $102 million for the year ended December 31, 2005, down from $115 in 2004, and an increase of 13% from 2003. Operating expenses include compensation expense related to long term compensation plans at the home equity line of business totaling $4.1 million, $14.5 million and $2.3 million in 2005, 2004 and 2003 respectively.

Home Equity Servicing

      Our home equity lending business continues to service the majority of the loans it has securitized and sold. We earn a servicing fee of approximately 50 to 100 basis points of the outstanding principal balance of the loans securitized. Generally accepted accounting principles require us to book a servicing asset under both the “gain on sale” and the “secured financing” structures. The total servicing portfolio was $3.1 billion at December 31, 2005 compared to $2.8 billion at December 31, 2004. For whole loans sold with servicing retained totaling $1.1 billion and $1.4 billion at December 31, 2005 and 2004, respectively, we capitalize servicing fees including rights to future early repayment fees. The servicing asset at December 31, 2005 was $31 million, down from $44 million at December 31, 2004 reflecting secondary market sales and financings, net of amortization and run-off.

      Our Managed Portfolio, representing that portion of the servicing portfolio on which we have retained credit risk, is separated into two categories: $1.5 billion of loans originated, generally since 2002, and held on balance sheet either as loans held for investment or loans held for sale, and $0.1 billion of loans and lines of credit securitized for which we retained a residual interest. Generally, these loans categorized as “Owned Residual” were originated prior to 2002 and treated as sold under SFAS 140 and have a reserve methodology that reflects life of account loss expectations; whereas our policy for on-balance sheet loans requires that we hold at a minimum, sufficient reserves for potential losses inherent in the portfolio at the balance sheet date. Such losses for on-balance sheet loans manifest themselves over a period which management believes approximates twelve months. In both cases, we retain credit and interest rate risk.

      In addition, where applicable, we have the opportunity to earn additional future servicing incentive fees. Included below in the category “Credit Risk Sold, Potential Incentive Servicing Fee Retained Portfolio” are $1.0 billion of loans at December 31, 2005 and 2004 for which we have the opportunity to earn an incentive servicing fee. While the credit performance of these loans we have sold is one factor that can affect the value of the incentive servicing fee, we do not have direct credit risk in these pools.

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      The following table sets forth certain information for these portfolios:

	December 31,
	2005			2004
	(Dollars in thousands)
Managed Portfolio
Total Loans	$	1,593,509		$	1,147,137
30 days past due		3.04	%		4.76	%
90 days past due		1.10			1.60
Net Chargeoff Rate		0.60			2.48
Unsold Loans
Total Loans(1)	$	1,480,224		$	814,595
30 days past due		2.23	%		1.93	%
90 days past due		0.86			0.78
Net Chargeoff Rate		0.31			1.28
Loan Loss Reserve	$	23,552		$	11,330
Owned Residual
Total Loans	$	113,286		$	332,542
30 days past due		13.60	%		11.71	%
90 days past due		4.32			3.61
Net Chargeoff Rate		2.14			5.00
Residual Undiscounted Losses	$	930		$	11,323
Credit Risk Sold, Potential Incentive Servicing Fee Retained Portfolio
Total Loans	$	972,775		$	1,023,585
30 days past due		4.30	%		3.11	%
90 days past due		1.74			1.10

⁽¹⁾  Excludes deferred fees and costs.

      The managed portfolio amounts listed above include those loans we service with credit risk retained. Delinquency rates and losses on our managed portfolio result from a variety of factors, including loan seasoning, portfolio mix, and general economic conditions. The 30-day and greater delinquency ratio on our managed portfolio was 3.0% at December 31, 2005, and 4.8% at December 31, 2004. The net charge off rate for 2005 was 0.60% reflecting lower charge offs resulting from improved credit characteristics.

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Mortgage Banking

      The following table shows selected financial information for our mortgage banking line of business:

			Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Selected Income Statement Data:
Net interest income			$	36,766		$	40,825		$	72,311		$	41,545		$	30,261
Recovery of (provision for) loan loss				455			278			(664	)		(354	)		31
Noninterest income				65,263			197,971			326,000			207,177			185,251
	Total net revenue			102,484			239,074			397,647			248,368			215,543
Operating expense				(129,551	)		(204,205	)		(267,880	)		(175,277	)		(153,706	)
	Income before taxes			(27,067	)		34,869			129,767			73,091			61,837
Income taxes				10,891			(14,603	)		(51,667	)		(28,548	)		(23,912	)
Net (loss) income before cumulative effect of change in accounting principle				(16,176	)		20,266			78,100			44,543			37,925
Cumulative effect of change in accounting principle				—			—			—			—			175
	Net (loss) income		$	(16,176	)	$	20,266		$	78,100		$	44,543		$	38,100
Selected Balance Sheet Data at End of Period:
Total assets			$	1,306,041		$	1,238,136		$	1,258,641		$	1,631,406		$	926,946
Mortgage loans held for sale				779,966			662,832			679,360			1,239,309			502,086
Mortgage servicing assets				261,309			319,225			348,174			146,398			211,201
Deposits				412,444			680,812			567,047			581,425			360,523
Short-term borrowing				467,470			133,150			214,877			809,921			385,640
Shareholder’s equity				125,888			123,265			122,671			100,069			63,150
Shareholder’s equity to assets				9.64	%		9.96	%		9.75	%		6.13	%		6.81	%
Selected Operating Data:
Mortgage loan originations			$	11,029,183		$	13,093,082		$	22,669,246		$	11,411,875		$	9,225,991
Servicing sold as a % of originations				121.4	%		74.2	%		6.2	%		31.1	%		29.9	%
Servicing portfolio:
	Balance at end of period		$	18,265,288		$	26,196,627		$	29,640,122		$	16,792,669		$	12,875,532
		Weighted average coupon rate		5.79	%		5.75	%		5.83	%		6.59	%		7.23	%
		Weighted average servicing fee		0.35			0.35			0.33			0.37			0.45

Overview

      In our mortgage banking line of business, we originate, purchase, sell and service conventional and government agency-backed residential mortgage loans throughout the United States. We also engage in the business of mortgage reinsurance. Our channels for originating loans consist primarily of retail, wholesale, and correspondent lending.

      We sell servicing rights periodically for many reasons, including income recognition, cash flow, capital management and servicing portfolio management. Servicing rights sales occur at the time the underlying loans are sold to an investor (in flow sales) or in pools from our seasoned servicing portfolio (in bulk sales). In 2005, we chose to sell the servicing asset associated with nearly all of our current originations. We made this decision due to a desire to lower our interest rate risk from the servicing portfolio, as well as to decrease servicing assets

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as a percentage of our consolidated balance sheet. This differs from our actions in the early part of this decade when we added to the portfolio as rates reached historic lows.

      During the first half of 2005, we divested a substantial portion of our retail origination operations. These divested operations represented less than 20% of our total 2004 originations. Exit costs associated with these sales totaled approximately $1.6 million. We anticipate that we will recognize some incremental revenue over the next two years as part of an earn-out based remuneration for these branches. In 2005, earn-out based revenues totaled $1.0 million.

      In January 2006, we announced that we were considering strategic alternatives for the conventional first mortgage business, including the potential sale of the mortgage banking line of business. We believe that our mortgage banking line of business, particularly our servicing activities, have grown to a size where we believe they can be managed and grown more effectively within another organization. We are actively searching for an alternative home for the segment and its employees. While considering alternatives, we are continuing to operate the business as usual. During 2006, we expect to report on the operations of Irwin Mortgage as “discontinued operations”.

Net Income

      Our mortgage banking line of business reported a net loss for the year ended December 31, 2005 of $16 million, compared to net income of $20 million during 2004, and net income from 2003 results of $78 million. The 2005 loss reflects significant losses on derivatives associated with our mortgage servicing asset risk management activities as well as compressed interest margins resulting in declines in revenues from secondary market sales of loans. The net income decrease in 2004 primarily relates to a decline in mortgage originations due to generally rising interest rates, compressed interest margins and reduced valuation recoveries on mortgage servicing rights.

      The following table shows the composition of our originations by loan categories for the periods indicated:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Total originations	$	11,029,183		$	13,093,082		$	22,669,246
Percent retail loans		10	%		20	%		26	%
Percent wholesale loans		49			34			42
Percent correspondent		37			35			28
Percent brokered(1)		4			11			4
Percent refinances		47			52			67

⁽¹⁾  Brokered loans are loans we originate for which we receive loan origination fees, but which are funded, closed and owned by unrelated third parties.

      Mortgage loan originations for the year ended December 31, 2005 totaled $11 billion, down 16% from the same period in 2004. A significant portion of the decrease relates to the divestiture in the first half of 2005 of a substantial portion of our retail origination operations. Retail origination declined from 20% of our total originations in 2004 to 10% in 2005.

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Net Revenue

      Mortgage banking net revenue for the year ended December 31, 2005 totaled $102 million, compared to $239 million for the year ended December 31, 2004, and $398 million in 2003. The following table sets forth certain information regarding net revenue for the periods indicated:

		Year Ended December 31,
		2005			2004			2003
		(Dollars in thousands)
Selected Income Statement Data:
Net interest income		$	36,766		$	40,825		$	72,311
Provision for loan losses			455			278			(664	)
Gain on sales of loans			75,267			151,172			327,864
Servicing fees			86,930			104,500			83,124
Amortization expense			(69,308	)		(95,721	)		(118,920	)
Recovery (impairment) of servicing assets			18,734			(4,204	)		45,456
Gain (loss) on derivatives			(67,587	)		18,889			(21,307	)
Gain (loss) on sales of servicing assets			14,412			16,681			(305	)
Other income			6,815			6,654			10,088
	Total net revenue	$	102,484		$	239,074		$	397,647

      Net interest income is generated from the interest earned on mortgage loans before they are sold to investors, less the interest expense incurred on borrowings to fund the loans. Net interest income in 2005 decreased 10% to $37 million, compared to $41 million in 2004, and $72 million in 2003. The decrease in net interest income in 2005 and 2004 is a result of decreased production resulting in a lower average balance of mortgage loans held for sale on our balance sheet during the year.

      Gain on sale of loans includes net revenues from three principal sources:

•  the valuation of newly-created mortgage servicing rights;

•  net loan origination fees which are recognized when loans are pooled and sold into the secondary mortgage market; and,

•  changes in fair value of forward contracts and interest rate lock commitments.

      Gain on sale of loans for the year ended 2005 totaled $75 million, compared to $151 million and $328 million in 2004 and 2003, a decrease of 50% and 77%, respectively. This decrease is attributable to the sale of most of our retail branches during the early part of 2005, reduced secondary market margins, and reduced pricing power on the part of originators.

      Servicing fee income is recognized by collecting fees, which normally range between 25 and 44 basis points annually on the principal amount of the underlying mortgages. Servicing fee income totaled $87 million for the year of 2005, a decrease of 17% from 2004 and an increase of 5% from 2003. The decline in servicing fees in 2005 primarily reflects the decrease in the size of the servicing portfolio.

      Amortization expense relates to mortgage servicing rights and is based on the proportion of current net servicing cash flows to the total expected for the estimated lives of the underlying loans. Amortization expense totaled $69 million for the year ended December 31, 2005, compared to $96 million during 2004 and $119 million during 2003. The decrease in amortization expense in 2005 compared to 2004 relates to the decreased portfolio and reduced prepayment speeds.

      Impairment expense is recorded when the book value of the mortgage servicing rights exceeds the fair market value on a strata by strata basis. We determined fair value at December 31, 2005, through the use of independent valuations, valuation comparisons to actual servicing sale proceeds, and internal models. Recovery of servicing assets totaled $19 million during 2005, compared to impairment expense of $4 million

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during 2004 and recovery of $45 million in 2003. The fluctuations in impairment expense are attributable to changes in actual and expected prepayment speeds due to interest rate changes.

      The current risk management activities of the mortgage bank related to servicing assets do not satisfy the criteria for “hedge accounting” under SFAS 133. As a result, these derivatives are accounted for as “other assets” and “other liabilities,” and changes in fair value are adjusted through earnings as “derivative gains (losses),” while the underlying servicing asset is accounted for on a strata-by-strata basis at the lower of cost or market. The recovery of servicing assets recorded in 2005 was more than offset by derivative losses of $68 million. We recorded derivative gains of $19 million during 2004 and derivative losses of $21 million during 2003. See the discussion of “Derivative Financial Instruments” in our Risk Management section for additional information on our risk management activities.

      Our net impairment and related risk management results were less favorable in 2005 due to a variety of factors including the shape of the yield curve and volatility of interest rates as well as basis risk. During 2005, we substantially lowered our exposure to impairment by selling mortgage servicing rights as discussed below. In early 2006, we engaged an independent third party to help advise us on our mortgage servicing rights risk management activities.

      We sold $6 billion of bulk servicing in 2005, generating $14 million in pre-tax gains. This compares to bulk servicing sales of $4 billion in 2004, producing $17 million pre-tax gains. In 2003, there were no bulk servicing sales. We carry our servicing assets on the balance sheet at the lower-of-cost-or-market. The decline in revenues associated with servicing sales reflects the fact that the assets sold in 2005 had been carried on the balance sheet at a value closer to their fair value as compared to 2004 when the gap between the required balance sheet carrying value for these assets and the fair value was greater. During the early years of this decade, we had built our servicing portfolio in anticipation of rising interest rates that would result in lower mortgage loan production. We sold servicing in 2005 primarily to manage the size and composition of our investment in mortgage servicing assets.

Operating Expenses

      The following table sets forth operating expenses for our mortgage banking line of business for the periods indicated:

		Year Ended December 31,
		2005		2004		2003
		(Dollars in thousands)
Salaries and employee benefits		$	53,879	$	77,209	$	81,589
Incentive and commission pay			15,490		41,230		79,956
Other expenses			60,182		85,766		106,335
	Total operating expenses	$	129,551	$	204,205	$	267,880
Number of employees at year end(1)			895		1,675		2,175

⁽¹⁾  On a full time equivalent basis.

      Operating expenses for the year ended December 31, 2005 totaled $130 million, a 37% decrease over the year 2004, and a 52% decrease over 2003. Salaries and employee benefits including incentive and commission pay decreased 41% in 2005 over 2004 and 57% over 2003. These decreases in operating expenses reflect significant decreases in production activities in 2005 versus 2004. However, the relative decreases in operating expenses are less than the relative decreases in production due to the fixed and semi-variable nature of certain operating expenses and the impact of investments in various process improvement initiatives.

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Mortgage Servicing

      The following table shows information about our managed mortgage servicing portfolio, including mortgage loans held for sale, for the periods indicated:

		Year Ended December 31,
		2005			2004			2003
		(Portfolio in billions)
Beginning servicing portfolio		$	26.2		$	29.6		$	16.8
	Mortgage loan closings(1)		10.6			11.7			21.9
	Bulk sales of servicing rights		(6.2	)		(4.0	)		—
	Flow sales of servicing rights		(6.8	)		(4.2	)		(0.6	)
	Run-off(2)		(5.5	)		(6.9	)		(8.5	)
Ending servicing portfolio		$	18.3		$	26.2		$	29.6
Number of loans (end of period)			142,956			205,463			229,983
Average loan size		$	127,769		$	127,500		$	128,880
Weighted average coupon			5.79	%		5.75	%		5.83	%
Percent Government National Mortgage Association (GNMA) and state housing programs			26			30			26
Percent conventional and other			74			70			74
Delinquency ratio			5.4			4.6			4.6
Mortgage servicing assets to related servicing portfolio (3)			1.41			1.20			1.19

(1)	Excludes brokered loans that are closed, funded and owned by unrelated third parties.
(2)	Run-off is primarily the reduction in principal balance of the servicing portfolio due to regular principal payments made by mortgagees and early repayments of entire loans.
(3)	For this calculation, deferred service release premiums on warehouse loans are excluded from mortgage servicing assets and loans held for sale (i.e. warehouse loans) are excluded from the servicing portfolio.

      Our mortgage servicing portfolio, including mortgage loans held for sale, totaled $18 billion at December 31, 2005, a 30% decrease from the December 31, 2004 balance of $26 billion, and a 39% decrease from the same date in 2003. The decrease in 2005 relates primarily to bulk servicing sales and the decision to sell a relatively high proportion of the servicing rights created by new production (“flow sales” where the servicing is sold at the same time the underlying mortgage is sold into the secondary market).

      We record originated mortgage servicing assets at allocated cost basis when the loans are sold and record purchased servicing assets at fair value. Thereafter, servicing rights are accounted for at the lower of their cost or fair value. We record a valuation allowance for any impairment on a disaggregated basis. We determine fair value on a monthly basis based on a discounted cash flow analysis. These cash flows are projected over the life of the servicing using prepayment, default, discount rate and cost to service assumptions that we believe market participants would use to value similar assets. We then assess these modeled assumptions for reasonableness through independent third-party valuations, periodic servicing asset sales and through the use of industry surveys.

Parent and Other

      Results at the parent company and other businesses totaled a net loss of $1.9 million for the year ended December 31, 2005, compared to a loss of $6.5 million during the same period in 2004 and $9.7 million in 2003. These losses at the parent company primarily relate to operating and interest expenses in excess of management fees charged to the lines of business and interest income earned on intracompany loans. Included in parent company operating results are allocations to our subsidiaries of interest expense related to our interest-bearing capital obligations. During the year ended December 31, 2005, we allocated $18 million of

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these expenses to our subsidiaries, compared to $14 million and $15 million during 2004 and 2003, respectively.

      Each subsidiary pays taxes to us at the statutory rate. Subsidiaries also pay fees to us to cover direct and indirect services. In addition, certain services are provided from one subsidiary to another. Intercompany income and expenses are calculated on an arm’s-length, external market basis and are eliminated in consolidation. During 2005, we released $1.9 million in tax reserves at the parent company to align our tax liability to a level commensurate with our currently identified tax exposures. The majority of the reserves related to our 2001 tax returns. The statute on these returns expired during the third quarter of 2005 triggering the reversal of these reserves.

Risk Management

      We are engaged in businesses that involve the assumption of financial risks including:

•  Credit risk

•  Liquidity risk

•  Interest rate risk

•  Operational risk

      Each line of business that assumes financial risk uses a formal process to manage this risk. In all cases, the objectives are to ensure that risk is contained within prudent levels and that we are adequately compensated for the level of risk assumed.

      Our Chairman, Executive Vice President, Senior Vice Presidents (including the Chief Financial Officer), and Chief Risk Officer (at the time of this filing, we are conducting a search for a new Chief Risk Officer as the prior officer recently moved into a new role at our commercial banking subsidiary) meet on a regularly-scheduled basis (or more frequently as appropriate) as an Enterprise-wide Risk Management Committee (ERMC), reporting to the Board of Directors’ Audit and Risk Management Committee.

      Each of our principal risks is managed at the line of business level, with oversight and, when appropriate, standardization provided by the ERMC and its subcommittees. The ERMC and its subcommittees oversee all aspects of our financial, credit, and operational risks. The ERMC provides senior-level review and enhancement of line manager risk processes and oversight of our risk reporting, surveillance and model parameter changes.

      Credit Risk. The assumption of credit risk is a key source of earnings for the home equity lending, commercial banking and commercial finance lines of business. The mortgage banking line of business assumes limited credit risk as its mortgages typically are insured and are sold within a short period of time after origination.

      The credit risk in the loan portfolios of the home equity lending, commercial finance and commercial banking lines of business has the most potential for a significant effect on our consolidated financial performance. These lines of business each have a Chief Credit Officer with expertise specific to the product line. The segments manage credit risk through various combinations of the use of lending policies, credit analysis and approval procedures, periodic loan reviews, servicing activities, and/or personal contact with borrowers. Commercial loans over a certain size, depending on the loan type and structure, are reviewed by a loan committee prior to approval. We perform independent loan review across the Corporation through a function that reports directly to the Audit and Risk Management Committee.

      The allowance for loan and lease losses is an estimate based on our judgment applying the principles of SFAS 5, “Accounting for Contingencies,” SFAS 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” The allowance is maintained at a level we believe is adequate to absorb probable losses inherent in the loan and lease portfolio. We perform an assessment of the adequacy of the allowance at the segment level no less frequently than on a quarterly basis and through review by a subcommittee of the ERMC.

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      Within the allowance, there are specific and expected loss components. The specific loss component is based on a regular analysis of all loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. From this analysis we determine the loans that we believe to be impaired in accordance with SFAS 114. Management has defined impaired as nonaccrual loans. For loans determined to be impaired, we measure the level of impairment by comparing the loan’s carrying value using one of the following fair value measurement techniques: present value of expected future cash flows, observable market price, or fair value of the associated collateral. An allowance is established when the collateral value of the loan implies a value that is lower than carrying value. In addition to establishing allowance levels for specifically identified higher risk graded or high delinquency loans, management determines an allowance for all other loans in the portfolio for which historical or projected experience indicates that certain losses will occur. These loans are segregated by major product type, and in some instances, by aging, with an estimated loss ratio or migration pattern applied against each product type and aging category. For portfolios that are too new to have adequate historical experience on which to base a loss estimate, we use estimates derived from industry experience and management’s judgment. The loss ratio or migration patterns are generally based upon historic loss experience or historic rate migration behaviors, respectively, for each loan type adjusted for certain environmental factors management believes to be relevant.

      Net charge-offs for the year ended December 31, 2005 were $11 million, or 0.3% of average loans, compared to $23 million, or 0.7% of average loans during 2004. Net charge-offs in 2003 were $34 million or 1.1% of average loans. The decrease in charge-offs is a result of improvements in credit quality associated with tighter underwriting guidelines in our home equity business and an improving economy. At December 31, 2005, the allowance for loan and lease losses was 1.3% of outstanding loans and leases, unchanged from year-end 2004, and 2.0% at year-end 2003.

      The following table shows an analysis of our consolidated allowance for loan and lease losses:

				At or For the Year Ended December 31,
				2005		2004		2003		2002		2001
				(Dollars in thousands)
Loans and leases outstanding at end of period, net of unearned income				$	4,498,829	$	3,450,440	$	3,161,054	$	2,815,276	$	2,137,822
Average loans and leases for the period, net of unearned income				$	3,890,077	$	3,324,333	$	3,168,776	$	2,620,428	$	1,533,261
Allowance for possible loan and lease losses:
Balance beginning of period				$	44,443	$	64,285	$	50,936	$	22,283	$	13,129
Charge-offs:
	Commercial, financial and agricultural loans				2,976		3,262		4,263		3,666		1,638
	Real estate mortgage loans				10,656		15,381		23,522		7,130		600
	Consumer loans				723		351		765		800		1,489
	Commercial Financing:
		Franchise financing			870		88		146		19		—
		Domestic leasing			2,190		6,581		6,026		5,139		3,624
		Canadian leasing			2,786		2,517		2,590		1,476		2,402
			Total charge-offs		20,201		28,180		37,312		18,230		9,753

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				At or For the Year Ended December 31,
				2005			2004			2003			2002			2001
				(Dollars in thousands)
Recoveries:
	Commercial, financial and agricultural loans				767			318			77			435			144
	Real estate mortgage loans				7,068			3,899			2,198			1,002			—
	Consumer loans				85			169			248			252			193
	Commercial Financing:
		Franchise financing			25			—			—			—			—
		Domestic leasing			583			626			448			523			334
		Canadian leasing			432			323			449			658			877
			Total recoveries		8,960			5,335			3,420			2,870			1,548
Net charge-offs					(11,241	)		(22,845	)		(33,892	)		(15,360	)		(8,205	)
Reduction due to sale of loans					(424	)		(627	)		(234	)		—			(6	)
Reduction due to reclassification of loans					—			(10,808	)		(690	)		—			—
Foreign currency adjustment					119			243			582			17			(140	)
Provision charged to expense					26,852			14,195			47,583			43,996			17,505
Balance end of year				$	59,749		$	44,443		$	64,285		$	50,936		$	22,283
Allowance for possible loan and lease losses by category:
	Commercial, financial and agricultural loans			$	19,927		$	18,126		$	20,571		$	17,942		$	11,198
	Real estate mortgage loans				24,079			12,332			31,445			23,150			2,872
	Consumer loans				4,879			4,242			809			2,067			2,309
	Commercial Financing:
		Franchise financing			4,118			3,728			2,158			1,327			204
		Domestic leasing			3,144			2,926			6,285			4,626			4,323
		Canadian leasing			3,602			3,089			3,017			1,824			1,377
			Totals	$	59,749		$	44,443		$	64,285		$	50,936		$	22,283

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			At or For the Year Ended December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Percent of loans and leases to total loans and leases by category:
	Commercial, financial and agricultural loans			42	%		49	%		47	%		48	%		49	%
	Real estate mortgage loans			39			32			37			39			36
	Consumer loans			1			1			1			1			2
	Commercial Financing:
		Franchise financing		7			7			5			3			2
		Domestic leasing		5			4			4			5			7
		Canadian leasing		6			7			6			4			4
Ratios:
Net charge-offs to average loans and leases				0.3	%		0.7	%		1.1	%		0.7	%		0.7	%
Allowance for possible loan losses to loans and leases outstanding				1.3	%		1.3	%		2.0	%		1.8	%		1.0	%

      Total nonperforming loans and leases at December 31, 2005, were $37 million, compared to $34 million at December 31, 2004, and $44 million at December 31, 2003. Nonperforming loans and leases as a percent of total loans and leases at December 31, 2005 were 0.8%, compared to 0.9% at December 31, 2004, and 1.4% in 2003. The 2005 increase in dollars occurred at the home equity lending line of business where nonperforming increased to $12.6 million at December 31, 2005, compared to $6.4 million at the end of 2004. Nonperforming loan and leases at all the other lines of business decreased year over year.

      Other real estate we owned totaled $15.2 million at December 31, 2005, up from $9.4 million at December 31, 2004, which was up from $6.4 million at the same date in 2003. The increase in 2005 relates to the commercial banking line of business. We also include in our nonperforming assets category nonperforming loans held for sale at the mortgage banking line of business that are not guaranteed which decreased to $1.0 million at December 31, 2005 compared to $2.1 million at the end of 2004. These loans reside at the mortgage banking line of business. Total nonperforming assets at December 31, 2005 were $54 million, or 0.8% of total assets. Nonperforming assets at December 31, 2004, totaled $45 million, or 0.9% of total assets, compared to $52 million, or 1.1%, in 2003.

      The following table shows information about our nonperforming assets at the dates shown:

		December 31,
		2005		2004		2003		2002		2001
		(Dollars in thousands)
Accruing loans past due 90 days or more:
Commercial, financial and agricultural loans		$	—	$	—	$	4,172	$	30	$	1,146
Real estate mortgages			222		219		—		—		—
Consumer loans			233		426		226		688		157
Commercial financing:
	Franchise financing		—		—		151		43		—
	Domestic leasing		73		—		8		177		1,624
	Canadian leasing		71		12		70		143		68
			599		657		4,627		1,081		2,995

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			December 31,
			2005			2004			2003			2002			2001
			(Dollars in thousands)
Nonaccrual loans and leases:
Commercial, financial and agricultural loans				17,693			20,394			20,447			13,798			5,066
Real estate mortgages				14,237			8,590			14,663			11,308			8,115
Consumer loans				1,335			128			769			454			708
Commercial financing:
	Franchise financing			720			1,193			552			—			—
	Domestic leasing			1,383			1,029			1,364			3,415			1,180
	Canadian leasing			1,452			1,702			1,943			1,077			1,088
				36,820			33,036			39,738			30,052			16,157
		Total nonperforming loans and leases		37,419			33,693			44,365			31,133			19,152
	Nonperforming loans held for sale not guaranteed			965			2,066			1,695			1,201			1,562
	Other real estate owned			15,226			9,427			6,431			5,272			4,388
		Total nonperforming assets	$	53,610		$	45,186		$	52,491		$	37,606		$	25,102
Nonperforming loans and leases to total loans and leases				0.8	%		1.0	%		1.4	%		1.1	%		0.9	%
Nonperforming assets to total assets				0.8	%		0.9	%		1.1	%		0.8	%		0.7	%

      For the periods presented, the year-end balances of any restructured loans are reflected in the table above either in the amounts shown for “accruing loans past due 90 days or more” or in the amounts shown for “nonaccrual loans and leases.”

      Loans that are past due 90 days or more are placed on nonaccrual status unless, in management’s opinion, there is sufficient collateral value to offset both principal and interest. The $54 million of nonperforming assets at December 31, 2005, were concentrated at our lines of business as follows:

	December 31,		December 31,
	2005		2004
	(In millions)
• Commercial banking	$	27.4	$	22.8
• Commercial finance		3.7		3.9
• Home equity lending		17.1		10.0
• Mortgage banking		5.5		8.5

      Interest income of approximately $4.5 million would have been recorded during 2005 on nonaccrual and renegotiated loans if such loans had been accruing interest throughout the year in accordance with their original terms. The amount of interest income actually recorded during the year of 2005 on nonaccrual and restructured loans was approximately $1.4 million.

      Generally, the accrual of income is discontinued when the full collection of principal or interest is in doubt, or when the payment of principal or interest has become contractually 90 days past due unless the obligation is both well secured and in the process of collection.

      Liquidity Risk. Liquidity is the availability of funds to meet the daily requirements of our business. For financial institutions, demand for funds results principally from extensions of credit and withdrawal of deposits. Liquidity is provided through deposits and short-term and long-term borrowings, by asset maturities or sales, and through equity capital.

      The objectives of liquidity management are to ensure that funds will be available to meet current and future demands and that funds are available at a reasonable cost. We manage liquidity centrally via daily

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interaction with the lines of business and periodic liquidity planning sessions. Since loans are less marketable than securities, the ratio of total loans to total deposits is a traditional measure of liquidity for banks and bank holding companies. At December 31, 2005, the ratio of loans and loans held for sale to total deposits was 149%. We are comfortable with this relatively high level due to our position in first mortgage loans held for sale ($0.8 billion) and second mortgage loans and leases financed through matched-term secured financing ($0.7 billion). The mortgage loans carry an interest rate at or near current market rates and are generally sold within a short period after origination. Excluding these items, our loans to deposit ratio at December 31, 2005 was 110%.

      As disclosed in the footnotes to the Consolidated Financial Statements, we have certain obligations to make future payments under contracts. At December 31, 2005, the aggregate contractual obligations are:

		Payments Due by Period
				Less than		One to		After
		Total		One Year		Five Years		Five Years
		(Dollars in thousands)
Deposits with contractual maturity		$	1,404,219	$	672,488	$	723,234	$	8,497
Deposits without a stated maturity			2,494,774		2,494,774		—		—
Short-term borrowings			997,444		907,444		40,000		50,000
Collateralized debt			669,120		326,602		342,518		—
Other long-term debt			270,160		35		—		270,125
Operating leases			74,763		15,996		45,410		13,357
	Total	$	5,910,480	$	4,417,339	$	1,151,162	$	341,979

      The table above describes our on-balance sheet contractual obligations. As described in the line of business sections, both mortgage banking and home equity lending fund a high percentage of their loan production via whole loan sales and/or asset securitization. It is, therefore, important to note that loan sales/securitizations that occur frequently in our first mortgage loan and home equity loan businesses have proven reliable (e.g., even in unstable market environments such as the weeks after September 11th, 2001) and are an important element in our liquidity management. That reliability notwithstanding, we have policies and procedures in place for contingency liquidity actions should these secondary markets be closed for short periods of time. Our contingency planning simulations suggest that secondary market disruptions lasting more than a couple of weeks would, however, cause us in most scenarios to need to curtail loan production until those markets could recover and are once again fully functioning.

      The mortgage banking line of business sells virtually all of its mortgage loan originations within 30 days of funding, taking them off our balance sheet. Therefore, the on-balance sheet funding of first mortgage loans is for the brief period of time from origination to sale/securitization. In 2005, the home equity lending line of business produced $1.7 billion and the sum of home equity loan sales and secured financings totaled $1.1 billion.

      Since 2002, home equity loan securitizations have been retained on-balance sheet. As a result, both the securitized assets and the funding from the securitization are now reflected on the balance sheet. From a liquidity perspective, the securitizations provide matched-term funding for the life of the loans making up the securitizations unless we choose to utilize a “clean-up” call provision to terminate the securitization funding early. A “clean-up call” typically is optional at our discretion. It can typically be made once outstanding loan balances in the securitization fall below 10% of the original loan balance in the securitization. Bond principal payments are dependent upon principal collections on the underlying loans. Prepayment speeds can affect the timing and amount of loan principal payments.

      Deposits consist of three primary types: non-maturity transaction account deposits, certificates of deposit (CDs), and escrow account deposits. Core deposits exclude jumbo CDs, brokered CDs, public funds and mortgage escrow deposits (although the escrow deposits exhibit core-like maturity characteristics). Core deposits totaled $2.5 billion at December 31, 2005 compared to $2.2 billion at December 31, 2004.

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      Non-maturity transaction account deposits are generated by our commercial banking line of business and include deposits placed into checking, savings, money market and other types of deposit accounts by our customers. These types of deposits have no contractual maturity date and may be withdrawn at any time. While these balances fluctuate daily, a large percentage typically remains for much longer. At December 31, 2005, these deposit types totaled $2.0 billion, an increase of $0.1 billion from December 31, 2004. We monitor overall deposit balances daily with particular attention given to larger accounts that have the potential for larger daily fluctuations and which are at greater risk to be withdrawn should there be an industry-wide or bank-specific event that might cause uninsured depositors to be concerned about the safety of their deposits. On a monthly basis we model the expected impact on liquidity from moderate and severe liquidity stress scenarios as one of our tools to ensure that our liquidity is sufficient.

      CDs differ from non-contractual maturity accounts in that they do have contractual maturity dates. We issue CDs both directly to customers and through brokers. CDs issued directly to customers totaled $0.4 billion at December 31, 2005, a decrease of $0.1 billion from December 31, 2004. Brokered CDs are typically considered to have higher liquidity (renewal) risk than CDs issued directly to customers, since brokered CDs are often done in large blocks and since a direct relationship does not exist with the depositor. In recognition of this, we manage the size and maturity structure of brokered CDs closely. For example, the maturities of brokered CDs are laddered to mitigate liquidity risk. CDs issued through brokers totaled $0.6 billion at December 31, 2005, and had an average remaining life of 13 months as compared to $0.3 billion outstanding with an 14 month average remaining life at December 31, 2004.

      Escrow account deposits are related to the servicing of our first mortgage loans. When a first mortgage borrower makes a monthly mortgage payment, consisting of interest and principal due on the loan and often a real estate tax and insurance portion, we hold the payment on a non-interest earning basis, except where otherwise required by law, until the payment is remitted to the current owner of the loan or the proper tax authority and insurance carrier. Escrow deposits may also include proceeds from the payoff of loans in our servicing portfolio prior to the transmission of those proceeds to investors. At December 31, 2005 these escrow balances totaled $0.4 billion, compared to $0.7 billion at December 31, 2004.

      Short-term borrowings consist of borrowings from several sources. Our largest borrowing source is the Federal Home Loan Bank of Indianapolis (FHLBI). We utilize their collateralized borrowing programs to help fund qualifying first mortgage, home equity and commercial real estate loans. As of December 31, 2005, FHLBI borrowings outstanding totaled $0.6 billion, a $0.5 billion increase from December 31, 2004. We had sufficient collateral pledged to FHLBI at December 31, 2005 to borrow an additional $0.3 billion, if needed. Another short-term borrowing source is brokered fed funds. Our brokered fed funds outstanding totaled $0.3 billion at December 31, 2005. If we were to sell our first mortgage subsidiary, availability of eligible collateral with which we support borrowings at the FHLBI would decrease significantly. Management has plans in place to replace this source of funding with other wholesale sources.

      In addition to borrowings from the FHLBI, we use other lines of credit as needed. At December 31, 2005, the amount of short-term borrowings outstanding on our major credit lines and the total amount of the borrowing lines were as follows:

•  Warehouse lines of credit to fund first mortgages and home equity loans: none outstanding on a $300 million borrowing facility, of which $150 million is committed

•  Warehouse borrowing facilities to fund first mortgage loans: none outstanding on a $100 million committed borrowing facility

•  Lines of credit with correspondent banks, including fed funds lines: $30 million outstanding out of $225 million available but not committed

•  Line of credit with a correspondent bank collateralized by mortgage servicing rights: none outstanding out of $50 million committed borrowing facility

•  Warehouse lines of credit to fund Canadian sourced small ticket leases: $203 million outstanding on $293 million of borrowing facilities

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      In addition to short-term borrowings from the aforementioned credit lines, sale facilities are used to effect sale of Government Sponsored Enterprise (GSE) conforming first mortgage loans before scheduled GSE settlement dates. The first two of these sale facilities listed below have specific dollar limits as noted. The size of the third facility is limited only by the amount of mortgage-backed securities we can package for purchase by the facility provider. At December 31, 2005, the amount unsettled by the GSE on these facilities and the total facility amount were as follows:

•  Committed warehouse sale facility: $105 million unsettled on a $600 million facility

•  Uncommitted warehouse sale facility: $0.1 million unsettled on a $150 million facility

•  Investor warehouse sale facility: $60 million unsettled

      Interest Rate Risk. Because all of our assets are not perfectly match-funded with like-term liabilities, our earnings are affected by interest rate changes. Interest rate risk is measured by the sensitivity of both net interest income and fair market value to changes in interest rates.

      An asset/liability management committee (ALMC) at each of our four primary lines of business monitors the repricing structure of assets, liabilities and off-balance sheet items and uses a financial simulation model to measure the potential change in market value of all interest-sensitive assets and liabilities and also the potential change in earnings resulting from changes in interest rates. Our corporate-level ALMC oversees the interest rate risk profile of all of our lines of business as a whole and is represented at each of the line of business ALMCs. We incorporate many factors into the financial model, including prepayment speeds, deposit rate sensitivity for non-maturity transaction accounts, caps and floors on some variable rate instruments, fee income and a comprehensive mark-to-market valuation process. We re-evaluate risk measures and assumptions regularly and enhance modeling tools as needed.

      Our commercial banking, home equity lending, and commercial finance lines of business assume interest rate risk in the form of repricing structure mismatches between their loans and leases and funding sources. We manage this risk by adjusting the duration of their interest sensitive liabilities and through the use of hedging via financial derivatives.

      Our mortgage banking line of business assumes interest rate risk by entering into commitments to extend loans to borrowers at a fixed rate for a limited period of time. We hold closed loans only temporarily until a pool is formed and sold in a securitization or under a flow sale arrangement. To mitigate the risk that interest rates will rise between loan origination and sale, the mortgage bank buys commitments to deliver loans at a fixed price. Interest rate risk also exists for the mortgage pipeline period, which is the period starting when a rate lock commitment is made and ending at the time a loan originates or the rate lock expires. To mitigate this risk, the mortgage bank also buys commitments to deliver loans at a fixed rate for a portion of our pipeline.

      Our mortgage, commercial banking and home equity lines of business all assume interest rate risk by holding mortgage servicing rights (MSRs). These assets are recorded at lower of cost or fair market value. Among other items, a key determinant to the value of MSRs is the prevailing level of interest rates. The primary exposure to interest rates is the risk that rates will decline, possibly increasing prepayment speeds on loans and decreasing the value of MSRs. Some offsets to these exposures exist in the form of strong production operations, selective sales of servicing rights and the use of financial instruments to manage the economic performance of the assets. Since there are accounting timing differences between the recognition of gains or losses on financial derivatives and the realization of economic gains or losses on certain offsetting exposures (e.g., strong production operations), our decisions on the degree to which we manage risk with derivative instruments to insulate against short-term price volatility depends on a variety of factors, including:

•  the type of risk we are trying to mitigate;

•  offsetting factors elsewhere in the Corporation;

•  the level of current capital above our target minimums;

•  time remaining in the quarter (i.e., days until quarter end);

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•  current level of derivative gain or loss relative to accounting and economic basis;

•  basis risk: the degree to which the interest rates underlying our derivative instruments might not move parallel to the interest rate driving our asset valuation;

•  convexity: the degree to which asset values, or risk management derivative instrument values, do not change in a linear fashion as interest rates change; and

•  volatility: the level of volatility in market interest rates and the related impact on our asset values and derivatives instrument values.

      When considering hedging strategies for first mortgage MSRs, we attempt to optimize the following mix of competing goals:

      1. Provide adequate hedge coverage for falling rates;

      2. minimize premium costs to establish hedge positions;

      3. provide a moderate amount of net impairment recapture if interest rates rise;

      4. when near or above the MSR LOCOM cap, maintain an acceptable range over which interest rates may rise without causing hedge losses to significantly exceed accounting gains.

      Pursuit of the last goal may result in the economic value of MSR increasing without offsetting hedge losses. However, in order to capture this economic value in earnings, MSR sales must occur.

      The following tables reflect our estimate of the present value of interest sensitive assets, liabilities, and off-balance sheet items at December 31, 2005. In addition to showing the estimated fair market value at current rates, they also provide estimates of the fair market values of interest sensitive items based upon a hypothetical instantaneous and permanent move both up and down 100 and 200 basis points in the entire yield curve.

      The first table is an economic analysis showing the present value impact of changes in interest rates, assuming a comprehensive mark-to-market environment. The second table is an accounting analysis showing the same net present value impact, adjusted for expected GAAP treatment. Neither analysis takes into account the book values of the noninterest sensitive assets and liabilities (such as cash, accounts receivable, and fixed assets), the values of which are not directly determined by interest rates.

      The analyses are based on discounted cash flows over the remaining estimated lives of the financial instruments. The interest rate sensitivities apply only to transactions booked as of December 31, 2005, although certain accounts are normalized whereby the three- or six-month average balance is included rather than the quarter-end balance in order to avoid having the analysis skewed by a significant increase or decrease to an account balance at quarter end.

      The tables that follow should be used with caution.

•  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.

•  Specifically, the volume of derivative contracts entered into to manage the risk of MSRs fluctuates from quarter to quarter and within a given quarter, depending upon market conditions, the size of our MSR portfolio and various additional factors. We monitor derivative positions frequently and rebalance them as needed. Therefore, our derivative positions, shown in the table below as of December 31, 2005, may or may not be representative of our risk position during the succeeding quarter. Additionally, it is unlikely that the volume of derivative positions would remain constant over large fluctuations in interest rates, although the tables below assume they do. MSR risk management derivative contracts appear under the category “Interest Sensitive Financial Derivatives” in the tables below.

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•  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 has not been included in the model.

•  Few of the asset classes shown react to interest rate changes in a linear fashion. That is, the point estimates we have made at “Current” and “+/-2%” and “+/-1%” are good estimates at those amounts of rate change, but it may not be accurate to interpolate linearly between those points. This is most evident in products that contain options 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 December 31, 2005
	Change in Interest Rates of:
	-2%			-1%			Current			+1%			+2%
	(In Thousands)
Interest Sensitive Assets
Loans and other assets	$	4,769,630		$	4,722,891		$	4,670,904		$	4,616,581		$	4,562,997
Loans held for sale		1,307,026			1,301,252			1,292,218			1,280,416			1,267,320
Mortgage servicing rights		150,273			243,628			327,717			391,707			429,837
Residual interests		22,649			22,414			22,126			22,001			21,881
Interest sensitive financial derivatives		45,765			23,695			782			(27,784	)		(58,329	)
Total interest sensitive assets		6,295,343			6,313,880			6,313,747			6,282,921			6,223,706
Interest Sensitive Liabilities
Deposits		(3,858,753	)		(3,830,434	)		(3,809,352	)		(3,790,151	)		(3,773,538	)
Short-term borrowings(1)		(1,189,210	)		(1,178,550	)		(1,173,039	)		(1,169,063	)		(1,165,394	)
Long-term debt		(740,091	)		(730,752	)		(719,463	)		(707,510	)		(691,866	)
Total interest sensitive liabilities		(5,788,054	)		(5,739,736	)		(5,701,854	)		(5,666,724	)		(5,630,798	)
Net market value as of December 31, 2005	$	507,289		$	574,144		$	611,893		$	616,197		$	592,908
Change from current	$	(104,604	)	$	(37,749	)	$	—		$	4,304		$	(18,985	)
Net market value as of December 31, 2004	$	464,835		$	495,091		$	574,825		$	581,006		$	474,480
Potential change	$	(109,990	)	$	(79,734	)	$	—		$	6,181		$	(100,345	)

⁽¹⁾  Includes certain debt which is categorized as “collateralized debt” in other sections of this document.

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GAAP-Based Value Change Method

	Present Value at December 31, 2005
	Change in Interest Rates of:
	-2%			-1%			Current		+1%			+2%
	(In thousands)
Interest Sensitive Assets
Loans and other assets(1)	$	—		$	—		$	—	$	—		$	—
Loans held for sale		1,293,519			1,293,519			1,293,519		1,281,717			1,268,621
Mortgage servicing rights		146,087			236,991			295,754		317,304			324,736
Residual interests		22,639			22,404			22,116		21,991			21,871
Interest sensitive financial derivatives		45,773			23,699			782		(27,787	)		(58,337	)
Total interest sensitive assets		1,508,018			1,576,613			1,612,171		1,593,225			1,556,891
Interest Sensitive Liabilities
Deposits(1)		—			—			—		—			—
Short-term borrowings(1)		—			—			—		—			—
Long-term debt(1)		—			—			—		—			—
Total interest sensitive liabilities(1)		—			—			—		—			—
Net market value as of December 31, 2005	$	1,508,018		$	1,576,613		$	1,612,171	$	1,593,225		$	1,556,891
Potential change	$	(104,153	)	$	(35,558	)	$	—	$	(18,946	)	$	(55,280	)
Net market value as of December 31, 2004	$	1,177,394		$	1,218,843		$	1,314,396	$	1,221,554		$	1,060,818
Potential change	$	(137,002	)	$	(95,553	)	$	—	$	(92,842	)	$	(253,578	)

⁽¹⁾  Value does not change in GAAP presentation.

      Operational risk. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Irwin Financial, like other financial services organizations, is exposed to a variety of operational risks. These risks include regulatory, reputational and legal risks, as well as the potential for processing errors, internal or external fraud, failure of computer systems, and external events that are beyond the control of the Corporation, such as natural disasters.

      Our Board of Directors has ultimate accountability for the level of operational risk assumed by us. The Board guides management by approving our business strategy and significant policies. Our management and Board have also established and continue to improve a control environment that encourages a high degree of awareness and proactively alerting senior management and the Board to potential control issues on a timely basis.

      The Board has directed that primary responsibility for the management of operational risk rests with the managers of our business units, who are responsible for establishing and maintaining internal control procedures that are appropriate for their operations. In 2002, we started implementing a multi-year program to provide a more integrated firm-wide approach for the identification, measurement, monitoring and mitigation of operational risk. The enterprise-wide operational risk oversight function reports to the Chief Risk Officer (CRO), who in turn reports to the Audit and Risk Management Committee of our Board of Directors and who chairs our Enterprise-Wide Risk Management Committee. As previously mentioned, we are currently recruiting to fill the position of CRO as our previous CRO recently took a position as Chief Financial Officer of one of our lines of business. We have an enterprise-wide compliance oversight function. The compliance oversight function reports to our Chief Risk Officer. We have developed risk and control summaries (risk summaries) for our key business processes. Line of business and corporate-level managers use the risk summaries to assist in identifying operational and other risks for the purpose of monitoring and strengthening

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internal and disclosure controls. Our Chief Executive Officer, Chief Financial Officer and Board of Directors, as well as the Boards of our subsidiaries, use the risk summaries to assist in overseeing and assessing the adequacy of our internal and disclosure controls, including the adequacy of our controls over financial reporting as required by section 404 of the Sarbanes-Oxley Act and FDICIA.

      The financial services business is highly regulated. Failure to comply with these regulations could result in substantial monetary or other damages that could be material to our financial position. Statutes and regulations may change in the future. We cannot predict what effect these changes, if made, will have on our operations. It should be noted that the supervision, regulation and examination of banks, thrifts and mortgage companies by regulatory agencies are intended primarily for the protection of depositors and other customers rather than shareholders of these institutions.

      We are registered as a bank holding company with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended, and the related regulations. We are subject to regulation, supervision and examination by the Federal Reserve, and as part of this process we must file reports and additional information with the Federal Reserve. The regulation, supervision and examinations occur at the local, state and federal levels and involve, but are not limited to, minimum capital requirements, consumer protection, community reinvestment, and deposit insurance.

Off-Balance Sheet Instruments

      In the normal course of our business as a provider of financial services, we are party to certain financial instruments with off-balance sheet risk to meet the financial needs of our customers. These financial instruments include loan commitments and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the consolidated balance sheet. We follow the same credit policies in making commitments and contractual obligations as we do for our on-balance sheet instruments.

      Our exposure to credit loss, in the form of nonperformance by the counterparty on commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. Collateral pledged for standby letters of credit and commitments varies but may include accounts receivable; inventory; property, plant, and equipment; and residential real estate. Total outstanding commitments to extend credit at December 31, 2005 and December 31, 2004, respectively, were $1.1 billion and $0.7 billion. We had $20 million and $25 million in irrevocable standby letters of credit outstanding at December 31, 2005 and December 31, 2004, respectively.

Derivative Financial Instruments

      Financial derivatives are used as part of the overall asset/liability risk management process. We use financial derivative instruments to reduce exposures to market risks associated with interest rate fluctuations as well as changes in foreign exchange rates. We use certain derivative instruments that do not qualify for hedge accounting treatment under SFAS 133. These derivatives are classified as other assets and other liabilities and marked to market on the income statements. While we do not seek Generally Accepted Accounting Principles (GAAP) hedge accounting treatment for the assets that these instruments are hedging, the economic purpose of these instruments is to manage the risk inherent in existing exposures to either interest rate risk or foreign currency risk. For detail of our derivative activities, see Footnote 15 of our Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      The quantitative and qualitative disclosures about market risk are reported in the Interest Rate Risk section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” found on pages 70 through 73.

74

Item 8. Financial Statements and Supplementary Data

Management Report on Responsibility for Financial Reporting

      The management of Irwin Financial Corporation and its subsidiaries has the responsibility of preparing the accompanying financial statements and for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles and are not misstated due to fraud or material error. The financial statements include amounts that are based on management’s best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements.

      Our financial statements have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm. Management has made available to PricewaterhouseCoopers LLP all of Irwin Financial’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings. Furthermore, management believes that all representations made to PricewaterhouseCoopers LLP during its audit were valid and appropriate.

      Management also recognizes its responsibility for fostering a strong ethical climate so that our affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is articulated in our Guiding Philosophy, a condensed version of which has been published in our annual report since 1995. Employees at all levels of the Corporation are trained in our Guiding Philosophy. This responsibility is also reflected in our Code of Conduct. The Code of Conduct addresses, among other things, the necessity of ensuring open communication within Irwin Financial; potential conflicts of interest; compliance with all domestic and foreign laws, including those related to financial disclosures; and confidentiality of proprietary information. We maintain a systematic program to assess compliance with these policies.

/s/ William I. Miller
William I. Miller
Chairman and
Chief Executive Officer
/s/ Gregory F. Ehlinger
Gregory F. Ehlinger
Senior Vice President and
Chief Financial Officer

75

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
Irwin Financial Corporation:

We have completed integrated audits of Irwin Financial Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Irwin Financial Corporation and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

March 3, 2006

76

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31,
			2005			2004
			(Dollars in thousands)
Assets:
Cash and cash equivalents — Note 2			$	155,486		$	97,101
Interest-bearing deposits with financial institutions				62,921			58,936
Residual interests — Note 3				22,116			56,101
Investment securities — held-to-maturity (Fair value: $4,460 in 2005 and $4,952 in 2004) — Note 4				4,475			4,942
Investment securities — available-for-sale — Note 4				100,296			103,280
Loans held for sale				1,293,519			890,711
	Loans and leases, net of unearned income — Note 5			4,498,829			3,450,440
	Less: Allowance for loan and lease losses — Note 6			(59,749	)		(44,443	)
				4,439,080			3,405,997
Servicing assets — Note 7				295,754			367,032
Accounts receivable				111,633			122,131
Accrued interest receivable				23,935			15,428
Premises and equipment — Note 8				31,249			30,240
Other assets				106,060			83,921
		Total assets	$	6,646,524		$	5,235,820
Liabilities and Shareholders’ Equity:
Deposits
	Noninterest-bearing		$	754,778		$	975,925
	Interest-bearing			1,921,369			1,774,727
	Certificates of deposit over $100,000			1,222,846			644,611
				3,898,993			3,395,263
Short-term borrowings — Note 10				997,444			237,277
Collateralized debt — Note 11				668,984			547,477
Other long-term debt — Note 12				270,160			270,172
Other liabilities				298,609			284,446
		Total liabilities		6,134,190			4,734,635
Commitments and contingencies — Note 13, Note 14 and Note 15
Shareholders’ equity
	Preferred stock, no par value — authorized 4,000,000 shares; none issued			—			—
	Common stock, no par value — authorized 40,000,000 shares; issued 29,612,080 shares as of December 31, 2005 and 2004, including 993,643 and 1,159,684, shares in treasury as of December 31, 2005 and 2004, respectively			112,000			112,000
	Additional paid-in capital			0			383
	Deferred compensation			(759	)		(660	)
	Accumulated other comprehensive income, net of deferred income tax liability of $71 and benefit of $129 as of December 31, 2005 and 2004, respectively			3,448			2,454
	Retained earnings			418,784			412,027
				533,473			526,204
		Less treasury stock, at cost		(21,139	)		(25,019	)
		Total shareholders’ equity		512,334			501,185
		Total liabilities and shareholders’ equity	$	6,646,524		$	5,235,820

The accompanying notes are an integral part of the consolidated financial statements.

77

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

			For the Year Ended December 31,
			2005			2004			2003
			(Dollars in thousands,
			except per share)
Interest income:
Loans and leases			$	312,970		$	246,288		$	241,592
Loans held for sale				94,324			80,003			104,350
Residual interests				6,948			12,509			20,651
Investment securities				7,629			5,330			4,273
Federal funds sold				387			173			118
		Total interest income		422,258			344,303			370,984
Interest expense:
Deposits				83,861			44,487			42,365
Short-term borrowings				21,244			9,583			14,889
Collateralized debt				25,587			15,259			15,369
Other long-term debt				25,676			22,896			2,325
Preferred securities distribution				—			—			24,151
		Total interest expense		156,368			92,225			99,099
Net interest income				265,890			252,078			271,885
Provision for loan and lease losses — Note 6				26,852			14,195			47,583
Net interest income after provision for loan and lease losses				239,038			237,883			224,302
Other income:
Loan servicing fees				126,609			136,557			106,966
Amortization of servicing assets — Note 7				(100,322	)		(117,143	)		(135,519	)
Recovery (impairment) of servicing assets — Note 7				19,625			(2,474	)		44,516
	Net loan administration income			45,912			16,940			15,963
Gain from sales of loans				98,127			184,913			364,644
Gains (loss) on sale of mortgage servicing assets				14,412			16,681			(271	)
Trading gains (loss)				3,105			25,209			(52,242	)
Derivative (losses) gains, net				(69,688	)		16,643			(44,142	)
Other				28,618			23,143			22,191
				120,486			283,529			306,143
Other expense:
Salaries				167,490			213,826			225,348
Pension and other employee benefits				36,377			45,037			42,079
Office expense				14,094			17,677			21,804
Premises and equipment				35,330			41,558			41,746
Marketing and development				8,196			13,799			15,132
Professional fees				13,800			19,356			12,417
Other				56,268			55,982			53,517
				331,555			407,235			412,043
Income before income taxes				27,969			114,177			118,402
Provision for income taxes				8,982			45,732			45,585
Net income			$	18,987		$	68,445		$	72,817
Earnings per share: — Note 20
	Basic		$	0.67		$	2.42		$	2.61
	Diluted		$	0.66		$	2.28		$	2.45
Dividends per share			$	0.40		$	0.32		$	0.28

The accompanying notes are an integral part of the consolidated financial statements.

78

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

										Accumulated Other Comprehensive Income
													Unrealized			Unrealized			Minimum						Additional
							Retained			Foreign			Gain/Loss			Gain/Loss			SERP			Deferred			Paid in			Common		Treasury
				Total			Earnings			Currency			Securities			Derivatives			Liability			Compensation			Capital			Stock		Stock
				(Dollars in thousands)
Balance at January 1, 2003				$	360,555		$	287,662		$	(331	)	$	1		$	(173	)	$	(639	)	$	(240	)	$	3,606		$	112,000	$	(41,331	)
	Net income				72,817			72,817
	Unrealized gain on investment securities net of $17 tax benefit				(25	)								(25	)
	Unrealized gain on interest rate cap net of $46 tax benefit				(69	)											(69	)
	Foreign currency adjustment				1,136						1,136
	Minimum SERP liability net of $188 tax liability				282															282
			Other comprehensive income		1,324
		Total comprehensive income			74,141
Deferred compensation					(264	)																	(264	)
Cash dividends					(7,832	)		(7,832	)
Tax benefit on stock option exercises					2,032																					2,032
Treasury stock:
	Purchase of 170,940 shares				(4,201	)																									(4,201	)
	Sales of 533,785 shares				7,829																					(4,374	)				12,203
Balance at December 31, 2003				$	432,260		$	352,647		$	805		$	(24	)	$	(242	)	$	(357	)	$	(504	)	$	1,264		$	112,000	$	(33,329	)
Net income					68,445			68,445
	Unrealized gain on investment securities net of $68 tax liability				84									84
	Unrealized gain on interest rate cap net of $149 tax liability				242												242
	Foreign currency adjustment				1,843						1,843
	Minimum SERP liability net of $69 tax liability				103															103
			Other comprehensive income		2,272
		Total comprehensive income			70,717
Deferred compensation					(156	)																	(156	)
Cash dividends					(9,065	)		(9,065	)
Tax benefit on stock option exercises					1,044																					1,044
Treasury stock:
	Purchase of 12,718 shares				(407	)																									(407	)
	Sales of 330,812 shares				6,792			—																		(1,925	)				8,717
Balance at December 31, 2004				$	501,185		$	412,027		$	2,648		$	60		$	—		$	(254	)	$	(660	)	$	383		$	112,000	$	(25,019	)
	Net income				18,987			18,987
	Unrealized gain on investment securities net of $290 tax benefit				(433	)								(433	)
	Unrealized gain on interest rate cap net of $503 tax liability				754												754
	Foreign currency adjustment				693						693
	Minimum SERP liability net of $13 tax benefit				(20	)														(20	)
			Other comprehensive income		994
		Total comprehensive income			19,981
Deferred compensation					(99	)																	(99	)
Cash dividends					(11,426	)		(11,426	)
Tax benefit on stock option exercises					617																					617
Treasury stock:
	Purchase of 51,056 shares				(1,201	)																									(1,201	)
	Sales of 217,097 shares				3,277			(804	)																	(1,000	)				5,081
Balance at December 31, 2005				$	512,334		$	418,784		$	3,341		$	(373	)	$	754		$	(274	)	$	(759	)	$	—		$	112,000	$	(21,139	)

The accompanying notes are an integral part of the consolidated financial statements.

79

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Years Ended December 31,
		2005			2004			2003
		(Dollars in thousands)
Net income		$	18,987		$	68,445		$	72,817
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation, amortization, and accretion, net			11,602			8,987			9,433
Amortization and impairment of servicing assets			80,697			119,617			91,003
Provision for loan and lease losses			26,852			14,195			47,583
Deferred income tax			(23,789	)		12,185			43,259
(Gain) loss on sale of mortgage servicing assets			(14,412	)		(16,681	)		271
Gain from sales of loans held for sale			(98,127	)		(184,913	)		(364,644	)
Originations and purchases of loans held for sale			(12,883,903	)		(14,780,501	)		(24,393,534	)
Proceeds from sales and repayments of loans held for sale			12,502,574			14,814,198			25,005,632
Proceeds from sale of mortgage servicing assets			79,724			52,844			89
Net decrease in residuals			33,986			15,390			86,023
Net decrease (increase) in accounts receivable			10,246			(60,086	)		(6,118	)
Other, net			4,315			(48,074	)		5,097
	Net cash (used) provided by operating activities		(251,248	)		15,606			596,911
Lending and investing activities:
Proceeds from maturities of investment securities:
	Held-to-maturity		461			118,063			682
	Available-for-sale		5,801			1,583			78,886
Purchase of investment securities:
	Held-to-maturity		—			(98,395	)		(21,333	)
	Available-for-sale		(3,599	)		(36,791	)		(82,868	)
Net (increase) decrease in interest-bearing deposits			(3,985	)		22,230			(46,748	)
Net increase in loans, excluding sales			(1,115,391	)		(367,303	)		(422,569	)
Proceeds from sale of loans			57,625			45,592			45,454
Other, net			(8,331	)		(5,642	)		(7,484	)
	Net cash used by lending and investing activities		(1,067,419	)		(320,663	)		(455,980	)
Financing activities:
Net increase in deposits			503,730			495,601			205,851
Net increase (decrease) in short-term borrowings			760,167			(192,481	)		(563,366	)
Repayments of long-term debt			(12	)		(12	)		(11	)
Proceeds from issuance of collateralized debt			472,515			514,223			443,989
Repayments of collateralized debt			(351,049	)		(554,445	)		(242,327	)
Proceeds from the issuance of trust preferred securities			51,750			—			50,000
Redemption of trust preferred securities			(51,750	)		—			(50,000	)
Purchase of treasury stock for employee benefit plans			(1,201	)		(407	)		(4,201	)
Proceeds from sale of stock for employee benefit plans			3,277			7,836			9,777
Dividends paid			(11,426	)		(9,065	)		(7,832	)
	Net cash provided (used) by financing activities		1,376,001			261,250			(158,120	)
Effect of exchange rate changes on cash			1,051			98			228
Net decrease in cash and cash equivalents			58,385			(43,709	)		(16,961	)
Cash and cash equivalents at beginning of period			97,101			140,810			157,771
Cash and cash equivalents at end of period		$	155,486		$	97,101		$	140,810
Supplemental disclosures of cash flow information:
Cash flow during the period:
	Interest paid	$	146,005		$	93,319		$	102,459
	Income taxes paid	$	19,171		$	15,184		$	43,007
Noncash transactions:
	Liability for loans held for sale eligible for repurchase — Note 1	$	19,581		$	47,692		$	115,948
	Other real estate owned	$	16,236		$	5,899		$	4,828
	Conversion of trust preferred and preferred stock to common stock	$	—		$	—		$	83

The accompanying notes are an integral part of the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

      Consolidation: Irwin Financial Corporation and its subsidiaries (the Corporation) provide financial services throughout the United States (U.S.) and Canada. We are engaged in commercial banking, commercial finance, home equity lending and mortgage banking. Our direct and indirect subsidiaries include, Irwin Union Bank and Trust Company, Irwin Union Bank, F.S.B., Irwin Commercial Finance Corporation, Irwin Home Equity Corporation and Irwin Mortgage Corporation. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the financial statements reflect all material adjustments necessary for a fair presentation. The Corporation does not meet the criteria as primary beneficiary for our wholly-owned trusts holding our company-obligated mandatorily redeemable preferred securities established by Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” As a result, these trusts are not consolidated.

      Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

      Foreign Currency: Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at rates prevailing on the balance sheet date; income and expenses are translated at average rates of exchange for the year. Unrealized foreign currency translation gains and losses are recorded in accumulated other comprehensive income in shareholders’ equity.

      Investment Securities: Those investment securities that we have the positive intent and ability to hold until maturity are classified as “held-to-maturity” and are stated at cost adjusted for amortization of premium and accretion of discount (adjusted cost). Investment securities that might be sold prior to maturity are classified as “available-for-sale” and are stated at fair value. Unrealized gains and losses on available-for-sale investment securities, net of the future tax impact, are reported as a separate component of shareholders’ equity until realized. Investment securities gains and losses are based on the amortized cost of the specific investment security determined on a specific identification basis.

      Residual Interests: Residual interests are stated at fair value. Unrealized gains and losses are included in earnings. Until the first quarter of 2002, whenever we sold receivables in securitizations of home equity loans and lines of credit, we sold assets and retained residual interests, one or more subordinated tranches, and in some cases a cash reserve account, all of which are retained interests in the securitized receivables in a manner that qualified for gain-on-sale accounting under Statement of Financial Accounting Standards (SFAS) 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Gain or loss on the sale of the loans depended, in part, on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer.

      To obtain fair value of residual interests, quoted market prices are used if available. However, quotes are generally not available for residual interests, so we generally estimate fair value based on the present value of expected cash flows using estimates of the key assumptions — prepayment speeds, credit losses, forward yield curves, and discount rates commensurate with the risks involved — that management believes market participants would use to value similar assets. Adjustments to carrying values are recorded as “trading gains or losses.”

      Loans Held For Sale: Loans held for sale are carried at the lower of cost or market, determined on an aggregate basis for both performing and nonperforming loans. Cost basis includes deferred origination fees and costs. Loans held for sale that qualify for hedge accounting are carried at fair value. Fair value is determined based on the contract price at which the mortgage loans will be sold. Included in loans held for sale at the mortgage line of business were loans for which we have the right, but not the obligation, to repurchase due to

81

default, under the terms of the government servicing agency contracts. Upon default, we have the non-contingent right to repurchase these loans which causes “repurchase accounting” under SFAS 140. The liability associated with these loans is reflected in “Other Liabilities” on our Consolidated Balance Sheets.

      Loans: Loans are carried at amortized cost. Loan origination fees and costs are deferred and the net amounts are amortized as an adjustment to yield using the interest method. When loans are sold, deferred fees and costs are included with outstanding principal balances to determine gains or losses. Interest income on loans is computed daily based on the principal amount of loans outstanding. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest.

      Direct Financing Leases: Interest and service charges, net of initial direct costs, are deferred and reported as income in decreasing amounts over the life of the lease, which generally average three to four years, so as to provide an approximate constant yield on the outstanding principal balance.

      Allowance for Loan and Lease Losses: The allowance for loan and lease losses is an estimate based on management’s judgment applying the principles of SFAS 5, “Accounting for Contingencies,” SFAS 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” The allowance is maintained at a level we believe is adequate to absorb probable losses inherent in the loan and lease portfolio. We perform an assessment of the adequacy of the allowance on a quarterly basis.

      Within the allowance, there are specific and expected loss components. The specific loss component is assessed for loans we believe to be impaired in accordance with SFAS 114. We have defined impairment as nonaccrual loans. For loans determined to be impaired, we measure the level of impairment by comparing the loan’s carrying value to fair value using one of the following fair value measurement techniques: present value of expected future cash flows, observable market price, or fair value of the associated collateral. An allowance is established when the fair value implies a value that is lower than the carrying value of that loan. In addition to establishing allowance levels for specifically identified impaired loans, management determines an allowance for all other loans in the portfolio for which historical experience indicates that certain losses exist. These loans are segregated by major product type, and in some instances, by aging, with an estimated loss ratio applied against each product type and aging category. The loss ratio is generally based upon historic loss experience for each loan type as adjusted for certain environmental factors management believes to be relevant.

      It is our policy to promptly charge off any commercial loan, or portion thereof, which is deemed to be uncollectible. This includes, but is not limited to, any loan rated “Loss” by the regulatory authorities. Impaired commercial credits are considered on a case-by-case basis. The amount charged off includes any accrued interest. Unless there is a significant reason to the contrary, consumer loans are charged off when deemed uncollectible, but generally no later than when a loan is past due 180 days.

      Servicing Assets: When we securitize or sell loans, we generally retain the right to service the underlying loans sold. A portion of the cost basis of loans sold is allocated to this servicing asset based on its fair value relative to the loans sold and the servicing asset combined. We use the market prices under comparable servicing sale contracts, when available, or alternatively use valuation models that calculate the present value of future cash flows to determine the fair value of the servicing assets. In using this valuation method, we incorporate assumptions that we believe market participants would use in estimating future net servicing income, which include estimates of the cost of servicing per loan, the discount rate, float value, an inflation rate, ancillary income per loan, prepayment speeds, and default rates. Servicing assets are amortized over the estimated lives of the related loans in proportion to estimated net servicing income.

      In determining servicing value impairment, the servicing portfolio is stratified into its predominant risk characteristics, principally by interest rate and product type. Each stratum is valued using market prices under comparable servicing sale contracts when available, or alternatively, using the same model as was used to originally determine the fair value at origination using current market assumptions. The calculated value is

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then compared with the book value of each stratum to determine the required reserve for impairment. The impairment reserve fluctuates as interest rates change and, therefore, no reasonable estimate can be made as to future increases or declines in impaired reserve levels. We also compare actual cash collections to projected cash collections and adjust our models as appropriate. In addition, we periodically have independent valuations performed on the portfolio. Other than temporary impairment is recorded to reflect our view that the originally recorded value of certain servicing rights and subsequent impairment associated with those rights is unlikely to be recovered in market value. There is no related direct impact on net income as this other than temporary impairment affects only balance sheet accounts. However, a write-down will result in a reduction of amortization expense and reduced recovery of impairment in future periods.

      Incentive Servicing Fees: For whole loan sales of certain home equity loans, in addition to our normal servicing fee, we have the right to an incentive servicing fee (ISF) that will provide cash payments to us if a pre-established return for the certificate holders and certain structure-specific loan credit and servicing performance metrics are met. These ISF arrangements are accounted for in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” When ISF agreements are entered into simultaneously with the whole loan sales, the fair value of the ISFs is estimated and considered when determining the initial gain or loss on sale. That allocated fair value of the ISF is periodically evaluated for impairment and amortized in accordance with SFAS 140. Consistent with the treatment of all of the Corporation’s servicing assets, ISFs are accounted for on a lower of cost or market (LOCOM) basis. Therefore, if the fair value of the ISFs in subsequent periods exceeds cost basis, then revenue is recognized as pre-established performance metrics are met and cash is due. When ISF agreements are entered into subsequent to the whole loan sale, these assets are assigned a zero value and revenue is recognized as pre-established performance metrics are met and cash is due.

      Derivative Instruments: All derivative instruments have been recorded at fair value and are classified as other assets or other liabilities in the consolidated balance sheets in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.”

      Derivative instruments that are used in our risk management strategy may qualify for hedge accounting if the derivatives are designated as fair value, cash flow or foreign currency hedges and applicable hedge criteria are met. Changes in the fair value of a derivative that is highly effective (as defined by SFAS 133) and qualifies as a fair value hedge, along with changes in the fair value of the underlying hedged item, are recorded in current period earnings. Changes in the fair value of a derivative that is highly effective (as defined by SFAS 133) and qualifies as a cash flow hedge or foreign currency hedge, to the extent that the hedge is effective, are recorded in other comprehensive income until earnings are recognized from the underlying hedged item. Net gains or losses resulting from hedge ineffectiveness are recorded in current period earnings.

      We use certain derivative instruments that do not qualify for hedge accounting treatment under SFAS 133. These derivatives are classified as other assets or other liabilities and marked to market in the consolidated income statements. While we do not seek hedge accounting treatment for these instruments, their economic purpose is to manage the risk of existing exposures to either interest rate risk or foreign currency risk.

      Premises and Equipment: Premises and equipment are recorded at cost less accumulated depreciation. Depreciation is determined by the straight-line method over the estimated useful lives of the assets.

      Other Assets: Included in other assets are real estate properties acquired as a result of foreclosure. These real estate properties are carried at the lower of the recorded investment in the related loan or fair value of the property less estimated costs to sell.

      Income Taxes: A consolidated tax return is filed for all eligible entities. In accordance with SFAS 109, deferred income taxes are computed using the liability method, which establishes a deferred tax asset or liability based on temporary differences between the tax basis of an asset or liability and the basis recorded in the financial statements.

      Cash and Cash Equivalents: For purposes of the consolidated balance sheets, we consider cash and due from banks to be cash equivalents.

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      Stock-Based Employee Compensation: We have three stock-based employee compensation plans, which are described more fully in Note 19, “Shareholders’ Equity.” In 2005 and in prior years, we have used the intrinsic value method to account for our plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income for any of the periods presented, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

		2005			2004			2003
		(Dollars in thousands)
Net income as reported		$	18,987		$	68,445		$	72,817
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(2,907	)		(2,578	)		(2,683	)
Pro forma net income		$	16,080		$	65,867		$	70,134
Basic earnings per share
	As reported	$	0.67		$	2.42		$	2.61
	Pro forma	$	0.56		$	2.33		$	2.51
Diluted earnings per share
	As reported	$	0.66		$	2.28		$	2.45
	Pro forma	$	0.56		$	2.19		$	2.36

      In determining compensation expense above, we utilized the Black-Scholes valuation method. The weighted average fair value of each option was estimated to be $6.93, $10.41, and $9.70 on the date of the grant with the following assumptions for 2005, 2004, and 2003, respectively: weighted average risk free interest rates of 3.94%, 4.42%, and 3.90%; dividend yield of 1.75% for 2005 and 1.00% and for 2004 and 2003; volatility of 35% for 2005 and 40% for 2004 and 2003; and a weighted average expected life of six years in 2005, six and a half years in 2004 and seven years in 2003.

      In December 2005, our Board of Directors approved a plan to accelerate the vesting of certain outstanding stock options with exercise prices above the stock price at the time vesting was accelerated (“underwater options”). Based on this action, 263 thousand unvested employee stock options granted in 2003 and 2004 with an exercise price above $21.56 became exercisable. As a result of this accelerated vesting, future stock-based compensation expense was eliminated and the pro forma stock-based compensation expense for the fourth quarter of 2005 increased by $1.4 million pre-tax.

      Recent Accounting Developments: In December 2004 the Financial Accounting Standards Board (FASB) issued a revised Statement 123 (SFAS 123R), “Share Based Payment (revised 2004)” requiring public entities to measure the cost of employee services received in exchange for an award of equity instruments based on grant date fair value. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award — usually the vesting period. The effective date for this statement is as of the first annual period that begins after June 15, 2005. We began recording compensation expense for such awards on January 1, 2006. The impact of this new pronouncement will be comparable to the pro forma effects of applying the original SFAS 123 as detailed above.

Note 2 — Restrictions on Cash and Dividends

      Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B. are required to maintain minimum average noninterest bearing reserve balances with the Federal Reserve Bank. At December 31, 2005, we exceeded this requirement.

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      Under Indiana law, certain dividends require notice to, or approval by, the Indiana Department of Financial Institutions, and Irwin Union Bank and Trust may not pay dividends in an amount greater than its net profits then available, after deducting losses and bad debts.

      In addition, as a state member bank, Irwin Union Bank and Trust may not, without the approval of the Federal Reserve, declare a dividend if the total of all dividends declared in a calendar year, including the proposed dividend, exceeds the total of its net income for that year, combined with its retained net income of the preceding two years, less any required transfers to the surplus account. During the past two years, Irwin Union Bank and Trust dividends have exceeded net income during the same period primarily due to “clean-up calls” related to residuals held by our home equity segment. When the bond pools on which we have residual interests decline in size to less than 10 percent of their original balances, we have the right, but not the obligation to purchase the remaining loans from the bond pools. We typically do this to lower the administrative costs to both us and bond investors of continuing to track relatively small pools of loans and bonds. Our residual interests are housed in a non-bank subsidiary. However, when we buy (“clean-up”) the loans from pools, we wish to fund them permanently at Irwin Union Bank and Trust due to its lower cost funding. Once the loans are repurchased by the non-bank subsidiary, they are infused to Irwin Union Bank as a capital contribution. To restore liquidity to the non-bank subsidiary, we dividend a similar dollar amount from Irwin Union Bank and Trust to the parent. This process has used dividend capacity beyond the Bank’s earnings in 2004 and 2005. As a result, the bank cannot declare a dividend to us without regulatory approval until such time that current year earnings plus earnings from the last two years exceeds dividends during the same periods. We expect to be able to declare dividends from the Irwin Union Bank and Trust to the holding company without prior approval by mid-year 2006.

Note 3 — Sales of Receivables

      Under our past securitization program, home equity loans were sold to limited purpose, bankruptcy-remote wholly-owned subsidiaries. In turn, these subsidiaries established separate trusts to which they transferred the home equity loans in exchange for the proceeds from the sale of asset-backed securities issued by the trust. The trusts’ activities are generally limited to acquiring the home equity loans, issuing asset-backed securities and making payments on the securities. Due to the nature of the assets held by the trusts and the limited nature of each trust’s activities, they are classified as qualified special-purpose entities under SFAS 140.

      Prior to 2003, we sold home equity loans and lines of credit in gain-on-sale securitization transactions resulting in the creation of residual interests. We held residual interests related to these transactions totaling $15.6 million and $51.5 million at December 31, 2005 and 2004, respectively. We receive annual servicing fees of approximately 0.5% to 1.0% of the outstanding balance and rights to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. The investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. Our residual interests are subordinate to investor’s interests. The value of the residual interests is subject to prepayment, credit, and interest rate risks in the transferred financial assets.

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      At December 31, 2005, key economic assumptions and the sensitivity of the current fair value of all residual cash flows to immediate 10 percent and 25 percent adverse changes in those assumptions were as follows:

	Home Equity Loans and Lines of Credit
	(Dollars in thousands)
Balance sheet carrying value of residual interests — fair value	$	15,580
Weighted-average life (in years)		0.33
Prepayment speed assumptions (annual rate)		39.56	%
Impact on fair value of 10% adverse change	$	(220	)
Impact on fair value of 25% adverse change		(180	)
Expected credit losses (annual rate)		6.31	%
Impact on fair value of 10% adverse change	$	(220	)
Impact on fair value of 25% adverse change		(560	)
Residual cash flows discount rate (annual rate)		18.00	%
Impact on fair value of 10% adverse change	$	(60	)
Impact on fair value of 25% adverse change		(160	)

      These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 percent and 25 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. A decrease in the constant prepayment rate is an adverse change, due to the large amount of overcollateralization in the portfolio. Increases to expected credit losses and discount rate are adverse changes.

      The table below summarizes the cash flows received from (paid to) securitization trusts where gain-on sale accounting was previously applied during the three years ended:

		December 31,
		2005			2004			2003
		(Dollars in thousands)
Servicing fees received		$	4,386		$	5,763		$	8,686
Net cash flows received on residual interests(1)			37,245			61,958			55,272
Other cash flows paid			(9,640	)		(8,705	)		(1,878	)
	Total	$	31,991		$	59,016		$	62,080

⁽¹⁾  Cash flows received on residual interests are net of $2.1 million in 2003 used to over-collateralize the trusts. There was no overcollateralization in 2004 or 2005.

      Delinquency amounts for the managed portfolio are set forth below:

	Total Principal Amount		Delinquent Principal Over					Credit Losses
	of Loans at		30 Days for the Year Ended		Delinquency			on Managed
	December 31, 2005		12/31/2005(2)		Percentage			Portfolio
			(Dollars in thousands)
Managed loans comprised of:
Loans held for investment	$	978,782	$	27,347		2.8	%	$	3,588
Loans held for sale		501,442		5,632		1.1			—
Loans securitized, servicing and residual retained(1)		113,285		15,410		13.6			4,733
Total managed portfolio	$	1,593,509	$	48,389		3.0	%	$	8,321

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(1)	Represents the principal amount of the loans.
(2)	Nonaccrual loans included in delinquencies.

Note 4 — Investment Securities

      The amortized cost, fair value, and carrying value of investment securities held at December 31, 2005 were as follows:

				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair		Carrying
		Cost		Gains		Losses			Value		Value
		(Dollars in thousands)
Held-to-Maturity:
Obligations of states and political subdivisions			3,544		1		—			3,545		3,544
Mortgage-backed securities			931		6		(22	)		915		931
	Total held-to-maturity		4,475		7		(22	)		4,460		4,475
Available-for-Sale:
Mortgage-backed securities			27,924		—		(524	)		27,400		27,400
Other			72,995		—		(99	)		72,896		72,896
	Total available-for-sale		100,919		—		(623	)		100,296		100,296
	Total investment securities	$	105,394	$	7	$	(645	)	$	104,756	$	104,771

      The amortized cost, fair value, and carrying value of investment securities held at December 31, 2004 were as follows:

				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair		Carrying
		Cost		Gains		Losses			Value		Value
		(Dollars in thousands)
Held-to-Maturity:
U.S. Treasury and government obligations		$	161	$	—	$	(1	)	$	160	$	161
Obligations of states and political subdivisions			3,746		4		—			3,750		3,746
Mortgage-backed securities			1,035		7		—			1,042		1,035
	Total held-to-maturity		4,942		11		(1	)		4,952		4,942
Available-for-Sale:
U.S. Treasury and government obligations			3,330		65		—			3,395		3,395
Mortgage-backed securities			30,453		68		—			30,521		30,521
Other			69,396		—		(32	)		69,364		69,364
	Total available-for-sale		103,179		133		(32	)		103,280		103,280
	Total investment securities	$	108,121	$	144	$	(33	)	$	108,232	$	108,222

      Included within available-for-sale investment securities is $70 million and $66 million of FHLB and Federal Reserve Bank (FRB) stock at December 31, 2005 and 2004, respectively, for which there is no readily determinable market value.

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      The following table presents the fair value and unrealized losses for Available-for-sale securities by aging category:

		Securities with Unrealized Losses
		Less than 12 Months					12 Months or More					Total
				Gross					Gross					Gross
		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
		Value		Losses			Value		Losses			Value		Losses
		(Dollars in thousands)
Mortgage backed securities		$	24,720	$	(442	)	$	2,680	$	(82	)	$	27,400	$	(524	)
Other securities			1,050		(35	)		2,149		(64	)		3,199		(99	)
	Total securities with unrealized losses	$	25,770	$	(477	)	$	4,829	$	(146	)	$	30,599	$	(623	)

      Impairment is evaluated considering numerous factors, and their relative significance varies case to case. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer; and the intent and ability to retain the security in order to allow for an anticipated recovery in market value. If, based on the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized through earnings.

      Included in the $623 thousand of gross unrealized losses on available-for-sale securities at December 31, 2005, was $146 thousand of unrealized losses that have existed for a period greater than 12 months. These securities are U.S. government backed or have AAA credit enhancements and the unrealized losses are not due to concerns about underlying credit quality. Substantially all of the securities with the unrealized losses aged greater than 12 months have a market value at December 31, 2005, that is within 3% of their amortized cost basis.

      We believe that all the aged unrealized losses, as described above, are expected to be recovered within a reasonable time through a typical interest rate cycle. Accordingly, we have concluded that none of the securities in our investment portfolios are other-than-temporarily impaired at December 31, 2005.

      The amortized cost and estimated value of investment securities at December 31, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized		Fair
		Cost		Value
		(Dollars in thousands)
Held-to-Maturity:
	Due after five years through ten years	$	530	$	531
	Due after ten years		3,014		3,014
			3,544		3,545
Mortgage-backed securities			931		915
			4,475		4,460
Available-for-Sale:
	Due in one year or less		3,298		3,199
Mortgage-backed securities			27,924		27,400
FHLB & Federal Reserve Bank stock			69,697		69,697
			100,919		100,296
	Total investment securities	$	105,394	$	104,756

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      Investment securities of $26.9 million were pledged and cannot be repledged by holder, as collateral for borrowings and for other purposes on December 31, 2005. During 2005 and 2004 there were no sales or calls on investment securities.

Note 5 — Loans and Leases

      Loans and leases are summarized as follows:

			December 31,
			2005			2004
			(Dollars in thousands)
Commercial, financial and agricultural			$	2,016,253		$	1,697,651
Real estate-construction				399,089			287,496
Real estate-mortgage				1,234,561			808,875
Consumer				31,718			31,166
Commercial financing
		Franchise financing		462,413			330,496
		Domestic leasing		237,968			174,035
		Canadian leasing		313,581			265,780
Unearned income
		Franchise financing		(125,474	)		(86,638	)
		Domestic leasing		(33,267	)		(23,924	)
		Canadian leasing		(38,013	)		(34,497	)
	Total		$	4,498,829		$	3,450,440

      At December 31, 2005, mortgage loans held for investment with a carrying value of $0.7 billion were pledged as collateral for bonds payable to investors (See Note 11).

      Federal Home Loan Bank borrowings are collateralized by $1.0 billion in loans and loans held for sale at December 31, 2005.

      Commercial loans are extended primarily to local regional businesses in the market areas of our commercial banking line of business. To a lesser extent, we also provide consumer loans to the customers in those markets. Real estate loans, franchise loans and direct financing leases are extended throughout the United States and Canada.

      We make loans to directors and officers, and to organizations and individuals with which our directors and officers are associated. All outstanding loans and commitments included in such transactions were made in the normal course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. All such loans outstanding at December 31, 2005 were current in payment of principal and interest. The aggregate dollar amount of these loans outstanding at December 31, 2005 and 2004 represented approximately 1% of total equity.

      We offer home equity loans with combined loan-to-value (CLTV) ratios of up to 125% of their collateral value. Home equity loans are priced using a proprietary model, taking into account, among other factors, the credit history of our customer and the relative loan-to-value (LTV) ratio of the loan at origination. For the year ended December 31, 2005, loans with loan-to-value ratios greater than 100% (high LTVs, or HLTVs) home equity loans made up 33% of our loan originations and 46% of our managed portfolio. HLTVs constituted 47% of our managed portfolio at December 31, 2004. In an effort to manage portfolio concentration risk and to comply with existing banking regulations, we have policies in place governing the size of our investment in loans secured by real estate where the LTV is greater than 90%.

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      We finance a variety of commercial, light industrial and office equipment types and try to limit the concentrations in our loan and lease portfolios. The majority of our leases are full payout (no residual), small-ticket assets secured by commercial equipment. Capitalized initial direct costs associated with these leases totaled $8.6 million and $6.3 million at December 31, 2005 and 2004, respectively. The following lists the components of the net investment in leases:

		December 31,
		2005			2004
		(Dollars in thousands)
Minimum lease payments receivable		$	551,549		$	439,815
Less unearned income			(71,280	)		(58,421	)
Less allowance for lease losses			(6,638	)		(5,896	)
	Net investment in leases	$	473,631		$	375,498

Note 6 — Allowance for Loan and Lease Losses and Nonperforming Loans and Leases

      Changes in the allowance for loan and lease losses are summarized below:

	December 31,
	2005			2004			2003
	(Dollars in thousands)
Balance at beginning of year	$	44,443		$	64,285		$	50,936
Provision for loan and lease losses		26,852			14,195			47,583
Charge-offs		(20,201	)		(28,180	)		(37,312	)
Recoveries		8,960			5,335			3,420
Reduction due to sale of loans and leases and other		—			(627	)		(234	)
Reduction due to reclassification of loans		(424	)		(10,808	)		(690	)
Foreign currency adjustment		119			243			582
Balance at end of period	$	59,749		$	44,443		$	64,285

      Included in the 2005 provision is $0.5 million related to hurricanes Katrina and Rita. Our estimate of this provision involved the use of considerable judgment and assumptions about uncertain matters including the number of properties damaged, the extent of damage, and insurance recoveries. We will continue to assess the financial impact of the hurricanes as more information becomes available. In addition to this provision, $0.7 million of loss estimates were included in other parts of the income statement (“trading” and “other expense”) for a total loss estimate of $1.2 million related to Katrina and Rita.

      The 2004 provision and allowance for loan and lease losses reflects transactions related to the transfer and sale or pending sale of portfolio loans associated with two portfolio sales at our home equity lending line of business. We transferred $355 million in loans to loans held for sale when the decisions were made to sell these portfolio loans. These loans had an associated allowance of $20.6 million. The loans were transferred with an allowance of $10.8 million to reduce their carrying value to fair market value. After the transfers, the remaining $9.8 million of excess allowance was reversed through the provision for loan and lease losses.

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      Impaired loans and associated valuation reserves are summarized as follows:

		December 31,
		2005		2004
		(Dollars in thousands)
Impaired loans with valuation reserve		$	14,714	$	9,623
Impaired loans with no valuation reserve			4,300		10,771
	Total impaired loans	$	19,014	$	20,394
Valuation reserve on impaired loans		$	3,684	$	4,584

      Interest accrued but not collected at the date a loan is considered impaired is reversed against interest income. Interest income on impaired loans is recognized on a cash basis as long as the remaining book balance is deemed fully collectible. If the future collectibility of the recorded loan balance is doubtful, any collections of interest and principal are generally applied as a reduction to principal outstanding. The accrual of interest is reestablished only when interest and principal payments are brought current and future payments are reasonably assured. For the year ended December 31, 2005, the average balance of impaired loans was $16.9 million, for which $1.0 million of interest was recorded. For the years ended December 31, 2004 and 2003, respectively, $0.8 million and $0.5 million of interest income was recorded on average impaired loans balances of $19.1 million and $18.3 million, respectively.

      Nonperforming loans and leases are summarized below:

		December 31,
		2005		2004
		(Dollars in thousands)
Accruing loans past due 90 days or more		$	599	$	657
Nonaccrual loans and leases			36,820		33,036
	Total nonperforming loans and leases	$	37,419	$	33,693

Note 7 — Servicing Assets

      Included on the consolidated balance sheets at December 31, 2005 and 2004 were $296 million and $367 million, respectively, of capitalized servicing assets. These amounts relate to the mortgage and home equity loans serviced by us for investors. Although they are not generally held for purposes of sale, there is an active secondary market for the majority of our servicing assets. Changes in our capitalized servicing assets are shown below:

	December 31,
	2005			2004
	(Dollars in thousands)
Beginning balance	$	367,032		$	380,123
Additions		74,731			142,689
Amortization		(100,322	)		(117,143	)
Recovery of (impairment of) servicing asset		19,625			(2,474	)
Reduction for servicing sales		(65,312	)		(36,163	)
	$	295,754		$	367,032

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      We have established a valuation allowance to record servicing assets at their fair market value. Changes in the allowance are summarized below:

	December 31,
	2005			2004			2003
	(Dollars in thousands)
Balance at beginning of year	$	54,134		$	76,869		$	159,865
(Recovery) impairment of servicing asset		(19,625	)		2,474			(44,516	)
Reclass for sales of servicing and cleanup calls		(154	)		(18,210	)		—
Other than temporary impairment(1)		(7,112	)		(6,999	)		(38,480	)
Balance at end of year	$	27,243		$	54,134		$	76,869

⁽¹⁾  Other than temporary impairment was recorded to reflect our view that the originally recorded value of certain servicing rights and subsequent impairment associated with those rights is unlikely to be recovered in market value. There was no related direct impact on net income as this other than temporary impairment affected only balance sheet accounts. However, the write-down will result in a reduction of amortization expense and reduced recovery of impairment in future periods.

      The servicing assets had a fair value of $327 million and $372 million at December 31, 2005 and 2004, respectively. At December 31, 2005, key economic assumptions and the sensitivity of the current carrying value of mortgage servicing rights to immediate 10% and 20% adverse changes in those assumptions are as follows (dollars in thousands):

Carrying amount of mortgage servicing assets	$	295,754
Constant prepayment speed		12.87	%
Impact on fair value of 10% adverse change	$	(7,129	)
Impact on fair value of 20% adverse change		(13,451	)
Discount rate		10.34	%
Impact on fair value of 10% adverse change	$	(4,583	)
Impact on fair value of 20% adverse change		(8,875	)

      These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in value based on a 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the value of the servicing asset is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which might magnify or counteract the sensitivities.

      The servicing portfolio underlying the portion of our servicing assets carried on our balance sheet was $20 billion and $28 billion at December 31, 2005 and 2004, respectively. Key economic assumptions used in determining the carrying value of mortgage servicing assets capitalized in 2005 and 2004 were as follows:

		2005			2004
Prepayment rates:
	Mortgage banking(1)		8.51- 16.31	%		5.10- 11.12	%
	Home equity lending		30.10-31.32			16.59-46.67
	Commercial banking		8.51-16.31			5.10-11.12
Discount rates:
	Mortgage banking(1)		9.00- 14.00	%		8.50- 14.00	%
	Home equity lending		12.00			12.00
	Commercial banking		9.00-14.00			8.50-14.00

⁽¹⁾  The mortgage banking component of consolidated servicing assets was 88% and 87% at December 31, 2005 and 2004, respectively.

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Note 8 — Premises and Equipment

      Premises and equipment are summarized as follows:

		December 31,
		2005			2004			Useful Lives
		(Dollars in thousands)
Land		$	2,630		$	2,630			n/a
Building and leasehold improvements			26,389			24,975			7-40 years
Furniture and equipment			51,295			53,659			3-10 years
			80,314			81,264
Less accumulated depreciation			(49,065	)		(51,024	)
	Total	$	31,249		$	30,240

      Amounts charged to other expense for depreciation amounted to $7.3 million, $7.6 million, and $7.7 million in 2005, 2004, and 2003, respectively.

Note 9 — Lease Obligations

      At December 31, 2005, we leased certain branch locations and office equipment used in our operations under a number of noncancelable operating leases. Operating lease rental expense was $23 million in 2005, $29 million in 2004, and $26 million in 2003.

      The future minimum rental payments required under noncancellable operating leases with initial or remaining terms of one year or more are summarized as follows:

			(Dollars in thousands)
Year Ended December 31,
	2006		$	15,996
	2007			13,875
	2008			12,435
	2009			10,514
	2010			9,293
	Thereafter			13,421
		Total minimum rental payments	$	75,534

Note 10 — Short-Term Borrowings

      Short-term borrowings are summarized as follows:

	December 31,
	2005			2004
	(Dollars in thousands)
Federal Home Loan Bank borrowings	$	641,785		$	71,826
Drafts payable related to mortgage loan closings		64,278			53,254
Lines of credit and other		1,081			2,197
Federal funds		290,300			110,000
Total	$	997,444		$	237,277
Weighted average interest rate		3.05	%		1.64	%

      Federal Home Loan Bank borrowings are collateralized by $1.0 billion of loans and loans held for sale.

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      Drafts payable are related to mortgage closings at the end of December that have not been presented to the banks for payment. When presented for payment, these borrowings will be funded internally or by borrowing from the lines of credit.

      We also have lines of credit available of $1.2 billion to fund loan originations and operations. Interest on the lines of credit is payable monthly or quarterly with rates ranging from 4.3% to 5.5% at December 31, 2005.

      For three of our credit facilities, we are subject to compliance with certain financial covenants including, but not limited to consolidated tangible net worth, return on average assets, nonperforming loans, loan loss reserve, Tier 1 leverage ratio, and risk-based capital ratio. We are in compliance with all applicable covenants as of December 31, 2005.

Note 11 — Collateralized Debt

      We pledge or sell loans structured as secured financings at our home equity and commercial finance lines of business. Sale treatment is precluded on these transactions because we fail the true-sale requirements of SFAS 140 as we maintain effective control over the loans and leases securitized. This type of structure results in cash being received, debt being recorded, and the establishment of an allowance for credit losses. The notes associated with these transactions are collateralized by $0.7 billion in home equity loans, home equity lines of credit, and leases. The principal and interest on these debt securities are paid using the cash flows from the underlying loans and leases. Accordingly, the timing of the principal payments on these debt securities is dependent on the payments received on the underlying collateral. The interest rates on the bonds are generally at a floating rate. In certain cases, we enter into swaps to address inherent interest rate risk against fixed rate loans and leases.

      Collateralized borrowings are summarized as follows:

					Interest Rate at			December 31,
			Contractual		December 31,
			Maturity		2005			2005			2004
			(Dollars in thousands)
Commercial finance line of business
Domestic asset backed note				5/2010		4.5	%	$	13,600		$	29,050
Canadian asset backed notes:
	Note 1			revolving		3.7			32,385			48,801
	Note 2			4/2010		3.4			155,544			95,288
	Note 3			10/2009		4.5			14,839			21,713
Home equity line of business
2004-1 asset backed notes:
	Variable rate senior note			12/2024-12/2034		4.5			132,692			327,850
	Variable rate subordinate note			12/2034		5.4			24,775			24,775
2005-1 asset backed notes:
	Variable rate senior note			6/2025-6/2035		4.4			138,244			—
	Fixed rate senior note			6/2035		5.0			94,129			—
	Variable rate subordinate note			6/2035		6.0			10,785			—
	Fixed rate subordinate note			6/2035		5.6			52,127			—
Unamortized premium/discount									(136	)		—
		Total						$	668,984		$	547,477

      For the Canadian asset backed notes, we are subject to compliance with certain financial covenants set forth in this facility including, but not limited to consolidated tangible net worth, return on average assets, nonperforming loans, loan loss reserve, Tier leverage ratio, and risk-based capital ratio. We are in compliance with all applicable covenants as of December 31, 2005.

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Note 12 — Other Long-Term Debt

      At December 31, 2005 and 2004 we had $270 million of other long-term debt. Included in both years is $30 million of subordinated debt with an interest rate of 7.58% and a maturity date of July 2014. We also have obligations represented by subordinated debentures at December 31, 2005 and 2004 of $240 million. These securities were issued by wholly-owned trusts of Irwin Financial Corporation that were created for the purpose of issuing cumulative trust preferred securities. In accordance with FIN 46 we do not consolidate these trusts. These debentures are the sole assets of these trusts as of December 31, 2005. All debentures and securities are callable at par after five years from origination date. On February 3, 2006, we issued a call notice on the securities underlying IFC Capital Trust III, from which $51.7 million of 8.75 percent convertible trust preferred securities were issued and remain outstanding. The redemption date is March 6, 2006. In lieu of redemption for cash, the trust preferred securities are convertible at the option of the holder into common stock at any time prior to the redemption date at a ratio of 1.2610 common shares per share of convertible trust preferred, which equates to a common stock conversion price of $19.825 per share. These securities are all Tier 1 qualifying capital at December 31, 2005. Highlights about these debentures and the related trusts are listed below:

								Subordinated Debt
			Interest Rate at					December 31,
	Origination		December 31,			Maturity
Name	Date		2005			Date		2005		2004		Other
	(Dollars in thousands)
Capital Trust II		Nov 2000		10.50	%		Sep 2030	$	—	$	53,351
IFC Capital Trust III		Nov 2000		8.75			Sep 2030		53,268		53,268	conversion ratio of 1.261 shares of common stock to 1 convertible preferred security
IFC Capital Trust IV		Jul 2001		10.25			Jul 2031		15,464		15,464
IFC Capital Trust V		Nov 2001		9.95			Nov 2031		30,928		30,928
IFC Capital Trust VI		Oct 2002		8.70			Sep 2032		35,567		35,567
IFC Statutory Trust VII		Nov 2003		7.43			Nov 2033		51,547		51,547	rate changes quarterly at three month LIBOR plus 290 basis points
IFC Capital Trust VIII		Aug 2005		5.96			Aug 2035		53,351		—	fixed rate for 5 years, variable rate of 3 month LIBOR plus 153 basis points thereafter
								$	240,125	$	240,125

Note 13 — Commitments and Contingencies

Culpepper v. Inland Mortgage Corporation

      Our indirect subsidiary, Irwin Mortgage Corporation (formerly Inland Mortgage Corporation), is a defendant in a class action lawsuit in the United States District Court for the Northern District of Alabama, filed in April 1996, alleging that Irwin Mortgage violated the federal Real Estate Settlement Procedures Act (RESPA) relating to Irwin Mortgage’s payment of broker fees to mortgage brokers. In June 2001, the Court of Appeals for the 11th Circuit upheld the district court’s certification of a plaintiff class. In November 2001, the parties filed supplemental briefs analyzing the impact of an October 18, 2001 policy statement issued by the Department of Housing and Urban Development (HUD) that explicitly disagreed with the judicial interpretation of RESPA by the Court of Appeals for the 11th Circuit in its ruling upholding class certification in this case.

      Subsequently, the 11th Circuit subsequently decided three other RESPA cases. In one of those cases, the 11th Circuit concluded that the trial court had abused its discretion in certifying a class action under RESPA. Further, in that decision, the 11th Circuit expressly recognized it was, in effect, overruling its previous decision

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upholding class certification in our case. In March 2003, Irwin Mortgage filed a motion to decertify the class. Irwin Mortgage and the plaintiffs also filed motions for summary judgment.

      On February 7, 2006, the trial court denied the plaintiffs’ motion for summary judgment and granted Irwin Mortgage’s motions to decertify the class and for summary judgment, thereby dismissing this case. The plaintiffs then filed a notice of appeal with the Court of Appeals for the 11th Circuit. If the plaintiffs were to prevail on their appeal and also prevail at a subsequent trial on the merits, Irwin Mortgage could be liable for RESPA damages that could be material to our financial position. However, Irwin Mortgage believes the 11th Circuit’s RESPA ruling in a similar case argued before it would support a decision in this case affirming the trial court in favor of Irwin Mortgage. We therefore have not established any reserves for this case.

Silke v. Irwin Mortgage Corporation

      In April 2003, our indirect subsidiary, Irwin Mortgage Corporation, was named as a defendant in a class action lawsuit filed in the Marion County, Indiana, Superior Court. The complaint alleges that Irwin Mortgage charged a document preparation fee in violation of Indiana law for services performed by clerical personnel in completing legal documents related to mortgage loans. Irwin Mortgage filed an answer on June 11, 2003 and a motion for summary judgment on October 27, 2003. On June 18, 2004, the court certified a plaintiff class consisting of Indiana borrowers who were allegedly charged the fee by Irwin Mortgage any time after April 17, 1997. This date was later clarified by stipulation of the parties to be April 14, 1997. In November 2004, the court heard arguments on Irwin Mortgage’s motion for summary judgment and plaintiffs’ motion seeking to send out class notice. On January 23, 2006, the court ruled that dissemination of class notice can proceed before the court addresses the motion for summary judgment. We are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin Mortgage could suffer. We have not established any reserves for this case.

Cohens v. Inland Mortgage Corporation

      In October 2003, our indirect subsidiary, Irwin Mortgage Corporation (formerly Inland Mortgage Corporation), was named as a defendant, along with others, in an action filed in the Supreme Court of New York, County of Kings. The plaintiffs, a mother and two children, allege they were injured from lead contamination while living in premises allegedly owned by the defendants. The suit seeks approximately $41 million in damages and alleges negligence, breach of implied warranty of habitability and fitness for intended use, loss of services and the cost of medical treatment. On June 15, 2005, Irwin Mortgage filed an answer and cross-claims seeking dismissal of the complaint. We are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin Mortgage could suffer. We have not established any reserves for this case.

Litigation in Connection with Loans Purchased from Community Bank of Northern Virginia

      Our subsidiary, Irwin Union Bank and Trust Company, is a defendant in several actions in connection with loans Irwin Union Bank purchased from Community Bank of Northern Virginia (Community).

      Hobson v. Irwin Union Bank and Trust Company was filed on July 30, 2004 in the United States District Court for the Northern District of Alabama. As amended on August 30, 2004, the Hobson complaint, seeks certification of both a plaintiffs’ and a defendants’ class, the plaintiffs’ class to consist of all persons who obtained loans from Community and whose loans were purchased by Irwin Union Bank. Hobson alleges that defendants violated the Truth-in-Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), the Real Estate Settlement Procedures Act (RESPA) and the Racketeer Influenced and Corrupt Organizations Act (RICO). On October 12, 2004, Irwin filed a motion to dismiss the Hobson claims as untimely filed and substantively defective.

      Kossler v. Community Bank of Northern Virginia was originally filed in July 2002 in the United States District Court for the Western District of Pennsylvania. Irwin Union Bank and Trust was added as a defendant in December 2004. The Kossler complaint seeks certification of a plaintiffs’ class and seeks to void the mortgage loans as illegal contracts. Plaintiffs also seek recovery against Irwin for alleged RESPA violations

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and for conversion. On September 9, 2005, the Kossler plaintiffs filed a Third Amended Class Action Complaint. On October 21, 2005, Irwin filed a renewed motion seeking to dismiss the Kossler action.

      The plaintiffs in Hobson and Kossler claim that Community was allegedly engaged in a lending arrangement involving the use of its charter by certain third parties who charged high fees that were not representative of the services rendered and not properly disclosed as to the amount or recipient of the fees. The loans in question are allegedly high cost/high interest loans under Section 32 of HOEPA. Plaintiffs also allege illegal kickbacks and fee splitting. In Hobson, the plaintiffs allege that Irwin was aware of Community’s alleged arrangement when Irwin purchased the loans and that Irwin participated in a RICO enterprise and conspiracy related to the loans. Because Irwin bought the loans from Community, the Hobson plaintiffs are alleging that Irwin has assignee liability under HOEPA.

      If the Hobson and Kossler plaintiffs are successful in establishing a class and prevailing at trial, possible RESPA remedies could include treble damages for each service for which there was an unearned fee, kickback or overvalued service. Other possible damages in Hobson could include TILA remedies, such as rescission, actual damages, statutory damages not to exceed the lesser of $500,000 or 1% of the net worth of the creditor, and attorneys’ fees and costs; possible HOEPA remedies could include the refunding of all closing costs, finance charges and fees paid by the borrower; RICO remedies could include treble plaintiffs’ actually proved damages. In addition, the Hobson plaintiffs are seeking unspecified punitive damages. Under TILA, HOEPA, RESPA and RICO, statutory remedies include recovery of attorneys’ fees and costs. Other possible damages in Kossler could include the refunding of all origination fees paid by the plaintiffs.

      Irwin Union Bank and Trust Company is also a defendant, along with Community, in two individual actions (Chatfield v. Irwin Union Bank and Trust Company, et al. and Ransom v. Irwin Union Bank and Trust Company, et al.) filed on June 9, 2004 in the Circuit Court of Frederick County, Maryland, involving mortgage loans Irwin Union Bank purchased from Community. On July 16, 2004, both of these lawsuits were removed to the United States District Court for the District of Maryland. The complaints allege that the plaintiffs did not receive disclosures required under HOEPA and TILA. The lawsuits also allege violations of Maryland law because the plaintiffs were allegedly charged or contracted for a prepayment penalty fee. Irwin believes the plaintiffs received the required disclosures and that Community, a Virginia-chartered bank, was permitted to charge prepayment fees to Maryland borrowers. Under the loan purchase agreements between Irwin and Community, Irwin has the right to demand repurchase of the mortgage loans and to seek indemnification from Community for the claims in these lawsuits. On September 17, 2004, Irwin made a demand for indemnification and a defense to Hobson, Chatfield and Ransom. Community denied this request as premature.

      In response to a motion by Irwin,, the Judicial Panel On Multidistrict Litigation consolidated Hobson, Chatfield and Ransom with Kossler in the Western District of Pennsylvania for all pretrial proceedings. We have established a reserve for the Community litigation based upon SFAS 5 guidance and the advice of legal counsel.

Litigation Related to NorVergence, Inc.

      Irwin Commercial Finance Corporation, Equipment Finance (“Equipment Finance”) (formerly known as Irwin Business Finance), our indirect subsidiary, is involved on a national basis in equipment leasing finance and maintains a diverse portfolio of leases, including leases in the telecommunications field. A portion of Equipment Finance’s telecommunications portfolio involves leases of equipment acquired from NorVergence, Inc., a New Jersey-based telecommunications company. After assigning leases to Equipment Finance and other lenders, NorVergence became a debtor in a Chapter 7 bankruptcy, which is currently pending in the United States Bankruptcy Court in New Jersey. The sudden failure of NorVergence left many of its customers without telecommunications service. These customers became very angry when commitments made to them by NorVergence went unfulfilled.

      Complaints by former NorVergence customers have led to investigations by the attorneys general of several states. Equipment Finance has been named as a defendant in several lawsuits connected with NorVergence. Exquisite Caterers, LLC et al. v. Popular Leasing et al. is a lawsuit filed in the Superior Court

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of New Jersey, Monmouth County, and was amended to include Equipment Finance and others on September 1, 2004. The Exquisite Caterers plaintiffs seek certification of a class of persons who leased network computer equipment from NorVergence, whose leases were assigned to defendants. The complaint alleges that NorVergence misrepresented the services and equipment provided, that the lessees were defrauded and the lease agreements should not be enforced. The action alleges violations of, among other things, the New Jersey Consumer Fraud Act; the New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act; the FTC Holder Rule; the FTC Act; and breach of contract and implied warranties. The plaintiffs seek compensatory, statutory and punitive damages, and injunctive relief, including rescission of the leases and cessation of collections. On June 16, 2005, the judge in the Exquisite Caterers lawsuit denied plaintiffs’ alternative motions for certification of either a nationwide class or a class of New Jersey residents only. Plaintiffs then filed a motion for reconsideration of the order denying certification of a class limited to New Jersey residents. At a hearing on September 14, 2005, the judge granted plaintiffs’ motion for reconsideration and certified a class limited to New Jersey residents. Equipment Finance has fewer than ten lessees who may qualify as members of the New Jersey class certified in the Exquisite Caterers lawsuit.

      Equipment Finance was also named as a defendant, along with other lenders, in Delanco Board of Education et al. v. IFC Credit Corporation, a lawsuit filed in the Superior Court of New Jersey, Essex County, Chancery Division, in October 2004 in connection with leases assigned to the lenders by NorVergence. (IFC Credit Corporation is not affiliated with Irwin Financial Corporation or Equipment Finance.) The suit involved more than one thousand plaintiffs and alleged fraud, misrepresentation and violations of the New Jersey Consumer Fraud law based on alleged conduct similar to that in Exquisite Caterers, with the addition of a count under the New Jersey RICO statute. Plaintiffs also alleged unjust enrichment and conversion and sought rescission of the leases plus punitive and other damages. After failing in an attempt to obtain a temporary injunction, the plaintiffs agreed to withdraw the complaint filed in the Superior Court and commenced actions in the NorVergence bankruptcy proceeding, seeking similar relief. Equipment Finance filed a motion to dismiss it from the adversary proceeding and is awaiting the court’s ruling on the motion.

      Equipment Finance was also named as a defendant, along with other lenders, in Sterling Asset & Equity Corp. et al. v. Preferred Capital, Inc. et al., an action filed in the United States District Court for the Southern District of Florida in October 2004, which was voluntarily dismissed in January 2005. The plaintiffs then filed a similar complaint in the Circuit Court of the 11th Judicial Circuit, Miami-Dade County, Florida on January 14, 2005 seeking class certification on behalf of Florida persons or entities who leased equipment from NorVergence and whose agreement was assigned to one of the named lenders. The plaintiffs allege that NorVergence engaged in false, misleading and deceptive sales and billing practices. The complaint alleges violations of the Florida Deceptive and Unfair Trade Practices Act, the FTC Holder Rule, and breach of contract and warranties. Plaintiffs seek, among other relief, compensatory and punitive damages, injunctive and/or declaratory relief prohibiting enforcement of the leases, rescission, return of payments, interest, attorneys’ fees and costs. Plaintiffs voluntarily dismissed this action in June of 2005 after Equipment Finance had filed its motion to dismiss the complaint.

      In connection with investigations by various state attorneys general, Equipment Finance and other lenders were asked to produce information about their relationships with NorVergence and to refrain from enforcing NorVergence leases. Equipment Finance is pursuing discussions with most of the states in which it has customers who executed agreements with NorVergence and has discontinued collection activities while discussions are in progress. Equipment Finance has now executed agreements with: the Attorney General of California, providing for recovery of 15% of outstanding balances on California leases as of July 15, 2004, and with the Attorney General of Florida, entitling Equipment Finance to lease payments through January 31, 2005. In November of 2005, Equipment Finance extended the benefits of the California settlement to NorVergence customers residing in Texas. Equipment Finance recently executed an agreement with a multi-state group of attorneys general. The multi-state agreement requires that NorVergence lessees be offered the opportunity to pay Equipment Finance all amounts due on their leases through July 15, 2004, plus 15% of the then-outstanding balance in full satisfaction of their lease obligations.

      On October 21, 2004, the Attorney General of Florida filed a complaint against twelve lenders, including Equipment Finance, in the Circuit Court of the Second Judicial Circuit, Leon County, Florida (State of

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Florida v. Commerce Commercial Leasing, LLC et al.). This suit was stayed by agreement of the parties while they discussed resolution of the concerns expressed by the Florida Attorney General. The complaint alleged that the agreements assigned by NorVergence to the lenders were unconscionable under the Florida Deceptive and Unfair Trade Practices Act. The suit also sought to prohibit collection activities by the lenders and asked for repayment of revenues, rescission of the agreements, restitution, recovery of actual damages, and civil money penalties. On April 29, 2005, acting on defendants’ motion to dismiss, the judge in the Commerce Commercial Leasing action dismissed the action in its entirety. The Attorney General of Florida appealed the order of dismissal. Equipment Finance was dismissed from the appeal as a result of its settlement with the State of Florida.

      The individual lawsuit filed against Equipment Finance in September 2004 in the Superior Court of Massachusetts was put on hold pending discussions with the multi-state group of attorneys general, of which the Attorney General of Massachusetts is a participant. The plaintiff in this action has been offered the opportunity to participate in the multi-state settlement program, and Equipment Finance is awaiting a response to its offer.

      Agreements with state attorneys general and recent favorable court rulings have significantly reduced the risk that damages might be awarded against Equipment Finance in NorVergence-related class actions and other lawsuits. We have established loss reserves for customer reimbursements required under agreements already closed with various states’ attorneys general. We have not established reserves in connection with NorVergence-related litigation.

Putkowski v. Irwin Home Equity Corporation and Irwin Union Bank and Trust Company

      On August 12, 2005, our indirect subsidiary, Irwin Home Equity Corporation, and our direct subsidiary, Irwin Union Bank and Trust Company (collectively, “Irwin”), were named as defendants in litigation seeking class action status in the United States District Court for the Northern District of California. The plaintiffs allege Irwin violated the Fair Credit Reporting Act (“FCRA”) by using or obtaining plaintiffs’ consumer reports for credit transactions not initiated by plaintiffs and for which they did not receive firm offers of credit. The plaintiffs also allege that Irwin failed to provide clear and conspicuous disclosures as required by the FCRA. The complaint seeks declaratory and injunctive relief, statutory damages of $1,000 per each separate violation and punitive damages for alleged willful violations of the FCRA. Plaintiffs filed an Amended Complaint on October 4, 2005. On October 18, 2005, Irwin moved to dismiss the Amended Complaint for failure to state a claim. Irwin believes it has strong defenses to plaintiffs’ claims; however, we are unable at this time to form a reasonable estimate of the amount of potential loss, if any, that Irwin could suffer and have not established any reserves for this case.

White v. Irwin Union Bank and Trust Company and Irwin Home Equity Corporation

      On January 5, 2006, our direct subsidiary, Irwin Union Bank and Trust Company, and our indirect subsidiary, Irwin Home Equity Corporation, (collectively, “Irwin”) were named as defendants in litigation in the Circuit Court for Baltimore City, Maryland. The plaintiffs allege that Irwin charged or caused plaintiffs to pay certain fees, costs and other charges that were excessive or illegal under Maryland law in connection with loans made to plaintiffs by Irwin. The plaintiffs seek certification of a class consisting of Maryland residents who received mortgage loans from Irwin secured by real property in the State of Maryland and who claim injury due to Irwin’s lending practices. The plaintiffs are seeking damages under the Maryland Mortgage Lending Laws and the Maryland Consumer Protection Act for, among other things, relief from further interest payments on their loans, reimbursement of interest, charges, fees and costs already paid, including prepayment penalties paid by the class, and damages of three times the amount of all allegedly excessive or illegal charges paid, plus attorneys’ fees, expenses and costs. In the alternative, the plaintiffs seek arbitration as provided for in their mortgage notes. On February 17, 2006, Irwin also filed a notice of removal, and removed the case from state to federal court. At this stage of the litigation, we are unable to form a reasonable estimate of the amount of potential loss, if any, that Irwin could suffer and have not established any reserves for this case.

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      We and our subsidiaries are from time to time engaged in various matters of litigation, including the matters described above, other assertions of improper or fraudulent loan practices or lending violations, and other matters, and we have a number of unresolved claims pending. In addition, as part of the ordinary course of business, we and our subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral, and foreclosure interests, that is incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, we believe that damages, if any, and other amounts relating to pending matters are not likely to be material to our consolidated financial position or results of operations, except as described above. Reserves are established for these various matters of litigation, when appropriate under SFAS 5, based in part upon the advice of legal counsel.

Note 14 — Financial Instruments With Off-Balance Sheet Risk

      In the normal course of our business as a provider of financial services, we are party to certain financial instruments with off-balance sheet risk to meet the financial needs of our customers. These financial instruments include loan commitments and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the consolidated balance sheet. We follow the same credit policies in making commitments and contractual obligations as we do for our on-balance sheet instruments.

      Our exposure to credit loss, in the form of nonperformance by the counterparty on commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. Collateral pledged for standby letters of credit and commitments varies but may include accounts receivable; inventory; property, plant, and equipment; and residential real estate. Total outstanding commitments to extend credit at December 31, 2005 and 2004 were $1.1 billion and $0.7 billion, respectively. These loan commitments include $0.8 billion of floating rate loan commitments and $0.2 billion of fixed rate loan commitments. We had approximately $20 million and $25 million in irrevocable standby letters of credit outstanding at December 31, 2005 and 2004, respectively.

Note 15 — Derivative Financial Instruments

      Financial derivatives are used as part of the overall asset/liability risk management process. We use certain derivative instruments that do not qualify for hedge accounting treatment under SFAS 133. These derivatives are classified as other assets and other liabilities and marked to market on the income statements. While we do not seek Generally Accepted Accounting Principles (GAAP) hedge accounting treatment for the assets that these instruments are hedging, the economic purpose of these instruments is to manage the risk inherent in existing exposures to either interest rate risk or foreign currency risk.

      We have interest rate swaps that have a notional amount (which does not represent the amount of risk) of $274 million to hedge fixed rate certificate of deposits. We recognized a loss in “derivative gains (losses)” of $1.2 million and $0.2 million for the years ended December 31, 2005 and 2004, respectively, related to these swaps. Under the terms of these swap agreements, we receive a fixed rate of interest and pay a floating rate of interest based upon one, three, or six-month LIBOR.

      We own foreign currency forward contracts to protect the U.S. dollar value of intercompany loans made to Irwin Commercial Finance Canada Corporation (formerly Onset Capital Corporation) that are denominated in Canadian dollars. We had a notional amount of $56 million in forward contracts outstanding as of December 31, 2005. In 2005 and 2004 we recognized losses on these contracts of $1.3 million and $3.2 million. These contracts are marked-to-market with gains and losses included in “derivative gains(losses)” on the consolidated income statements. The foreign currency transaction gain on the intercompany loans was $1.6 million and $2.3 million for the years ended December 31, 2005 and 2004, respectively.

      In our first mortgage business, we enter into forward contracts to protect against interest rate fluctuations from the date of mortgage loan commitment until the loans are sold. The notional amount of our forward contracts (which does not represent the amount at risk) totaled $1.0 billion at December 31, 2005. The closed

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mortgage loans hedged by forward contracts qualify for “fair value” hedge accounting treatment under SFAS 133. The basis of the hedged closed loans is adjusted for change in value associated with the risk being hedged. We value closed loan contracts at year end based upon the current secondary market value of securities with similar characteristics. The unrealized loss on our forward contracts at December 31, 2005 was $2.9 million and the hedge ineffectiveness for the year resulted in a loss of $3.4 million. The unrealized loss on our forward contracts at December 31, 2004 was $0.5 million and the hedge ineffectiveness for the year resulted in a loss of $2.7 million. The effect of these hedging activities was recorded through earnings as a component of “Gain from sale of loans.”

      In our home equity business, we enter into interest rate swaps and Eurodollar futures contracts to protect the value of the loans against increasing interest rates from the time of origination until the time a loan is sold or delivered into a securitization funding source. At December 31, 2005, a notional amount of $205 million of interest rate swaps were outstanding. These contracts are marked-to-market with gains and losses included in “derivative gains (losses)” on the consolidated income statements. The gain on these activities for the year-ending 2005 totaled $0.7 million.

      We enter into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on loans intended to be sold are considered to be derivatives. We record changes in the fair value of these commitments based upon the current secondary market value of securities with similar characteristics. For the years ended December 31, 2005 and 2004, a net increase in fair value of these derivatives totaling $0.7 million and a net decrease in fair value of these derivatives totaling $6.5 million was recorded in “Gain from sale of loans.” At December 31, 2005, we had a notional amount of rate lock commitments outstanding totaling $0.7 billion with a fair value of $1.4 million. Notional amounts do not represent the amount of risk.

      Our commercial finance line of business delivers fixed rate leases into conduits that fund them with floating rate commercial paper, which creates an interest rate risk mismatch.

•  We deliver Canadian dollar fixed rate leases into a commercial paper conduit. To lessen the repricing mismatch between fixed rate CAD-denominated leases and floating rate CAD commercial paper, a series of amortizing CAD interest rate swaps have been executed. As of December 31, 2005, the commercial paper conduit was providing $155 million of variable rate funding. In total, our interest rate swaps were effectively converting $148 million of this funding to a fixed interest rate. The losses on these swaps for the years ended December 31, 2005 and 2004 were $0.9 million and $0.6 million, respectively.

•  In the case of U.S. dollar fixed rate leases funded via a commercial paper conduit, this funding mismatch is partially mitigated by a combination of amortizing interest rate caps and Eurodollar futures contracts. The interest rate caps have a strike price of 5% and provide protection against an increase in short-term interest rates. As of December 31, 2005, the notional value and 2005 loss on the interest rate caps were $8 million and $3 thousand, respectively. As of December 31, 2004, the notional value and 2004 loss on the interest rate caps were $26 million and $43 thousand, respectively. As of December 31, 2005, the total notional amount and gain for the year on the Eurodollar futures were $10 million and $0.1 million, respectively. As of December 31, 2004, the total notional amount and gain for the year on the Eurodollar futures were $95 million and $40 thousand, respectively.

      Certain of our home equity fixed rate residual interests are funded with floating rate liabilities. We enter into Eurodollar futures contracts to economically manage such mismatches and rebalance our positions as needed. The current notional value outstanding is $126 million (which does not represent the amount at risk). As of December 31, 2005, the fair value and gain recorded on these contracts were $0.3 million and $0.7 million, respectively. As of December 31, 2004, the fair value and gain recorded on these contracts were $0.5 million and $0.9 million, respectively.

      We also have a $97 million amortizing interest rate swap in which we pay a fixed rate of interest and receive a floating rate. The purpose of the swap is to manage interest rate risk exposure created by the 2005-1 securitization in which floating rate notes are funding fixed rate home equity loans. The notional value of the

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swap amortizes at a pace that is consistent with the expected paydown speed of the floating rate notes (including prepayment speed estimates), although the actual note paydowns will vary depending upon actual prepayment speeds. This swap is accounted for as a “cashflow” hedge in accordance with FAS 133, with the changes in the fair value of the effective portion of the hedge reported as a component of equity and amortized through interest expense during the matching periods.

      We manage the interest rate risk associated with our mortgage servicing rights through the use of mortgage backed security TBA’s (“to be announced” securities), swaps, swaptions and Eurodollar futures contracts. Both the options and futures contracts are marked-to-market and included in “Other assets” with changes in value recorded in the consolidated income statements as “Derivative gains or losses.” At December 31, 2005, we held no swaption positions. As of December 31, 2005, we recorded losses on swaptions, including premiums paid, of $66 million during the year. At December 31, 2004, we held swaption positions with a notional amount totaling $9.7 billion, and gains totaling $23.5 million. We held Eurodollar futures contracts with a notional value of $12.5 billion (which does not represent the amount at risk) at December 31, 2005, and we recorded losses of $1.2 million on these contracts held during the year. During 2004, we recorded losses of $4.4 million on Eurofutures contracts. The size and mix of these positions change during the year, so period-end positions may not be indicative of our net risk exposure throughout the year.

Note 16 — Guarantees

      Upon the occurrence of certain events under financial guarantees, we have performance obligations provided in certain contractual arrangements. These various agreements are summarized below.

      We sell loans and commercial loan participation interests to: (i) private investors; (ii) agency investors including, but not limited to, Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Government National Mortgage Association (GNMA); and (iii) other financial institutions. Each loan sale is subject to certain terms and conditions, which generally require us to indemnify and hold the investor harmless against any loss arising from errors and omissions in the origination, processing and/or underwriting of the loans. We are subject to this risk for loans that we originate as well as loans we acquire from brokers and correspondents. At December 31, 2005 and 2004, we had approximately $12.7 million and $15.3 million, respectively, recorded as an estimate for losses that may occur as a result of the guarantees described above based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loans, and current economic conditions. The length of the indemnification period, which varies by investor and the nature of the potential defect may extend to the life of the loan. Sold loans for which these guarantees apply totaled approximately $10.4 billion in 2005 and $11.7 billion in 2004.

      We also sell home equity loans to private investors. We have agreed to repurchase loans that do not perform at agreed-upon levels. The repurchase period generally ranges from 60-120 days after the settlement date. In addition, a repurchase obligation may be triggered if a loan does not meet specified representations related to credit information, loan documentation and collateral. At December 31, 2005 and 2004, respectively, we had approximately $1.6 million and $1.7 million recorded as an estimate for losses that may occur as a result of the guarantees described above based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loans, and current economic conditions. Total home equity loans sold for which these guarantees apply were $0.7 billion in 2005 and $1.0 billion in 2004.

      In the normal course of our servicing duties, we are often required to advance payments to investors, taxing authorities and insurance companies that are due and have not been received from borrowers as of specified cut-off dates. These servicing advances totaled $37.4 million at December 31, 2005 and $46.1 million at December 31, 2004 and are reflected as accounts receivable in the consolidated balance sheets. Servicing advances, including contractual interest, are considered a priority cash flow in the event of foreclosure or liquidation, thus making their collection more likely. At December 31, 2005 and 2004, we had $2.5 million and $2.9 million recorded as an estimate for possible losses on these advances in other liabilities.

      We also service loans on behalf of private and agency investors and occasionally sell the servicing rights on these loans to third-party servicers. The typical servicing contract requires us to indemnify and hold the

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investor harmless against any loss arising from our failure to abide by the servicing guidelines adopted by the investor or from our breach of any representation or warranty made in connection with the sale. Some of the more common servicing sale representations and warranties include: (i) each loan is in full compliance with investor requirements; insurer requirements; and federal, state, and local laws and regulations; (ii) seller and all prior servicers have serviced and maintained the loans in accordance with investor requirements; and (iii) each custodial file and all documents related thereto is true, correct and complete in all material respects. The loss estimate recorded for these guarantees at December 31, 2005 and 2004, was $2.4 million and $1.3 million.

      We provide guarantees to third parties on behalf of one of our subsidiaries related to operating lease payments with maturity dates extending through 2011. The maximum potential future payments guaranteed by us under these arrangements is $10.0 million and $14.8 million at December 31, 2005 and 2004, respectively.

      We provide an operating performance guarantee to a third party on behalf of one of our subsidiaries related to borrowings to fund Canadian leases. At December 31, 2005 and 2004, our subsidiary had borrowings totaling $155.5 million and $95.3 million for which our guarantee applied. Irwin Union Bank and Trust provides a credit guarantee to a third party on behalf of one of our subsidiaries related to borrowings to fund Canadian leases. At December 31, 2005, our subsidiary had borrowings totaling $32.4 million for which this guarantee applied.

Note 17 — Regulatory Matters

      Irwin Financial Corporation and its bank subsidiaries, Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B., are subject to various regulatory capital requirements administered by the federal and state banking agencies. Under capital adequacy guidelines, Irwin Financial, Irwin Union Bank and Trust, and Irwin Union Bank, F.S.B. must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy require minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier I capital to average assets (as defined). We believe, as of December 31, 2005, that we have met all capital adequacy requirements to which we are subject. In addition, our Board of Directors has established minimum total capital standards of 11.75% for both Irwin Financial and Irwin Union Bank and Trust.

      For an explanation of capital requirements and categories applicable to financial institutions, see the discussion in this Report under the subsection “Other Safety and Soundness Regulations” in Part I, Item 1, “Business,” “Supervision and Regulation.”

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      The following table presents actual capital amounts and ratios for Irwin Financial, Irwin Union Bank and Trust, and Irwin Union Bank, F.S.B. as compared to amounts and ratios under the regulatory framework:

							Adequately					Well
		Actual					Capitalized					Capitalized
		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(Dollars in thousands)
As of December 31, 2005
Total Capital (to Risk-Weighted Assets):
	Irwin Financial Corporation	$	829,444		13.1	%	$	505,424		8.0	%	$	631,780		10.0	%
	Irwin Union Bank and Trust		716,228		12.3			465,721		8.0			582,151		10.0
	Irwin Union Bank, F.S.B.		54,795		12.5			35,186		8.0			43,983		10.0
Tier I Capital (to Risk-Weighted Assets):
	Irwin Financial Corporation		675,316		10.7			252,712		4.0			379,068		6.0
	Irwin Union Bank and Trust		628,688		10.8			232,861		4.0			349,291		6.0
	Irwin Union Bank, F.S.B.		52,340		11.9			N/A					26,390		6.0
Tier I Capital (to Average Assets):
	Irwin Financial Corporation		675,316		10.3			261,216		4.0			326,520		5.0
	Irwin Union Bank and Trust		628,688		10.4			241,878		4.0			302,347		5.0
Core Capital (to Adjusted Tangible Assets) Irwin Union Bank, F.S.B.			52,340		10.3			20,262		4.0			25,327		5.0
Tangible Capital (to Tangible Assets) Irwin Union Bank, F.S.B.			52,340		10.3			7,598		1.5			N/A
As of December 31, 2004
Total Capital (to Risk-Weighted Assets):
	Irwin Financial Corporation	$	781,487		15.9	%	$	392,641		8.0	%	$	490,801		10.0	%
	Irwin Union Bank and Trust		644,345		14.6			352,500		8.0			440,625		10.0
	Irwin Union Bank, F.S.B.		40,880		14.3			22,922		8.0			28,652		10.0
Tier I Capital (to Risk-Weighted Assets):
	Irwin Financial Corporation		637,875		13.0			196,320		4.0			294,481		6.0
	Irwin Union Bank and Trust		571,372		13.0			176,250		4.0			264,375		6.0
	Irwin Union Bank, F.S.B.		39,636		13.8			N/A					17,191		6.0
Tier I Capital (to Average Assets):
	Irwin Financial Corporation		637,875		11.6			222,094		4.0			277,618		5.0
	Irwin Union Bank and Trust		571,372		11.3			202,986		4.0			253,732		5.0
Core Capital (to Adjusted Tangible Assets) Irwin Union Bank, F.S.B.			39,636		10.6			14,984		4.0			18,730		5.0
Tangible Capital (to Tangible Assets) Irwin Union Bank, F.S.B.			39,636		10.6			5,619		1.5			N/A

Note 18 — Fair Values of Financial Instruments

      Fair value estimates, methods and assumptions are set forth below for our financial instruments:

      Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate fair values.

      Interest-bearing deposits with financial institutions, Deposit liabilities, Short-term borrowings, and Long-term and collateralized debt: The fair values were estimated by discounting cash flows, using interest rates currently being offered for like assets and like liabilities with similar terms.

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      Loans and leases and loans held for sale: The fair values were estimated by discounting cash flows, using interest rates currently being offered for like assets with similar terms, to borrowers with similar credit quality, and for the same remaining maturities.

      Residual interests: The carrying amounts reported in the consolidated balance sheets for residual interests approximate those assets’ fair values. Fair value for residual interests is calculated using the methodologies specified in Note 1.

      Servicing assets: Fair value for servicing assets is calculated using the methodologies specified in Note 1.

      Investment securities: Fair values for investment securities were based on quoted market prices when available. For securities which had no quoted market prices, fair values were estimated by discounting future cash flows using current rates on similar securities. For FHLB and FRB stock, fair value is determined to be equal to cost as there is no readily determinable market value available for these securities.

      Derivative instruments: The carrying amounts reported in the consolidated balance sheets for derivative instruments approximate those assets’ fair values. The estimated fair values of derivative instruments are determined using third party statements.

      Off-balance sheet loan commitments and standby letters of credit had an immaterial estimated fair value at December 31, 2005 and 2004. As of December 31, 2005 and 2004, our loan commitments had a notional amount of $1.1 billion and $0.7 billion, respectively. Our standby letters of credit had a notional amount of $19.7 million and $24.6 million at December 31, 2005 and 2004, respectively.

      The estimated fair values of our financial instruments at December 31, were as follows:

	2005				2004
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	155,486	$	155,486	$	97,101	$	97,101
Interest-bearing deposits with financial institutions		62,921		62,489		58,936		58,755
Residual interests		22,116		22,116		56,101		56,101
Investment securities		104,771		104,756		108,222		108,232
Loans held for sale		1,293,519		1,295,803		890,711		895,840
Loans and leases, net of unearned discount		4,498,829		4,486,826		3,450,440		3,480,603
Servicing assets		295,754		327,075		367,032		371,887
Derivatives		12,787		12,787		6,400		6,400
Financial liabilities:
Deposits		3,898,993		3,804,199		3,395,263		3,337,705
Short-term borrowings		997,444		994,542		237,277		237,312
Collateralized debt		668,984		646,427		547,477		529,383
Other long-term debt		270,160		274,636		270,172		280,674
Derivatives		14,679		14,679		996		996

      The fair value estimates consider relevant market information when available. Because no market exists for a significant portion of our financial instruments, fair value estimates are determined based on present value of estimated cash flows and consider various factors, including current economic conditions and risk characteristics of certain financial instruments. Changes in factors, or the weight assumed for the various factors, could significantly affect the estimated values.

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      The fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of our long-term relationships with depositors and the benefit that results from the low cost funding provided by deposit liabilities. In addition, significant assets that were not considered financial instruments and were therefore not a part of the fair value estimates include accounts receivable and premises and equipment.

Note 19 — Shareholders’ Equity

      We have a stock plan that provides up to 300,000 shares of our common stock to be used to compensate Business Development Board members. During 2005 and 2004, 10,514 shares and 8,078 shares were issued at a weighted average price of $23.10 and $27.19, respectively, as part of this plan.

      We also have a stock plan to compensate our Directors with our common stock, if so elected, in lieu of cash for their annual retainer and meeting fees. The number of shares issued under the plan is based on the current market value of our common stock. In 2005 and 2004, respectively, we granted 5,710 and 8,784 shares under this plan at a weighted average fair value of $24.31 and $28.86. In addition, we have an employee stock purchase plan for all qualified employees. The plan provides for employees to purchase common stock through payroll deduction at approximately 85% of the current market value.

      We have two stock option plans (established in 1997 and 1992) that provide for the issuance of 2,840,000 shares of non-qualified and incentive stock options. In addition, the 2001 stock plan provides for the issuance of 4,000,000 of non-qualified and incentive stock options, stock appreciation rights, restricted stock, and phantom stock units. An additional 2,000,000 of stock appreciation rights may be granted under this plan. For all plans, the exercise price of each option, which has a ten-year life and a vesting period of 25% at grant and 25% at each anniversary date thereafter, is equal to the market price of our stock on the grant date. Outstanding stock options have been considered as common stock equivalents in the computation of diluted earnings per share. In 2005 and 2004, we awarded 28,605 shares and 12,901 shares of common stock in restricted stock grants at a weighted average fair value of $20.71 and $26.35 through this plan, respectively.

      In December 2005, our Board of Directors approved a plan to accelerate the vesting of certain outstanding stock options with exercise prices above the stock price at the time vesting was accelerated (“underwater options”). Based on this action, 263 thousand unvested employee stock options granted in 2003 and 2004 with an exercise price above $21.56 became exercisable. As a result of this accelerated vesting, the pro forma stock-based compensation expense for the fourth quarter of 2005 increased by $1.4 million pre-tax.

      Activity in the above plans for 2005, 2004, and 2003 is summarized as follows:

		2005					2004					2003
					Weighted					Weighted					Weighted
		Number of			Average		Number of			Average		Number of			Average
		Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Outstanding at the beginning of the year			2,228,331		$	20.08		2,170,791		$	19.28		2,083,156		$	17.22
	Granted		399,475			20.53		374,501			24.44		574,421			22.36
	Exercised		(117,814	)		10.56		(249,175	)		19.15		(420,118	)		13.30
	Canceled		(68,221	)		22.58		(67,786	)		21.75		(66,668	)		19.18
Outstanding at the of the year			2,441,771			20.55		2,228,331			20.08		2,170,791			19.28
Exercisable at the end of the year			2,137,488		$	20.53		1,609,867		$	19.27		1,428,465		$	18.70

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      The table below shows options outstanding and exercisable by price range as of December 31, 2005.

	OPTIONS OUTSTANDING						OPTIONS EXERCISABLE
			Weighted
	Number		Average		Weighted		Number		Weighted
	Outstanding as of		Remaining		Average		Exercisable as of		Average
Range of Exercise Prices	December 31, 2005		Contractual Life		Exercise Price		December 31, 2005		Exercise Price
$10.66 - 15.65		500,620		4.46	$	14.63		500,620	$	14.63
$15.81 - 20.47		636,703		7.43		19.22		364,144		18.32
$20.47 - 22.46		659,628		6.73		22.07		640,816		22.09
$22.63 - 25.68		500,006		6.57		24.09		487,294		24.07
$25.84 - 31.44		144,814		4.91		27.67		144,614		27.66
$10.66 - 31.44		2,441,771		6.30	$	20.55		2,137,488	$	20.53

Note 20 — Earnings Per Share

      Earnings per share calculations are summarized as follow:

		Basic		Effect of			Effect of			Diluted
		Earnings		Stock			Convertible			Earnings
		Per Share		Options			Shares			Per Share
		(In thousands, except per share amounts)
Year ended December 31,
2005
	Net income available to common shareholders	$	18,987	$	—		$	—		$	18,987
	Shares		28,518		323			—			28,841
	Per-share amount	$	0.67	$	(0.01	)	$	—		$	0.66
2004
	Net income available to common shareholders	$	68,445	$	—		$	2,712		$	71,157
	Shares		28,274		397			2,607			31,278
	Per-share amount	$	2.42	$	(0.03	)	$	(0.11	)	$	2.28
2003
	Net income available to common shareholders	$	72,817	$	—		$	2,715		$	75,532
	Shares		27,915		325			2,610			30,850
	Per-share amount	$	2.61	$	(0.03	)	$	(0.13	)	$	2.45

      In 2005, 2004 and 2003, there were 1.4 million, 0.1 million and 0.4 million shares, respectively, related to stock options that were not included in the dilutive earnings per share calculation because they had exercise prices above the stock price as of the respective dates. Also, the effect of convertible shares was not included in the 2005 diluted calculation because they were antidilutive.

Note 21 — Income Taxes

      In the U.S., the Corporation and our subsidiaries file and pay federal taxes as a consolidated entity. Our subsidiary, Irwin Commercial Finance Canada Corporation, f/k/a Onset Capital Corporation, (and related entities) files and pays taxes to certain Canadian revenue authorities.

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      Our provision for tax expense is based on analysis of our current and future tax liabilities. Income tax expense is summarized as follows:

		2005			2004			2003
		(Dollars in thousands)
Current:
	Federal	$	24,760		$	23,530		$	(254	)
	State		6,724			6,378			384
	Foreign		1,287			3,639			2,196
			32,771			33,547			2,326
Deferred:
	Federal		(19,171	)		10,126			36,627
	State		(4,570	)		2,414			8,732
	Foreign		(48	)		(355	)		(2,100	)
			(23,789	)		12,185			43,259
Income tax expense:
	Federal		5,589			33,656			36,373
	State		2,154			8,792			9,116
	Foreign		1,239			3,284			96
		$	8,982		$	45,732		$	45,585

      A reconciliation of income tax expense to the amount computed by applying the statutory income tax rate of 35% to income before income taxes is summarized as follows:

		2005			2004			2003
		(Dollars in thousands)
Income taxes computed at the statutory rate		$	9,789		$	39,962		$	41,441
Increase (decrease) resulting from:
	Nontaxable interest from investment securities and loans		(117	)		(107	)		(115	)
	State tax, net of federal benefit		1,400			5,714			5,926
	Foreign operations		183			1,860			(1,112	)
	Reserve release(1)		(1,870	)		(2,832	)		(1,173	)
	Other items-net		(403	)		1,135			618
		$	8,982		$	45,732		$	45,585

⁽¹⁾  During 2005, we released $1.9 million in tax reserves at the parent company to align our tax liability to a level commensurate with our currently identified tax exposures. The majority of the reserves related to our 2001 tax returns. The statute on these returns expired during the third quarter of 2005 triggering the reversal of these reserves.

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      Our net deferred tax liability, which is included in other liabilities on the consolidated balance sheet, consisted of the following:

		December 31,
		2005			2004
		(Dollars in thousands)
Deferred tax assets:
	Deferred securitization income	$	242		$	—
	Allowance for loan and lease losses		30,292			24,247
	Deferred compensation		1,740			8,929
	Retirement benefits		300			331
	Leasing		4,223			3,295
	Mark to market		4,077			4,746
	Capital loss carryforward (expires 2008)		224			227
	Other, net		1,219			1,541
			42,317			43,316
Deferred tax liabilities:
	Mortgage servicing		(108,744	)		(134,414	)
	Deferred securitization income		—			(1,433	)
	Deferred origination fees and costs		(3,376	)		(1,525	)
	Fixed assets		(5,020	)		(4,556	)
			(117,140	)		(141,928	)
	Net deferred tax liability	$	(74,823	)	$	(98,612	)

Note 22 — Employee Retirement Plans

      We have contributory retirement and savings plans that cover all eligible employees and meets requirements of Section 401(k) of the Internal Revenue Code. Employees’ contributions to the plan are matched 60% by us up to 5% of the employee’s compensation.

      The matching vests 20% after one year, 40% after two years, 60% after three years, 80% after four years, and 100% after 5 years. The expense to match employee contributions for the years ended December 31, 2005, 2004 and 2003 was $4.1 million, $3.6 million and $2.7 million, respectively.

      We have a defined benefit plan currently covering eligible employees of our commercial banking segment and the parent company. The benefits are based on years of service and the employees’ compensation during their employment. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We use December 31 as the measurement date for our plan.

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      The following table sets forth amounts recognized in our balance sheet:

		December 31,
		2005			2004
		(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1,		$	29,348		$	24,321
Service cost			2,856			2,127
Interest cost			1,741			1,488
Actuarial loss			2,962			2,040
Benefits paid			(844	)		(628	)
Benefit obligation at December 31,			36,063			29,348
Change in plan assets:
Fair value plan assets at January 1,			24,407			20,552
Actual return on plan assets			2,197			2,383
Benefits paid			(844	)		(628	)
Employer contributions			2,939			2,100
	Fair value plan assets at December 31,		28,699			24,407
	Funded status		(7,364	)		(4,941	)
Unrecognized prior service cost			273			310
Unrecognized net actuarial loss			11,449			9,459
	Net amount recognized as prepaid pension cost	$	4,358		$	4,828

      The accumulated benefit obligation for our plan was $28.3 million and $23.8 million at December 31, 2005 and 2004, respectively.

      The net pension cost for 2005, 2004 and 2003 included the following components:

		2005			2004			2003
		(Dollars in thousands)
Service cost		$	2,856		$	2,127		$	1,395
Interest cost			1,741			1,488			1,295
Expected return on plan assets			(1,912	)		(1,605	)		(1,252	)
Amortization of prior service cost			37			37			37
Amortization of actuarial loss			687			638			684
	Net pension cost	$	3,409		$	2,685		$	2,159

      Weighted average assumptions:

		2005			2004
To determine benefit obligations at December 31,
	Discount rate		5.50	%		5.75	%
	Rate of average compensation increase		4.18			3.83
To determine net periodic cost for the years ended December 31,
	Discount rate		5.75	%		6.00	%
	Return on plan assets		8.00			8.00
	Rate of average compensation increase		4.18			3.83

      To develop the expected long-term rate of return on plan assets assumption, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the

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pension portfolio. This resulted in the selection of the 8.00% long-term rate of return on assets assumption listed above. The discount rate used in determining the benefit obligation is selected by reference to the year-end Moody’s AA rate.

Plan Assets

      Our pension plan asset allocation at December 31, 2005, and 2004, and target allocation for 2006, by asset category are as follows:

		Percentage of
		Plan Assets
								Target Allocation
Asset Category		2005			2004			2006
Equity securities
	Domestic		50	%		51	%		50-65	%
	International		23			23			15-25	%
Corporate bonds			16			17			15-25	%
Cash equivalents			11			9			0-10	%
			100	%		100	%

      Each mutual fund in which the portfolio invests will be reviewed on a quarterly basis and rebalanced back to the normal weighting if the actual weighting varies by 2% or more from the targeted weighting. The allocation of assets in the portfolio may deviate from target allocation when market conditions warrant. Such deviations are designed primarily to reduce overall investment risk in the long term. In addition, allocations may deviate from target shortly after cash contributions are made to the plan, but prior to the rebalancing of these portfolios.

      The portfolio will be managed in a style-neutral manner that seeks to minimize principal fluctuations over the established time horizon and that is consistent with the portfolio’s stated objectives. Over the long-term, the investment objectives for this portfolio shall be to achieve an average total annual rate of return that consists of the Consumer Price Index (CPI) plus 6% for the aggregate investments. Returns may vary significantly from this target year to year.

Cash Flows

      Included in the cash equivalents are contributions we made of $2.9 million and $2.1 million to the plan on December 31, 2005 and 2004, respectively. These cash contributions were invested in early January of the subsequent year based on our target allocations. Since these cash contributions had not yet been reinvested at December 31, 2005, the percentage of plan assets by category above is skewed. We currently do not expect to make a contribution to the pension plan in 2006.

      Outflows from the plan are dependent on a number of factors, principally the retirement date; earnings at retirement; and the draw period for retirees. Our current estimated future benefit payments are as follows (in thousands):

2006	$	753
2007		818
2008		963
2009		1,154
2010		1,369
Years 2011-2015		9,668

Note 23 — Industry Segment Information

      We have four principal segments that provide a broad range of financial services throughout the United States and Canada. The Commercial Banking line of business provides commercial banking services.

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The Commercial Finance line of business leases and loans against commercial equipment and real estate. The Home Equity Lending line of business originates and services home equity loans. The Mortgage Banking line of business originates, sells, and services residential first mortgage loans. Given the change in our strategy and in the materiality of the Venture Capital line of business to the consolidated results, we have discontinued reporting it as a separate segment. Our other segment now primarily includes the parent company, Venture Capital line of business and eliminations.

      The accounting policies of each segment are the same as those described in the “Summary of Significant Accounting Policies.” Below is a summary of each segment’s revenues, net income, and assets for 2005, 2004, and 2003:

		Commercial		Commercial			Home Equity			Mortgage
		Banking		Finance			Lending			Banking			Other			Consolidated
		(Dollars in thousands)
2005
Net interest income		$	95,131	$	29,392		$	104,645		$	46,670		$	(36,800	)	$	239,038
Intersegment interest			10,341		(1,920	)		(32,166	)		(9,449	)		33,194			—
Other revenue			16,686		7,437			33,667			64,833			(2,137	)		120,486
Intersegment revenues			259		—			—			430			(689	)		—
	Total net revenues		122,417		34,909			106,146			102,484			(6,432	)		359,524
Other expense			75,347		21,453			99,119			126,127			9,509			331,555
Intersegment expenses			1,715		771			3,220			3,424			(9,130	)		—
	Income (loss) before taxes		45,355		12,685			3,807			(27,067	)		(6,811	)		27,969
Income taxes			17,976		5,252			1,555			(10,891	)		(4,910	)		8,982
	Net income (loss)	$	27,379	$	7,433		$	2,252		$	(16,176	)	$	(1,901	)	$	18,987
Assets at December 31,		$	3,162,398	$	831,657		$	1,602,400		$	1,306,041		$	(255,972	)	$	6,646,524
2004
Net interest income		$	84,318	$	21,286		$	110,601		$	42,120		$	(20,442	)	$	237,883
Intersegment interest			1,992		—			(15,987	)		(1,017	)		15,012			—
Other revenue			17,749		6,275			67,847			197,954			(6,296	)		283,529
Intersegment revenues			567		—			—			17			(584	)		—
	Total net revenues		104,626		27,561			162,461			239,074			(12,310	)		521,412
Other expense			63,656		18,091			111,856			200,693			12,939			407,235
Intersegment expenses			1,794		691			2,923			3,512			(8,920	)		—
	Income (loss) before taxes		39,176		8,779			47,682			34,869			(16,329	)		114,177
Income taxes			15,752		5,562			19,615			14,603			(9,800	)		45,732
	Net income (loss)	$	23,424	$	3,217		$	28,067		$	20,266		$	(6,529	)	$	68,445
Assets at December 31,		$	2,622,877	$	636,604		$	992,979		$	1,238,136		$	(254,776	)	$	5,235,820

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		Commercial			Commercial			Home Equity			Mortgage
		Banking			Finance			Lending			Banking			Other			Consolidated
		(Dollars in thousands)
2003
Net interest income		$	78,785		$	12,180		$	84,875		$	80,169		$	(31,707	)	$	224,302
Intersegment interest			(5,683	)		(722	)		(7,905	)		(8,522	)		22,832			—
Other revenue			21,071			5,868			(19,525	)		326,000			(27,271	)		306,143
Intersegment revenues			—			—			—			—			—			—
	Total net revenues		94,173			17,326			57,445			397,647			(36,146	)		530,445
Other expense			55,196			14,539			87,771			265,118			(10,581	)		412,043
Intersegment expenses			1,503			533			2,767			2,762			(7,565	)		—
	Income (loss) before taxes		37,474			2,254			(33,093	)		129,767			(18,000	)		118,402
Income taxes			14,997			461			(13,203	)		51,667			(8,337	)		45,585
	Net income (loss)	$	22,477		$	1,793		$	(19,890	)	$	78,100		$	(9,663	)	$	72,817
Assets at December 31,		$	2,203,965		$	474,915		$	1,070,634		$	1,258,641		$	(19,796	)	$	4,988,359

Note 24 — Irwin Financial Corporation (Parent Only) Financial Information

      The condensed financial statements of the parent company as of December 31, 2005 and 2004, and for the three years ended December 31, 2005 are presented below:

Condensed Balance Sheets

		December 31,
		2005			2004
		(Dollars in thousands)
Assets:
	Cash and short-term investments	$	284		$	1,111
	Investment in bank subsidiary		679,447			624,168
	Investments in non-bank subsidiaries		(33,300	)		32,279
	Loans to bank subsidiaries		65,640			82,629
	Loans to non-bank subsidiaries		72,091			52,813
	Other assets		19,778			25,976
		$	803,940		$	818,976
Liabilities:
	Short-term borrowings with non-bank subsidiaries	$	19,157		$	28,181
	Long-term debt		270,125			270,125
	Other liabilities		2,324			19,485
			291,606			317,791
Shareholders’ equity:
	Common stock		112,000			112,000
	Other shareholders’ equity		400,334			389,185
			512,334			501,185
		$	803,940		$	818,976

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Condensed Statements of Income

		For the Year Ended December 31,
		2005			2004			2003
		(Dollars in thousands)
Income:
	Dividends from non-bank subsidiaries	$	1,417		$	—		$	686
	Dividends from bank subsidiary		50,000			66,000			—
	Interest income		4,218			7,142			4,964
	Other		15,615			10,369			7,721
			71,250			83,511			13,371
Expenses:
	Interest expense		23,983			24,101			28,917
	Salaries and benefits		9,973			9,555			6,491
	Other		6,191			6,584			5,056
			40,147			40,240			40,464
Income before income taxes and equity in undistributed income of subsidiaries			31,103			43,271			(27,093	)
Income tax benefit, less amounts charged to subsidiaries			(9,900	)		(12,686	)		(13,081	)
			41,003			55,957			(14,012	)
Equity in undistributed income of subsidiaries			(22,016	)		12,488			86,829
Net income		$	18,987		$	68,445		$	72,817

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Condensed Statements of Cash Flows

				For the Year Ended December 31,
				2005			2004			2003
				(Dollars in thousands)
Net income				$	18,987		$	68,445		$	72,817
Adjustments to reconcile net income to cash provided by operating activities:
	Equity in undistributed income of subsidiaries				22,016			(12,488	)		(86,829	)
	Depreciation and amortization				2,652			727			2,529
	(Decrease) increase in taxes payable				(11,442	)		18,316			(13,778	)
	Decrease (increase) in interest receivable				661			(247	)		1,208
	(Decrease) increase in interest payable				(176	)		(62	)		53
			Net change in other assets and other liabilities		(8,847	)		2,725			(11,277	)
	Net cash provided (used) by operating activities				23,851			77,416			(35,277	)
Lending and investing activities:
	Net (increase) decrease in loans to subsidiaries				(2,289	)		(46,046	)		22,518
	Investments in subsidiaries				(5,081	)		(15,575	)		(10,286	)
	Net (purchases) sales of premises and equipment				15			(189	)		(121	)
			Net cash (used) provided by lending and investing activities		(7,355	)		(61,810	)		12,111
Financing activities:
	Net (decrease) increase in borrowings				(9,024	)		(17,680	)		28,252
	Proceeds from long-term debt				51,750			—			51,547
	Payments of long-term debt				(51,750	)		—			(51,629	)
	Purchase of treasury stock				(1,201	)		(407	)		(4,201	)
	Proceeds from sale of stock for employee benefit plans				3,277			7,836			9,777
	Dividends paid				(11,426	)		(9,065	)		(7,832	)
			Net cash (used) provided by financing activities		(18,374	)		(19,316	)		25,914
	Net (decrease) increase in cash and cash equivalents				(1,878	)		(3,710	)		2,748
	Effect of exchange rate changes on cash				1,051			98			228
	Cash and cash equivalents at beginning of year				1,111			4,723			1,747
	Cash and cash equivalents at end of year			$	284		$	1,111		$	4,723
Supplemental disclosures of cash flow information:
	Cash paid during the year:
		Interest		$	24,159		$	24,039		$	27,709
		Income tax payments		$	14,920		$	9,954		$	42,971
	Non cash transactions:
		Conversion of trust preferred to common stock		$	—		$	—		$	83

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Note 25 — Subsequent Event

      In January 2006, we announced that we were considering strategic alternatives for the conventional first mortgage business, including the potential sale of the mortgage banking line of business. We believe that our mortgage banking line of business, particularly our servicing activities, have grown to a size where we believe they can be managed and grown more effectively within another organization. We are actively searching for an alternative home for the segment and its employees.

      On February 3, 2006, we issued a call notice on securities underlying IFC Capital Trust III, from which $51.7 million of 8.75 percent convertible trust preferred securities were issued and remain outstanding. The redemption date is March 6, 2006. In lieu of redemption for cash, the trust preferred securities are convertible at the option of the holder into common stock at any time prior to the redemption date at a ratio of 1.2610 common shares per share of convertible trust preferred, which equates to a common stock conversion price of $19.825 per share.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

      As of December 31, 2005, we performed an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2005.

Management’s Report on Internal Control Over Financial Reporting

      Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

      As of December 31, 2005, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that internal control over financial reporting as of December 31, 2005 was effective.

      Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm that also audited our financial statements, as stated to in their report which is provided in Item 8 of this Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

      Except as noted below, there were no changes in the Corporation’s internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities and Exchange Act of 1934 that occurred during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, Corporation’s internal control over financial reporting.

      However, in November and December of 2005 the Corporation took corrective actions to remediate the material weakness identified in our 2004 10-K/ A. The Corporation designed, documented and tested additional controls over the selection and application of generally accepted accounting principles relative to incentive servicing fees received from whole loan sales to third parties. As a result of these actions, management of the Corporation believes this material weakness has been satisfactorily remediated.

Item 9B.      Other Information

      On November 18, 2005, we amended the operating agreement of Irwin Ventures, LLC, the captive fund through which we make venture investments. The fund agreement compensates the fund managers, including our Chairman and Chief Executive Officer, William I. Miller, and Executive Vice President Thomas D. Washburn, with a carried interest that is generally equal to 20% of the net profits earned by the fund from portfolio investments. By reason of the amendment, the carried interest will not apply to new investments made after January 1, 2005. It will continue to apply to investments made before January 1, 2005 and to follow-on investments in those portfolio companies.

      We also amended the related co-investment vehicle through which certain executives of the Corporation could elect to defer a portion of their annual bonus and have the deferred portion invested in the venture fund. For 2005 and after, the opportunity to invest bonus dollars in the venture fund will no longer be available to our executives. Executives who previously participated in this program will not have any interest in new investments made by the venture fund after January 1, 2005.

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PART III

Item 10. Directors and Executive Officers of the Corporation

      The information contained in our proxy statement for the 2006 Annual Meeting of Shareholders under the headings “Compliance with Section 16(a) of the Securities Exchange Act of 1934,” “Corporate Governance” (including subsections), “Director Meetings — Standing Committees and Committee Membership: Audit and Risk Management Committee,” and “Report of the Audit and Risk Management Committee” is incorporated herein by reference in response to this item. See also the heading “Executive Officers” section in Part I, Item 1, “Business” of this Report on Form 10-K.

      The following documents are posted on the Investor Relations (Corporate Governance) section of our website at www.irwinfinancial.com:

•  Our Code of Conduct (our code of business conduct and ethics), which is applicable to our directors, officers, and employees, including our Chief Executive Officer (principal executive officer), our Chief Financial Officer (principal financial officer) and our Controller (principal accounting officer). Our Code of Conduct is attached as Exhibit 14.1 to this Report on Form 10-K. Amendments to or waivers for executive officers or directors from our Code of Conduct will be posted on our website.

•  Our Audit and Risk Management Committee Charter, which is Appendix A to our Proxy Statement.

•  Our Compensation Committee Charter.

•  Our Governance (nominating) Committee Charter.

      The Code of Conduct and the above-mentioned charters, together with our Corporate Governance Principles (corporate governance guidelines), are available in print to any shareholder who makes a request in writing to: Sue Elliott, Finance Department, Irwin Financial Corporation, 500 Washington Street, Columbus, IN 47201.

Item 11. Executive Compensation

      The information contained in our proxy statement for the 2006 Annual Meeting of Shareholders under the headings “— Compensation — Outside Director Compensation,” and “Executive Compensation and Related Information” (including subsections) is incorporated herein by reference in response to this item.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The information contained in our proxy statement for the 2006 Annual Meeting of Shareholders under the headings “Principal Holders of Irwin Financial Securities,” “Securities Ownership of Directors and Management,” “Equity Compensation Plan Information,” and “Equity Compensation Plans Adopted without Approval of Security Holders,” is incorporated herein by reference in response to this item.

Item 13. Certain Relationships and Related Transactions

      The information contained in our proxy statement for the 2006 Annual Meeting of Shareholders under the heading “Interest of Management in Certain Transactions” (including subsections) is incorporated herein by reference in response to this item.

Item 14. Principal Accountants Fees and Services.

      The information contained in our proxy statement for the 2006 Annual Meeting of Shareholders under the heading “Independent Public Accountants” (including subsections) is incorporated herein by reference in response to this item.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report.

      1. Financial Statements

      Management Report on Responsibility for Financial Reporting

      Report of Independent Registered Public Accounting Firm

      Irwin Financial Corporation and Subsidiaries

      Consolidated Balance Sheets for the years ended 2005 and 2004

Consolidated Statements of Income for the years ended 2005, 2004 and 2003

Consolidated Statements of Changes in Shareholders’ Equity for the years ended 2005, 2004, and 2003

Consolidated Statements of Cash Flows for the years ended 2005, 2004, and 2003

      Notes to Consolidated Financial Statements

      2. Financial Statement Schedules

      None

      3. Exhibits to Form 10-K

Exhibit
Number			Description of Exhibit
	3	.1	Restated Articles of Incorporation of Irwin Financial Corporation, as amended April 7, 2005. (Incorporated by reference to Exhibit 3.1 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)
	3	.2	Code of By-laws of Irwin Financial Corporation, as amended, May 4, 2005. (Incorporated by reference to Exhibit 3.2 of Form 10-Q Report for the quarter ended June 30, 2005, File No. 001-16691.)
	4	.1	Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4(a) to Form 10-K report for year ended December 31, 1994, File No. 0-06835.)
	4	.2	Certain instruments defining the rights of the holders of long-term debt of Irwin Financial Corporation and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits. The Corporation hereby agrees to furnish a copy of any of these agreements to the Commission upon request.
	4	.3	Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank and Trust. (Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No. 000-06835.)
	4	.4	Appointment of Successor Rights Agent dated as of May 11, 2001 between Irwin Financial Corporation and National City Bank. (Incorporated by reference to Exhibit 4.5 to Form S-8 filed on September 7, 2001, File No. 333-69156.)
	10	.1	*Irwin Financial Corporation 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(h) to Form 10-K Report for year ended December 31, 1992, File No. 000-06835.)
	10	.2	*Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10 to Form 10-Q Report for period ended June 30, 1994, File No. 000-06835.)
	10	.3	*Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10(i) to Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)

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Exhibit
Number			Description of Exhibit
	10	.4	*Irwin Financial Corporation Amended and Restated 2001 Stock Plan. (Incorporated by reference to Exhibit 1 to the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.5	*Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement. (Incorporated by reference to Exhibit 99.1 of the Corporation’s 8-K Current Report, dated May 9, 2005, File No. 001-16691.)
	10	.6	*Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 99.2 of the Corporation’s 8-K Current Report, dated May 9, 2005, File No. 001-16691.)
	10	.7	*Irwin Financial Corporation Amended and Restated 2001 Stock Plan revised August 24, 2005 (Incorporated by reference to Exhibit 10.7 of the Corporation’s 10-Q Report for period ended September 30, 2005, File No. 001-16691.)
	10	.8	*Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement (Canada) (Incorporated by reference to Exhibit 10.8 of the Corporation’s 10-Q Report for period ended September 30, 2005, File No. 001-16691.)
	10	.9	*Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated by reference to Exhibit 2 to the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.10	*Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for period ended June 30, 1999, File No. 000-06835.)
	10	.11	*Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year ended December 31, 1986, File No. 000-06835.)
	10	.12	*Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year ended December 31, 1986, File No. 000-06835.)
	10	.13	*Inland Mortgage Corporation Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(j) to Form 10-K Report for year ended December 31, 1995, File No. 000-06835.)
	10	.14	*Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year ended December 31, 1986, File No. 000-06835.)
	10	.15	*Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit 10(a) to Form 10-Q/A Report for period ended March 31, 2001, File No. 000-06835.)
	10	.16	*Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC, effective as of April 20, 2001. (Incorporated by reference to Exhibit 10.17 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
	10	.17	*Promissory Note dated January 30, 2002 from Elena Delgado to Irwin Financial Corporation. (Incorporated by reference to Exhibit 10.19 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
	10	.18	*Consumer Pledge Agreement dated January 30, 2002 between Elena Delgado and Irwin Financial Corporation. (Incorporated by reference to Exhibit 10.20 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
	10	.19	*Redemption and Loan Repayment Agreement dated December 22, 2004 between Irwin Financial Corporation, Irwin Home Equity Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.15 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.20	*Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.16 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.21	*Deferred Compensation Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.17 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)

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Exhibit
Number			Description of Exhibit
	10	.22	*Tax Gross-up Agreement dated December 22, 2004 between Irwin Financial Corporation and Elena Delgado as Shareholder. (Incorporated by reference to Exhibit 10.18 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.23	*Amendment No. 1 to Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated April 7, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.19 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)
	10	.24	*Amendment No. 1 to the Deferred Compensation Agreement dated April 7, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.20 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)
	10	.25	*Amendment No. 2 to the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 99.1 of Form 8-K Current Report dated November 18, 2005, File No. 001-16691.)
	10	.26	*Election to Terminate the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 99.2 of Form 8-K Current Report dated November 18, 2005, File No. 001-16691.)
	10	.27	*Irwin Financial Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002. (Incorporated by reference to Exhibit 3 to the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.28	*Irwin Commercial Finance Amended and Restated Short Term Incentive Plan. (Incorporated by reference to Exhibit 4 of the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.29	*Irwin Home Equity Amended and Restated Short Term Incentive Plan. (Incorporated by reference to Exhibit 5 to 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 Mortgage Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002. (Incorporated by reference to Exhibit 6 of the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.31	*Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan effective January 1, 2002. (Incorporated by reference to Exhibit 7 to the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.32	*Irwin Capital Holdings Short Term Incentive Plan effective January 1, 2002. (Incorporated by reference to Exhibit 10.25 to Form 10-Q Report for period ended March 31, 2002, File No. 000-06835.)
	10	.33	*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	.34	*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	.35	*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	.36	*Stock Purchase Agreement by and between Onset Holdings Inc. and Irwin International Corporation dated December 23, 2005.
	10	.37	*Shareholder Agreement Termination Agreement by and between Irwin Commercial Finance Canada Corporation and Irwin International Corporation dated December 23, 2005.
	10	.38	*Irwin Commercial Finance Corporation Shareholder Agreement dated December 23, 2005.

121

Exhibit
Number			Description of Exhibit
	10	.39	*Irwin Commercial Finance Corporation 2005 Stock Option Agreement Grant of Option to Joseph LaLeggia dated December 23, 2005.
	10	.40	*Irwin Commercial Finance Corporation 2005 Notice of Stock Option Grant to Joseph LaLeggia dated December 23, 2005.
	10	.41	*Irwin Union Bank Amended and Restated Performance Unit Plan
	10	.42	*Irwin Commercial Finance Amended and Restated Performance Unit Plan
	10	.43	*Irwin Home Equity Corporation Performance Unit Plan
	10	.44	*First Amendment to Limited Liability Company Agreement of Irwin Ventures LLC
	10	.45	*Second Amendment to Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC
	11	.1	Computation of Earnings Per Share.
	12	.1	Computation of Ratio of Earnings to Fixed Charges.
	14	.1	Code of Conduct.
	21	.1	Subsidiaries of Irwin Financial Corporation.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	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

122

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the Undersigned, thereunto duly authorized.

IRWIN FINANCIAL CORPORATION

Date: March 3, 2006

By:  /s/ William I. Miller

William I. Miller

Chairman of the Board and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Corporation and in the capacities on the dates indicated.

Signature	Capacity with Corporation	Date
/s/ Sally A. Dean Sally A. Dean	Director	March 3, 2006
/s/ David W. Goodrich David W. Goodrich	Director	March 3, 2006
/s/ R. David Hoover R. David Hoover	Director	March 3, 2006
/s/ William H. Kling William H. Kling	Director	March 3, 2006
/s/ Brenda J. Lauderback Brenda J. Lauderback	Director	March 3, 2006
/s/ John C. McGinty, Jr John C. McGinty, Jr	Director	March 3, 2006
/s/ William I. Miller William I. Miller	Director, Chairman of the Board and Chief Executive Officer  (principal executive officer)	March 3, 2006
/s/ Lance R. Odden Lance R. Odden	Director	March 3, 2006
/s/ Theodore M. Solso Theodore M. Solso	Director	March 3, 2006
/s/ Marita Zuraitis Marita Zuraitis	Director	March 3, 2006
/s/ Gregory F. Ehlinger Gregory F. Ehlinger	Senior Vice President and Chief Financial Officer  (principal financial officer)	March 3, 2006
/s/ Jody A. Littrell Jody A. Littrell	Vice President and Controller  (principal accounting officer)	March 3, 2006

123 EX-10.36 2 c02691exv10w36.htm STOCK PURCHASE AGREEMENT

Exhibit 10.36

STOCK PURCHASE AGREEMENT

BY AND BETWEEN

ONSET HOLDINGS INC.
(“Seller”)

AND

IRWIN INTERNATIONAL CORPORATION
(“Buyer”)

December 23, 2005

Relating to the Purchase and Sale of the Capital Stock

of

Irwin Commercial Finance Canada Corporation

TABLE OF CONTENTS

		Page
ARTICLE 1 PURCHASE AND SALE OF THE SHARES		1
SECTION 1.1.	Purchase and Sale of the Shares.	1
SECTION 1.2.	Closing.	1
SECTION 1.3.	Payment of Purchase Price.	2
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SELLER		2
SECTION 2.1.	Title.	2
SECTION 2.2.	Authorization, Execution and Delivery.	2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BUYER		3
SECTION 3.1.	Authorization, Execution and Delivery.	3
SECTION 3.2.	Investment Intent; Sophistication.	3
ARTICLE 4 CONDITIONS PRECEDENT		3
SECTION 4.1.	Conditions Precedent to Obligations of the Buyer.	3
SECTION 4.2.	Conditions Precedent to Obligations of the Seller.	4
ARTICLE 5 MISCELLANEOUS		4
SECTION 5.1.	Further Assurances.	4
SECTION 5.2.	Notices.	4
SECTION 5.3.	Termination.	5
SECTION 5.4.	Expenses.	5
SECTION 5.5.	Governing Law.	5
SECTION 5.6.	Partial Invalidity.	5
SECTION 5.7.	Successors and Assigns.	5
SECTION 5.8.	Execution in Counterparts.	5
SECTION 5.9.	Titles and Headings.	6
SECTION 5.10.	Entire Agreement; Amendments and Waivers.	6

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STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of December 23, 2005, is by and between Onset Holdings Inc. (the “Seller”), and Irwin International Corporation (the “Buyer”). The Seller and the Buyer are sometimes referred to herein collectively as the “Parties” and each individually as a “Party.”

W I T N E S S E T H:

     WHEREAS, the Seller owns twenty-three (23) common shares, without par value (“Common Stock”), of Irwin Commercial Finance Canada Corporation (the “Company”);

     WHEREAS, the Buyer is the parent company of the Company; and

     WHEREAS, the Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller, all of the shares of Common Stock owned by the Company (the “Shares”) on the terms and subject to the conditions specified herein.

     NOW, THEREFORE, in consideration of the agreements contained herein the Parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1
PURCHASE AND SALE OF THE SHARES

SECTION 1.1. Purchase and Sale of the Shares. In reliance upon the representations and warranties contained herein and subject to the conditions specified herein, the Seller hereby agrees to sell to the Buyer, and the Buyer hereby agrees to purchase from the Seller, the Shares for a purchase price of $99,158.31 per share equaling an aggregate purchase price of $2,280,641.13 (the “Purchase Price”) at the Closing (as defined below).

SECTION 1.2. Closing. Subject to satisfaction or waiver of the conditions set forth herein, the closing shall take place at the offices of Irwin Financial Corporation, 500 Washington Street, Columbus, Indiana, on December 23, 2005, or at such other location, date and time as may be agreed upon between the Seller and the Buyer (such closing being referred to herein as the “Closing” and such date and time referred to as the “Closing Date”). At the Closing, the Seller shall deliver to the Buyer one or more stock certificates representing the Shares (the “Stock Certificates”), together with one or more stock powers duly completed for transfer to the Buyer, and in form satisfactory to the Buyer (the “Stock Powers”), against payment of the Purchase Price as provided for in Section 1.3 hereof.

SECTION 1.3. Payment of Purchase Price. As full and complete payment for the Shares, and against delivery of the Stock Certificates and Stock Powers, the Buyer shall deliver to the Seller the Purchase Price on Closing Date by wire transfer to a bank account specified in advance by the Seller.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller hereby represents and warrants to the Buyer as follows:

SECTION 2.1. Title.

     (a) The Seller has valid and unencumbered title to the Shares, free and clear of all liens, charges, restrictions, claims and encumbrances of any nature, other than restrictions on resale imposed under the Securities Act of 1933, as amended (the “Securities Act”), and restrictions on transfer pursuant to the Shareholders Agreement of the Company, dated November 1, 2002 (the “Shareholders Agreement”).

     (b) Except for this Agreement and the Shareholders Agreement, there are no agreements, arrangements, options, warrants, calls, rights or commitments of any character relating to the sale, purchase or redemption of the Shares.

     (c) The Shares constitute validly issued, fully paid and nonassessable common shares of the Company and, upon their sale to the Buyer in accordance with the terms hereof, the Buyer shall have good and marketable title to the Shares free and clear from all liens, charges, restrictions, claims and encumbrances of any nature, other than those imposed under the Securities Act, the Shareholders Agreement or through the acts of the Buyer.

SECTION 2.2. Authorization, Execution and Delivery. The Seller has full corporate power and authority to enter into this Agreement and to perform the Seller’s obligations hereunder. The execution, delivery and performance by the Seller of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Seller. This Agreement is the legal, valid and binding agreement of the Seller enforceable in accordance with its terms. Neither the execution and delivery of this Agreement by the Seller nor the consummation of the transactions contemplated hereby will (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default (or an event that with notice or lapse of time or both would constitute an event of default), or an event creating rights of termination or cancellation under (A) the organizational documents of the Seller or the Company, any instrument, agreement, mortgage, judgment, order, award, decree or other restriction to which the Seller is a party, except the Shareholders Agreement, or to which any of its properties is subject or by which it is bound, or (B) any statute, or other law or regulatory provision affecting it; or (ii) require the approval, consent or authorization of, or the making of any declaration,

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filing or registration with, any third party or any federal, state or local court, government authority or regulatory body.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER

     The Buyer hereby represents and warrants to the Seller as follows:

SECTION 3.1. Authorization, Execution and Delivery. The Buyer has full corporate power and authority to enter into this Agreement and to perform the Buyer’s obligations hereunder. The execution, delivery and performance by the Buyer of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Buyer. This Agreement is the legal, valid and binding agreement of the Buyer enforceable in accordance with its terms. Neither the execution and delivery of this Agreement by the Buyer nor the consummation of the transactions contemplated hereby will (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default (or an event that with notice or lapse of time or both would constitute an event of default), or an event creating rights of termination or cancellation under, (A) the organizational documents of the Buyer or the Company, any instrument, agreement, mortgage, judgment, order, award, decree or other restriction to which the Buyer is a party, except the Shareholders Agreement, or any of its properties is subject or by which it is bound or (B) any statute, or other law or regulatory provision affecting it; or (ii) require the approval, consent or authorization of, or the making of any declaration, filing or registration with, any third party or any federal, state or local court, government authority or regulatory body.

SECTION 3.2. Investment Intent; Sophistication. The Buyer is purchasing the Shares for purpose of investment and without a view toward distribution thereof in violation of applicable federal or state securities laws, including the Securities Act. The Buyer considers itself a sophisticated investor for purposes of applicable federal and state securities laws. The Buyer acknowledges that the Shares have not been registered under the Securities Act or applicable state securities laws, and may not be transferred absent such registration or the availability of an exemption from such registration.

ARTICLE 4
CONDITIONS PRECEDENT

SECTION 4.1. Conditions Precedent to Obligations of the Buyer. The obligations of the Buyer under this Agreement to be performed at the Closing shall, at the option of the Buyer, be subject to the satisfaction, on or prior to the Closing, of the following conditions:

     (a) Representations and Warranties True and Correct. Each of the representations and warranties of the Seller contained in this Agreement shall be true and correct in all material aspects as of the Closing Date as though made as of the Closing Date.

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     (b) No Restraint or Litigation. No action, suit, investigation or proceeding by any governmental agency shall have been instituted or threatened and no order by a court of competent jurisdiction shall have been issued that would restrain or prohibit or otherwise challenge the legality or validity of the transactions contemplated hereby.

SECTION 4.2. Conditions Precedent to Obligations of the Seller. The obligations of the Seller under this Agreement to be performed at the Closing shall, at the option of the Seller be subject to the satisfaction, on or prior to the Closing, of the following conditions:

     (a) Representations and Warranties True and Correct. Each of the representations and warranties of the Buyer contained in this Agreement shall be true and correct in all material respects as of the Closing Date as though made as of the Closing Date.

     (b) No Restraint or Litigation. No action, suit, investigation or proceeding by any governmental agency shall have been instituted or threatened and no order by a court of competent jurisdiction shall have been issued that would restrain or prohibit or otherwise challenge the legality or validity of the transactions contemplated hereby.

ARTICLE 5
MISCELLANEOUS

SECTION 5.1. Further Assurances. On and after the Closing Date each Party shall take such other actions and execute such other documents and instruments of conveyance and transfer as may be reasonably requested by the other party hereto from time to time to effectuate or confirm the transfer of the Shares to the Buyer in accordance with the terms of this Agreement.

SECTION 5.2. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by facsimile, by courier service, or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses:

          If to the Seller:

Onset Holdings Inc.
Suite 300, Park Place
666 Burrard Street
Vancouver, British Columbia V6C 2X8
Canada
Attn: Joe LaLeggia

          If to the Buyer:

Irwin International Corporation
500 Washington Street
Columbus, Indiana 47201
Attn: Thomas D. Washburn, Chairman

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Any Party hereto may specify a different address for such purpose by notice to the other Party in accordance with this Section 5.2.

SECTION 5.3. Termination. Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated at any time prior to the Closing:

     (a) by the mutual consent of the Seller and the Buyer; or

     (b) by the Buyer or the Seller if either such Party shall have reasonably determined that the transactions contemplated by this Agreement have become impracticable by reason of the institution of any litigation, proceeding or investigation to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or which questions the validity or legality of the transactions contemplated by this Agreement.

In the event that this Agreement shall be terminated pursuant to this Section 5.3, all further obligations of the Parties under this Agreement (other than those set forth in Section 5.4) shall terminate without further liability of either Party to the other, provided that nothing herein shall relieve either Party from liability for its breach of any of its covenants contained in this Agreement or for the inaccuracy of any of its representations or warranties under this Agreement.

SECTION 5.4. Expenses. Buyer will pay all costs and expenses incident to its negotiation and preparation of this Agreement and to performance and compliance with all agreements and conditions contained herein to be performed or complied with, including the fees, expenses and disbursements of counsel and accountants.

SECTION 5.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana without regard to principles of conflicts of laws thereof.

SECTION 5.6. Partial Invalidity. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable.

SECTION 5.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors or assigns.

SECTION 5.8. Execution in Counterparts. This Agreement may be executed in one or more counterparts each of which shall be considered an original counterpart,

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and shall become a binding agreement when each of the Parties shall have each executed one counterpart. This Agreement shall also be deemed duly executed, delivered and in full force and effect if (a) each of the Parties hereto has properly executed a signature page to this Agreement on which such Party’s signature is called for, and (b) each Party has transmitted such executed signature page by facsimile transmission or courier service to the other Parties to this Agreement. Each Party to this Agreement undertakes to any other Party that, in the event such Party executes this Agreement by means of executing and transmitting by facsimile transmission a signature page, such Party shall forthwith after such execution send by courier service to any other Party to this Agreement a copy of the signature page hand-signed by such Party, provided, however, that any failure to dispatch such signature page by courier as aforesaid shall not affect the validity and enforceability of this Agreement, and it shall be deemed to be in full force and effect.

SECTION 5.9. Titles and Headings.

     Titles and headings to Sections herein are inserted for convenience of reference only and are not intended to be a part of to affect the meaning or interpretation of this Agreement.

SECTION 5.10. Entire Agreement; Amendments and Waivers.

     This Agreement contains the entire understanding of the Parties hereto with regard to the subject matter contained herein and supersedes all prior negotiations, understandings and agreements with regard thereto. The Parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement. The failure of either Party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereto or the right of such Party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach.

[Remainder Of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, this Agreement is executed by the Parties as of the date first written above.

ONSET HOLDINGS INC.
By:	/s/ Joseph LaLeggia
	Joseph LaLeggia, President
IRWIN INTERNATIONAL CORPORATION
By:	/s/ Gregory F. Ehlinger
	Gregory F. Ehlinger, Senior Vice President
	and Chief Financial Officer

EX-10.36

exv10w36

EX-10.37

Exhibit 10.37

SHAREHOLDER AGREEMENT TERMINATION AGREEMENT

     This Shareholder Agreement Termination Agreement (this “Termination Agreement”) is made as of December 23, 2005 by and between IRWIN COMMERCIAL FINANCE CANADA CORPORATION (the “Company”) and IRWIN INTERNATIONAL CORPORATION (“IIC”, and together with the Company, the “Parties” and each a “Party”).

     WHEREAS, on November 1, 2002, the Parties and Onset Holdings, Inc. (“OHI”) entered into that certain Shareholder Agreement (the “Shareholder Agreement”);

     WHEREAS, OHI is no longer an owner of capital stock of the Company; and

     WHEREAS, the Parties desire to terminate the Shareholder Agreement immediately following IIC’s purchase of all of the common stock of the Company owned by Onset Holdings Inc. (the “Stock Purchase”), pursuant to the terms and conditions of this Termination Agreement;

     NOW, THEREFORE, in consideration of the above and the mutual covenants set forth in this Termination Agreement and other valuable consideration received by the Parties, the Parties agree as follows.

1. Termination. Immediately following the Stock Purchase, the Shareholder Agreement shall immediately terminate and thereafter the Parties shall have no further rights or obligations in connection therewith.

2. Release. Each Party and, if applicable, its respective directors, officers, employees, affiliates, parent organizations, subsidiaries, predecessors in interest, successors in interest, agents, and assigns, hereby releases the other Parties and, if applicable, its respective directors, officers, employees, affiliates, parent organizations, subsidiaries, predecessors in interest, successors in interest, agents, and assigns from any claim at law or equity, known or unknown, arising out of the Shareholder Agreement provided, however, that nothing herein shall release, waive or impair any right of any Party to enforce this Termination Agreement in accordance with its terms.

3. Applicable Law. This Termination Agreement shall be construed and enforced under and in accordance with, and shall be governed by, the laws of the State of Indiana, without regard to conflicts of laws principles.

4. Executed Counterparts as Same Instrument; Execution by Facsimile. This Termination Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Termination Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Termination Agreement.

5. Agreement Binding Upon Parties’ Successors. This Termination Agreement shall be binding upon and inure to the benefit of the Parties’ respective predecessors, successors, officers, employees, affiliates, parent organizations, subsidiaries, agents, and assigns.

6. Modifications Only in Writing. This Termination Agreement may not be modified or amended, except in writing signed by all Parties hereto.

7. Entire Agreement. This Termination Agreement constitutes the entire agreement by and among the Parties and there are no representations, warranties, covenants, or obligations except as set forth herein. This Termination Agreement supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, written or oral, of the Parties hereto, relating to the subject matter hereof or to any transactions contemplated hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

2

     IN WITNESS WHEREOF, the Parties have executed this Termination Agreement by their duly authorized representatives as of the date set forth above.

IRWIN COMMERCIAL FINANCE CANADA CORPORATION

By: /s/ Thomas D. Washburn   Thomas D. Washburn, Chairman

IRWIN INTERNATIONAL CORPORATION

By: /s/ Gregory F. Ehlinger   Gregory F. Ehlinger, Senior Vice President
and Chief Financial Officer

3

EX-10.38

Exhibit 10.38

IRWIN COMMERCIAL FINANCE CORPORATION
SHAREHOLDER AGREEMENT

     THIS SHAREHOLDER AGREEMENT (the “Agreement”) is entered into on the 23rd day of December 2005, by and among IRWIN COMMERCIAL FINANCE CORPORATION, an Indiana business corporation (“ICF”), IRWIN UNION BANK AND TRUST COMPANY, an Indiana commercial bank (“IUBT”), and JOE LALEGGIA, (“LaLeggia”), ROBERT MURPHY (“Murphy”), ROBERT MORMINA (“Mormina”), LUIGI SPIZZIRRI (“Spizzirri”), MARK CANNON (“Cannon”) and JOHN RINALDI (“Rinaldi,” and together with LaLeggia, Murphy, Mormina, Spizzirri and Cannon, the “Option Holders”; ICF, IUBT, LaLeggia, Murphy, Mormina, Spizzirri, Cannon and Rinaldi are sometime referred to herein as the “Parties”).

RECITALS

A. ICF (f/k/a IRWIN CAPITAL HOLDINGS CORPORATION) was incorporated under the laws of the State of Indiana on April 6, 2001, and is a direct subsidiary of IUBT and an indirect subsidiary of Irwin Financial Corporation (“Irwin Financial”).

B. Irwin Financial, a bank holding company, organizes and conducts its various operations through a line of business organizational structure, within which the majority of its separate businesses fund their operations through IUBT.

C. One of Irwin Financial’s business segments within this structure is the consolidated commercial finance line of business, including ICF and its subsidiaries.

D. The authorized capital stock of ICF consists of 1,500 shares of common stock, without par value (“Common Shares”), and 100,000 shares of preferred stock, without par value (“Preferred Shares”).

E. All of the other authorized Common Shares that are issued and outstanding are owned by IUBT.

G. Each Option Holder has been granted an option (each, an “Options”) to purchase Common Shares pursuant to an Irwin Commercial Finance Corporation Stock Option Agreement dated even date herewith (the “Stock Option Agreements”).

H. The parties desire to set forth their agreement regarding the terms and conditions relating to the ownership of any Common Shares that may be received by the Option Holders upon the exercise of any of the Options, the transfer of such Common Shares and restrictions thereon, and certain other matters concerning ownership of such Common Shares.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

1. DEFINITIONS

     1.1. In this Agreement (the “Agreement”):

          (a) “Affiliate” means, with respect to a specified Person:

               (i) any Person that is Controlled by the specified Person; or

               (ii) if the specified Person is not an individual, any Person that Controls the specified Person; or

               (iii) if the specified Person is not an individual, any Person under common Control with the specified Person.

          (b) “Board” means the board of directors of ICF;

          (c) “Control” means, with respect to any Person, the (i) ownership, control or power to vote, directly or indirectly, 25 percent or more of the outstanding shares of any class of voting securities of such Person (if such Person is a corporation); (ii) control in any manner over the right to elect or appoint directly or indirectly a majority of the directors of such Person (if such Person is a corporation); or (iii) the power to manage or supervise or otherwise exercise, directly or indirectly, a controlling influence over the management of the business and affairs of such Person;

          (d) A “day” means calendar day, except where otherwise specified. If the day upon which any act or event is to occur under this Agreement falls on a Saturday, Sunday or other day on which banks in the State of Indiana or the Province of British Columbia, Canada are closed, the action or event shall occur on the following day.

          (e) “Effective Date” means the date upon which a binding agreement of purchase and sale is formed between any of the Parties to this Agreement under the terms of this Agreement, pursuant to which one Party will purchase some or all of another Party’s Common Shares, and includes the date on which an Exercise Notice or Right of First Refusal Notice is delivered;

          (f) “Exercise Notice” means any notice delivered by ICF or IUBT to an Option Holder for the purpose of exercising the Call under Section 4.1 or Section 4.2(b)(2), thereby triggering a purchase and sale of Common Shares pursuant to the provisions of Sections 4.3 and 4.4 hereof.

          (g) “Fair Market Value” means the fair market value of a Common Share as determined in accordance with Section 4.3 of this Agreement;

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          (h) “Person” means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization or any other entity.

2. ANTI-DILUTION PROVISIONS

     2.1. Adjustment Events.

          (a) An “Adjustment Event” occurs if ICF:

               (i) pays a dividend with respect to its capital stock in Common Shares or securities convertible into Common Shares;

               (ii) subdivides its outstanding Common Shares or securities convertible into Common Shares;

               (iii) combines its outstanding Common Shares into a smaller number of Shares of any class of Common Shares; or

               (iv) issues any Common Shares or securities convertible into Common Shares in a reclassification or recapitalization of the Common Shares.

          (b) If an “Adjustment Event” occurs, the number of Common Shares held by any Option Holders immediately prior to the Adjustment Event shall be adjusted so that such Option Holders shall thereafter be entitled to receive the number of Common Shares necessary to avoid dilution of such Option Holder’s percentage ownership of Common Shares from that existing immediately prior to such Adjustment Event. An adjustment made pursuant to this Section 2.1 shall become effective immediately after the effective date of such Adjustment Event, retroactive to the record date, if any, for such Adjustment Event.

3. RESTRICTIONS ON TRANSFER

     3.1. Transfers Restricted.

          Prior to the first anniversary of the date an Option Holder acquires Common Shares, such Option Holder may not sell, transfer or dispose of any of such Common Shares other than to another Option Holder. On or after the first anniversary of the date an Option Holder acquires Common Shares, such Option Holder may sell, transfer, or dispose of any such Common Shares only pursuant to the terms of this Agreement. Any Option Holder may sell, transfer or dispose of any of his Common Shares to another Option Holder at any time. Subject to the terms of this Agreement, IUBT may sell, transfer or dispose of any of its Common Shares to any Person at any time.

     3.2. No Encumbrance.

          Except as permitted by this Agreement, an Option Holder may not mortgage, pledge, charge, hypothecate or otherwise encumber any Common Shares without ICF’s prior written consent.

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     3.3. Obligation of Transferee.

          No Common Shares may be sold, transferred or issued in any event unless the Person receiving the Common Shares has executed and delivered to ICF a joinder agreement in form and substance satisfactory to ICF pursuant to which such Person agrees to be bound by the terms of this Agreement.

     3.4. Effect of Non-Permitted Transfers.

          Any sale, transfer or other disposition of, or any attempted sale, transfer or other disposition of, Common Shares in contravention of this Agreement shall be void and of no effect for any purpose and shall not confer on any transferee or purported transferee any rights whatsoever. ICF shall not effect such a transfer on its books, nor will it treat any purported transferee as the holder of such Common Shares, and the Parties acknowledge that the certificates representing Common Shares shall bear a legend referring to the restrictions imposed by this Agreement.

     3.5. Legend on Share Certificates.

          The share certificates representing each of the Common Shares are to be legibly stamped or endorsed with the following statement:

“The shares represented by this Certificate have not been registered under the federal Securities Act of 1933 (the “1933 Act”) or any state securities law. These shares cannot be transferred, pledged or hypothecated except in accordance with the provisions of Regulation S under the 1933 Act, pursuant to registration under the 1933 Act and applicable state securities laws, or unless Irwin Commercial Finance Corporation has received an opinion of counsel satisfactory to it that registration under such laws is not required by virtue of an available exemption from such registration requirements. The sale, transfer, pledge and hypothecation of the shares represented by this Certificate are restricted under the terms of an Agreement among Irwin Commercial Finance Corporation, Irwin Union Bank and Trust Company and Certain Individuals, dated as of December 23, 2005. Hedging transactions involving such shares may not be conducted unless in compliance with the 1933 Act.”

4. CALL RIGHT; RIGHT OF FIRST REFUSAL

     4.1. ICF and IUBT Call Right.

          With respect to each Option Holder, each of ICF and IUBT shall have the right to purchase (the “Call”), and each such Option Holder shall have the obligation to sell upon the exercise of such Call, all or any portion of such Option Holder’s Common Shares (a) at any time after the first anniversary of the date on which such Option Holder acquires such

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Common Shares, by delivery of an Exercise Notice to such Option Holder or his personal representative (with the date of such Exercise Notice constituting the “Effective Date” for purposes of determining the Fair Market Value of the Common Shares in accordance with Section 4.3) or (b) upon any proposed transfer of Common Shares by such Option Holder to a third party that is not an Affiliate of ICF or another Option Holder, in which case the Call shall be exercisable pursuant to the procedures set forth in Section 4.2.

     4.2. Right of First Refusal.

          In the event on or after the first anniversary of the date on which an Option Holder acquires Common Shares, such Option Holder proposes to transfer such Common Shares pursuant to a bona fide purchase offer received from a third party that is not an Affiliate of ICF, the Call right of each of ICF and IUBT shall be in the form of a right of first refusal to purchase such Common Shares upon the following terms:

          (a) The Option Holder shall first notify ICF and IUBT in writing at least 30 days in advance of the proposed transfer. The notice shall contain all of the terms of the proposed transfer, including, without limitation, the name and address of the prospective transferee, the purchase price and other terms and conditions of payment (or the minimum purchase price or basis for determining the minimum purchase price and other minimum acceptable terms and conditions), the date on or about which the transfer is to be made, and the number of Common Shares to be transferred (the “Transfer Notice”).

          (b) Within 10 business days after receipt of the Transfer Notice, either ICF or IUBT (the “Exercising Party”) may notify the Option Holder that it intends either:

               (1) to exercise its Call by purchasing all (but not less than all) of the Common Shares proposed to be transferred pursuant to the terms and conditions as set forth in the Transfer Notice (the “Right of First Refusal Notice”), in which case the provisions of Subsection 4.2(c) shall govern such purchase and sale, or

               (2) to exercise its Call by purchasing all (but not less than all) of the Common Shares proposed to be transferred pursuant to the provisions of Sections 4.3 and 4.4, in which case the Exercising Party shall deliver an Exercise Notice, and the provisions of Sections 4.3 and 4.4 shall govern such purchase and sale.

If the Exercising Party exercises its Call under this Subsection 4.2(b), a binding contract of purchase and sale will be formed between it and the Option Holder upon the delivery of the Right of First Refusal Notice or the Exercise Notice, as the case may be.

          (c) If the Exercising Party delivers a Right of First Refusal Notice, the Exercising Party will buy, and the Option Holder will sell, the Common Shares at the time, at the price, and on the same terms and conditions as those contained in the Transfer Notice, subject to the following:

               (1) If the Transfer Notice provides for payment over time, the Exercising Party will have the option to make payment all in cash for clear title at the closing of the purchase and sale;

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               (2) If the Transfer Notice provides for the closing to take place more than 30 days after the delivery of the Transfer Notice, the Exercising Party will have the option to close its purchase on or before the 30^th day after delivery of the Transfer Notice.

          (d) After compliance with the provisions of this Section 4.2, if no Call has been exercised, the Option Holder may transfer his Common Shares, but only to the transferee designated in the Transfer Notice, at the time, at the price, and on the same terms and conditions as those contained in the Transfer Notice. If no Call is exercised and such proposed transfer to a third party is not consummated within 30 days after delivery of the Transfer Notice, any proposed sale of the Common Shares will again become subject to the notice provisions and the right of first refusal provided in this Section 4.2.

     4.3. Purchase Price.

          If ICF or IUBT exercises its Call pursuant to Section 4.1 or Section 4.2(b)(2), the purchase price (“Purchase Price”) for each Common Share to be purchased shall be equal to the Fair Market Value of the Common Share, plus interest thereon from the Effective Date at the national prime rate as reported in The Wall Street Journal as of the Effective Date (the “National Prime Rate”). The Fair Market Value of a Common Share shall be determined as follows (with the date such Fair Market Value is finally determined hereunder being referred to as the “Valuation Date”):

          (a) The Board shall determine the Fair Market Value of each Common Share as of the Effective Date (the “Initial Valuation”), which Initial Valuation may be based on the opinion of an independent appraiser engaged by the Board. All costs incurred in connection with the Initial Valuation shall be borne by ICF. The Initial Valuation shall be set forth in a written notice (the “Valuation Notice”) delivered by ICF to the Option Holder as soon as practicable following the Board’s receipt of the independent appraiser’s opinion with respect to the value of the Common Shares, if any, but in any event within 60 days after delivery of the Exercise Notice.

          (b) If the Option Holder does not dispute the Initial Valuation by delivery of a written notice of dispute to ICF within 20 days after ICF’s delivery of the Valuation Notice, the Initial Valuation shall be binding upon the Parties as the Fair Market Value. If the Option Holder does dispute the Initial Valuation within the 20-day period, the Option Holder shall, at his sole expense, retain a qualified appraiser (“the Second Appraiser”) of his own choosing to make a second appraisal (the “Second Appraisal”) of the Fair Market Value of each Common Share. If the Second Appraisal is less than the Initial Valuation, the Initial Valuation shall be binding upon the Parties. If the Second Appraisal exceeds the Initial Valuation by an amount not greater than 10 percent of the Initial Valuation, the Fair Market Value of each Common Share shall be the average of the Initial Valuation and the Second Appraisal.

          (c) If the Second Appraisal exceeds the Initial Valuation by an amount greater than 10 percent of the Initial Valuation, the Board and the Second Appraiser shall act in good faith to select a third appraiser, who shall conduct a third appraisal (the “Third Appraisal”), which shall be final and binding upon the Parties. If the Third Appraisal of the Fair Market Value of each Common Share determines an amount that is closer to the amount determined

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by the Second Appraisal than to the amount determined by the Initial Valuation, then ICF shall reimburse the Option Holder for the cost of the Second Appraisal. All costs with respect to the fees and expenses paid or payable to the appraiser that issues the Third Appraisal shall be shared equally by ICF and the Option Holder. All other costs incurred in connection with the Third Appraisal shall be borne by the party incurring such costs.

          (d) In determining the Fair Market Value of a Common Share, all appraisers shall take into account, in addition to the factors described in Section 4.3(g) below, the internally prepared income statement and balance sheet for ICF up through the end of the month immediately preceding the Effective Date.

          (e) IUBT, ICF and the Option Holder each agree to make available to each other and to the appraisers the information used to analyze and develop the Fair Market Value in connection with the Initial Valuation and any decision by the Option Holder on whether or not to dispute the same.

          (f) Notwithstanding anything in this Agreement to the contrary, (i) under no circumstances shall IUBT, ICF or their Affiliates be obligated to do anything that would cause a violation of any Federal, state, provincial or local law, including without limitation any banking laws, and (ii) the Option Holder shall have no ownership interest, by virtue of this Agreement or the ownership of Common Shares, in Irwin Financial or IUBT, or rights as against IUBT or Irwin Financial (it being understood that the foregoing provision shall not preclude the Option Holder from owning shares, or options to acquire shares, of common stock of Irwin Financial).

          (g) The Parties agree that it is the intent and purpose of this Section 4.3 that the Fair Market Value be determined in accordance with Revenue Ruling 59-60 (as modified), a copy of which is attached hereto as Exhibit A, and the appraisers shall take into account the various factors set forth in Section 4 of Revenue Ruling 59-60; provided, however, that such factors shall not have the effect of altering or removing the consideration of the financial statements described in Section 4.3(d) above. The calculation of Fair Market Value of all issued and outstanding Common Shares shall include and reflect, after taking into account all liabilities of ICF (including inter-company debt owed to Irwin Financial, IUBT or any of their Affiliates) and the liquidation preference and preferential dividend rights of the Preferred Shares, only the value of Common Shares, and shall not include or reflect any value of Preferred Shares or any other investments in ICF made by IUBT or any of its Affiliates. In determining the Fair Market Value of a Common Share, the following rules will be applied:

               (i) the Fair Market Value per Common Share will be equal to the quotient obtained when the aggregate Fair Market Value of all of the issued and outstanding Common Shares is divided by the aggregate number of such issued and outstanding Common Shares.

               (ii) any allocations of the overhead of Irwin Financial or IUBT to the consolidated commercial finance line of business segment may be made only in a manner that is consistent with historical charges and only in a manner that is consistently applied among the business units and subsidiaries of Irwin Financial; and

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               (iii) there will be no consideration of a liquidity or marketability discount or bonus applied to minority Common Shares.

          (h) In determining the Fair Market Value of a Common Share, any transaction between ICF, on the one hand, and IUBT or other Affiliates of Irwin Financial, on the other hand, will be based upon the manner booked by the relevant entities, or on the basis of arm’s length transactions, whichever would be more favorable to ICF. The Parties acknowledge that some transactions may not have comparable arm’s length transactions available, in which case such value shall be based upon the manner booked by IUBT or such other Affiliates of Irwin Financial, to the extent reasonable.

          (i) The Purchase Price shall be increased or decreased appropriately, without duplication, to reflect the occurrence after the Effective Date of an Adjustment Event, as defined in Subsection 2.1(a).

     4.4. Option Closing.

          The closing (“Option Closing”) of the purchase and sale of the Common Shares, whether pursuant to a Call exercised in accordance with Section 4.1 or Section 4.2(b)(2), will take place on a date selected by the party exercising the Call (whether IUBT or ICF),as the case may be, which date will not be later than the 30^th day following the Valuation Date unless the parties agree otherwise, but shall in any case be no later than the 90^th day following the Valuation Date. The parties shall use their best efforts to complete the entire valuation and closing process within the designated period. At the Option Closing, the Option Holder will tender all the Common Shares subject to the Call to ICF or IUBT, as the case may be, and ICF or IUBT, as the case may be, will make payment of the Purchase Price for all such Common Shares to the Option Holder.

          During any period of determination of Fair Market Value, the Parties agree to use their best efforts to carry on the business of ICF in the normal course and in the best interest of ICF. On the Option Closing date, the Option Holder will sign and deliver to ICF all documents necessary to transfer, free and clear of all liens, claims and other encumbrances, his/her Common Shares to ICF or IUBT, as the case may be, including the stock certificates representing the Common Shares duly endorsed for transfer. The Option Holder hereby appoints each of ICF and IUBT, as the case may be, as the Option Holder’s attorney-in-fact, coupled with an interest, with full power and authority to sign and deliver all resolutions and share transfers which may be required under this Section 4.4. This appointment is irrevocable while the Option Holder owns Common Shares but will lapse automatically as soon as the Option Holder ceases to own Common Shares.

     4.5. Request for Determination of Fair Market Value.

          An Option Holder shall have the right, upon request, to have an internal determination of Fair Market Value made by the Board, which right may not be exercised more frequently than annually and only during the month of June, with a Valuation Date as of June 30 (it being understood that any such determination shall be binding and not subject to further review or appraisal until a subsequent request is made in the following year pursuant to this

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Section 4.5 or until a subsequent appraisal is conducted in accordance with the provisions of Section 4.3 hereof).

5. Exit Provisions.

     5.1. Exit Provisions.

          (a) If:

               (i) IUBT and the Option Holders receive a simultaneous bona fide arm’s length offer from a third party (other than an Affiliate of any Option Holder) to purchase any of the issued and outstanding Common Shares (it being understood that the provisions of this Section 5.1 shall not apply to such a simultaneous offer for all of the issued and outstanding Common Shares); or

               (ii) ICF receives a bona fide arm’s length offer from a third party (other than an Affiliate of any Option Holder) to purchase all of its assets and business or to acquire ICF through any other form of business combination (whether by merger or otherwise),

which, in either case, IUBT or ICF wishes to accept (in either instance, the “Exit Offer”). IUBT or ICF as the case may be will notify the Option Holders in writing, within 15 days of its receipt of the Exit Offer (the “Exit Notice”), that (i) IUBT or ICF, as the case may be, wishes to accept the Exit Offer and (ii) in the case of an asset sale or other business combination, IUBT and/or ICF intends to vote to approve the transaction described in the Exit Offer.

          (b) The Exit Notice shall contain all of the terms and conditions of the proposed sale, including, without limitation, the name and address of the prospective buyer, the purchase price and other components of the transaction value, the terms of payment, other terms and conditions (or the minimum purchase price or basis for determining the minimum purchase price and minimum acceptable other terms and conditions) and the date on or about which the sale is to be made.

          (c) IUBT and the Option Holders or ICF, as the case may be, will sell to the purchaser named in the Exit Notice:

               (i) their Common Shares, if the Exit Offer contemplated the sale of Common Shares (it being understood that IUBT may also elect to sell, or to cause ICF to redeem, its Preferred Shares to the extent such sale or redemption is contemplated by the Exit Offer), or

               (ii) the assets and business of ICF, if the Exit Offer contemplated the sale of ICF’s assets and business, whether pursuant to an asset sale transaction, a merger, or some other form of business combination, for the price and upon the terms and conditions set forth in the Exit Offer.

Each of the Option Holders and IUBT or ICF, as appropriate, shall sign all documents and do all things, or shall cause all documents to be signed and all things to be done, that are

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necessary to complete the sale described in the Exit Notice. Without limiting the generality of the foregoing, each of the Option Holders shall be obligated (which obligation shall be enforceable by IUBT), to sell his/her Common Shares and otherwise participate in the transaction described in the Exit Notice, to vote his/her Common Shares in favor of such transaction at any meeting of shareholders called to vote on or approve such transaction (or to execute one or more written consents in lieu of such a meeting), and otherwise take all necessary action to consummate, or cause ICF to consummate, such transaction.

          (d) Any Exit Notice may be rescinded by IUBT or ICF, as appropriate, by its delivering a written notice to the Option Holders to that effect.

          (e) Upon consummation of any transaction described in an Exit Notice, IUBT and each Option Holder shall receive the same proportion of the aggregate consideration that such holder would have received if such aggregate consideration had been distributed by ICF in complete liquidation, giving due regard to the prior rights and preferences of the Preferred Shares and the pro rata distribution of net assets remaining following the payment of amounts owed to creditors and the satisfaction of liquidation preferences.

6. CERTAIN REPRESENTATIONS AND WARRANTIES

          Each Option Holder represents and warrants to ICF and IUBT, in connection with his/her ownership of Common Shares, as the case may be, as follows:

          (a) The Option Holder will acquire and will own any Common Shares for investment purposes only and not with the view to the distribution or resale thereof.

          (b) The Option Holder understands that the transfer of the Common Shares is severely limited and that the Common Shares have not been registered under the 1933 Act, or any state or province, Canadian or other securities laws.

          (c) The Option Holder understands and agrees that the Common Shares may not be offered or sold except pursuant to the registration requirements of the 1933 Act and applicable state, provincial or other securities laws, or pursuant to an available exemption therefrom. The Option Holder agrees not to engage in hedging transactions with regard to the Common Shares except in compliance with the 1933 Act.

          (d) The Option Holder has such knowledge and experience in financial and business matters that the Option Holder is capable of evaluating the merits and risk of investment in the Common Shares. Furthermore, as a result of the Option Holder’s active involvement as officers and directors of ICF or subsidiaries of ICF, the Option Holder has had access to and actual knowledge of all material facts concerning ICF and the Common Shares, and has had the availability to ask questions and receive answers from ICF concerning the Common Shares, ICF and its operations. The Option Holder also has had the opportunity to consult with his/her legal counsel and tax adviser in connection with the investment in the Common Shares and the matters set forth in this Agreement.

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          (e) The execution, delivery and performance of this Agreement by the Option Holder and the transactions contemplated hereby, do and will not violate, breach or constitute a default under any agreement or contract to which the Option Holder is a party.

7. Miscellaneous

     7.1. Further Assurances; Other Agreements; Entire Agreement.

          (a) Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto may reasonably request, or as may be reasonably necessary, in order to carry out the intent and the provisions of this Agreement and the consummation of the transactions contemplated hereby.

          (b) This Agreement constitutes the entire agreement and understanding among the parties pertaining to the subject matter of this Agreement and supersedes any and all prior agreements, whether written or oral, relating hereto.

     7.2. Notices.

          (a) Except as otherwise provided in this Agreement, all notices, requests, demands and other communications under this Agreement shall be in writing and addressed as follows (or as amended by proper notice under this Section 7.2):

               (i) If to ICF:

Irwin Commercial Finance Corporation
500 Washington Street
Columbus, Indiana 47201
Attention: Thomas D. Washburn, Chairman

               (ii) If to IUBT:

Irwin Union Bank and Trust Company
500 Washington Street
Columbus, Indiana 47201
Attention: Thomas D. Washburn, Chairman

               (iii) If to any Option Holder, at the address set forth on the signature page.

          (b) If properly addressed, as in (a) above, notice shall be deemed effective and evidenced as follows:

               (i) if by registered or certified mail, postage prepaid and return receipt requested: three Days after deposit in the United States or Canadian mails;

               (ii) if by personal delivery or delivery service: upon actual delivery evidenced by written receipt;

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               (iii) if by facsimile transmission: upon sending, evidenced by facsimile confirmation or transmission log; or

               (iv) if by internationally-recognized overnight courier, on the next business day after the date when sent.

     7.3. Amendments.

          This Agreement may be amended only by a written agreement executed by each of the Parties hereto.

     7.4. Governing Law.

          This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana (without regard to conflicts of laws provisions).

     7.5. Successors and Assigns.

          This Agreement shall continue to benefit and to bind the parties and each of their permitted successors and assigns. This Agreement may be assigned by the Parties hereto to any of their respective successors and assigns who acquire Common Shares from them in compliance with the provisions hereof. All or any portion of the rights of IUBT or ICF hereunder may be assigned by them to any of their Affiliates upon notice to the Option Holders, but without the consent of the Option Holders. No Option Holder may assign this Agreement without the consent of ICF. This Agreement is not intended to create any third party beneficiaries.

     7.6. No Waiver.

          Failure to insist upon strict compliance with any of the terms, covenants, or conditions of this Agreement shall not be deemed to be a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of any right or power under this Agreement at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. In the event a party hereto breaches any of its covenants or fails to perform any of its obligations hereunder, the other parties may proceed to protect and enforce their rights by suit in equity and/or by action at law, including an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or obligation contained in this Agreement.

     7.7. Severability.

          It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, should any clause, portion, or paragraph of this Agreement be unenforceable or invalid for any reason, such unenforceability or invalidity shall not affect the enforceability or validity of the remainder of the clause, portion or paragraph of this Agreement. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such

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jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

     7.8. Section Headings.

          Introductory headings at the beginning of each Section and Subsection of this Agreement are solely for the convenience of the parties and shall not be deemed to be a limitation upon or description of the contents of any such Section or Subsection of this Agreement.

     7.9. Counterparts.

          This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same Agreement. Telecopied signatures of this Agreement are effective to the same extent as original signatures.

     7.10. Time is of the Essence.

          Time shall be of the essence of any purchase and sale of Common Shares pursuant to the terms of this Agreement.

     7.11. Alternative Dispute Resolution.

          (a) Negotiation. In the event of a dispute between the parties arising out of or related to this Agreement, either party may give the other relevant party(ies) written notice of the dispute. Upon such notice being given, the parties shall attempt in good faith to resolve the dispute promptly by negotiation. Within 10 days after delivery of the notice, the receiving party(ies) shall submit to the other party a written response to the notice. Thereafter, the parties shall confer in person or by telephone promptly to attempt to resolve the dispute.

          (b) Mediation. If such dispute has not been resolved by negotiation within 30 days of the sending of the original notice, or if the parties have failed to confer within 20 days after delivery of the original notice, the parties shall endeavor to settle the dispute by mediation under the then current Center for Public Resources (“CPR”) Model Procedure for Mediation of Business Disputes. Unless otherwise agreed, the parties will select a mediator from the CPR Panels of Distinguished Neutrals. If the parties encounter difficulty in agreeing on a neutral, they will seek the assistance of CPR in the selection process. All negotiations and proceedings pursuant to subparagraph (a) and this subparagraph (b) shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence and any additional confidentiality protections provided by applicable law.

          (c) Arbitration. If the dispute has not been resolved by negotiation or mediation as provided herein within 90 days of the initiation of the CPR mediation procedure, the parties shall finally settle such dispute by binding arbitration conducted expeditiously in accordance with the CPR Rules for Non-Administered Arbitration of Business Disputes by a sole arbitrator; provided, however, that if one party has requested the other party(ies) to participate

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in negotiation or mediation and the other party(ies) has failed to participate, the requesting party may initiate arbitration before expiration of the above period. Unless otherwise agreed, the sole arbitrator will be a lawyer selected from the CPR Panels of Distinguished Neutrals. If the parties encounter difficulty in agreeing on a neutral, they will seek the assistance of CPR in the selection process.

          The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1-16 to the exclusion of state laws inconsistent therewith, and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The place of arbitration shall be Columbus, Indiana. In deciding the dispute, the arbitrator shall be bound by, and shall faithfully apply, the laws of the State of Indiana, including the laws of evidence but excepting the rules of procedure. Notwithstanding anything in the foregoing to the contrary, the arbitrator is not empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover such excessive damages with respect to any dispute between them resolved by arbitration. The statute of limitations of the State of Indiana applicable to the commencement of a lawsuit shall apply to the commencement of an arbitration hereunder, except that no defenses shall be available based upon the passage of time during any negotiation or mediation called for by the preceding subparagraphs (a) and (b).

[signature page follows]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement and deem it effective as of the date written above.

IRWIN COMMERCIAL FINANCE CORPORATION		IRWIN UNION BANK AND TRUST COMPANY
By:	/s/ Thomas D. Washburn	By:	/s/ Gregory F. Ehlinger
	Thomas D. Washburn, Chairman		Gregory F. Ehlinger, Vice President and Chief Financial Officer

/s/ JOSEPH LALEGGIA	/s/ LUIGI SPIZZIRRI
Address:	Address:
/s/ MARK CANNON	/s/ ROBERT MURPHY
Address:	Address:
/s/ ROBERT MORMINA	/s/ JOHN RINALDI
Address:	Address:

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EX-10.39

EXHIBIT 10.39

IRWIN COMMERCIAL FINANCE CORPORATION
2005 STOCK OPTION AGREEMENT

     1. Grant of Option. Irwin Commercial Finance Corporation, an Indiana corporation (the “Company”), hereby grants to JOSEPH LaLEGGIA (the “Optionee”) an option (the “Option”) to purchase a total number of shares of Stock (the “Shares”) set forth in the Irwin Commercial Finance 2005 Notice of Stock Option Grant (the “Notice”), at the exercise price per share set forth in the Notice (the “Exercise Price”), subject to the terms and conditions of this Irwin Commercial Finance Corporation 2005 Stock Option Agreement (the “Agreement”) and the Shareholder Agreement of the Company, dated as of December 23, 2005 (the “Shareholder Agreement”).

     2. Exercise of Option. This Option shall be exercisable during its term set out in the Notice as follows:

          (a) Right to Exercise.

               (i) This Option may be exercised solely as to Shares which have vested, as indicated on the Notice.

               (ii) In the event of Optionee’s termination of employment or service as a director, the exercisability of the Option is governed by Section 5 below, subject to the limitation contained in Section 2(a)(iii) below.

               (iii) In no event may this Option be exercised after the Expiration Date of this Option as set forth in the Notice.

          (b) Method of Exercise. This Option shall be exercisable by written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the Optionee’s investment intent with respect to such shares of Stock as may be required by the Company. Such written notice shall be signed by Optionee and shall be delivered in person, by certified mail, or by nationally recognized courier service with written receipt of delivery, to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price.

     No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such

compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares.

          3. Method of Payment. Payment of the Exercise Price must be in cash or its equivalent denominated in U.S. dollars.

          4. Restrictions on Exercise. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

          5. Termination of Relationship.

               (a) Termination of Employment Due to Death. In the event Optionee’s employment or service as a director is terminated by reason of death, any outstanding Options whether or not then exercisable, may be exercised within twelve (12) months after such date of termination of employment or service. In no case shall the period for exercise extend beyond the expiration date of such option grant.

               (b) Termination of Employment due to Disability or Retirement. In the event that Optionee’s employment or service as a director is terminated due to disability or retirement, the options theretofore granted to such Optionee may be exercised to the extent that such Optionee was entitled to exercise the options at the date of such termination, but only within a period of three (3) years beginning on the day following the date of such termination. In no case shall the period for exercise extend beyond the expiration date of such option grant. So long as Optionee shall continue to serve as a director or continue to be an employee of the Company, the options granted to the Optionee shall not be affected by any change of duties or position. A change of employment from the Company to a subsidiary, from a subsidiary to the Company, from one subsidiary to another, or any combination thereof, shall not be considered to be a termination of employment for purposes of this Agreement.

               (c) Resignation or Termination Without Cause. In the event that an Optionee’s employment with the Company or its subsidiaries or service as a director is terminated due to resignation or by the Company without cause (other than a retirement or disability), the options theretofore granted to such Optionee may be exercised to the extent that such Optionee was entitled to exercise the options at the date of such resignation, but only within a period of three (3) months beginning on the day following the date of such termination. In no case shall the period for exercise extend beyond the expiration date of such option.

               (d) Termination for Cause. Notwithstanding anything herein to the contrary, all outstanding options shall immediately terminate without further action on the part of the Company in the event of the termination of a Optionee’s employment or service with the Company or its subsidiaries for cause.

          6. Effect of an Exit Offer. Upon the receipt of an Exit Offer (as such term is defined in the Shareholder Agreement), the Company shall provide written notice thereof (the “Exit Offer Notice”) to the Optionee. The Company shall have the right, but not the obligation, to terminate all outstanding options as of the 30th day immediately following the date of the sending of the Exit Offer Notice by including a statement to such effect in the Exit Offer Notice.

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Upon delivery of the Exit Offer Notice and regardless of whether the Company elects to terminate the outstanding options, the Optionee shall have the right to immediately exercise all outstanding options in full during the 30-day period notwithstanding the other terms and conditions otherwise set forth in this Agreement.

          7. Transferability of Option. This Option may not be transferred in any manner except (a) a transfer by will or by the laws of descent or distribution or (b) to another Option Holder (as such term is defined in the Shareholder Agreement). This Option may be exercised during the lifetime of Optionee only by him or her, or upon transfer to a permitted transferee by such permitted transferee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee.

          8. Term of Option. This Option may be exercised only within the Term set forth in the Notice.

          9. Adjustment in Capitalization. In the event of any change in the outstanding shares of Stock that occurs after the date of this Agreement by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, separation (including a spin-off), exchange of shares, or other similar corporate change or distribution of stock or property by the Company, the number and class of and/or price of shares of Stock subject to this Option shall be adjusted appropriately by the Committee, whose determination shall be conclusive.

          10. Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Indiana. With respect to any dispute arising out of the Agreement or alleged breach of this Agreement or both, Optionee, by accepting the Option, hereby irrevocably consents, to the maximum extent permitted by law, to the jurisdiction and venue of the Federal Courts in Indiana if they have subject matter jurisdictions, and otherwise to the jurisdiction and venue of the courts of the State of Indiana, and the Optionee shall not be entitled to a trial by jury.

          11. Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:

          “Committee” means a committee consisting of the Chairman of the Board of Directors of the Company or such other committee appointed from time to time by the Board of Directors of the Company.

          “Stock” means the common stock, without par value, of the Company.

          12. Withholding Tax Obligations. As a condition to the exercise of Option granted hereunder, Optionee shall make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise, receipt or vesting of the Option. The Company shall not be required to issue any shares under this Agreement.

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     This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one document.

IRWIN COMMERCIAL FINANCE CORPORATION
By:	/s/ Thomas D. Washburn
	Thomas W. Washburn, Chairman

     OPTIONEE ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY OR ANY OF ITS AFFILIATES, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.

     Optionee acknowledges receipt of a copy of this Agreement and the Notice, which is incorporated herein by reference, and the Shareholder Agreement and represents that he or she is familiar with the terms and provisions of all of the foregoing, and hereby accepts this Option subject to all of the terms and provisions of this Agreement, the Notice and the Shareholder Agreement. Optionee has reviewed this Agreement, the Notice and the Shareholder Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and the Shareholder Agreement and fully understands all provisions of this Agreement and the Shareholder Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under this Agreement or the Notice.

Dated: December 23, 2005	/s/ Joseph LaLeggia
	JOSEPH LaLEGGIA

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EX-10.40

EXHIBIT 10.40

IRWIN COMMERCIAL FINANCE CORPORATION
2005 NOTICE OF STOCK OPTION GRANT

JOSEPH LaLEGGIA (“Optionee”)
3939 Triumph Street
Burnaby, BC V5C1Y9
CANADA

     Subject to the terms of the attached Irwin Commercial Finance Corporation 2005 Stock Option Agreement and the Shareholder Agreement of Irwin Commercial Finance Corporation (the “ICF Shareholder Agreement”), you have been granted an option to purchase common stock (the “Option”) of Irwin Commercial Finance Corporation (the “Company”) as follows:

Date of Grant:	December 23, 2005
Company Board Approval Date:	December 20, 2005
Exercise Price Per Share:	$23,158 per share
Total Number of Shares Granted:	45.02 shares
End of Term/Expiration Date:	5:00 p.m. EST on December 31, 2009
Exercise:	This Option is immediately exercisable by the Optionee.

EX-10.41

EXHIBIT 10.41

Irwin Union Bank

Amended and Restated Performance Unit Plan

1. Purpose

The purpose of the Irwin Union Bank Performance Unit Plan is to encourage employee retention and motivation to increase the long-term value of the Company through grants of performance units.

2. Effective Date

The Performance Unit Plan was adopted by the Board on April 25, 2005. The Plan was amended and restated on December 20, 2005 to account for changes in the law. The initial Plan Cycle is January 1, 2005 – December 31, 2007. Adoption of the restated Plan is subject to shareholder approval.

3. Definitions

a)	AWARD means a payment made pursuant to the Plan at the end of a Plan Cycle.
b)	BOARD means the Board of Directors of Irwin Union Bank.
c)	CODE means the Internal Revenue Code of 1986, as amended.
d)	COMMITTEE means the committee appointed by the Board to administer the Plan, which shall consist solely of the Chairman until such time as the Plan is amended in accordance with Section 7(a) hereof.
e)	COMPANY means the Irwin Union Bank.
f)	COVERED OFFICER means any individual who, on the last day of the taxable year of IFC, is the chief executive officer of IFC and any other officer of the Company who is, for such taxable year, determined to be among IFC’s four “highest compensated officers (other than the chief executive officer of IFC) as defined under Code Section 162(m)(3).
g)	DISABILITY means the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering the Company’s employees.
h)	EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.

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i)	IFC COMMITTEE means the committee appointed by the board of directors of IFC to administer such long-term incentive plans as may be adopted by such board from time to time or, in the absence of such a committee, the standing compensation committee of IFC’s board of directors as constituted from time to time; provided, that any such IFC Committee shall be comprised solely of at least two members of the IFC board of directors who qualify as an “outside director” under Code Section 162(m) and the regulations promulgated thereunder and as a “non-employee director” within the meaning of Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act.
j)	PERFORMANCE UNIT means a component used to represent the incremental cash value of the Company that is awarded to participants in the Plan at the beginning of each Plan Cycle.
k)	PLAN means the Irwin Union Bank Performance Unit Plan.
l)	PLAN CYCLE means the three-year period in which the Plan will run.
m)	P/E means a valuation ration of the current share price compared to per-share earnings unit.
n)	ROE means return on equity.

4.  Eligibility

Key employees, as recommended and approved by the Company President and Board, are eligible to participate in the Plan. Key employees include those full-time employees whose compensation market data supports granting long-term incentive opportunities and who are officers at the Vice President level or above.

Selection of an employee for participation in the Plan does not guarantee being selected for participation in the Plan for any subsequent Plan Cycle. Selection of an employee for participation in the Plan does not give the participant any right to continue in the employ of the Company. The Company reserves the right, which may be exercised at any time, to terminate a Plan participant’s employment or adjust the compensation of a Plan participant with or without cause.

5. Administration

The Board will be requested to approve each Performance Unit Plan at the beginning of the Plan Cycle. The Committee will then carry out the daily administration of the Plan.

6. Plan Specifications

a) Plan Cycles. Each Plan Cycle is three years in length with the first cycle starting January 1st, 2005 and ending December 31st, 2007. All subsequent Plan Cycles will start January 1^st and end December 31^st three years later. A new Plan Cycle will start at the beginning of each calendar year.

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b)	Plan Operation. Participants are awarded Performance Units at the beginning of each Plan Cycle. Performance Units vest in accordance with Section 6(f) below. At the end of each Plan Cycle, the vested Performance Units are cashed out based on the value of the Performance Units at the end of the Plan Cycle to the extent the participant is employed by the Company at the end of the Plan Cycle.
c)	Performance Units. Performance Units are components used to represent the incremental cash value of the Company. The beginning value of the Company is divided by the number of units in order to make the beginning value for a Performance Unit in the first Plan Cycle equal to $100. Subsequent valuations will use the calculated number of units in order to determine the per unit value.
d)	Valuation. Valuations are done by an outside appraiser in conformity with the Uniform Standards of Professional Appraisal Practice. Valuations are performed annually unless the Board determines that significant volatility suggests the need for more frequent valuations. The standard value is fair market value. The outside appraiser will recommend a valuation approach or approaches, such as the combination of a market approach, income approach and net asset approach. The valuation should be adjusted for any capital contributions.
e)	Award Opportunities. Award opportunities are based on a median competitive expected value divided by the starting value of a Performance Unit for each Plan Cycle.
f)	Vesting. For the Plan Cycle beginning January 1, 2005 and ending December 31, 2007. Performance Units will cliff vest based on continued employment over the Plan Cycle and cumulative ROE performance, as follows:

(i) No Performance Units will be vested if cumulative ROE over the Plan Cycle is less than or equal to the average of threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

(ii) All of the Performance Units will vest at the end of the Plan Cycle if cumulative ROE performance at least equals the average of the target ROEs level in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

(iii) A prorated portion of Performance Units will vest at the end of the Plan Cycle if average ROE is between the average of the threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle and the average of the target ROEs in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

For the Plan Cycle beginning January 1, 2006 and each Plan Cycle thereafter, Performance Units will cliff vest based on continued employment over the Plan Cycle and average ROE performance, as follows:

(iv) No Performance Units will be vested if average ROE over the Plan Cycle is less than or equal to the average of threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

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(v) All of the Performance Units will vest at the end of the Plan Cycle if average ROE performance at least equals the average of the target ROEs level in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

(vi) A prorated portion of Performance Units will vest at the end of the Plan Cycle if average ROE is between the average of the threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle and the average of the target ROEs in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

The Right to receive the value of vested Performance Units shall be contingent upon employment with the Company on the last day of the Plan Cycle.

g)	Rights Upon Separation from Service. In the event of separation from service, as such phrase is defined in Section 409A of the Code, for reasons other than death, Disability, retirement, transfer pursuant to Section 6(h) below, or Company-initiated separation from service unrelated to the participant’s job performance, the Participant forfeits all Performance Units in effect on the date of separation. In the event of separation from service by reason of death, Disability, retirement, transfer pursuant to Section 6(h) below, or Company-initiated separation from service unrelated to the participant’s job performance, a pro-rated portion of the Performance Units for each Plan Cycle in effect will be paid at the same time as set forth in Section 6(i) based on full months completed in the Plan at the date of termination, provided that the performance goals and performance criteria were met during the applicable Plan Cycle.
h)	Transfer to a Non-eligible Position. If a Participant transfers to a non-Plan-eligible position during the Plan Cycle, the Participant will receive a pro-rated portion of the Performance Units equal to the Performance Units in effect on the date of the transfer; provided that the performance goals and performance criteria were met during the applicable Plan Cycle; provided, further, that the Participant is employed by the Company or other Irwin Financial Corporation company at the end of the Plan Cycle. Payout will occur at the same time as it does for other Participants in those Plan Cycles.
i)	Payment of Awards. The value of a participant’s vested Performance Units will be paid out in a cash lump sum payment based on the most recent valuation as soon as administratively practicable after such valuation is approved by the Board, but no later than March 14th of the first year immediately following the end of the Plan Cycle. If for any reason it is administratively impracticable to pay the value of the Performance Units by that deadline, such payments shall be made as soon as administratively practicable in the first calendar year immediately after the Plan Cycle ends. The value of the Award is determined by the most recent valuation based on the final year financials of that Plan Cycle. In order to receive the award, the Participant must be employed in a Plan-eligible position at the time the Award is paid, subject to Section 6(h) above. The award is subject to all required tax deductions. No Award shall be payable if the participant and/or Company does not meet the performance goals set forth in the Plan Cycle Schedule. Awards payable to Covered Officers are subject to Section 6(l) below.

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j)	Delay in Payment. The timing of a payment will be delayed to a date after the designated payment date where the Company reasonably anticipates that the Company’s deduction with respect to such payment otherwise would be limited or eliminated by the application of Code Section 162(m); provided, however, that the payment shall be made either at the earliest date at which the Company reasonably anticipates that the deduction of the payment amount will not be limited or eliminated by application of Code Section 162(m) or the calendar year in which the participant Separates from Service, as that term is defined by Code Section 409A and regulations issued thereunder.
k)	No Acceleration of Payment. The timing of payments under this Plan shall not be accelerated for any reason that is not permitted by Code Section 409A and regulations issued thereunder.
l)	Compliance with Code Section 162(m). The Company intends that Awards made to Covered Officers under the Plan shall satisfy the requirements for “performance-based compensation” under Code Section 162(m) and 409A and the Treasury Regulations promulgated thereunder. Therefore, Awards to Covered Officers and interpretation of the Plan shall be guided by such provisions, as appropriate. If a provision of the Plan would cause a payment to a Covered Officer to fail to satisfy these requirements, it shall be interpreted and applied in a manner such that said payment will satisfy Code Sections 162(m) and 409A. Notwithstanding the foregoing, the Company shall request that IFC obtain IFC shareholder approval for any amendment of the Plan as may be required under Code Section 162(m) to ensure the Plan’s qualification under Code Section 162(m).

For Covered Officers, within 90 days after the beginning of a Plan Cycle and before it has become substantially certain that the performance level will be met (or such other time as is consistent with the requirements of Code Sections 162(m) and Section 409A of the Code), the IFC Committee, in its sole discretion, shall take the following action:

1)

establish a target Award opportunity in writing for each Plan participant for the Plan Cycle, expressed in Performance Units; and

2)

establish objective performance-based goals for an Award for which the outcome is substantially uncertain at the time such goals are established and that (i) specify a threshold, a target, a maximum and any other performance levels deemed by the Committee to be necessary or appropriate to establish an accurate and effective pay-for-performance schedule and (ii) base performance on one or more of the following financial indicators of the Company’s success: earnings per share, net earnings, net income, operating earnings, customer satisfaction, revenues, net sales, financial return ratios such as return on equity, return on assets, return on capital, and return on investment, ratio of debt to earnings or shareholders’ equity, market performance, market share, balance sheet measurements, economic profit, cash flow, shareholder return, margins, productivity improvement, distribution expense, inventory turnover, delivery reliability, cost control or operational efficiency measures, and working capital, any of which may be measured in absolute terms, growth or improvement during a Performance Period or as compared to another company or companies. Performance goals may be absolute

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in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated or other external or internal measure and may include or exclude extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and strategic loan loss provisions. Such performance goals may be particular to a line of business, subsidiary or other unit or the Company generally, and may, but need not, be based upon a change or an increase or positive result.

Notwithstanding anything in the foregoing to the contrary, in the case of a person who was a Covered Officer as of the close of the immediately preceding fiscal year, the target Award opportunity, performance levels and performance criteria pertaining to such Covered Officer shall also be approved by the IFC Committee within 90 days after the beginning of the Plan Cycle but in no event after 25 percent of such Plan Cycle has elapsed (or such other time as is consistent with the requirements of Code Sections 162(m) and 409A). All such target and maximum Award opportunities, performance levels and performance criteria pertaining to any Covered Officer shall be objective and shall otherwise meet the requirements of Code Sections 162(m) and Section 409A.

Upon being established by the Committee (and approved by the IFC Committee, as necessary), the target and maximum Award opportunities, performance levels and performance criteria for each participant for a given Plan Cycle shall be set forth in writing and communicated to each such participant (the “Plan Cycle Schedule”); provided, however, that the rights of a Covered Officer to receive payment pursuant to any such Award shall be expressly conditioned on obtaining the approval of the Plan by a majority of the shareholders of the Company in the manner provided under Code Section 162(m) prior to such payment.

After the establishment of a performance goal for a Covered Officer, the Committee shall not revise such performance goal (unless such revision will not disqualify compensation attributable to the Award as “performance-based compensation” under Section 162(m) of the Code) or increase the amount of compensation payable with respect to such Award upon the attainment of such performance goal.

As required by Treasury Regulation Section 1.162-27(e)(vi), the material terms of performance goals as described in this Section 6 shall be disclosed to and reapproved by IFC’s shareholders no later than the first shareholder meeting that occurs in the 5th year following the year in which IFC’s shareholders previously approved such performance goals.

The maximum dollar amount for a cash Award that may be earned under the Plan with respect to any Plan Cycle shall be $2,000,000. Any amount earned with respect to a cash Award with respect to which performance is measured over a period greater than one

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year shall be deemed to be earned ratably over the number of full and partial years in the Plan Cycle.

For Awards payable to Covered Officers, the IFC Committee shall certify in writing prior to any such payment the extent to which the performance goal or goals (and any other material terms) applicable to such Plan Cycle have been satisfied and the amounts to be paid, vested, or delivered as a result thereof.

The Committee reserves the right to adjust the Award of any participant (other than a Covered Officer) to reflect individual performance and/or extraordinary circumstances. The Award of any Covered Officer shall be subject to the right of the IFC Committee to reduce in a manner consistent with Code Section 162(m), but not increase, such Covered Officer’s Award to reflect individual performance and/or extraordinary circumstances.

7. Miscellaneous

a)	Amendment, Suspension or Termination of this Plan. Subject to the requirements of Code Section 409A and Code Section 162(m), the Board may, at any time and from time to time, amend, suspend or terminate the Plan or any part of the Plan as it may deem proper and in the best interest of the Company; provided, that, subject to the right of the Board to adjust Awards, no such action may cause any participant to be deprived of any Award previously awarded but not yet paid, or be effective in the fiscal year in which such action is taken unless it is taken within the first three months of the fiscal year.
b)	No Assignment. No portion of any Award under the Plan may be pledged, assigned or transferred otherwise than by will or the laws of descent and distribution prior to its payment.
c)	Limitation on Liabilities. In any matter related to the Plan, no director or employee of Irwin Financial Corporation, or any affiliate of Irwin Financial Corporation shall be liable for the action, or the failure to act, on the part of any other such person.
d)	Limitation on Vested Interest. Awarding a bonus is within the sole discretion of the Board. No participant has a vested interest in an award under the Plan prior to the end of the Plan Cycle for which the Award is granted.
e)	Employment Rights. Participation in this Plan shall not be construed to grant any employee the right to be retained in the employ of the Company.
f)	Unsecured General Creditors. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made

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hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.

g)

Governing Law. The validity and construction of the Plan and any rules relating to the Plan shall be determined and governed by the laws of the State of Indiana without reference to principles of conflict of laws, except as superseded by applicable federal law. This Plan is not intended to create any deferral of income that would be subject to Internal Revenue Code Section 409A. In the event that any deferral of income results under this Plan, the terms of this Plan shall be interpreted to comply with the requirements of 409A.

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EX-10.42

EXHIBIT 10.42

Irwin Commercial Finance

Amended and Restated Performance Unit Plan

1. Purpose

The purpose of the Irwin Commercial Finance Performance Unit Plan is to attract, retain and motivate key executives and to increase the long-term value of ICF by providing selected employees with the opportunity to share in the value of ICF through grants of performance units at a level intended to provide median competitive long-term incentive award opportunities.

2. Effective Date

The Performance Unit Plan was presented to the Board for adoption on August 22, 2005. The Plan was amended and restated to account for changes in the law. The initial Plan Cycle is January 1, 2005 – December 31, 2007. Adoption of the restated Plan is subject to shareholder approval.

3. Definitions

a)	AWARD means a payment made pursuant to the Plan at the end of a Plan Cycle.
b)	BOARD means the Board of Directors of Irwin Commercial Finance.
c)	CHAIRMAN means Chairman of the Board.
d)	CODE means the Internal Revenue Code of 1986, as amended.
e)	COMMITTEE means the committee appointed by the Board to administer the Plan, which shall consist solely of the Chairman until such time as the Plan is amended in accordance with Section 7(a) hereof.
f)	COMPANY means Irwin Commercial Finance.
g)	COVERED OFFICER means any individual who, on the last day of the taxable year of IFC, is the chief executive officer of IFC and any other officer of the Company who is, for such taxable year, determined to be among IFC’s four “highest compensated officers (other than the chief executive officer of IFC) as defined under Code Section 162(m)(3).
h)	DISABILITY means the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering the Company’s employees.

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i)	EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
j)	IFC COMMITTEE means the committee appointed by the board of directors of IFC to administer such long-term incentive plans as may be adopted by such board from time to time or, in the absence of such a committee, the standing compensation committee of IFC’s board of directors as constituted from time to time; provided, that any such IFC Committee shall be comprised solely of at least two members of the IFC board of directors who qualify as an “outside director” under Code Section 162(m) and the regulations promulgated thereunder and as a “non-employee director” within the meaning of Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act.
k)	PERFORMANCE UNIT means a component used to represent the incremental cash value of the Company that is awarded to participants in the Plan at the beginning of each Plan Cycle.
l)	PLAN means the Irwin Commercial Finance Performance Unit Plan.
m)	PLAN CYCLE means the three-year period in which the plan will run.
n)	P/E means a valuation ratio of the current unit price compared to per-share earnings.
o)	ROE means Return on Equity.

4. Eligibility

Executive employees, as recommended and approved by the Company President or the Board of Directors, and approved by the Board of Directors of ICF, are eligible to participate in the Plan. Key ICF executives (Vice President and above positions, based on market practice for granting programmatic long-term incentive opportunities) who would participate in annual grants of Irwin Commercial Finance Performance Units as approved by the ICF Board.

Selection of an employee for participation in the Plan does not guarantee being selected to participate in the Plan for any subsequent Plan Cycle. Selection of any employee to participate in the Plan does not give the participant any right to continued employment with the Company. The Company reserves the right, which may be exercised at any time, to terminate a Plan participant’s employment or adjust the compensation of a Plan participant with or without cause.

5. Administration

The Board will be requested to approve each Performance Unit Plan at the beginning of the Plan Cycle. The Committee will then carry out the daily administration of the Plan. To the extent required by Section 409A of the Internal Revenue Code, the Plan will be administered in accordance with Section 409A of the Code.

6. Plan Specifications

a) Plan Cycles. Each Plan Cycle is three years in length with the first cycle starting January 1st, 2005 and ending December 31st, 2007. All subsequent Plan Cycles will start January

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1^st and end December 31^st - three years later. A new Plan Cycle will start at the beginning of each calendar year.

b)	Plan Operation. Participants are awarded Performance Units at the beginning of each Plan Cycle. Performance Units vest in accordance with Section 6(f) below. At the end of each Plan Cycle, the vested Performance Units are cashed out based on the value of the Performance Units at the end of the Plan Cycle to the extent the participant is employed by the Company at the end of the Plan Cycle.
c)	Performance Units. Performance Units are components used to represent the incremental cash value of the Company. The number of units can divide the beginning value of the Company in order to make the beginning value for a Performance Unit in the first Plan Cycle equal to $100 (or any other number). Subsequent valuations will use the calculated number of units in order to determine the per unit value.
d)	Valuation. An outside appraiser in conformity with the Uniform Standards of Professional Appraisal Practice will do valuations. Valuations are performed annually unless the Board determines that significant volatility suggests the need for more frequent valuations. The standard value is fair market value. The outside appraiser will recommend a valuation approach or approaches, such as the combination of a market approach, income approach and net asset approach. The valuation should be adjusted for any capital contributions.
e)	Award Opportunities. Award opportunities are based on a median competitive expected value divided by the starting value of a Performance Unit for each Plan Cycle.
f)	Vesting. Performance Units will cliff vest based on continued employment over the Plan Cycle and average ROE performance as follows:

(i) No Performance Units will be vested if average ROE over the Plan Cycle is less than or equal to the average of threshold ROEs stated in the annual Short Term Incentive Plan for each of the years of the Plan Cycle..

(ii) All of the Performance Units will vest at the end of the Plan Cycle if average ROE performance at least equals the average of the target ROEs in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle and if the participant is employed continuously for the entire Plan Cycle.

(iii) A prorated portion of Performance Units will vest at the end of the Plan Cycle if average ROE is between the average of the threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle and the average of the target ROEs in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

The Right to receive the value of vested Performance Units shall be contingent upon employment with the Company on the last day of the Plan Cycle.

g) Rights Upon Separation from Service. In the event of separation from service, as such phrase is defined in Section 409A of the Code, for reasons other than death, Disability,

3

retirement, transfer pursuant to Section 6(h) below, or company-initiated Separation from Service unrelated to job performance, the Participant forfeits all Performance Units in effect on the date of separation. In the event of separation from service by reason of death, Disability (as such term is defined in Section 409A of the Code) retirement, transfer pursuant to Section 6(h) below, or Company-initiated Separation from Service unrelated to the participant’s job performance, a pro-rated portion of the Performance Units for each Plan Cycle in effect will be paid at the same time as set forth in Section 6(i) based on full months completed in the Plan at the date of termination, provided that the performance goals and performance criteria were met during the applicable Plan Cycle.

h)	Transfers to a Non-eligible Position. If a Participant transfers to a non-Plan-eligible position during the Plan Cycle, the Participant will receive a pro-rated portion of the Performance Units equal to the Performance Units in effect on the date of the transfer; provided that the performance goals and performance criteria were met during the applicable Plan Cycle; provided, further, that the Participant is employed by the Company or other Irwin Financial Corporation company at the end of the Plan Cycle. Payout will occur at the same time as it does for other Participants in those Plan
i)	Payment of Awards. The value of a participant’s vested Performance Units will be paid out in a cash lump sum payment based on the most recent valuation as soon as administratively practicable after such valuation is approved by the Board, but no later than March 14th of the first year immediately following the end of the Plan Cycle. If for any reason it is administratively impracticable to pay the value of the Performance Units by that deadline, such payments shall be made as soon as administratively practicable in the first calendar year immediately after the Plan Cycle ends. The value of the award is determined by the most recent valuation based on the final year financials of that Plan Cycle. In order to receive the award, the Participant must be employed on the last day of the Plan Cycle, subject to Section 6(h) above. The award is subject to all required tax deductions. No Award shall be payable if the participant and/or Company does not meet the performance goals set forth in the Plan Cycle Schedule. Awards payable to Covered Officers are subject to Section 6(l) below.
j)	Delay in Payment. The timing of a payment will be delayed to a date after the designated payment date where the Company reasonably anticipates that the Company’s deduction with respect to such payment otherwise would be limited or eliminated by the application of Code Section 162(m); provided, however, that the payment shall be made either at the earliest date at which the Company reasonably anticipates that the deduction of the payment amount will not be limited or eliminated by application of Code Section 162(m) or the calendar year in which the participant Separates from Service, as that term is defined by Code Section 409A and regulations issued thereunder.
k)	No Acceleration of Payment. The timing of payments under this Plan shall not be accelerated for any reason that is not permitted by Code Section 409A and regulations issued thereunder.

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l) Compliance with Code Section 162(m). The Company intends that Awards made to Covered Officers under the Plan shall satisfy the requirements for “performance-based compensation” under Code Section 162(m) and 409A and the Treasury Regulations promulgated thereunder. Therefore, Awards to Covered Officers and interpretation of the Plan shall be guided by such provisions, as appropriate. If a provision of the Plan would cause a payment to a Covered Officer to fail to satisfy these requirements, it shall be interpreted and applied in a manner such that said payment will satisfy Code Sections 162(m) and 409A. Notwithstanding the foregoing, the Company shall request that IFC obtain IFC shareholder approval for any amendment of the Plan as may be required under Code Section 162(m) to ensure the Plan’s qualification under Code Section 162(m).

For Covered Officers, within 90 days after the beginning of a Plan Cycle and before it has become substantially certain that the performance level will be met (or such other time as is consistent with the requirements of Code Sections 162(m) and Section 409A of the Code), the IFC Committee, in its sole discretion, shall take the following action:

1)

establish a target Award opportunity in writing for each Plan participant for the Plan Cycle, expressed in Performance Units; and

2)

establish objective performance-based goals for an Award for which the outcome is substantially uncertain at the time such goals are established and that (i) specify a threshold, a target, a maximum and any other performance levels deemed by the Committee to be necessary or appropriate to establish an accurate and effective pay-for-performance schedule and (ii) base performance on one or more of the following financial indicators of the Company’s success: earnings per share, net earnings, net income, operating earnings, customer satisfaction, revenues, net sales, financial return ratios such as return on equity, return on assets, return on capital, and return on investment, ratio of debt to earnings or shareholders’ equity, market performance, market share, balance sheet measurements, economic profit, cash flow, shareholder return, margins, productivity improvement, distribution expense, inventory turnover, delivery reliability, cost control or operational efficiency measures, and working capital, any of which may be measured in absolute terms, growth or improvement during a Performance Period or as compared to another company or companies. Performance goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated or other external or internal measure and may include or exclude extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and strategic loan loss provisions. Such performance goals may be particular to a line of business, subsidiary or other unit or the Company generally, and may, but need not, be based upon a change or an increase or positive result.

Notwithstanding anything in the foregoing to the contrary, in the case of a person who was a Covered Officer as of the close of the immediately preceding fiscal year, the target

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Award opportunity, performance levels and performance criteria pertaining to such Covered Officer shall also be approved by the IFC Committee within 90 days after the beginning of the Plan Cycle but in no event after 25 percent of such Plan Cycle has elapsed (or such other time as is consistent with the requirements of Code Sections 162(m) and 409A). All such target and maximum Award opportunities, performance levels and performance criteria pertaining to any Covered Officer shall be objective and shall otherwise meet the requirements of Code Sections 162(m) and Section 409A.

Upon being established by the Committee (and approved by the IFC Committee, as necessary), the target and maximum Award opportunities, performance levels and performance criteria for each participant for a given Plan Cycle shall be set forth in writing and communicated to each such participant (the “Plan Cycle Schedule”); provided, however, that the rights of a Covered Officer to receive payment pursuant to any such Award shall be expressly conditioned on obtaining the approval of the Plan by a majority of the shareholders of the Company in the manner provided under Code Section 162(m) prior to such payment.

After the establishment of a performance goal for a Covered Officer, the Committee shall not revise such performance goal (unless such revision will not disqualify compensation attributable to the Award as “performance-based compensation” under Section 162(m) of the Code) or increase the amount of compensation payable with respect to such Award upon the attainment of such performance goal.

As required by Treasury Regulation Section 1.162-27(e)(vi), the material terms of performance goals as described in this Section 6 shall be disclosed to and reapproved by IFC’s shareholders no later than the first shareholder meeting that occurs in the 5th year following the year in which IFC’s shareholders previously approved such performance goals.

The maximum dollar amount for a cash Award that may be earned under the Plan with respect to any Plan Cycle shall be $2,000,000. Any amount earned with respect to a cash Award with respect to which performance is measured over a period greater than one year shall be deemed to be earned ratably over the number of full and partial years in the Plan Cycle.

For Awards payable to Covered Officers, the IFC Committee shall certify in writing prior to any such payment the extent to which the performance goal or goals (and any other material terms) applicable to such Plan Cycle have been satisfied and the amounts to be paid, vested, or delivered as a result thereof.

The Committee reserves the right to adjust the Award of any participant (other than a Covered Officer) to reflect individual performance and/or extraordinary circumstances. The Award of any Covered Officer shall be subject to the right of the IFC Committee to reduce in a manner consistent with Code Section 162(m), but not increase, such Covered Officer’s Award to reflect individual performance and/or extraordinary circumstances.

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7. Miscellaneous

a)	Amendment, Suspension or Termination of this Plan. Subject to the requirements of Code Section 409A and Section 162(m), the Board may, at any time and from time to time, amend, suspend or terminate the Plan or any part of the Plan as it may deem proper and in the best interest of the Company and subject to any requirement of stockholder approval imposed by applicable law, rule or regulation; provided, that, subject to the right of the Board to adjust Awards, no such action may cause any participant to be deprived of any Award previously awarded but not yet paid, or be effective in the fiscal year in which such action is taken. To the extent required by Section 409A of the Internal Revenue Code, the Plan will be amended to comply with Section 409A of the Code. The Board reserves the right in any year not to grant any new units to any participating member.
b)	No Assignment. No portion of any Award under the Plan may be pledged, assigned or transferred otherwise than by will or the laws of descent and distribution prior to its payment.
c)	Limitation on Liabilities. In any matter related to the Plan, no director or employee of Irwin Financial Corporation, or any affiliate of Irwin Financial Corporation shall be liable for the action, or the failure to act, on the part of any other such person.
d)	Limitation on Vested Interest. Awarding a bonus is within the sole discretion of the Board. No participant has a vested interest in an award under the Plan prior to the end of the Plan Cycle for which the Award is granted.
e)	Employment Rights. Participation in this Plan shall not be construed to grant any employee the right to be retained in the employ of the Company.
f)	Unsecured General Creditors. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.
g)	Governing Law. Indiana law shall determine the validity and construction of the Plan and any rules relating to the Plan without reference to principles of conflict of laws, except as superseded by applicable federal law. This Plan is not intended to create any deferral of income that would be subject to Internal Revenue Code Section 409A. In the event that any deferral of income results under this Plan, the terms of this Plan shall be interpreted to comply with the requirements of 409A.

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EX-10.43

EXHIBIT 10.43

Irwin Home Equity Corporation

Performance Unit Plan

1. Purpose

The purpose of the Irwin Home Equity Corporation Performance Unit Plan is to encourage employee retention and motivation to increase the long-term value of the Company through grants of performance units.

2. Effective Date

The Performance Unit Plan was adopted by the Board on December 20, 2005. The initial Plan Cycle is January 1, 2006 – December 31, 2008. Adoption of the Plan is subject to shareholder approval.

3. Definitions

a)	AWARD means a payment made pursuant to the Plan at the end of a Plan Cycle.
b)	BOARD means the Board of Directors of Irwin Home Equity Corporation.
c)	CODE means the Internal Revenue Code of 1986, as amended.
d)	COMMITTEE means the committee appointed by the Board to administer the Plan, which shall consist solely of the Chairman until such time as the Plan is amended in accordance with Section 7(a) hereof.
e)	COMPANY means the Irwin Home Equity Corporation.
f)	COVERED OFFICER means any individual who, on the last day of the taxable year of IFC, is the chief executive officer of IFC and any other officer of the Company who is, for such taxable year, determined to be among IFC’s four “highest compensated officers (other than the chief executive officer of IFC) as defined under Code Section 162(m)(3).
g)	DISABILITY means the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering the Company’s employees.
h)	EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.

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i)	IFC COMMITTEE means the committee appointed by the board of directors of IFC to administer such long-term incentive plans as may be adopted by such board from time to time or, in the absence of such a committee, the standing compensation committee of IFC’s board of directors as constituted from time to time; provided, that any such IFC Committee shall be comprised solely of at least two members of the IFC board of directors who qualify as an “outside director” under Code Section 162(m) and the regulations promulgated thereunder and as a “non-employee director” within the meaning of Rule 16b-3(b)(3) (or any successor rule) under the Exchange Act.
j)	PERFORMANCE UNIT means a component used to represent the incremental cash value of the Company that is awarded to participants in the Plan at the beginning of each Plan Cycle.
k)	PLAN means the Irwin Home Equity Corporation Performance Unit Plan.
l)	PLAN CYCLE means the three-year period in which the Plan will run.
m)	P/E means a valuation ratio of the current share price compared to a per-share earnings unit.
n)	ROE means return on equity.

4. Eligibility

Key employees, as recommended and approved by the Company President and Board, are eligible to participate in the Plan. Key employees include those full-time employees whose compensation market data supports granting long-term incentive opportunities at the Director level or above.

Selection of an employee for participation in the Plan does not guarantee being selected for participation in the Plan for any subsequent Plan Cycle. Selection of an employee for participation in the Plan does not give the participant any right to continue in the employ of the Company. The Company reserves the right, which may be exercised at any time, to terminate a Plan participant’s employment or adjust the compensation of a Plan participant with or without cause.

5. Administration

The Board will be requested to approve each Performance Unit Plan at the beginning of the Plan Cycle. The Committee will then carry out the daily administration of the Plan.

6. Plan Specifications

a) Plan Cycles. Each Plan Cycle is three years in length with the first cycle starting January 1st, 2006 and ending December 31st, 2008. All subsequent Plan Cycles will start January 1^st and end December 31^st three years later. A new Plan Cycle will start at the beginning of each calendar year.

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b)	Plan Operation. Participants are awarded Performance Units at the beginning of each Plan Cycle. Performance Units vest in accordance with Section 6(f) below. At the end of each Plan Cycle, the vested Performance Units are cashed out based on the value of the Performance Units at the end of the Plan Cycle to the extent the participant is employed by the Company at the end of the Plan Cycle.
c)	Performance Units. Performance Units are components used to represent the incremental cash value of the Company. The beginning value of the Company is divided by the number of units in order to make the beginning value for a Performance Unit in the first Plan Cycle equal to $100. Subsequent valuations will use the calculated number of units in order to determine the per unit value.
d)	Valuation. Valuations are done by an outside appraiser in conformity with the Uniform Standards of Professional Appraisal Practice. Valuations are performed annually unless the Board determines that significant volatility suggests the need for more frequent valuations. The standard value is fair market value. The outside appraiser will recommend a valuation approach or approaches, such as the combination of a market approach, income approach and net asset approach. The valuation should be adjusted for any capital contributions.
e)	Award Opportunities. Award opportunities are based on a median competitive expected value divided by the starting value of a Performance Unit for each Plan Cycle.
f)	Vesting. Performance Units will cliff vest based on continued employment over the Plan Cycle and average ROE performance, as follows:

(i) No Performance Units will be vested if average ROE over the Plan Cycle is less than or equal to the average of the threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

(ii) All of the Performance Units will vest at the end of the Plan Cycle if average ROE performance at least equals the average of the target ROEs in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

(iii) A prorated portion of Performance Units will vest at the end of the Plan Cycle if average ROE is between the average of the threshold ROEs stated in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle and the average of the target ROEs in the annual Short-Term Incentive Plan for each of the years of the Plan Cycle.

The Right to receive the value of vested Performance Units shall be contingent upon employment with the Company on the last day of the Plan Cycle.

g) Rights Upon Separation from Service. In the event of separation from service, as such phrase is defined in Section 409A of the Code, for reasons other than death, Disability, retirement, transfer pursuant to Section 6(h) below, or company-initiated Separation from Service unrelated to job performance, the Participant forfeits all Performance Units in effect on the date of separation. In the event of separation from service by reason of death, Disability (as such term is defined in Section 409A of the Code) retirement,

3

	transfer pursuant to Section 6(h) below, or Company-initiated Separation from Service unrelated to the participant’s job performance, a pro-rated portion of the Performance Units for each Plan Cycle in effect will be paid at the same time as set forth in Section 6(i) based on full months completed in the Plan at the date of termination, provided that the performance goals and performance criteria were met during the applicable Plan Cycle.
h)	Transfer to Non-eligible Position. If a Participant transfers to a non-Plan-eligible position during the Plan Cycle, the Participant will receive a pro-rated portion of the Performance Units equal to the Performance Units in effect on the date of the transfer; provided that the performance goals and performance criteria were met during the applicable Plan Cycle; provided further than the Participant is employed by the Company or other Irwin Financial Corporation company at the end of the Plan Cycle. Payout will occur at the same time as for other Participants in those Plan Cycles.
i)	Payment of Awards. The value of a Participant’s vested Performance Units will be paid out in a cash lump sum payment based on the most recent valuation as soon as administratively practicable after such valuation is approved by the Board, but no later than March 14th of the first year immediately following the end of the Plan Cycle. If for any reason it is administratively impracticable to pay the value of the Performance Units by that deadline, such payments shall be made as soon as administratively practicable in the first calendar year immediately after the Plan Cycle ends. The value of the Award is determined by the most recent valuation based on the final year financials of that Plan Cycle. In order to receive the Award, the Participant must be employed in a Plan-eligible position on the last day of the Plan Cycle, subject to Section 6(h) above. The award is subject to all required tax deductions. No Award shall be payable if the participant and/or Company does not meet the performance goals set forth in the Plan Cycle Schedule. Awards payable to Covered Officers are subject to Section 6(l) below.
j)	Delay in Payment. The timing of a payment will be delayed to a date after the designated payment date where the Company reasonably anticipates that the Company’s deduction with respect to such payment otherwise would be limited or eliminated by the application of Code Section 162(m); provided, however, that the payment shall be made either at the earliest date at which the Company reasonably anticipates that the deduction of the payment amount will not be limited or eliminated by application of Code Section 162(m) or the calendar year in which the participant Separates from Service, as that term is defined by Code Section 409A and regulations issued thereunder.
k)	No Acceleration of Payment. The timing of payments under this Plan shall not be accelerated for any reason that is not permitted by Code Section 409A and regulations issued thereunder.
l)	Compliance with Code Section 162(m). The Company intends that Awards made to Covered Officers under the Plan shall satisfy the requirements for “performance-based compensation” under Code Section 162(m) and 409A and the Treasury Regulations promulgated thereunder. Therefore, Awards to Covered Officers and interpretation of the Plan shall be guided by such provisions, as appropriate. If a provision of the Plan would

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cause a payment to a Covered Officer to fail to satisfy these requirements, it shall be interpreted and applied in a manner such that said payment will satisfy Code Sections 162(m) and 409A. Notwithstanding the foregoing, the Company shall request that IFC obtain IFC shareholder approval for any amendment of the Plan as may be required under Code Section 162(m) to ensure the Plan’s qualification under Code Section 162(m).

For Covered Officers, within 90 days after the beginning of a Plan Cycle and before it has become substantially certain that the performance level will be met (or such other time as is consistent with the requirements of Code Sections 162(m) and Section 409A of the Code), the IFC Committee, in its sole discretion, shall take the following action:

1)

establish a target Award opportunity in writing for each Plan participant for the Plan Cycle, expressed in Performance Units; and

2)

establish objective performance-based goals for an Award for which the outcome is substantially uncertain at the time such goals are established and that (i) specify a threshold, a target, a maximum and any other performance levels deemed by the Committee to be necessary or appropriate to establish an accurate and effective pay-for-performance schedule and (ii) base performance on one or more of the following financial indicators of the Company’s success: earnings per share, net earnings, net income, operating earnings, customer satisfaction, revenues, net sales, financial return ratios such as return on equity, return on assets, return on capital, and return on investment, ratio of debt to earnings or shareholders’ equity, market performance, market share, balance sheet measurements, economic profit, cash flow, shareholder return, margins, productivity improvement, distribution expense, inventory turnover, delivery reliability, cost control or operational efficiency measures, and working capital, any of which may be measured in absolute terms, growth or improvement during a Performance Period or as compared to another company or companies. Performance goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated or other external or internal measure and may include or exclude extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and strategic loan loss provisions. Such performance goals may be particular to a line of business, subsidiary or other unit or the Company generally, and may, but need not, be based upon a change or an increase or positive result.

Notwithstanding anything in the foregoing to the contrary, in the case of a person who was a Covered Officer as of the close of the immediately preceding fiscal year, the target Award opportunity, performance levels and performance criteria pertaining to such Covered Officer shall also be approved by the IFC Committee within 90 days after the beginning of the Plan Cycle but in no event after 25 percent of such Plan Cycle has elapsed (or such other time as is consistent with the requirements of Code

5

Sections 162(m) and 409A). All such target and maximum Award opportunities, performance levels and performance criteria pertaining to any Covered Officer shall be objective and shall otherwise meet the requirements of Code Sections 162(m) and Section 409A.

Upon being established by the Committee (and approved by the IFC Committee, as necessary), the target and maximum Award opportunities, performance levels and performance criteria for each participant for a given Plan Cycle shall be set forth in writing and communicated to each such participant (the “Plan Cycle Schedule”); provided, however, that the rights of a Covered Officer to receive payment pursuant to any such Award shall be expressly conditioned on obtaining the approval of the Plan by a majority of the shareholders of the Company in the manner provided under Code Section 162(m) prior to such payment.

After the establishment of a performance goal for a Covered Officer, the Committee shall not revise such performance goal (unless such revision will not disqualify compensation attributable to the Award as “performance-based compensation” under Section 162(m) of the Code) or increase the amount of compensation payable with respect to such Award upon the attainment of such performance goal.

As required by Treasury Regulation Section 1.162-27(e)(vi), the material terms of performance goals as described in this Section 6 shall be disclosed to and reapproved by IFC’s shareholders no later than the first shareholder meeting that occurs in the 5th year following the year in which IFC’s shareholders previously approved such performance goals.

The maximum dollar amount for a cash Award that may be earned under the Plan with respect to any single Plan Cycle shall be $2,000,000. Any amount earned with respect to a cash Award with respect to which performance is measured over a period greater than one year shall be deemed to be earned ratably over the number of full and partial years in the Plan Cycle.

For Awards payable to Covered Officers, the IFC Committee shall certify in writing prior to any such payment the extent to which the performance goal or goals (and any other material terms) applicable to such Plan Cycle have been satisfied and the amounts to be paid, vested, or delivered as a result thereof.

The Committee reserves the right to adjust the Award of any participant (other than a Covered Officer) to reflect individual performance and/or extraordinary circumstances. The Award of any Covered Officer shall be subject to the right of the IFC Committee to reduce in a manner consistent with Code Section 162(m), but not increase, such Covered Officer’s Award to reflect individual performance and/or extraordinary circumstances.

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7. Miscellaneous

a)	Amendment, Suspension or Termination of this Plan. Subject to the requirements of Code Section 409A and Code Section 162(m), the Board may, at any time and from time to time, amend, suspend or terminate the Plan or any part of the Plan as it may deem proper and in the best interest of the Company; provided, that, subject to the right of the Board to adjust Awards, no such action may cause any participant to be deprived of any Award previously awarded but not yet paid, or be effective in the fiscal year in which such action is taken unless it is taken within the first three months of the fiscal year.
b)	No Assignment. No portion of any Award under the Plan may be pledged, assigned or transferred otherwise than by will or the laws of descent and distribution prior to its payment.
c)	Limitation on Liabilities. In any matter related to the Plan, no director or employee of Irwin Financial Corporation, or any affiliate of Irwin Financial Corporation shall be liable for the action, or the failure to act, on the part of any other such person.
d)	Limitation on Vested Interest. Awarding a bonus is within the sole discretion of the Board. No participant has a vested interest in an award under the Plan prior to the end of the Plan Cycle for which the Award is granted.
e)	Employment Rights. Participation in this Plan shall not be construed to grant any employee the right to be retained in the employ of the Company.
f)	Unsecured General Creditors. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.
g)	Governing Law. The validity and construction of the Plan and any rules relating to the Plan shall be determined and governed by the laws of the State of Indiana without reference to principles of conflict of laws, except as superseded by applicable federal law. This Plan is not intended to create any deferral of income that would be subject to Internal Revenue Code Section 409A. In the event that any deferral of income results under this Plan, the terms of this Plan shall be interpreted to comply with the requirements of 409A.

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EX-10.44

EXHIBIT 10.44

FIRST AMENDMENT TO

LIMITED LIABILITY COMPANY AGREEMENT OF

IRWIN VENTURES LLC

     This First Amendment (the “Amendment”) is made this 18th day of November, 2005, with the intent that it have effect from and after January 1, 2005, to the Limited Liability Company Agreement, dated as of January 1, 2001 (the “Agreement”), of Irwin Ventures LLC (the “Company”), by and among Irwin Financial Corporation, an Indiana corporation, as the Class A Member and Class C Member of the Company (“IFC”), Irwin Ventures Co-Investment Fund LLC, a Delaware limited liability company, as a Class a Member of the Company (the “Executive Co-Investment Fund”), and David Meyercord, Thomas Washburn and William Miller as Class C Members of the Company. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement.

     WHEREAS, Section 14.1 of the Agreement provides that the Management Committee may propose amendments to the Agreement and such amendments may be made with the written consent of the Class A Member; provided, however, that no such amendments may modify the allocation or timing of distributions of cash or Company Profits and Losses, without the consent of the Member so affected;

     WHEREAS, Section 4.2 of the Agreement sets forth the priority and amounts in which the Company shall make distributions, if any, of Distributable Operating Cash and Distributable Liquidity Event Cash, to the Members and Section 5.1 of the Agreement sets forth the priority and amounts in which Portfolio Investment Profit and Portfolio Investment Loss shall be allocated among the Members;

     WHEREAS, the Management Committee desires that the Agreement be amended to provide that (A) with respect to Portfolio Investments made by the Company after January 1, 2005, (i) no carried interest shall be associated with any such investments, (ii) all profits and losses associated with such investments shall be for the account of IFC, (iii) all distributions of Distributable Operating Cash and Distributable Liquidity Event Cash attributable to such investments shall be distributed as provided herein, and (iv) all allocations of Portfolio Investment Profit and Portfolio Investment Loss attributable to such investments shall be allocated as provided herein, and (B) no Allocable Expenses shall be allocated to Portfolio Investments made after January 1, 2005; and

     WHEREAS, the Class A Member, Class B Member and Class C Members agree with the Management Committee’s recommendations for amendments to the Agreement as set forth above and desire to amend the Agreement as provided herein.

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

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1. Amendments to Agreement.

     a. Section 4.2.1 of the Agreement is hereby amended by adding the following paragraph to the end of Section 4.2.1 of the Agreement:

Notwithstanding any other provision of this Agreement, the Class C Members shall not be entitled to any distribution of Distributable Operating Cash attributable to New Investments (as defined below). Distributable Operating Cash attributable to Follow-On Investments made after January 1, 2005 shall be allocated in accordance with Section 4.2.1. However, in the event the Company makes a distribution of Distributable Operating Cash attributable to New Investments, the Company shall distribute such Distributable Operating Cash in accordance with Section 4.2.1 except that after making the distributions provided by Sections 4.2.1(a) through (c), the remaining Distributable Operating Cash shall be distributed one hundred percent (100%) to the Class A Member and Section 4.2.1(d) shall not apply to distributions of Distributable Operating Cash attributable to New Investments.

     b. Section 4.2.2 of the Agreement is hereby amended by adding the following paragraph to the end of Section 4.2.2 of the Agreement:

Notwithstanding any other provision of this Agreement, the Class C Members shall not be entitled to any distribution of Distributable Liquidity Event Cash attributable to New Investments. Distributable Liquidity Event Cash attributable to Follow-On Investments made after January 1, 2005 shall be allocated in accordance with Section 4.2.2. However, in the event the Company makes a distribution of Distributable Liquidity Event Cash attributable to New Investments, the Company shall distribute such Distributable Liquidity Event Cash in accordance with this Section 4.2.2 except that after making the distributions provided by Sections 4.2.1(a) and (b), the remaining Distributable Liquidity Event Cash shall be distributed one hundred percent (100%) to the Class A Member and Section 4.2.2(c) shall not apply to distributions of Distributable Liquidity Event Cash attributable to New Investments.

     c. Section 5.1 of the Agreement is hereby amended by adding the following new Section 5.1.3 to Section 5.1 of the Agreement:

5.1.3 Notwithstanding any other provision of this Agreement, the Class C Members shall not be entitled to any allocation of Portfolio Investment Profit or Portfolio Investment Loss attributable to New Investments. Portfolio Investment Profit and Portfolio Investment Loss attributable to Follow-On Investments

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made after January 1, 2005 shall be allocated in accordance with Section 5.1.1 and Section 5.1.2, as applicable. However, Portfolio Investment Profit attributable to New Investments shall be allocated to the Members in accordance with Section 5.1.1 except that after making the allocations provided by Sections 5.1.1(a) through (d), the remaining Portfolio Investment Profit shall be allocated one hundred percent (100%) to the Class A Member. Portfolio Investment Loss attributable to New Investments shall be allocated one hundred percent (100%) of to the Class A Member.

     d. Addendum I to the Agreement (Definitions) is hereby amended by adding the following as terms defined therein:

“New Investment” means any Portfolio Investment (other than a Follow-On Investment) made by the Company after January 1, 2005.

“Follow-On Investment” means a follow-on investment made by the Company on or after January 1, 2005 in a Portfolio Company in which the Company was invested both on January 1, 2005 and immediately prior to consummation of the follow-on investment.

2. Effectiveness. The amendments set forth in Section 1 of this Amendment are intended to be effective as of January 1, 2005 to the fullest extent permitted by law. Except as expressly amended hereby, the provisions of the Agreement are and shall remain in full force and effect.

3. Governing Law. This Amendment shall be governed by the laws of the State of Delaware

[signature page follows]

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     IN WITNESS WHEREOF, the Company and the undersigned Members have executed this First Amendment to Limited Liability Company Agreement of Irwin Ventures LLC as of the day and year first above written.

IRWIN VENTURES LLC
By:
	Name:	David S. Meyercord
	Title:	Senior Vice President, Investments
Class A Member: IRWIN FINANCIAL CORPORATION
By:
	Name:	Thomas D. Washburn
	Title:	Executive Vice President
Class B Member: IRWIN VENTURES CO-INVESTMENT FUND LLC
By:
	Name:	David S. Meyercord
	Title:	President, Investment Committee
Class C Members: IRWIN FINANCIAL CORPORATION
By:
	Name:	Thomas D. Washburn
	Title:	Executive Vice President
David S. Meyercord
William I. Miller
Thomas D. Washburn

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EX-10.45

EXHIBIT 10.45

SECOND AMENDMENT TO

LIMITED LIABILITY COMPANY AGREEMENT OF

IRWIN VENTURES CO-INVESTMENT FUND LLC

     This Second Amendment (the “Amendment”) is made this 18th day of November, 2005, with the intent that it have effect from and after January 1, 2005, to the Limited Liability Company Agreement, dated as of April 20, 2001 (the “Agreement”), of Irwin Ventures Co-Investment Fund LLC (the “Company”), by and among Irwin Financial Corporation, an Indiana corporation, as the Class A member (“IFC” or the “Class A Member”) and the other parties designated from time to time as Class B Members on Schedule A thereto (each, a “Class B Member,” and collectively, the “Class B Members”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement.

     WHEREAS, Section 14.1 of the Agreement provides that the Management Committee may propose amendments to the Agreement and such amendments may be made with the written consent of the Class A Member;

     WHEREAS, Section 5.2.1 of the Agreement provides that at the beginning of each calendar year, for such period as the Management Committee shall determine, each Qualified Employee may elect defer a portion of his or her bonus award and contribute it to the Company;

     WHEREAS, the Management Committee desires that the Agreement be amended to provide that (x) the ability of Qualified Employees to make investments in the Company will apply only to calendar years ending prior to January 1, 2005, (y) and that no election made in 2005 to defer bonus awards made at the end of 2005 for investment in 2006 will be accepted, and (z) no Qualified Employees shall be entitled to qualify for participation after January 1, 2005; and

     WHEREAS, the Class A Member agrees with the Management Committee’s recommendation as set forth above and desires to amend the Agreement as provided herein.

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Amendment to Agreement. Section 5.2.1 of the Agreement is hereby amended by adding the following sentence to the end of Section 5.2.1 of the Agreement:

Notwithstanding the foregoing, no employee of an IFC Group Member shall have the right to participate in the Company and make Annual Bonus Contributions for calendar years ending after January 1, 2005. Qualified Employees shall not be entitled to

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make Annual Bonus Contributions with respect to calendar years ending after January 1, 2005 and the Company shall not accept or recognize any election made by a Qualified Employee to invest his or her Annual Bonus Contribution for periods on or after January 1, 2005.

2. Effectiveness. The amendment set forth in Section 1 of this Amendment is intended to be effective as of January 1, 2005 to the fullest extent permitted by law. Except as expressly amended hereby, the provisions of the Agreement are and shall remain in full force and effect.

3. Governing Law. This Amendment shall be governed by the laws of the State of Delaware.

     IN WITNESS WHEREOF, the Company and the undersigned Class A Member have executed this Second Amendment to Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC as of the day and year first above written.

IRWIN VENTURES CO-INVESTMENT FUND LLC
By:
	Name:	David S. Meyercord
	Title:	Senior Vice President, Investments
Class A Member: IRWIN FINANCIAL CORPORATION
By:
	Name:	Thomas D. Washburn
	Title:	Executive Vice President

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EX-11.1

Exhibit 11.1

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11(a) — COMPUTATION OF EARNINGS PER SHARE

Year Ended December 31,	2005		2004		2003
Average number of shares outstanding		28,518		28,274		27,915
Net income before cumulative effect of change in accounting principle	$	18,987	$	68,445	$	72,817
Basic earnings per share before cumulative effect of change in accounting principle	$	0.67	$	2.42	$	2.61
Diluted shares outstanding
Average number of shares outstanding		28,518		28,274		27,915
Assumed conversion of preferred shares (Note 1)		—		2,607		2,610
Assumed conversion of convertible trust preferred shares (Note 1)		—		—		—
Assumed exercise of stock options (Note 2)		323		397		325
Total shares		28,841		31,278		30,850
Net income	$	18,987	$	68,445	$	72,817
Add back interest on convertible shares (Note 1)		0		2,712		2,715
Net income before cumulative effect of change in accounting principle	$	18,987	$	71,157	$	75,532
Diluted earnings per share before cumulative effect of change in accounting principle	$	0.66	$	2.28	$	2.45

(1)	The dilutive effect of convertible shares is based on the if converted method. These shares and interest add back were not included in 2005 because they were antidilutive.
(2)	The dilutive effect of stock options is based on the Treasury Stock method.

EX-12.1

Exhibit 12.1

IRWIN FINANCIAL CORPORATION

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Year Ended December 31,
(In Thousands)	2005			2004			2003			2002			2001
Including Interest on Deposits
Earnings:
Earnings before income taxes	$	27,969		$	114,177		$	118,402		$	86,231		$	74,200
Fixed charges from below		156,368			92,225			99,099			97,795			121,083
Earnings	$	184,337		$	206,402		$	217,501		$	184,026		$	195,283
Fixed charges:
Interest expense	$	156,368		$	92,225		$	99,099		$	97,795		$	121,083
Ratio of earnings to fixed charges		1.18	x		2.24	x		2.19	x		1.88	x		1.61	x
Excluding Interest on Deposits
Earnings:
Earnings before income taxes	$	27,969		$	114,177		$	118,402		$	86,231		$	74,200
Fixed charges from below		72,507			47,738			56,734			43,434			47,743
Earnings	$	100,476		$	161,915		$	175,136		$	129,665		$	121,943
Fixed charges:
Interest expense, excluding interest on deposits	$	72,507		$	47,738		$	56,734		$	43,434		$	47,743
Ratio of earnings to fixed charges		1.39	x		3.39	x		3.09	x		2.99	x		2.55	x

EX-14.1

Exhibit 14.1

This Code of Conduct offers guidelines for business decision-making by employees, officers, and directors in the Irwin Financial companies. Decisions we make at work should be consistent with our beliefs. We use the following framework to make sure our decisions are consistently aligned:

Guiding Philosophy — Our Guiding Philosophy is our system of fundamental beliefs and principles about business. Our statement of corporate philosophy attempts to capture the essence of these principles in a single sentence:

We believe the purpose of our business is to create superior value for all our stakeholders through a dedication to service, treating others as we would want to be treated, a long-term orientation, and pursuit of the highest standards.

We use this collection of statements concerning what we believe about people, business, organizations and work life which we call our Core Values and Beliefs to explain the six central concepts of this philosophy and to influence our decision-making. These are not rules that always apply to every situation. Rather, they are principles that are often helpful in deciding what course of business action is most consistent with our corporate values.

Mission — Irwin Financial’s mission is to be the best financial services company, through ethics and excellence, today and tomorrow.

Neither our statement of Corporate Philosophy nor our Mission are accurate descriptions of present reality. We do not pretend that everyone in our Corporation behaves consistently with all these values all the time or that we have achieved our Mission. As an organization of human beings, we are not perfect. Nonetheless, believing in principles, having high aspirations, and critically assessing our behavior against both remains important. These beliefs act as important standards to which we hold ourselves when assessing our own performance. Each Irwin company has a Mission that is fitting for its line of business.

Strategy — Strategy is the sum of our decisions about what we will do to achieve our Mission given the environment in which we operate. Much more so than the Guiding Philosophy or Mission, strategy is influenced by external factors.

Process Improvement Approach — The financial services system established by our society requires that we conform our behavior to guidelines and standards established for our industry by various regulatory authorities. There are many of these standards and they change from time-to-time. The following Code of Conduct describes how we will conduct our business in compliance with applicable standards.

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Table of Contents – The contents are organized by relationship to the interests of the six stakeholders of the Irwin Financial companies.

Customers and Suppliers
	Fair Dealing	3
	Conflicts of Interest	3
	Gifts	4
	Privacy Act	5
	Supplier/Vendor Solicitations	5
Employees
	Confidential Information	5
	Conflicts of Interest	5
	Criminal Law Summary	7
	Directorships	7
	Diversity	7
	Drugs and Alcohol	7
	Giving Tax and/or Legal Advice	8
	Guidelines for Borrowing Money	8
	Handling Personal Finances	8
	Harassment	8
	Reporting Business Expenses	8
	Safety	8
	Protection and Use of Company Property/Assets	9
	Use of Computer Software and Systems	9
	Copyright Compliance	9
Shareholders
	Insider Trading Guidelines	9
	Standards for Financial Reporting	10
	Accuracy of Financial Records	11
Society
	Compliance with Laws, Rules and Regulations	11
	Payments to Government Personnel	12
	Personal Participation in the Political Process	12
	Political Contributions and Bribes	12
	Transactions between IFC Companies	12
Community
	Community Involvement and Activities	13
	Responsible Corporate Citizen	13
How to Report a Problem		13
Conclusion
	Approval of the Code of Conduct	14
	Waivers of the Code of Conduct	14
	Responsibility of Employee	15
	Affirmation	15
	Important—Additional Information	16
Appendix A
	Internal Contact Resources	17
Appendix B
	Procedures for Reporting Complaints about Accounting or Auditing Matters	18

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Customers and Suppliers

Without our customers, there would be no markets for our products and services, nor any revenue to pay our expenses and earn a profit. Without our suppliers, we would lack essential services and material.

Fair Dealing

One of our core values is that of honorable competition. Therefore, we should respect the rights of, and deal fairly with, the company’s customers, suppliers and competitors. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice. Moreover, you need to comply with all “antitrust” and fair competition laws.

Relations with Customers/Suppliers
Just as we can establish the terms through which we will sell a product, a customer has the freedom to establish his or her own prices and terms for a sale. There are circumstances under which our company may or may not be permitted to offer credit or services on the condition that the customer enter into a business relationship with another one of our companies. These situations are referred to as “tie-in” situations. To learn more about tie-ins, consult your supervisor or your legal area.

Irwin Financial will not enter into any agreement with a supplier to set industry prices or terms of a sale. The laws involving antitrust issues are complex and you should both avoid conflict and the appearance of conflict.

Customer and Supplier Non-Discrimination
You will not discriminate against any customers (applicants, borrowers etc.) or suppliers based on race, color, religion, national origin, gender, disability, age, marital status, familial status, sexual preference, veteran status, the receipt of public assistance, the good faith exercise of any rights under the Consumer Credit Protection Act, or on any other basis prohibited by federal, state or local law.

Relations with Competitors
We seek to outperform our competition fairly and honestly. We seek competitive advantages through superior performance, not through wrongful or illegal business practices. Irwin Financial will therefore conduct its business fairly and in compliance with the laws that govern it.

Irwin will not enter into arrangements with competitors affecting pricing or marketing policies.
You should not communicate with competitors unless there is a specific business need such as benchmarking or contact occurs through interaction at a trade or industry association event. If at any trade or industry association meeting the subject of pricing, bidding, territorial or customer allocation, or refusal to deal is mentioned in any form, you should leave the meeting immediately and report the circumstance to the legal area.

Conflicts of Interest

You should always avoid conflicts, or the appearance of conflicts, between your personal interests and the interests of Irwin Financial. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her work for the company objectively. Conflicts of interest may also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the company. For example, you may not complete a transaction (the sale of an Irwin Financial company product or service) for yourself or for a member of your immediate family or for an organization of which you are a member. If you need a transaction completed for yourself or for a family member or group, you should ask other employees to direct the processing, underwriting or approval of the transaction. This helps to prevent the appearance of a potential conflict.

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You should question transactions you perform before completing them. Ask yourself:

• Would you have trouble explaining your actions to others?

• How would you feel if the details of the transaction were made visible to others?

If you are unsure of what to do in a situation, talk with someone. Discuss the issue with your supervisor, the human resources area, or the legal area.

For additional information, see Ethical Concerns and Standards in IUB Employee Handbook. See Ethical Concerns and Standards in IHE Guide to Human Resources Policy and Practice. See Ethical Concerns and Standards in the IFC Employee Handbook.

Gifts
Conflicts of interest can arise from work-related gifts and gratuities that you give or receive because of various legal (including criminal) prohibitions, including but not limited to the prohibitions set forth in the Bank Bribery Act. You should not solicit or demand for the benefit of any person anything of value from anyone in return for any business, service or confidential information of the company. You should act at all times to avoid even the appearance of a conflict of interest.

The following are the only cases where the acceptance of a gift may be allowed:

Meals and Entertainment
You may accept meals and other entertainment from a supplier, customer or vendor if they are of reasonable value and the purpose of the meeting is business related. You may offer meals and/or entertainment of reasonable value to customers, suppliers or vendors if there is a bona fide business purpose for the meeting. If you are not sure what value is reasonable, discuss the situation with your supervisor before proceeding.

Nominal Gifts
You may accept small gifts, gratuities or favors offered as advertising or promotional material (pens, pencils, key chains, calendars, note pads, etc.). If you are uncertain about any actions, please talk with your supervisor or the legal area.

Personal Gifts
There are times when personal gifts of reasonable value may be accepted. They are:

• Gifts related to recognized special occasions (i.e. job promotion, birthday, retirement, etc.),

• Awards from a charitable, educational or religious organization for recognition of service and accomplishments.

• Gifts, gratuities or favors based on obvious family relationships when it is clear the gift was given for this reason and not to effect business.

• Discounts or rebates on merchandise or services that do not exceed those available to other customers.

Reporting Impermissible Gifts
If you are offered or receive something of value from a customer beyond what is permitted by the Code of Conduct, you should disclose that fact to the Senior Vice President—Ethics of Irwin Financial, who has been designated as the company’s official to receive such disclosures. The documentation of such a disclosure will be maintained and reviewed by management to determine that the gift that has been offered or accepted is of reasonable value and does not pose a threat to the integrity of the company. Any such disclosure is required to be reported to the Audit and Risk Management Committee to determine whether a waiver to the Code is warranted with respect to the proposed gift.

If you have questions, please talk with your supervisor. Both you and your supervisor may wish to seek advice from the legal area before proceeding with the acceptance of any gift.

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For additional information see Ethical Concerns and Standards in IUB Employee Handbook. See Ethical Concerns and Standards in IHE Guide to Human Resources Policy and Practice. See Ethical Concerns and Standards in the IFC Employee Handbook.

Privacy
You should feel that protecting the privacy of our customers is of great concern. You should explain to customers why you are asking them for information. The company establishes and maintains security procedures designed to help prevent unauthorized access to customers’ private, confidential information. You are to safeguard all customer data, documentation or other information according to our established security standards and procedures. The obligation to preserve confidential information in confidence continues even after employment or other service ends.

The company may share specific information with third parties as provided by law. You may be required to provide disclosure of this fact to the customer. If you have questions concerning the need to share specific information with third parties or the need to provide related disclosure to this effect to customers, talk with your supervisor.

For additional information, see Confidentiality IUB Employee Handbook. See also The Privacy Policy of Irwin Union Bank. See Confidentiality in the IFC Employee Handbook.

Supplier/Vendor Solicitations
You are expected to act in a fair manner when conducting supplier selections. You should avoid any conflict of interest in this process and should report potential conflicts immediately to your supervisor. Potential conflicts may include you or a family member having a financial interest in the potential supplier and also being in a decision-making role for the company. This example would require you to disclose this information to your supervisor immediately. The company will not discriminate when selecting suppliers based on race, color, religion, national origin, gender, disability, age, marital status, familial status, sexual preference, veteran status, the receipt of public assistance, the good faith exercise of any rights under the Consumer Credit Protection Act, or on any other basis prohibited by federal, state or local law. Any selection of a vendor should be made fairly and without any form of discrimination.

Employees

Without our employees, we could not function at all.

Confidential Information
You are held to the strictest of confidence concerning the records kept by the company on individual employees or groups of employees. All information obtained in the work environment about the company and its employees must stay confidential and be given only to those who have a “need to know” in order to process work for the company. In addition, disclosure of such information may be made if required by, and in accordance with, applicable laws and regulations. The obligation to preserve confidential information in confidence continues even after employment or other service ends. If you have questions about information and whether it may be shared, please talk with your supervisor.

For additional information, see Confidential Information on IBF Employee Manual. See also Confidentiality in IUB Employee Handbook. See also Employee Responsibilities in IHE Guide to Human Resources Policy and Practice. See also Confidentiality and Employee Responsibilities in the IFC Employee Handbook.

Conflicts of Interest
You should always avoid conflicts of interest or situations that could appear to be conflicts. There are many examples of conflicts that may arise. Here are a few specific examples:

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Working with relatives
There may be times when a relative of an employee accepts a position with the company. When this happens, supervisors need to make sure that the relatives are not put into positions that could present conflicts of interest. For example:

• The relatives should not be in a direct reporting relationship.

• A relative should not be in a position to have audit control over the other’s work.

• One relative should not be in the position to influence the other’s pay, performance, benefits or career progression.

All of these could lead to the potential of a conflict or the appearance of one. If you have a situation like any of those listed above, contact and discuss it with the human resources and legal areas.

For additional information, see Employment of Relatives in IUB Employee Handbook. See Employment of Relatives in IHE Guide to Human Resources Policy and Practice. See Hiring Relatives in the IMC Employee Handbook. See Employment of Relatives in the IFC Employee Handbook.

Relationships with Customers
You may not borrow money from a customer if there would appear to be a conflict with the transaction.

Job Outside of Irwin Financial (For Employees of the Company)
The company understands that from time to time you may wish to seek a job in addition to your employment with one of the Irwin Companies. Before accepting another position, you need to ask:

• Does this job interfere with my responsibilities at Irwin Financial?

• Is this job in any way in competition with Irwin Financial or its subsidiaries?

• If this job is self-employment, does it present a conflict or appear to? Am I using some of the same knowledge I have from Irwin Financial and am I using it for my own personal gain?

You should not invest or take employment in any outside business activity that might affect or appear to affect your independence of judgment with respect to transactions between an Irwin company and any business enterprise. For example, it is almost always a conflict of interest for an employee to work simultaneously for a competitor, customer or supplier. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except for relationships entered into on the company’s behalf. Employees are prohibited from competing with the company, directly or indirectly.

For additional information, see Outside Employment in the IFC Employee Handbook.

Business Opportunities
Employees, officers and directors owe a duty to the company to advance its legitimate interests when the opportunity to do so arises. Therefore, employees, officers and directors are prohibited from taking for themselves personally any opportunities that are discovered through the use of corporate property, information or position, without the consent of the Board of Directors. No employee, officer or director may use corporate property, information or position for improper personal gain.

Expressing Personal Opinions in the Public Arena
The Irwin companies value independent thinking among our employees, officers and directors, which is consistent with, among other things, the diversity and lifelong learning/personal improvement key concepts found within our fourth and fifth Core Values (Treating Others as We Would Want to be Treated and Long-Term Orientation). While you should always seek to align your work-related decisions with our Core Values and Beliefs, it is recognized that your personal opinions will not always be consistent with positions or views espoused by the Irwin

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companies. As a result, when expressing your own opinions in the public arena on issues of personal interest (e.g., a letter to the editor or a letter to a public official that is independent of any grassroots effort conducted by the Irwin Public Affairs program), you should not sign correspondence over, or accompanied by, any indication that you are an employee, officer or director of an Irwin company.

For additional information, see Outside Employment in IHE Guide to Human Resources Policy and Practice. See also Outside Employment in IBF Employee Manual. See also Confidential Information in IUB Employee Handbook and Confidentiality of Information policy E-5 in Irwin Mortgage Employee Handbook.

Criminal Law Summary
Federal and state laws contain several provisions that make certain conduct criminal in nature. You will not violate, or even create the appearance that you may have violated, these laws. The company will not knowingly employ any person to serve as a director, officer, or employee if he or she has been convicted of a criminal offense involving dishonesty or a breach of trust. Any employee or director convicted of a felony at law will have his or her employment or service immediately terminated. If you need more information contact your legal area for advice.

Directorships (For Employees of the Company)
You are encouraged to disclose your plans and consult with your supervisor before accepting service on a Board of Directors or as an officer, employee or partner of any other company (including charitable and civic organizations).

Diversity
We embrace diversity within a common commitment to our Guiding Philosophy. Through diversity we gather a mix of different people who bring talents and perspectives together in a common cause, united by the values of our Guiding Philosophy.

We further define our interpretation of diversity as:

Respecting the similarities and differences we have,
Including contributions from people with a wide array of backgrounds,
Valuing the unique contributions each of us can make because of these differences, and
Maximizing our potential success as a business by tapping into all those contributions.

Irwin Financial is an equal opportunity employer. You should work to ensure equal employment opportunities for individuals regardless of race, color, religion, national origin, gender, disability, age, marital status, familial status, sexual preference, veteran status, or any other criteria on the basis of which discrimination is prohibited by federal, state or local law.

For additional information, see Equal Opportunity Employment policy in IUB Employee Handbook. See also Affirmative Action for Equal Opportunity Employment policy E-1 in Irwin Mortgage Employee Handbook. See also Equal Employment Opportunity policy in IHE Guide to Human Resources Policy and Practice. See Equal Opportunity Employment in the IFC Employee Handbook.

Drugs and Alcohol
Irwin Financial wants to provide a safe and productive workplace that is free from the effects of substance abuse of any kind. Irwin Financial is therefore committed to maintaining a drug-free workplace. The consumption of alcohol, while a legal and customary practice in our society, must be governed by common sense. You are expected to apply sound and responsible judgment in this area, bearing in mind that the personal choices you make during your working hours are more likely to be attributed to the company. As with other areas of conduct, you are expected to demonstrate professionalism and good judgment when representing the company in business settings, including any special events or other occasions held for a legitimate business purpose where serving alcohol on the company’s premises after working hours is sanctioned by your supervisor.

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For additional information, see Substance Abuse policy in IUB Employee Handbook. See Substance Abuse in IHE Guide to Human Resources Policy and Practice. See Drug-Free and Alcohol-Free Work Environment in IMC Employee Handbook. See Substance Abuse in the IFC Employee Handbook.

Giving Tax and/or Legal Advice
In the financial services business, we are often asked to give advice to our customers or other stakeholders concerning their personal financial situation or that of their company or organization. You may not give tax advice without the proper professional designations to do so, and even then this needs to be with the approval of your supervisor. Inquiring stakeholders should be referred to independent tax advisors of their own choosing.

You may not give legal advice to customers or other stakeholders. You should not attempt to “practice law” by giving to others legal information that is not approved by the legal area for distribution. All customers should be encouraged to seek legal advice from independent legal advisors.

Guidelines for Borrowing Money
The company will comply with all applicable laws and regulations limiting credits to insiders. You should comply with all monitoring and reporting requirements as well as limitations on loans. If you have questions regarding the application of these guidelines, please contact the legal area of your company.

Handling Personal Finances
You should handle your financial affairs in a responsible and prudent way. You may wish to seek outside or financial advice to help you achieve this objective.

Harassment
The company intends to maintain a workplace free of sexual and other harassment and intimidation, including harassment based on any criteria, including race, color, religion, national origin, gender, disability, age, marital status, familial status, sexual preference, veteran status, or any other criteria on the basis of which harassment is prohibited by federal, state or local law. You are prohibited from engaging in any form of harassment in the workplace. You have the responsibility to help ensure that our workplace includes a business-like professional atmosphere. You should report incidents immediately to your supervisor or human resources.

For additional information, see Harassment and Sexual Harassment policies in IUB Employee Handbook. See policy E-2, Anti-Harassment Policy and Complaint Policy in Irwin Mortgage Employee Handbook. See Harassment Policy in IBF employee manual. See IFC Sexual Harassment Policy and Harassment, Sexual Harassment, What is Sexual Harassment, and Complaint Procedure in IFC Employee Handbook. See Harassment in IHE Guide to Human Resources Policy and Practice.

Reporting Business Expenses
You are required to be truthful in all submissions of business expenses for payments by the company or for reimbursement to you. Receipts and forms must be completed to reflect the actual amount for payment. You should refer to expense guidelines written for your company or talk with your supervisor for assistance.

For additional information, see Expense Reimbursement in IHE Guide to Human Resources Policy and Practice.

Safety
You need to know what to do in case of an emergency or the need for medical assistance. You must also comply with all safety regulations and emergency procedures as required. You need to report all safety incidents as soon as possible. If you have questions please talk with your supervisor.

For additional information, see Safety and Security policy in IUB Employee Handbook or Safety policy G-7 in Irwin Mortgage Employee Handbook. See Safety in IBF employee manual. See Safety in IHE Guide to Human Resources Policy and Practice. See Safety and Security in the IFC Employee Handbook.

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Protection and Use of Company Property/Assets
Company property such as equipment or facilities may not be used for anything other than the company’s business unless authorized in writing by your supervisor. This also applies to property developed for the exclusive use of an Irwin company (such as customer lists, files, reports, computer software, data processing systems, databases etc.). You should use extreme care in protecting confidential or proprietary information of the company that is stored in paper documents, on computers, in voicemail and electronic mail systems, and in other media.

You will reimburse the company for any personal use of company property or assets such as Federal Express package costs, supplies, items not covered in expense policies etc. that are used for purposes other than a business need. Personal use or permanent removal of company property including equipment, technology or supplies is prohibited unless authorized by your supervisor.

For additional information see Use of Company Communications Systems in IHE Guide to Human Resources Policy and Practice.

Use of Computer Software and Systems
The company considers all software, hardware and electronic and voice mail to be property of the company. The company may monitor, access, copy, modify, disclose or delete the content of messages sent or received through these systems, including Internet usage. Therefore, permission is given to you to use these systems for business purposes only. If you need to use company software for any purpose other than business, you will need authorization from your supervisor.

For additional information, see Use of Company Communication Systems policy in IUB Employee Handbook or Electronic and Voice Mail Systems policy G-2 and Internet Policy G-3 in Irwin Mortgage Employee Handbook. See also Use of Company Communications Systems in IHE Guide to Human Resources Policy and Practice. See Use of Company Communication Systems in the IFC Employee Handbook.

Copyright Compliance

U.S. copyright law grants exclusive copyrights to the owners of original materials and prohibits the unauthorized reproduction of such materials. Accordingly, you should not copy any copyright protected materials without the express written consent of the copyright owner. Irwin Financial will uphold all licensing provisions and copyright restrictions involved with technology. You should comply with all licensing and copyright requirements. Irwin Financial has obtained a license from the Copyright Clearance Center in order to facilitate the process of obtaining permissions from copyright owners to copy and distribute certain protected works. You should consult your supervisor or the legal area if you have questions about copyright compliance measures or if you are interested in utilizing the Copyright Clearance Center license in connection with the copying and distribution of a published work.

For additional information, see Use of Company Communication Systems policy in IUB Employee Handbook or Electronic and Voice Mail Systems policy G-2 and Internet Policy G-3 in Irwin Mortgage Employee Handbook. See also Use of Company Communications Systems in IHE Guide to Human Resources Policy and Practice.

Shareholders

Without our shareholders, we would not have the capital we require to be in business and to make new investments.

Insider Trading Guidelines

The federal securities laws and Irwin Financial’s insider trading policy prohibit the improper use or disclosure of company information (sometimes called “Inside Information”).

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You may not take advantage of material non-public Inside Information, either for your benefit or the benefit of another person. Information should be considered material if there is a likelihood that someone who received knowledge of the information would consider it valuable in deciding whether or not to take action or make an investment. You should think of all information as confidential unless you have seen it in a document filed with the Securities and Exchange Commission, such as a report on Form 10-K, 10-Q or 8-K, or in a publication or broadcast with national distribution or in an approved press release. You should not disclose Inside Information about the company to anyone either within or outside Irwin Financial without a legitimate business purpose and without first consulting with your supervisor or the legal area. To use Inside Information for personal financial benefit or to “tip” others who might make an investment decision on the basis of that information is illegal. These guidelines apply to all employees and directors.

“Blackout” Periods
In addition to the above guidelines, our insider trading policy provides that individuals who are likely to possess material nonpublic information in the course of their duties (referred to in the insider trading policy as “Restricted Persons”) should refrain from trading in Irwin Financial Corporation’s securities from the 15^th day of the last month of each calendar quarter until the third business day following the company’s public release of financial results for that quarter. Consult our insider trading policy to determine whether your job function makes you a Restricted Person subject to quarterly blackouts. The blackout period policy applies to any transaction in company securities, including transactions involving employee benefit plans. Our insider trading policy does not prohibit gifts during quarterly blackout periods as long as the recipient agrees in writing not to sell the securities until the quarterly blackout period ends.

In addition, special blackout periods may apply in other situations, such as when Irwin Financial is attempting to raise capital in public markets. You will be informed if such additional restrictions apply to you, and you will be expected to abide by those restrictions until the special blackout period is terminated. Gifts of Irwin Financial securities are not permitted during special blackout periods.

Approval for Stock Transactions
The company’s insider trading policy requires that certain Restricted Persons follow a notice and approval process (pre-clearance procedure) prior to engaging in any transactions in company securities. Consult our insider trading policy to determine whether your job function requires you to seek pre-clearance.

Public and Investor Relations
Because dealing with public investors and the media requires expertise, and because the company must avoid selective disclosure of material nonpublic information, you should transfer any inquiries you receive about the company to the Irwin Financial investor relations department. Such inquiries could include, for example, those relating to financial matters, corporate policies, public affairs, legal matters, and marketing materials.

If you have questions, including but not limited to your status and obligations as a Restricted Person under the insider trading policy, please contact your supervisor or the legal area.

For additional information, see Irwin Financial Corporation and Affiliates—Statement of Policy, Securities Trades by Company Personnel.

Standards for Financial Reporting
It is important that all of our employees, but especially those who work in the areas of financial reporting and internal financial controls (including the principal executive officers, principal financial officers, principal accounting officers, controllers and persons performing similar functions at Irwin Financial and its various subsidiaries), comply with the standards:

• set forth in this document for:

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°	honest and ethical conduct (including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships), and
°	avoidance of conflicts of interest, including the procedures for assessing material transactions or relationships that reasonably could be expected to give rise to such a conflict, as described above under “Customers and Suppliers: Conflicts of Interest” and “Employees: Conflicts of Interest”;

• established by the company for the full, fair, accurate, timely, and understandable disclosure of information in the company’s publicly-filed periodic reports and in other public communications made by the company, and

• required for compliance with applicable governmental laws, rules and regulations.

Accuracy of Financial Records
All of the company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the company’s transactions and must conform to applicable legal requirements and to the company’s system of internal controls. As a result, you will always need to maintain integrity in the accuracy and reliability of corporate records you create or are responsible for. No inaccurate or misleading entries shall be made in the books or records of the company. Therefore, it is important that you report all transactions that affect Irwin Financial or its subsidiaries accurately and truthfully including expense records, customer transactions (i.e. loan information, etc.) as well as accounting records of every Irwin Financial company. Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation. We cooperate fully with our auditors and under no circumstances withhold information from them.

In addition, the company is expected to maintain certain types of information for a specified period of time before it can be destroyed. You need to familiarize yourself with destruction dates for information to ensure compliance with the company’s record retention policies. If there is ever a need to review records, the company will comply with audit procedures and provide appropriate disclosure of information in a manner that complies with applicable requirements. In accordance with the company’s record retention policies, please consult the legal area in the event of litigation or governmental investigation.

Since business records and communications often become public, we should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports.

Society

Without the approval and guidance of our regulators, who set up the rules for us to follow and are the guardians of society’s interest in a safe and sound financial system, we would not be allowed to operate.

Compliance with Laws, Rules and Regulations
Obeying applicable laws and regulations, both in letter and in spirit, forms part of the foundation on which our compliance standards are built. Therefore, you should always respect and obey the laws of the jurisdictions in which we operate. Although you are not expected to know the details of every law, rule or regulation, it is your responsibility to know what compliance requirements are applicable to your job function and to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel.

While we may legitimately disagree at times with policymakers and regulators over policy issues and seek to persuade them to change their requirements or opinions, we should never ignore rules

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and regulations or cut corners on the assumption that they are not as important as other considerations. We have a responsibility to maintain a consistent relationship of candor and trustworthiness with our regulators.

Payments to Government Personnel
Irwin Financial is subject to the requirements of the Foreign Corrupt Practices Act. This U.S. federal law has two main points:

• It is unlawful to bribe foreign officials or foreign political candidates to get (or keep) business. Such a bribe would include giving the official or candidate anything of value, directly or indirectly. Irwin company employees are therefore strictly prohibited from making any improper payments to government officials of any foreign country.

• Irwin Financial is required to make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Irwin Financial. All of the transactions of the company will be reported accurately.

In addition, the U.S. government has a number of laws and regulations regarding business gratuities that may be accepted by U.S. government personnel. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules. The legal department can provide guidance to you in this area.

Personal Participation in the Political Process
You are encouraged to participate in the political process. If you intend to run for political office, you should both discuss your intentions with your supervisor and check with the legal area of your company regarding any conflicts that may arise from your running for office or what may happen if you are elected. All activities involved with the political process such as campaigning, fundraising etc. should not be conducted on company time or through the use of other company resources. Please refer to Conflicts of Interest: Expressing Personal Opinions in the Public Arena in the “Employees” section of the Code for a discussion of why you should refrain from identifying yourself as an Irwin employee, officer or director when expressing personal opinions in the public arena.

Political Contributions and Bribes
Federal law and the laws of most states prohibit the Irwin Financial companies from making contributions to any political party or candidate. The Irwin Financial companies will not use corporate funds or assets for any political contributions unless permitted by law and by company policy.

You may make political contributions through personal resources at your own discretion. Unless approved by your supervisor in the course of an activity sponsored by the company’s public affairs program, you should not solicit for contributions while in company premises or during normal working hours. Discuss questions you have about these guidelines with your supervisor and, if applicable, with the legal area.

Transactions between IFC Companies
Any transaction between or among any Irwin Financial companies is subject to regulatory and legal restrictions. You should consult with, and receive approval from, your supervisor and the legal area of your company prior to engaging in such transactions.

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Community

Without good communities in which to do business, we could not prosper.

Community Involvement and Activities
You are encouraged to be an active citizen in your community. In doing so, make sure that your involvement follows these guidelines:

• Your actions should comply with the law and public policy.

• Keep community involvement separate from your job. Where the two intersect, be sure that community involvement does not interfere with your ability to do your job.

• Community involvement is a personal choice. It should be pursued so that you do not appear to represent or make decisions on behalf of the company unless authorized by your supervisor to do so.

Please refer to Conflicts of Interest: Expressing Personal Opinions in the Public Arena in the “Employees” section of the Code for a discussion of why you should refrain from identifying yourself as an Irwin employee, officer or director when expressing personal opinions in the public arena.

For additional information, see Commitment to our Communities policy in IUB Employee Handbook. See Commitment to Our Communities in IFC Employee Handbook.

Responsible Corporate Citizen
Irwin Financial strives to be a responsible corporate citizen in the market areas and communities in which it operates. The company will designate a percentage of net income to be used for charitable giving through the Irwin Financial companies as well as through Irwin Financial Foundation.

How to Report a Problem

Since we cannot anticipate every situation that may arise, it is important that we have a process for approaching new questions or problems. If you come across a situation involving a possible violation of the Code of Conduct or if you are presented with a situation you believe might cause you to violate these standards of conduct or if you know of or have reasonable belief to suspect a violation of law, regulation, or of this Code of Conduct, please consider the following steps:

• Make sure you have the important facts. In order to analyze the nature of the problem and reach an appropriate solution, you must be as fully informed as possible.

• Ask yourself: What specifically am I being asked to do? Does it seem wrong or improper? In other words, within the framework of the Decision-Making Process, are you being confronted with a “temptation” (a choice between a right and a wrong), as opposed to a “dilemma” (a choice between two rights)? Answering these questions will enable you to focus on the specific nature of the problem you are faced with, and the alternatives you have. Use your judgment and common sense; if something seems wrong or improper, it probably is.

• Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.

• Discuss the problem with your supervisor. In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve problems.

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• Seek help from company resources. In a case where it may be inappropriate to discuss an issue with your supervisor, or where you do not feel comfortable approaching your supervisor with your question, discuss it locally with another manager, the human resources area, or the legal area. If that also does not seem appropriate, call or write Matt Souza, in the company’s ethics office, at 500 Washington Street, Box 929, Columbus, Indiana 47202-0929 (phone: 812.376.1934) (matt.souza@irwinfinancial.com).

• Always ask first, act later. If you are unsure of what to do in any situation, seek guidance before you act.

Reporting a situation does not mean a violation exists; it affords the opportunity for review. All reports will be kept as confidential as possible. If it is determined that further action needs to take place, the person reporting the violation may be asked to talk with other internal and/or external resources.

In addition to the foregoing guidelines, the Audit and Risk Management Committee will from time to time establish procedures for:

          (a) the receipt, retention and treatment of complaints that are received by the company regarding its accounting, internal accounting controls, or auditing matters; and

          (b) the confidential, anonymous submission by company employees of concerns regarding questionable accounting or auditing matters.

Employees will be notified of those procedures, which will be posted on the company’s website, as they are implemented and amended from time to time. The current procedures are attached as Appendix B.

You may report violations of the Code of Conduct in confidence, since you will not face any retaliation or retribution for bringing an issue to the attention of the company as described above. The company supports your efforts to identify areas of potential conflict or violation and encourages all reports that are given with the proper intentions and in good faith. By the same token, employees are expected to cooperate in internal investigations of misconduct.

Conclusion

Approval and Administration of the Code of Conduct
The Audit and Risk Management Committee of the Board of Directors of Irwin Financial Corporation has the overall responsibility for the approval and administration of the Code of Conduct, including amendments thereto. The Audit and Risk Management Committee has delegated the responsibility of daily administration to the legal and human resource areas of each Irwin Financial company.

Application of the Code of Conduct
This Code of Conduct applies to all employees, officers, and directors of Irwin Financial Corporation and its companies.

Waivers of the Code of Conduct
Irwin Financial has never given a waiver of the Code of Conduct for any executive officer. Federal legislation now requires that, to the extent any such waiver is proposed to be given to an executive officer (including principal executive officers, principal financial officers, principal accounting officers and controllers) or a director, it may be made only by the Board of Directors of Irwin Financial Corporation or the Audit and Risk Management Committee. Any such waiver, if given, will be promptly disclosed as required by applicable law or stock exchange regulation.

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Responsibility of Employee
You have the responsibility to follow and uphold the Code of Conduct. Supervisors have the additional responsibility of making sure that it is known to, understood and followed by their direct reports and that all potential conflicts and violations are brought to the attention of the legal area. All of our employees must conduct themselves in accordance with the Code of Conduct and avoid even the appearance of behavior that is contrary to the standards identified herein. Violations of the Code of Conduct may result in disciplinary action up to and including termination.

Affirmation
You will be asked to affirm your understanding and compliance of the Code of Conduct periodically. Your signed affirmation will be kept in your personnel file as a permanent record.

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Important—Additional Information
The Code of Conduct sets forth guidelines and principles for business decision-making and the conduct of our business in compliance with applicable standards. It does not contain all policies applicable to all Irwin companies or include all details concerning any particular policy. Detailed policies and procedures are contained in various handbooks, guides and policy statements of individual Irwin companies, some of which are referenced in this Code of Conduct. Those detailed policies and procedures are separately available to employees.

This Code of Conduct is not intended to be, and should not be construed to be, an express or implied contract of employment or continued employment by any Irwin company, or an offer, statement or confirmation of any guaranteed terms or conditions of employment. Except in a case where an employee has entered into an express written employment agreement with an Irwin company, the employment relationship is strictly at-will, and either the employee or the employer may terminate the employment relationship at any time for any or no reason.

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Appendix A—Contact List

IFC	IMC
Matt Souza	Rebecca Tolton
Senior VP – Ethics	First VP – Legal
(812) 376-1934	(317) 537-3408
matt.souza@irwinfinancial.com	rebecca.tolton@irwinmortgage.com
Ellen Mufson	Aimee Hill
VP – Lead Counsel	Legal Counsel
(812) 376-1939	(317) 537-3409
ellen.mufson@irwinfinancial.com	aimee.hill@irwinmortgage.com
Brian Cline	Nickie Snyder
VP – Corporate Compliance	VP – Human Resources
(925) 790-4675	(317) 537-3389
brian.cline@ihe.com	nickie.snyder@irwinmortgage.com
Terry Hall	ICF
VP – Human Resources	Robert Murphy
(812) 376-1974	SVP, Credit & Ops (U.S./Canada Vendor)
terry.hall@irwinfinancial.com	(604) 646-2244
	robert@onsetcapital.com
IHE	Gina Dimanis
Gary Iorfido	VP, Human Resources
VP and Chief Counsel	(604) 646-2233
(925) 790-5502	gdimanis@irwincf.com
gary.iorfido@ihe.com
Lorraine Sumulong	IUB
Deputy Chief Counsel	Joan Tupin-Crites
(925) 790-5532	Senior VP – Legal
lorraine.sumulong@ihe.com	(812) 376-1896
	joan.tupin-crites@irwinunion.com
Sunita Liggin	Carrie Houston
VP- Human Resources	Senior VP, Human Resources
(925) 790-5563	(812) 373-1480
sunita.liggin@ihe.com	carrie.houston@irwinunion.com

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Appendix B

Procedures for Reporting Complaints About Accounting or Auditing Matters

In addition to the general procedures described in the Code under “How to Report a Problem,” and in accordance with the requirements of federal legislation and related SEC rulemaking, the Audit and Risk Management Committee (the “Committee”) has established the following procedures for:

• the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and

• the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

The procedures outlined below are intended to ensure that any such complaints and concerns are promptly and effectively addressed.

Defined Terms

“anonymous” means of unknown authorship, and without designation that might lead to information about the authorship. Anonymity is not compromised by assignment of a code or other designation with which a person can communicate without revealing his or her identity.

“Complaint” means any adverse information provided to the company, whether in the form of a concern, a demand for remedial action, or a report of a suspected violation of law or Company policy, that relates to the Company’s accounting, internal accounting controls, or auditing matters.

“confidential” means authorized for access by only those persons who have a need to know. Ordinarily, a need to know arises from an obligation to investigate or to take remedial or disciplinary action.

“Confidential Designee” means a person, independent of the financial reporting function, designated by the Committee to assist it in addressing Complaints in a manner consistent with these Procedures and the role of the Committee. Unless otherwise designated by the Committee, the Confidential Designee shall be the Senior Vice President — Ethics of the Company.

Procedures

     1. Submission and Receipt of Complaints.

     a. As described in the section of the Code of Conduct under “How to Report a Problem,” employees are free to bring Complaints to the attention of their supervisors, the human resources area, or the legal area, as they would any other workplace concern. The recipients of such Complaints shall forward them promptly to the Chair of the Committee and to the Confidential Designee.

     b. Furthermore, to ensure that Complaints can be submitted confidentially or anonymously when employee complainants so choose, the Company shall maintain at least two other formal means by which employees may communicate Complaints:

(i) a “complaint hotline” available at all times and handled by an outside service provider (voice, fax, or TTY) engaged by the Company (the “Compliance Hotline”), the published toll-free or “collect” telephone number for which is reflected on Exhibit A attached hereto; and

(ii) the interoffice mail (or regular mail or other means of delivery, addressed to the corporate headquarters address of the Company), by which Complaints may be submitted in a sealed envelope marked “Private and Strictly Confidential —

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Attention: Chair of the Audit and Risk Management Committee of Irwin Financial Corporation,” which envelope shall be forwarded unopened to the Chair of the Committee.

The Compliance Hotline number and the mail procedure shall be posted on the Company’s internal website.

     c. Non-employees may submit Complaints by mail (or other means of delivery) sent to the corporate headquarters address of the Company, either addressed to any officer of the Company (as identified on the Company’s external website) or marked “Private and Strictly Confidential – Attention: Chair of the Audit and Risk Management Committee of Irwin Financial Corporation.” Envelopes so marked shall be forwarded unopened to the Chair of the Committee. These procedures shall be posted on the Company’s external website.

     d. Each Complaint must be specific and contain sufficient detail to permit a thorough investigation without a need for the target of the Complaint to make direct contact with the complainant. Upon the Complaint’s being issued, the complainant will be assigned a control number for future reference and will be given instructions on how to use the control number to monitor status of resolution of the Complaint.

     e. Each Complaint, whether received via the Compliance Hotline or otherwise, shall be routed to the Chairman of the Committee. The Chair of the Committee shall, in conjunction with the Director — Internal Audit, cause the Complaint to be entered into an electronic database for internal reference and reporting purposes, and to be distributed to such key managers of the Company as are deemed necessary by the Chair, in his discretion, to facilitate the investigation of the Complaint. Contemporaneously with such distribution of the Complaint, the Committee Chair shall notify the Confidential Designee of the Complaint who shall, in addition to the Director – Internal Audit, periodically review the database to determine the status of each investigation.

     f. The Chair of the Committee shall inform the Committee, in summary form or otherwise, of all Complaints received, with an initial assessment as to the appropriate treatment of each Complaint. Assessment, investigation, and evaluation of Complaints shall be conducted by, or at the direction of, the Committee, the Committee Chair, or the Confidential Designee. If the Committee deems it appropriate, the Committee may engage, at the Company’s expense, independent advisors, such as outside counsel and accountants unaffiliated with the Company’s external auditors. The results of the investigation shall be communicated in both periodic reports and a final report provided to the Chair of the Committee and to the Director – Internal Audit, who shall enter such results, upon their receipt, into the electronic database referenced above. The Director – Internal Audit shall prepare, based on information maintained in the database, a report of the initiation, status and results of each Complaint investigation, and shall present this report to the Committee at each of its regular meetings, including a detailed presentation regarding any Complaint alleging matters that may affect the content of the Company’s financial statements.

     g. Following an investigation and evaluation of a Complaint, the Chair of the Committee shall report to the Committee on recommended disciplinary or remedial action, if any. The action determined by the Committee to be appropriate under the circumstances shall then be brought to the Board or to the appropriate members of senior management for authorization or implementation, respectively. If the action taken to resolve a Complaint is deemed by the Committee to be material or otherwise appropriate for inclusion in the minutes of the meetings of the Committee, it shall be so noted in the minutes.

2. Retention of Records of Complaints. Records pertaining to a Complaint are the property of the Company and shall be retained:

     a. in compliance with applicable laws and document retention policies;

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     b. subject to safeguards that ensure their confidentiality, and, when applicable, the anonymity of the person making the Complaint; and

     c. in such a manner as to maximize their usefulness to the Company’s overall compliance program.

3. Treatment of Complaints—In General.

     a. All Complaints shall be treated confidentially.

     b. Although a person making an anonymous Complaint may be advised that maintaining anonymity could hinder an effective investigation, the anonymity of the person making the Complaint shall be maintained until the person indicates that he or she does not wish to remain anonymous. Any system established for exchanging information with a complainant shall be designed to maintain anonymity.

     c. Any effort to retaliate against any person making a Complaint in good faith is strictly prohibited and shall be reported immediately to the Chair of the Committee or the Confidential Designee.

     d. An employee or non-employee may utilize these Procedures either to raise new Complaints or if he or she feels that a Complaint previously raised has not been appropriately handled.

4. Maintenance of Complaint Hotline and Complaint Procedures. The Company’s Senior Vice President—Ethics shall ensure that the Compliance Hotline is administered by a designated service provider so as to provide a means for anonymous submission of Complaints that complies with all applicable laws and listing standards. The Senior Vice President—Ethics shall report to the Committee periodically about the process for receiving Complaints, so that the Committee can ensure that the process is satisfactory in its efficiency, accuracy, timeliness, protection of confidentiality or anonymity, and effectiveness.

Approved by the ERMC July 21, 2005
Approved by the IUBT Board of Directors August 23, 2005
Approved by the IFC Board of Directors August 24, 2005

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Exhibit A

Important Contact Information for Complaint Procedures

Complaint Hotline

Ethics Point.
1.866.294.8678

Director of Internal Audit

Jose M. Gonzalez
812.379.7622
jose.gonzalez@irwinfinancial.com

Ethics Office

Matt Souza
812.376.1934
matt.souza@irwinfinancial.com

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EX-21.1

EXHIBIT 21.1

Subsidiaries of the Registrant

	State or Other Jurisdiction of
Name	Incorporation or Organization
Irwin Union Bank and Trust Company	Indiana
Irwin Commercial Finance Corporation	Indiana
Irwin Commercial Finance Corporation, Equipment Finance	Indiana
Irwin Equipment Lease Funding, LLC	Delaware
Irwin Franchise Capital Corporation	Indiana
Irwin International Corporation	Edge Act
Irwin Commercial Finance Canada Corporation	Canada
Onset Alberta, Ltd.	Canada
Irwin Union Securities, Inc.	Indiana
Irwin Union Collateral, Inc.	Indiana
Irwin Union Insurance, Inc.	Indiana
Irwin Union Advisory Services, Inc.	Indiana
Irwin Union Realty Corporation	Indiana
Irwin Home Equity Corporation	Indiana
IHE Funding Corp. II	Delaware
Irwin Mortgage Corporation	Indiana
Irwin Reinsurance Corporation	Vermont
Irwin Union Investor Services, Inc.	Indiana
IFC Capital Trust III	Delaware

	State or Other Jurisdiction of
Name	Incorporation or Organization
IFC Capital Trust IV	Delaware
IFC Capital Trust V	Delaware
IFC Capital Trust VI	Delaware
IFC Statutory Trust VII	Connecticut
IFC Capital Trust VIII	Delaware
Irwin Union Credit Insurance Corp.	Arizona
IFC Mortgage Corporation	Indiana
Irwin Residual Holdings Corporation	Indiana
Irwin Funding Corp.	Delaware
Irwin Funding Corp. II	Delaware
Irwin Residual Holdings Corporation II	Indiana
IHE Funding Corp.	Delaware
Irwin Union Bank, F.S. B.	Federal
Irwin FSB Collateral, Inc.	Indiana
Irwin Equipment Finance Corporation	Indiana
Irwin Leasing Corporation	Illinois
Irwin Ventures LLC	Delaware
Irwin Ventures SBIC LLC	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements listed below of Irwin Financial Corporation of our report dated March 3, 2006, relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

New York, New York
March 3, 2006

Registration Statements:
No. 33-8506 on Form S-8 effective September 25, 1986
No. 33-25931 on Form S-8 effective November 28, 1988
No. 33-32783 on Form S-8 effective January 11, 1990
No. 2-72249 on Form S-3 as amended by Post-Effective Amendment No. 3 to Form S-16 effective January 17, 1990
No. 33-32783 on Form S-8 as amended by Post-Effective Amendment No. 1 effective April 9, 1990
No. 33-47680 on Form S-8 effective May 5, 1992
No. 2-72249 on Form S-3 as amended by Post-Effective Amendment No. 4 to Form S-16 effective April 7, 1994
No. 33-62671 on Form S-8 effective September 15, 1995
No. 33-62669 on Form S-8 effective September 15, 1995
No. 333-26197 on Form S-8 effective April 30, 1997
No. 333-80777 on Form S-8 effective June 16, 1999
No. 33-80800, as amended by Post-Effective Amendment No. 1 effective May 19, 2000
No. 333-41740 on Form S-8 effective July 19, 2000
No. 333-60748 on Form S-8 effective May 11, 2001
No. 333-69156 on Form S-8 effective September 7, 2001
No. 333-115064 on Form S-8 effective April 30, 2004
No. 333-115066 on Form S-8 effective April 30, 2004
No. 333-115565 on Form S-8 effective May 17, 2004
No. 333-115566 on Form S-8 effective May 17, 2004

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William I. Miller, certify that:

     1. I have reviewed this annual report on Form 10-K of Irwin Financial Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

          a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ William I. Miller
	WILLIAM I. MILLER
Date: March 3, 2006	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Gregory F. Ehlinger, certify that:

     1. I have reviewed this annual report on Form 10-K of Irwin Financial Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

          a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

          a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Gregory F. Ehlinger
	GREGORY F. EHLINGER
Date: March 3, 2006	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
as adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Irwin Financial Corporation (the “Company”) on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof, (the “Report”), I, William I. Miller, Chairman and Chief Executive Officer, hereby certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 3, 2006	/s/ William I. Miller
	William I. Miller
	Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
as adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Irwin Financial Corporation (the “Company”) on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof, (the “Report”), I, Gregory F. Ehlinger, Chief Financial Officer, hereby certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 3, 2006	/s/ Gregory F. Ehlinger
	Gregory F. Ehlinger
	Chief Financial Officer