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, 2006
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 (State or Other Jurisdiction of Incorporation or Organization)	35-1286807 (I.R.S. Employer Identification No.)
500 Washington Street Columbus, Indiana (Address of Principal Executive Offices)	47201 (Zip Code)
(812) 376-1909 (Corporation’s Telephone Number, Including Area Code)	www.irwinfinancial.com (Web Site)

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

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

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

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

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.  o

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, computed by reference to the closing price for the registrant’s common stock on the New York Stock Exchange on June 30, 2006, was approximately $366,804,217.

As of December 31, 2006, there were outstanding 29,809,969 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 May 9, 2007 Exhibit Index on Pages 117 through 120	Part III

FORM 10-K
TABLE OF CONTENTS

Part I
Item 1	—	Business	2
Item 1A	—	Risk Factors	11
Item 1B		Unresolved Staff Comments	16
Item 2	—	Properties	16
Item 3	—	Legal Proceedings	17
Item 4	—	Submission of Matters to a Vote of Security Holders	20
Part II
Item 5	—	Market for -Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6	—	Selected Financial Data	22
Item 7	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A	—	Quantitative and Qualitative Disclosures about Market Risk	68
Item 8	—	Financial Statements and Supplementary Data	68
Item 9	—	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	114
Item 9A	—	Controls and Procedures	114
Item 9B	—	Other Information	115
Part III
Item 10	—	Directors, Executive Officers, and Corporate Governance	116
Item 11	—	Executive Compensation.	116
Item 12	—	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	116
Item 13	—	Certain Relationships and Related Transactions, and Director Independence	116
Item 14	—	Principal Accountant Fees and Services	116
Part IV
Item 15	—	Exhibits and Financial Statement Schedules	117
SIGNATURES			121
Restated Articles of Incorporation
Code of By-laws
Specimen Common Stock Certificate
Amended and Restated 2001 Stock Plan
Amended and Restated Performance Unit Plan
Supplemental Performance Unit
Computation of Earnings Per Share
Computation of ratio of Earnings to Fixed Charges
Code of Conduct
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Consent of Indepedent Registered Public Accounting 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 $267 million of net revenues from continuing operations in 2006 and $6.2 billion in assets at December 31, 2006. We focus primarily on the extension of credit to small businesses and consumers as well as providing the ongoing servicing of those customer accounts. Through our direct and indirect subsidiaries, we currently operate three major lines of business: commercial banking, commercial finance, and home equity lending. In 2006, we sold the majority of our conforming conventional first mortgage banking business.

We are a regulated bank holding company and we conduct our commercial and consumer 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, conducts our commercial banking activities; Irwin Commercial Finance Corporation, a commercial finance subsidiary; and Irwin Home Equity Corporation, a consumer home equity lending company. In 2006 we discontinued the majority of operations at Irwin Mortgage Corporation, our mortgage banking company and formerly one of our major subsidiaries.

Our strategy is to position the Corporation as an interrelated group of specialized financial services companies serving niche markets of small businesses and consumers and optimizing the productivity of our capital. We seek to create value by attracting, retaining and developing exceptional management teams at our lines of business and parent company, capitalizing on interrelationships; achieving cost savings through 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, our lines of business operate as direct and indirect subsidiaries of Irwin Union Bank and Trust (and, in the case of commercial banking, with Irwin Union Bank, F.S.B.). 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 Indiana, as well as in Michigan (Grandville (near Grand Rapids), Kalamazoo, Lansing and Traverse City); Nevada (Carson City and Las Vegas); and Utah (Salt Lake City).

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•  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 Arizona (Mesa and Phoenix); California (Costa Mesa and Sacramento); Kentucky (Louisville); Missouri (Clayton (near St. Louis)); Nevada (Reno); New Mexico (Albuquerque); and Wisconsin (Milwaukee); We opened the Mesa, Reno and Albuquerque branches during 2006.

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 2006, this segment expanded its product line to include professional practice financing and information technology leasing to middle and upper middle market companies throughout the United States and Canada.

We entered the Canadian market in July 2000 with the acquisition of 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. 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. We formed Irwin Franchise Capital Corporation In October 2001 to conduct our franchise lending business.

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, 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 have also purchased servicing rights for home equity loans from time to time. 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 110%) through 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. The last of these residual interests was called in July 2006. Subsequent to that date, there has been no activity in the Residual Holdings Corporations.

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

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Discontinuance of Mortgage Banking

We discontinued our mortgage banking line of business with the sale of the majority of the assets of Irwin Mortgage Corporation. We sold the production and most of the headquarters operations of this segment to Freedom Mortgage Corporation in September 2006. We sold the bulk of our portfolio of mortgage servicing rights to multiple buyers, transferring these assets in early January 2007. We sold our servicing platform in Fishers, Indiana, to New Century Financial Corporation in January 2007. Prior to the sales, Irwin Mortgage, a subsidiary of Irwin Union Bank and Trust Company, had engaged in the origination, purchase, sale and servicing of conventional and government agency-backed residential mortgage loans. Irwin Mortgage also engaged in the mortgage reinsurance business through its subsidiary, Irwin Reinsurance Corporation, a Vermont Corporation, which we have retained. Currently, Irwin Mortgage no longer originates loans but continues to manage and service loans that were not included in the transfer of assets. This segment is now accounted for as discontinued operations.

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, certain of our equipment leasing 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.

Employees and Labor Relations

At January 31, 2007 we and our subsidiaries had a total of 1,542 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.

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 $17 million in 2006 and $12 million in both 2005 and 2004. The remainder of our revenues comes from customers and operations in the United States.

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 are subject to both state and federal examination on matters relating to “safety and soundness,” including risk management, asset quality and capital

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adequacy, as well as a broad range of other regulatory concerns including: insider and intercompany transactions, the adequacy of the reserve for loan losses, regulatory reporting, adequacy of systems of internal controls and limitations on permissible activities.

In addition, we are required to maintain 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 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 $178 million qualified as Tier 1 capital as of December 31, 2006); and

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

less

•  Accumulated net gains (losses) on cash flow hedges and increase (decrease) recorded in accumulated other comprehensive income (AOCI) for defined benefit postretirement plans under FAS 158

•  goodwill;

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

•  specified intangible assets.

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 $20 million qualified as Tier 2 capital as of December 31, 2006);

•  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.

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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, 2006, we had regulatory capital in excess of all the Federal Reserve’s minimum levels. Our ratio of total capital to risk weighted assets at December 31, 2006 was 13.4% and our Tier 1 leverage ratio was 11.5%.

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.

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 of Irwin Union Bank and Trust routinely subject to examination include Irwin Commercial Finance, Irwin Home Equity and (prior to the disposition of the majority of its assets) Irwin Mortgage.

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 and Irwin Union Bank, F.S.B. are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC) to the maximum extent permitted by law, which is currently $100,000 per depositor for all accounts in the same title and capacity, other than individual retirements

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accounts, certain eligible deferred compensation plans, and so-called Keogh plans or HR 10 plans, which currently are insured up to a maximum of $250,000 per participant in the aggregate, such maximums in each case to be adjusted for inflation beginning in 2010. As a result, Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. are subject to FDIC supervision and regulation.

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 their activities and financial condition. Also, before establishing branches or entering into certain transactions such as mergers with, or acquisitions of, other financial institutions, Irwin Union Bank and Trust must obtain regulatory approvals from the Indiana Department of Financial Institutions and the Federal Reserve, and Irwin Union Bank, F.S.B. must obtain approval from the OTS.

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.

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 liquidity, market (including interest rate and foreign currency), operational, and compliance risks. For this reason, banks are generally expected to operate with capital positions above the minimum ratios.

At December 31, 2006, Irwin Union Bank and Trust had a total risk-based capital ratio of 12.8%, compared to our internal policy minimum of 12% Irwin Union Bank and Trust had a Tier 1 capital ratio of 11.0%, and a leverage ratio of 11.1%.

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 Deposit Insurance Fund. As a result of the Federal Deposit Insurance Reform Act of 2005, the FDIC adopted a revised risk-based assessment system to determine assessment rates to be paid by member institutions such as Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. Under this revised assessment system, risk is defined and measured using an institution’s supervisory ratings with certain other risk measures, including certain financial ratios. The annual rates for 2007 for institutions in risk

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category I range from 5 to 7 basis points; the rate for institutions in risk category II is 10 basis points; and the rate for institutions in risk category III is 28 basis points. These rates may be offset by a one-time assessment credit held by an institution, based on the assessment base of that institution as of December 31, 1996, and in the future by dividends that may be declared by the FDIC if the deposit reserve ratio increases above a certain amount. The FDIC may raise or lower these assessment rates based on various factors to achieve a reserve ratio, which the FDIC currently has set at 1.25 percent of insured deposits.

In addition to deposit insurance fund assessments, the FDIC assesses all 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, 2006, the annualized rate established by the FDIC for the FICO assessment was 1.24 basis points per $100 of insured deposits.

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 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 2006 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 sought and were granted such approval for a $15 million dividend in the fourth quarter of 2006. 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 2007.

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

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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 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, and do, accept brokered deposits.

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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

The lending activities of Irwin Union Bank and Trust and its subsidiaries, Irwin Commercial Finance and Irwin Home Equity, are regulated by the Federal Reserve. 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 Commercial Finance and Irwin Home Equity due to their status as subsidiaries of Irwin Union Bank and Trust.

Our subsidiaries also are subject to federal and state consumer protection and fair lending 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. In many instances, these acts 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. Specifically, these acts, among other things:

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

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

•  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, including at a branch located in a state other than the Bank’s home state, regardless of any inconsistent state law, and to apply these rates to loans to borrowers in other states. 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

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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.

Irwin Union Bank and Trust has entered into a memorandum of understanding with the Federal Reserve Bank of Chicago as of March 1, 2007 to enhance the consumer compliance function and compliance oversight programs of the Bank and its subsidiaries. Under the memorandum of understanding, which is considered an informal agreement, Irwin Union Bank and Trust has agreed, among other things, to enhance the Bank-wide perspective on consumer compliance oversight and the risk assessment process, undertake an initial and ongoing review of lending policies and procedures, improve the risk monitoring, issues tracking, training and control programs of the Bank, and enhance the resources devoted to this area. In addition, the Bank has agreed to provide quarterly written progress reports to the Federal Reserve Bank of Chicago with respect to these matters, commencing June 1, 2007. We have developed plans we believe will thoroughly address the issues raised by the Federal Reserve Bank of Chicago, but if we are unsuccessful in implementing our plans, we could experience additional regulatory action.

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 (50), who also serves as a director, our executive officers are listed below as of January 1, 2007.

Gregory F. Ehlinger (44) has been our Senior Vice President and Chief Financial Officer since August of 1999. He has been one of our officers since August 1992.

Bradley J. Kime (46) has been President of our Commercial Banking line of business since May 2003 and President of Irwin Union Bank F.S.B. since December 2000. He has served in several executive officer positions since joining Irwin in 1986.

Joseph R. LaLeggia (45) has been President of our Commercial Finance line of business since July of 2002. He has served in executive officer positions since joining Irwin in 2000.

Jocelyn Martin-Leano (45) has served as President of our Home Equity line of business since July 1, 2006, having been Interim President for the six months prior to that. She has served in executive officer positions since joining Irwin in 1995.

Matthew F. Souza (49) has been our Senior Vice President-Ethics since August 1999 and our Secretary since 1986. He has been one of our officers since 1986.

Thomas D. Washburn (59) 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.

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In our home equity line 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 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, and match-funding certain loan assets. 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 third quarters of 2006, we lost money and for the year 2006 we earned substantially less as a percentage of assets than peers, due in large part to the sale of our conforming mortgage banking segment. 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. While our current capital levels exceed our internal policies, 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

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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 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 finance or sell the majority of our second mortgage loan originations into the secondary market through the use of securitizations. It is possible that some of our financial assets, such as 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 profitability and/or liquidity for future originations and purchases of loans.

Our discontinued mortgage banking line of business was a net provider of liquidity to the Corporation. Our divestiture of this segment has caused us to seek alternative funding sources to contribute to our other lines of business, which sources might be more expensive than those previously used.

We have regulatory restrictions on our ability to receive dividends from bank subsidiaries.

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. 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 sought and were granted such approval for a $15 million dividend in the fourth quarter of 2006, but similar responses to future requests are not guaranteed.

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 and other reserves 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 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.

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

Each of our lines of business has its own management team. Our overall financial performance depends heavily on the results of these specialized financial services businesses units. Our success to date has been influenced strongly by our ability to attract and to retain senior management that is experienced in the niches within banking and financial services for which they are responsible. 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 January 31, 2007, of 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 January 31, 2007, 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 a highly competitive financial services industry.

The financial services industry, including commercial banking, mortgage lending, and commercial finance, 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.

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

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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.

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.

Our subsidiary, Irwin Union Bank and Trust, has entered into a memorandum of understanding, which is considered an informal agreement, with the Federal Reserve Bank of Chicago as of March 1, 2007 to enhance the consumer compliance function and compliance oversight programs of Irwin Union Bank and Trust and its subsidiaries, and to provide quarterly written progress reports to the Federal Reserve Bank of Chicago with respect to these matters, commencing June 1, 2007. We have developed plans we believe will thoroughly address the issues raised by the Federal Reserve Bank of Chicago, but if we are unsuccessful in implementing our plans, we could experience additional regulatory action.

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

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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.

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 1B.   Unresolved Staff Comments

Not Applicable.

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, 2007 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 ten branch offices located in Arizona(2), California (2), Kentucky, Missouri, Nevada, New Mexico 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,

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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 remaining activities of this discontinued operation are conducted from an office located at 10500 Kincaid Drive, Fishers, Indiana, which is leased.

Item 3.   Legal Proceedings

Culpepper v. Inland Mortgage Corporation

On February 7, 2006, the United States District Court for the Northern District of Alabama dismissed this case, originally filed in April 1996, by granting the motions of Irwin Mortgage Corporation, our indirect subsidiary (formerly Inland Mortgage Corporation), to decertify the class and for summary judgment, and by denying the plaintiffs’ motion for summary judgment. The plaintiffs filed a notice of appeal with the Court of Appeals for the 11th Circuit. The Court of Appeals held oral argument on the appeal on November 15, 2006.

During the ten years this case has been pending, the plaintiffs obtained class action status for their complaint alleging Irwin Mortgage violated the federal Real Estate Settlement Procedures Act (RESPA) relating to Irwin Mortgage’s payment of broker fees to mortgage brokers. In September 2001, the Court of Appeals for the 11th Circuit upheld the district court’s certification of the class. However, in October 2001, the Department of Housing and Urban Development (HUD) issued a policy statement that explicitly disagreed with the 11th Circuit’s interpretation of RESPA in upholding class certification. Subsequent to the HUD policy statement, the 11th Circuit decided a RESPA case similar to ours, concluding the trial court had abused its discretion in certifying the class. The 11th Circuit expressly recognized it was, in effect, overruling its previous decision upholding class certification in our case.

If the plaintiffs were to prevail on appeal and in a subsequent trial on the merits, Irwin Mortgage could be liable for RESPA damages that could be material to our financial position. However, we believe the 11th Circuit’s RESPA ruling in the case similar to ours would support a decision in our 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 14, 1997. This date was later clarified by stipulation of the parties to be April 17, 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 February 23, 2006, the Court ordered that class notice be mailed. On September 7, 2006, the court ordered one-time publication of class notice in Indiana newspapers. 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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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 September 15, 2005, Irwin Mortgage filed an answer and cross-claims seeking dismissal of the complaint. On October 13, 2006, Irwin Mortgage filed a motion for summary judgment. At a hearing on January 3, 2007, the court ordered discovery to be completed by April 30, 2007, after which Irwin Mortgage may re-file its 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.

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 September 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

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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. The Pennsylvania District Court had been handling another case seeking class action status, Kessler v. RFC, et al., also involving Community and with facts similar to those alleged in the Irwin consolidated cases. The Kessler case had been settled, but the settlement was appealed and set aside on procedural grounds. Subsequently, the parties in Kessler filed a motion for approval of a modified settlement, which would provide additional relief to the settlement class. Irwin is not a party to the Kessler action, but the resolution of issues in Kessler may have an impact on the Irwin cases. The Pennsylvania District Court has effectively stayed action on the Irwin cases until issues in the Kessler case are resolved. We have established a reserve for the Community litigation based upon Statement of Financial Accounting Standards No. 5, “Accounting For Contingencies” (SFAS 5) guidance and the advice of legal counsel.

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 for alleged violations of the Fair Credit Reporting Act. In response to Irwin’s motion to dismiss filed on October 18, 2005, the court dismissed the plaintiffs’ complaint with prejudice on March 23, 2006. Plaintiffs filed an appeal in the U.S. Court of Appeals for the 9th Circuit on April 13, 2006. We 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 filed a notice of removal and removed the case from state to federal court. On March 17th, 2006 the plaintiffs filed a motion to remand the action back to state court and also filed an amended complaint emphasizing the alleged state law basis for their claims. Irwin believes, however, that the plaintiffs’ state law claims are completely preempted by Section 27 of the FDIC Act. On April 24, 2006, the plaintiffs initiated a class arbitration with the American Arbitration Association (White v. Irwin Union Bank & Trust, et al.). On October 13, 2006, the parties tentatively agreed to settle this matter for a nonmaterial amount. The parties are in the process of drafting the settlement agreement and having it reviewed by the arbitrator.

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

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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 2006, 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 Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

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 21, 2007, was 1,978.

Stock Prices and Dividends:

									Total
	Price Range				Quarter		Cash		Dividends
	High		Low		End		Dividends		For Year
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
2006
First quarter		21.96		19.10		19.33	$	0.11
Second quarter		21.20		17.92		19.39	$	0.11
Third Quarter		20.25		18.08		19.56	$	0.11
Fourth Quarter		23.00		19.34		22.63	$	0.11	$	0.44

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 15, 2007, our Board of Directors approved an increase in the first quarter dividend to $0.12 per share, payable in March 2007. Dividends paid by Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. to the Corporation are governed 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.

Issuer Purchases of Equity Securities:

In 2006, the Board of Directors of the Corporation approved the repurchase of up to two million shares or up to $50 million of common stock of the Corporation. The repurchases will occur from time to time based on market conditions, parent company cash flow, and the Corporation’s current and future projections of capital position. From time to time, we also repurchase shares in connection with our equity-based compensation plans. The following table shows our repurchase activity for the past three months:

					Total Number of Shares		Approximate Dollars Value
	Total Number		Average		Purchase as Part of		of Shares that May Yet Be
	of Shares		Price Paid		Publicly Announced Plan		Purchased under the Plan
Calendar Month	Purchased		per Share		or Program		or Program
October		1,231	$	19.55		n/a		n/a
November		13,275	$	22.51		n/a		n/a
December		444	$	22.41		n/a		n/a
December		133,424	$	22.51		133,424	$	46,996,061
Total		148,374	$	22.49		133,424

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Item 6.   Selected Financial Data

Five-Year Selected Financial Data

The figures in the table below are for Continuing Operations and, unless otherwise indicated, specifically exclude results for those operations now designated “Discontinued Operations” (see Footnote 2 in the Notes to the Consolidated Financial Statements).

	At or For Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands except per share data)
For the year:
Net revenues	$	266,959		$	260,881		$	283,994		$	135,175		$	158,118
Noninterest expense		210,688			204,039			203,778			144,637			142,690
Income (loss) before income taxes		56,271			56,842			80,216			(9,462	)		15,428
Provision for income taxes		18,870			20,595			31,492			(5,321	)		5,765
Income (loss) before cumulative effect of change in accounting principle and discontinued operations		37,401			36,247			48,724			(4,141	)		9,663
Cumulative effect of change in accounting principle, net of tax		—			—			—			—			495
Net income (loss) from continuing		37,401			36,247			48,724			(4,141	)		10,158
(Loss) income from discontinued operations		(35,674	)		(17,260	)		19,721			76,958			43,170
Net income	$	1,727		$	18,987		$	68,445		$	72,817		$	53,328
Common Share Data:
Earnings per share from continuing operations:(1)
Basic	$	1.27		$	1.27		$	1.72		$	(0.15	)	$	0.38
Diluted		1.25			1.26			1.64			(0.15	)		0.38
Cash dividends per share		0.44			0.40			0.32			0.28			0.27
Book value per common share		17.30			17.90			17.61			15.36			12.98
Dividend payout ratio(7)		759.12	%		60.18	%		13.24	%		10.76	%		14.01	%
Weighted average shares — basic		29,501			28,518			28,274			27,915			26,823
Weighted average shares — diluted		29,690			28,841			31,278			28,240			27,065
Shares outstanding — end of period		29,736			28,618			28,452			28,134			27,771
At year end:
Assets	$	6,237,958		$	6,646,524		$	5,235,820		$	4,988,359		$	4,910,392
Residual interests		10,320			22,116			56,101			71,491			157,514
Loans held for sale		237,510			513,554			227,880			204,535			75,540
Loans and leases		5,238,193			4,477,943			3,440,689			3,147,094			2,798,006
Allowance for loan and lease losses		74,468			59,223			43,441			63,005			50,320
Servicing assets		31,949			34,445			47,807			31,949			28,537
Deposits		3,551,516			3,898,993			3,395,263			2,899,662			2,693,810
Short-term borrowings		602,443			997,444			237,277			429,758			993,124
Collateralized debt		1,173,012			668,984			547,477			590,131			391,425
Other long-term debt(2)		233,889			270,160			270,172			270,184			30,070
Trust preferred securities(2)		—			—			—			—			233,000
Shareholders’ equity		530,502			512,334			501,185			432,260			360,555

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	At or For Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands except per share data)
Selected Financial Ratios:
Performance Ratios on continuing operations:
Return on average assets		0.6	%		0.6	%		0.9	%		(0.1	)%		0.3	%
Return on average equity		7.1			7.5			10.3			(1.1	)		3.2
Net interest margin(3)		4.71			4.97			5.46			5.82			6.01
Noninterest income to revenues(4)		14.8			19.7			28.6			(10.7	)		13.9
Efficiency ratio(5)		69.8			70.8			68.3			79.4			70.7
Loans and leases and loans held for sale to deposits(6)		117.3			108.0			80.7			87.1			89.9
Average interest-earning assets to average interest-bearing liabilities		119			126			132			132			122
Asset Quality Ratios:
Allowance for loan and lease losses to:
Total loans and leases		1.4	%		1.3	%		1.3	%		2.0	%		1.8	%
Non-performing loans and leases		199			158			129			142			162
Net charge-offs to average loans and leases		0.5			0.3			0.7			1.1			0.7
Non-performing assets to total assets		0.9			0.8			0.9			1.1			0.8
Non-performing assets to total loans and leases and other real estate owned		1.0			1.2			1.3			1.7			1.3
Ratio of Earnings to Fixed Charges:
Including deposit interest		1.2	x		1.4	x		2.0	x		0.9	x		1.2x
Excluding deposit interest		1.5			2.1			3.3			0.8			1.5
Capital Ratios:
Average shareholders’ equity to average assets		8.1	%		8.0	%		9.0	%		7.6	%		8.0	%
Tier 1 capital ratio		11.4			10.7			13.0			11.4			9.3
Tier 1 leverage ratio		11.5			10.3			11.6			11.2			9.7
Total risk-based capital ratio		13.4			13.1			15.9			15.1			13.2

(1)	Earnings per share of common stock from continuing operations 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 $0.36 basic and $0.36 diluted. Diluted earnings per share from continuing operations for all years except 2004 do not contain the effect of convertible trust preferred stock because they were antidilutive.
(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.
(7)	Dividends paid divided by earnings from total operations.

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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. We 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 costs and impact of implementing or changing such plans and strategies;

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

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

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

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 management and success of our interest rate risk management strategies;

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

•  staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force;

•  the relative profitability of our lending operations;

•  the valuation and management of our portfolios, including the use of external and internal modeling assumptions we embed in the valuation of those portfolios and short-term swings in valuation of such portfolios;

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

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

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

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

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

•  changes in the value of our lines of business, subsidiaries, or companies in which we invest;

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

•  unanticipated outcomes in litigation;

•  legislative or regulatory changes, including changes in laws, rules or regulations that affect tax, consumer or commercial lending, corporate governance and disclosure requirements, and other laws, rules or regulations affecting the rights and responsibilities of our Corporation, bank or thrift;

•  regulatory actions that impact our Corporation, bank or thrift, including the memorandum of understanding entered into as of March 1, 2007 between Irwin Union Bank and Trust and the Federal Reserve Bank of Chicago;

•  changes in the interpretation of regulatory capital or other rules;

•  the availability of resources to address changes in laws, rules or regulations or to respond to regulatory actions;

•  changes in applicable accounting policies or principles or their application to our business or final audit adjustments, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

•  the final outcome and implications of the sale and discontinuance of operations 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 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 small businesses and consumers while optimizing the productivity of our capital. Our strategic objective is to create well-controlled profitability and growth. We do this by focusing on customers’ needs in order to generate revenues, being cost efficient and having strong risk management systems. We believe we must continually balance these goals in order to deliver long-term value to all of our stakeholders.

We have developed five tactics to meet these goals:

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

2. Attract, develop and retain exceptional management with niche expertise.  We participate in lines of business 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, meeting the needs of the markets they serve cost effectively, and identifying and controlling the risks inherent in their activities. This structure also promotes accountability among managers of each segment. We attempt to create a mix of short-term and long-term incentives that provide these managers with the incentive to achieve well-controlled, profitable growth over the long term.

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3. Diversify capital and earnings risk.  We diversify our revenues, credit risk, and application of capital across complementary lines of business and across different regions as a key part of our risk management. For example, the customers of our commercial bank have different growth and risk profiles in the Midwest and West. These markets perform differently due to differences in local economies, affecting both demand and credit quality of our products. Our home equity segment lends to consumers on a national basis, building a diversified portfolio where demand and credit quality fluctuate depending, in part, on local market conditions. Our customers’ credit 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.

4. Reinvest for growth.  We reinvest on an ongoing basis in the development of new product and market opportunities. 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.

5. Create and maintain risk management systems appropriate to our size, scale and scope.  Increasingly, banks of all sizes have seen the need to enhance their risk management systems. These systems are an integral part of a well-managed banking organization and are as important to our future success as hiring good people and offering products and services in attractive niches. We are engaged in a multiyear process of enhancing our management depth and systems for assuring that we operate our businesses within the risk appetite established by our board of directors. The system we are creating provides centralized guidance and support from staff with demonstrated risk management expertise, who serve as an independent perspective assessing and assisting the risk management processes and systems that are an integral part of each of our managers’ responsibilities.

In 2006 and early 2007, we completed the bulk of the steps necessary to divest our conforming conventional first mortgage business, Irwin Mortgage Corporation. Over the past several years, changes in the environment for conventional mortgage banking caused us to examine whether Irwin Mortgage continued to be a good fit with our corporate strategy.

These changes included:

•  The conventional first mortgage industry becoming commoditized, making larger lenders more competitive.

•  The volatility of production and mortgage servicing rights (MSRs) valuations increasing, as interest rates traded in a narrow range for a prolonged period of time, reflecting what we believe is the end of a long-term decline in interest rates.

•  The relatively large size of IMC compared to the rest of the company causing this volatility to have more of an impact on our consolidated results than mortgage operations in other similar-sized banking companies.

We think of strategy as an organization’s response to its environment. As a result, when the environment changes like this, it is important to ask whether we should change our strategy or the way we implement it. Asking these important questions led us to the conclusion that our strategy was still valid, but that Irwin Mortgage no longer fit with that strategy and, as a result, we needed to divest.

The sale of the assets of Irwin Mortgage has not only reduced our volatility and risk, but additionally allows us to focus on growing the other areas of our business.

We believe long-term growth and profitability will result from our endeavors to pursue commercial and consumer lending niches, our experienced management, our diverse product and geographic markets and our focus on risk management systems.

Earnings Outlook

We do not provide specific earnings or earnings per share guidance. Our strategy is to seek opportunities for well-controlled, 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. We believe this strategy can, over time,

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provide above market growth rates in earnings per share and return on equity. Prior to 2005, a meaningful amount of our earnings, in many years, came from our conforming conventional first mortgage segment. As discussed in the section on Strategy, in 2006, we decided to exit this line of business. Our opportunities in our remaining three segments continue to grow across the U.S. and, in our commercial finance segment, also in Canada. We believe this growth will contribute in a meaningful way to the Corporation’s future success.

We believe the earnings of our two commercial segments in 2006 are indicative of their future potential. In each, we are balancing investment in growth for future earnings with a desire for these two units to contribute to increasing our current level of consolidated profitability.

Our home equity segment is performing at an unacceptable level. This is in part due to external environmental factors in the cyclical mortgage business which we believe will likely improve over time. Currently, both in our portfolio and across the industry we are seeing an increase in loan delinquencies and losses, coupled with a decline or dramatic slowing in the rate of growth in home prices in many markets. These two factors are also negatively impacting the secondary market for loan sales. Combined, our expectation for increased loan losses and lower margins on sale in the secondary market will negatively affect our home equity results in the first half of 2007, particularly in the first quarter, when results from home equity operations are currently estimated to show a loss. However, some of the current difficult conditions in housing and mortgage banking may work to our advantage over time as slowing home price appreciation is likely to make the company’s core product — high loan to value home equity loans — more attractive. The earnings difficulties we have had also reflect a cost structure we had in place entering 2006 which was too high for current volumes. After a series of costly and difficult actions to restructure the segment in 2006 (direct restructuring charges totaled $6 million), we are seeing improvement, but at a slower pace than we had hoped.

Home equity is an important segment for us. Not only does it provide credit and geographic diversification for commercial portfolios, we also believe it can play an important role in internal capital generation in the long run, allowing us simultaneously to earn a good return on the capital deployed in the segment and, by turning its balance sheet frequently, to generate excess capital to grow the commercial segments. Financial results in 2007 are expected to be substantially better than in 2006, though still below our long-term goals. However, we believe that this segment can achieve both our financial goals of double digit earnings growth and a return in excess of the cost of capital in 2008.

As discussed in Note 2 to the Financial Statements, we are reporting the results of mortgage banking business as discontinued operations.

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

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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.

On January 1, 2007, we adopted SFAS 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.” This statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of classes of servicing assets and servicing liabilities at fair value, to better align with the use of derivatives used to mitigate the inherent risks of these assets and liabilities. Offsetting changes in fair value are recognized through income. We have elected the fair value treatment for servicing rights associated with our high loan-to-value first lien and second mortgage loans at our home equity lending line of business as of January 1, 2007.

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 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 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 8 to the consolidated financial statements for further discussion.

In addition to the ALLL, at our discontinued mortgage banking segment we have recorded 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.

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, in part, based on estimates of future taxable income. Events may occur in the future that could cause the ability to realize 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 when 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 when pre-established performance metrics are met and cash is due.

Consolidated Overview

	2006			% Change			2005			% Change			2004
Net income from continuing operations (millions)	$	37.4			3.2	%	$	36.2			(25.6	)%	$	48.7
Net income (millions)		1.7			(90.9	)		19.0			(72.3	)		68.4
Basic earnings per share from continuing operations		1.27			0.0			1.27			(26.2	)		1.72
Basic earnings per share		0.06			(91.0	)		0.67			(72.3	)		2.42
Diluted earnings per share from continuing operations		1.25			(0.8	)		1.26			(23.2	)		1.64
Diluted earnings per share		0.05			(92.4	)		0.66			(71.1	)		2.28
Return on average equity from continuing operations		7.1	%					7.5	%					10.3	%
Return on average assets from continuing operations		0.6	%					0.6	%					0.9	%

As discussed below, the financial statements, footnotes, schedules and discussion within this report have been reformatted to conform to the presentation required for “discontinued operations” pursuant the sale of our mortgage banking line of business and specifically exclude results for those operations now designated “Discontinued Operations” (see Footnote 2 of the Notes to the Consolidated Financial Statements).

Consolidated Income Statement Analysis

Net Income from Continuing Operations

We recorded net income from continuing operations of $37 million for the year ended December 31, 2006, up 3% from net income from continuing operations of $36 million for the year ended December 31, 2005, and compared to $49 million in 2004. Net income per share (diluted) from continuing operations was $1.25 for the year ended December 31, 2006, down 1% from $1.26 per share in 2005 and down 23% from $1.64 per share in 2004. Return on equity from continuing operations was 7.1% for the year ended December 31, 2006, 7.5% in 2005 and 10.3% in 2004. The improvement in 2006 earnings from continuing operations relates to the record results at the commercial segments of the business and a reduction in the effective tax in 2006, offset by declines at the home equity segment and at the parent company. The effective income tax rate for 2006 was 33.5%, compared to 36.2% in 2005 and 39.3% in 2004. The lower effective rate in 2006 resulted primarily from differences in rates of foreign subsidiaries, increased tax credits, and the release of certain tax reserves as we aligned our tax liability to a level commensurate with our currently identified tax exposures.

Net Interest Income from Continuing Operations

Net interest income from continuing operations for the year ended December 31, 2006 totaled $257 million, up 11% from 2005 net interest income from continuing operations of $231 million and up 21% from 2004.

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The following table shows our daily average consolidated balance sheet and interest rates at the dates indicated. We do not show interest income on a tax equivalent basis because it is not materially different from the results in the table

	December 31,
	2006								2005								2004
	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	$	72,110		$	2,925		4.06	%	$	80,508		$	1,816		2.26	%	$	85,304		$	794		0.93	%
Federal funds sold		30,419			1,527		5.02			15,064			387		2.57			15,340			173		1.13
Residual interests		13,512			1,536		11.37			39,942			6,948		17.40			67,544			12,509		18.52
Investment securities		117,164			5,816		4.96			107,220			5,813		5.42			88,254			4,536		5.14
Loans held for sale		865,061			73,708		8.52			1,217,367			94,324		7.75			1,034,032			80,003		7.74
Loans and leases, net of unearned income(1)		4,872,487			437,900		8.99			3,890,077			312,970		8.05			3,324,333			246,288		7.41
Total interest earning assets		5,970,753		$	523,412		8.77	%		5,350,178		$	422,258		7.89	%		4,614,807		$	344,303		7.46	%
Noninterest-earning assets:
Cash and due from banks		111,382								109,837								104,115
Premises and equipment, net		34,349								30,543								31,219
Other assets		470,845								572,028								582,978
Less allowance for loan and lease losses		(67,383	)							(50,322	)							(56,311	)
Total assets	$	6,519,946							$	6,012,264							$	5,276,808
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Money market checking	$	355,378		$	8,490		2.39	%	$	479,621		$	9,789		2.04	%	$	333,772		$	4,487		1.34	%
Money market savings		1,169,465			48,673		4.16			1,118,655			29,631		2.65			1,071,617			15,127		1.41
Regular savings		131,182			2,481		1.89			119,349			1,547		1.30			60,800			873		1.44
Time deposits		1,558,128			72,576		4.66			1,204,421			42,894		3.56			907,736			24,000		2.64
Short-term borrowings		543,719			33,663		6.19			421,085			21,244		5.05			307,929			9,583		3.11
Collateralized debt		1,005,959			53,720		5.34			629,503			25,587		4.06			534,660			15,259		2.85
Other long-term debt		246,948			22,486		9.11			290,188			25,676		8.85			270,178			22,896		8.47
Total interest-bearing liabilities		5,010,779		$	242,089		4.83	%		4,262,822		$	156,368		3.67	%		3,486,692		$	92,225		2.65	%
Noninterest-bearing liabilities:
Demand deposits		756,624								989,234								1,006,558
Other liabilities		226,379								279,784								311,017
Shareholders’ equity		526,164								480,424								472,541
Total liabilities and shareholders’ equity	$	6,519,946							$	6,012,264							$	5,276,808
Net interest income				$	281,323							$	265,890							$	252,078
Net interest income to average interest earning assets							4.71	%							4.97	%							5.46	%
Net interest income from discontinued operations					23,884								34,423								39,064
Net interest income from continuing operations				$	257,439							$	231,467							$	213,014

⁽¹⁾ For purposes of these computations, nonaccrual loans are included in daily average loan amounts outstanding.

Net interest margin for the year ended December 31, 2006 was 4.71% compared to 4.97% in 2005 and 5.46% in 2004. The decline in margin in 2006 relates to our increasing cost of funds which have risen at a faster pace than our yields on loans, reflecting competitive conditions for both assets and liabilities.

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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,
	2006 Over 2005									2005 Over 2004
	Volume			Rate			Total			Volume			Rate			Total
	(Dollars and thousands)
Interest Income
Loans and leases	$	79,038		$	45,892		$	124,930		$	41,914		$	24,768		$	66,682
Mortgage loans held for sale		(27,297	)		6,681			(20,616	)		14,184			137			14,321
Investment securities		539			(536	)		3			975			302			1,277
Residual interests		(4,598	)		(814	)		(5,412	)		(5,112	)		(449	)		(5,561	)
Interest bearing deposits with financial institutions		(189	)		1,298			1,109			(45	)		1,067			1,022
Federal funds sold		396			744			1,140			(4	)		218			214
Total		47,889			53,265			101,154			51,912			26,043			77,955
Interest Expense
Money market checking		(2,536	)		1,237			(1,299	)		1,961			3,341			5,302
Money market savings		1,346			17,696			19,042			664			13,840			14,504
Regular savings		153			781			934			841			(167	)		674
Time deposits		12,596			17,086			29,682			7,845			11,049			18,894
Short-term borrowings		6,187			6,232			12,419			3,522			8,139			11,661
Collateralized debt		15,302			12,831			28,133			2,707			7,621			10,328
Other long-term debt		(3,826	)		636			(3,190	)		1,695			1,085			2,780
Total		29,222			56,499			85,721			19,235			44,908			64,143
Net Interest Income	$	18,667		$	(3,234	)	$	15,433		$	32,677		$	(18,865	)	$	13,812

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 from Continuing Operations

The consolidated provision for loan and lease losses for the year 2006 was $35 million, compared to $27 million and $14 million in 2005 and 2004, respectively. More information on this subject is contained in the section on “credit risk.”

Noninterest Income from Continuing Operations

Noninterest income during the year 2006 totaled $45 million, compared to $57 million for 2005 and $85 million in 2004. The decrease in 2006 versus 2005 related primarily to the home equity line of business where there were net losses from sale of loans of $2 million in 2006 compared to gains of $18 million during 2005. This year-over-year change in revenues reflects a reduction in the amount of loan sales and interest rate movements (which were partially offset by derivative gains on hedges offsetting the rate risk in the loans). Details related to these fluctuations are discussed later in the “home equity lending” section of this document.

Noninterest Expense from Continuing Operations

Noninterest expenses for the year ended December 31, 2006 totaled $211 million, compared to $204 million in both 2005 and 2004. The increase in consolidated noninterest expense in 2006 is primarily related to increased operating costs at the commercial banking line of business. Details related to these fluctuations are discussed later in the “commercial banking” section of this document.

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Consolidated Balance Sheet Analysis

Total assets at December 31, 2006 were $6.2 billion, down 6% from December 2005. Average assets for 2006 were $6.5 billion up 8% from December 31, 2005, and up 24% from December 31, 2004. The growth in the average consolidated balance sheet reflects increases in portfolio loans and leases at the commercial banking and commercial finance lines of business. At December 31, 2006, $57 million of assets from our mortgage banking line of business were reclassified to assets held for sale on our balance sheet pending the planned sale of these assets.

Investment Securities

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

	2006		2005		2004
	(Dollars in thousands)
U.S. Treasury and government obligations	$	13,730	$	12,571	$	3,556
Obligations of states and political subdivisions		3,545		3,544		3,746
Mortgage-backed securities		45,187		28,331		31,556
Other		65,968		72,896		69,364
Total	$	128,430	$	117,342	$	108,222

Included within the “other” category were $63 million, $70 million, and $66 million of FHLBI and Federal Reserve Bank stock at December 31, 2006, 2005, and 2004, respectively, which are redeemable at cost. The following table shows maturity distribution of our investment securities at December 31, 2006:

													Mortgage-backed
													Securities and
				After One			After Five						FHLBI & Federal
	Within			But Within			But Within			After Ten			Reserve Bank
	One Year			Five Years			Ten Years			Years			Stock			Total
	(Dollars in thousands)
U.S. Treasury and government obligations	$	2,277		$	11,453		$	—		$	—		$	—		$	13,730
Obligations of states and political subdivisions		—			—			620			2,925						3,545
Other		3,380			—			—			—			—			3,380
Total		5,657			11,453			620			2,925			—			20,655
Mortgage-backed securities											—			45,187			45,187
FHLB & Federal Reserve Bank stock											—			62,588			62,588
	$	5,657		$	11,453		$	620		$	2,925		$	107,775		$	128,430
Weighted Average Yield
Held-to-maturity		3.23	%		3.59	%		5.20	%		5.35	%		5.54	%
Available-for-sale		4.22	%		—			—			—			5.06	%

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.

Loans Held For Sale

Loans held for sale totaled $238 million at December 31, 2006, down 54% from December 31, 2005 and up 4% from December 31, 2004. This 2006 decrease, primarily at the home equity line of business relates to lower production, the timing of whole loan sales and securitizations and run off.

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Loans and Leases

Our commercial loans and leases are originated throughout the United States and Canada. At December 31, 2006, 94% of our loan and lease portfolio was associated with our U.S. operations. We also extend credit to consumers throughout the United States through mortgages, installment loans and revolving credit arrangements.

Loans by major category for the periods presented were as follows:

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Commercial, financial and agricultural	$	2,249,988		$	2,016,253		$	1,697,651		$	1,503,619		$	1,347,962
Real estate construction		377,601			379,831			279,863			296,180			299,105
Real estate mortgage		1,522,616			1,232,933			806,757			856,070			776,341
Consumer		31,581			31,718			31,166			27,370			27,857
Commercial financing:
Franchise financing		699,969			462,413			330,496			207,341			130,247
Domestic leasing		296,056			237,968			174,035			157,072			161,464
Canadian leasing		358,783			313,581			265,780			207,355			133,784
Unearned income:
Franchise financing		(211,480	)		(125,474	)		(86,638	)		(56,837	)		(34,494	)
Domestic leasing		(42,782	)		(33,267	)		(23,924	)		(22,038	)		(24,793	)
Canadian leasing		(44,139	)		(38,013	)		(34,497	)		(29,038	)		(19,467	)
Total	$	5,238,193		$	4,477,943		$	3,440,689		$	3,147,094		$	2,798,006

The following table shows our contractual maturity distribution of loans at December 31, 2006. 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	$	713,580	$	988,360	$	548,048	$	2,249,988
Real estate construction		265,446		104,797		7,358		377,601
Real estate mortgage		68,466		153,615		1,300,535		1,522,616
Consumer		19,185		11,555		841		31,581
Commercial financing:
Franchise financing		688		83,815		403,986		488,489
Domestic leasing		11,681		240,048		1,545		253,274
Canadian leasing		16,943		279,372		18,329		314,644
Total	$	1,095,989	$	1,861,562	$	2,280,642	$	5,238,193
Loans due after one year with:
Fixed interest rates							$	2,624,491
Variable interest rates								1,517,713
Total							$	4,142,204

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Allowance for Loan and Lease Losses

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

	December 31,
	2006			2005			2004
	(Dollars in thousands)
Balance at beginning of year	$	59,223		$	43,441		$	63,005
Provision for loan and lease losses		35,101			27,307			14,473
Charge-offs		(30,810	)		(20,201	)		(28,180	)
Recoveries		11,208			8,960			5,335
Reduction due to sale of loans and leases and other		—			—			(627	)
Reduction due to reclassification of loans		(246	)		(403	)		(10,808	)
Foreign currency adjustment		(8	)		119			243
Balance at end of period	$	74,468		$	59,223		$	43,441

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.

Deposits

Total deposits in 2006 averaged $4.0 billion compared to average deposits in 2005 of $3.9 billion, and average deposits in 2004 of $3.4 billion. Demand deposits in 2006 averaged $0.8 billion, down from an average of $1.0 billion in both 2005 and 2004. A significant portion of demand deposits is related to deposits at Irwin Union Bank and Trust (IUBT) associated with escrow accounts held on loans in the servicing portfolio at the discontinued mortgage banking line of business. During 2006, these escrow accounts averaged $0.4 billion, compared to an average of $0.7 billion in both 2005 and 2004. These escrow accounts were transferred out of IUBT in early 2007 in connection with the transfer of mortgage servicing rights at the mortgage banking line of business. Average core deposits at our commercial bank, which exclude jumbo and brokered CDs and public funds, decreased slightly to $2.4 billion in 2006 compared to $2.5 billion in 2005.

Irwin Union Bank and Trust utilizes institutional broker-sourced deposits as funding to supplement deposits solicited through branches and other wholesale funding sources. At December 31, 2006, institutional broker-sourced deposits totaled $0.5 billion compared to a balance of $0.6 billion at December 31, 2005. To date, Irwin Union Bank, F.S.B. has not utilized brokered deposits, but can and may do so in the future.

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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,
	2006		2005		2004
	(Dollars in thousands)
Under 3 months	$	404,684	$	419,574	$	266,200
3 to 6 months		202,466		230,024		117,339
6 to 12 months		230,561		231,397		91,276
after 12 months		270,070		341,851		169,796
Total Certificates of deposit	$	1,107,781	$	1,222,846	$	644,611
Brokered deposits	$	541,903	$	638,007	$	279,102
Mortgage banking escrow deposits over $100,000	$	324,913	$	412,444	$	680,812
Demand deposits		364,434		342,913		295,195
Money market accounts		1,442,034		1,602,337		1,545,700
Savings and time deposits		593,571		544,814		356,776
Commercial banking core deposits	$	2,400,039	$	2,490,064	$	2,197,671

Short-Term Borrowings

Short-term borrowings during 2006 averaged $544 million compared to an average of $421 million in 2005, and $308 million in 2004. Short-term borrowings decreased to $602 million at December 31, 2006 compared to $997 million at December 31, 2005. The decrease in short-term borrowings at the end of 2006 compared to the end of 2005 reflects securitization activity at the home equity lending line of business during 2006.

Federal Home Loan Bank borrowings averaged $322 million for the year ended December 31, 2006, with an average rate of 4.90%. The balance at December 31, 2006 was $372 million with an interest rate of 5.02%. The maximum outstanding at any month end during 2006 was $609 million. At December 31, 2005, Federal Home Loan Bank borrowings averaged $199 million, with an average rate of 3.56%. The balance at December 31, 2005 was $642 million at an interest rate of 4.39%. The maximum outstanding at any month end during 2005 was $642 million.

Federal Funds borrowings averaged $167 million for the year ended December 31, 2006, with an average rate of 4.18%. The balance at December 31, 2006 was $231 million with an interest rate of 3.5%. The maximum outstanding at any month end during 2006 was $280 million. At December 31, 2005, Federal Funds borrowings averaged $126 million, with an average rate of 1.95%. The balance at December 31, 2005 was $290 million at an interest rate of 3.94% which was also the maximum outstanding at any month end during 2005.

Collateralized and Other Long-Term Debt

Collateralized borrowings totaled $1.2 billion at December 31, 2006 compared to $0.7 billion at December 31, 2005. The bulk of these borrowings have resulted from securitizations of portfolio loans at the home equity lending line of business 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

Other long-term debt totaled $234 million at December 31, 2006, down from $270 million in 2005. We have obligations represented by subordinated debentures totaling $204 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, 2006. In accordance with FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” (revised December 2004), at the end of 2004 we deconsolidated the wholly-owned trusts that issued the

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trust preferred securities. As a result, these securities are no longer consolidated on our balance sheet. Instead, the subordinated debentures held by the trusts are disclosed on the balance sheet as “other long-term debt.”

On March 6, 2006, we had a reduction in long-term debt of $53 million related to our call of the convertible trust preferred securities issued by IFC Capital Trust III. As a result of the call, 39% of the preferred shareholders converted to 1,013,938 shares of IFC common stock and 61% redeemed for cash. On March 31, 2006, we issued $31.5 million of Capital Trust IX preferred securities to replace the redeemed shares. We incurred $1.1 million in expense to write off debt issuance costs with this redemption.

On July 25, 2006, we had a $15 million reduction in long-term debt related to our call of trust preferred securities issued by IFC Capital Trust IV. We incurred $1.2 million in call premium expense and $0.4 million in early amortization of debt issuance expense in connection with this call.

In December of this year, we issued $30 million of trust preferred securities in two series by IFC Capital Trust X and IFC Capital Trust XI, both with five year non-call periods. Capital trust X was issued at a 6.532% fixed rate of interest for the first five years, which converts to a floating rate of interest of 175 basis points over three month LIBOR and matures December of 2036. Capital Trust XI was issued at a floating rate of interest with a spread of 174 basis points over three month LIBOR and matures in March 2037. Capital Trust X and XI were issued in order to replace capital and liquidity when IFC Capital Trust V was called in December 2006. At the point of call, we incurred $0.8 million in expense to write-off unamortized debt issuance expenses associated with this redemption.

Capital

Shareholders’ equity averaged $526 million during 2006, up 10% compared to 2005, and up 11% from 2004. Shareholders’ equity balance of $531 million at December 31, 2006 represented $17.30 per common share, compared to $17.90 per common share at December 31, 2005, and compared to $17.61 per common share at year-end 2004. We paid an aggregate of $13.1 million in dividends during 2006, compared to $11.4 million during 2005 and $9.1 million during 2004.

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

	December 31,
	2006			2005			2004
	(Dollars in thousands)
Tier 1 capital	$	712,403		$	675,316		$	637,875
Tier 2 capital		125,351			154,128			143,612
Total risk-based capital	$	837,754		$	829,444		$	781,487
Risk-weighted assets	$	6,258,927		$	6,317,797		$	4,908,012
Risk-based ratios:
Tier 1 capital		11.4	%		10.7	%		13.0	%
Total capital		13.4			13.1			15.9
Tier 1 leverage ratio		11.5			10.3			11.6
Ending shareholders’ equity to assets		8.5			7.7			9.6
Average shareholders’ equity to assets		8.1			8.0			9.0

At December 31, 2006, our total risk-based capital ratio was 13.4%, exceeding our internal policy minimum at Irwin Union Bank and Trust of 12.0%. At December 31, 2005 and 2004, our total risk-based capital ratio was 13.1% and 15.9%, respectively. Our ending equity to assets ratio at December 31, 2006 was 8.5% compared to 7.7% at December 31, 2005. Our Tier 1 capital totaled $712 million as of December 31, 2006, or 11.4% 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.”

Accumulated other comprehensive income declined by $7.8 million in 2006, largely reflecting the adoption of SFAS 158 at December 31, 2006. However, regulatory capital guidance allows us to add back the $6.7 million of this reduction related to SFAS 158 when computing our regulatory capital ratios.

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In December 2006, we issued $15 million of floating rate non-cumulative perpetual preferred stock. This capital is Tier 1 eligible with a five year non-call period, and is callable at par thereafter at our option.

We have outstanding $198 million in trust preferred securities through five IFC Capital Trusts and one IFC Statutory Trust as of December 31, 2006. All securities are callable at par after five years from date of issuance. 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 “Other Long-Term Debt” section above. Highlights about these trusts are listed below:

		Interest Rate
		at
	Origination	December 31,		Maturity	$ Amount
Name	Date	2006		Date	in thousands		Dividend	Other
IFC Capital Trust VI	Oct 2002		8.70	Sep 2032	$	34,500	quarterly
IFC Statutory Trust VII	Nov 2003		8.26	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
IFC Capital Trust IX	Apr 2006		6.69	Apr 2036		31,500	quarterly	fixed rate for 5 years, variable rate of 3 month LIBOR plus 149 basis points thereafter
IFC Capital Trust X	Dec 2006		6.53	Dec 2036		15,000	quarterly	fixed rate for 5 years, variable rate of 3 month LIBOR plus 175 basis points thereafter
IFC Capital Trust XI	Dec 2006		7.09	Mar 2037		15,000	quarterly	floating rate of 3 month LIBOR plus 174 basis
					$	197,750

We have $30 million of 7.58%, 15-year subordinated debt that is due in 2014, but which callable in 2009 at par. The debt is privately placed. These funds qualify as Tier 2 capital. The securities are not convertible into our common shares.

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, market (including interest rate and foreign currency), liquidity, operational and compliance. 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.

During the third quarter, our Board authorized management to begin a share repurchase program, contingent on the completion of the sale of the assets of Irwin Mortgage. At the time of the authorization, we believed the sale of the mortgage segment would free-up a significant amount of capital. It was our intention to retain some of that capital for future growth (specifically, reducing the amount we otherwise would have raised to support the growth of our commercial segments in 2007 and 2008) and to use the remainder, up to $50 million, for share repurchases over several quarters.

We began those repurchases late in the fourth quarter once the majority of the Irwin Mortgage sale had been completed. Due to a variety of factors, however, the pace and size of the repurchase are likely to be lower in 2007 than we had anticipated at the time of original authorization. We were able to open three new banking offices in the ensuing months which have the potential to add to our near-term capital needs. Second, our exit costs at Irwin

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Mortgage exceeded our expectations, in large part due to the current weak environment for mortgage banking operations. Third, our risk profile did not decline as much as anticipated due to the remaining risk of loan repurchases in the discontinued segment, the amount of intercompany diversification removed with the sale, and the decision to retain certain mortgage assets in portfolio rather than selling them into a weak market. Fourth, our earnings, specifically in the home equity sector were lower than we anticipated during the second half of 2006.

In the context of execution of our strategy, we believe it is important to balance a sufficient capital buffer to support future growth with efforts to return capital to shareholders when we do not have opportunities for near-term redeployment at market rates of return. Our forward growth plans suggest that we can return to levels of attractive return on capital in 2008 through the growth of our commercial portfolios and a return to higher levels of profitability in our home equity segment. Given the inadequate return our shareholders have received in recent years, however, we intend to seek a balance in channeling capital to support the growth in these portfolios with attention to immediate share repurchases. During the first quarter of 2007, we have again been repurchasing shares and will continue to do so as long as we believe they are appropriately priced as compared to book value and future growth opportunities. However, we are unlikely to repurchase in 2007 the full $50 million authorized by our Board of Directors in August.

We repurchased 133 thousand shares for $3.0 million during December 2006 at the start of our repurchase program. In connection with our stock option plans, we also repurchased 67 thousand common shares in 2006 with a market value of $1.4 million. In 2005, we repurchased 51 thousand shares with a market value of $1.2 million.

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.

Cash Flow Analysis

Our cash and cash equivalents decreased $10 million in 2006 compared to an increase of $58 million during 2005 and a decrease of $44 million in 2004. Cash flows from operating activities provided $1.0 billion in cash and cash equivalents in 2006 compared to the use of $251 million in 2005. Changes in loans held for sale impact cash flows from operations. In a period in which loan production is less than sales such as we experienced in 2006, operating cash flows will increase. In 2006, our loans held for sale decreased $1.0 billion, primarily a result of the sale of loans at our discontinued segment. These loan sales increased the cash provided by operating activities. In 2005, our loans held for sale balance increased $403 million, thus increasing the cash used by operating activities.

Earnings by Line of Business

Irwin Financial Corporation is composed of three principal lines of business, the discontinued mortgage banking segment and the parent and other support operations. The three customer-facing segments (lines of business) of continuing operations are:

•  Commercial Banking

•  Commercial Finance

•  Home Equity Lending

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net income (loss):
Commercial Banking	$	30,860		$	27,379		$	23,424
Commercial Finance		12,600			7,433			3,217
Home Equity Lending		1,538			2,252			28,067
Other (including consolidating entries)		(7,597	)		(817	)		(5,984	)
Income from continuing operations		37,401			36,247			48,724
Discontinued operations		(35,674	)		(17,260	)		19,721
	$	1,727		$	18,987		$	68,445

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Commercial Banking

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

	Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Selected Income Statement Data:
Interest income	$	229,193		$	183,052		$	127,029		$	112,679		$	110,107
Interest expense		(104,467	)		(72,294	)		(37,412	)		(33,663	)		(40,253	)
Net interest income		124,726			110,758			89,617			79,016			69,854
Provision for loan and lease losses		(5,734	)		(5,286	)		(3,307	)		(5,913	)		(9,812	)
Other income		18,173			16,945			18,316			21,070			16,081
Total net revenue		137,165			122,417			104,626			94,173			76,123
Operating expense		(88,932	)		(77,062	)		(65,450	)		(56,699	)		(50,029	)
Income before taxes		48,233			45,355			39,176			37,474			26,094
Income taxes		(17,373	)		(17,976	)		(15,752	)		(14,997	)		(10,009	)
Net income	$	30,860		$	27,379		$	23,424		$	22,477		$	16,085
Selected Balance Sheet Data at End of Period:
Assets	$	3,103,547		$	3,162,398		$	2,622,877		$	2,203,965		$	1,969,956
Securities and short-term investments		55,116			340,811	(1)		327,664	(1)		107,668			44,433
Loans and leases		2,901,029			2,680,220			2,223,474			1,988,633			1,823,304
Allowance for loan and lease losses		(27,113	)		(24,670	)		(22,230	)		(22,055	)		(20,725	)
Deposits		2,635,380			2,797,635			2,390,839			1,964,274			1,733,864
Shareholder’s equity		241,556			195,381			143,580			162,050			154,423
Daily Averages:
Assets	$	3,143,439		$	3,025,717		$	2,476,835		$	2,119,944		$	1,802,896
Loans and leases		2,797,853			2,460,560			2,094,190			1,914,608			1,693,426
Allowance for loan and lease losses		(26,175	)		(23,656	)		(22,304	)		(21,895	)		(17,823	)
Deposits		2,826,446			2,766,289			2,258,538			1,894,406			1,583,926
Shareholder’s equity		218,076			157,545			147,759			147,886			140,249
Shareholder’s equity to assets		6.95	%		5.21	%		5.97	%		6.98	%		7.78	%

⁽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 through a multi-state branch network. 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 2006, we opened three new branches.

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Commercial Banking Strategy

Our strategy is to provide personalized banking services to small business customers and to expand those services into selected new markets. For expansion, 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 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 cash management personnel and commercial loan officers who have strong local ties and who can focus on providing personalized services to small businesses in that market. 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 both in our existing markets and in those we do not serve. We plan to capitalize on the opportunities brought about in this environment by continuing the bank’s growth strategy for small business banking in existing markets and 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. 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 and retaining senior lenders, cash management officers, and other staff. Over time, we may choose to leave certain markets if these factors limit profitability. For example, in January 2007, we exited our Glendale, Arizona branch as we were unable to attract and retain sufficient senior management staff. Our expansion into new markets is subject to regulatory approval.

Portfolio Characteristics

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

	December 31,
	2006								2005								2004
						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	$	561,343		19.3	%		7.6	%	$	560,775		20.9	%		7.0	%	$	504,853		22.7	%		5.9	%
Central and Western Michigan		519,348		17.9			7.7			516,444		19.3			7.1			488,587		22.0			5.9
Southern Indiana		475,051		16.4			7.2			454,236		16.9			6.5			445,981		20.1			5.8
Phoenix		452,919		15.6			7.9			447,548		16.7			7.6			288,555		13.0			6.3
Las Vegas		154,218		5.3			8.1			112,761		4.2			7.5			70,109		3.2			6.1
Other		738,150		25.5			7.9			588,456		22.0			7.2			425,389		19.0			5.7
Total	$	2,901,029		100.0			7.7	%	$	2,680,220		100.0			7.1	%	$	2,223,474		100.0			5.9	%

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	December 31,
	2006								2005								2004
						Weighted								Weighted								Weighted
	Core		Percent			Average			Core		Percent			Average			Core		Percent			Average
Markets	Deposits		of Total			Coupon			Deposits		of Total			Coupon			Deposits		of Total			Coupon
Indianapolis	$	259,835		10.8	%		2.4	%	$	259,196		10.4	%		2.1	%	$	278,785		12.7	%		1.4	%
Central and Western Michigan		231,666		9.7			3.4			238,742		9.6			2.6			221,917		10.1			1.7
Southern Indiana		630,060		26.3			2.8			674,923		27.1			2.1			671,342		30.5			1.3
Phoenix		179,502		7.5			3.4			190,428		7.6			2.4			155,475		7.1			1.6
Las Vegas		467,708		19.5			4.1			413,541		16.6			3.5			287,910		13.1			2.0
Other		631,268		26.2			3.5			713,233		28.7			3.3			582,242		26.5			2.1
Total	$	2,400,039		100.0	%		3.3	%	$	2,490,063		100.0	%		2.7	%	$	2,197,671		100.0	%		1.7	%

Net Income

Commercial banking net income increased to $31 million during 2006 up 13%, compared to $27 million in 2005, and up 32% compared to 2004 net income of $23 million.

Net Interest Income

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net interest income	$	124,726		$	110,758		$	89,617
Average interest earning assets		3,028,527			2,914,352			2,392,049
Net interest margin		4.12	%		3.80	%		3.75	%

Net interest income was $125 million, an increase of 13% over 2005, and an increase of 39% from 2004. The 2006 improvement in net interest income resulted primarily from an increase in our commercial banking loan portfolio as a result of growth and market expansion efforts. Net interest margin is computed by dividing net interest income by average interest earning assets. Net interest margin during 2006 was 4.12%, compared to 3.80% in 2005, and 3.75% in 2004. The improvement in 2006 margin reflects the redeployment of excess liquidity in loan assets in 2006, as compared to intra-company securities investments made in 2005 and 2004.

Provision for Loan and Lease Losses

Provision for loan and lease losses was $5.7 million in 2006, compared to provisions of $5.3 million and $3.3 million in 2005 and 2004, 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.

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Noninterest Income

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Service charges on deposit accounts	$	4,307		$	4,008		$	5,071
Gain from sales of loans		2,328			2,943			2,947
Trust fees		1,971			1,964			1,902
Insurance commissions, fees and premiums		1,955			1,827			2,143
Brokerage fees		1,369			1,452			1,465
Loan servicing fees		1,523			1,473			1,374
Amortization of servicing assets		(1,140	)		(1,306	)		(1,559	)
Recovery of servicing assets		—			248			582
Other		5,860			4,336			4,391
Total noninterest income	$	18,173		$	16,945		$	18,316

Noninterest income during 2006 increased 7% over 2005 and decreased 1% over 2004. The 2006 increase was due primarily to higher gains on sales of other real estate owned (OREO) properties, higher service charges on deposit accounts and lower servicing asset amortization. The commercial banking line of business has a first mortgage servicing portfolio totaling $463 million, principally a result of mortgage loan production in its south-central Indiana markets. Servicing rights related to this portfolio are carried on the balance sheet at the lower of cost or market, estimated at December 31, 2006, to be $3.7 million.

Operating Expenses

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Salaries and employee benefits	$	53,111		$	47,934		$	40,422
Other expenses		35,821			29,128			25,028
Total operating expenses	$	88,932		$	77,062		$	65,450
Efficiency ratio		62.2	%		60.3	%		60.6	%
Number of employees at period end(1)		585			586			525

⁽¹⁾ On a full time equivalent basis

Operating expenses during 2006 totaled $89 million, an increase of 15% over 2005, and an increase of 36% from 2004. The increase in operating expenses in 2006 is primarily related to increased compensation-related costs and higher personnel and premises and equipment costs due to our recent office expansions and additional support staff.

Balance Sheet

Total assets for the year ended December 31, 2006 averaged $3.1 billion compared to $3.0 billion in 2005 and $2.5 billion in 2004. Average earning assets for the year ended December 31, 2006 were $3.0 billion compared to $2.9 billion in 2005, and $2.4 billion in 2004. 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 into new markets. Average core deposits for the year totaled $2.4 billion, a decrease of 6% over average core deposits in 2005, and an increase of 7% from 2004. The decrease in 2006 reflects increased price competition and our decision to

43

significantly reduce a funding source which due to contractual changes would otherwise need to be deemed a brokered deposit, thus diminishing its value to us.

Credit Quality

The allowance for loan losses to total loans increased slightly to 0.93% at December 31, 2006, compared to 0.92% at December 31, 2005. Total nonperforming assets declined $8.5 million in 2006 versus 2005. Other real estate owned decreased $3.5 million compared to the 2005 balance. Nonperforming loans are not significantly concentrated in any industry category, although a greater than average amount of our nonperforming loans are located in our Michigan markets. While nonperforming assets have declined, we have seen a slight increase in charge-offs in 2006 compared to 2005. This increase in charge-offs is directionally consistent with the increase in allowance as a percent of total loans. The following table shows information about our nonperforming assets in this line of business and our allowance for loan losses.

	December 31,
	2006			2005			2004
	(Dollars in thousands)
Nonperforming loans	$	14,455		$	19,483		$	21,247
Other real estate owned		4,423			7,892			1,533
Total nonperforming assets	$	18,878		$	27,375		$	22,780
Nonperforming assets to total assets		0.61	%		0.87	%		0.87	%
Allowance for loan losses	$	27,113		$	24,670		$	22,230
Allowance for loan losses to total loans		0.93	%		0.92	%		1.00	%
For the Period Ended:
Provision for loan losses	$	5,734		$	5,286		$	3,307
Net charge-offs		3,291			2,847			3,133
Net charge-offs to average loans		0.13	%		0.12	%		0.15	%

The following table shows the ratio of nonperforming assets to total loans by market for the periods indicated:

	December 31,
Markets	2006			2005			2004
Indianapolis		0.24	%		0.58	%		0.10	%
Central and Western Michigan		2.72			3.76			3.40
Southern Indiana		0.14			0.24			0.26
Phoenix		0.52			0.60			1.19
Las Vegas		0.00			0.00			0.00
Other		0.06			0.16			0.21
Total		0.65	%		1.02	%		1.02	%

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Commercial Finance

	Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Selected Income Statement Data:
Net interest income	$	42,545		$	33,683		$	28,084		$	22,766		$	15,140
Provision for loan and lease losses		(6,701	)		(6,211	)		(6,798	)		(11,308	)		(8,481	)
Noninterest income		8,018			7,437			6,275			5,868			4,397
Total net revenue		43,862			34,909			27,561			17,326			11,056
Operating expense		(23,955	)		(22,224	)		(18,782	)		(15,072	)		(12,122	)
Income (loss) before taxes		19,907			12,685			8,779			2,254			(1,066	)
Income taxes		(7,307	)		(5,252	)		(5,562	)		(461	)		513
Income (loss) before cumulative effect of change in accounting principle		12,600			7,433			3,217			1,793			(553	)
Cumulative effect of change in accounting principle		—			—			—			—			495
Net income (loss)	$	12,600		$	7,433		$	3,217		$	1,793		$	(58	)
Selected Balance Sheet Data at End of Period:
Total assets	$	1,073,552		$	831,657		$	636,604		$	474,915		$	343,384
Loans and leases		1,056,406			817,208			625,140			463,423			345,844
Allowance for loan and lease losses		(13,525	)		(10,756	)		(9,624	)		(11,445	)		(7,657	)
Shareholder’s equity		88,587			71,568			55,993			44,255			29,236
Selected Operating Data:
Net charge-offs	$	3,678		$	4,806		$	8,235		$	7,868		$	5,401
Net interest margin		4.55	%		4.80	%		5.33	%		5.63	%		5.07	%
Total funding of loans and leases	$	595,319		$	451,524		$	366,545		$	272,685		$	207,087

Overview

We established this line of business in 1999. We offer commercial finance products and services through our banking subsidiary, Irwin Union Bank and Trust, an Indiana state-chartered commercial bank and its direct and indirect subsidiaries. In this segment, we provide small ticket, primarily 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. In 2006, we expanded our product line to include professional practice financing and information technology leasing to middle and upper middle market companies throughout the United States and Canada.

Commercial Finance Strategy

We 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, with an average lease size of approximately $30 thousand in our portfolio, 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 limit the concentrations in our loan and lease portfolios. Within the franchise channel, the financing of equipment and real estate is structured as loans and the loan amounts average approximately $500 thousand.

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Net Income

Commercial finance net income increased to $12.6 million during 2006, a 70% increase compared to net income of $7.4 million during 2005. In 2004, net income totaled $3.2 million. Results in 2006 reflect growth of $9 million in net interest income over 2005. Net interest income in 2006 increased 52% over 2004. Provision for loan and lease losses increased to $6.7 million in 2006, compared to provisions of $6.2 million and $6.8 million in 2005 and 2004, respectively. The 2006 earnings growth is attributable to higher net interest income due to portfolio growth.

Net Interest Income

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net interest income	$	42,545		$	33,683		$	28,084
Average interest earning assets		936,519			701,423			526,754
Net interest margin		4.55	%		4.80	%		5.33	%

Net interest income was $43 million for 2006, an increase of 26% over 2005, and an increase of 52% from 2004. The improvement in net interest income resulted from an increase in our commercial finance portfolio. The total loan and lease portfolio has increased to $1.1 billion at December 31, 2006, an increase of 29% and 69% over year-end 2005 and 2004 balances, respectively. This line of business originated $595 million in loans and leases during 2006, compared to $452 million during 2005 and $367 million in 2004.

Net interest margin is computed by dividing net interest income by average interest earning assets. Net interest margin during 2006 was 4.55%, compared to 4.80% in 2005, and 5.33% in 2004. The decreasing margin is due primarily to increasing cost of funds without offsetting increases in yields due to competitive pressures as well as a portfolio mix change to lower yield franchise finance loans away from small ticket leases.

Provision for Loan and Lease Losses

The provision for loan and lease losses increased to $6.7 million in 2006 compared to $6.2 million in 2005 and $6.8 million in 2004. The increased provisioning levels in 2006 relate primarily to growth in our loan and lease portfolio.

Noninterest Income

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Gain from sales of loans	$	2,563		$	2,642		$	1,796
Derivative losses, net		(263	)		(717	)		(536	)
Other		5,718			5,512			5,015
Total noninterest income	$	8,018		$	7,437		$	6,275

Noninterest income during 2006 increased 8% over 2005 and 28% over 2004. Included in noninterest income were gains from sales of leases and whole loans that totaled $2.6 million in 2006 compared to $2.6 million in 2005 and $1.8 million in 2004. Also included in noninterest income during 2006, 2005 and 2004 was $0.3 million, $0.7 million and $0.5 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,
	2006			2005			2004
	(Dollars in thousands)
Salaries and employee benefits	$	21,597		$	17,531		$	14,333
Other		2,358			4,693			4,449
Total operating expenses	$	23,955		$	22,224		$	18,782
Efficiency ratio		47.4	%		54.0	%		54.7	%
Number of employees at period end(1)		202			184			162

⁽¹⁾ On a full time equivalent basis

Operating expenses during 2006 totaled $24 million, an increase of 8% over 2005, and an increase of 28% from 2004. The increased operating expenses relate to the continued growth in this business, including compensation costs related to higher production levels, infrastructure and staffing development, as well as incentive compensation costs related to the achievement of profitability.

Portfolio Characteristics

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

	December 31,
	2006			2005
	(Dollars in thousands)
Domestic franchise loans	$	488,489		$	336,939
Weighted average coupon		8.79	%		8.39	%
Delinquency ratio		0.16			0.37
Domestic leases	$	253,274		$	204,701
Weighted average coupon		10.32	%		10.37	%
Delinquency ratio		1.72			1.26
Canadian leases(1)	$	314,644		$	275,569
Weighted average coupon		9.13	%		9.38	%
Delinquency ratio		0.36			0.53

⁽¹⁾ In U.S. dollars.

Credit Quality

The commercial finance line of business had nonperforming loans and leases at December 31, 2006 totaling $5.4 million, compared to non-performing loans and leases at December 31, 2005 and 2004 totaling $3.7 million and $3.9 million, respectively. Net charge-offs recorded by this line of business totaled $3.7 million in 2006 compared to $4.8 million in 2005 and $8.2 million in 2004. We expect net charge-offs to increase as portfolio matures.

Allowance for loan and lease losses at December 31, 2006 totaled $13.5 million, representing 1.28% of loans and leases, compared to a balance at December 31, 2005 of $10.8 million, representing 1.32% of loans and leases and a balance of $9.6 million or 1.54% of the portfolio at December 31, 2004. The decrease in allowance as a percent of loans is directionally consistent with the decrease in charge-offs as indicated below.

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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,
	2006			2005			2004
	(Dollars in thousands)
Nonperforming loans	$	5,374		$	3,700		$	3,936
Allowance for loan losses		13,525			10,756			9,624
Allowance for loan losses to total loans		1.28	%		1.32	%		1.54	%
For the Period Ended:
Provision for loan losses	$	6,701		$	6,211		$	6,798
Net charge-offs		3,678			4,806			8,235
Net charge-offs to average loans		0.40	%		0.69	%		2.67	%

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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,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Selected Income Statement Data:
Net interest income	$	96,068		$	88,290		$	98,983		$	106,545		$	94,068
Provision for loan and lease losses		(22,659	)		(15,811	)		(4,369	)		(29,575	)		(25,596	)
Noninterest income		15,186			33,667			67,847			(19,525	)		11,791
Total net revenues		88,595			106,146			162,461			57,445			80,263
Operating expenses		(85,967	)		(102,339	)		(114,779	)		(90,538	)		(78,588	)
Income (loss) before taxes		2,628			3,807			47,682			(33,093	)		1,675
Income taxes		(1,090	)		(1,555	)		(19,615	)		13,203			(670	)
Net income (loss)	$	1,538		$	2,252		$	28,067		$	(19,890	)	$	1,005
Selected Balance Sheet Data:
Total assets	$	1,617,219		$	1,602,400		$	992,979		$	1,070,634		$	939,494
Home equity loans and lines of credit(1)		1,280,497			980,406			590,175			692,637			626,355
Allowance for loan losses		(33,614	)		(23,552	)		(11,330	)		(29,251	)		(21,689	)
Home equity loans held for sale		236,636			513,231			227,740			202,627			75,540
Residual interests		2,760			15,580			51,542			70,519			157,065
Mortgage servicing assets		28,231			30,502			44,000			28,425			26,444
Short-term borrowings		446,163			920,636			359,902			368,640			201,328
Collateralized debt		948,939			452,615			352,625			460,535			391,425
Shareholder’s equity		155,791			151,677			136,260			128,555			155,831
Selected Operating Data:
Loan volume:
Lines of credit	$	150,306		$	436,451		$	508,287		$	324,094		$	443,323
Loans		853,527			1,255,185			934,027			809,222			623,903
Total managed portfolio balance		1,708,975			1,593,509			1,147,137			1,513,289			1,830,339
Delinquency ratio(2)		3.2	%		3.0	%		4.8	%		5.9	%		6.0	%
Total managed portfolio balance Including credit risk sold		2,853,726			3,058,842			2,807,367			2,568,356			2,502,685
Weighted average coupon rate:
Lines of credit		11.13	%		10.17	%		9.18	%		9.71	%		10.79	%
Loans		10.75			10.18			11.87			12.07			13.50
(Loss) gain on sale of loans to loans sold		(0.39	)		2.39			2.24			3.81			4.70
Net home equity charge-offs to average managed portfolio		1.00			0.60			2.48			4.37			2.87

(1)	Includes $1.1 billion, $0.5 billion, $0.4 billion, $0.5 billion and $0.4 billion of loans at December 31, 2006, 2005, 2004, 2003, and 2002, respectively, that collateralize 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 mortgage loans nationwide. We offer mortgage products through our banking subsidiary, Irwin Union Bank and Trust, an Indiana state-chartered commercial bank and a direct subsidiary. We market our mortgage loans (generally using second mortgage liens, but also including first mortgage liens) principally through brokers and correspondents, but also through the Internet. We seek to serve creditworthy homeowners who are active credit users.

Strategy

We offer mortgage loans with combined loan-to-value (CLTV) ratios of up to 125% of their collateral value to borrowers we believe have prime credit-quality. Mortgage 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 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. Generally we either sell loans through whole loan sales or we fund these loans on balance sheet through warehouse lines or secured, term financings. 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%.

Production and Portfolio Characteristics

For the year ended December 31, 2006, loans with loan-to-value ratios greater than 100%, but less than 125% (high LTVs, or HLTVs) constituted 35% of our loan originations and 47% of our managed portfolio for this line of business. HLTVs constituted 46% of our managed portfolio at December 31, 2005. Approximately 67%, or $1.1 billion, of our home equity managed portfolio at December 31, 2006 was originated with early repayment provisions.

The following table provides a breakdown of our home equity lending managed portfolio by product type, outstanding principal balance and weighted average coupon as of December 31, 2006 and 2005:

	December 31,								December 31,
	2006								2005
						Weighted								Weighted
						Average								Average
	Amount		% of Total			Coupon			Amount		% of Total			Coupon
	(Dollars in thousands)
Home Equity Portfolio
Loans £ 100% CLTV	$	536,387		31.39	%		9.10	%	$	494,462		31.03	%		7.90	%
Lines of credit £ 100% CLTV		319,415		18.69			9.96			327,164		20.53			8.77
First mortgages £ 100% CLTV		44,727		2.62			7.37			36,377		2.28			7.10
Total £ 100% CLTV		900,529		52.70			9.32			858,003		53.84			8.20
Loans > 100% CLTV		677,119		39.62			12.36			582,536		36.56			12.31
Lines of credit > 100% CLTV		101,683		5.95			14.55			142,315		8.93			13.10
First mortgages > 100% CLTV		22,916		1.34			8.48			—		—			—
Total > 100% CLTV		801,718		46.91			12.53			724,851		45.49			12.47
Other		6,728		0.39			15.03			10,655		0.67			14.03
Total managed portfolio(1)	$	1,708,975		100.00	%		10.85	%	$	1,593,509		100.00	%		10.18	%

⁽¹⁾ We define our “Managed Portfolio” as the portfolio of loans ($1.7 billion) that we service and on which we carry credit risk. At December 31, 2006, we also serviced another $1.1 billion of loans for which the credit risk is held by others.

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

	Year Ended December 31,
Product	2006			2005
	(Funding amount in thousands)
First mortgage loans
Funding Amount	$	76,499		$	108,929
Weighted Average Disposable Income		4,944			5,755
Weighted Average FICO score		689			689
Weighted Average Coupon		8.24	%		6.94	%
First mortgage loans up to 110%
Funding Amount	$	23,163		$	—
Weighted Average Disposable Income		5,886			—
Weighted Average FICO score		707			—
Weighted Average Coupon		8.50	%		—
Home equity loans up to 100% CLTV
Funding Amount	$	440,207		$	634,031
Weighted Average Disposable Income		6,238			5,196
Weighted Average FICO score		703			722
Weighted Average Coupon		10.87	%		7.45	%
Home equity loans up to 125% CLTV
Funding Amount	$	313,658		$	512,224
Weighted Average Disposable Income		4,382			4,278
Weighted Average FICO score		698			689
Weighted Average Coupon		12.55	%		11.86	%
Home equity lines of credit up to 100% CLTV
Funding Amount	$	134,574		$	391,275
Weighted Average Disposable Income		6,272			6,151
Weighted Average FICO score		693			701
Weighted Average Coupon		9.67	%		7.58	%
Home equity lines of credit up to 125% CLTV
Funding Amount	$	15,732		$	45,176
Weighted Average Disposable Income		4,988			4,517
Weighted Average FICO score		690			698
Weighted Average Coupon		15.08	%		11.93	%
All Products
Funding Amount	$	1,003,833		$	1,691,636
Weighted Average Disposable Income		5,389			5,117
Weighted Average FICO score		699			704
Weighted Average Coupon		11.04	%		8.90	%

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The following table shows the geographic composition of our home equity lending managed portfolio on a percentage basis as of December 31, 2006 and December 31, 2005:

	December 31,
State	2006			2005
California		10.2	%		11.4	%
Michigan		7.8			8.5
Florida		7.8			6.9
Colorado		7.0			6.2
Ohio		6.2			5.8
All other states		61.0			61.2
Total		100.0	%		100.0	%
Total managed portfolio in thousands	$	1,708,975		$	1,593,509

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

	December 31,
State	2006			2005
Florida		14.0	%		8.2	%
California		8.3			15.2
Colorado		6.5			5.5
Arizona		5.9			5.6
Ohio		5.1			4.1
All other states		60.2			61.4
Total		100.0	%		100.0	%

Net Income

Our home equity lending business recorded net income of $1.5 million during the year ended December 31, 2006, compared to net income of $2.3 million in 2005 and $28.1 million in 2004.

Net Revenue

Net revenue in 2006 totaled $89 million, compared to net revenue in 2005 and 2004 of $106 million and $162 million, respectively. The decline in net revenues is primarily a result of lower gains from loans sales and higher provision for loan losses.

Our home equity lending business produced $1.0 billion of home equity loans in 2006 compared to $1.7 billion in 2005 and $1.4 billion in 2004. The decline in loan production in 2006 is a result of lower acquisitions and retail originations. During 2006, we restructured our retail channel due to its higher origination costs and lower ratio of leads to loan closings as compared to the segment’s broker and correspondent channels. The table below shows our originations by channel for the periods shown. “Other” principally includes loans originated in a co-marketing alliance with the segment’s now discontinued mortgage affiliate.

	Year ended December 31,
	2006			2005
Total originations	$	1,003,833		$	1,691,636
Percent correspondent		27	%		17	%
Percent retail loans		16			40
Percent brokered		32			23
Percent other		25			20

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Our home equity lending business had $1.5 billion of loans and loans held for sale at December 31, 2006, unchanged from December 31, 2005, and $0.8 billion at the same date in 2004. Included in the loan balance at December 31, 2006, 2005, and 2004 were $1.1 billion, $0.5 billion, and $0.4 billion of loans that collateralized secured financings.

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

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net interest income	$	96,068		$	88,290		$	98,983
Provision for loan losses		(22,659	)		(15,811	)		(4,369	)
Gain (loss) on sales of loans		(2,386	)		17,849			29,180
Loan servicing fees		31,322			38,206			29,774
Amortization of servicing assets		(19,887	)		(29,708	)		(19,863	)
Recovery of servicing assets		647			643			1,148
Trading gains		1,005			2,399			25,176
Derivative gains		3,136			1,367			1,518
Other income		1,349			2,911			914
Total net revenue	$	88,595		$	106,146		$	162,461

Net interest income increased to $96 million for the year ended December 31, 2006, compared to 2005 net interest income of $88 million, and $99 million in 2004. The increase in the net interest income in 2006 is primarily due to growth in our average loans and loans held for sale portfolios.

Provision for loan losses increased to $23 million in 2006 compared to $16 million in 2005 and $4 million in 2004. The increased provision in 2006 relates to portfolio growth, product seasoning, changes in product mix and an increase in delinquencies.

We completed whole loan sales and a “gain on sale” securitization during 2006 totaling $0.6 billion resulting in a loss on sale of loans of $2 million, compared to $18 million in gain on the sales of $0.7 billion of loans during 2005. The gain (loss) on sales of loans relative to the principal balance of loans sold decreased during 2006 compared to 2005 due in part to a loss on the securitization and lower margins on whole loan sales. In addition, net charge-offs on our loans held for sale portfolio reduced the gain on sale during 2006. Whole loan sales are cash sales for which we receive a premium, periodically record a servicing asset, recognize any points and fees, and recognize any previously capitalized expenses relating to the sold loans at the time of sale.

Loan servicing fees totaled $31 million in 2006 compared to $38 million in 2005 and $30 million in 2004. The servicing portfolio underlying the mortgage servicing asset at our home equity lending line of business totaled $1.6 billion and $2.0 billion at December 31, 2006 and 2005, respectively. The decrease in loan servicing fees in 2006 relates to the reduced prepayment fees collected and the smaller 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 assets using discounted cash flows and assumptions as to estimated future servicing income and costs 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, 2006, net servicing assets totaled $28 million, compared to a balance of $31 million at December 31, 2005, and $44 million at December 31, 2004. Servicing asset amortization expense, net of impairment, totaled $19 million during 2006, compared to $29 million in 2005, and $19 million in 2004. The 2006 amortization decrease is a result of the decline in the size of the underlying servicing portfolio and slower prepayment speeds.

As part of certain whole loan 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, 2006, we were receiving incentive fees (included in loan

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servicing fees above) for four transactions that met these performance metrics. During 2006, we collected $9.1 million in cash from these ISFs, compared to $2.3 million during 2005 and $0.9 million in 2004.

Trading gains (losses) represent unrealized gains (losses) as a result of adjustments to the carrying values of our residual interests. Trading gains totaled $1.0 million in 2006 compared to gains of $2.4 million in 2005 and gains of $25.2 million in 2004. Residual interests had a balance of $3 million at December 31, 2006 and $16 million at December 31, 2005, compared to $52 million at the same date in 2004. The decrease in residual interest balance since 2004 primarily reflects clean-up calls of these assets over the past two years.

We originate fixed rate loans that change in value as interest rates move. To limit the net effect of such price movements, we enter into derivative contracts. These contracts resulted in a $3.1 million gain in 2006. This compares to derivative gains of $1.4 million and $1.5 million in 2005 and 2004, respectively. The 2006 increase in derivative gains relates to increased derivative notional amounts and interest rate market changes.

Operating Expenses

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

	Year Ended December 31,
	2006		2005		2004
	(Dollars in thousands)
Salaries and employee benefits	$	51,335	$	64,432	$	75,649
Other		34,632		37,907		39,130
Total operating expenses	$	85,967	$	102,339	$	114,779
Number of employees at period end(1)		492		615		642

⁽¹⁾ On a full time equivalent basis.

Operating expenses were $86 million for the year ended December 31, 2006, down from $102 million in 2005, and a decrease of 25% from 2004. These expenses declined in 2006 as a result of the down-sizing of the direct to consumer channel. Included in the 2006 operating expenses is a charge of $6 million related to our restructuring of the retail channel as previously discussed.

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. The total servicing portfolio was $2.9 billion at December 31, 2006 compared to $3.1 billion at December 31, 2005. For whole loans sold with servicing retained totaling $0.7 billion and $1.1 billion at December 31, 2006 and 2005, respectively, we capitalize servicing fees including rights to future early repayment fees. The servicing asset at December 31, 2006 was $28 million, down from $31 million at December 31, 2005 reflecting amortization in excess of new mortgage servicing rights additions.

Our “managed portfolio,” representing that portion of the servicing portfolio on which we have retained credit risk, is separated into two categories at December 31, 2006: $1.5 billion of loans originated and held on balance sheet either as loans held for investment or loans held for sale, and $0.2 billion of loans and lines of credit securitized for which we retained a residual interest. In both cases, we retain credit and interest rate risk.

Included below in the category ‘‘Credit Risk Sold, Potential Incentive Servicing Fee Retained Portfolio” are $0.6 billion and $1.0 billion of loans at December 31, 2006 and 2005, respectively, for which we have the opportunity to earn an incentive servicing fee as was described above in the section on Net Revenues. 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. The managed portfolio includes 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.

	December 31,
	2006			2005
	(Dollars in thousands)
Managed Portfolio
Total Loans	$	1,708,975		$	1,593,509
30 days past due		3.16	%		3.04	%
90 days past due		1.19			1.10
Net Chargeoff Rate		1.00			0.60
Unsold Loans
Total Loans(1)	$	1,515,881		$	1,480,224
30 days past due		3.54	%		2.23	%
90 days past due		1.32			0.86
Net Chargeoff Rate		1.07			0.31
Loan Loss Reserve	$	33,614		$	23,552
Owned Residual
Total Loans	$	193,094		$	113,286
30 days past due		0.20	%		13.60	%
90 days past due		0.18			4.32
Net Chargeoff Rate		0.42			2.14
Residual Undiscounted Losses	$	430		$	930
Credit Risk Sold, Potential Incentive Servicing Fee Retained Portfolio
Total Loans	$	627,838		$	972,775
30 days past due		5.40	%		4.30	%
90 days past due		2.30			1.74

⁽¹⁾ Excludes deferred fees and costs.

Mortgage Banking — (discontinued operations)

We have exited this segment and, therefore, have presented this segment as discontinued operations for all periods presented.

	For the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net revenues	$	37,982		$	98,643		$	237,418
Other expense		(97,488	)		(127,516	)		(203,457	)
(Loss) gain before income taxes		(59,506	)		(28,873	)		33,961
Income taxes		23,832			11,613			(14,240	)
Net (loss) income from discontinued operations	$	(35,674	)	$	(17,260	)	$	19,721

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	December 31,
	2006		2005
	(Dollars in thousands)
Loans, net of allowance and loans held for sale	$	48,555	$	800,325
Net servicing asset		385		261,309
Other assets		7,633		27,004
Assets held for sale	$	56,573	$	1,088,638

In 2006, we sold the mortgage banking line of business’ origination operation including the majority of this segment’s loans held for sale. Approximately $288 million of loans held for sale as well as certain other assets and liabilities were sold resulting in a loss of $9.2 million including disposition costs. These losses are reflected in “Loss from discontinued operations” in the Consolidated Statement of Income. Loans and loans held for sale totaling $49 million remain on our consolidated balance sheet and are classified as “assets held for sale” at December 31, 2006. These assets are carried at their fair value less costs to sell.

We also sold the majority of this segment’s capitalized mortgage servicing rights. Mortgage servicing rights with an underlying unpaid principal balance of $19 billion were sold to four unrelated parties resulting in a loss of $18 million, which is reflected in “Loss from discontinued operations” in the Consolidated Statement of Income. The loss was partially offset by associated derivative gains of $11 million. As a result of these sales, we are carrying $166 million of receivables from these buyers at December 31, 2006. Mortgage servicing rights totaling $0.4 million remain on our consolidated balance sheet and are classified as “assets held for sale” at December 31, 2006. These assets are carried at fair value. We intend to sell these assets in 2007.

In addition to the losses discussed above, we also incurred losses of $8.4 million in connection with contract termination costs and severance benefits. These losses were recorded in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” These losses are reflected in “Loss from discontinued operations” in the Consolidated Statement of Income. At December 31, 2006, there were $5.4 million of accrued but unpaid expenses associated with our sale of the mortgage banking business.

In January 2007, we transferred certain assets associated with our servicing platform and placed the bulk of our remaining staff with New Century Financial. We have some staff continuing to work at Irwin Mortgage through the wind-down of our remaining assets, such as construction loans and repurchased loans.

In accordance with the provisions of SFAS 144, the results of operations of the mortgage banking line of business for the current and prior periods have been reported as discontinued operations. In addition, certain of the remaining assets for this segment have been reclassified as held for sale in the consolidated balance sheet.

Parent and Other

Results at the parent company and other businesses totaled a net loss of $7.6 million for the year ended December 31, 2006, compared to losses of $0.8 million during the same period in 2005 and $6.0 million in 2004. 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. In 2006, expenses included approximately $2 million for an independent risk assessment discussed in more detail in the next section, “Risk Management.” 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, 2006, we allocated $14 million of these expenses to our subsidiaries, compared to $18 million and $14 million during 2005 and 2004, respectively. Also included in the 2006 loss at the parent were $1.9 million of write offs of debt issuance costs and a $1.2 million call premium associated with early calls of capital trust securities. In addition, included in 2006 parent company expenses were $1.2 million of stock option expense.

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,

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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. In 2006, we had a much smaller $0.6 million release in tax reserves.

Risk Management

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

•  Credit risk

•  Liquidity risk

•  Market risk (including interest rate and foreign exchange risk)

•  Operational risk

•  Compliance risk

The Board of Directors has primary responsibility for establishing the Corporation’s risk appetite and overseeing its risk management system. Primary responsibility for management of risks within the risk appetite set by the Board of Directors rests with the managers of our business units, who are responsible for establishing and maintaining internal control systems and procedures that are appropriate for their operations. To provide an independent assessment of line management’s risk mitigation procedures, we have established a centralized enterprise-wide risk management function. To maintain independence, this function is staffed with managers with substantial expertise and experience in various aspects of risk management who are not part of line management. They report to the Chief Risk Officer (CRO), who in turn reports to the Risk Management Committee of our Board of Directors. Our Internal Audit function independently audits both risk management activities in the lines of business and the work of the centralized enterprise-wide risk management function.

Given the on-going growth in the scope of the Corporation, our efforts to date to improve our risk management systems, and heightened industry and regulatory focus around credit, market, liquidity, operational and compliance risks, the Board, having reviewed and evaluated results of reports from Internal Audit, Risk Management, and regulatory exams, embarked in 2006 on a comprehensive review of our risk management systems. These assessments were conducted at the Board’s direction by a third-party to ensure independence and access to best-in-class practices. As a result of these assessments, management has developed a program of risk management improvement steps which it has begun implementing on an enterprise-wide basis. The costs of these resources are reflected in current period earnings and we expect additional increases in these costs in 2007.

Each line of business that assumes risk uses a formal process to manage this risk. In all cases, the objectives are to ensure that risk is contained within the risk appetite established by our Board of Directors and expressed through policy guidelines and limits. In addition, we attempt to take risks only when we are adequately compensated for the level of risk assumed.

Our CEO, Executive Vice President, CFO, Senior Vice President, and Chief Risk Officer 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 Committees. Our Chief Risk Officer, who reports directly to the Risk Management Committee, chairs the ERMC. In 2006, the ERMC reported to the Audit and Risk Management Committee of the Board of Directors. On January 1, 2007, the Board formed two committees, an Audit Committee and a separate Risk Management Committee in order to focus more independent oversight at the board level on the governance of the Corporation’s risk management system. To ensure coordination between the two committees, the Chair of each committee is a member of the other committee. Beginning in 2007, the ERMC will report to the newly-formed Risk Management Committee of the Board of Directors.

Each of our principal risks is managed directly 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 credit, market, operational and compliance 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.

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Credit Risk

The assumption of credit risk is a key source of our earnings. However, the credit risk in our loan portfolios has the most potential for a significant effect on our consolidated financial performance. Each of our segments has a Chief Credit Officer with expertise specific to the product line and manages 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 centralized function that reports directly to the head of Credit Risk Management who in turn reports to the Chief Risk Officer.

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.

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 estimate of fair 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, 2006 were $20 million, or 0.4% of average loans, compared to $11 million, or 0.3% of average loans during 2005. Net charge-offs in 2004 were $23 million or 0.7% of average loans. The increase in charge-offs is related to portfolio growth and product seasoning at our home equity lending business. At December 31, 2006, the allowance for loan and lease losses was 1.4% of outstanding loans and leases and 1.3% at year-end 2005 and 2004.

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

	At or For the Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Loans and leases outstanding at end of period, net of unearned income	$	5,238,193		$	4,477,943		$	3,440,689		$	3,147,094		$	2,798,006
Average loans and leases for the period, net of unearned income	$	4,854,368		$	3,875,394		$	3,312,785		$	3,151,325		$	2,606,851
Allowance for possible loan and lease losses:
Balance beginning of period	$	59,223		$	43,441		$	63,005		$	50,320		$	22,020
Charge-offs:
Commercial, financial and agricultural loans		3,503			2,976			3,262			4,263			3,666
Real estate mortgage loans		21,418			10,656			15,381			23,522			7,130
Consumer loans		328			723			351			765			800
Commercial Financing:
Franchise financing		481			870			88			146			19
Domestic leasing		2,709			2,190			6,581			6,026			5,139
Canadian leasing		2,371			2,786			2,517			2,590			1,476
Total charge-offs		30,810			20,201			28,180			37,312			18,230
Recoveries:
Commercial, financial and agricultural loans		576			767			318			77			435
Real estate mortgage loans		8,595			7,068			3,899			2,198			1,002
Consumer loans		154			85			169			248			252
Commercial Financing:
Franchise financing		35			25			—			—			—
Domestic leasing		923			583			626			448			523
Canadian leasing		925			432			323			449			658
Total recoveries		11,208			8,960			5,335			3,420			2,870
Net charge-offs		(19,602	)		(11,241	)		(22,845	)		(33,892	)		(15,360	)
Reduction due to sale of loans		—			(403	)		(627	)		(234	)		—
Reduction due to reclassification of loans		(246	)		—			(10,808	)		(690	)		—
Foreign currency adjustment		(8	)		119			243			582			17
Provision charged to expense		35,101			27,307			14,473			46,919			43,643
Balance end of period	$	74,468		$	59,223		$	43,441		$	63,005		$	50,320

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	At or For the Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Allowance for possible loan and lease losses by category:
Commercial, financial and agricultural loans	$	25,593		$	19,927		$	18,126		$	20,571		$	17,942
Real estate mortgage loans		33,840			23,553			11,330			30,165			22,534
Consumer loans		1,510			4,879			4,242			809			2,067
Commercial Financing:
Franchise financing		5,769			4,118			3,728			2,158			1,327
Domestic leasing		4,326			3,144			2,926			6,285			4,626
Canadian leasing		3,430			3,602			3,089			3,017			1,824
Totals	$	74,468		$	59,223		$	43,441		$	63,005		$	50,320
Percent of loans and leases to total loans and leases by category:
Commercial, financial and agricultural loans		43	%		53	%		49	%		47	%		48	%
Real estate mortgage loans		36			28			32			37			39
Consumer loans		1			1			1			1			1
Commercial Financing:
Franchise financing		9			7			7			5			3
Domestic leasing		5			5			4			4			5
Canadian leasing		6			6			7			6			4
Ratios:
Net charge-offs to average loans and leases(1)		0.4	%		0.3	%		0.7	%		1.1	%		0.7	%
Allowance for possible loan losses to loans and leases outstanding		1.4	%		1.3	%		1.3	%		2.0	%		1.8	%

Total nonperforming loans and leases at December 31, 2006, were $38 million, compared to $37 million at December 31, 2005, and $34 million at December 31, 2004. Nonperforming loans and leases as a percent of total loans and leases at December 31, 2006 were 0.7%, compared to 0.8% at December 31, 2005, and 1.0% in 2004. The 2006 increase in dollars occurred at the home equity lending line of business, where nonperforming loans increased from $13 million at December 31, 2005 to $16 million at December 31, 2006, and at the commercial finance line of business. Nonperforming loan and leases at the commercial banking line of business decreased year over year.

Other real estate owned totaled $15.2 million at December 31, 2006, unchanged from 2005 and up from $9.4 million at the same date in 2004. Total nonperforming assets at December 31, 2006 were $58 million, or 0.9% of total assets. Nonperforming assets at December 31, 2005, totaled $54 million, or 0.8% of total assets, compared to $45 million, or 0.9%, in 2004.

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

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Accruing loans past due 90 days or more:
Commercial, financial and agricultural loans	$	—		$	—		$	—		$	4,172		$	30
Real estate mortgages		—			—			—			—			—
Consumer loans		73			455			645			226			688
Commercial financing:
Franchise financing		—			—			—			151			43
Domestic leasing		83			73			—			8			177
Canadian leasing		236			71			12			70			143
		392			599			657			4,627			1,081
Nonaccrual loans and leases:
Commercial, financial and agricultural loans		13,296			17,693			20,394			20,447			13,798
Real estate mortgages		18,125			14,237			8,510			14,663			11,308
Consumer loans		696			1,335			208			769			454
Commercial financing:
Franchise financing		791			720			1,193			552			—
Domestic leasing		2,495			1,383			1,029			1,364			3,415
Canadian leasing		1,768			1,452			1,702			1,943			1,077
		37,171			36,820			33,036			39,738			30,052
Total nonperforming loans and leases		37,563			37,419			33,693			44,365			31,133
Nonperforming Loans held for Sale not guaranteed		5,564			965			2,066			1,695			1,201
Other real estate owned		15,170			15,226			9,427			6,431			5,272
Total nonperforming assets	$	58,297		$	53,610		$	45,186		$	52,491		$	37,606
Nonperforming loans and leases to total loans and leases		0.7	%		0.8	%		1.0	%		1.4	%		1.1	%
Nonperforming assets to total assets		0.9	%		0.8	%		0.9	%		1.1	%		0.8	%

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.”

The $58 million of nonperforming assets at December 31, 2006, were concentrated at our lines of business as follows:

	December 31,		December 31,
	2006		2005
	(In millions)
• Commercial banking	$	19	$	27
• Commercial finance		5		4
• Home equity lending		23		17
• Mortgage banking		11		6

Interest income of approximately $3.2 million would have been recorded during 2006 on nonaccrual and renegotiated loans if such loans had been accruing interest throughout the year in accordance with their original

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terms. The amount of interest income actually recorded during the year of 2006 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. Loans are charged-off upon evidence of expected loss or 180 days past due, whichever occurs first.

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, withdrawal of deposits, and maturity of other funding liabilities. 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. Since loan assets are less marketable than securities and, therefore, need less volatile liability funding, the ratio of total loans to total deposits is a traditional measure of liquidity for banks and bank holding companies. At December 31, 2006, the ratio of loans (which excludes loans held for sale) to total deposits was 135%. We permanently fund a significant portion of our loans with secured financings, which effectively eliminates liquidity risk on these assets until we elected to exercise a clean up call. The ratio of loans to total deposits after reducing loans for those funded with secured financings was 111%.

As disclosed in the footnotes to the Consolidated Financial Statements, we have certain obligations to make future payments under contracts. At December 31, 2006, the aggregate contractual obligations are:

	Payments Due by Period
			One Year		Over One to		Over Three to		After
	Total		or Less		Three Years		Five Years		Five Years
	(Dollars in thousands)
Deposits with contractual maturity	$	1,323,477	$	1,013,910	$	229,499	$	69,283	$	10,785
Deposits without a stated maturity		2,228,039		2,228,039		—		—		—
Short-term borrowings		602,443		376,609		89,160		88,765		47,909
Collateralized debt		1,174,021		401,891		424,525		216,383		131,222
Other long-term debt		233,889		35,581		51,554		101,290		45,464
Operating leases		50,283		10,968		18,005		13,841		7,469
Total	$	5,612,152	$	4,066,998	$	812,743	$	489,562	$	242,849

The table above describes our on-balance sheet contractual obligations. As described in the line of business sections, the home equity lending line of business funds 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 home equity lending businesses have proven reliable 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 several 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.

Included in our long-term debt in the above table is subordinated debt of $204 million that matures from 2031 to 2037; however, we may redeem the debentures at any time after five years from the date of issuance. These debentures are included in the maturity categories in the table above based on the date of earliest redemption.

Since 2002, home equity loan securitizations have generally been retained on-balance sheet. As a result, both the securitized assets and the funding from these “on balance sheet” securitizations 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

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funding early. A “clean-up call” typically is optional at the master servicer’s 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.

Our deposits consist of three primary types: non-maturity transaction account deposits, public funds, and certificates of deposit (CDs). Until our recent sale of mortgage servicing rights, our mortgage escrow deposits were an important source of funding. This funding source has now been replaced with other core and wholesale funding sources. Core deposits exclude jumbo CDs, brokered CDs, and public funds. Core deposits totaled $2.4 billion at December 31, 2006 compared to $2.5 billion at December 31, 2005.

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, 2006, these deposit types totaled $1.7 billion, a decrease of $0.4 billion from December 31, 2005. 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 $0.5 billion at December 31, 2006, an increase of $0.1 billion from December 31, 2005. 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 $0.5 billion at December 31, 2006, and had an average remaining life of 17 months as compared to $0.6 billion outstanding with a 13 month average remaining life at December 31, 2005.

Escrow account deposits are related to the servicing of our first mortgage loans. At December 31, 2006 these escrow balances totaled $0.3 billion, compared to $0.4 billion at December 31, 2005. As mentioned earlier in this report, we sold the majority of our mortgage servicing rights in the third quarter and transferred the servicing and related escrows in early January 2007. These fundings were replaced with deposits and wholesale liability sources.

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, 2006, FHLBI borrowings outstanding totaled $0.4 billion, a $0.2 billion decrease from December 31, 2005. We had sufficient collateral pledged to FHLBI at December 31, 2006 to borrow an additional $0.3 billion, if needed.

In addition to borrowings from the FHLBI, we use other lines of credit as needed. At December 31, 2006, 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 primarily home equity loans: none outstanding on a $300 million borrowing facility, of which $150 million is committed

•  Lines of credit with correspondent banks, including fed funds lines: $31 million outstanding out of $225 million available but not committed

•  Lines of credit with non-correspondent banks: $200 million outstanding

•  Warehouse lines of credit and conduits to fund Canadian sourced small ticket leases: $218 million outstanding on $335 million of borrowing facilities

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Market Risk (including Interest Rate and Foreign Exchange 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 of net interest sensitive assets to changes in interest rates.

Our corporate-level asset-liability management committee (ALMC) oversees the interest rate risk profile of all of our lines of business. It is supported by ALMCs at each of our lines of business and monitors the repricing structure of assets, liabilities and off-balance sheet items. It 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. We incorporate many factors into the financial model, including prepayment speeds, prepayment fee income, deposit rate forecasts for non-maturity transaction accounts, caps and floors that exist on some variable rate instruments, embedded optionality and a comprehensive mark-to-market valuation process. We reevaluate risk measures and assumptions regularly, enhance modeling tools as needed, and, on an approximately annual schedule, have the model validated by internal audit or an out-sourced provider under internal audit’s direction.

Our 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 discontinued mortgage banking segment held a material amount of mortgage servicing rights (MSRs) as part of its strategy and operations. Going forward with the sale of the mortgage segment, we do not expect ownership or the related hedging of remaining MSRs to be a material item. Our commercial banking and home equity lines of business all assume interest rate risk by holding MSRs (approximately $32 million at year end 2006). 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. MSRs have traditionally been recorded at the lower of cost or fair market value. We intend to adopt SFAS 156, “Accounting for Servicing of Financial Assets” on our high loan-to-value first lien and home equity segment second lien mortgages during the first quarter of 2007. This adoption will require full mark-to-market on the designated servicing assets, eliminating the lower-of-cost or market treatment. Our decisions on the degree to which we manage servicing right interest risk with derivative instruments to insulate against short-term price volatility depend on a variety of factors.

The following tables reflect our estimate of the present value of interest sensitive assets, liabilities, and off-balance sheet items at December 31, 2006. 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, 2006, although certain accounts are normalized whereby the three- or six-month average balance is included rather than the year-end balance in order to avoid having the analysis skewed by a significant increase or decrease to an account balance at year 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.

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•  The information in the tables below both as of December 31, 2006 and 2005 exclude the interest rate sensitivity of our first mortgage subsidiary due to our recent sale of substantially all its interest-sensitive assets and its status as a discontinued operation. Note that these tables only include the market values and sensitivities of interest-sensitive assets and liabilities.

•  The tables below show modeled changes in interest rates for individual asset classes. Asset classes in our portfolio have interest rate sensitivity tied to different underlying indices or instruments. While the rate sensitivity of individual asset classes presented below is our best estimate of changes in value due to interest rate changes, the total “potential change” figures are subject to basis risk between value changes of individual assets and liabilities which have not been included in the model.

•  Few of the asset classes shown react to interest rate changes in a linear fashion. That is, the point estimates we have made at “Current” and “+/−2%” and “+/−1%” are appropriate estimates at those amounts of rate change, but it may not be accurate to interpolate linearly between those points. This is most evident in products that contain optionality in payment timing or pricing such as mortgage servicing or nonmaturity transaction deposits.

•  Finally, the tables show theoretical outcomes for dramatic changes in interest rates which do not consider potential rebalancing or repositioning of hedges.

Economic Value Change Method

	Present Value at December 31, 2006
	Change in Interest Rates of:
	−2%			−1%			Current			+1%			+2%
	(In thousands)
Interest Sensitive Assets
Loans and other assets	$	5,574,807		$	5,505,787		$	5,431,769		$	5,355,326		$	5,279,017
Loans held for sale		243,288			240,781			237,859			233,649			228,501
Mortgage servicing rights		29,029			33,136			37,370			41,826			44,971
Residual interests		9,944			10,104			10,320			10,177			10,337
Interest sensitive financial derivatives		(8,062	)		(4,146	)		(42	)		3,801			8,328
Total interest sensitive assets		5,849,006			5,785,662			5,717,276			5,644,779			5,571,154
Interest Sensitive Liabilities
Deposits		(3,487,828	)		(3,464,471	)		(3,441,892	)		(3,414,930	)		(3,385,762	)
Short-term borrowings(1)		(856,749	)		(839,682	)		(824,775	)		(811,195	)		(798,805	)
Long-term debt		(1,197,526	)		(1,187,806	)		(1,173,118	)		(1,158,418	)		(1,146,220	)
Total interest sensitive liabilities		(5,542,103	)		(5,491,959	)		(5,439,785	)		(5,384,543	)		(5,330,787	)
Net market value as of December 31, 2006	$	306,903		$	293,703		$	277,491		$	260,236		$	240,367
Change from current	$	29,412		$	16,212		$	—		$	(17,255	)	$	(37,124	)
Net market value as of December 31, 2005	$	409,652		$	414,090		$	400,317		$	377,687		$	353,231
Potential change	$	9,335		$	13,773		$	—		$	(22,630	)	$	(47,086	)

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

65

GAAP-Based Value Change Method

	Present Value at December 31, 2006
	Change in Interest Rates of:
	−2%			−1%			Current			+1%			+2%
	(In thousands)
Interest Sensitive Assets
Loans and other assets(1)	$	—		$	—		$	—		$	—		$	—
Loans held for sale		237,510			237,510			237,510			233,300			228,152
Mortgage servicing rights		25,306			29,518			31,949			32,381			32,383
Residual interests		9,944			10,104			10,320			10,177			10,337
Interest sensitive financial derivatives		(8,062	)		(4,146	)		(42	)		3,801			8,328
Total interest sensitive assets		264,698			272,986			279,737			279,659			279,200
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, 2006	$	264,698		$	272,986		$	279,737		$	279,659		$	279,200
Potential change	$	(15,039	)	$	(6,751	)	$	—		$	(78	)	$	(537	)
Net market value as of December 31, 2005	$	547,531		$	556,247		$	564,387		$	560,897		$	555,312
Potential change	$	(16,856	)	$	(8,140	)	$	—		$	(3,490	)	$	(9,075	)

⁽¹⁾ Value does not change in GAAP presentation.

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. See footnote 18 of the Financial Statements for further discussion related to guarantees.

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, 2006 and December 31, 2005, respectively, were $1.0 billion and $1.1 billion. We had $25 million and $20 million in irrevocable standby letters of credit outstanding at December 31, 2006 and December 31, 2005, 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 statements of income. 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 17 of our Consolidated Financial Statements.

66

Operational and Compliance 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, unauthorized access to information, and external events that are beyond the control of the Corporation, such as natural disasters.

Compliance risk is the risk of loss resulting from failure to comply with laws and regulations. While Irwin Financial is exposed to a variety of compliance risks, the two most significant arise from our consumer lending activities and our status as a public company.

Our Board of Directors has ultimate accountability for the level of operational and compliance risk we assume. 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 of the need to alert senior management and the Board of potential control issues on a timely basis.

The Board has directed that primary responsibility for the management of operational and compliance 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. Our enterprise-wide risk management function provides an independent assessment of line management’s operational risk mitigation procedures. This function, which is managed in conjunction with enterprise-wide oversight of compliance, reports to the Chief Risk Officer (CRO), who in turn reports to the Risk Management Committee of our Board of Directors. We have developed risk and control summaries for our key business processes. Line of business and corporate-level managers use these summaries to assist in identifying operational and other risks for the purpose of monitoring and strengthening 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 Federal Deposit Insurance Corporation Improvement Act.

Given the on-going growth of the scope of the Corporation, our efforts to date to improve our risk management systems, and heightened industry and regulatory focus around risks, the Board, having reviewed and evaluated results of reports from Internal Audit, Risk Management, and regulatory exams, embarked in 2006 on a comprehensive review of our risk management systems, including operational and compliance risk management processes. These assessments were conducted at the Board’s direction by a third-party to ensure independence and access to best-in-class practices. As a result of these assessments, management has developed a program of risk management improvement steps which it has begun implementing on an enterprise-wide basis. The costs of these resources are reflected in current period earnings and we expect additional increases in these costs in 2007.

Regulatory Environment

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. As an Indiana state chartered bank, our subsidiary, Irwin Union Bank and Trust, including its subsidiaries, is subject to examination by the Indiana Department of Financial Institutions and is also subject to examination, due to its membership in the Federal Reserve System, by the Federal Reserve. As a federal savings bank, our subsidiary Irwin Union Bank, F.S.B. is subject to examination by the Office of Thrift Supervision. The regulation, supervision and examinations of our enterprise occur at the local, state and

67

federal levels and involve, but are not limited to, minimum capital requirements, consumer protection, community reinvestment, and deposit insurance.

Our subsidiary, Irwin Union Bank and Trust, has entered into a memorandum of understanding, which is considered an informal agreement, with the Federal Reserve Bank of Chicago as of March 1, 2007 to enhance the consumer compliance function and compliance oversight programs of Irwin Union Bank and Trust and its subsidiaries, and to provide quarterly written progress reports to the Federal Reserve Bank of Chicago with respect to these matters, commencing June 1, 2007. We have developed plans we believe will thoroughly address the issues raised by the Federal Reserve Bank of Chicago, but if we are unsuccessful in implementing our plans, we could experience additional regulatory action.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

The quantitative and qualitative disclosures about market risk are reported in the Market Risk section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” found on pages 64 through 67.

Item 8.   Financial Statements and Supplementary Data

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, 2006, 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, 2006 was effective.

Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, the independent registered public accounting firm that also audited our financial statements, as stated in their report which follows.

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 and more recently posted on our corporate web site. 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	/s/  Gregory F. Ehlinger Gregory F. Ehlinger
Chairman and	Senior Vice President and
Chief Executive Officer	Chief Financial Officer

68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Irwin Financial Corporation

We have audited the accompanying consolidated balance sheet of Irwin Financial Corporation and subsidiaries as of December 31, 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. 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 audit.

We conducted our audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Irwin Financial Corporation and subsidiaries at December 31, 2006, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, during 2006 the Company changed its method of accounting for the recognition of share-based compensation expense and the recognition of the funded status of its defined benefit pension and postretirement plans.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Irwin Financial Corporation’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Chicago, Illinois

March 5, 2007

69

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Irwin Financial Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Irwin Financial Corporation maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Irwin Financial Corporation’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 an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit 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. Our audit included 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 considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

In our opinion, management’s assessment that Irwin Financial Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Irwin Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Irwin Financial Corporation as of December 31, 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended and our report dated March 5, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Chicago, Illinois

March 5, 2007

70

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Irwin Financial Corporation:

In our opinion, the consolidated balance sheet as of December 31, 2005 and the related consolidated statements of income, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2005 present fairly, in all material respects, the financial position of Irwin Financial Corporation and its subsidiaries at December 31, 2005, and the results of their operations and their cash flows for each of the two 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 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.

/s/  PricewaterhouseCoopers LLP

New York, New York

March 3, 2006, except for the effects of
discontinued operations discussed
in Note 2 to the consolidated
financial statements, as to which

the date is February 27, 2007

71

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2006			2005
	(Dollars in thousands)
Assets:
Cash and cash equivalents — Notes 1 and 4	$	145,765		$	155,417
Interest-bearing deposits with financial institutions		53,106			44,430
Residual interests — Note 5		10,320			22,116
Investment securities- held-to-maturity (Fair value: $17,893 and $17,031 at December 31, 2006 and 2005) — Note 6		18,066			17,046
Investment securities- available-for-sale — Note 6		110,364			100,296
Loans held for sale		237,510			513,554
Loans and leases, net of unearned income — Note 7		5,238,193			4,477,943
Less: Allowance for loan and lease losses — Note 8		(74,468	)		(59,223	)
		5,163,725			4,418,720
Servicing assets — Note 9		31,949			34,445
Accounts receivable — Note 2		208,585			111,633
Accrued interest receivable		26,470			23,936
Premises and equipment — Note 10		36,211			29,721
Other assets		139,314			86,572
Assets held for sale — Note 2		56,573			1,088,638
Total assets	$	6,237,958		$	6,646,524
Liabilities and Shareholders’ Equity:
Deposits
Noninterest-bearing	$	687,626		$	754,778
Interest-bearing		1,756,109			1,921,369
Certificates of deposit over $100,000		1,107,781			1,222,846
		3,551,516			3,898,993
Short-term borrowings — Note 12		602,443			997,444
Collateralized debt — Note 13		1,173,012			668,984
Other long-term debt — Note 14		233,889			270,160
Other liabilities		146,596			210,773
Liabilities held for sale — Note 2		—			87,836
Total liabilities		5,707,456			6,134,190
Commitments and contingencies — Notes 15, 16, 17 and 18
Shareholders’ equity
Preferred stock, no par value — authorized 4,000,000 shares; none issued		—			—
Non cumulative perpetual preferred stock, no par value — 15,000 shares authorized and issued		14,518			—
Common stock, no par value — authorized 40,000,000 shares; issued 29,879,773 shares and 29,612,080 as of December 31, 2006 and 2005; 143,543 and 993,643 shares in treasury as of December 31, 2006 and 2005		116,192			112,000
Additional paid-in capital		1,583			—
Deferred compensation		—			(759	)
Accumulated other comprehensive (loss) income, net of deferred income tax benefit of $4,813 and liability of $71 as of December 31, 2006 and 2005		(4,364	)		3,448
Retained earnings		405,835			418,784
		533,764			533,473
Less treasury stock, at cost		(3,262	)		(21,139	)
Total shareholders’ equity		530,502			512,334
Total liabilities and shareholders’ equity	$	6,237,958		$	6,646,524

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

72

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	For the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands, except per share)
Interest income:
Loans and leases	$	435,952		$	312,034		$	245,615
Loans held for sale		34,372			43,540			30,759
Residual interests		1,536			6,948			12,509
Investment securities		8,741			7,629			5,330
Federal funds sold		1,527			387			173
Total interest income		482,128			370,538			294,386
Interest expense:
Deposits		132,221			83,861			44,487
Short-term borrowings		19,482			9,521			3,765
Collateralized debt		53,720			25,587			15,259
Other long-term debt		19,266			20,102			17,861
Total interest expense		224,689			139,071			81,372
Net interest income		257,439			231,467			213,014
Provision for loan and lease losses — Note 8		35,101			27,307			14,473
Net interest income after provision for loan and lease losses		222,338			204,160			198,541
Other income:
Loan servicing fees		32,844			39,678			32,057
Amortization of servicing assets — Note 9		(21,027	)		(31,014	)		(21,422	)
Recovery of servicing assets — Note 9		646			891			1,729
Net loan administration income		12,463			9,555			12,364
Gain from sales of loans		1,766			22,860			33,741
Trading gains		1,282			3,105			25,209
Derivative gains (losses), net		3,820			(2,100	)		(2,247	)
Other		25,290			23,301			16,386
		44,621			56,721			85,453
Other expense:
Salaries		107,864			110,463			117,034
Pension and other employee benefits		27,602			25,812			23,877
Office expense		9,130			8,587			7,694
Premises and equipment		22,748			21,286			21,290
Marketing and development		3,041			4,373			5,183
Professional fees		10,738			10,414			11,141
Other		29,565			23,104			17,559
		210,688			204,039			203,778
Income before income taxes from continuing operations		56,271			56,842			80,216
Provision for income taxes		18,870			20,595			31,492
Net income from continuing operations		37,401			36,247			48,724
(Loss) income from discontinued operations, net of $23,832 and $11,613 income tax benefit and $14,240 income tax expense, respectively — Note 2		(35,674	)		(17,260	)		19,721
Net income	$	1,727		$	18,987		$	68,445
Earnings per share from continuing operations: — Note 22
Basic	$	1.27		$	1.27		$	1.72
Diluted	$	1.25		$	1.26		$	1.64
Earnings per share: — Note 22
Basic	$	0.06		$	0.67		$	2.42
Diluted	$	0.05		$	0.66		$	2.28
Dividends per share	$	0.44		$	0.40		$	0.32

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

73

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

							Accumulated Other Comprehensive Income
										Unrealized			Unrealized			Defined						Additional
				Retained			Foreign			Gain/loss			Gain/loss			Benefit			Deferred			Paid in			Common		Preferred		Treasury
	Total			Earnings			Currency			Securities			Derivatives			Plans			Compensation			Capital			Stock		Stock		Stock
	(Dollars in thousands)
Balance at January 1, 2004	$	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		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 loss on investment securities net of $290 tax benefit		(433	)								(433	)
Unrealized gain on interest rate cap		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	)
Net income		1,727			1,727
Unrealized gain on investment securities net of $19 tax liability		29									29
Unrealized loss on interest rate swap		(784	)											(784	)
Foreign currency adjustment		(457	)					(457	)
Defined benefit retirement plans:
Minimum pension and SERP liability, net of $61 tax liability		91															91
Other comprehensive income		(1,221	)
Total comprehensive income		(606	)
Adoption of FAS 158, net of $4,460 tax benefit — Note 1		(6,691	)														(6,691	)
Adoption of FAS 123R		—																		759			50							(809	)
Cash dividends		(13,110	)		(13,110	)
Tax benefit on stock option exercises		535																					535
Stock option expense		1,742																					1,742
Conversion of Trust Preferred shares to 1,013,938 shares of common stock		20,248			(1,058	)																				1,805				19,501
Sales of 15,000 shares of preferred stock		14,518																										14,518
Sales of 177,181 shares of common stock		2,387																								2,387
Treasury stock:
Purchase of 200,604 shares		(4,363	)																											(4,363	)
Sales of 147,097 shares		2,296			(508	)																	(744	)						3,548
Balance at December 31, 2006	$	530,502		$	405,835		$	2,884		$	(344	)	$	(30	)	$	(6,874	)	$	—		$	1,583		$	116,192	$	14,518	$	(3,262	)

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

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IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Income from continuing operations	$	37,401		$	36,247		$	48,724
(Loss) income from discontinued operations		(35,674	)		(17,260	)		19,721
Net income		1,727			18,987			68,445
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation, amortization, and accretion, net		10,141			11,602			8,987
Amortization and impairment of servicing assets		61,370			80,697			119,617
Provision for loan and lease losses		35,288			26,852			14,195
Deferred income tax		(109,018	)		(23,789	)		12,185
Loss (gain) on sale of mortgage servicing assets		17,961			(14,412	)		(16,681	)
Gain from sales of loans held for sale		(39,754	)		(98,127	)		(184,913	)
Originations and purchases of loans held for sale		(7,237,809	)		(12,883,903	)		(14,780,501	)
Proceeds from sales and repayments of loans held for sale		8,207,596			12,502,574			14,814,198
Proceeds from sale of mortgage servicing assets		267,094			79,724			52,844
Net decrease in residuals		13,332			33,986			15,390
Net (increase) decrease in accounts receivable		(96,952	)		10,246			(60,086	)
Other, net		(100,215	)		4,315			(48,074	)
Net cash provided (used) by operating activities		1,030,761			(251,248	)		15,606
Investing activities:
Proceeds from maturities/calls of investment securities:
Held-to-maturity		2,313			461			118,063
Available-for-sale		13,112			5,801			1,583
Purchase of investment securities:
Held-to-maturity		(4,114	)		—			(98,395	)
Available-for-sale		(23,197	)		(3,599	)		(36,791	)
Net (increase) decrease in interest-bearing deposits		(1,976	)		(3,985	)		22,230
Net increase in loans, excluding sales		(820,664	)		(1,115,391	)		(367,303	)
Proceeds from sale of loans		55,147			57,625			45,592
Other, net		(11,376	)		(8,331	)		(5,642	)
Net cash used by investing activities		(790,755	)		(1,067,419	)		(320,663	)
Financing activities:
Net (decrease) increase in deposits		(347,477	)		503,730			495,601
Net (decrease) increase in short-term borrowings		(395,001	)		760,167			(192,481	)
Repayments of long-term debt		(14	)		(12	)		(12	)
Proceeds related to issuance of collateralized debt		931,406			472,515			514,223
Repayments of collateralized debt		(427,373	)		(351,049	)		(554,445	)
Net proceeds related to the issuance of trust preferred securities		61,500			51,750			—
Redemption related to trust preferred securities		(77,509	)		(51,750	)		—
Proceeds from the sale of noncumulative perpetual preferred stock		14,518			—			—
Purchase of treasury stock for employee benefit plans		(4,363	)		(1,201	)		(407	)
Proceeds from sale of stock for employee benefit plans		7,740			3,277			7,836
Dividends paid		(13,110	)		(11,426	)		(9,065	)
Net cash provided (used) by financing activities		(249,683	)		1,376,001			261,250
Effect of exchange rate changes on cash		(44	)		1,051			98
Net decrease (increase) in cash and cash equivalents		(9,721	)		58,385			(43,709	)
Cash and cash equivalents at beginning of period		155,486			97,101			140,810
Cash and cash equivalents at end of period	$	145,765		$	155,486		$	97,101
Supplemental disclosures of cash flow information:
Cash flow during the period:
Interest paid	$	239,934		$	146,005		$	93,319
Income taxes paid	$	93,687		$	19,171		$	15,184
Noncash transactions:
Liability for loans held for sale eligible for repurchase	$	87,837		$	19,581		$	47,692
Other real estate owned	$	11,675		$	16,236		$	5,899
Conversion of trust preferred stock to common stock	$	20,248		$	—		$	—

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 and home equity lending. We are in the process of exiting the mortgage banking segment. 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.

We are in the process of exiting the mortgage banking line of business. As a result, the financial statements and footnotes within this report have been reformatted to conform to the presentation required in Statement of Financial Accounting Standard (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” for “discontinued operations.” Prior period results were reclassified to conform to this change in presentation. Certain of the balance sheet assets and liabilities related to this line of business are being reported as assets held for sale. See Note 2 for additional information.

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.

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

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 premiums and accretion of discounts (adjusted cost). All other investment securities 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. To obtain fair value of residual interests, quoted market prices would be used if available. However, quotes are generally not available for residual interests, so we 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. Fair value is determined based on the contract price at which the mortgage loans will be sold. At the time of origination, loans which management believes will be sold prior to maturity are classified as loans held for sale.

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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 and the loan is in the process of collection. Loans are charged off at the earlier to occur of evidence that a loss will be incurred or when a loan becomes 180 days past due.

Direct Financing Leases:  At lease inception, we record an asset representing the aggregate future minimum lease payments and deferred incremental direct costs less unearned income. Income is recognized 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 periodically 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 a combination of observed pricing on similar, market-traded servicing rights and internal valuation models that calculate the present value of future cash flows to determine the fair value of the servicing assets. These models are supplemented and calibrated to market prices using inputs from independent servicing brokers, industry surveys and valuation experts. 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 period of and 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 determine the fair value at origination using current market assumptions. The calculated value is 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

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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.

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. 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 that excess is recognized in revenue 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.

Recent Accounting Developments:  On January 1, 2006 we adopted SFAS 123(R), “Share-based Payment” which requires the measurement and recognition of compensation expense for all share based awards made to employees and directors based on estimated fair value. We adopted this standard using the modified prospective method, which does not require restatement of prior periods. The revised standard eliminates the intrinsic value method of accounting for stock based employee compensation under APB Opinion No. 25 “Accounting for Stock Issued to Employees,” which we previously used. We measure the cost of equity-based service awards based on the grant date fair value of the award. All share-based payments to employees, including grants of employee stock options, are recognized in the income statement based on their fair value. The effect of adoption of this new standard in 2006 was an additional expense of $1.8 million pretax, or $1.1 million after tax. See footnote 21 for further discussion of this new standard and its impact on our financial statements.

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In February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid Instruments.” This standard permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement is effective for all financial instruments acquired or issued after the beginning of a fiscal year that begins after September 15, 2006. We do not believe this standard will have a material impact on our financial statements.

In March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.” This statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of classes of servicing assets and servicing liabilities at fair value, to better align with the use of derivatives used to mitigate the inherent risks of these assets and liabilities. Offsetting changes in fair value are recognized through income. This statement is effective as of January 1, 2007. We intend to elect the fair value treatment for servicing rights associated with high loan to value first lien and second mortgage loans at our home equity lending line of business during the first quarter of 2007. We do not believe this standard will have a material impact on our financial statements.

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109.” This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. We do not believe this standard will have a material impact on our financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating this new statement and have not yet determined the ultimate impact it will have on our financial statements.

In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” This statement was issued to improve communication around the funded status of defined benefit postretirement plans in a complete and understandable way. This statement requires employers to report the overfunded or underfunded status of their plans in the balance sheet rather than in the footnotes. This statement also requires an employer to recognize all transactions and events affecting the overfunded or underfunded status of a defined benefit postretirement plan in comprehensive income in the year in which they occur. We recognized the funded status of our defined benefit plan on our balance sheet and provided the required disclosures in footnote 24. The recognition of funded status did not impact our income statement, but did result in a $6.7 million reduction to our shareholders’ equity balance at December 31, 2006.

Note 2 — Discontinued Operations

In 2006, we sold the mortgage banking line of business’ origination operation including the majority of this segment’s loans held for sale. Approximately $288 million of loans held for sale as well as certain other assets and liabilities were sold resulting in a loss of $9.2 million including disposition costs. These losses are reflected in “Loss from discontinued operations” in the Consolidated Statement of Income. Loans and loans held for sale totaling $49 million remain on our consolidated balance sheet and are classified as “assets held for sale” at December 31, 2006. These assets are carried at their fair value less costs to sell.

We also sold the majority of this segment’s capitalized mortgage servicing rights. Mortgage servicing rights with an underlying unpaid principal balance of $19 billion were sold to four unrelated parties resulting in a loss of $18 million, which is reflected in “Loss from discontinued operations” in the Consolidated Statement of Income. The loss was partially offset by associated derivative gains of $11 million. As a result of these sales, we are carrying $166 million of receivables from these buyers at December 31, 2006. Mortgage servicing rights totaling $0.4 million

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remain on our consolidated balance sheet and are classified as “assets held for sale” at December 31, 2006. These assets are carried at fair value. We intend to sell these assets in 2007.

In addition to the losses discussed above, we also incurred losses of $8.4 million in connection with contract termination costs and severance benefits. These losses were recorded in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” These losses are reflected in “Loss from discontinued operations” in the Consolidated Statement of Income. At December 31, 2006, there were $5.4 million of accrued but unpaid expenses associated with our sale of the mortgage banking business.

In January 2007, we transferred certain assets associated with our servicing platform and placed the bulk of our remaining staff with New Century Financial. We have some staff continuing to work at IMC through the wind-down of our remaining assets, such as construction loans and repurchased loans.

In accordance with the provisions of SFAS 144, the results of operations of the mortgage banking line of business for the current and prior periods have been reported as discontinued operations. In addition, certain of the remaining assets for this segment have been reclassified as held for sale in the consolidated balance sheet. In connection with this discontinued operations treatment, we have revised our segment reporting as described in Note 25.

Results for this discontinued portion of our business are as follows:

	For the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net revenues	$	37,983		$	98,643		$	237,418
Other expense		(97,489	)		(127,516	)		(203,457	)
(Loss) gain before income taxes		(59,506	)		(28,873	)		33,961
Income taxes		23,832			11,613			(14,240	)
Net (loss) income from discontinued operations	$	(35,674	)	$	(17,260	)	$	19,721

	December 31,
	2006		2005
	(Dollars in thousands)
Loans, net of allowance and loans held for sale	$	48,555	$	800,325
Net servicing asset		385		261,309
Other assets		7,633		27,004
Assets held for sale	$	56,573	$	1,088,638

Note 3 — Restructuring

In the second quarter of 2006, we restructured the direct to consumer channel in our home equity line of business due to its higher origination costs and lower ratio of leads to loan closings as compared to the segment’s broker and correspondent channels. We have reduced our number of employees in the direct to consumer channel by 76%. As of December 31, 2006, we have $1.4 million of accrued but unpaid expenses related to this restructuring.

The table below shows the expenses incurred and the income statement captions impacted as a result of this restructuring.

	Year Ended
	December 31, 2006
	(Dollars in thousands)
Salaries	$	3,596
Other expense		1,969
Total	$	5,565

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Note 4 — 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, 2006, we exceeded this requirement.

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 2005 and 2006. 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 sought and were granted such approval for a $15 million dividend in the fourth quarter of 2006.

Note 5 — 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.

For one sale in 2006 and 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. During 2006, we exercised a clean-up call on the remaining loans that were sold prior to 2003, and expensed the related residual balances. We held residual interests related to these transactions totaling $2.8 million (from the 2006 transaction) at December 31, 2006 and $15.6 million (from the pre-2003 transactions) at December 31, 2005. 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 investors’ 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, 2006, 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	$	2,760
Weighted-average life (in years)		1.91
Prepayment speed assumptions (annual rate)		35.47	%
Impact on fair value of 10% adverse change	$	(150	)
Impact on fair value of 25% adverse change		(350	)
Expected credit losses (annual rate)		0.94	%
Impact on fair value of 10% adverse change	$	(60	)
Impact on fair value of 25% adverse change		(120	)
Residual cash flows discount rate (annual rate)		18.00	%
Impact on fair value of 10% adverse change	$	(90	)
Impact on fair value of 25% adverse change		(200	)

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:

	2006			2005			2004
	(Dollars in thousands)
Proceeds from new security activity	$	227,519		$	—		$	—
Servicing fees received		2,371			4,386			5,763
Net cash flows received on residual interests		16,803			37,245			61,958
Other cash flows paid		(11,462	)		(9,640	)		(8,705	)
Total	$	235,231		$	31,991		$	59,016

The credit losses on the 2006 securitized portfolio were 0.03% as a percentage of the original balance sold. It is projected that this portfolio will have lifetime credit losses of around 1.55% of the portfolio.

Delinquency amounts for the managed portfolio are set forth below:

	Total Principal Amount		Delinquent Principal Over					Credit Losses
	of Loans at		30 Days at		Delinquency			on Managed
	December 31, 2006		December 31, 2006(2)		Percentage			Portfolio
	(Dollars in thousands)
Managed loans comprised of:
Loans held for investment	$	1,280,050	$	43,062		3.4	%	$	12,597
Loans held for sale		235,831		10,555		4.5			2,873
Reps and warranties		N/A		N/A		N/A			64
Loans securitized, servicing and residual retained(1)		193,094		378		0.2			750
Total managed portfolio	$	1,708,975	$	53,995		3.2	%	$	16,284

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

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Note 6 — Investment Securities

The amortized cost, fair value, and carrying value of investment securities held at December 31, 2006 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	$	13,730	$	—	$	(156	)	$	13,574	$	13,730
Obligations of states and political subdivisions		3,545		—		—			3,545		3,545
Mortgage-backed securities		791		2		(19	)		774		791
Total held-to-maturity		18,066		2		(175	)		17,893		18,066
Available-for-Sale:
Mortgage-backed securities		44,907		44		(555	)		44,396		44,396
Other		66,031		—		(63	)		65,968		65,968
Total available-for-sale		110,938		44		(618	)		110,364		110,364
Total investment securities	$	129,004	$	46	$	(793	)	$	128,257	$	128,430

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:
U.S. Treasury and government obligations	$	12,571	$	—	$	—		$	12,571	$	12,571
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		17,046		7		(22	)		17,031		17,046
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	$	117,965	$	7	$	(645	)	$	117,327	$	117,342

Included within available-for-sale investment securities is $63 million and $70 million of FHLB and Federal Reserve Bank (FRB) stock at December 31, 2006 and 2005, 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	$	11,312	$	(33	)	$	20,860	$	(522	)	$	32,172	$	(555	)
Other securities		3,380		(63	)		—		—			3,380		(63	)
Total securities with unrealized losses	$	14,692	$	(96	)	$	20,860	$	(522	)	$	35,552	$	(618	)

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 $618 thousand of gross unrealized losses on available-for-sale securities at December 31, 2006, was $522 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, 2006, that is within 4% of their amortized cost basis.

We have the positive intent and ability to hold these securities until maturity. Accordingly, we have concluded that none of the securities in our investment portfolios are other-than-temporarily impaired at December 31, 2006.

The amortized cost and estimated value of investment securities at December 31, 2006, 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 within one year	$	2,277	$	2,256
Due after one years through five years		11,453		11,318
Due after five years through ten years		620		620
Due after ten years		2,925		2,925
		17,275		17,119
Mortgage-backed securities		791		774
		18,066		17,893
Available-for-Sale:
Due in one year or less		3,443		3,380
Mortgage-backed securities		44,907		44,396
FHLB & Federal Reserve Bank stock		62,588		62,588
		110,938		110,364
Total investment securities	$	129,004	$	128,257

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Investment securities of $23 million were pledged and cannot be repledged by holder, as collateral for borrowings and for other purposes on December 31, 2006. During 2006 and 2005 there were no sales or calls on investment securities.

Note 7 — Loans and Leases

Loans and leases are summarized as follows:

	December 31,
	2006			2005
	(Dollars in thousands)
Commercial, financial and agricultural	$	2,249,988		$	2,016,253
Real estate-construction		377,601			379,831
Real estate-mortgage		1,522,616			1,232,933
Consumer		31,581			31,718
Commercial financing
Franchise financing		699,969			462,413
Domestic leasing		296,056			237,968
Canadian leasing		358,783			313,581
Unearned income
Franchise financing		(211,480	)		(125,474	)
Domestic leasing		(42,782	)		(33,267	)
Canadian leasing		(44,139	)		(38,013	)
Total	$	5,238,193		$	4,477,943

At December 31, 2006, mortgage loans held for investment with a carrying value of $1.3 billion were pledged as collateral for bonds payable to investors (See Note 13).

Federal Home Loan Bank borrowings are collateralized by $1.2 billion in loans and loans held for sale at December 31, 2006.

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, 2006 were current in payment of principal and interest. The aggregate dollar amount of these loans outstanding at December 31, 2006 and 2005 represented less than 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, 2006, home equity loans with loan-to-value ratios greater than 100% (high LTVs, or HLTVs) made up 35% of our loan originations and 47% of our managed portfolio. HLTVs constituted 46% of our managed portfolio at December 31, 2005. 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. The following lists the components of the net investment in leases:

	December 31,
	2006			2005
	(Dollars in thousands)
Minimum lease payments receivable	$	644,118		$	542,981
Initial direct costs		10,721			8,568
Less unearned income		(86,921	)		(71,280	)
Less allowance for lease losses		(7,756	)		(6,638	)
Net investment in leases financing	$	560,162		$	473,631

Note 8 — 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,
	2006			2005			2004
	(Dollars in thousands)
Balance at beginning of year	$	59,223		$	43,441		$	63,005
Provision for loan and lease losses		35,101			27,307			14,473
Charge-offs		(30,810	)		(20,201	)		(28,180	)
Recoveries		11,208			8,960			5,335
Reduction due to sale of loans and leases and other		—			(403	)		(627	)
Reduction due to reclassification of loans		(246	)		—			(10,808	)
Foreign currency adjustment		(8	)		119			243
Balance at end of period	$	74,468		$	59,223		$	43,441

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 $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.

Impaired loans and associated valuation reserves are summarized as follows:

	December 31,
	2006		2005
	(Dollars in thousands)
Impaired loans with valuation reserve	$	10,893	$	14,714
Impaired loans with no valuation reserve		3,476		4,300
Total impaired loans	$	14,369	$	19,014
Valuation reserve on impaired loans	$	3,086	$	3,684

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, 2006, the average balance of impaired loans was $13 million, for which $0.8 million of interest

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was recorded. For the years ended December 31, 2005 and 2004, respectively, $1.0 million and $0.8 million of interest income was recorded on average impaired loans balances of $16.9 million and $19.1 million, respectively.

Nonperforming loans and leases are summarized below:

	December 31,
	2006		2005
	(Dollars in thousands)
Accruing loans past due 90 days or more	$	392	$	599
Nonaccrual loans and leases		37,171		36,820
Total nonperforming loans and leases	$	37,563	$	37,419

Note 9 — Servicing Assets

Included on the consolidated balance sheets at December 31, 2006 and 2005 were $32 million and $34 million, respectively, of capitalized servicing assets. These amounts relate to the mortgage and home equity loans serviced by us for investors. Changes in our capitalized servicing assets are shown below:

	December 31,
	2006			2005
	(Dollars in thousands)
Beginning balance	$	295,754		$	367,032
Additions		83,005			74,479
Amortization		(61,699	)		(100,322	)
Recovery of servicing asset		329			19,625
Reduction for servicing sales		(285,055	)		(65,060	)
Ending balance		32,334			295,754
Less servicing asset from discontinued operations	$	385		$	261,309
Mortgage servicing asset from continuing operations	$	31,949		$	34,445

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

	December 31,
	2006			2005			2004
	(Dollars in thousands)
Balance at beginning of year	$	27,243		$	54,134		$	76,869
(Recovery of) impairment of servicing asset		(329	)		(19,625	)		2,474
Reclass for sales of servicing		(26,431	)		(154	)		(18,210	)
Other than temporary impairment(1)		—			(7,112	)		(6,999	)
Balance at end of year		483			27,243			54,134
Less valuation allowance from discontinued operations		—			26,091			51,936
Valuation allowance from continuing operations	$	483		$	1,152		$	2,198

⁽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 $37 million and $40 million at December 31, 2006 and 2005, respectively. At December 31, 2006, key economic assumptions and the sensitivity of the current carrying value of

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mortgage servicing rights to immediate 10% and 20% adverse changes in those assumptions are as follows (dollars in thousands):

Fair Value of mortgage servicing assets	$	37,755
Constant prepayment speed		28.39	%
Impact on fair value of 10% adverse change	$	(1,385	)
Impact on fair value of 20% adverse change		(2,590	)
Discount rate		11.69	%
Impact on fair value of 10% adverse change	$	(636	)
Impact on fair value of 20% adverse change		(1,220	)

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 $2.8 billion and $2.5 billion at December 31, 2006 and 2005, respectively. Key economic assumptions used in determining the carrying value of mortgage servicing assets capitalized in 2006 and 2005 were as follows:

	2006			2005
Prepayment rates:		3-39	%		9-31	%
Discount rates:		9-15	%		9-14	%

Note 10 — Premises and Equipment

Premises and equipment are summarized as follows:

	December 31,
	2006			2005			Useful Lives
	(Dollars in thousands)
Land	$	3,584		$	2,630			n/a
Building and leasehold improvements		28,931			25,705			7-40 years
Furniture and equipment		52,786			45,675			3-10 years
		85,301			74,010
Less accumulated depreciation		(49,090	)		(44,289	)
Total	$	36,211		$	29,721

Amounts charged to other expense for depreciation were $6.4 million, $7.3 million, and $7.6 million in 2006, 2005, and 2004, respectively.

Note 11 — Lease Obligations

At December 31, 2006, we leased certain branch locations and office equipment used in our operations under a number of noncancelable operating leases. Operating lease rental expense was $18 million in 2006, $23 million in 2005, and $29 million in 2004.

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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,
2007	$	10,968
2008		9,729
2009		8,276
2010		7,347
2011		6,494
Thereafter		7,469
Total minimum rental payments	$	50,283

Note 12 — Short-Term Borrowings

Short-term borrowings are summarized as follows:

	December 31,
	2006			2005
	(Dollars in thousands)
Federal Home Loan Bank borrowings	$	371,693		$	641,785
Drafts payable related to mortgage loan closings		250			64,278
Lines of credit and other		—			1,081
Federal funds		230,500			290,300
Total	$	602,443		$	997,444
Weighted average interest rate		4.49	%		3.05	%

Federal Home Loan Bank borrowings are collateralized by $1.2 billion of loans and loans held for sale.

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 $0.7 billion to fund loan originations and operations. Interest on the lines of credit is payable monthly or quarterly with rates ranging from 5.4% to 6.1% at December 31, 2006.

Note 13 — Collateralized Debt

We pledge or sell certain 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 and debt being recorded. Loans that are transferred from loans held for sale to loans held for investment are transferred at the lower of cost or market. The notes associated with these transactions are collateralized by $1.3 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.

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Collateralized borrowings are summarized as follows:

			Weighted
			Average
			Interest Rate at
			December 31,			December 31,			December 31,
	Maturity		2006			2006			2005
	(Dollars in thousands)
Commercial finance line of business
Domestic asset backed note		5/2010		6.2	%	$	5,797		$	13,600
Canadian asset backed notes:
Note 1		revolving		5.4			30,611			32,385
Note 2		1/1/2012		4.4			179,508			155,544
Note 3		10/2009		4.5			8,157			14,839
Home equity line of business
2004-1 asset backed notes:
Variable rate senior note		12/2024-12/2034		5.7			50,072			132,692
Variable rate subordinate note		12/2034		6.5			24,775			24,775
2005-1 asset backed notes:
Variable rate senior note		6/2025-6/2035		5.5			40,972			138,244
Fixed rate senior note		6/2035		5.0			94,129			94,129
Variable rate subordinate note		6/2035		7.1			10,785			10,785
Fixed rate subordinate note		6/2035		5.6			52,127			52,127
Unamortized premium/discount							(90	)		(136	)
2006-1 asset backed notes:
Variable rate senior note		9/2035		5.5			102,252			—
Fixed rate senior note		9/2035		5.5			96,561			—
Fixed rate lockout senior note		9/2035		5.6			24,264			—
Unamortized premium/discount							(19	)		—
2006-2 asset backed notes:
Variable rate senior note		2/2036		5.4			136,386			—
Fixed rate senior note		2/2036		6.3			80,033			—
Fixed rate lockout senior note		2/2036		6.2			21,348			—
Unamortized premium/discount							(21	)		—
2006-3 asset backed notes:
Variable rate senior note		1/2037-9/2037		5.4			130,326			—
Fixed rate senior note		9/2037		5.9			67,050			—
Fixed rate lockout senior note		9/2037		5.9			18,000			—
Unamortized premium/discount							(11	)		—
Total						$	1,173,012		$	668,984

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 1 leverage ratio, and risk-based capital ratio. We are in compliance with all applicable covenants as of December 31, 2006.

Note 14 — Other Long-Term Debt

At December 31, 2006 we had $234 million of other long-term debt compared to $270 million in 2005. Included in both years is $30 million of subordinated debt with an interest rate of 7.58% and a maturity date of

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July 2014. We also have obligations represented by subordinated debentures at December 31, 2006 of $204 million and at 2005 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, 2006. All debentures and securities are callable at par after five years from origination date. On March 6, 2006, we had a reduction in long-term debt of $53 million related to our call of the convertible trust preferred securities issued by IFC Capital Trust III. As a result of the call, 39% of the preferred shareholders converted to 1,013,938 shares of IFC common stock and 61% redeemed for cash. On March 31, 2006, we issued subordinated debentures totaling $32.5 million in conjunction with the issuance of Capital Trust IX preferred securities to replace the redeemed shares. On July 25, 2006, we had a $15 million reduction in long-term debt related to the call of trust preferred securities issued by IFC Capital Trust IV. We incurred $1.2 million in call premium and incurred $0.4 million in early amortization of debt issuance expense in connection with this call. In December of this year, we issued $31 million of subordinated debentures in conjunction with trust preferred securities issued in two series by IFC Capital Trust X and IFC Capital Trust XI. Also in December, IFC Capital Trust V was called which reduced our long term debt by $30 million. We incurred $0.8 million in early amortization of debt issuance costs associated with this redemption.

These securities are all Tier 1 qualifying capital at December 31, 2006. Highlights about these debentures and the related trusts are listed below:

			Interest
			Rate at					Subordinated Debt
	Origination		December 31,			Maturity		December 31,
Name	Date		2006			Date		2006		2005		Other
	(Dollars in thousands)
IFC Capital Trust III		Nov 2000		8.75	%		Sep 2030	$	—	$	53,268	initial conversion ratio of 1.261 shares of common stock to 1 convertible preferred security, currently callable at 10% premium
IFC Capital Trust IV		Jul 2001		10.25			Jul 2031		—		15,464
IFC Capital Trust V		Nov 2001		9.95			Nov 2031		—		30,928
IFC Capital Trust VI		Oct 2002		8.70			Sep 2032		35,567		35,567
IFC Statutory Trust VII		Nov 2003		8.26			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		53,351	fixed rate for 5 years, variable rate of 3 month LIBOR plus 153 basis points thereafter
IFC Capital Trust IX		Mar 2006		6.69			Mar 2036		32,475		—	fixed rate for 5 years, variable rate of 3 month LIBOR plus 149 basis points thereafter
IFC Capital Trust X		Dec 2006		6.53			Dec 2036		15,464		—	fixed rate for 5 years, variable rate of 3 month LIBOR plus 175 basis points thereafter
IFC Capital Trust XI		Dec 2006		7.09			Mar 2037		15,464		—	variable rate of 3 month LIBOR plus 174 basis points
								$	203,868	$	240,125

Note 15 — Commitments and Contingencies

Culpepper v. Inland Mortgage Corporation

On February 7, 2006, the United States District Court for the Northern District of Alabama dismissed this case, originally filed in April 1996, by granting the motions of Irwin Mortgage Corporation, our indirect subsidiary

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(formerly Inland Mortgage Corporation), to decertify the class and for summary judgment, and by denying the plaintiffs’ motion for summary judgment. The plaintiffs filed a notice of appeal with the Court of Appeals for the 11th Circuit. The Court of Appeals held oral argument on the appeal on November 15, 2006.

During the ten years this case has been pending, the plaintiffs obtained class action status for their complaint alleging Irwin Mortgage violated the federal Real Estate Settlement Procedures Act (RESPA) relating to Irwin Mortgage’s payment of broker fees to mortgage brokers. In September 2001, the Court of Appeals for the 11th Circuit upheld the district court’s certification of the class. However, in October 2001, the Department of Housing and Urban Development (HUD) issued a policy statement that explicitly disagreed with the 11th Circuit’s interpretation of RESPA in upholding class certification. Subsequent to the HUD policy statement, the 11th Circuit decided a RESPA case similar to ours, concluding the trial court had abused its discretion in certifying the class. The 11th Circuit expressly recognized it was, in effect, overruling its previous decision upholding class certification in our case.

If the plaintiffs were to prevail on appeal and in a subsequent trial on the merits, Irwin Mortgage could be liable for RESPA damages that could be material to our financial position. However, we believe the 11th Circuit’s RESPA ruling in the case similar to ours would support a decision in our 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 14, 1997. This date was later clarified by stipulation of the parties to be April 17, 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 February 23, 2006, the Court ordered that class notice be mailed. On September 7, 2006, the court ordered one-time publication of class notice in Indiana newspapers. 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 September 15, 2005, Irwin Mortgage filed an answer and cross-claims seeking dismissal of the complaint. On October 13, 2006, Irwin Mortgage filed a motion for summary judgment. At a hearing on January 3, 2007, the court ordered discovery to be completed by April 30, 2007, after which Irwin Mortgage may re-file its 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.

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

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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 September 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. The Pennsylvania District Court had been handling another case seeking class action status, Kessler v. RFC, et al., also involving Community and with facts similar to those alleged in the Irwin consolidated cases. The Kessler case had been settled, but the settlement was appealed and set aside on procedural grounds. Subsequently, the parties in Kessler filed a motion for approval of a modified settlement, which would provide additional relief to the settlement class. Irwin is not a party to the Kessler action, but the resolution of issues in Kessler may have an impact on the Irwin cases. The Pennsylvania District Court has effectively stayed action on the Irwin cases until issues in the Kessler case are resolved. We have established a reserve for the Community litigation based upon SFAS 5 guidance and the advice of legal counsel.

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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 for alleged violations of the Fair Credit Reporting Act. In response to Irwin’s motion to dismiss filed on October 18, 2005, the court dismissed the plaintiffs’ complaint with prejudice on March 23, 2006. Plaintiffs filed an appeal in the U.S. Court of Appeals for the 9th Circuit on April 13, 2006. We 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 filed a notice of removal and removed the case from state to federal court. On March 17th, 2006 the plaintiffs filed a motion to remand the action back to state court and also filed an amended complaint emphasizing the alleged state law basis for their claims. Irwin believes, however, that the plaintiffs’ state law claims are completely preempted by Section 27 of the FDIC Act. On April 24, 2006, the plaintiffs initiated a class arbitration with the American Arbitration Association (White v. Irwin Union Bank & Trust, et al.). On October 13, 2006, the parties tentatively agreed to settle this matter for a nonmaterial amount. The parties are in the process of drafting the settlement agreement and having it reviewed by the arbitrator.

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 16 — 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, 2006 and 2005 were $1.0 billion and $1.1 billion, respectively. These loan commitments include $0.8 billion of

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floating rate loan commitments and $0.2 billion of fixed rate loan commitments. We had approximately $25 million and $20 million in irrevocable standby letters of credit outstanding at December 31, 2006 and 2005, respectively.

Note 17 — Derivative Financial Instruments

Financial derivatives are used as part of the overall asset/liability risk management process. We use certain derivative instruments that qualify and certain derivative instruments that do not qualify for hedge accounting treatment under SFAS 133. The derivatives that do not qualify for hedge treatment are classified as other assets and other liabilities and marked to market on the income statement. While we do not seek Generally Accepted Accounting Principles (GAAP) hedge accounting treatment for the assets and liabilities 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 of $67.5 million to economically hedge fixed rate certificate of deposits. Notional amounts do not represent the amount of risk. We do not receive SFAS 133 hedge accounting treatment for this transaction. We recognized a loss in “derivative gains (losses)” of $0.6 million and $1.2 million for the years ended December 31, 2006 and 2005, 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 nine-month LIBOR.

We entered into two interest rate swaps in 2006 that qualified for hedge accounting treatment under SFAS 133. The first of these was a “cash flow” hedge to offset the risk of changing rates on the issuance of the junior subordinated debentures issued into Capital Trust X. This hedge settled on December 5, 2006 with the resulting loss of $0.2 million being included in other comprehensive income to be amortized over the life of the underlying security through the call date. The second interest rate swap was a “cash flow” hedge in which we pay a fixed rate of interest and receive a floating rate. The purpose of this swap is to manage interest rate risk exposure created by Capital Trust XI which has variable rate interest payments. This hedge had a notional amount of $15 million at December 31, 2006. The amount of gain on this swap recorded to other comprehensive income at December 31, 2006 was $0.1 million. Ineffectiveness related to these cash flow hedges in 2006 was immaterial.

We own foreign currency forward contracts to protect the U.S. dollar value of intercompany loans made to Irwin Commercial Finance Canada Corporation that are denominated in Canadian dollars. We had a contractual amount of $63 million in forward contracts outstanding as of December 31, 2006. For the years ending December 31, 2006 and 2005, we recognized gain of $1.4 million and a loss of $1.3 million, respectively. These contracts are marked-to-market with gains and losses included in “derivative gains (losses)” on the consolidated income statements. We do not receive SFAS 133 hedge accounting treatment for this transaction. We recognized a foreign currency transaction loss on the intercompany loans of $0.6 million and a gain of $1.6 million, respectively, for the years ended December 31, 2006 and 2005.

In our home equity business, we enter into 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, 2006, a contractual amount of $1.2 billion of Eurodollar futures was outstanding. We also have $286 million in amortizing interest rate caps to protect the interest rate exposure created by the 2006-1, 2006-2 and 2006-3 securitizations in which floating rate notes are funding fixed rate home equity loans. These contracts are marked-to-market with gains and losses included in “derivative gains (losses)” on the consolidated income statements. We do not receive SFAS 133 hedge accounting treatment for this transaction. The gain on these activities for the years ending December 31, 2006 and 2005, respectively, totaled $3.0 million and $0.7 million.

Also in our home equity business, we have a $20 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 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 “cash flow” hedge in accordance with SFAS 133, with the changes in the fair value of the effective portion of the hedge reported as a component of equity and $0.6 million and

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$0.1 million was amortized through interest expense during the years ended December 31, 2006 and 2005, respectively. Ineffectiveness related to this cash flow hedge in 2006 was immaterial.

We enter into commitments to originate home equity 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 year ended December 31, 2006, a $0.1 million loss was recorded in “Gain from sale of loans.” At December 31, 2006, we had rate lock commitments outstanding totaling $46 million.

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, 2006, the commercial paper conduit was providing $179 million of variable rate funding. In total, our interest rate swaps were effectively converting $176 million of this funding to a fixed interest rate. The losses on these swaps for the years ended December 31, 2006 and 2005 were $0.3 million and $0.9 million, respectively.

Note 18 — 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, 2006 and 2005, we had approximately $13.3  million and $14.1 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. Because the extent of our obligations under these guarantees depends entirely on future events, our potential future liability under these agreements is not fully determinable.

We 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 60-180 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, 2006 and 2005, respectively, we had approximately $1.0 million and $1.6 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 $0.4 billion in 2006 and $0.7 billion in 2005.

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 $7.7 million at December 31, 2006 and $37.4 million at December 31, 2005 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, 2006 and 2005, we do not expect to incur any material losses and have not recorded any estimate of losses.

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 at December 31, 2006.

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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, 2006 and 2005, our subsidiary had borrowings totaling $31 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, 2006 and 2005, our subsidiary had borrowings totaling $180 million for which this guarantee applied.

Note 19 — 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, 2006, 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 12.5% 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 in Part I, Item 1, “Business,” “Supervision and Regulation,” under the subsections “Bank Holding Company Regulation — Minimum Capital Requirements,” and “Bank and Thrift Regulation — Capital Requirements,” and “Other Safety and Soundness Regulations.”

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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 required for “Adequate” and “Well Capitalized” status under the regulatory framework outlined by federal banking regulators:

						Adequately					Well
	Actual					Capitalized					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2006
Total Capital (to Risk-Weighted Assets):
Irwin Financial Corporation	$	837,754		13.4	%	$	500,714		8.0	%	$	625,893		10.0	%
Irwin Union Bank and Trust		738,206		12.8		$	461,943		8.0		$	577,429		10.0
Irwin Union Bank, F.S.B		59,157		11.3		$	42,028		8.0		$	52,535		10.0
Tier I Capital (to Risk-Weighted Assets):
Irwin Financial Corporation		712,403		11.4			250,357		4.0			375,536		6.0
Irwin Union Bank and Trust		636,506		11.0			230,971		4.0			346,457		6.0
Irwin Union Bank, F.S.B		55,820		10.6			N/A					31,521		6.0
Tier I Capital (to Average Assets):
Irwin Financial Corporation		712,403		11.5			247,919		4.0			309,899		5.0
Irwin Union Bank and Trust		636,506		11.1			229,605		4.0			287,006		5.0
Core Capital (to Adjusted Tangible Assets) Irwin Union Bank, F.S.B.		55,820		11.1			20,162		4.0			25,203		5.0
Tangible Capital (to Tangible Assets) Irwin Union Bank, F.S.B.		55,804		11.1			7,516		1.5			N/A
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

Note 20 — 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, 2006 and 2005. As of December 31, 2006 and 2005, our loan commitments had a contractual amount of $1.0 billion and $1.1 billion, respectively. Our standby letters of credit had a contractual amount of $25.1 million and $19.7 million at December 31, 2006 and 2005, respectively.

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

	2006				2005
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	145,765	$	145,765	$	155,417	$	155,417
Interest-bearing deposits with financial institutions		53,106		53,037		44,430		44,119
Residual Interests		10,320		10,320		22,116		22,116
Investment securities		128,430		128,257		117,342		117,327
Loans held for sale		237,510		237,859		513,554		516,576
Loans and leases, net of unearned discount		5,238,193		5,259,341		4,477,943		4,465,889
Servicing asset		31,949		37,370		34,445		40,110
Derivatives		3,055		3,055		12,787		12,787
Financial liabilities:
Deposits		3,551,516		3,441,892		3,898,993		3,804,199
Short-term borrowings		602,443		604,590		997,444		994,542
Collateralized debt		1,173,012		1,156,032		668,984		646,427
Other long-term debt		233,889		237,271		270,160		274,636
Derivatives		612		612		14,679		14,679

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.

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

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instruments and were therefore not a part of the fair value estimates include accounts receivable and premises and equipment.

Note 21 — Equity Based Compensation

As of January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment,” applying the modified prospective method. This statement requires all equity-based payments to employees, including grants of employee stock options, to be recognized as expense in the consolidated statement of income based on the grant date fair value of the award. Under the modified prospective method, we are required to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption. Prior year financial statements are not restated. The fair values of stock options granted were determined using a Black-Scholes options-pricing model.

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. For the year ended December 31, 2006, $0.1 million was expensed related to this plan.

We have restricted stock plans to compensate our Directors and employees with our common stock. The number of shares issued under these plans is based on the current market value of our common stock on date of issue. For the year ended December 31, 2006, $0.4 million was expensed related to these plans. The total fair value of shares vested during the years ended December 31, 2006, 2005, and 2004, was $0.5 million, $0.1 million, and $0.2 million, respectively.

At December 31, 2006, there was $1.5 million of total unrecognized compensation expense to be recognized over a weighted average period of two years related to restricted stock. Activity in this plan is summarized as follows:

	December 31, 2006
				Weighted
	Number of			Average Grant
	Shares			Date Fair Value
Unvested at the beginning of the year		41,726		$	22.45
Awarded		66,128			20.51
Vested		(18,963	)		21.16
Forfeited		(4,210	)		26.12
Unvested at the end of the year		84,681		$	21.04

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 will vest 25% at grant and 25% at each anniversary date thereafter, is equal to the market price of our stock on the grant date. Compensation expense for these options is recognized on a straight-line basis over the vesting period. Outstanding stock options with exercise prices below the stock price have been considered as common stock equivalents in the computation of diluted earnings per share. During the year ended December 31, 2006, $1.7 million was expensed related to these plans. At December 31, 2006, there was $2.1 million of total unrecognized compensation expense to be recognized over a weighted average period of two years related to unvested stock options. We received $3.8 million in proceeds related to stock options exercised during the year and realized a tax benefit of $1.4 million related to these options.

We calculated the fair value of each option award on the date of grant with the Black-Scholes option pricing model using certain key assumptions. The weighted-average fair value of each option granted during years ended December 31, 2006, 2005, and 2004 was $5.60, $6.83 and $10.41, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $1.4 million, $1.5 million and $2.6 million, respectively. Expected life is estimated based on historical experience of employees’ exercise behavior. Future expected volatility and dividend yield are primarily based on historical volatility and dividend

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yield levels. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The following assumptions were used for each respective period:

	For the Year Ended December 31,
	2006			2005			2004
Risk-free interest rates		4.92	%		3.94	%		4.42	%
Dividend yield		2.40	%		1.75	%		1.00	%
Expected volatility		32	%		35	%		40	%
Expected lives (in years)		6			6			6.5

The following table summarizes all stock option transactions under Company Plans during the year ended December 31, 2006:

	2006
						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value As of
	Shares			Price		Term		12/31/2006
	(In thousands)
Outstanding at the beginning of the year		2,441,771		$	20.55
Granted		435,553			18.33
Exercised		(246,878	)		15.31
Canceled		(177,801	)		23.86
Outstanding at the of the year		2,452,645			20.44		6.21	$	6,507
Exercisable at the end of the year		1,970,597		$	20.77		5.53	$	4,781

The following table illustrates the impact of equity-based compensation on reported amounts:

	For the Year Ended
	December 31, 2006
			Impact of Adopting
	As Reported		SFAS 123(R)
	(Dollars in thousands, except per share amounts)
Net income from Continuing Operations before taxes	$	56,271	$	(1,799	)
Net income from Continuing Operations		37,401		(1,079	)
Net income		1,727		(1,117	)
Basic earnings per share
From Continuing Operations	$	1.27	$	(0.04	)
From All Operations		0.06		(0.04	)
Diluted earnings per share
From Continuing Operations	$	1.25	$	(0.04	)
From All Operations		0.05		(0.04	)

In 2005 and in prior years, we 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. Therefore, except for costs related to restricted shares, we recognized no stock-based employee compensation cost in net income for any period prior to 2006, as all options granted under our plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

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	Years Ended December 31,
	2005			2004
	(Dollars in thousands, except per share amounts)
Net income from continuing operations as reported	$	36,247		$	48,724
Equity based compensation expense included in net earnings, net of tax		59			94
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,966	)		(2,672	)
Net income from continuing operations pro forma		33,340			46,146
Net (loss) income from discontinued operations		(17,260	)		19,721
Pro forma net income	$	16,080		$	65,867
Basic earnings per share from continuing operations
As reported	$	1.27		$	1.72
Pro forma		1.17			1.63
Basic earnings per share
As reported	$	0.67		$	2.42
Pro forma		0.56			2.33
Diluted earnings per share continuing operations
As reported	$	1.26		$	1.64
Pro forma		1.16			1.56
Diluted earnings per share
As reported	$	0.66		$	2.28
Pro forma		0.56			2.19

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Note 22 — Earnings Per Share

Earnings per share calculations are summarized as follow:

	Basic			Effect of			Effect of			Diluted
	Earnings			Restricted Stock			Convertible			Earnings
	Per Share			and Stock Options			Shares			Per Share
	(In thousands, except per share amounts)
Year ended December 31,
2006
Net income available to common shareholders:
From continuing operations	$	37,401		$	(303	)	$	—		$	37,098
From discontinued operations		(35,674	)		—			—			(35,674	)
Total net income from all operations	$	1,727		$	(303	)				$	1,424
Shares		29,501			189			—			29,690
Per-share amount:
For continuing operations	$	1.27		$	(0.02	)	$	—		$	1.25
For all operations	$	0.06		$	(0.01	)	$	—		$	0.05
2005
Net income available to common shareholders:
From continuing operations	$	36,247		$	—		$	—		$	36,247
From discontinued operations		(17,260	)		—			—			(17,260	)
Total net income from all operations	$	18,987		$	—		$	—		$	18,987
Shares		28,518			323			—			28,841
Per-share amount:
For continuing operations	$	1.27		$	(0.01	)	$	—		$	1.26
For all operations	$	0.67		$	(0.01	)	$	—		$	0.66
2004
Net income available to common shareholders:
From continuing operations	$	48,724		$	—		$	2,712		$	51,436
From discontinued operations		19,721			—			—			19,721
Total net income from all operations	$	68,445		$	—		$	2,712		$	71,157
Shares		28,274			397			2,607			31,278
Per-share amount:
For continuing operations	$	1.72		$	(0.03	)	$	(0.05	)	$	1.64
For all operations	$	2.42		$	(0.03	)	$	(0.11	)	$	2.28

In 2006, 2005 and 2004, there were 1.9 million, 1.4 million and 0.1 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 2006 and 2005 diluted calculation because they were antidilutive.

Note 23 — 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, (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:

	2006			2005			2004
	(Dollars in thousands)
Current:
Federal	$	18,915		$	18,464		$	19,574
State		5,809			5,208			5,591
Foreign		1,695			1,287			3,639
		26,419			24,959			28,804
Deferred:
Federal		(6,199	)		(3,485	)		2,457
State		(1,476	)		(831	)		586
Foreign		126			(48	)		(355	)
		(7,549	)		(4,364	)		2,688
Income tax expense:
Federal		12,716			14,979			22,031
State		4,333			4,377			6,177
Foreign		1,821			1,239			3,284
	$	18,870		$	20,595		$	31,492

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:

	2006			2005			2004
	(Dollars in thousands)
Income taxes computed at the statutory rate	$	19,695		$	19,895		$	28,076
Increase (decrease) resulting from:
Nontaxable interest from investment securities and loans		(124	)		(117	)		(107	)
State tax, net of federal benefit		2,816			2,845			4,015
Foreign operations		(673	)		183			1,860
Reserve release(1)		(611	)		(1,870	)		(2,832	)
Federal tax credits		(2,113	)		(507	)		(190	)
Other items-net		(120	)		166			670
	$	18,870		$	20,595		$	31,492

⁽¹⁾ Tax reserves are released as we align our tax liability to a level commensurate with our current identified tax exposures.

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

	December 31,
	2006			2005
	(Dollars in thousands)
Deferred tax assets:
Reserve for credit losses	$	37,728		$	31,527
Deferred compensation		1,601			1,740
Retirement benefits		2,427			691
Leasing		1,071			870
Mark to market		1,402			4,155
Capital loss carryforward(1)		3,511			224
Other, net		3,656			—
		51,396			39,207
Deferred tax liabilities:
Mortgage servicing		(11,513	)		(108,744	)
Deferred origination fees and costs		(5,688	)		(4,055	)
Other, net		—			(1,231	)
		(17,201	)		(114,030	)
Net deferred tax asset (liability)	$	34,195		$	(74,823	)

⁽¹⁾ As of December 31, 2006, we have $3.5 million (after tax) of US capital loss carryforwards which expire in 2008 ($0.2 million), 2010 ($0.7 million) and 2011 ($2.6 million)

Note 24 — 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% each year over a period of 5 years. The expense to match employee contributions for the years ended December 31, 2006, 2005 and 2004 was $5.0 million, $4.1 million and $3.6 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.

IRS limits reduce the benefits that an executive officer can earn under the Employees’ Pension Plan’s basic formula. As a result, the Corporation provides an additional benefit under the Irwin Financial Corporation Restated Supplemental Executive Retirement Plan (the “SERP”). The SERP is provided to executive officers in order to make them whole for the benefits under the basic formula that could not be provided under the Employees’ Pension Plan due to these limits. The SERP is not funded and is a general obligation of the Corporation.

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The following table sets forth amounts recognized in our balance sheet for these benefit plans:

	Pension Benefits						SERP Benefits
	December 31,						December 31,
	2006			2005			2006			2005
	(Dollars in thousands)						(Dollars in thousands)
Change in benefit obligation:
Projected benefit obligation at January 1,	$	36,063		$	29,348		$	7,882		$	6,463
Service cost		3,723			2,856			235			257
Interest cost		2,077			1,741			377			404
Actuarial loss		459			2,962			(950	)		988
Benefits paid		(879	)		(844	)		(230	)		(230	)
Benefit obligation at December 31,		41,443			36,063			7,314			7,882
Change in plan assets:
Fair value plan assets at January 1,		28,699			24,407			—			—
Actual return on plan assets		4,114			2,197			—			—
Benefits paid		(879	)		(844	)		(230	)		(230	)
Employer contributions		—			2,939			230			230
Fair value plan assets at December 31,		31,934			28,699			—			—
Funded status at December 31,	$	(9,509	)	$	(7,364	)	$	(7,314	)	$	(7,882	)
Amounts recognized in Balance sheet consist of:
Other liabilities	$	(9,509	)				$	(7,314	)

Net pension and SERP costs included the following components:

Employee pension plan

	2006			2005			2004
	(Dollars in thousands)
Service cost	$	3,723		$	2,856		$	2,127
Interest cost		2,077			1,741			1,488
Expected return on plan assets		(2,252	)		(1,912	)		(1,605	)
Amortization of prior service cost		37			37			37
Amortization of actuarial loss		871			687			638
Net pension cost	$	4,456		$	3,409		$	2,685

Supplemental Executive Retirement Plan

	2006		2005		2004
	(Dollars in thousands)
Service cost	$	235	$	257	$	207
Interest cost		377		404		365
Transition obligation		11		11		10
Amortization of prior service cost		1		1		1
Amortization of actuarial loss		97		167		103
Net pension cost	$	721	$	840	$	686

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 pension

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

	Pension Benefits					SERP Benefits
	Year Ending December 31,					Year Ending December 31,
	2006			2005		2006			2005
	(Dollars in thousands)					(Dollars in thousands)
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income:
Transition obligation	$	—				$	(16	)
Prior service cost		(236	)				(34	)
Accumulated loss		(9,175	)				(1,995	)
Accumulated other comprehensive income	$	(9,411	)	$	—	$	(2,045	)	$	(457	)
Cumulative employer contributions in excess of net periodic benefit cost		(98	)		4,358		(5,269	)		(4,778	)
Net amount recognized in statement of financial position	$	(9,509	)	$	4,358	$	(7,314	)	$	(5,235	)
Change in accumulated other comprehensive income
Additional minimum liability	$	(541	)	$	—	$	—		$	(519	)
Intangible asset offset		236			N/A		—		$	62
Accumulated other comprehensive income		(305	)		—		—			(457	)
Net increase to accumulated other comprehensive income due to FAS 158	$	(9,106	)			$	(2,045	)

Weighted average assumptions:

	Pension						SERP
	Benefits						Benefits
	2006			2005			2006			2005
To determine benefit obligations at December 31,
Discount rate		5.75	%		5.50	%		5.75	%		5.50	%
Rate of average compensation increases		4.18	%		4.18	%		4.25	%		4.25	%
To Determine net periodic benefit cost at January 1,
Discount rate		5.50	%		5.75	%		5.50	%		5.75	%
Expected rate of return on plan assets		8.00	%		8.00	%		N/A			N/A
Rate of average compensation increases		4.18	%		4.18	%		4.25	%		4.25	%

	Pension Benefits				SERP Benefits
	December 31,				December 31,
	2006		2005		2006		2005
	(Dollars in thousands)				(Dollars in thousands)
Projected benefit obligation	$	41,443	$	36,063	$	7,314	$	7,882
Accumulated benefit obligation		32,573		28,322		5,238		5,297
Fair value of assets		31,934		28,699		—		—

The estimated prior service cost for the defined benefit pension plan and the supplement executive retirement plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $37 thousand and $1 thousand, respectively.

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Plan Assets

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

	Percentage of Plan Assets						Target Allocation
Asset Category	2006			2005			2007
Equity securities
Domestic		57	%		50	%		50-65	%
International		14			23			15-25	%
Corporate bonds		25			16			15-25	%
Cash equivalents		4			11			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 to the pension plan on December 31, 2005. This cash contribution was 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 did not make a contribution to the pension plan in 2006 and do not currently plan to make a contribution in 2007.

Outflows from the pension 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 for the benefit plans are as follows (in thousands):

	Pension		SERP
	Benefits		Benefits
Expected benefit payments (in thousands):
2007	$	864	$	230
2008		989		225
2009		1,197		219
2010		1,458		214
2011		1,660		233
Years 2012-2016		11,440		1,826

Note 25 — Industry Segment Information

We have three principal business segments that provide a broad range of financial services. The commercial banking line of business provides commercial banking services. The commercial finance line of business originates leases and loans against commercial equipment and real estate. The home equity lending line of business originates, purchases, sells and services first and second mortgage loans. As described in Note 2, we have recently exited the

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mortgage banking line of business. This segment, which we entered in 1981, is shown in the table below as “Discontinued Operations.” Our other segment primarily includes the parent company, our private equity portfolio and eliminations and a small amount of unsold items of our mortgage banking business.

The accounting policies of each segment are the same as those described in Note 1 — “Accounting Policies, Management Judgments and Accounting Estimates.” Following is a summary of each segment’s revenues, net income, and assets for the years indicated:

												Consolidated
	Commercial		Commercial			Home Equity						Continuing		Discontinued
	Banking		Finance			Lending			Other			Operations		Operations			Consolidated
	(Dollars in thousands)
2006
Net interest income	$	113,844	$	65,387		$	108,133		$	(65,026	)	$	222,338	$	23,698		$	246,036
Intersegment interest		5,148		(29,543	)		(34,724	)		59,119			—		—			—
Other revenue		18,173		8,018			14,738			3,692			44,621		14,285			58,906
Intersegment revenues		—		—			448			(448	)		—		—			—
Total net revenues		137,165		43,862			88,595			(2,663	)		266,959		37,983			304,942
Other expense		86,170		22,838			83,035			18,645			210,688		97,489			308,177
Intersegment expenses		2,762		1,117			2,932			(6,811	)		—		—			—
Income (loss) before taxes		48,233		19,907			2,628			(14,497	)		56,271		(59,506	)		(3,235	)
Income taxes		17,373		7,307			1,090			(6,900	)		18,870		(23,832	)		(4,962	)
Net income (loss)	$	30,860	$	12,600		$	1,538		$	(7,597	)	$	37,401	$	(35,674	)	$	1,727
Assets at December 31,	$	3,103,547	$	1,073,552		$	1,617,219		$	443,640							$	6,237,958
2005
Net interest income	$	95,131	$	29,392		$	104,645		$	(25,008	)	$	204,160	$	34,878		$	239,038
Intersegment interest		10,341		(1,920	)		(32,166	)		23,745			—		—			—
Other revenue		16,686		7,437			33,667			(1,069	)		56,721		63,765			120,486
Intersegment revenues		259		—			—			(259	)		—		—			—
Total net revenues		122,417		34,909			106,146			(2,591	)		260,881		98,643			359,524
Other expense		75,347		21,453			99,119			8,120			204,039		127,516			331,555
Intersegment expenses		1,715		771			3,220			(5,706	)		—		—			—
Income (loss) before taxes		45,355		12,685			3,807			(5,005	)		56,842		(28,873	)		27,969
Income taxes		17,976		5,252			1,555			(4,188	)		20,595		(11,613	)		8,982
Net income (loss)	$	27,379	$	7,433		$	2,252		$	(817	)	$	36,247	$	(17,260	)	$	18,987
Assets at December 31,	$	3,162,398	$	831,657		$	1,602,400		$	1,050,069							$	6,646,524
2004
Net interest income	$	84,318	$	21,286		$	110,601		$	(17,664	)	$	198,541	$	39,342		$	237,883
Intersegment interest		1,992		—			(15,987	)		13,995			—		—			—
Other revenue		17,749		6,275			67,847			(6,418	)		85,453		198,076			283,529
Intersegment revenues		567		—			—			(567	)		—		—			—
Total net revenues		104,626		27,561			162,461			(10,654	)		283,994		237,418			521,412
Other expense		63,656		18,091			111,856			10,175			203,778		203,457			407,235
Intersegment expenses		1,794		691			2,923			(5,408	)		—		—			—
Income (loss) before taxes		39,176		8,779			47,682			(15,421	)		80,216		33,961			114,177
Income taxes		15,752		5,562			19,615			(9,437	)		31,492		14,240			45,732
Net income (loss)	$	23,424	$	3,217		$	28,067		$	(5,984	)	$	48,724	$	19,721		$	68,445
Assets at December 31,	$	2,622,877	$	636,604		$	992,979		$	983,360							$	5,235,820

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Note 26 — Irwin Financial Corporation (Parent Only) Financial Information

The condensed financial statements of the parent company as of December 31, 2006 and 2005, and for the three years ended December 31, 2006 are presented below:

Condensed Balance Sheets

	December 31,
	2006		2005
	(Dollars in thousands)
Assets:
Cash and short-term investments	$	839	$	284
Investment in bank subsidiaries		689,654		679,447
Investments in non-bank subsidiaries		3,793		(33,300	)
Loans to bank subsidiaries		64,618		65,640
Loans to non-bank subsidiaries		—		72,091
Other assets		10,953		19,778
	$	769,857	$	803,940
Liabilities:
Short-term borrowings	$	—	$	19,157
Long-term debt		233,868		270,125
Other liabilities		5,487		2,324
		239,355		291,606
Shareholders’ equity:
Preferred Stock		14,518		—
Common stock		116,192		112,000
Other shareholders’ equity		399,792		400,334
		530,502		512,334
	$	769,857	$	803,940

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Condensed Statements of Income

	For the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Income:
Dividends from non-bank subsidiaries	$	348		$	1,417		$	—
Dividends from bank subsidiary		15,000			50,000			66,000
Interest income		3,443			4,218			7,142
Other		11,249			15,615			10,369
		30,040			71,250			83,511
Expenses:
Interest expense		20,082			23,983			24,101
Salaries and benefits		11,416			9,973			9,555
Other		5,754			6,191			6,584
		37,252			40,147			40,240
(Loss) income before income taxes and equity in undistributed income of subsidiaries		(7,212	)		31,103			43,271
Income tax benefit, less amounts charged to subsidiaries		(10,230	)		(9,900	)		(12,686	)
		3,018			41,003			55,957
Equity in undistributed income of subsidiaries		(1,291	)		(22,016	)		12,488
Net income	$	1,727		$	18,987		$	68,445

111

Condensed Statements of Cash Flows

	For the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Net income	$	1,727		$	18,987		$	68,445
Adjustments to reconcile net income to cash provided by operating activities:
Equity in undistributed income of subsidiaries		1,291			22,016			(12,488	)
Depreciation and amortization		2,853			2,652			727
(Decrease) increase in taxes payable		(8,800	)		(11,442	)		18,316
(Increase) decrease in interest receivable		(25	)		661			(247	)
Decrease in interest payable		(506	)		(176	)		(62	)
Net change in other assets and other liabilities		14,600			(8,847	)		2,725
Net cash provided by operating activities		11,140			23,851			77,416
Lending and investing activities:
Net (increase) decrease in loans to subsidiaries		1,022			(2,289	)		(46,046	)
Investments in subsidiaries		—			(5,081	)		(15,575	)
Net (purchases) sales of premises and equipment		(339	)		15			(189	)
Net cash provided (used) by lending and investing activities		683			(7,355	)		(61,810	)
Financing activities:
Net decrease in borrowings		—			(9,024	)		(17,680	)
Net proceeds related to the issuance of trust preferred stock		61,500			51,750			—
Redemption related to trust preferred stock		(77,509	)		(51,750	)		—
Proceeds from the sale of noncumulative perpetual preferred stock		14,518			—			—
Purchase of treasury stock		(4,363	)		(1,201	)		(407	)
Proceeds from sale of stock for employee benefit plans		7,740			3,277			7,836
Dividends paid		(13,110	)		(11,426	)		(9,065	)
Net cash used by financing activities		(11,224	)		(18,374	)		(19,316	)
Net (decrease) increase in cash and cash equivalents		599			(1,878	)		(3,710	)
Effect of exchange rate changes on cash		(44	)		1,051			98
Cash and cash equivalents at beginning of year		284			1,111			4,723
Cash and cash equivalents at end of year	$	839		$	284		$	1,111
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest	$	20,588		$	24,159		$	24,039
Income tax payments	$	92,783		$	14,920		$	9,954
Non cash transactions:
Conversion of trust preferred to common stock	$	20,248		$	—		$	—

112

Note 27 — Summary of Quarterly Financial Information (Unaudited)

	2006
	Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter
	(Dollars in thousands)
Summary Income Information
Interest income	$	129,264		$	123,788		$	117,609		$	111,467
Interest expense		(62,571	)		(58,491	)		(53,737	)		(49,889	)
Provision for loan and lease losses		(9,946	)		(9,135	)		(6,826	)		(9,193	)
Non-interest income		14,232			7,347			9,046			13,996
Non-interest expense		(55,717	)		(50,864	)		(51,295	)		(52,814	)
Income taxes		(4,615	)		(3,550	)		(5,828	)		(4,877	)
Net income from continuing operations	$	10,647		$	9,095		$	8,969		$	8,690
Net loss from discontinued operations	$	(5,726	)	$	(13,302	)	$	(6,098	)	$	(10,548	)
Net income (loss)	$	4,921		$	(4,207	)	$	2,871		$	(1,858	)
Earnings per share of common stock from continuing operations:
Basic(1)	$	0.36		$	0.31		$	0.30		$	0.30
Diluted(1)		0.35			0.30			0.30			0.30
Earnings (loss) per share of common stock:
Basic(1)	$	0.17		$	(0.14	)	$	0.10		$	(0.06	)
Diluted(1)		0.16			(0.14	)		0.09			(0.07	)

	2005
	Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter
	(Dollars in thousands)
Summary Income Information
Interest income	$	107,526		$	99,784		$	85,584		$	77,645
Interest expense		(44,219	)		(40,852	)		(29,331	)		(24,670	)
Provision for loan and lease losses		(8,905	)		(5,955	)		(8,966	)		(3,480	)
Non-interest income		8,345			13,515			15,764			19,899
Non-interest expense		(48,067	)		(48,167	)		(52,747	)		(55,860	)
Income taxes		(5,454	)		(5,347	)		(4,561	)		(5,233	)
Net income from continuing operations	$	9,226		$	12,978		$	5,743		$	8,301
Net (loss) income from discontinued operations	$	(2,775	)	$	5,515		$	(9,154	)	$	(10,846	)
Net income (loss)	$	6,451		$	18,493		$	(3,411	)	$	(2,545	)
Earnings per share of common stock from continuing operations:
Basic(1)	$	0.32		$	0.45		$	0.20		$	0.29
Diluted(1)		0.32			0.45			0.20			0.29
Earnings (loss) per share of common stock:
Basic(1)	$	0.23		$	0.65		$	(0.12	)	$	(0.09	)
Diluted(1)		0.23			0.64			(0.12	)		(0.09	)

⁽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.

113

Certain prior period items have been reclassified between continuing and discontinued operations as a result of the ultimate disposition of assets associated with our mortgage banking segment. The tables below reflect the impact of these reclassified items on our 2005 quarterly financial information as disclosed in our previously filed third quarter 2006 Form 10-Q “as reported” column. The “as reclassified” columns below reflect our current expectation about the ultimate disposition of the remaining elements of the mortgage banking segment. In addition, we made a $138 thousand (after tax) reclassification in the third quarter of 2006 quarterly financial statements to decrease income from continuing operations and decrease the loss from discontinued operations. This reclassification had no impact on net loss for the quarter.

RECLASSIFIED QUARTERLY FINANCIAL INFORMATION

	For the Quarter Ended
	March 31, 2005						June 30, 2005						September 30, 2005
	As reported(1)			As reclassified			As reported(1)			As reclassified			As reported(1)			As reclassified
	(Dollars in thousands)
Net revenues	$	69,887		$	69,394		$	64,833		$	63,051		$	67,725		$	66,492
Other expense		(55,860	)		(55,860	)		(53,549	)		(52,747	)		(48,969	)		(48,167	)
Income before income taxes		14,027			13,534			11,284			10,304			18,756			18,325
Income taxes		(5,430	)		(5,233	)		(4,953	)		(4,561	)		(5,520	)		(5,347	)
Net income from continuing operations		8,597			8,301			6,331			5,743			13,236			12,978
Net (loss) income from discontinued operations		(11,142	)		(10,846	)		(9,742	)		(9,154	)		5,257			5,515
Net (loss) income	$	(2,545	)	$	(2,545	)	$	(3,411	)	$	(3,411	)	$	18,493		$	18,493
Earnings per share
Basic from continuing operations	$	0.30		$	0.29		$	0.22		$	0.20		$	0.46		$	0.45
Basic		(0.09	)		(0.09	)		(0.12	)		(0.12	)		0.65			0.65
Diluted from continuing operations		0.30			0.29			0.22			0.20			0.46			0.45
Diluted		(0.09	)		(0.09	)		(0.12	)		(0.12	)		0.64			0.64

⁽¹⁾ As reported in our third quarter 2006 Form 10-Q

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

Disclosure Controls and Procedures — As of the end of the period covered by this report, the Corporation carried out an evaluation as required by Rule 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934 (“Exchange Act”), under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the Corporation’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) or 15d-15(e). Based on this evaluation, the CEO and the CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2006.

114

Management’s Report on Internal Control Over Financial Reporting

See Management’s Report on Internal Control over Financial Reporting in Item 8, which is incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

Internal Control Over Financial Reporting — In connection with the evaluation performed by management with the participation of the CEO and the CFO as required by Exchange Act Rule 13a-15(d) or 15d-15(d), there were no changes in the Corporation’s internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the year ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Item 9B.   Other Information

Not applicable

115

PART III

Item 10.   Directors, Executive Officers and Corporate Governance.

The information contained in our proxy statement for the 2007 Annual Meeting of Shareholders in the sections entitled “Section 16(a) Beneficial Ownership Reporting Compliance,” “Director Nominees,” “Current Directors,” and “Audit Committee” is incorporated herein by reference in response to this item. See also the section entitled “Executive Officers” 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 filed 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 Committee Charter, which is Appendix A to our Proxy Statement.

•  Our Risk Management Committee Charter.

•  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 2007 Annual Meeting of Shareholders in the section entitled “Compensation” 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 2007 Annual Meeting of Shareholders in the section entitled ‘‘Principal Holders of Irwin Financial Securities,” “Securities Ownership of Directors and Management,” “Securities Authorized for Issuance Under Equity Compensation Plans,” is incorporated herein by reference in response to this item.

Item 13.   Certain Relationships and Related Transactions, and Director Independence.

The information contained in our proxy statement for the 2007 Annual Meeting of Shareholders in the sections entitled “Transactions with Related Persons” and “Director Independence” is incorporated herein by reference in response to this item.

Item 14.   Principal Accountant Fees and Services.

The information contained in our proxy statement for the 2007 Annual Meeting of Shareholders in the sections entitled “Auditor Fees,” and “Pre-approval of Services Rendered by Independent Auditors” is incorporated herein by reference in response to this item.

116

PART IV

Item 15.  Exhibits and 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 2006 and 2005

Consolidated Statements of Income for the years ended 2006, 2005 and 2004

Consolidated Statements of Changes in Shareholders’ Equity for the years ended 2006, 2005, and 2004

Consolidated Statements of Cash Flows for the years ended 2006, 2005, and 2004

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

None

3. Exhibits to Form 10-K

Exhibit
Number			Description of Exhibit
	2	.1	Asset Purchase Agreement by and among Irwin Financial Corporation, Irwin Mortgage Corporation and Freedom Mortgage Corporation dated as of August 7, 2006. (Incorporated by reference to Exhibits 2.1 and 2.2 of Form 8-K filed October 2, 2006, File No. 001-16691.)
	3	.1	Restated Articles of Incorporation of Irwin Financial Corporation, as amended December 20, 2006.
	3	.2	Code of By-laws of Irwin Financial Corporation, as amended, February 15, 2007.
	4	.1	Specimen Common Stock Certificate.
	4	.2	Certain instruments defining the rights of the holders of long-term debt of Irwin Financial Corporation and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits. The Corporation hereby agrees to furnish a copy of any of these agreements to the Commission upon request.
	4	.3	Rights Agreement, dated as of March 1, 2001, between Irwin Financial Corporation and Irwin Union Bank and Trust. (Incorporated by reference to Exhibit 4.1 to Form 8-A filed March 2, 2001, File No. 000-06835.)
	4	.4	Appointment of Successor Rights Agent dated as of May 11, 2001 between Irwin Financial Corporation and National City Bank. (Incorporated by reference to Exhibit 4.5 to Form S-8 filed on September 7, 2001, File No. 333-69156.)
	10	.1	*Irwin Financial Corporation 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(h) to Form 10-K Report for year ended December 31, 1992, File No. 000-06835.)
	10	.2	*Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10 to Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)
	10	.3	*Amendment to Irwin Financial Corporation 1997 Stock Option Plan. (Incorporated by reference to Exhibit 10(i) to Form 10-Q Report for period ended June 30, 1997, File No. 000-06835.)
	10	.4	*Irwin Financial Corporation Amended and Restated 2001 Stock Plan, as amended November 28, 2006.
	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.)

117

Exhibit
Number			Description of Exhibit
	10	.6	*Irwin Financial Corporation 2001 Stock Plan Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 99.2 of the Corporation’s 8-K Current Report, dated May 9, 2005, File No. 001-16691.)
	10	.7	*Irwin Financial Corporation 2001 Stock Plan Form of Stock Option Agreement (Canada) (Incorporated by reference to Exhibit 10.8 of the Corporation’s 10-Q Report for period ended September 30, 2005, File No. 001-16691.)
	10	.8	*Irwin Financial Corporation 1999 Outside Director Restricted Stock Compensation Plan. (Incorporated by reference to Exhibit 2 to the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.9	*Employee Stock Purchase Plan III. (Incorporated by reference to Exhibit 10(a) to Form 10-Q Report for period ended June 30, 1999, File No. 000-06835.)
	10	.10	*Long-Term Management Performance Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year ended December 31, 1986, File No. 000-06835.)
	10	.11	*Long-Term Incentive Plan-Summary of Terms. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year ended December 31, 1986, File No. 000-06835.)
	10	.12	*Inland Mortgage Corporation Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(j) to Form 10-K Report for year ended December 31, 1995, File No. 000-06835.)
	10	.13	*Amended and Restated Management Bonus Plan. (Incorporated by reference to Exhibit 10(a) to Form 10-K Report for year ended December 31, 1986, File No. 000-06835.)
	10	.14	*Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit 10(a) to Form 10-Q/A Report for period ended March 31, 2001, File No. 000-06835.)
	10	.15	*Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC, effective as of April 20, 2001. (Incorporated by reference to Exhibit 10.17 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
	10	.16	*Promissory Note dated January 30, 2002 from Elena Delgado to Irwin Financial Corporation. (Incorporated by reference to Exhibit 10.19 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
	10	.17	*Consumer Pledge Agreement dated January 30, 2002 between Elena Delgado and Irwin Financial Corporation. (Incorporated by reference to Exhibit 10.20 to Form S-1/A filed February 14, 2002, File No. 333-69586.)
	10	.18	*Redemption and Loan Repayment Agreement dated December 22, 2004 between Irwin Financial Corporation, Irwin Home Equity Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.15 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.19	*Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.16 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.20	*Deferred Compensation Agreement dated December 22, 2004 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.17 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.21	*Tax Gross-up Agreement dated December 22, 2004 between Irwin Financial Corporation and Elena Delgado as Shareholder. (Incorporated by reference to Exhibit 10.18 of Form 10-K Report for year ended December 31, 2004, File No. 001-16691.)
	10	.22	*Amendment No. 1 to Irwin Home Equity Corporation Amendment and Restatement of Shareholder Agreement dated April 7, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.19 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)
	10	.23	*Amendment No. 1 to the Deferred Compensation Agreement dated April 7, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 10.20 of Form 10-Q Report for the quarter ended March 31, 2005, File No. 001-16691.)

118

Exhibit
Number			Description of Exhibit
	10	.24	*Amendment No. 2 to the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 99.1 of Form 8-K Current Report dated November 18, 2005, File No. 001-16691.)
	10	.25	*Election to Terminate the Deferred Compensation Agreement dated November 15, 2005 between Irwin Home Equity Corporation, Irwin Financial Corporation and Elena Delgado. (Incorporated by reference to Exhibit 99.2 of Form 8-K Current Report dated November 18, 2005, File No. 001-16691.)
	10	.26	*Irwin Financial Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2006. (Incorporated by reference to Exhibit 10.27 of Form 10-Q Report for the quarter ended June 30 2006, File No. 001-16691.)
	10	.27	*Irwin Commercial Finance Amended and Restated Short Term Incentive Plan effective January 1, 2006. (Incorporated by reference to Exhibit 10.28 of Form 10-Q for the quarter ended June 30, 2006, File No. 001-16691.)
	10	.28	*Irwin Home Equity Amended and Restated Short Term Incentive Plan effective January 1, 2006. (Incorporated by reference to Exhibit 10.29 of Form 10-Q for the quarter ended June 30, 2006, File No. 001-16691.)
	10	.29	*Irwin Mortgage Corporation Amended and Restated Short Term Incentive Plan effective January 1, 2002. (Incorporated by reference to Exhibit 6 of the Corporation’s proxy statement for its 2004 Annual Meeting, filed with the Commission on March 18, 2004, File No. 001-16691.)
	10	.30	*Irwin Union Bank and Trust Company Amended and Restated Short Term Incentive Plan effective January 1, 2006. (Incorporated by reference to Exhibit 10.31 of Form 10-Q Report for the quarter ended June 30, 2006, File No. 001-16691.)
	10	.31	*Onset Capital Corporation Employment Agreement. (Incorporated by reference to Exhibit 10.26 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)
	10	.32	*Irwin Financial Corporation Restated Supplemental Executive Retirement Plan for Named Executives. (Incorporated by reference to Exhibit 10.27 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)
	10	.33	*Irwin Financial Corporation Supplemental Executive Retirement Plan for Named Executives. (Incorporated by reference to Exhibit 10.28 to Form 10-Q Report for period ended June 30, 2002, File No. 000-06835.)
	10	.34	*Stock Purchase Agreement by and between Onset Holdings Inc. and Irwin International Corporation dated December 23, 2005. (Incorporated by reference to Exhibit 10.36 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.).
	10	.35	*Shareholder Agreement Termination Agreement by and between Irwin Commercial Finance Canada Corporation and Irwin International Corporation dated December 23, 2005. (Incorporated by reference to Exhibit 10.37 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.36	*Irwin Commercial Finance Corporation Shareholder Agreement dated December 23, 2005. (Incorporated by reference to Exhibit 10.38 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.37	*Irwin Commercial Finance Corporation 2005 Stock Option Agreement Grant of Option to Joseph LaLeggia dated December 23, 2005. (Incorporated by reference to Exhibit 10.39 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.38	*Irwin Commercial Finance Corporation 2005 Notice of Stock Option Grant to Joseph LaLeggia dated December 23, 2005. . (Incorporated by reference to Exhibit 10.40 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.39	*Irwin Union Bank Amended and Restated Performance Unit Plan. (Incorporated by reference to Exhibit 10.41 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.40	*Irwin Commercial Finance Amended and Restated Performance Unit Plan. (Incorporated by reference to Exhibit 10.42 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.41	*First Amendment to the Irwin Commercial Finance Amended and Restated Performance Unit Plan, dated October 31, 2006.

119

Exhibit
Number			Description of Exhibit
	10	.42	*Irwin Home Equity Corporation Performance Unit Plan. (Incorporated by reference to Exhibit 10.43 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.43	*First Amendment to Limited Liability Company Agreement of Irwin Ventures LLC. (Incorporated by reference to Exhibit 10.44 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.44	*Second Amendment to Limited Liability Company Agreement of Irwin Ventures Co-Investment Fund LLC. (Incorporated by reference to Exhibit 10.45 of Form 10-K Report for period ended December 31, 2005, File No. 001-16691.)
	10	.45	*Supplemental Performance Unit Grant-Jocelyn Martin-Leano, dated February 6, 2007.
	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.
	23	.2	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

120

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

By:  /s/  William I. Miller

William I. Miller

Chairman of the Board and Chief Executive Officer

Date: March 5, 2007

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 5, 2007
/s/  David W. Goodrich David W. Goodrich	Director	March 5, 2007
/s/  R. David Hoover R. David Hoover	Director	March 5, 2007
/s/  William H. Kling William H. Kling	Director	March 5, 2007
/s/  Brenda J. Lauderback Brenda J. Lauderback	Director	March 5, 2007
/s/  John C. Mcginty, Jr John C. McGinty, Jr	Director	March 5, 2007
/s/  William I. Miller William I. Miller	Director, Chairman of the Board and Chief Executive Officer (principal executive officer)	March 5, 2007
/s/  Lance R. Odden Lance R. Odden	Director	March 5, 2007
/s/  Marita Zuraitis Marita Zuraitis	Director	March 5, 2007
/s/  Gregory F. Ehlinger Gregory F. Ehlinger	Senior Vice President and Chief Financial Officer (principal financial officer)	March 5, 2007
/s/  Jody A. Littrell Jody A. Littrell	First Vice President and Controller (principal accounting officer)	March 5, 2007

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EX-3.1

EXHIBIT 3.1

RESTATED
ARTICLES OF INCORPORATION
OF
IRWIN FINANCIAL CORPORATION

     Irwin Financial Corporation, existing pursuant to the Indiana Business Corporation Law, desiring to give notice of corporate action effectuating the restatement of its Articles of Incorporation, sets forth the following:

     Irwin Financial Corporation (the “Corporation”) was incorporated on May 31, 1972 under the name Irwin Union Corporation. On August 21, 1990, the name was changed to Irwin Financial Corporation. The Articles of Incorporation be and the same are hereby restated and amended to read in its entirety as follows:

Article I
Name

     The name of the Corporation is Irwin Financial Corporation.

Article II
Purposes

     The purposes for which the Corporation is formed are: The transaction of any and all lawful business for which corporations may be incorporated under the Act, including by way of illustration and not of limitation, the following:

     2.1 To Act as Holding Company. To purchase or otherwise acquire, own and hold the stock of other corporations and equity interests in other business entities and to direct the operations of other corporations through the ownership of stock therein and to direct the operations of other business entities through the ownership of equity interests therein.

     2.2 Capacity to Act. To have the capacity to act possessed by natural persons, but to have authority to perform only such acts as are necessary, convenient or expedient to accomplish the purposes for which it is formed and such as are not repugnant to law.

     2.3 To Deal in Securities. To acquire, by purchase, subscription or otherwise and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any and all securities (as hereinafter defined) issued or created by any corporation, firm, organization, association or other entity, public or private, whether formed under the laws of the United States of America or any state or commonwealth thereof, or any foreign country, or by any agency, subdivision, territory, dependency, possession or municipality of any of the foregoing, and as owner thereof to possess and exercise all of the rights, powers and privileges of ownership, including the right to execute consents and vote thereon. The term “securities” as used herein shall mean any and all notes, stocks, treasury stocks, bonds,

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debentures, evidences of indebtedness, certificates of interest or participation in any profit-sharing agreement, collateral trust certificates, pre-organization certificates or subscriptions, transferable shares, investment contracts, voting trust certificates, certificates of deposit for a security, fractional undivided interests in oil, gas or other mineral rights or, in general, any interests or instruments commonly known as securities or any and all certificates of interest or participation in temporary or interim certificates for, receipts for, guarantees of, or warrants or rights to subscribe to or purchase any of the foregoing.

     2.4 Investment Management. To make, establish and maintain investments in securities, funds or properties of any nature whatsoever and to manage such funds; to do any and all acts and things for the preservation, protection, improvement and enhancement of the value of such property or securities or designed to accomplish any such purposes. To make investigations as to the business affairs and property of corporations, partnerships and various forms of business enterprises and to make appraisals and valuations of all kinds and investigate and render opinions as to the advisability from a financial standpoint of creating, merging, combining or otherwise dealing in business enterprises.

     2.5 Creation of Corporations and Other Entities. To cause to be organized under the laws of the United States of America or of any state, commonwealth, territory, dependency or possession thereof, or of any foreign country, or of any political subdivision, territory, dependency, possession or municipality thereof, one or more corporations, firms, organizations, associations or other entities, and to cause the same to be dissolved, wound up, liquidated, merged or consolidated.

     2.6 To Deal in Good Will. To acquire by purchase or exchange, or by transfer, or by merger or consolidation with, the Corporation of any corporation, firm, organization, association or other entity owned or controlled, directly or indirectly, by the Corporation, or otherwise to acquire the whole or any part of the business, good will, rights or other assets of any corporation, firm, organization, association or other entity and to undertake or assume in connection therewith the whole or any part of the liabilities and obligations thereof and to effect any such acquisition in whole or in part by delivery of cash or other property, including securities issued by the Corporation or by any other lawful means.

     2.7 To Engage in Lending. To make loans and give other forms of credit including, but not limited to, financing, factoring and leasing, with or without security, and to negotiate and make contracts and agreements in connection therewith and to sell and underwrite credit insurance and life, property and liability insurance, directly or through subsidiaries.

     2.8 To Aid Subsidiaries. To aid by loans, subsidy, guaranty or in any other lawful manner any corporation, firm, organization, association or other entity of which any securities (as that term is defined in section C hereof) are in any manner, directly or indirectly, held by the Corporation or in which the Corporation or any such corporation, firm, organization, association or entity may be or become otherwise interested; to guarantee the payment of dividends on any stock issued by any such corporation, firm, organization, association or entity; to guarantee or, to

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assume, with or without recourse against any such corporation, firm, organization, association or entity, the payment of the principal of, and/or the interest and premium, if any, on any obligations issued or incurred by such corporation, firm, organization, association or entity; to do any and all other acts and things for the enhancement, protection or preservation of any securities which are in any manner, directly or indirectly, held, guaranteed or assumed by the Corporation, and to do any and all acts and things designed to accomplish any such purpose.

     2.9 To Provide Services. To render service, assistance, counsel and advice to and act as representative or agent in any capacity (whether managing, operating, financial, purchasing, selling, advertising or otherwise) for any corporation, firm, organization, association or other entity and to gather, compile and disseminate information, data and advice in respect to matters of a commercial, financial, statistical and business nature and to act as consultants, counselors and advisors.

     2.10 To Deal in Real Estate. To acquire by purchase, exchange, lease or otherwise, and to hold, own, improve, operate, manage, lease as lessee, let as lessor, sell, convey or mortgage, whether alone or in conjunction with others, real estate of every kind, character and description, and wherever situated, or any interest therein, including, without limiting the generality of the foregoing, the design, development, management, acquisition, and operation of commercial, mercantile and service structures and facilities of every character, recreational structures and facilities, residential properties and structures, and mobile home parks.

     2.11 To Deal in Personal Property. To acquire (by purchase, exchange, lease, hire or otherwise), hold, mortgage, pledge, hypothecate, exchange, sell, deal in and dispose of, at wholesale or retail, alone or in syndicates or otherwise in conjunction with others, commodities or other personal property of every kind, character and description and wherever situated, and any interest therein.

     2.12 To Deal in its Own Securities. To acquire (by purchase, exchange, lease, hire or otherwise), hold, sell, transfer, reissue, or cancel its own shares, or any securities or other obligations of the Corporation, in the manner and to the extent now or hereafter permitted by the laws of Indiana, except that the Corporation shall not use its funds or other assets for the purchase of its own shares if such use would cause any impairment of the capital of the Corporation, and except that its own shares beneficially owned by the Corporation shall not be voted directly or indirectly.

     2.13 To Make Contracts. To enter into, make, perform and carry out, or cancel and rescind, contracts for any lawful purposes to its business.

     2.14 To Enter into Partnerships. To enter into any lawful arrangement for sharing profits, union of interest, reciprocal association or cooperative association with any corporation, association, partnership, individual or other entity, for the carrying on of any business, transaction, or venture, which the Corporation is authorized to carry on or any business, transaction, or venture deemed necessary, convenient or incidental to carrying out of any of the purposes of the Corporation.

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     2.15 To Engage in Business Generally. To engage in any commercial, financial, mercantile, industrial, manufacturing, marine, exploration, mining, agricultural, research, licensing, servicing or agency business not prohibited by law and any, some or all of the foregoing.

     2.16 To Borrow Money. To borrow money for any business object or purpose of the Corporation from time to time without limit as to amount, to issue any kind of indebtedness, whether or not in connection with borrowing money, including evidences of indebtedness convertible into stock of the Corporation, to secure the payment of any evidence of indebtedness by the creation of any interest in any of the property or rights of the Corporation, whether at that time owned or thereafter acquired.

     2.17 To Execute Guarantees. To make any guarantee respecting stocks, dividends, securities, indebtedness, interest, contracts or other obligations.

     2.18 Stated Capital; Consideration for Shares. To determine the amount of the stated capital and increase or reduce stated capital and determine the consideration to be received for shares issued from time to time.

     2.19 Rights, Privileges and Powers. Subject to any limitations or restrictions imposed by law or by these Articles of Incorporation to have and exercise all the rights, privileges and powers specified in or permitted under the Indiana Business Corporation Law.

     2.20 General Powers. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the purposes or the attainment of any of the objects of the furtherance of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith which is not forbidden by the laws of the State of Indiana or by the provisions of these Articles of Incorporation.

     2.21 Construction. The foregoing sections shall be construed as purposes as well as powers and the matters expressed in each section shall, unless otherwise expressly provided, be in no way limited by reference to or inference from the terms of any other section, each of such sections being regarded as creating independent purposes and powers. The enumeration shall not be construed as limiting or restricting in any manner either the meaning or general terms used in any of the sections or the scope of the general powers of the Corporation created thereby. The enumeration herein of any specific purposes or powers shall not be held to limit or restrict in any manner the exercise by the Corporation of the general powers now or hereafter conferred by the laws of the state of Indiana nor shall the expression of one thing be deemed to exclude another not expressed, whether or not it be of like nature. The titles contained herein are solely for convenience and are not to be considered in construing the various sections.

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     2.22 Limiting Clause. Nothing in this article shall be construed to authorize the conduct by the Corporation, directly or indirectly, of a rural loan and savings association, credit union or a banking, railroad, insurance, surety, trust, safe deposit, mortgage guarantee or building and loan business or receiving deposits of money, bullion or foreign coins or of issuing bills, notes, or other evidences of debt or circulation as money; provided, however, that the Corporation may own, create or otherwise acquire all or part of the issued and outstanding stock of corporations lawfully engaged in any of such activities.

Article III
Period of Existence

     The period during which the Corporation shall continue is perpetual.

Article IV
Resident Agent and Principal Office

     4.1 Resident Agent. The name and address of the Resident Agent in charge of the Corporation’s principal office is John A. Nash, 500 Washington Street, Columbus, Indiana 47201.

     4.2 Principal Office. The post office address of the principal office of the Corporation is 500 Washington Street, Columbus, Indiana 47201.

Article V
Shares

     5.1 Number and Classes of Shares. The total number of shares, which the Corporation shall have the authority to issue, is 44,000,000 shares. The total authorized shares of the Corporation shall be divided into two classes: a class of up to 40,000,000 Common Shares without par value (the “Common Shares”) and a class of up to 4,000,000 Preferred Shares without par value (the “Preferred Shares”). The Common Shares and the Preferred Shares are collectively referred to herein as the “Shares.”

     5.2 Terms.

          5.21 Rights.

               5.21.1 Common Shares. All Common Shares shall have the same rights and privileges. Common Shareholders shall have no preemptive rights.

               5.21.2 Preferred Shares. The Board of Directors is expressly authorized at any time, and from time to time, by resolution, to determine and state the designations, relative rights, preferences, limitations and restrictions of any class or classes of Preferred Shares, or of any series of any class or classes thereof, and to authorize the issuance of such Preferred Shares upon compliance prior to the issuance of any such Preferred Shares with the applicable provisions of the Act.

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          5.22 Dividends. Dividends or distributions may be declared and paid upon outstanding Shares at the discretion of the Board of Directors from time to time out of earned surplus or capital surplus of the Corporation. Dividends payable on the Shares of any class of Shares or series thereof may be paid to the holders of Shares of that or any other class of Shares or series thereof.

          5.23 Issuance of and Consideration for Shares. Shares may be issued for such consideration as may be fixed from time to time by the Board of Directors, which consideration may be equal to, less than or more than the par value thereof. The judgment of the Board of Directors as to (i) the value of any property or services received in full or partial payment for Shares, and (ii) as to the value of the corporate assets in the event of a Share dividend, shall be conclusive. When Shares are issued upon payment of the consideration fixed by the Board of Directors, such Shares shall be taken to be fully paid stock and shall be nonassessable.

          5.24 Partial Distributions. The Board of Directors may make distributions to Shareholders out of capital surplus from time to time to the extent permitted by law.

          5.25 Facsimile Signatures. Facsimile signatures may be used in lieu of the manual signature of an officer or director of the Corporation. In case any officer or director who has signed or whose facsimile signature has been placed upon any share certificate or other document issued by this Corporation shall have ceased to be such an officer or director before such certificate or other document is used, such certificate or other document may be issued by the Corporation with the same effect as if such person were an officer at the date of its issue.

          5.26 Transfer of Shares. Transfer of Shares shall be governed by the By-Laws of the Corporation subject to applicable law.

          5.27 Series A Convertible Preferred Shares. By Unanimous Written Consent effective as of October 8, 1999, the Board of Directors of Irwin Financial Corporation (the “Corporation”), has amended the terms of its Series A convertible Preferred Shares (the “Series A Preferred Shares”), to consist of 66,666 shares, and further as follows:

               5.27.1 Definitions.

               “Bank” means Irwin Union Bank and Trust Company, a commercial bank chartered under the laws of the State of Indiana and a wholly-owned subsidiary of the Corporation.

               “Banking Office” means, collectively, the banking offices operated by the Bank in Monroe County, Indiana, including locations at 300 W. 6th St., Bloomington, IN 47404; 1175 College Mall Rd., Box A, Bloomington, IN 47401; and 528 S. College Ave., Box A, Bloomington, IN 47401.

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               “Board” means the Board of Directors of the Corporation.

               “Common Shares” means the common shares of the Corporation.

               “Corporation” means Irwin Financial Corporation, an Indiana corporation.

               “Deposit Goal” means the goal that the average deposits at the Bank on behalf of the Banking Office for any calendar quarter equal or exceed $50,000,000, with the calculations to be made as set forth in Section 5.27.4(b)(iii) herein.

               “Person” means an individual, a partnership, a joint venture, a corporation, an association, a trust, or any other entity or organization.

               “Purchase Price” means the price per share at which the Series A Preferred Shares have been offered and sold by the Corporation to qualified investors pursuant to a Confidential Private Placement Memorandum.

               “Series A Preferred Shares” means the Series A Convertible Preferred Shares of the Corporation.

               “Start Date” means the first day of the calendar quarter following the closing date of the offering. The Start Date is the date from which the Corporation will measure the amount of deposits at the Bank on behalf of the Banking Office for the purposes of determining conversion rights.

               5.27.2 Dividends. The holders of outstanding Series A Preferred Shares shall not be entitled to receive any dividends on the Series A Preferred Shares.

               5.27.3 Redemption.

               (a) The outstanding Series A Preferred Shares are redeemable at the option of the Corporation, out of the assets of the Corporation legally available therefor, at any time or from time to time, in whole and not in part, at a redemption price per share of Series A Preferred Shares (the “Redemption Price”) equal to the Purchase Price; provided, however, that for a period of not less than 30 days prior to the date fixed for redemption (the “Redemption Date”), the holders of the outstanding Series A Preferred Shares shall have an option to convert each Series A Preferred Share into 1.25 Common Shares.

               (b) Notice of any redemption of Series A Preferred Shares, specifying the date fixed for redemption, the redemption price and the place at which shareholders may obtain payment of the Redemption Price upon surrender of their certificates, and the option of the shareholders to convert their Series A Preferred Shares into Common Shares, shall be mailed to each holder of record of the shares to be redeemed, at such holder’s address of record, not less

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than 35, nor more than 90 days prior to the Redemption Date. Such notice shall set forth the manner in which shareholders may convert their Series A Preferred Shares into Common Shares, or to receive the Redemption Price, upon surrender of their certificates.

               (c) Unless the Corporation defaults in the payment in full of the Redemption Price, (i) all rights of the holders of such Series A Preferred Shares as shareholders of the Corporation by reason of the ownership of such shares (including, without limitation, the right to convert the Series A Preferred Shares into Common Shares) shall cease on the Redemption Date except the right to receive the amount payable upon redemption of such shares upon presentation and surrender of the respective certificates evidencing such shares, and (ii) such shares shall be deemed not to be outstanding after the Redemption Date.

               (d) Any Series A Preferred Shares that have been redeemed shall, after such redemption, not be reissued as Series A Preferred Shares, but shall become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (e) Any notice required by the provisions of this Section 5.27.3 to be given to the holders of Series A Preferred Shares shall be deemed given if deposited in the United States mail postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation.

               5.27.4 Conversion Rights. The Series A Preferred Shares shall be convertible into Common Shares as follows:

               (a) No Optional Conversion. Other than pursuant to a redemption of the Series A Preferred Shares as set forth in Section 5.27.3 above, the holders of Series A Preferred Shares shall have no optional rights to convert such shares into Common Shares.

               (b) Automatic Conversion. Each Series A Preferred Share shall be automatically converted, without any further act of the Corporation or the holders of Series A Preferred Shares, into fully paid and nonassessable Common Shares in the manner and at the times specified below:

                    (i) Second Anniversary after Start Date. If the Deposit Goal is met prior to twenty-four (24) months from the Start Date, (A) the date of the automatic conversion into Common Shares shall be twenty-seven (27) months after the Start Date, and (B) each Series A Preferred Share shall automatically be converted into 1.25 Common Shares. If the Deposit Goal has not been met prior to twenty-four (24) months from the Start Date, the Series A Preferred Shares will not be converted into Common Shares until after the third anniversary of the Start Date.

                    (ii) Third Anniversary after Start Date. If the conversion of the Series A Preferred Shares into Common Shares has not previously taken place within thirty-six

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(36) months after the Start Date, then, thirty-nine (39) months after the Start Date, each outstanding Series A Preferred Share shall automatically be converted into (A) 1.10 Common Shares if the Deposit Goal has been met prior to the end of thirty-six (36) months after the Start Date, and (B) 1.02 Common Shares if the Deposit Goal has not been met prior to the end of thirty-six (36) months after the Start Date.

                    (iii) Determination of Whether Deposit Goal Has Been Met. The Deposit Goal shall have been met prior to a specified date if the average deposits at the Bank on behalf of the Banking Office for any calendar quarter prior to such date equal or exceed $50,000,000. For the purposes of determining whether the Deposit Goal has been met, the Corporation will follow the following procedures:

                         Deposits: For the purpose of making the Deposit Goal calculations, “deposits” means the book balances of all accounts which are insurable by the Federal Deposit Insurance Corporation (such as demand, savings, time, money market and NOW accounts and certificates of deposit), including the balances in such accounts in excess of $100,000; provided, however, that certificates of deposit in amounts of $100,000 or more shall be included in the total amount of deposits only to the extent such certificates of deposit do not exceed 10% of total deposits.

                         Credit for Deposits: The specific banking office at which a deposit account is opened receives the credit for the account; provided, however, that if the Banking Office is not authorized to accept deposits or has not yet opened for business, a deposit account may be established at another banking office on behalf of the Banking Office if designated as such. The Bank’s accounting system tracks and accounts for all depository accounts on a daily basis.

                         Calendar Quarter Average: After a calendar quarter has expired, the Bank will calculate the calendar quarter average of deposits for accounts designated as gathered on behalf of the Banking Office by adding the sum of the daily general ledger balance for such deposits and then dividing this sum by the number of days in the calendar quarter.

                         All determinations regarding whether the Deposit Goal has been met as of any date shall be made by the Corporation. Such determinations in this regard shall be final and conclusive for all purposes.

               (c) Mechanics of Conversion. Upon the occurrence of the dates specified in Section 5.27.4(b) above, the outstanding Series A Preferred Shares shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue to any holder certificates evidencing the Common Shares issuable upon such conversion unless certificates evidencing the Series A Preferred Shares are delivered either to the Corporation or any transfer

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agent designated by the Corporation. Conversion shall be deemed to have been effected on the date of the occurrence of the dates specified in Section 5.27.4(b) above, as the case may be, and such date is referred to herein as the “Conversion Date.” Subject to the provisions of Section 5.27.4(b) above, as promptly as practicable thereafter (and after surrender of the certificate or certificates representing the Series A Preferred Shares to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full Common Shares to which such holder is entitled as provided in Section 5.27.4(b) hereof. Subject to the provisions of Section 5.27.4(b), the person in whose name the certificate or certificates for Common Shares are to be issued shall be deemed to have become a holder of record of such Common Shares on the applicable Conversion Date.

               (d) Fractional Shares. No fractional Common Shares or scrip shall be issued upon conversion of Series A Preferred Shares. In lieu of any fractional Common Shares which would otherwise be issuable upon conversion of any Series A Preferred Shares, the number of full Common Shares issuable upon conversion thereof shall be increased to the next higher number of whole shares.

               (e) Rights After Conversion Date. From and after Conversion Date (unless the Corporation defaults in issuing Common Shares in conversion for the outstanding Series A Preferred Shares on the Conversion Date), such Series A Preferred Shares shall be deemed not to be outstanding and all rights of the holders of such shares as Shareholders of the Corporation by reason of the ownership of such shares shall cease, except the right to receive Common Shares as provided in Section 5.27.4(b) herein on presentation and surrender of the respective certificates evidencing such Series A Preferred Shares. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing Series A Preferred Shares (properly endorsed or assigned for transfer, if the Corporation shall so require), such shares shall be converted by the Corporation for Common Shares as provided in this Section 5.27.4.

               (f) Authorized, But Unissued Shares. Any Series A Preferred Shares that shall at any time have been converted into Common Shares pursuant to this Section 5.27.4 shall, after such conversion become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (g) Reservation of Shares. The Corporation shall reserve at all times so long as any Series A Preferred Shares remain outstanding, free from preemptive rights, out of its treasury shares or its authorized but unissued Common Shares, or both, solely for the purpose of effecting the conversion of the Series A Preferred Shares, sufficient Common Shares to provide for the conversion of all outstanding Series A Preferred Shares.

               (h) Fully Paid and Nonassessable Shares. All Common Shares or other securities which may be issued upon conversion of the Series A Preferred Shares will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free

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from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result.

               5.27.5 Conversion Ratio Adjustments. The number of Common Shares into which the Series A Preferred Shares shall be converted pursuant to Section 5.27.4 (the “Conversion Ratios”) and the securities or other property deliverable upon conversion of the Series A Preferred Shares shall be subject to adjustment from time to time as follows:

               (a) Share Subdivisions or Split-Ups. If the number of Common Shares outstanding at any time after the date of issuance of the Series A Preferred Shares is increased by a subdivision or split-up of Common Shares, then immediately after the record date fixed for the determination of holders of Common Shares entitled to receive such subdivision or split-up, as the case may be, the Conversion Ratios shall be appropriately increased so that the holder of any Series A Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series A Preferred Shares been converted immediately prior thereto.

               (b) Combinations of Shares. If the number of Common Shares outstanding at any time after the date of issuance of the Series A Preferred Shares is decreased by a combination of the outstanding Common Shares, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately decreased so that the holder of any Series A Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series A Preferred Shares been converted immediately prior thereto.

               (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. In case of any capital reorganization of the Corporation, or of any reclassification of the Common Shares, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Shares) to the holders of its Common Shares, each Series A Preferred Share shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution, be convertible into the number of shares or other securities or property to which the Common Shares issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution) upon conversion of such Series A Preferred Shares would have been entitled upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution in place of (or in addition to, in the case of any such event after which Common Shares remain outstanding) the Common Shares into which such Series A Preferred Shares would otherwise have been convertible; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interest thereafter of the holders of

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Series A Preferred Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other securities or property thereafter deliverable on the conversion of the Series A Preferred Shares.

               (d) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 5.27.5 shall be made to the nearest one hundredth (1/100th) of a Common Share, as the case may be. Any provision of this Section 5.27.5 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of such adjustment would be less than one hundredth of a Common Share, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a Common Share or more.

               (e) Timing of Issuance of Additional Common Shares upon Certain Adjustments. In any case in which the provisions of this Section 5.27.5 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any Series A Preferred Shares converted after such record date and before the occurrence of such event the additional Common Shares or other property issuable or deliverable upon such conversion by reason of the adjustment required by such event over and above the Common Shares or other property issuable or deliverable upon such conversion before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment.

               (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 5.27.5, the Corporation shall forthwith file, at the office of any transfer agent for the Series A Preferred Shares and at the principal office of the Corporation a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be mailed, first class postage prepaid, to each holder of Series A Preferred Shares at its address appearing on the Corporation’s records.

               (g) Cost. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of Common Shares of the Corporation or other securities or property upon conversion of any Series A Preferred Shares; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of Series A Preferred Shares in respect of which such shares are being issued.

               5.27.6 Voting. The holders of Series A Preferred Shares shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Series A Preferred Shares shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each Series A Preferred Share held.

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               5.27.7 Liquidation Rights.

               (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Shares then outstanding shall be entitled to receive out of the assets of the Corporation available for distribution to equity holders, an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Shares or on any other class of capital shares of the Corporation ranking junior to the Series A Preferred Shares upon liquidation. All outstanding shares of any other series of preferred shares shall rank at parity with the Series A Preferred Shares. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a “dissolution, liquidation or winding up of the Corporation” within the meaning of this Section 5.27.7(a).

               (b) After the payment to the holders of Series A Preferred Shares of the full preferential amounts fixed hereby for Series A Preferred Shares, the holders of Series A Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.

               (c) If the assets of the Corporation available for distribution to the holders of Series A Preferred Shares upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 5.27.7(a), no distribution shall be made on account of any shares of a class or series of capital shares of the Corporation ranking on a parity with the Series A Preferred Shares, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the Series A Preferred Shares, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.

               5.27.8 Reports to Holders of Series A Preferred Shares. For so long as there shall remain outstanding any Series A Preferred Shares, the Corporation shall furnish to each holder of record of Series A Preferred Shares (i) all reports or other correspondence sent by the Corporation to holders of record of the Common Shares of the Corporation, and (ii) a quarterly report setting forth the average monthly deposits on behalf of the Banking Office.

               5.27.9 Certain Covenants. So long as any Series A Preferred Shares are outstanding, without the prior written consent of the holders of a majority of the outstanding Series A Preferred Shares, the Corporation shall not amend, alter or repeal any provisions of this Resolution Establishing Series A Convertible Preferred Shares, or otherwise amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Series A Preferred Shares.

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               5.27.10 Certain Events. If any event occurs of the type contemplated but not expressly provided for by the provisions of Section 5.27.4 or Section 5.27.5 herein, then the Corporation’s Board of Directors will make an appropriate adjustment in the Conversion Ratios for the Series A Preferred Shares to protect the rights of the holders thereof.

               5.27.11 Exclusion of Other Rights. Unless otherwise required by law, the Series A Preferred Shares shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein.

          5.28 Series B Convertible Preferred Shares. By Unanimous Written Consent effective as of October 8, 1999, the Board of Directors of Irwin Financial Corporation (the “Corporation”), has amended the terms of its Series B Convertible Preferred Shares (the “Series B Preferred Shares”), to consist of 66,666 shares, and further as follows:

               5.28.1 Definitions.

               “Bank” means Irwin Union Bank and Trust Company, a commercial bank chartered under the laws of the State of Indiana and a wholly-owned subsidiary of the Corporation.

               “Banking Office” means the banking office operated by the Bank at 555 W. Crosstown Parkway, Kalamazoo, Michigan 49008.

               “Board” means the Board of Directors of the Corporation.

               “Common Shares” means the common shares of the Corporation.

               “Corporation” means Irwin Financial Corporation, an Indiana corporation.

               “Deposit Goal” means the goal that the average deposits at the Bank on behalf of the Banking Office for any calendar quarter equal or exceed $25,000,000, with the calculations to be made as set forth in Section 4(b)(iii) herein.

               “Person” means an individual, a partnership, a joint venture, a corporation, an association, a trust, or any other entity or organization.

               “Purchase Price” means the price per share at which the Series B Preferred Shares have been offered and sold by the Corporation to qualified investors pursuant to a Confidential Private Placement Memorandum.

               “Series B Preferred Shares” means the Series B Convertible Preferred Shares of the Corporation.

               “Start Date” means the first day of the calendar quarter following the closing date of the offering. The Start Date is the date from which the Corporation will measure

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the amount of deposits at the Bank on behalf of the Banking Office for the purposes of determining conversion rights.

               5.28.2 Dividends. The holders of outstanding Series B Preferred Shares shall not be entitled to receive any dividends on the Series B Preferred Shares.

               5.28.3 Redemption.

               (a) The outstanding Series B Preferred Shares are redeemable at the option of the Corporation, out of the assets of the Corporation legally available therefor, at any time or from time to time, in whole and not in part, at a redemption price per share of Series B Preferred Shares (the “Redemption Price”) equal to the Purchase Price; provided, however, that for a period of not less than 30 days prior to the date fixed for redemption (the “Redemption Date”), the holders of the outstanding Series B Preferred Shares shall have an option to convert each Series B Preferred Share into 1.25 Common Shares.

               (b) Notice of any redemption of Series B Preferred Shares, specifying the date fixed for redemption, the redemption price and the place at which shareholders may obtain payment of the Redemption Price upon surrender of their certificates, and the option of the shareholders to convert their Series B Preferred Shares into Common Shares, shall be mailed to each holder of record of the shares to be redeemed, at such holder’s address of record, not less than 35, nor more than 90 days prior to the Redemption Date. Such notice shall set forth the manner in which shareholders may convert their Series B Preferred Shares into Common Shares, or to receive the Redemption Price, upon surrender of their certificates.

               (c) Unless the Corporation defaults in the payment in full of the Redemption Price, (i) all rights of the holders of such Series B Preferred Shares as shareholders of the Corporation by reason of the ownership of such shares (including, without limitation, the right to convert the Series B Preferred Shares into Common Shares) shall cease on the Redemption Date except the right to receive the amount payable upon redemption of such shares upon presentation and surrender of the respective certificates evidencing such shares, and (ii) such shares shall be deemed not to be outstanding after the Redemption Date.

               (d) Any Series B Preferred Shares that have been redeemed shall, after such redemption, not be reissued as Series B Preferred Shares, but shall become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (e) Any notice required by the provisions of this Section 5.28.3 to be given to the holders of Series B Preferred Shares shall be deemed given if deposited in the United States mail postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation.

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               5.28.4 Conversion Rights. The Series B Preferred Shares shall be convertible into Common Shares as follows:

               (a) No Optional Conversion. Other than pursuant to a redemption of the Series B Preferred Shares as set forth in Section 5.28.3 above, the holders of Series B Preferred Shares shall have no optional rights to convert such shares into Common Shares.

               (b) Automatic Conversion. Each Series B Preferred Share shall be automatically converted, without any further act of the Corporation or the holders of Series B Preferred Shares, into fully paid and nonassessable Common Shares in the manner and at the times specified below:

                    (i) Second Anniversary after Start Date. If the Deposit Goal is met prior to twenty-four (24) months from the Start Date, (A) the date of the automatic conversion into Common Shares shall be twenty-seven (27) months after the Start Date, and (B) each Series B Preferred Share shall automatically be converted into 1.25 Common Shares. If the Deposit Goal has not been met prior to twenty-four (24) months from the Start Date, the Series B Preferred Shares will not be converted into Common Shares until after the third anniversary of the Start Date.

                    (ii) Third Anniversary after Start Date. If the conversion of the Series B Preferred Shares into Common Shares has not previously taken place within thirty-six (36) months after the Start Date, then, thirty-nine (39) months after the Start Date, each outstanding Series B Preferred Share shall automatically be converted into (A) 1.10 Common Shares if the Deposit Goal has been met prior to the end of thirty-six (36) months after the Start Date, and (B) 1.02 Common Shares if the Deposit Goal has not been met prior to the end of thirty-six (36) months after the Start Date.

                    (iii) Determination of Whether Deposit Goal Has Been Met. The Deposit Goal shall have been met prior to a specified date if the average deposits at the Bank on behalf of the Banking Office for any calendar quarter prior to such date equal or exceed $25,000,000. For the purposes of determining whether the Deposit Goal has been met, the Corporation will follow the following procedures:

                         Deposits: For the purpose of making the Deposit Goal calculations, “deposits” means the book balances of all accounts which are insurable by the Federal Deposit Insurance Corporation (such as demand, savings, time, money market and NOW accounts and certificates of deposit), including the balances in such accounts in excess of $100,000; provided, however, that certificates of deposit in amounts of $100,000 or more shall be included in the total amount of deposits only to the extent such certificates of deposit do not exceed 10% of total deposits.

                         Credit for Deposits: The specific banking office at which a deposit account is opened receives the credit for the account; provided, however, that if the Banking Office is not authorized to accept deposits or has not yet opened for business, a deposit

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account may be established at another banking office on behalf of the Banking Office if designated as such. The Bank’s accounting system tracks and accounts for all depository accounts on a daily basis.

                         Calendar Quarter Average: After a calendar quarter has expired, the Bank will calculate the calendar quarter average of deposits for accounts designated as gathered on behalf of the Banking Office by adding the sum of the daily general ledger balance for such deposits and then dividing this sum by the number of days in the calendar quarter.

                         All determinations regarding whether the Deposit Goal has been met as of any date shall be made by the Corporation. Such determinations in this regard shall be final and conclusive for all purposes.

               (c) Mechanics of Conversion. Upon the occurrence of the dates specified in Section 5.28.4(b) above, the outstanding Series B Preferred Shares shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue to any holder certificates evidencing the Common Shares issuable upon such conversion unless certificates evidencing the Series B Preferred Shares are delivered either to the Corporation or any transfer agent designated by the Corporation. Conversion shall be deemed to have been effected on the date of the occurrence of the dates specified in Section 5.28.4(b) above, as the case may be, and such date is referred to herein as the “Conversion Date.” Subject to the provisions of Section 5.28.4(b) above, as promptly as practicable thereafter (and after surrender of the certificate or certificates representing the Series B Preferred Shares to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full Common Shares to which such holder is entitled as provided in Section 5.28.4(b) hereof. Subject to the provisions of Section 5.28.4(b), the person in whose name the certificate or certificates for Common Shares are to be issued shall be deemed to have become a holder of record of such Common Shares on the applicable Conversion Date.

               (d) Fractional Shares. No fractional Common Shares or scrip shall be issued upon conversion of Series B Preferred Shares. In lieu of any fractional Common Shares which would otherwise be issuable upon conversion of any Series B Preferred Shares, the number of full Common Shares issuable upon conversion thereof shall be increased to the next higher number of whole shares.

               (e) Rights After Conversion Date. From and after the Conversion Date (unless the Corporation defaults in issuing Common Shares in conversion for the outstanding Series B Preferred Shares on the Conversion Date), such Series B Preferred Shares shall be deemed not to be outstanding and all rights of the holders of such shares as Shareholders of the Corporation by reason of the ownership of such shares shall cease, except the right to

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receive Common Shares as provided in Section 5.28.4(b) herein on presentation and surrender of the respective certificates evidencing such Series B Preferred Shares. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing Series B Preferred Shares (properly endorsed or assigned for transfer, if the Corporation shall so require), such shares shall be converted by the Corporation for Common Shares as provided in this Section 5.28.4.

               (f) Authorized, But Unissued Shares. Any Series B Preferred Shares that shall at any time have been converted into Common Shares pursuant to this Section 5.28.4 shall, after such conversion become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (g) Reservation of Shares. The Corporation shall reserve at all times so long as any Series B Preferred Shares remain outstanding, free from preemptive rights, out of its treasury shares or its authorized but unissued Common Shares, or both, solely for the purpose of effecting the conversion of the Series B Preferred Shares, sufficient Common Shares to provide for the conversion of all outstanding Series B Preferred Shares.

               (h) Fully Paid and Nonassessable Shares. All Common Shares or other securities which may be issued upon conversion of the Series B Preferred Shares will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result.

               5.28.5 Conversion Ratio Adjustments. The number of Common Shares into which the Series B Preferred Shares shall be converted pursuant to Section 5.28.4 (the “Conversion Ratios”) and the securities or other property deliverable upon conversion of the Series B Preferred Shares shall be subject to adjustment from time to time as follows:

               (a) Share Subdivisions or Split-Ups. If the number of Common Shares outstanding at any time after the date of issuance of the Series B Preferred Shares is increased by a subdivision or split-up of Common Shares, then immediately after the record date fixed for the determination of holders of Common Shares entitled to receive such subdivision or split-up, as the case may be, the Conversion Ratios shall be appropriately increased so that the holder of any Series B Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series B Preferred Shares been converted immediately prior thereto.

               (b) Combinations of Shares. If the number of Common Shares outstanding at any time after the date of issuance of the Series B Preferred Shares is decreased by a combination of the outstanding Common Shares, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately decreased so that the holder of any Series B Preferred Shares thereafter converted shall be entitled to

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receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series B Preferred Shares been converted immediately prior thereto.

               (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. In case of any capital reorganization of the Corporation, or of any reclassification of the Common Shares, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Shares) to the holders of its Common Shares, each Series B Preferred Share shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution, be convertible into the number of shares or other securities or property to which the Common Shares issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution) upon conversion of such Series B Preferred Shares would have been entitled upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution in place of (or in addition to, in the case of any such event after which Common Shares remain outstanding) the Common Shares into which such Series B Preferred Shares would otherwise have been convertible; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interest thereafter of the holders of Series B Preferred Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other securities or property thereafter deliverable on the conversion of the Series B Preferred Shares.

               (d) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 5.28.5 shall be made to the nearest one hundredth (1/100th) of a Common Share, as the case may be. Any provision of this Section 5.28.5 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of such adjustment would be less than one hundredth of a Common Share, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a Common Share or more.

               (e) Timing of Issuance of Additional Common Shares upon Certain Adjustments. In any case in which the provisions of this Section 5.28.5 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any Series B Preferred Shares converted after such record date and before the occurrence of such event the additional Common Shares or other property issuable or deliverable upon such conversion by reason of the adjustment required by such event over and above the Common Shares or other property issuable or deliverable upon such conversion before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares or other property, and

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such cash, upon the occurrence of the event requiring such adjustment.

               (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 5.28.5, the Corporation shall forthwith file, at the office of any transfer agent for the Series B Preferred Shares and at the principal office of the Corporation a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be mailed, first class postage prepaid, to each holder of Series B Preferred Shares at its address appearing on the Corporation’s records.

               (g) Cost. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of Common Shares of the Corporation or other securities or property upon conversion of any Series B Preferred Shares; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of Series B Preferred Shares in respect of which such shares are being issued.

               5.28.6 Voting. The holders of Series B Preferred Shares shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Series B Preferred Shares shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each Series B Preferred Share held.

               5.28.7 Liquidation Rights.

               (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of Series B Preferred Shares then outstanding shall be entitled to receive out of the assets of the Corporation available for distribution to equity holders, an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Shares or on any other class of capital shares of the Corporation ranking junior to the Series B Preferred Shares upon liquidation. All outstanding shares of any other series of preferred shares shall rank at parity with the Series B Preferred Shares. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a “dissolution, liquidation or winding up of the Corporation” within the meaning of this Section 5.28.7(a).

               (b) After the payment to the holders of Series B Preferred Shares of the full preferential amounts fixed hereby for Series B Preferred Shares, the holders of Series B Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.

               (c) If the assets of the Corporation available for distribution to the holders of Series B Preferred Shares upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant

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to Section 5.28.7(a), no distribution shall be made on account of any shares of a class or series of capital shares of the Corporation ranking on a parity with the Series B Preferred Shares, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the Series B Preferred Shares, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.

               5.28.8 Reports to Holders of Series B Preferred Shares. For so long as there shall remain outstanding any Series B Preferred Shares, the Corporation shall furnish to each holder of record of Series B Preferred Shares (i) all reports or other correspondence sent by the Corporation to holders of record of the Common Shares of the Corporation, and (ii) a quarterly report setting forth the average monthly deposits on behalf of the Banking Office.

               5.28.9 Certain Covenants. So long as any Series B Preferred Shares are outstanding, without the prior written consent of the holders of a majority of the outstanding Series B Preferred Shares, the Corporation shall not amend, alter or repeal any provisions of this Resolution Establishing Series B Convertible Preferred Shares, or otherwise amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Series B Preferred Shares.

               5.28.10 Certain Events. If any event occurs of the type contemplated but not expressly provided for by the provisions of Section 5.28.4 or Section 5.28.5 herein, then the Corporation’s Board of Directors will make an appropriate adjustment in the Conversion Ratios for the Series B Preferred Shares to protect the rights of the holders thereof.

               5.28.11 Exclusion of Other Rights. Unless otherwise required by law, the Series B Preferred Shares shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein.

          5.29 Series C Convertible Preferred Shares. By Unanimous Written Consent effective as of October 8, 1999, the Board of Directors of Irwin Financial Corporation (the “Corporation”), has approved and adopted the terms of Series C Convertible Preferred Shares (the “Series C Preferred Shares”), to consist of 133,332 shares, as follows:

               5.29.1 Definitions.

               “Bank” means Irwin Union Bank and Trust Company, a commercial bank chartered under the laws of the State of Indiana and a wholly-owned subsidiary of the Corporation.

               “Banking Office” means, collectively, the banking offices operated by the Bank in Hamilton County, Indiana, and Marion County, Indiana, including locations at 11611 N. Meridian St., Suite 100, Carmel, Indiana 46032 and 300 N. Meridian St., Suite 1200, Indianapolis, Indiana 46204.

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               “Board” means the Board of Directors of the Corporation.

               “Common Shares” means the common shares of the Corporation.

               “Corporation” means Irwin Financial Corporation, an Indiana corporation.

               “Deposit Goal” means the goal that the average deposits at the Bank on behalf of the Banking Office for any calendar quarter equal or exceed $50,000,000, with the calculations to be made as set forth in Section 5.29.4(b)(iii) herein.

               “Person” means an individual, a partnership, a joint venture, a corporation, an association, a trust, or any other entity or organization.

               “Purchase Price” means the price per share at which the Series C Preferred Shares have been offered and sold by the Corporation to qualified investors pursuant to a Confidential Private Placement Memorandum.

               “Series C Preferred Shares” means the Series C Convertible Preferred Shares of the Corporation.

               “Start Date” means the first day of the calendar quarter following the closing date of the offering. The Start Date is the date from which the Corporation will measure the amount of deposits at the Bank on behalf of the Banking Office for the purposes of determining conversion rights.

               5.29.2 Dividends. The holders of outstanding Series C Preferred Shares shall not be entitled to receive any dividends on the Series C Preferred Shares.

               5.29.3 Redemption.

               (a) The outstanding Series C Preferred Shares are redeemable at the option of the Corporation, out of the assets of the Corporation legally available therefor, at any time or from time to time, in whole and not in part, at a redemption price per share of Series C Preferred Shares (the “Redemption Price”) equal to the Purchase Price; provided, however, that for a period of not less than 30 days prior to the date fixed for redemption (the “Redemption Date”), the holders of the outstanding Series C Preferred Shares shall have an option to convert each Series C Preferred Share into 1.25 Common Shares.

               (b) Notice of any redemption of Series C Preferred Shares, specifying the date fixed for redemption, the redemption price and the place at which shareholders may obtain payment of the Redemption Price upon surrender of their certificates, and the option of the shareholders to convert their Series C Preferred Shares into Common Shares, shall be mailed to each holder of record of the shares to be redeemed, at such holder’s address of record, not less

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than 35, nor more than 90 days prior to the Redemption Date. Such notice shall set forth the manner in which shareholders may convert their Series C Preferred Shares into Common Shares, or to receive the Redemption Price, upon surrender of their certificates.

               (c) Unless the Corporation defaults in the payment in full of the Redemption Price, (i) all rights of the holders of such Series C Preferred Shares as shareholders of the Corporation by reason of the ownership of such shares (including, without limitation, the right to convert the Series C Preferred Shares into Common Shares) shall cease on the Redemption Date except the right to receive the amount payable upon redemption of such shares upon presentation and surrender of the respective certificates evidencing such shares, and (ii) such shares shall be deemed not to be outstanding after the Redemption Date.

               (d) Any Series C Preferred Shares that have been redeemed shall, after such redemption, not be reissued as Series C Preferred Shares, but shall become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (e) Any notice required by the provisions of this Section 5.29.3 to be given to the holders of Series C Preferred Shares shall be deemed given if deposited in the United States mail postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation.

               5.29.4 Conversion Rights. The Series C Preferred Shares shall be convertible into Common Shares as follows:

               (a) No Optional Conversion. Other than pursuant to a redemption of the Series C Preferred Shares as set forth in Section 5.29.3 above, the holders of Series C Preferred Shares shall have no optional rights to convert such shares into Common Shares.

               (b) Automatic Conversion. Each Series C Preferred Share shall be automatically converted, without any further act of the Corporation or the holders of Series C Preferred Shares, into fully paid and nonassessable Common Shares in the manner and at the times specified below:

                    (i) Second Anniversary after Start Date. If the Deposit Goal is met prior to twenty-four (24) months from the Start Date, (A) the date of the automatic conversion into Common Shares shall be twenty-seven (27) months after the Start Date, and (B) each Series C Preferred Share shall automatically be converted into 1.25 Common Shares. If the Deposit Goal has not been met prior to twenty-four (24) months from the Start Date, the Series C Preferred Shares will not be converted into Common Shares until after the third anniversary of the Start Date.

                    (ii) Third Anniversary after Start Date. If the conversion of the Series C Preferred Shares into Common Shares has not previously taken place within thirty-six

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(36) months after the Start Date, then, thirty-nine (39) months after the Start Date, each outstanding Series C Preferred Share shall automatically be converted into (A) 1.10 Common Shares if the Deposit Goal has been met prior to the end of thirty-six (36) months after the Start Date, and (B) 1.02 Common Shares if the Deposit Goal has not been met prior to the end of thirty-six (36) months after the Start Date.

                    (iii) Determination of Whether Deposit Goal Has Been Met. The Deposit Goal shall have been met prior to a specified date if the average deposits at the Bank on behalf of the Banking Office for any calendar quarter prior to such date equal or exceed $50,000,000. For the purposes of determining whether the Deposit Goal has been met, the Corporation will follow the following procedures:

                         Deposits: For the purpose of making the Deposit Goal calculations, “deposits” means the book balances of all accounts which are insurable by the Federal Deposit Insurance Corporation (such as demand, savings, time, money market and NOW accounts and certificates of deposit), including the balances in such accounts in excess of $100,000; provided, however, that certificates of deposit in amounts of $100,000 or more shall be included in the total amount of deposits only to the extent such certificates of deposit do not exceed 10% of total deposits.

                         Credit for Deposits: The specific banking office at which a deposit account is opened receives the credit for the account; provided, however, that if the Banking Office is not authorized to accept deposits or has not yet opened for business, a deposit account may be established at another banking office on behalf of the Banking Office if designated as such. The Bank’s accounting system tracks and accounts for all depository accounts on a daily basis.

                         Calendar Quarter Average: After a calendar quarter has expired, the Bank will calculate the calendar quarter average of deposits for accounts designated as gathered on behalf of the Banking Office by adding the sum of the daily general ledger balance for such deposits and then dividing this sum by the number of days in the calendar quarter.

                         All determinations regarding whether the Deposit Goal has been met as of any date shall be made by the Corporation. Such determinations in this regard shall be final and conclusive for all purposes.

               (c) Mechanics of Conversion. Upon the occurrence of the dates specified in Section 5.29.4(b) above, the outstanding Series C Preferred Shares shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue to any holder certificates evidencing the Common Shares issuable upon such conversion unless certificates evidencing the Series C Preferred Shares are delivered either to the Corporation or any transfer

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agent designated by the Corporation. Conversion shall be deemed to have been effected on the date of the occurrence of the dates specified in Section 5.29.4(b) above, as the case may be, and such date is referred to herein as the “Conversion Date.” Subject to the provisions of Section 5.29.4(b) above, as promptly as practicable thereafter (and after surrender of the certificate or certificates representing the Series C Preferred Shares to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full Common Shares to which such holder is entitled as provided in Section 5.29.4(b) hereof. Subject to the provisions of Section 5.29.4(b), the person in whose name the certificate or certificates for Common Shares are to be issued shall be deemed to have become a holder of record of such Common Shares on the applicable Conversion Date.

               (d) Fractional Shares. No fractional Common Shares or scrip shall be issued upon conversion of Series C Preferred Shares. In lieu of any fractional Common Shares which would otherwise be issuable upon conversion of any Series C Preferred Shares, the number of full Common Shares issuable upon conversion thereof shall be increased to the next higher number of whole shares.

               (e) Rights After Conversion Date. From and after the Conversion Date (unless the Corporation defaults in issuing Common Shares in conversion for the outstanding Series C Preferred Shares on the Conversion Date), such Series C Preferred Shares shall be deemed not to be outstanding and all rights of the holders of such shares as Shareholders of the Corporation by reason of the ownership of such shares shall cease, except the right to receive Common Shares as provided in Section 5.29.4(b) herein on presentation and surrender of the respective certificates evidencing such Series C Preferred Shares. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing Series C Preferred Shares (properly endorsed or assigned for transfer, if the Corporation shall so require), such shares shall be converted by the Corporation for Common Shares as provided in this Section 5.29.4.

               (f) Authorized, But Unissued Shares. Any Series C Preferred Shares that shall at any time have been converted into Common Shares pursuant to this Section 5.29.4 shall, after such conversion become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (g) Reservation of Shares. The Corporation shall reserve at all times so long as any Series C Preferred Shares remain outstanding, free from preemptive rights, out of its treasury shares or its authorized but unissued Common Shares, or both, solely for the purpose of effecting the conversion of the Series C Preferred Shares, sufficient Common Shares to provide for the conversion of all outstanding Series C Preferred Shares.

               (h) Fully Paid and Nonassessable Shares. All Common Shares or other securities which may be issued upon conversion of the Series C Preferred Shares will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free

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from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result.

               5.29.5 Conversion Ratio Adjustments. The number of Common Shares into which the Series C Preferred Shares shall be converted pursuant to Section 5.29.4 (the “Conversion Ratios”) and the securities or other property deliverable upon conversion of the Series C Preferred Shares shall be subject to adjustment from time to time as follows:

               (a) Share Subdivisions or Split-Ups. If the number of Common Shares outstanding at any time after the date of issuance of the Series C Preferred Shares is increased by a subdivision or split-up of Common Shares, then immediately after the record date fixed for the determination of holders of Common Shares entitled to receive such subdivision or split-up, as the case may be, the Conversion Ratios shall be appropriately increased so that the holder of any Series C Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series C Preferred Shares been converted immediately prior thereto.

               (b) Combinations of Shares. If the number of Common Shares outstanding at any time after the date of issuance of the Series C Preferred Shares is decreased by a combination of the outstanding Common Shares, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately decreased so that the holder of any Series C Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series C Preferred Shares been converted immediately prior thereto.

               (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. In case of any capital reorganization of the Corporation, or of any reclassification of the Common Shares, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Shares) to the holders of its Common Shares, each Series C Preferred Share shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution, be convertible into the number of shares or other securities or property to which the Common Shares issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution) upon conversion of such Series C Preferred Shares would have been entitled upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution in place of (or in addition to, in the case of any such event after which Common Shares remain outstanding) the Common Shares into which such Series C Preferred Shares would otherwise have been convertible; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interest thereafter of the holders of

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Series C Preferred Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other securities or property thereafter deliverable on the conversion of the Series C Preferred Shares.

               (d) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 5.29.5 shall be made to the nearest one hundredth (1/100th) of a Common Share, as the case may be. Any provision of this Section 5.29.5 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of such adjustment would be less than one hundredth of a Common Share, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a Common Share or more.

               (e) Timing of Issuance of Additional Common Shares upon Certain Adjustments. In any case in which the provisions of this Section 5.29.5 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any Series C Preferred Shares converted after such record date and before the occurrence of such event the additional Common Shares or other property issuable or deliverable upon such conversion by reason of the adjustment required by such event over and above the Common Shares or other property issuable or deliverable upon such conversion before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment.

               (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 5.29.5, the Corporation shall forthwith file, at the office of any transfer agent for the Series C Preferred Shares and at the principal office of the Corporation a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be mailed, first class postage prepaid, to each holder of Series C Preferred Shares at its address appearing on the Corporation’s records.

               (g) Cost. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of Common Shares of the Corporation or other securities or property upon conversion of any Series C Preferred Shares; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of Series C Preferred Shares in respect of which such shares are being issued.

               5.29.6 Voting. The holders of Series C Preferred Shares shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Series C Preferred Shares shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each Series C Preferred Share held.

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               5.29.7 Liquidation Rights.

               (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of Series C Preferred Shares then outstanding shall be entitled to receive out of the assets of the Corporation available for distribution to equity holders, an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Shares or on any other class of capital shares of the Corporation ranking junior to the Series C Preferred Shares upon liquidation. All outstanding shares of any other series of preferred shares shall rank at parity with the Series C Preferred Shares. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a “dissolution, liquidation or winding up of the Corporation” within the meaning of this Section 5.29.7(a).

               (b) After the payment to the holders of Series C Preferred Shares of the full preferential amounts fixed hereby for Series C Preferred Shares, the holders of Series C Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.

               (c) If the assets of the Corporation available for distribution to the holders of Series C Preferred Shares upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 5.29.7(a), no distribution shall be made on account of any shares of a class or series of capital shares of the Corporation ranking on a parity with the Series C Preferred Shares, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the Series C Preferred Shares, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.

               5.29.8 Reports to Holders of Series C Preferred Shares. For so long as there shall remain outstanding any Series C Preferred Shares, the Corporation shall furnish to each holder of record of Series C Preferred Shares (i) all reports or other correspondence sent by the Corporation to holders of record of the Common Shares of the Corporation, and (ii) a quarterly report setting forth the average monthly deposits on behalf of the Banking Office.

               5.29.9 Certain Covenants. So long as any Series C Preferred Shares are outstanding, without the prior written consent of the holders of a majority of the outstanding Series C Preferred Shares, the Corporation shall not amend, alter or repeal any provisions of this resolution establishing Series C Convertible Preferred Shares, or otherwise amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Series C Preferred Shares.

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               5.29.10 Certain Events. If any event occurs of the type contemplated but not expressly provided for by the provisions of Section 5.29.4 or Section 5.29.5 herein, then the Corporation’s Board of Directors will make an appropriate adjustment in the Conversion Ratios for the Series C Preferred Shares to protect the rights of the holders thereof.

               5.29.11 Exclusion of Other Rights. Unless otherwise required by law, the Series C Preferred Shares shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein.

          5.30 Series D Convertible Preferred Shares. By Resolution effective as of December 16, 1999, the Board of Directors of Irwin Financial Corporation (the “Corporation”), has approved and adopted the terms of Series D Convertible Preferred Shares (the “Series D Preferred Shares”), to consist of 66,666 shares, as follows:

               5.30.1 Definitions.

               “Bank” means Irwin Union Bank and Trust Company, a commercial bank chartered under the laws of the State of Indiana and a wholly-owned subsidiary of the Corporation.

               “Banking Office” means, collectively, the banking offices operated by the Bank at 0-185 44th Street, Grandville, Michigan 49418.

               “Board” means the Board of Directors of the Corporation.

               “Common Shares” means the common shares of the Corporation.

               “Corporation” means Irwin Financial Corporation, an Indiana corporation.

               “Deposit Goal” means the goal that the average deposits at the Bank on behalf of the Banking Office for any calendar quarter equal or exceed $25,000,000, with the calculations to be made as set forth in Section 5.30.4(b)(iii) herein.

               “Person” means an individual, a partnership, a joint venture, a corporation, an association, a trust, or any other entity or organization.

               “Purchase Price” means the price per share at which the Series D Preferred Shares have been offered and sold by the Corporation to qualified investors pursuant to a Confidential Private Placement Memorandum.

               “Series D Preferred Shares” means the Series D Convertible Preferred Shares of the Corporation.

               “Start Date” means the first day of the calendar quarter following the closing date of the offering. The Start Date is the date from which the Corporation will measure

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the amount of deposits at the Bank on behalf of the Banking Office for the purposes of determining conversion rights.

               5.30.2 Dividends. The holders of outstanding Series D Preferred Shares shall not be entitled to receive any dividends on the Series D Preferred Shares.

               5.30.3 Redemption.

               (a) The outstanding Series D Preferred Shares are redeemable at the option of the Corporation, out of the assets of the Corporation legally available therefor, at any time or from time to time, in whole and not in part, at a redemption price per share of Series D Preferred Shares (the “Redemption Price”) equal to the Purchase Price; provided, however, that for a period of not less than 30 days prior to the date fixed for redemption (the “Redemption Date”), the holders of the outstanding Series D Preferred Shares shall have an option to convert each Series D Preferred Share into 1.25 Common Shares.

               (b) Notice of any redemption of Series D Preferred Shares, specifying the date fixed for redemption, the redemption price and the place at which shareholders may obtain payment of the Redemption Price upon surrender of their certificates, and the option of the shareholders to convert their Series D Preferred Shares into Common Shares, shall be mailed to each holder of record of the shares to be redeemed, at such holder’s address of record, not less than 35, nor more than 90 days prior to the Redemption Date. Such notice shall set forth the manner in which shareholders may convert their Series D Preferred Shares into Common Shares, or to receive the Redemption Price, upon surrender of their certificates.

               (c) Unless the Corporation defaults in the payment in full of the Redemption Price, (i) all rights of the holders of such Series D Preferred Shares as shareholders of the Corporation by reason of the ownership of such shares (including, without limitation, the right to convert the Series D Preferred Shares into Common Shares) shall cease on the Redemption Date except the right to receive the amount payable upon redemption of such shares upon presentation and surrender of the respective certificates evidencing such shares, and (ii) such shares shall be deemed not to be outstanding after the Redemption Date.

               (d) Any Series D Preferred Shares that have been redeemed shall, after such redemption, not be reissued as Series D Preferred Shares, but shall become authorized but unissued Preferred Shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (e) Any notice required by the provisions of this Section 5.30.3 to be given to the holders of Series D Preferred Shares shall be deemed given if deposited in the United States mail postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation.

               5.30.4 Conversion Rights. The Series D Preferred Shares shall be

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convertible into Common Shares as follows:

               (a) No Optional Conversion. Other than pursuant to a redemption of the Series D Preferred Shares as set forth in Section 3 above, the holders of Series D Preferred Shares shall have no optional rights to convert such shares into Common Shares.

               (b) Automatic Conversion. Each Series D Preferred Share shall be automatically converted, without any further act of the Corporation or the holders of Series D Preferred Shares, into fully paid and nonassessable Common Shares in the manner and at the times specified below:

                    (i) Second Anniversary after Start Date. If the Deposit Goal is met prior to twenty-four (24) months from the Start Date, (A) the date of the automatic conversion into Common Shares shall be twenty-seven (27) months after the Start Date, and (B) each Series D Preferred Share shall automatically be converted into 1.25 Common Shares. If the Deposit Goal has not been met prior to twenty-four (24) months from the Start Date, the Series D Preferred Shares will not be converted into Common Shares until after the third anniversary of the Start Date.

                    (ii) Third Anniversary after Start Date. If the conversion of the Series D Preferred Shares into Common Shares has not previously taken place within thirty-six (36) months after the Start Date, then, thirty-nine (39) months after the Start Date, each outstanding Series D Preferred Share shall automatically be converted into (A) 1.10 Common Shares if the Deposit Goal has been met prior to the end of thirty-six (36) months after the Start Date, and (B) 1.02 Common Shares if the Deposit Goal has not been met prior to the end of thirty-six (36) months after the Start Date.

                    (iii) Determination of Whether Deposit Goal Has Been Met. The Deposit Goal shall have been met prior to a specified date if the average deposits at the Bank on behalf of the Banking Office for any calendar quarter prior to such date equal or exceed $25,000,000. For the purposes of determining whether the Deposit Goal has been met, the Corporation will follow the following procedures:

                         Deposits: For the purpose of making the Deposit Goal calculations, “deposits” means the book balances of all accounts which are insurable by the Federal Deposit Insurance Corporation (such as demand, savings, time, money market and NOW accounts and certificates of deposit), including the balances in such accounts in excess of $100,000; provided, however, that certificates of deposit in amounts of $100,000 or more shall be included in the total amount of deposits only to the extent such certificates of deposit do not exceed 10% of total deposits.

                         Credit for Deposits: The specific banking office at which a deposit account is opened receives the credit for the account; provided, however, that if the Banking Office is not authorized to accept deposits or has not yet opened for business, a deposit

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account may be established at another banking office on behalf of the Banking Office if designated as such. The Bank’s accounting system tracks and accounts for all depository accounts on a daily basis.

                         Calendar Quarter Average: After a calendar quarter has expired, the Bank will calculate the calendar quarter average of deposits for accounts designated as gathered on behalf of the Banking Office by adding the sum of the daily general ledger balance for such deposits and then dividing this sum by the number of days in the calendar quarter.

                         All determinations regarding whether the Deposit Goal has been met as of any date shall be made by the Corporation. Such determinations in this regard shall be final and conclusive for all purposes.

               (c) Mechanics of Conversion. Upon the occurrence of the dates specified in Section 5.30.4(b) above, the outstanding Series D Preferred Shares shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue to any holder certificates evidencing the Common Shares issuable upon such conversion unless certificates evidencing the Series D Preferred Shares are delivered either to the Corporation or any transfer agent designated by the Corporation. Conversion shall be deemed to have been effected on the date of the occurrence of the dates specified in Section 5.30.4(b) above, as the case may be, and such date is referred to herein as the “Conversion Date.” Subject to the provisions of Section 5.30.4(b) above, as promptly as practicable thereafter (and after surrender of the certificate or certificates representing the Series D Preferred Shares to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full Common Shares to which such holder is entitled as provided in Section 5.30.4(b) hereof. Subject to the provisions of Section 5.30.4(b), the person in whose name the certificate or certificates for Common Shares are to be issued shall be deemed to have become a holder of record of such Common Shares on the applicable Conversion Date.

               (d) Fractional Shares. No fractional Common Shares or scrip shall be issued upon conversion of Series D Preferred Shares. In lieu of any fractional Common Shares which would otherwise be issuable upon conversion of any Series D Preferred Shares, the number of full Common Shares issuable upon conversion thereof shall be increased to the next higher number of whole shares.

               (e) Rights After Conversion Date. From and after the Conversion Date (unless the Corporation defaults in issuing Common Shares in conversion for the outstanding Series D Preferred Shares on the Conversion Date), such Series D Preferred Shares shall be deemed not to be outstanding and all rights of the holders of such shares as Shareholders of the Corporation by reason of the ownership of such shares shall cease, except the right to

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receive Common Shares as provided in Section 5.30.4(b) herein on presentation and surrender of the respective certificates evidencing such Series D Preferred Shares. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing Series D Preferred Shares (properly endorsed or assigned for transfer, if the Corporation shall so require), such shares shall be converted by the Corporation for Common Shares as provided in this Section 5.30.4.

               (f) Authorized, But Unissued Shares. Any Series D Preferred Shares that shall at any time have been converted into Common Shares pursuant to this Section 5.30.4 shall, after such conversion, become authorized but unissued (and undesignated) preferred shares of the Corporation, and the certificates evidencing such shares shall be canceled.

               (g) Reservation of Shares. The Corporation shall reserve at all times so long as any Series D Preferred Shares remain outstanding, free from preemptive rights, out of its treasury shares or its authorized but unissued Common Shares, or both, solely for the purpose of effecting the conversion of the Series D Preferred Shares, sufficient Common Shares to provide for the conversion of all outstanding Series D Preferred Shares.

               (h) Fully Paid and Nonassessable Shares. All Common Shares or other securities which may be issued upon conversion of the Series D Preferred Shares will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result.

               5.30.5 Conversion Ratio Adjustments. The number of Common Shares into which the Series D Preferred Shares shall be converted pursuant to Section 5.30.4 (the “Conversion Ratios”) and the securities or other property deliverable upon conversion of the Series D Preferred Shares shall be subject to adjustment from time to time as follows:

               (a) Share Subdivisions or Split-Ups. If the number of Common Shares outstanding at any time after the date of issuance of the Series D Preferred Shares is increased by a subdivision or split-up of Common Shares, then immediately after the record date fixed for the determination of holders of Common Shares entitled to receive such subdivision or split-up, as the case may be, the Conversion Ratios shall be appropriately increased so that the holder of any Series D Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series D Preferred Shares been converted immediately prior thereto.

               (b) Combinations of Shares. If the number of Common Shares outstanding at any time after the date of issuance of the Series D Preferred Shares is decreased by a combination of the outstanding Common Shares, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately decreased so that the holder of any Series D Preferred Shares thereafter converted shall be entitled to receive the number of Common Shares of the Corporation which the holder would have owned immediately following such action had such Series D Preferred Shares been converted immediately prior thereto.

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               (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. In case of any capital reorganization of the Corporation, or of any reclassification of the Common Shares, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Shares) to the holders of its Common Shares, each Series D Preferred Share shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution, be convertible into the number of shares or other securities or property to which the Common Shares issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution) upon conversion of such Series D Preferred Shares would have been entitled upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution in place of (or in addition to, in the case of any such event after which Common Shares remain outstanding) the Common Shares into which such Series D Preferred Shares would otherwise have been convertible; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interest thereafter of the holders of Series D Preferred Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other securities or property thereafter deliverable on the conversion of the Series D Preferred Shares.

               (d) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 5.30.5 shall be made to the nearest one hundredth (1/100th) of a Common Share, as the case may be. Any provision of this Section 5.30.5 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of such adjustment would be less than one hundredth of a Common Share, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a Common Share or more.

               (e) Timing of Issuance of Additional Common Shares upon Certain Adjustments. In any case in which the provisions of this Section 5.30.5 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any Series D Preferred Shares converted after such record date and before the occurrence of such event the additional Common Shares or other property issuable or deliverable upon such conversion by reason of the adjustment required by such event over and above the Common Shares or other property issuable or deliverable upon such conversion before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares or other property, and

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such cash, upon the occurrence of the event requiring such adjustment.

               (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 5.30.5, the Corporation shall forthwith file, at the office of any transfer agent for the Series D Preferred Shares and at the principal office of the Corporation a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be mailed, first class postage prepaid, to each holder of Series D Preferred Shares at its address appearing on the Corporation’s records.

               (g) Cost. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of Common Shares of the Corporation or other securities or property upon conversion of any Series D Preferred Shares; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of Series D Preferred Shares in respect of which such shares are being issued.

               5.30.6 Voting. The holders of Series D Preferred Shares shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Series D Preferred Shares shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each Series D Preferred Share held.

               5.30.7 Liquidation Rights.

               (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of Series D Preferred Shares then outstanding shall be entitled to receive out of the assets of the Corporation available for distribution to equity holders, an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Shares or on any other class of capital shares of the Corporation ranking junior to the Series D Preferred Shares upon liquidation. The Series D Preferred Shares shall rank at parity with all outstanding shares of any other series of preferred shares. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a “dissolution, liquidation or winding up of the Corporation” within the meaning of this Section 5.30.7(a).

               (b) After the payment to the holders of Series D Preferred Shares of the full preferential amounts fixed hereby for Series D Preferred Shares, the holders of Series D Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.

               (c) If the assets of the Corporation available for distribution to the holders of Series D Preferred Shares upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant

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to Section 5.30.7(a), no distribution shall be made on account of any shares of a class or series of capital shares of the Corporation ranking on a parity with the Series D Preferred Shares, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the Series D Preferred Shares, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.

               5.30.8 Reports to Holders of Series D Preferred Shares. For so long as there shall remain outstanding any Series D Preferred Shares, the Corporation shall furnish to each holder of record of Series D Preferred Shares (i) all reports or other correspondence sent by the Corporation to holders of record of the Common Shares of the Corporation, and (ii) a quarterly report setting forth the average monthly deposits on behalf of the Banking Office.

               5.30.9 Certain Covenants. So long as any Series D Preferred Shares are outstanding, without the prior written consent of the holders of a majority of the outstanding Series D Preferred Shares, the Corporation shall not amend, alter or repeal any provisions of this resolution establishing Series D Convertible Preferred Shares, or otherwise amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Series D Preferred Shares.

               5.30.10 Certain Events. If any event occurs of the type contemplated but not expressly provided for by the provisions of Section 5.30.4 or Section 5.30.5 herein, then the Corporation’s Board of Directors will make an appropriate adjustment in the Conversion Ratios for the Series D Preferred Shares to protect the rights of the holders thereof.

               5.30.11 Exclusion of Other Rights. Unless otherwise required by law, the Series D Preferred Shares shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein.

          5.31 By resolution adopted on March 1, 2001, the Board of Directors of Irwin Financial Corporation (the “Corporation”), has established and designated a series of Preferred shares to be called the Junior Participating Series A Preferred Stock, to consist of 400,000 shares having the following terms:

               5.31.1 Designation and Amount. There shall be a series of Preferred Stock of the Corporation which shall be designated as “Junior Participating Series A Preferred Stock” without par value (hereinafter called “Junior Preferred Stock”), and the number of shares constituting such series shall be 400,000. Such number of shares may be increased or decreased by resolution of the Board of Directors and by the filing of an amendment to the Restated Articles of Incorporation pursuant to the provisions of the Indiana Business Corporation Law stating that such increase or reduction has been so authorized; provided, however, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation.

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               5.31.2 Dividends and Distributions.

               (a) The holders of shares of Junior Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash to holders of record on the first business day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, one hundred times the aggregate per share amount of all cash dividends, and one hundred times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock (hereinafter defined) or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, no par value per share, of the Corporation (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Preferred Stock. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

               (b) The Corporation shall declare a dividend or distribution on the Junior Preferred Stock as provided in paragraph (a) above at the time it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

               (c) No dividend or distribution (other than a dividend payable in shares of Common Stock) shall be paid or payable to the holders of shares of Common Stock unless, at the same time as such payment is made with respect to the Common Stock or prior thereto, all accrued but unpaid dividends to the date of such dividend or distribution shall have been paid to the holders of shares of Junior Preferred Stock.

               (d) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the

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determination of holders of shares of Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

               5.31.3 Voting Rights. Each share of Junior Preferred Stock shall entitle the holder thereof to one hundred votes on all matters submitted to a vote of the shareholders of the Corporation. Except as otherwise provided herein or by law, the holders of shares of Junior Preferred Stock and the holders of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.

               5.31.4 Certain Restrictions.

               (a) Whenever quarterly dividends or other dividends or distributions payable on the Junior Preferred Stock as provided in Section 5.31.2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

                    (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock;

                    (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except dividends paid ratably on the Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

                    (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Preferred Stock; or

                    (iv) purchase or otherwise acquire for consideration any shares of Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such

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terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

               (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section, purchase or otherwise acquire such shares at such time and in such manner.

               5.31.5 Liquidation, Dissolution or Winding Up.

               (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock unless, prior thereto, the holders of Junior Participating Series A Preferred Stock shall have received for each whole share the greater of (i) $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) one hundred times the aggregate per share amount received by holders of Common Stock (the “Series A Liquidation Preference”).

               (b) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Junior Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences.

               5.31.6 Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, share exchange, combination or other transaction in which the shares of Common Stock are exchanged for or converted into other stock or securities, cash and/or any other property, then in any such case the shares of Junior Preferred Stock shall at the same time be similarly exchanged or converted in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to one hundred times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is converted or exchanged. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or conversion of shares of Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

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               5.31.7 Redemption. The shares of a Junior Preferred Stock shall not be redeemable by the Corporation. The preceding sentence shall not limit the ability of the Corporation to purchase or otherwise deal in such shares of stock to the extent permitted by law.

               5.31.8 Fractional Shares. Junior Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Junior Preferred Stock.

          5.32. By resolution adopted on November 30, 2006, the Board of Directors of Irwin Financial Corporation (the “Corporation”), has established and designated a series of Preferred shares to be called the Series A Floating Rate Non-Cumulative Perpetual Preferred Shares, to consist of 15,000 shares having the following terms:

               5.32.1. Designation. The distinctive serial designation of such series of Preferred Shares is “Series A Floating Rate Non-Cumulative Perpetual Preferred Shares” (“Series A Perpetual Preferred Shares"). Each share of Series A Perpetual Preferred Shares shall be identical in all respects to every other share of Series A Perpetual Preferred Shares, except as to the respective dates from which dividends thereon shall accrue, to the extent such dates may differ as permitted pursuant to Section 5.32.4(a) below. The Series A Perpetual Preferred Shares are issuable in whole shares only.

               5.32.2. Number of Shares. The authorized number of shares of Series A Perpetual Preferred Shares shall be 15,000. Shares of Series A Perpetual Preferred Shares that are redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued preferred shares, no par value, undesignated as to series.

               5.32.3. Definitions. As used herein with respect to Series A Perpetual Preferred Shares:

               (a) “Articles of Amendment” means this Articles of Amendment relating to the Series A Perpetual Preferred Shares, as it may be amended from time to time.

               (b) “Articles of Incorporation” shall mean the amended and restated articles of incorporation of the Corporation, as it may be amended from time to time, and shall include this Articles of Amendment.

               (c) “By-Laws” means the code of bylaws of the Corporation, as they may be amended from time to time.

               (d) “Business Day” means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is not a day on which banking institutions in New York City generally are authorized or obligated by law or executive order to close.

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               (e) “Calculation Agent” means, at any time, the person or entity appointed by the Corporation and serving as such agent at such time. The Corporation may terminate any such appointment and may appoint a successor agent at any time and from time to time, provided that the Corporation shall use its best efforts to ensure that there is, at all relevant times when the Series A Perpetual Preferred Shares are outstanding, a person or entity appointed and serving as such agent. The Calculation Agent may be a person or entity affiliated with the Corporation.

               (f) “Common Shares” means the common shares, no par value, of the Corporation.

               (g) “DTC” means The Depository Trust Company, together with its successors and assignees.

               (h) “Junior Stock” means the Common Shares and any other class or series of stock of the Corporation (other than Series A Perpetual Preferred Shares) that ranks junior to Series A Perpetual Preferred Shares either or both as to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation. For the avoidance of doubt, “Junior Stock” shall not include any debt securities of the Corporation relating to trust preferred securities issued by entities created by the Corporation for the purpose of issuing such securities (“Trust Preferred Securities”), nor such Trust Preferred Securities.

               (i) “London Business Day” means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is a day on which dealings in U.S. dollars are transacted in the London interbank market.

               (j) “Parity Stock” means any class or series of stock of the Corporation (other than Series A Perpetual Preferred Shares) that ranks equally with the Series A Perpetual Preferred Shares in the payment of dividends (whether such dividends are cumulative or non-cumulative) and in the distribution of assets on any liquidation, dissolution or winding up of the Corporation. For the avoidance of doubt, “Parity Stock” shall not include any debt securities of the Corporation relating to Trust Preferred Securities, nor such Trust Preferred Securities.

               (k) “Preferred Shares” means any and all series of preferred shares, no par value, of the Corporation, including the Series A Perpetual Preferred Shares.

               (l) “Representative Amount” means, at any time, an amount that, in the Calculation Agent’s judgment, is representative of a single transaction in the relevant market at the relevant time.

               (m) “Telerate Page” means the display on Telerate Monitor, on the page or pages specified in Section 5.32.4 below or any such other page or pages or service as

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may replace it for purposes of displaying London inter-bank offered rates of major banks for U.S. dollar deposits.

               (n) “Voting Preferred Shares” means, with regard to any election or removal of a Preferred Shares Director (as defined in Section 5.32.8(b) below) or any other matter as to which the holders of Series A Perpetual Preferred Shares are entitled to vote as specified in Section 5.32.8 of this Articles of Amendment, any and all series of Preferred Shares (other than Series A Perpetual Preferred Shares) that rank equally with Series A Perpetual Preferred Shares either as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation and upon which like voting rights have been conferred and are exercisable with respect to such matter.

               5.32.4. Dividends. (a) Rate. Holders of Series A Perpetual Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors or a duly authorized committee of the Board of Directors out of funds legally available for the payment of dividends under Delaware law, non-cumulative cash dividends at the rate determined as set forth below in this Section 5.32.4(a) applied to the liquidation preference amount of $1,000.00 per Series A Perpetual Preferred Share. Such dividends shall be payable quarterly in arrears (as provided below in this Section 5.32.4(a)), but only when, as and if declared by the Board of Directors or a duly authorized committee of the Board of Directors, on March 31, June 30, September 30 and December 31 (each, a “Dividend Payment Date"), commencing on March 31, 2007; provided that if any such Dividend Payment Date would otherwise occur on a day that is not a Business Day, such Dividend Payment Date shall instead be (and any dividend payable on Series A Perpetual Preferred Shares on such Dividend Payment Date shall instead be payable on) the immediately succeeding Business Day, unless such immediately succeeding Business Day falls in the next calendar month, in which case such Dividend Payment Date shall instead be (and any such dividend shall instead be payable on) the immediately preceding Business Day (in either case, without any interest or other payment in respect of such delay). Dividends on Series A Perpetual Preferred Shares shall not be cumulative; holders of Series A Perpetual Preferred Shares shall not be entitled to receive any dividends not declared by the Board of Directors or a duly authorized committee of the Board of Directors and no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend not so declared. Holders of Series A Perpetual Preferred Shares shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on the Series A Perpetual Preferred Shares as specified in this Section 5.32.4 (subject to the other provisions of this Articles of Amendment).

Dividends that are payable on Series A Perpetual Preferred Shares on any Dividend Payment Date will be payable to holders of record of Series A Perpetual Preferred Shares as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day before such Dividend Payment Date or such other record date fixed by the Board of Directors or a duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date"). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

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Each dividend period (a “Dividend Period") shall commence on and include a Dividend Payment Date (other than the initial Dividend Period, which shall commence on and include the date of original issue of the Series A Perpetual Preferred Shares, provided that, for any share of Series A Perpetual Preferred Shares issued after such original issue date, the initial Dividend Period for such shares may commence on and include such other date as the Board of Directors or a duly authorized committee of the Board of Directors shall determine and publicly disclose) and shall end on and include the calendar day preceding the next Dividend Payment Date. Dividends payable on the Series A Perpetual Preferred Shares in respect of any Dividend Period shall be computed by the Calculation Agent on the basis of a 360-day year and the actual number of days elapsed in such Dividend Period, except that dividends for the initial period will be calculated from the original issue date.

The dividend rate on the Series A Perpetual Preferred Shares, for each Dividend Period, shall be at an annual rate equal to the greater of (1) 3.25% above LIBOR (as defined below) on the related LIBOR determination date for such Dividend Period and (2) 6.50%. LIBOR, with respect to any Dividend Period, means the annual offered rate expressed as a percentage for three-month deposits in U.S. dollars, beginning on the first day of such Dividend Period, as that rate appears on Telerate Page 3750 as of 11:00 a.m. London time, on the second London Business Day immediately preceding the first day of such Dividend Period.

If the rate described in the preceding paragraph does not appear on Telerate Page 3750, LIBOR shall be determined on the basis of the rates, at approximately 11:00 a.m., London time, on the second London Business Day immediately preceding the first day of such Dividend Period, at which deposits of the following kind are offered to prime banks in the London interbank market by four major banks in that market selected by the Calculation Agent: three-month deposits in U.S. dollars, beginning on the first day of such Dividend Period, and in a Representative Amount. The Calculation Agent shall request the principal London office of each of these banks to provide a quotation of its rate at approximately 11:00 a.m., London time. If at least two quotations are provided, LIBOR on the second London Business Day immediately preceding the first day of such Dividend Period shall be the arithmetic mean of such quotations.

If fewer than two quotations are provided as described in the preceding paragraph, LIBOR on the second London Business Day immediately preceding the first day of such Dividend Period shall be the arithmetic mean of the rates for loans of the following kind to leading European banks quoted, at approximately 11:00 a.m. New York City time, on the second London Business Day immediately preceding the first day of such Dividend Period, by three major banks in New York City selected by the Calculation Agent: three-month loans of U.S. dollars, beginning on the first day of such Dividend Period, and in a Representative Amount.

If fewer than three banks selected by the Calculation Agent are quoting as described in the preceding paragraph, LIBOR for such Dividend Period shall be LIBOR in effect for the prior Dividend Period.

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The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of dividends for any Dividend Period, will be maintained on file at the Corporation’s principal offices and will be available to any stockholder upon request and will be final and binding in the absence of manifest error.

               (b) Priority of Dividends. So long as any Series A Perpetual Preferred Shares remain outstanding for any Dividend Period, unless the full dividends for the four (4) most recent consecutive Dividend Periods on all outstanding Series A Perpetual Preferred Shares have been declared and paid, or declared and a sum sufficient for the payment thereof has been set aside (or, in the event that there have been fewer than four (4) Dividend Periods since the original issue date, for each Dividend Period since the original issue date), no dividend shall be declared or paid on any shares of Parity Stock or Junior Stock, and no Parity Stock or Junior Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of (i) the exchange or conversion of shares of Junior Stock for or into shares of other Junior Stock (ii) the Corporation’s obligations under any employee benefit or shareholder rights plans of the Corporation or (iii) the Corporation’s obligations pursuant to any contract or security outstanding on the date hereof, which contract or security requires the Corporation to purchase shares of the Common Shares). Subject to this Section 5.32.4(b), but not otherwise, such dividends (payable in cash, stock or otherwise), as may be determined by the Board of Directors (or a duly authorized committee of the Board of Directors) may be declared and paid on any Junior Stock from time to time out of any funds legally available therefor, and the shares of Series A Perpetual Preferred Shares shall not be entitled to participate in any such dividend.

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside) in full on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period) on the Series A Perpetual Preferred Shares and any shares of Parity Stock, all dividends declared on the Series A Perpetual Preferred Shares and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends shall bear the same ratio to each other as all accrued but unpaid dividends per share on the Series A Perpetual Preferred Shares and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) bear to each other.

               5.32.5. Qualifications of Dividends. If, prior to 18 months after the date of the original issuance of the Series A Perpetual Preferred Shares, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that reduce the percentage of the dividends-received deduction (currently 70%) as specified in section 243(a)(1) of the Code or any successor provision (the “Dividends-Received Percentage"), the amount of

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each dividend payable (if declared) per share of Series A Perpetual Preferred Shares for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable described above (before adjustment) by the following fraction (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1-[.35(1-.70)]
1-[.35(1-DRP)]

For the purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives either an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of authorization from the Internal Revenue Service (“IRS”) to the effect that such amendment does not apply to a dividend payable on the Series A Perpetual Preferred Shares, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. Such opinion shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

If any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends") equal to the excess, if any, of (x) the product of the dividend paid by the Corporation on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividend-Received Percentage applicable to the dividend in question and .50) over (y) the dividend paid by the Corporation on such Dividend Payment Date, will be payable (if declared) to holders of Series A Perpetual Preferred Shares on the Dividend Payment Record Date applicable to the next succeeding Dividend Payment Date or, if the Series A Perpetual Preferred Shares are called for redemption prior to such Dividend Payment Record Date, to holders of Series A Perpetual Preferred Shares on the applicable redemption date, as the case may be, in addition to any other amounts payable on such date. Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives either an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of authorization from the IRS to the effect that such amendment does not apply to a dividend so payable on the Series A Perpetual Preferred Shares, then such amendment will not result in the payment of Post Declaration Date Dividends. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which the Corporation previously paid dividends on the Series A Perpetual Preferred Shares (each, an “Affected Dividend Payment Date"), the Corporation will pay (if declared) additional dividends (the

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“Retroactive Dividends”) to holders of Series A Perpetual Preferred Shares on the Dividend Payment Record Date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to holders of Series A Perpetual Preferred Shares on the Dividend Payment Record Date following the date of enactment) or, if the Series A Perpetual Preferred Shares are called for redemption prior to such Dividend Payment Record Date, to holders of Series A Perpetual Preferred Shares on the applicable redemption date, as the case may be, in an amount equal to the excess of (x) the product of the dividend paid by the Corporation on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (y) the sum of the dividend paid by the Corporation on each Affected Dividend Payment Date. The Corporation will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives either an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of authorization from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series A Perpetual Preferred Shares, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

Notwithstanding the foregoing, no adjustment in the dividends payable by the Corporation shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by the Corporation, in respect of the enactment of any amendment to the Code 18 months or more after the date of original issuance of the Series A Perpetual Preferred Shares that reduces the Dividends-Received Percentage.

In the event that the amount of dividends payable per share of the Series A Perpetual Preferred Shares are adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, the Corporation will give notice of each such adjustment and, if applicable, any Post Declaration Date Dividends and Retroactive Dividends to the holders of Series A Perpetual Preferred Shares.

               5.32.6. Liquidation Rights. (a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Series A Perpetual Preferred Shares shall be entitled to receive, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, and after satisfaction of all liabilities and obligations to creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of any Junior Stock, in full an amount equal to $1,000 per share, together with an amount equal to all dividends accrued, on a per diem basis, since the last Dividend Payment Date (the “Liquidation Preference”) but not paid prior to the date of payment of such distribution, whether or not such dividends have been declared.

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               (b) Partial Payment. If in any distribution described in Section 5.32.6(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay the Liquidation Preference in full to all holders of Series A Perpetual Preferred Shares and the liquidation preference in full to all holders of any Parity Stock, the amounts paid to the holders of Series A Perpetual Preferred Shares and to the holders of all such other Parity Stock shall be paid pro rata in accordance with the aggregate Liquidation Preference of the holders of Series A Perpetual Preferred Shares and aggregate liquidation preference the holders of all such other Parity Stock.

               (c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Series A Perpetual Preferred Shares and liquidation preference has been paid in full to all holders of any Parity Stock, the holders of Junior Stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences, without any participation by the Holders of the Series A Perpetual Preferred Shares.

               (d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5.32.6, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Series A Perpetual Preferred Shares receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

               5.32.7. Redemption. (a) Optional Redemption. The Series A Perpetual Preferred Shares may not be redeemed by the Corporation prior to December 21, 2011. On or after December 21, 2011, the Corporation, at its option and subject to the prior approval of the Federal Reserve if required for the Corporation’s desired capital treatment, may redeem, in whole at any time or in part from time to time, the shares of Series A Perpetual Preferred Shares at the time outstanding, upon notice given as provided in Section 5.32.7(c) below, at a redemption price equal to $1,000.00 per share, together with an amount equal to all accumulated and unpaid dividends since the last Dividend Payment Date, up to but excluding the redemption date, whether or not declared. The redemption price for any shares of Series A Perpetual Preferred Shares shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 5.32.4 above.

               (b) No Sinking Fund. The Series A Perpetual Preferred Shares will not be subject to any mandatory redemption, sinking fund, retirement fund or purchase fund or other similar provisions. Holders of Series A Perpetual Preferred Shares will have no right to

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require redemption, repurchase or retirement of any shares of Series A Perpetual Preferred Shares.

               (c) Notice of Redemption. Notice of every redemption of shares of Series A Perpetual Preferred Shares shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series A Perpetual Preferred Shares designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series A Perpetual Preferred Shares. Notwithstanding the foregoing, if the Series A Perpetual Preferred Shares or any depositary shares representing interests in the Series A Perpetual Preferred Shares are issued in book-entry form through DTC or any other similar facility, notice of redemption may be given to the holders of Series A Perpetual Preferred Shares at such time and in any manner permitted by such facility. Each such notice given to a holder shall state: (1) the redemption date; (2) the number of shares of Series A Perpetual Preferred Shares to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

               (d) Partial Redemption. In case of any redemption of only part of the shares of Series A Perpetual Preferred Shares at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Corporation may determine to be fair and equitable. Subject to the provisions hereof, the Corporation shall have full power and authority to prescribe the terms and conditions upon which shares of Series A Perpetual Preferred Shares shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof; provided however that the Corporation shall have no obligation to issue any fractional shares of Series A Perpetual Preferred Shares, but instead shall pay the holder the proportionate amount of the redemption price of such fractional shares.

               (e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by

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law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

               5.32.8. Voting Rights. (a) General. The holders of Series A Perpetual Preferred Shares shall not have any voting rights except as set forth below or as otherwise from to time required by law.

               (b) Right to Elect Two Directors Upon Nonpayment Events. If and whenever dividends on any shares of Series A Perpetual Preferred Shares shall not have been declared and paid on any four (4) consecutive Dividend Payment Dates or any six (6) Dividend Periods, whether or not consecutive (a “Nonpayment Event"), the number of directors then constituting the Board of Directors shall automatically be increased by two and the holders of Series A Perpetual Preferred Shares, together with the holders of any outstanding shares of Voting Preferred Shares, voting together as a single class, shall be entitled to elect the two additional directors (the “Preferred Shares Directors"), provided that it shall be a qualification for election for any such Preferred Shares Director that the election of such director shall not cause the Corporation to violate (x) the corporate governance requirement of The New York Stock Exchange, the Nasdaq Stock Market or any other securities exchange or other trading facility, on which securities of the Corporation may then be primarily listed or traded, as applicable, that listed or traded companies must have a majority (or other specified percentage) of independent directors or (y) any requirement or policy of any bank regulatory authority having jurisdiction over the Corporation or its banking subsidiaries; and provided further, that the Board of Directors shall at no time include more than two Preferred Shares Directors (including, for purposes of this limitation, all directors that holders of Voting Preferred Shares are entitled to elect pursuant to like voting rights).

In the event that the holders of the Series A Perpetual Preferred Shares, and such other holders of Voting Preferred Shares, shall be entitled to vote for the election of the Preferred Shares Directors following a Nonpayment Event, such directors shall be initially elected following such Nonpayment Event only at a special meeting that shall be called by the Board of Directors of the Corporation within 60 days following a Nonpayment Event, and thereafter at each subsequent annual meeting of stockholders of the Corporation.

When (i) dividends have been paid (or declared and a sum sufficient for payment thereof set aside) in full on the Series A Perpetual Preferred Shares for at least twelve (12) consecutive Dividend Periods after a Nonpayment Event, or (ii) in the event all outstanding Series A Perpetual Preferred Shares and any Parity Stock shall have been redeemed or called for redemption upon the delivery of evidence reasonably satisfactory to a majority of the holders of the Series A Perpetual Preferred Shares that sufficient funds have been set aside by the Corporation for the benefit of the holders of the Series A Perpetual Preferred Shares and any Parity Stock, then, in each case, the right of the holders of Series A Perpetual Preferred Shares to elect the Preferred Shares Directors shall cease (but subject always to revesting of such voting rights in the case of the subsequent occurrence of a Nonpayment Event) and, if and when any

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rights of holders of Series A Perpetual Preferred Shares and Voting Preferred Shares to elect the Preferred Shares Directors shall have ceased, the terms of office of all the Preferred Shares Directors shall forthwith terminate and the number of directors constituting the Board of Directors shall automatically be reduced accordingly.

Any Preferred Shares Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of Series A Perpetual Preferred Shares and Voting Preferred Shares, when they have the voting rights described above (voting together as a single class). So long as a Nonpayment Event shall continue, any vacancy in the office of a Preferred Shares Director (other than prior to the initial election of Preferred Shares Directors after a Nonpayment Event) may be filled by the written consent of the Preferred Shares Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of the Series A Perpetual Preferred Shares and Voting Preferred Shares, when they have the voting rights described above (voting together as a single class). The Preferred Shares Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote. Each Preferred Shares Director elected at any special meeting of stockholders or by written consent of the other Preferred Shares Director shall hold office until the next annual meeting of the stockholders if such office shall not have previously terminated as above provided.

               (c) Other Voting Rights. So long as any shares of Series A Perpetual Preferred Shares are outstanding, in addition to any other vote or consent of stockholders required by law or by the Articles of Incorporation, the vote or consent of the holders of at least a majority of the shares of Series A Perpetual Preferred Shares (subject to the last paragraph of this Section 5.32.8(c)) at the time outstanding and entitled to vote thereon, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

                    (i) Authorization of Senior Stock. Any amendment or alteration of the Articles of Incorporation to authorize or create, or increase the authorized amount of, any shares of any class or series of capital stock of the Corporation ranking senior to the Series A Perpetual Preferred Shares with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation (for the avoidance of doubt, “capital stock” for this purpose shall not include any debt securities of the Corporation relating to Trust Preferred Securities, nor such Trust Preferred Securities);

                    (ii) Amendment of Series A Perpetual Preferred Shares. Any amendment, alteration or repeal of any provision of the Articles of Incorporation, whether by merger or consolidation or otherwise, so as to materially and adversely affect any special rights, preferences, privileges or voting powers of the Series A Perpetual Preferred Shares; or

                    (iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Series A Perpetual Preferred Shares, or of a merger or consolidation of the Corporation with

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another corporation or other entity, unless in each case (x) the shares of Series A Perpetual Preferred Shares remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series A Perpetual Preferred Shares immediately prior to such consummation, taken as a whole;

provided, however, that for all purposes of this Section 5.32.8(c), any increase in the amount of the authorized or issued Series A Perpetual Preferred Shares or authorized Preferred Shares, or the authorization, creation and issuance, or an increase in the authorized or issued amount, of any Junior Stock or Parity Stock will not be deemed to materially and adversely affect the special rights, preferences, privileges or voting powers of the Series A Perpetual Preferred Shares; and provided further that this Section 5.32.8 shall not apply if, at or prior to the time when the act with respect to such vote would otherwise be required shall be effected, all outstanding Series A Perpetual Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been set aside by the Corporation for the benefit of the holder of the Series A Perpetual Preferred Shares.

               (d) Changes for Clarification. Without the consent of the holders of Series A Perpetual Preferred Shares, so long as such action does not adversely affect the special rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series A Perpetual Preferred Shares, the Corporation may amend, alter, supplement or repeal any terms of the Series A Perpetual Preferred Shares:

                    (i) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Articles of Amendment that may be defective or inconsistent; or

                    (ii) to make any provision with respect to matters or questions arising with respect to the Series A Perpetual Preferred Shares that is not inconsistent with the provisions of this Articles of Amendment.

               (e) Changes After Provision for Redemption. No vote or consent of the holders of Series A Perpetual Preferred Shares shall be required pursuant to Section 5.32.8(b), (c) or (d) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series A Perpetual Preferred Shares shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 5.32.7 above.

               (f) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series A Perpetual Preferred Shares

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(including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors or a duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Articles of Incorporation, the By-Laws, applicable law and any national securities exchange or other trading facility on which the Series A Perpetual Preferred Shares are listed or traded at the time. Whether the vote or consent of the holders of a plurality, majority or other portion of the shares of Series A Perpetual Preferred Shares and any Voting Preferred Shares has been cast or given on any matter on which the holders of shares of Series A Perpetual Preferred Shares are entitled to vote shall be determined by the Corporation by reference to the specified liquidation amounts of the shares voted or covered by the consent.

               5.32.9. Conversion. The Series A Perpetual Preferred Shares are not convertible into, or exchangeable for, other securities or property of the Corporation.

               5.32.10. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for the Series A Perpetual Preferred Shares may deem and treat the record holder of any share of Series A Perpetual Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

               5.32.11. Notices. Other than as provided in Section 5.32.7(c) above, all notices or communications in respect of Series A Perpetual Preferred Shares shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Articles of Amendment, in the Articles of Incorporation or By-Laws or by applicable law.

               5.32.12. No Preemptive Rights. No share of Series A Perpetual Preferred Shares shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

               5.32.13. Other Rights. The shares of Series A Perpetual Preferred Shares shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Articles of Incorporation or as provided by applicable law.

               5.32.14. Severability of Provisions. If any preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the shares of Series A Perpetual Preferred Shares set forth in these Articles of Amendment are invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other preferences or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications or terms or

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conditions of redemption of the shares of Series A Perpetual Preferred Shares set forth in these Articles that can be given effect without giving effect to the invalid, unlawful or unenforceable provision shall, nevertheless, remain in full force and effect and no preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the shares of Series A Perpetual Preferred Shares herein set forth shall be deemed dependent upon any other provision hereof unless so expressed herein.

     5.4 Voting Rights.

          5.41 Voting Rights.

               5.41.1 Common Shares. Every holder of the Common Shares of the Corporation shall have the right at every Shareholders’ meeting, to one vote for each Common Share standing in his or her name on the books of the Corporation.

               5.41.2 Preferred Shares. Holders of Preferred Shares shall have no right to vote upon any question except as shall be affirmatively provided in the Act, or in the remaining sections of this article.

          5.42 No Greater Requirements. Nothing in these Articles shall be deemed to require any greater portion of the Shares to concur in any action taken by the Shareholders than is required by law.

          5.43 Record Date. The By-Laws may provide for a record date for determining Shareholders entitled to receive payment of any dividend or for determining Shareholders for any other purpose.

          5.44 Mergers and Consolidations. Any class of Shares of this Corporation shall be entitled to vote as a class if the agreement of merger or consolidation contains any provision which, if contained in a proposed amendment to the Articles of Incorporation of the Corporation, would entitle such class of Shares to vote as a class.

          5.45 Voting on Special Corporate Transactions. In voting on adoption of any proposal for a special corporate transaction or for dissolution of the Corporation, all Shares shall vote as a single class and no Shares shall be entitled to vote as a separate class.

          5.46 Mergers With Subsidiaries. Nothing herein contained shall limit the power of the Corporation or prescribe the procedures to be followed in any merger or consolidation of any subsidiary of this Corporation, ninety-five percent (95%) (or such lesser percentage as may hereafter be prescribed by law) or more of the outstanding Shares of which subsidiary are owned by this Corporation and any such merger or consolidation of any such subsidiary may be accomplished by the Board of Directors of this Corporation in the manner prescribed by law.

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          5.47 Class Voting. If the holders of any class of Shares are entitled to vote as a class, the proposal shall be adopted upon receiving the affirmative vote of the holders of at least a majority (or such greater proportion as these Articles of Incorporation may require) of the Shares of each class of Shares entitled to vote thereon as a class and of the total Shares entitled to vote thereon.

Article VI
Requirements Prior To Doing Business

     The stated capital of the Corporation is at least $1000.00.

Article VII
Director(s)

     7.01 Number of Directors. The Board of Directors is composed of sixteen (16) members. The number of directors may be from time to time fixed by the By-Laws of the Corporation at any number. In the absence of a By-Law fixing the number of directors, the number shall be sixteen.

     7.02 Section Qualifications of Directors. No qualifications are prescribed by these Articles.

Article VIII
Incorporator(s)

     The name(s) and post office address(es) of the President and Executive Vice President, Secretary of the Corporation are:

	Number and Street or
Name	Building	City	State	Zip Code
Paul N. Dinkins (President)	500 Washington Street	Columbus	Indiana		47201
John A. Nash (Executive Vice President, Secretary)	500 Washington Street	Columbus	Indiana		47201

Article IX
Provisions for Regulation of Business and Conduct of Affairs of Corporation

     9.01 Code of By-Laws. The Board of Directors of the Corporation shall have power,

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without the assent of the Shareholders, to make, alter, amend or repeal the Code of By-Laws of the Corporation, but the affirmative vote of a majority of the members of the Board of Directors for the time being shall be necessary to make such Code or to effect any alteration, amendment or repeal thereof. All provisions for the regulation of business and management of the affairs of the Corporation shall be stated in the By-Laws.

     9.02 Meetings of Shareholders. Meetings of the Shareholders of the Corporation shall be held at such place within or without the State of Indiana as may be specified in the respective notices or waivers of notice thereof or as specified in the By-Laws.

     9.03 Meetings of Directors. Meetings of the Board of Directors and committees thereof of the Corporation shall be held at such place within or without the State of Indiana as may be specified in the respective notices or waivers of notice thereof or as specified in the By- Laws. The By-Laws shall prescribe the manner in which notice of such meetings may be given and the time before such meeting in which such notice shall be given, unless waived.

     9.04 Interest of Directors in Contracts. Any contract or other transaction between the Corporation and any corporation in which this Corporation owns all or a part of the capital stock shall be valid and binding notwithstanding the fact that the officers and/or directors executing the contract on behalf of this Corporation are the same or a majority of them are the same or the participating directors or officers are the same. With the exception provided above, any contract or other transaction between the Corporation and any one or more of its directors or between the Corporation and any firm of which one or more of its directors are members or employees or in which they are interested or between the Corporation and any corporation or association in which one or more of its directors are stockholders, members, directors, officers or employees or in which they are interested, shall be valid for all purposes notwithstanding the presence of such director or directors at the meeting of the Board of Directors which acts upon or in reference to such contract or transaction and notwithstanding his or their participation in such action if the fact of such interest shall be disclosed or known to the Board of Directors and the Board of Directors shall authorize, approve and ratify such contract or transaction by a vote of the majority of the directors present, such interested director or directors to be counted in determining whether a quorum is present but not to be counted in calculating the majority of such quorum necessary to carry such vote. This section shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common and statutory law applicable thereto.

     9.05 Indemnification. The Board of Directors is authorized to adopt and amend, as it shall determine in its discretion from time to time, By-Law provisions, resolutions or contracts providing for the indemnification of any director, officer, employee or agent of the Corporation to the full extent permitted by the Indiana Business Corporation Law or other applicable law.

     9.06 Partnerships. The Board of Directors shall have the power to authorize the Corporation to enter into partnerships or any other lawful arrangement for the sharing of profits,

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union of interest, reciprocal association, cooperative association, partnership, joint venture or syndicate with any corporation, association, partnership, individual, firm or other legal entity for the purpose of carrying on any lawful business.

     9.07 Committees. The By-Laws may provide for an executive committee and other committees, which shall have the fullest authority to act for the Board of Directors permitted under the laws of Indiana.

     9.08 Removal of Directors. The Shareholders shall have no power to remove directors during their terms of office. Any director may be removed for specific cause found and determined by a vote of not less than two-thirds (2/3) of the entire Board of Directors at any time.

     9.09 Term of Directors. When the Board of Directors consists of nine (9) or more directors, the By-Laws may specify that the directors shall be apportioned into two or more classes whose terms of office shall expire at different times, but no term shall continue longer than three (3) years.

     9.10 Amendment of Articles of Incorporation. The Corporation reserves the right to alter, amend and repeal any provisions contained in these Articles of Incorporation in the manner now or hereafter prescribed by the provisions of the Act or any other pertinent enactment of the General Assembly of the State of Indiana and all rights and powers conferred hereby on Shareholders, directors and officers of the Corporation are subject to such reserved right.

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EX-3.2

EXHIBIT 3.2

CODE OF BY-LAWS

IRWIN FINANCIAL CORPORATION

ARTICLE 1

Definitions

     1.01. Corporation. As used in this Code of By-Laws, the term “Corporation” means IRWIN FINANCIAL CORPORATION.

     1.02. Act. As used in this Code of By-Laws, the term “Act” means The Indiana Business Corporation Law, as amended from time to time.

     1.03. Articles of Incorporation. As used in this Code of By-Laws, the term “Articles of Incorporation” means the Articles of Incorporation of the Corporation, as amended from time to time.

     1.04. By-Laws. As used in this Code of By-Laws, the term “By-Laws” means the Code of By-Laws of the Corporation, as amended from time to time.

ARTICLE 2

Identification

     2.01. Name. The name of the Corporation is IRWIN FINANCIAL CORPORATION.

     2.02. Principal Office and Resident Agent — Power to Change. The postoffice address of the principal office of the Corporation is 500 Washington Street, Columbus, Indiana 47201, and the postoffice address of its Resident Agent in charge of such office is John A. Nash, 500 Washington Street, Columbus, Indiana 47201. The location of its principal office, or the designation of its Resident Agent, or both, may be changed at any time or from time to time, when authorized by the Board of Directors, by filing with the Secretary of State of the State of Indiana, on or before the day any such change is to take effect, or within five (5) days after the death of the Resident Agent or other unforeseen termination of his agency, a certificate signed by the President or a Vice President, and the Secretary or an Assistant Secretary, of the Corporation, and verified under oath by one of such officers signing the same, stating the change to be made and reciting that such change is made pursuant to authorization by the Board of Directors.

     2.03. Seal. The seal of the Corporation shall be circular in form and mounted upon a metal die, suitable for impressing the same upon paper. About the upper periphery of the seal shall appear the name of the Corporation, and about the lower periphery thereof the word “Indiana”. In the center of the seal shall appear the words “Seal” or “Corporate Seal”.

     2.04. Fiscal Year. The fiscal year of the Corporation shall be the calendar year.

ARTICLE 3

Shares

     3.01. Consideration for Shares. The Board of Directors shall cause the Corporation to issue the Shares of the Corporation for such consideration as may be fixed by such Board pursuant to the provisions of the Articles of Incorporation.

     3.02. Subscription for Shares. Subscriptions for Shares of the Corporation shall be paid to the Treasurer at such time or times, in such installments or calls, and upon such terms, as shall be determined, from time to time, by the Board of Directors. Any call made by the Board of Directors for payment on subscriptions shall be uniform as to all Shares of the same class or to all Shares of the same series, as the case may be.

     3.03. Payment for Shares. Subject to the provisions of the Articles of Incorporation, the consideration for the issuance of Shares of the Corporation may be paid, in whole or in part, in money, in other property, tangible or intangible, or in labor actually performed for, or services actually rendered to, the Corporation; provided, however, that the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of Shares as a Share dividend shall be deemed to be the consideration for the issuance of such Shares. When payment of the consideration for which a Share was authorized to be issued shall have been received by the Corporation, or when surplus shall have been transferred to stated capital upon the issuance of a Share dividend, such Share shall be declared and taken to be fully paid and not liable to any further call or assessment, and the holder thereof shall not be liable for any further payments thereon. In the absence of actual fraud in the transaction, the judgment of the Board of Directors as to the value of such property, labor, or services received as consideration, or the value placed by the Board of Directors upon the corporate assets in the event of a Share divided, shall be conclusive. Promissory notes, uncertified checks, or future services shall not be accepted in payment or part payment of any of the capital stock of the Corporation.

     3.04. Certificates for Shares. Each Shareholder of the Corporation shall be entitled to a certificate, signed by the President or a Vice-President, and the Secretary or an Assistant Secretary of the Corporation stating the name of the registered holder, the number of Shares represented thereby and the kind and class thereof, the par value of each Share or a statement that such Shares have no par value, and whether such Shares have been fully paid and are nonassessable. If such certificate is countersigned by the

written signature of a registrar other than the Corporation or its employee, the signatures of the transfer agent and the officers of the Corporation may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of its issue. Such certificates shall be in such form as the Board of Directors may, from time to time, by resolution approve.

     Notwithstanding the foregoing, any shares of the Corporation of any class or series may be issued without a certificate, if so authorized or directed by the Board of Directors, or if requested by a shareholder and authorized by the Secretary. The Secretary shall ensure that records of issuance of all uncertificated shares and the transfer, exchange, conversion, surrender or redemption thereof, shall be maintained at all times by the duly appointed transfer agent or agents of the Corporation, through a direct registration system or other book-entry record keeping system as the Secretary may approve. Any direction of the Board of Directors that any shares of any class or series shall be issued in uncertificated form shall not affect shares already represented by certificates until they are surrendered to the Corporation.

     3.05. Transfer of Shares. The Shares of the Corporation shall be transferable only on the books of the Corporation upon surrender of the certificate or certificates representing the same, provided:

     3.051. Endorsement. The certificate is properly endorsed by the registered holder or his duly authorized attorney;

     3.052. Witnessing. The endorsement or endorsements are witnessed by one witness unless this requirement is waived in writing upon the form of endorsement by the President, a Vice President, or the Secretary of the Corporation;

     3.053. Adverse Claims. The Corporation has no notice of any adverse claims or has discharged any duty to inquire into any such claims; and

     3.054. Collection of Taxes. Any applicable law relating to the collection of taxes has been complied with.

     3.06. Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate for Shares of the Corporation in the place of any certificate theretofore issued where the holder of record of the certificate:

     3.061. Claim. Makes proof in affidavit form that it has been lost, destroyed, or wrongfully taken;

     3.062. Timely Request. Requests the issue of a new certificate before the Corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim;

     3.063. Bond. Gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the Corporation may direct, to indemnify the Corporation against any claim that may be made on account of the alleged loss, destruction, or theft of the certificates; and

     3.064. Other Requirements. Satisfies any other reasonable requirements imposed by the Corporation.

When a certificate has been lost, apparently destroyed, or wrongfully taken and the holder of record fails to notify the Corporation within a reasonable time after he has notice of it, and the Corporation registers a transfer of the Shares represented by the Certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer or for a new certificate.

     3.07. Closing of Books or Fixing of Record Dates. For the purpose of determining Shareholders entitled to receive payment of any dividend or in order to make a determination of Shareholders for any other proper purpose, except as otherwise provided in section 4.069 of these By-Laws, the Board of Directors may provide that the share transfer books shall be closed for a stated period, but not to exceed, in any case, fifty (50) days, or may fix in advance a record date for such purpose, such date in any case not to be more than fifty (50) days prior to the date on which the action requiring such determination of Shareholders, is to be taken. If the share transfer books are not closed and no record date is fixed for the determination of Shareholders entitled to receive payment of a dividend, the end of the day on which the resolution of the Board of Directors declaring such dividend is adopted shall be the record date for such determination.

ARTICLE 4

Meetings of Shareholders

     4.01. Place of Meetings. All meetings of Shareholders of the Corporation shall be held at such place, within or without the State of Indiana, as may be specified in the respective notices or waivers of notice thereof, or proxies to represent Shareholders thereat.

     4.02. Annual Meeting. The annual meeting of the Shareholders for the election of Directors and for the transaction of such other business as may properly come before the meeting, shall be on or before the last day of May of each year, the date to be set by the Board of Directors of the Corporation. Failure to hold the annual meeting at the designated time shall not work any forfeiture or a dissolution of the Corporation.

     4.03. Special Meeting. Special meetings of the Shareholders may be called by the President, by the Board of Directors, or by Shareholders holding of record not less than one-fourth (1/4) of all of the Shares outstanding and entitled by the Articles of Incorporation to vote on the business proposed to be transacted thereat.

     4.04. Notice of Meetings. A written or printed notice, stating the place, day and hour of the meeting, and in case of a special meeting, or when required by any other provision of the Act, or the Articles of the Incorporation, or By-Laws, the purpose or purposes for which the meeting is called, shall be delivered or mailed by the Secretary, or by the officers or persons calling the meeting, to each Shareholder of record entitled by the Articles of Incorporation and by the Act to vote at such meeting, at such address as appears upon the records of the Corporation, at lest ten (10) days before the date of the meeting. Notice of any such meeting may be waived in writing by any Shareholder, if the waiver sets forth in reasonable detail the purpose or purposes for which the meeting is called, and the time and place thereof. Attendance at any meeting in person, or by proxy when the instrument of proxy sets forth in reasonable detail the purpose or purposes for which the meeting is called, shall constitute a waiver of notice of such meeting. Each Shareholder, who has in the manner above provided waived notice of a Shareholders’ meeting, or who personally attends a Shareholders’ meeting, or is represented thereat by a proxy authorized to appear by an instrument of proxy complying with the requirements above set forth, shall be conclusively presumed to have been given due notice of such meeting.

     4.05. Addresses of Shareholders. The address of any Shareholder appearing upon the records of the Corporation shall be deemed to be (i) the latest address of such Shareholder appearing on the records maintained by the transfer agent or registrar, as the case may be, for the class of Shares held by such Shareholder, if the Corporation has a transfer agent or registrar for such class of Shares and the Board of Directors has provided in the resolutions appointing the transfer agent or registrar that notices of change of address shall be given to one of such agents by Shareholders of such class; or (ii) the latest address of such Shareholder appearing on the records maintained by the Secretary for the class of Shares held by such Shareholder, if the Corporation has no transfer agent or registrar for such class of Shares or if it has a transfer agent or registrar for such class of Shares but the resolutions appointing the transfer agent or registrar do not provide that notice of change of address shall be given to one of such agents by Shareholders of such class of Shares.

     4.06. Voting at Meetings.

     4.061. Common Shares. Except as otherwise provided by law or by the Provisions of the Articles of Incorporation, every holder of Common Shares of the Corporation shall have the right, at every Shareholders’ meeting, to one vote for each Common Share standing in his name on the books of the Corporation. Cumulative voting shall not be permitted.

     4.062. Prohibition Against Voting Certain Shares. No share shall be voted at any meeting upon which any installment is due and unpaid or which belongs to the Corporation.

     4.063. Voting of Shares Owned by Other Corporations. Shares of the Corporation standing in the name of another corporation may be voted by such officer, agent or proxy as the board of directors of such other corporation may appoint, or as the by-laws of such other corporation may prescribe.

     4.064. Voting of Shares Owned by Fiduciaries. Shares held by fiduciaries may be voted by the fiduciaries in such manner as the instrument or order appointing such fiduciaries may direct. In the absence of such direction or the inability of the fiduciaries to act in accordance therewith, the following provisions shall apply:

     4.0641. Joint Fiduciaries. Where Shares are held jointly by three (3) or more fiduciaries, such Shares shall be voted in accordance with the will of the majority.

     4.0642. Equally Divided Fiduciaries. Where the fiduciaries, or a majority of them, cannot agree, or where they are equally divided, upon the question of voting such Shares, any court of general equity jurisdiction may, upon petition filed by any of such fiduciaries, or by any part in interest, direct the voting of such Shares as it may deem for the best interests of the beneficiaries, and such Shares shall be voted in accordance with such direction.

     4.0643. Proxy of Fiduciary. The general proxy of a fiduciary shall be given the same weight and effect as the general proxy of an individual or corporation.

     4.065. Voting of Pledged Shares. Shares that are pledged may, unless otherwise provided in the agreement of pledge, be voted by the Shareholder pledging the same until the Shares shall have been transferred to the pledgee on the books of the Corporation, and thereafter they may be voted by the pledgee.

     4.066. Proxies. A Shareholder may vote, either in person or by proxy executed in writing by the Shareholder, or a duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date of its execution, unless a longer time is expressly provided therein.

     4.067. Quorum. At any meeting of the Shareholders, a majority of the Common Shares outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum.

     4.068. Voting Lists. The officer or agent having charge of the share transfer books shall make, at least five (5) days before each election of directors, a complete list of the Shareholders entitled by the Articles of Incorporation to vote at such election, arranged in alphabetical order, with the address and number of Shares so entitled to vote held by each, which list shall be on file at the principal office of the Corporation and subject to inspection by any Shareholder. Such list shall be produced and kept open at the time and place of election and subject to the inspection of any Shareholder during the holding of such election. The original share register or transfer book or a duplicate thereof, kept in the State of Indiana, shall be the only evidence as to who are the Shareholders entitled to examine such list, or share register or transfer book, or to vote at any meeting of the Shareholders.

     4.069. Fixing of Record Date to Determine Shareholders Entitled to Vote. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders or any adjournment thereof, the Board of Directors, may fix in advance a date as the record date for any such determination of Shareholders, such date in any case to be not more than fifty (50) days prior to the date of such meeting. In the absence of such a determination by the Board of Directors, such date shall be ten (10) days prior to the date of such meeting. Any person who acquires title to a Share after the record date shall upon written request to the Shareholder of record be entitled to receive from the Shareholder of record a proxy, with power of substitution, to vote that Share.

     4.07 Taking Action by Consent. Any action which may be taken at a meeting of the Shareholders, may be taken without a meeting if, prior to such action, a consent in writing, setting forth the action so taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof, and such written consent is filed with the minutes of the proceedings of the Shareholders.

     4.08 Order of Business. The order of business at annual meetings, and so far as practicable, at all other meetings of Shareholders shall be:

Proof of due notice of meeting;
Reading and disposal of any unapproved minutes;
Annual reports of officers and committees;
Election of directors;
New business;
Adjournment

ARTICLE 5

The Board of Directors

     5.01. Election and Qualification. The number of directors shall be between eight (8) and twelve (12). The number may be increased or decreased from time to time by

amendment of this Section except as otherwise provided for in the Restated Articles of Incorporation and no decrease shall have the effect of shortening the term of any incumbent director. Commencing with the annual meeting of shareholders held in 2001, the directors shall be divided into three (3) classes, as nearly equal in number as possible, with the term of office of the first class to expire at the 2002 annual meeting of shareholders, the term of office of the second class to expire at the 2003 annual meeting of shareholders, and the term of the third class expiring at the 2004 annual meeting of shareholders. At each annual meeting of shareholders following such initial classification, directors elected by the shareholders to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Directors need not be shareholders of the Corporation. At least a majority of the directors shall be citizens of the United States.

     5.02. Vacancies. Any vacancy occurring in the Board of Directors caused by resignation, death or other incapacity, or increase in the number of directors may be filled by a majority vote of the remaining members of the Board of Directors. If a director ceases to serve before his or her term expires, the individual replacing the departing director shall be named to serve the remainder of the departing director’s term. Until any such vacancy is so filled, the existing directors shall constitute the Board of Directors. Shareholders shall be notified of any increase in the number of directors and the name, address, principle occupation, and other pertinent information about any director elected by the Board of Directors to fill any vacancy.

     5.03. Annual Meeting. The Board of Directors shall meet each year after the annual meeting of Shareholders (either within or without the State of Indiana), for the purpose of organization, election of officers and consideration of any other business that may properly be brought before the meeting. The time of this meeting shall be no later than the first regular or special meeting of the Board of Directors, at which a quorum shall be present, held after the annual meeting of Shareholders. No additional notice of any kind to either old or new members of the Board of Directors shall be necessary.

     5.04. Regular Meetings. Regular meetings of the Board of Directors may be held with notice by letter, telegram, cable, radiogram, telephone, or radiophone, or without any notice whatever, and at such place and times, as may be fixed from time to time by resolution of the Board of Directors.

     5.05. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, President or any Vice-President, and shall be called on the written request of one-fourth (1/4) of the directors. Notice of such a special meeting shall be sent by the Secretary or an Assistant Secretary to each director at his residence or usual place of business by letter, telegram, cable or radiogram, delivered for transmission not later than the second day immediately preceding the day for the meeting, or by word of mouth telephone, or radiophone received not later than during the day immediately preceding the day for the meeting. In lieu of such notice, a director may

sign a written waiver of notice either before the time of the meeting, at the time of the meeting, or after the time the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of the meeting. Any meeting of the Board of Directors for which notice is required shall be a legal meeting, without notice thereof having been given, if all the directors, who have not waived notice thereof in writing, shall be present in person.

     5.06. Place of Meetings. The directors may hold their meetings, have one or more offices, and keep the books of the Corporation, except as may be provided by law, within or without the State of Indiana, at any office or offices of the Corporation, or at any other place, as they may from time to time by resolution determine. If the resolution of the Board of Directors calling a regular meeting or the written request calling a special meeting expressly provides, a meeting of the Board of Directors may be held by conference telephone call or any other medium which allows each director to participate in discussions and to hear the views of the other directors. If a meeting is held, the directors connected to the conference telephone call or other medium shall be counted as present for the purpose of determining a quorum.

     5.07. Quorum. One-third (1/3) of the actual number of directors elected and qualified, from time to time, shall be necessary to constitute a quorum for the transaction of any business except the filling of vacancies, and the act of a majority of the directors present at a meeting, at which a quorum is present, shall be the act of the Board of Directors, unless the act of a great number is required by the Act, by the Articles of Incorporation, or by the By-Laws. A director who is present at a meeting of the Board of Directors at which action on any corporate matter is taken, shall be conclusively presumed to have assented to the action taken, unless (i) his dissent shall be affirmatively stated by him at and before the adjournment of such meeting (in which even the fact of such dissent shall be entered by the secretary of the meeting in the minutes of the meeting), or (ii) he shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right of dissent provided for by either clause (i) or clause (ii) of the immediately preceding sentence shall not be available, in respect of any matter acted upon at any meeting, to a director who voted at the meeting in favor of such matter and did not change his vote prior to the time that the result of the vote on such matter was announced by the chairman of such meeting.

     5.08. Action by Consent. Any action required by or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent to such action is signed by all members of the Board or such committees as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee.

     5.09. Removal. Directors may be removed as provided in the Restated Articles of Incorporation.

     5.10. Powers of Directors. The Board of Directors shall exercise all the powers of

the Corporation, subject to the restrictions imposed by law, by the Articles of Incorporation, or by these By-Laws.

     5.11. Dividends. The Board of Directors shall have power, subject to any restrictions contained in the Articles of Incorporation, to declare and pay dividends upon the outstanding Shares of the Corporation, out of the unreserved and unrestricted capital and earned surplus of the Corporation. Dividends may be paid in cash, in property, or in Shares of the Corporation, but no dividend payable in cash or property shall be paid out of surplus due to or arising from unrealized appreciation in value or from revaluation of assets.

     5.12. Compensation of Directors. The Board of Directors is empowered and authorized to fix and determine the compensation of directors as directors, and any additional compensation for such additional services any of such directors may perform for the Corporation.

     5.13. Resignation. A director may resign at any time by filing his written resignation with the Chairman of the Board, the President or the Secretary of the Corporation, or with the Board of Directors, and such resignation shall become effective upon such filing.

     5.14. Reliance on Corporation Records. Each Director shall be fully protected in relying in good faith upon the books of account and records of the Corporation or upon statements prepared by any of its officers or employees.

ARTICLE 6

Executive Committee

     6.01. Designation of Executive Committee. The Board of Directors may, by resolution adopted by a majority of the actual number of directors elected and qualified, from time to time, designate three (3) or more non-management directors (a majority of which shall be “independent” as determined by the Board of Directors in accordance with guidelines of the New York Stock Exchange and other applicable regulations) to constitute an executive committee, which committee, to the extent provided in such resolution, shall have and exercise the authority of the Board of Directors, but the designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. No member of the executive committee shall continue to be a member thereof after he ceases to be a director of the Corporation. The Board of Directors shall have the power at any time to increase or diminish the number of members of the executive committee, to fill vacancies thereon, to change any member thereof, and to change the functions or terminate the existence thereof.

     6.02. Powers of the Executive Committee. During the intervals between meetings of the Board of Directors, and subject to such limitations as may be required by law or by

resolution of the Board of Directors, the executive committee shall have and may exercise such powers of the Board of Directors in the management of the business and affairs of the Corporation as may from time to time be specified by resolution of the Board of Directors. The executive committee may also from time to time formulate and recommend to the Board of Directors for approval general policies regarding the management of the business and affairs of the Corporation. All minutes of meetings of the executive committee shall be submitted to the next succeeding meeting of the Board of Directors for approval; but failure to submit the same or to receive the approval thereof shall not invalidate any completed or incompleted action taken by the Corporation upon authorization by the executive committee prior to the time at which the same should have been, or were, submitted as above provided. The executive committee shall not have the authority of the Board of Directors in reference to the matters described in Section 23-1-34-6(e) of the Act or any successor provision.

     6.03. Procedure; Meetings; Quorum. The chairman of the executive committee of the Corporation shall, if present, act as chairman at all meetings of the executive committee, and the Secretary of the Corporation shall, if present, act as secretary of the meeting. In case of the absence from any meeting of the executive committee of the chairman of the executive committee or the Secretary of the Corporation, the executive committee shall appoint a chairman or secretary, as the case may be, of the meeting. The executive committee shall keep a record of its acts and proceedings. Regular meetings of the executive committee, of which no notice shall be necessary, shall be held on such days and at such places as shall be fixed by resolution adopted by a majority of the executive committee. Special meetings of the executive committee shall be called at the request of any member of the executive committee. Written notice of each special meeting of the executive committee shall be sent by the Secretary or an Assistant Secretary to each member of the executive committee at his residence or usual place of business by letter, telegram, cable, electronic mail, facsimile or other electronic means, delivered for transmission not later than the second day immediately preceding the day for the meeting, or by word of mouth, telephone, electronic mail, facsimile or other electronic means received not later than during the day immediately preceding the day for the meeting; provided, that any such notice need not be given to any member of the executive committee who has waived such notice either in writing or by telegram, cable, electronic mail, facsimile or other electronic means, arriving either before or after such meeting, or who shall be present at the meeting. Any meeting of the executive committee shall be a legal meeting, without notice thereof having been given, if all members of the executive committee who have not waived notice thereof shall be present in person. Neither the business to be transacted at, nor the purpose of, any meeting of the executive committee need be specified in the notice or waiver of notice of the meeting. The executive committee may hold its meetings within or without the State of Indiana, as it may from time to time by resolution determine. If the resolution of the executive committee calling a regular meeting or the written request calling a special meeting expressly provides, a meeting of the executive committee may be held by conference telephone call or any other medium which allows each member to participate in discussions and to hear the views of the other members. If a meeting is held, the members connected to the conference telephone call or other medium shall be counted as

present for the purpose of determining a quorum. A majority of the executive committee, from time to time, shall be necessary to constitute a quorum for the transaction of any business, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the executive committee. The members of the executive committee shall act only as a committee, and the individual members shall have no power as such. The Board of Directors may vote to the members of the executive committee a reasonable fee as compensation for attendance at meetings of such committee.

     6.04. Other Committees. From time to time the Board of Directors, by the affirmative vote of a majority of the actual number of directors elected and qualified, may appoint, from among their number, other committees for any purpose or purposes, and each such committee shall have such powers as shall be conferred by the resolution of appointment.

     6.05. Audit Committee. The Board of Directors shall by resolution adopted by a majority of the actual number of directors elected and qualified, from time to time, designate two or more of its members who are not officers, to constitute an Audit Committee of the Board of Directors. The Audit Committee shall have, and may exercise the authority of the Board of Directors to the extent provided in such resolutions, as to matters relating to the appointment of independent certified public accountants, the reliability of financial statements, the adequacy of financial controls, the conduct of audits, and such investigations of other financial or operational matters related to the Company as the Board of Directors shall direct. The Audit related to the Committee shall make appropriate reports and other related recommendations to the Board, (which reports may be relied upon by members of the Board of Directors who are not members of the Audit Committee, as to matters within the Audit Committee’s designated authority, if the director reasonably feels the Committee merits confidence and has no knowledge concerning the matter in question that would cause such reliance to be unwarranted). A member of the Board of Directors who is not a member of the Audit Committee shall not be liable for any action taken by the Committee if the member has acted in good faith and in a manner reasonably believed to be in the best interests of the Corporation.

ARTICLE 7

The Officers

     7.01. Number. The officers of the Corporation shall consist of the Chairman of the Board of Directors, if elected, the President, one or more Vice-Presidents, if elected, (to be classified as determined by the Board of Directors, as Executive Vice-Presidents, Senior Vice-Presidents, Vice-Presidents or Assistant Vice-Presidents), the Treasurer, the Secretary, and such other officers (including a controller) and assistants as the Board of Directors may appoint. Any two or more offices may be held by the same person, except that the duties of the President and Secretary shall not be performed by the same person.

     7.02. Election, Term of Office and Qualification. The officers shall be chosen annually by the Board of Directors. Each officer shall hold office until his successor is chosen and qualified, or until his death, or until he shall have resigned, or shall have been removed in the manner hereinafter provided.

     7.03. Removal. Any officer may be removed, either with or without cause, at any time, by the vote of a majority of the actual number of directors elected and qualified, from time to time, at any regular or special meeting of the Board of Directors.

     7.04. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President or the Secretary. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

     7.05. Vacancies. Any vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term in the manner prescribed in the By-Laws for election or appointment to such office.

     7.06. The Chairman of the Board & Chief Executive Officer. The Chairman of the Board and Chief Executive Officer, if elected, who shall be chosen from among the directors, shall preside at all meetings of the Board of Directors and the Shareholders. He shall discharge all the usual functions of the chief executive officer of a corporation and shall perform such other duties as the Board of Directors may from time to time assign to him. In the case of the death of the Chairman and CEO, or in the case of his absence or inability to act without having designated an officer to act temporarily in his place, the officer so to perform the duties of the Chairman and CEO shall be designated by the Chairman of the Executive Committee of the Board.

     7.07. The President. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Shareholders and at meetings of the Board of Directors. He shall exercise such duties as customarily pertain to the office of the President and shall have general and active supervision over the property, business and affairs of the Corporation and over its several Officers. He may appoint officers, agents or employees other than those appointed by the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the By-Laws.

     7.08. The Vice-Presidents. The Vice-Presidents (including Executive Vice-Presidents, Senior Vice-Presidents and Assistant Vice-Presidents) shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the President may from time to time delegate to them. At the request of the President, one such officer may, in the case of the absence or inability to act of the President, temporarily act in his place. In the case of the death of the President, or in the case of his absence or inability to act without having designated an officer to act temporarily in his place, the officer so to perform the duties of the President shall be designated by the Chairman of the Board and Chief Executive Officer.

     7.09. The Secretary. The Secretary shall have the custody and care of the corporate seal, records, minutes and share books of the Corporation. He shall attend all meetings of the Shareholders and of the Board of Directors, and shall keep, or cause to be kept in a book provided for the purpose, a true and complete record of the proceedings of such meetings, and shall perform a like duty for all standing committees appointed by the Board of Directors, when required. He shall attend to the giving and serving of all notices of the Corporation, shall file and take charge of all papers and documents belonging to the Corporation and shall perform such other duties as these By-Laws may require or the Board of Directors may prescribe.

     7.10. The Treasurer. The Treasurer shall be the financial officer of the Corporation; shall have charge and custody of, and be responsible for, all funds of the Corporation, and deposit all such funds in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected by the Board of Directors; shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; and, in general, shall perform all the duties as, from time to time, may be assigned to him by the Board of Directors or by the President. The Treasurer shall render to the President and the Board of Directors, whenever the same shall be required, an account of all of his transactions as Treasurer and of the financial condition of the Corporation.

     7.11 The Controller. The Controller, if a controller is elected, shall be responsible to the Board of Directors and the President for all financial control and internal audit of the Corporation and its subsidiaries. He shall perform such other duties as may be assigned to him by the Board of Directors or the President.

     7.12. The Assistant Secretaries. The Assistant Secretaries, as directed by the President or the Board of Directors, shall perform the duties of the Secretary during the absence or inability of the Secretary to perform such duties, or any of them. They shall perform such other duties as the President or the Board may prescribe.

     7.13. The Assistant Treasurers. The Assistant Treasurers as directed by the President or the Board of Directors, shall perform the duties of the Treasurer during the absence or inability of the Treasurer to perform such duties, or any of them. They shall perform such other duties as the President and the Board may prescribe.

     7.14. Other Offices. The Board of Directors may create such other offices as it may from time to time deem desirable with such duties as it may determine.

ARTICLE 8

Corporate Acts

     8.01. Execution of Deeds, Contracts, etc. All deeds and mortgages made by the Corporation and all other written contracts and agreements to which the Corporation shall be a party shall be (i) executed in its name by the Chairman of the Board, the President or a Vice-President and (ii) attested by any officer of the Corporation other than the officer executing the document.

     8.02. Execution of Checks, Notes, etc. All checks, drafts, notes, bonds, bills of exchange and orders for the payment of money by the Corporation shall be signed by such officer or officers of the Corporation as the Board of Directors from time to time may authorize and direct.

     8.03. Execution of Certain Securities. All assignments or endorsements of stock certificates, registered bonds, or other securities owned by the Corporation shall, unless otherwise directed by the Board of Directors, or unless otherwise required by law, be (i) signed by the Chairman of the Board, the President or a Vice-President and (ii) attested by any officer of the Corporation other than the officer signing the security. The Board of Directors may, however, authorize any one of such officers to sign any of such instruments, for and on behalf of the Corporation, without the necessity of counter-signatures; may designate officers or employees of the Corporation, other than those named above, who may, in the name of the Corporation, sign such instruments; and may authorize the use of facsimile signatures of any of such persons.

     8.04. Voting of Shares Owned by Corporation. Subject always to the further orders and directions of the Board of Directors, any share or shares issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders’ meeting of such other corporation by the Chairman of the Board, or in his absence, by the President of the Corporation or in their absence by any Vice-President of the Corporation who may be present. Whenever, in the judgement of the Chairman of the Board or, in his absence, the President, it is desirable for the Corporation to execute a proxy or give a shareholders’ consent in respect to any share or shares issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chairman of the Board, the President or a Vice-President of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation under the corporate seal. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares issued by such other corporation and owned by the Corporation, the same as such share or shares might be voted by the Corporation.

ARTICLE 9

Amendments

     The power to make, alter, amend or repeal these By-Laws is vested in the Board of Directors, but the affirmative vote of a majority of the actual number of directors elected and qualified from time to time, shall be necessary to effect any alteration, amendment or repeal of these By-Laws.

ARTICLE 10

Miscellaneous

     10.01. Control Share Opt-Out. Chapter 42 of the Indiana Business Corporation Law, as amended (the “IBCL”), shall not apply to “control share acquisitions” (as defined in the IBCL) of shares of the Corporation.

Article 11

Indemnification of Directors, Officers and Employees

     11.01. “Liability;” “Expense;” As used in this Article 11 the terms “liability” and “expense” shall include but shall not be limited to attorneys’ fees and disbursements and amounts of judgment, fines or penalties against and amounts paid in settlement, and expenses actually and reasonably incurred with respect to a proceeding by the directors, officers or employees.

     11.02. “Claim.” As used in this Article 11, the term “claim” shall include: (i) any claim, action, suit or proceeding, whether actual or threatened, brought by or in the right of this Corporation or another entity or otherwise, civil, criminal or administrative or in connection with an investigation or appeal relating thereto, (ii) against a person who is or was a director, officer or employee of this Corporation or a person who was serving as a director, officer or employee of any other entity at the request of this Corporation, and (iii) which is asserted against or threatened against him, as a party or otherwise, by reason of his having been a director, officer or employee of this Corporation or such other entity or by reason of any past or future action taken or not taken in his capacity as such director, officer or employee, whether or not he continues to be such at the time the claim is asserted or threatened.

     11.03. Indemnity. Any such director, officer or employee who has been wholly or partially successful on the merits or otherwise with respect to any claim of the character described herein shall be entitled to indemnification as of right. Any director, officer or employee who is not wholly successful on the merits or otherwise shall be entitled to indemnification by the Corporation as long as (i) the Board of Directors acting by a quorum consisting of directors who are not parties to or who have been wholly successful with respect to such claim, action, suit or proceeding shall find that the person to be indemnified acted in good faith with a reasonable belief that such conduct was not opposed to the best interests of the Corporation or other entity, as the case may be, and, in addition, in any criminal action or proceeding (which shall not be deemed to include civil, administrative or investigative actions or proceedings in which conduct which violates a criminal statute is alleged) he had reasonable belief that his conduct was lawful, or (ii) independent legal counsel (who may be regular counsel of the Corporation) shall deliver to it its written opinion that the person to be indemnified so acted. Indemnification by the Corporation pursuant to this Section 11.03 shall be mandatory unless the Corporation is prohibited from doing so under state or federal law.

     11.04. No Presumption. The termination of any claim by judgment, settlement (whether with or without court approval) or conviction or upon a plea of guilty or of nolo contendere or its equivalent shall not create a presumption that the person to be indemnified did not meet the standard of conduct set forth in Section 11.03.

     11.05. Several Claims. If several claims, issues or matters of action are involved, any such person may be entitled to indemnification as to some matters even though he is not entitled as to other matters, and to some or a portion of the expenses or amounts paid in the settlement, where the director, officer or employee is entitled to some or a portion of such expenses or amounts.

     11.06 Advances. Except where prohibited by law, the Corporation shall advance expenses to or, where appropriate, shall at its expense undertake the defense of any such director, officer or employee upon receipt of an undertaking by or on behalf of such person to repay such expenses if it should ultimately be determined that he is not entitled to indemnification under this Article 11.

     11.07. Applicability. The provisions of this Article 11 shall be applicable to claims, actions, suits or proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act during, before or after the adoption hereof.

     11.08. Extent of Rights. The rights of indemnification provided hereunder shall be a contract right to the person concerned, and shall be in addition to any rights to which any person concerned may otherwise be entitled by contract or as a matter of law and shall inure to the benefit of the heirs, executors and administrators of any such person.

     11.09. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another entity against any liability asserted against him and incurred by him in any capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 11 or otherwise.

EX-4.1

COMMON SHARES

INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA

IRWIN FINANCIAL CORPORATION

NO PAR VALUE

FULLY PAID AND NONASSESSABLE COMMON SHARES, NO PAR VALUE, OF

IRWIN FINANCIAL CORPORATION

NATIONAL CITY BANK

SECRETARY

IRWIN FINANCIAL CORPORATION

A STATEMENT, IN FULL, OF THE RELATIVE RIGHTS, INTERESTS, PREFERENCES AND RESTRICTIONS OF THE CLASS OF SHARES REPRESENTED BY THIS CERTIFICATE WILL BE FURNISHED BY THE CORPORATION TO ANY SHAREHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT.

The following abbreviations, when used in the inscription on the face of this certificate,. shall be construed as though

they were written out in full according to applicable laws or regulations: TEN COM —as tenants in common TEN ENT — as tenants by the entireties JT TEN — as joint tenants with right of Survivorship and not as tenants            Act in common (State) Additional abbreviations may also be used though not in            the above list PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE UNIF GIFT MIN ACT — Custodian (Cust) (Minor)

under Uniform Gifts : to Minors

Signature(s) Guaranteed

NOTICE            THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAM(S) AS WRITTEN UPON NOTICE: THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT On

ANY CHANGE WHATEVER.

By

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-l5.

THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN IRWIN FINANCIAL CORPORATION (THE “COMPANY”) AND IRWIN UNION BANK AND TRUST COMPANY, DATED AS OF MARCH 1. 2001 (THE “RIGHTS AGREEMENT’), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE COMPANY WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER. SHALL BECOME NULL AND VOID.

EX-10.4

Exhibit 10.4

IRWIN FINANCIAL CORPORATION

AMENDED AND RESTATED 2001 STOCK PLAN

TABLE OF CONTENTS

			Page
1.1	Establishment			1
1.2	Purpose			1
1.3	Effective Date			1
2.1	Definitions			1
2.2	Gender and Number			3
3.1	Eligibility and Participation			3
4.1	Administration			3
5.1	Aggregate Number			4
5.2	Individual Participant Limitations			4
5.3	Reuse			4
5.4	Adjustment in Capitalization			5
6.1	Duration of Plan			5
7.1	Grant of Options			5
7.2	Option Agreement			5
7.3	Option Price			5
7.4	Exercise of Options			5
7.5	Payment			6
7.6	Limitations on ISOs			7
7.7	Restrictions on Stock Transferability			8
7.8	Termination of Employment or Service			8
	(a)	Termination of Employment or Service Due to Death or Disability		8
	(b)	Termination of Employment or Service Due to Retirement		8
	(c)	Resignation or Termination Without Cause		9
	(d)	Termination for Cause		9
7.9	Effect of a Change in Control			9
7.10	Nontransferability of Options			9
8.1	Grant of Stock Appreciation Rights			10
8.2	Payment of SAR Amount			10
8.3	Form and Timing of Payment			10
8.4	Limit of Appreciation			11

i

			Page
8.5	Term of SAR			11
8.6	Termination of Employment or Service; Change in Control			11
8.7	Nontransferability of SARs			11
9.1	Grant of Restricted Stock			11
9.2	Transferability			11
9.3	Other Restrictions			12
9.4	Voting Rights			12
9.5	Dividends and Other Distributions			12
9.6	Termination of Employment or Service; Change in Control			12
	(a)	Termination of Employment or Service Due to Death or Disability		12
	(b)	Termination of Employment or Service for Reasons Other than Death or Disability		12
	(c)	Change in Control		12
9.7	Nontransferability of Restricted Stock			13
10.1	Grant of Phantom Stock Units			13
10.2	Value			13
10.3	Payment for Phantom Stock Units			13
10.4	Form and Timing of Payment			13
10.5	Termination of Employment or Service; Change in Control			14
10.6	Nontransferability			14
10.7	No Dividend Payments			14
10.8	Expiration			14
11.1	Beneficiary Designation			14
12.1	Employment or Service			14
12.2	Participation			14
13.1	In General			14
13.2	Definition			15
14.1	Amendment, Modification, and Termination of Plan			16
14.2	Interpretation			16
15.1	Tax Withholding			16
15.2	Share Withholding			16
16.1	Indemnification			17
17.1	Requirements of Law			17
17.2	Governing Law			17

ii

IRWIN FINANCIAL CORPORATION

AMENDED AND RESTATED 2001 STOCK PLAN

Section 1. Establishment, Purpose, and Effective Date of Plan

     1.1 Establishment. Irwin Financial Corporation, an Indiana corporation, hereby establishes the Irwin Financial Corporation Amended and Restated 2001 Stock Plan (the “Plan”) for employees and non-employee directors of the Company and its subsidiaries. The Plan permits the grant of stock options, stock appreciation rights, restricted stock and phantom stock units, with common stock or cash as possible payout mediums for payment under the Plan.

     1.2 Purpose. The purpose of the Plan is to advance the interests of the Company and its stockholders, by encouraging and providing for the acquisition of an equity interest in the success of the Company by employees of the Company and its subsidiaries and non-employee directors, by providing additional incentives and motivation toward superior performance of the Company, and by enabling the Company to attract and retain the services of employees and non-employee directors upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent.

     1.3 Effective Date. The Plan shall become effective immediately upon its adoption by the Board of Directors of the Company, subject to ratification by the stockholders of the Company. Awards may be granted hereunder on or after the effective date but shall in no event be exercisable or payable to a Participant prior to such stockholder approval; and, if such approval is not obtained within twelve (12) months after the effective date, such Awards shall be of no force and effect.

Section 2. Definitions

     2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:

          “Award” means any Option, Stock Appreciation Right, Restricted Stock, or Phantom Stock Unit, granted under this Plan.

          “Board” means the Board of Directors of the Company.

          “Cause” is defined in Section 14.2.

          “Code” means the Internal Revenue Code of 1986, as amended.

          “Change in Control” is defined in Section 13.2 herein.

          “Committee” means the Compensation Committee of the Board or such other committee appointed from time to time by the Board to administer this Plan. The Committee shall consist of two or more members, each of whom shall qualify as a “non-employee director,”

as the term (or similar or successor term) is defined by Rule 16b-3, and as an “outside director” within the meaning of Code Section 162(m) and regulations thereunder.

          “Company” means Irwin Financial Corporation, a Indiana corporation.

          “Disability” is defined in Section 14.2.

          “Employee” means an employee (including officers and directors who are also employees) of the Company or its subsidiaries, or any branch or division thereof.

          “Fair Market Value” means the mean of the closing bid and ask prices of the Stock as reported by the New York Stock Exchange on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions.

          “Named Executive Officer” means a Participant who, as of the date of vesting and/or payout of an Award, as applicable, is one of the group of covered employees, as defined in the regulations promulgated under Code Section 162(m), or any successor statute.

          “Non-Employee Director” means a director of the Company who is not, and for a period of at least one year, has not been an Employee.

          “Option” means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan an Option may be either (i) an “Incentive Stock Option,” or “ISO” within the meaning of Section 422 of the Code, (ii) a “Nonstatutory (Nonqualified) Stock Option,” or “NSO,” or (iii) any other type of option encompassed by the Code.

          “Participant” means any Non-Employee Director and any Employee designated by the Committee (or its delegate, if appropriate under Section 3.1) to participate in the Plan.

          “Performance-Based Exception” means the exception for performance-based compensation from the tax deductibility limitations of Code Section 162(m).

          “Period of Restriction” means the period during which the transfer of shares of Restricted Stock is restricted pursuant to Section 9 of the Plan.

          “Phantom Stock Unit” is described under Section 10.

          “Plan” means the Irwin Financial Corporation Amended and Restated 2001 Stock Plan as set forth herein and any amendments hereto.

          “Restricted Stock” means Stock granted to a Participant pursuant to Section 9 of the Plan.

          “Retirement” is defined in Section 14.2.

          “Rule 16b-3” means Rule 16b-3 or any successor or comparable rule or rules applicable to Awards granted under the Plan promulgated by the Securities and Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934, as amended.

          “Stock” means the Common Stock, without par value, of the Company.

          “Stock Appreciation Right” and “SAR” mean the right to receive a payment from the Company equal to the excess of the Fair Market Value of a share of stock at the date of exercise over a specified price fixed by the Committee, which shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. In the case of a Stock Appreciation Right which is granted in conjunction with an Option, the specified price shall be the Option exercise price.

     2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.

Section 3. Eligibility and Participation

     3.1 Eligibility and Participation. Participants in the Plan shall be selected by the Committee from among the Employees. Non-Employee Directors shall also be eligible to participate in the Plan. For purposes of Awards to individuals who are neither Named Executive Officers nor directors of the Company, the Committee may delegate its authority to select Participants in the Plan, to select the type of Awards to be received by such Participants, and to allocate Committee-approved block Awards, to such individuals or bodies as the Committee designates in writing. If such delegation occurs, “Committee” as used herein shall mean such individual or body.

Section 4. Administration

     4.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof (whether taken during a meeting or by written consent), is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan; provided, however, the Committee shall not reprice or otherwise decrease the exercise price applicable to any outstanding Option, except in connection with an adjustment contemplated by Section 5.4. The Committee’s authorization to administer the Plan shall extend to developing and implementing rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws and accommodating the specific requirements of local laws and procedures, including but not limited to the adoption of rules and procedures regarding the conversion of local currency, withholding procedures and handling of stock certificates which vary with local requirements. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever.

To the extent deemed necessary or advisable for purposes of Rule 16b-3 or otherwise, the Board may act as the Committee hereunder.

Section 5. Stock Subject to Plan and Maximum Awards

     5.1 Aggregate Number. The total number of shares of Stock that may be issued pursuant to Awards under the Plan may not exceed 4,000,000 (of this total number, all such shares may be issued with respect to Incentive Stock Options). Such numbers of shares shall be subject to adjustment upon occurrence of any of the events described in Section 5.4. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or treasury Stock, not reserved for any other purpose. In addition, up to an aggregate of 2,000,000 SARs may be granted under the Plan.

     5.2 Individual Participant Limitations. Unless and until the Committee determines that an Award to a Named Executive Officer shall not be designed to comply with the Performance-Based Exception, the following rules shall apply to grants of such Awards under the Plan:

(a)

Subject to adjustment as provided in Section 5.4, the maximum aggregate number of shares of Stock (including Options, Restricted Stock SARs, and Phantom Stock Units to be paid out in shares) that may be granted under this Plan in any calendar year pursuant to any Award held by any Participant shall be 300,000 shares. Such numbers of shares shall be subject to adjustment upon occurrence of any of the events described in Section 5.4.

(b)

The maximum aggregate cash payout (including SARs and Phantom Stock Units paid out in cash) with respect to Awards granted under this Plan in any calendar year which may be made to any Participant shall be one million dollars ($1,000,000.00).

     5.3 Reuse. If, and to the extent:

(a)

An Option shall expire or terminate for any reason without having been exercised in full (including, without limitation, cancellation and re-grant), or in the event that an Option is exercised or settled in a manner such that some or all of the shares of Stock related to the Option are not issued to the Participant (or beneficiary) including as the result of the use of shares for withholding taxes, the shares of Stock subject thereto which have not become outstanding shall (unless the Plan shall have terminated) become available for issuance under the Plan; provided, however, that with respect to a share-for-share exercise, only the net shares issued shall be deemed to have become outstanding as a result thereof.

(b)

Restricted Stock or Phantom Stock Units under the Plan are forfeited for any reason, or settled in cash in lieu of Stock or in a manner such that some or all of the shares of Stock related to the Award are not issued to

	the Participant (or beneficiary), such shares of Stock shall (unless the Plan shall have terminated) become available for issuance under the Plan.
(c)	SARs expire or terminate for any reason without having been earned in full, an equal number of SARs shall (unless the Plan shall have terminated) become available for issuance under the Plan.

     5.4 Adjustment in Capitalization. In the event of any change in the outstanding shares of Stock that occurs after ratification of the Plan by the stockholders of the Company 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 each outstanding Award, the number of shares of Stock available for Awards and the number and class of shares of Stock set forth in Sections 5.1 and 5.2, shall be adjusted appropriately by the Committee, whose determination shall be conclusive; provided, however, that fractional shares shall be rounded to the nearest whole share. In such event, the Committee also shall have discretion to make appropriate adjustments in the number and type of shares subject to Awards then outstanding under the Plan pursuant to the terms of such grants or otherwise.

Section 6. Duration of Plan

     6.1 Duration of Plan. The Plan shall remain in effect until, and no Award may be granted on or after, April 25, 2011, subject to the Board’s right to earlier terminate the Plan pursuant to Section 14 hereof.

Section 7. Stock Options

     7.1 Grant of Options. Subject to the provisions of Section 5 and 6, Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Options granted to each Participant. The Committee may grant any type of Option to purchase Stock that is permitted by law at the time of grant.

     7.2 Option Agreement. Each Option shall be evidenced by an option agreement that shall specify the type of Option granted, the Option price, the duration of the Option, the number of shares of Stock to which the Option pertains, the vesting schedule for the Options, and such other provisions as the Committee shall determine.

     7.3 Option Price. No Option granted pursuant to the Plan shall have an Option price that is less than the Fair Market Value of the Stock on the date the Option is granted.

     7.4 Exercise of Options. Options awarded under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall approve, either at the time of grant of such Options or pursuant to a general determination, and which need not be the same for all Participants. Each Option which is intended to qualify as an Incentive Stock Option pursuant to Section 422 of the Code, and each Option which is intended to qualify as

another type of ISO which may subsequently be authorized by law, shall comply with the applicable provisions of the Code pertaining to such Options.

     7.5 Payment. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of shares of Stock with respect to which the Option is to be exercised, accompanied by full payment for the Stock. The Option price upon exercise of any Option shall be payable to the Company in full, as provided in the option agreement, either:

(a)	in cash, check or wire transfer, denominated in U.S. Dollars except with the consent of the Committee or as specified by the Committee with respect to foreign employees or foreign sub-plans;
(b)	by tendering previously-acquired Stock (as determined by the Committee) having an aggregate Fair Market Value at the time of exercise equal to the total Option price,
(c)	if the Committee shall authorize in its sole discretion, by payment of the purchase price in installments or with other borrowed funds; provided, however, that the provisions of each installment purchase agreement: (i) shall provide that the purchaser, at the purchaser’s option, may pay any or all such installments at one time, (ii) shall comply with all applicable credit regulations, if any, then in effect and issued or enacted by governmental authority having jurisdiction, including Regulation U of the Board of Governors of the Federal Reserve System if such Regulation is then in effect, (iii) shall be established by the Committee and shall include a specified rate of interest payable on the unpaid balance, and (iv) shall require that the certificate for Shares purchased pursuant to installment arrangement be pledged to the Company,
	The certificates for stock purchased pursuant to an installment purchase agreement will be delivered to the purchaser, who shall take title to such Stock, and shall be immediately deposited by the purchaser, together with a properly executed stock power, with the Secretary of the Company to be held by the Company as security for the payment of the installments of the purchase price, including interest. The purchaser shall be entitled to all voting rights with respect thereto and all cash dividends paid thereon. In the event of the payment by the Company of a stock dividend on or the declaration by the Company of a stock split with respect to any of its Stock held as security pursuant to an installment purchase agreement hereunder, the pledge under such agreement shall extend to the Stock issued in payment of such stock dividend or on account of such stock split. The purchaser shall deliver to the Company the certificates representing the dividend or split Stock upon receipt thereof, together with a properly executed stock power. In the event that the Stock held as security pursuant to an installment purchase agreement shall be changed or reclassified as a result of any charter amendment, recapitalization,

	reorganization, merger, consolidation, sale of assets or similar transactions, the changed or reclassified Stock or other assets or both received as a result of such transaction shall be substituted for the Stock pledged under such agreement; and the purchaser shall promptly deliver to the Company any certificates issued to represent the Stock so changed or reclassified and any such other assets, together with a properly executed stock power. If rights to subscribe for or purchase Stock or other securities shall be issued to holders of Stock held as security pursuant to an installment purchase agreement, such rights shall belong to the purchaser free from pledge. Upon completion of payment for such Stock, including interest to the date of payment, and subject to any requirements necessary to comply with Regulation U or other applicable credit regulations, the purchaser shall be entitled to the return from the Company of the certificates so pledged,
(d)	by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law,
(e)	by having the notice of exercise direct that the certificate or certificates for such Shares for which the option is exercised be delivered to a licensed broker acceptable to the Company as the agent for the individual exercising the option and, at the time such certificate or certificates are delivered, the broker tenders to the Company cash or cash equivalents acceptable to the Company equal to the purchase price for such Shares purchased pursuant to the exercise of the option plus the amount (if any) of federal and other taxes which the Company may, in its sole judgment, be required to withhold with respect to the exercise of the option, or
(f)	by a combination of (a), (b), (c), (d) and (e).

The exercise of an Option shall cancel any SAR which was specifically granted in tandem with such Option to the extent of the number of shares as to which the Option is exercised. As soon as practicable after receipt of each notice and full payment, the Company shall deliver to the Participant a certificate or certificates representing acquired shares of Stock.

     7.6 Limitations on ISOs. Notwithstanding anything in the Plan to the contrary, to the extent required from time to time by the Code, the following additional provisions shall apply to the grant of Options which are intended to qualify as Incentive Stock Options (as such term is defined in Section 422 of the Code):

(a) The aggregate Fair Market Value (determined as of the date the Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company) shall not exceed $100,000 or such other amount as may subsequently be specified by the Code; provided that, to the extent that such limitation is exceeded, any

excess Options (as determined under the Code) shall be deemed to be Nonstatutory (Nonqualified) Stock Options.

(b)	Any Incentive Stock Option authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain or be deemed to contain all provisions required in order to qualify the Options as Incentive Stock Options, including, but not limited to, provisions applicable to Incentive Stock Options granted to a 10% shareholder of the Company within the meaning of Code Section 422(b)(6).
(c)	All Incentive Stock Options must be granted within ten years from the date on which this Plan was adopted by the Board of Directors.
(d)	Unless exercised, terminated, or canceled sooner, all Incentive Stock Options shall expire no later than ten years after the date of grant (five years in the case of an ISO granted to a 10% shareholder).

     7.7 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under the applicable federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares.

     7.8 Termination of Employment or Service. Unless otherwise provided in the option agreement, subsections (a) through (d) shall apply.

(a)

Termination of Employment or Service Due to Death or Disability. In the event a Participant’s employment or service as a Non-Employee Director is terminated by reason of death or disability, any outstanding Options whether or not then exercisable, may be exercised within three (3) years 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 or Service Due to Retirement. In the event that a Participant’s employment or service as a Non-Employee Director is terminated due to retirement, the Options theretofore granted to such Participant may be exercised to the extent that such Participant 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, and provided further that any Incentive Stock Options may be exercised 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 grant. So long as a Participant shall continue to serve as a Non-Employee Director or continue to be an employee of the Company, the Options granted to the

	Participant 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 Plan.
(c)	Resignation or Termination Without Cause. In the event that a Participant’s employment with the Company or its subsidiaries or the service of a Non-Employee Director is terminated due to resignation or termination without cause (other than in circumstances that constitute a retirement), the options theretofore granted to such Participant may be exercised to the extent that such Participant 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 Participant’s employment or service with the Company or its subsidiaries for Cause.

     7.9 Effect of a Change in Control. Unless otherwise provided in the Stock Option agreement, the following shall apply in the event of a Change of Control. Upon the occurrence of a Change of Control, the Company shall provide written notice thereof (the “Change in Control Notice”) to the Participants. 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 Change in Control Notice by including a statement to such effect in the Change in Control Notice. Upon delivery of the Change in Control Notice and regardless of whether the Company elects to terminate the outstanding options, the Participants shall have the right to immediately exercise all outstanding options (whether or not immediately exercisable, notwithstanding the Change in Control) in full during the 30-day period notwithstanding the other terms and conditions otherwise set forth in the Plan or in any certificate or agreement representing such option.

     7.10 Nontransferability of Options. Except as provided below, no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of the Options (other than Incentive Stock Options) granted to a Participant to be on terms which permit transfer by such Participant to:

(a) the spouse, children or grandchildren of the Participant (“Immediate Family Members”);

(b) a trust or trusts for the exclusive benefit of such Immediate Family Members, or;

(c) a partnership in which such Immediate Family Members are the only partners, provided that:

(i)	there may be no consideration for any such transfer;
(ii)	the Award agreement pursuant to which such Options are granted expressly provides for transferability in a manner consistent with this Section 7.10; and
(iii)	subsequent transfers of transferred Options shall be prohibited except transfers back to the Participant or those in accordance with Section 11.

Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer, provided that for purposes of Section 11 hereof, the term “Participant” shall be deemed to refer to the transferee. The provisions of Section 7 relating to the period of exercisability and expiration of the Option shall continue to be applied with respect to the original Participant, and the Option shall be exercisable by the transferee only to the extent, and for the periods, set forth in said Section 7.

     7.11 Compliance with Code Section 409A. No Option shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Option is not intended to comply with Section 409A of the Code.

Section 8. Stock Appreciation Rights

     8.1 Grant of Stock Appreciation Rights. Subject to the provisions of Sections 5 and 6, Stock Appreciation Rights (“SARs”) may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of SARs granted to each Participant. Each SAR award shall be evidenced by an Award agreement setting forth the number of shares of Stock to which the SAR pertains, the vesting schedule for the SARs, and such other provisions as the Committee shall determine.

     8.2 Payment of SAR Amount. Upon exercise of the SAR, the Participant shall be entitled to receive payment of an amount (subject to Section 8.4 below) determined by multiplying:

(a)	The difference between the Fair Market Value of a share of Stock at the date of exercise over the price fixed by the Committee at the date of grant, by
(b)	The number of shares with respect to which the Stock Appreciation Right is exercised.

     8.3 Form and Timing of Payment. At the discretion of the Committee, payment to the Participant of the SAR amount described in Section 8.2 may be made in cash or Stock, or in a combination thereof.

     8.4 Limit of Appreciation. At the time of grant, the Committee may establish in its sole discretion, a maximum amount per share which will be payable upon exercise of an SAR.

     8.5 Term of SAR. The term of an SAR granted under the Plan shall not exceed ten years.

     8.6 Termination of Employment or Service; Change in Control. Unless otherwise provided in the Award agreement, in the event of (i) termination of the employment or service of a Participant, or (ii) upon a Change in Control, any SARs outstanding shall be treated in the same manner as specified for Options (excluding Incentive Stock Options) under Sections 7.8 and 7.9 respectively.

     8.7 Nontransferability of SARs. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.

Section 9. Restricted Stock

     9.1 Grant of Restricted Stock. Subject to the provisions of Sections 5 and 6, the Committee, at any time and from time to time, may grant shares of Restricted Stock under the Plan to such Participants and in such amounts as it shall determine. Each grant of Restricted Stock shall be evidenced by an Award agreement which shall specify the number of shares of stock granted, the schedule for lapse of the restrictions, and such other provisions as the Committee shall determine. If such Award agreement specifies a purchase price to be paid by Participant for the Restricted Stock, such price may be paid in any of the forms described under Sections 7.5(a)-(f) above.

     The Committee may at any time and from time to time, establish performance criteria with respect to an Award of Restricted Stock. The performance criteria or standards shall be determined by the Committee in writing and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee, provided that such criteria or standards relate to one or more of the following: earnings, earnings growth, revenues, expenses, stock price, market share, charge-offs, loan loss reserves, reductions in non-performing assets, return on assets, return on equity, or assets, investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisition expenses including goodwill, unplanned stock offerings and strategic loan loss provisions. Such performance standards may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Company generally.

     9.2 Transferability. Except as provided in Sections 9.6 and 9.7 hereof, the shares of Restricted Stock granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated for such period of time (the “Period of Restriction”) as shall be determined by the Committee and shall be specified in the Restricted Stock Award agreement, or upon earlier satisfaction of other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award agreement.

     9.3 Other Restrictions. The Committee shall impose such other restrictions on any shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable federal or state securities laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions.

     9.4 Voting Rights. Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares during the Period of Restriction.

     9.5 Dividends and Other Distributions. During the Period of Restriction, Participants holding shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares while they are so held. If any dividends or distributions are paid in shares of Stock pursuant to Section 5.4, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid.

     9.6 Termination of Employment or Service; Change in Control. Unless otherwise provided in the Award agreement, the following shall apply:

(a)	Termination of Employment or Service Due to Death or Disability. In the event a Participant’s employment or service as a Non-Employee Director is terminated due to death or disability, the Period of Restriction applicable to the Restricted Stock pursuant to Subsection 9.2 hereof shall automatically terminate and, except as otherwise provided in Subsection 9.3, the shares of Restricted Stock shall thereby be free of restrictions and freely transferable.
(b)	Termination of Employment or Service for Reasons Other than Death or Disability. In the event that a Participant’s employment or service as a Non-Employee Director is terminated for any reason other than death or disability during the Period of Restriction, then any shares of Restricted Stock still subject to restrictions at the date of such termination automatically shall be forfeited and returned to the Company; provided, however, that, in the event of retirement or an involuntary termination of the employment of a Participant by the Company other than for cause, the Committee in its sole discretion may waive the automatic forfeiture of any or all such shares and/or may add such new restrictions to such shares of Restricted Stock as it deems appropriate.
(c)	Change in Control. Unless otherwise provided in the Award agreement, upon a Change in Control, the Period of Restriction applicable to the

Restricted Stock pursuant to Subsection 9.2 hereof shall automatically terminate and, except as otherwise provided in Subsection 9.3, the shares of Restricted Stock shall thereby be free of restrictions and freely transferable.

     9.7 Nontransferability of Restricted Stock. No shares of Restricted Stock granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Period of Restriction. All rights with respect to Restricted Stock granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.

Section 10. Phantom Stock Units

     10.1 Grant of Phantom Stock Units. Subject to the provisions of Sections 5 and 6, Phantom Stock Units may be granted to Participants at any time and from time to time as shall be determined by the Committee. Each grant of Phantom Stock Units shall be evidenced by an Award agreement setting forth the number of Phantom Stock Units, the applicable vesting schedule and such other provisions as the Committee shall determine.

     The Committee may at any time and from time to time, establish performance criteria with respect to an Award of Phantom Stock Units. The performance criteria or standards shall be determined by the Committee in writing and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee, provided that such criteria or standards relate to one or more of the following: earnings, earnings growth, revenues, expenses, stock price, market share, charge-offs, loan loss reserves, reductions in non-performing assets, return on assets, return on equity, or assets, investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisition expenses including goodwill, unplanned stock offerings and strategic loan loss provisions. Such performance standards may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Company generally.

     10.2 Value. Each Phantom Stock Unit shall represent one share of Stock.

     10.3 Payment for Phantom Stock Units. After satisfaction of the vesting schedule specified in the Award agreement, the holder of a Phantom Stock Unit shall be entitled to receive the then-current Fair Market Value of a share of Stock multiplied by the number of Phantom Stock Units he chooses to exercise, less the exercise price to be paid by Participant (if any) as specified in the Award agreement. If such Award agreement specifies an exercise price to be paid by Participant for the Phantom Stock Units, such price may be paid in any of the forms described under Section 7.5(a)-(f) above.

     10.4 Form and Timing of Payment. Payment to the Participant as described in Section 10.3 above may be made in cash, Stock, or a combination thereof as determined by the Committee. Payment may be made in a lump sum or installments as prescribed by the Committee. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period.

     10.5 Termination of Employment or Service; Change in Control. Unless otherwise provided in the Award agreement, in the event of (i) termination of the employment or service of a Participant, or (ii) upon a Change in Control, any Phantom Stock Units outstanding shall be treated in the same manner as specified for Options (excluding Incentive Stock Options) under Sections 7.8 and 7.9 respectively.

     10.6 Nontransferability. No Phantom Stock Units granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. All rights with respect to Phantom Stock Units granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.

     10.7 No Dividend Payments. A Participant granted Phantom Stock Units shall not be credited with any dividends which would be received with respect to an equivalent number of shares of Stock.

     10.8 Expiration. A Participant’s Phantom Stock Units shall in all events expire on the tenth anniversary of the date on which they were awarded.

Section 11. Beneficiary Designation

     11.1 Beneficiary Designation. Each Participant under the Plan may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form provided by the Company, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to his estate.

Section 12. Rights of Employees and Non-Employee Directors

     12.1 Employment or Service. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment or service as a Non-Employee Director at any time, nor confer upon any Participant any right to continue in the employ of the Company.

     12.2 Participation. No Employee or Non-Employee Director shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.

Section 13. Change in Control

     13.1 In General. Unless otherwise provided in an Award agreement, in the event of a Change in Control of the Company as defined below, all Awards under the Plan shall vest 100%,

whereupon all Options, SARs and Phantom Stock Units shall become exercisable in full and the restrictions applicable to any Restricted Stock shall terminate.

     13.2 Definition. Unless otherwise provided in an Award agreement, a “Change in Control” shall mean the occurrence of any of the following events:

(a)	Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or (ii) a Corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors (the “Voting Stock”), provided, however, that the following shall not constitute a change in control: (1) such person becomes a beneficial owner of 50% or more of the Voting Stock as the result of an acquisition of such Voting Stock directly from the Company, or (2) such person becomes a beneficial owner of 30% or more of the Voting Stock as a result of the decrease in the number of outstanding shares of Voting Stock caused by the repurchase of shares by the Company; provided, further, that in the event a person described in clause (1) or (2) shall thereafter increase (other than in circumstances described in clause (1) or (2)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall be deemed to become a beneficial owner of 30% or more of the Voting Stock for purposes of this paragraph (a), provided such person continues to beneficially own 30% or more of the Voting Stock after such subsequent increase in beneficial ownership, or
(b)	During any period of two consecutive years, individuals (the “Incumbent Board”), who at the beginning of such period constitute the board of directors of the Company, and any new director, whose election by the board of directors of the Company or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or
(c)	The Company shall become a party to an agreement of a reorganization, merger or consolidation or the sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own,

directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns the Company’s or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of the Company, and (2) at least a majority of the members of the board of directors of the corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination, or

(d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.

The Committee has final authority to construe and interpret the provisions of the foregoing paragraphs (a), (b), (c) and (d) and to determine the exact date on which a change in control has been deemed to have occurred thereunder.

Section 14. Interpretation, Amendment, Modification, and Termination of Plan

     14.1 Amendment, Modification, and Termination of Plan. The Board at any time may terminate, and from time to time may amend, modify or suspend the Plan in whole or part subject to any requirement of stockholder approval imposed by applicable law, rule or regulation. No amendment, modification, or termination of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the consent of the Participant.

     14.2 Interpretation. Whether a Participant’s employment or service as a Non-Employee Director is terminated due to “retirement,” “disability,” “resignation” or “for cause” shall be determined pursuant to the Award agreement by the Committee in its sole discretion, which determination shall be final and conclusive. Whether an authorized leave of absence, or absence on military or governmental service, or for any other reason, shall constitute a termination of employment or service for purposes of this Plan shall be determined by the Committee in its sole discretion, which determination shall be final and conclusive. The construction, interpretation and validity of the Plan and any Award hereunder shall be determined in accordance with and governed by the laws of the State of Indiana applicable to contracts executed and performed in such state without giving effect to conflicts of laws principles.

Section 15. Tax Withholding

     15.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy

federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.

     15.2 Share Withholding. With respect to tax withholding required upon the exercise of Options or Phantom Stock Units, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect to satisfy the payroll tax withholding requirement, in whole or in part, by having the Company withhold shares of Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax withholding which would be imposed on the transaction (or to such part of the tax so long as the balance above the minimum required withholding is paid by the Participant in cash). All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

Section 16. Indemnification

     16.1 Indemnification. Each person who is or shall have been a member of the Committee or of the Board, or to whom a delegation has been made pursuant to Section 3.1 hereof, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

Section 17. Requirements of Law

     17.1 Requirements of Law. The granting of Awards and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required, including without limitation (i) for residents of the United States, federal and state securities laws, (ii) for residents of Canada and other jurisdictions, the securities laws of Canada and other jurisdictions, and (iii) for the Company, the listing maintenance requirements of the New York Stock Exchange, or other exchanges or quotation markets.

     17.2 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 this Plan, an Award or alleged breaches of this Plan, an Award or both, a Participant, by accepting an Award, irrevocably consent, to the maximum extent permitted by law, to the jurisdiction and venue of the Federal Courts in Indiana if they have subject matter

jurisdiction, and otherwise to the jurisdiction and venue of the courts of the State of Indiana, and the Employee shall not be entitled to a trial by jury.

Section 18 Provisions for Foreign Participants

     The Committee may make Awards to Participants who are foreign nationals, who are employed outside of the United States of America or both (collectively, “Foreign Participants”) on terms and conditions consistent with the Plan’s purpose but different from the provisions specified herein without amending the Plan as may be necessary, desirable or appropriate, as determined in its sole discretion. Subject to any requirement of stockholder approval imposed by applicable law, rule or regulation, the Committee may modify previously granted Awards granted to Foreign Participants, establish sub-plans or procedures under the Plan or both to reflect special terms to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

EXHIBIT TO THE IRWIN FINANCIAL CORPORATION

AMENDED AND RESTATED 2001 STOCK PLAN

SUB-PLAN FOR BENEFICIARIES RESIDING IN CANADA

The purpose of this exhibit to the Plan is to set forth the terms and conditions defining the rights and obligations of both the Company and Participants who are considered Canadian tax residents at any time and who may benefit from time to time from the Options granted by the Company in compliance with the applicable Canadian legal and tax provisions and the general terms and conditions of the Plan.

Article I Purpose

The Committee imposes the restrictions set forth in this sub-plan to Canadian tax residents for the purpose of allowing affected Participants to be entitled to claim a stock option deduction pursuant to paragraph 110(1)(d) of the Canadian Income Tax Act (the “Act”) and applicable regulations. This exhibit shall be interpreted in all events consistent with this purpose.

Article II. General Restriction for Paragraph 110(1)(d) Deduction

(a) There shall be no limit on a Participant’s right to participate in dividends or in the assets distributed upon any liquidation of the Company with respect to Stock issued upon exercise of an Option.

(b) Stock received on exercise of an Option cannot be converted into any other security (other than into another security of the Company or of another corporation with which it does not deal at arm’s length) that is, or would be, a “prescribed share” (as defined under the Act) as of the date of conversion.

(c) An Employee cannot at that time or any time thereafter require the Company to redeem, acquire, or cancel Stock received on exercise of an Option (except pursuant to a conversion permitted as described in paragraph (b) above).

(d) The Company shall not have the right to redeem, acquire or cancel Stock received on exercise of an Option except at Fair Market Value.

(e) The Company shall not be obligated to reduce the paid-up capital in respect of any Stock received on exercise of an Option (except where the reduction is required pursuant to a conversion permitted as described in paragraph (b) above).

Article III. Available Methods to Pay Option Exercise Price

A Participant subject to this sub-plan shall not tender shares of Stock acquired on exercise of an Option to exercise another option; provided, however, that nothing in this sub-plan shall prohibit any such Participant from exercising an Option by attesting that he or she owns shares of Stock

that have been held for more than six months having a total Fair Market Value that is at least equal to its exercise price (as determined by the Committee on the date of exercise) and receiving new shares of Stock with a total Fair Market Value equal to the difference between the value of the Stock and the exercise price for the portion of the Option that is then being exercised by such Participant.

Article IV Available Methods to Pay for Applicable Taxes

A Participant subject to this sub-plan shall not tender shares of Stock acquired on exercise of an Option to satisfy his or her taxes as required by law to be withheld with respect to the exercise of an Option; provided however, that nothing herein shall prohibit any such Participant from attesting that he or she owns shares of Stock that have been held for at least six months with a total Fair Market Value that is at least equal to such Participant’s applicable taxes as required by law to be withheld with respect to any such Award.

Article V Effective Date

This Exhibit shall apply to all Options awarded to Participants who are considered Canadian tax residents at any time on or after the Effective Date (as defined in the Plan).

IRWIN FINANCIAL CORPORATION
AMENDED AND RESTATED 2001 STOCK PLAN
AMENDMENT NUMBER ONE

     The terms and conditions of the Irwin Financial Corporation Amended and Restated 2001 Stock Plan (the “Plan”) shall be amended to read as follows, effective November 28, 2006:

Section 2.1

• The definition of “Applicable Laws” is added to Section 2.1 as follows:

“ ‘Applicable Laws’ means the requirements relating to, connected with, or otherwise implicated by the administration of long-term incentive plans under applicable state corporation laws, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the Stock is listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.”

• The definition of “Executive Officer” is added to Section 2.1 as follows:

“ ‘Executive Officer’ means an individual who is an “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended).”

• The definition of “Fair Market Value” in Section 2.1 is amended as follows:

“Fair Market Value” means the “closing market price,” which is defined by the Securities and Exchange Commission as the price at which the registrant’s security was last sold in the principal United States market for such security as of the date for which the closing market price is determined. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions.”

     Section 3.1

The last two sentences of Section 3.1 are deleted.

     A new Section 3.2 is added immediately following Section 3.1 of the Plan as follows:

“3.2 Delegation to Executive Officers. To the extent permitted by Applicable Laws, the Committee, in its discretion, may delegate to one or more Executive Officers all or part of the Committee’s authority and duties with respect to the granting of Awards, but only with respect to individuals who are not Executive Officers or Non-Employee Directors. Any such delegation by the Committee shall include a limitation as to the amount and type of Awards that may be granted during the period of the delegation and shall contain guidelines as to permissible grant dates for awards, the determination of the exercise price of any Option or SAR and the vesting criteria. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee delegatee or delegatees that were consistent with the terms of the Plan.”

     The phrase “Applicable Laws” shall replace

• the phrase “applicable law” in Section 7.5(d);

• the phrase “the applicable federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares” in Section 7.7;

• the phrase “applicable federal or state securities laws” in Section 9.3;

• the phrase “applicable law, rule or regulation” in Section 14.1;

• the phrase “applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required, including without limitation (i) for citizens of the United States, federal and state securities laws, (ii) for citizens of Canada and other jurisdictions, the securities laws of Canada and other jurisdictions, and (iii) for the Company, the listing maintenance requirements of the New York Stock Exchange, or other exchanges or quotation markets” in Section 17.1; and

• the phrase “applicable law, rule or regulation” in Section 18.

     In all other respects, the Plan shall be and remain unchanged.

EX-10.41

Exhibit 10.41

FIRST AMENDMENT
TO THE
IRWIN COMMERCIAL FINANCE
AMENDED AND RESTATED PERFORMANCE UNIT PLAN

     WHEREAS, Irwin Commercial Finance (the “Company”) maintains the Irwin Commercial Finance Amended and Restated Performance Unit Plan (the “Plan”);

     WHEREAS, the Company has determined that it is in its best interests to immediately terminate the participation of participants in the Plan who terminate employment with the Company due to death, Disability (as defined in the Plan), retirement, employment transfer to an affiliate or a Company-initiated separation from service unrelated to job performance; and

     WHEREAS, the Company may amend the Plan from time to time under Section 7(a).

     NOW THEREFORE, the Plan is hereby amended effective as of the date set forth below with respect to Plan Cycles beginning on or after January 1, 2006:

1. Section 6(f) is hereby deleted in its entirety and replaced with the following:

f) Vesting. A Participant’s Performance Units will cliff vest based on continued employment over the applicable Plan Cycle and the Company’s average ROE performance as follows:

(i)	Zero percent of the Performance Units will be vested if average ROE over the applicable Plan Cycle is less than the average of threshold ROEs stated in the Company’s annual Short Term Incentive Plan for each of the years of such Plan Cycle.
(ii)	One hundred percent of the Performance Units will vest at the end of the applicable Plan Cycle if average ROE performance at least equals the average of the target ROEs in the Company’s annual Short-Term Incentive Plan for each of the years of such Plan Cycle.
(iii)	If average ROE is between the average of the threshold ROEs stated in the Company’s annual Short-Term Incentive Plan for each of the years of the applicable Plan Cycle and the average of the target ROEs in the Company’s annual Short-Term Incentive Plan for each of the years of the Plan Cycle, the Participant’s vested percentage of each Performance Unit shall equal 1) divided by 2), where:

1) equals the average ROE during the applicable Plan Cycle minus the average of the threshold ROEs, and

2) equals the difference between the average of the threshold ROEs and the average of the target ROEs.

Except as provided under Section 6(g) below, a participant shall not be entitled to receive a cash payment equal to the value of his or her vested Performance Units under Section 6(i) below unless such Participant remains employed with the Company through the last day of the applicable Plan Cycle.

2. Section 6(g) is hereby deleted in its entirety and replaced with the following:

g) Rights Upon Separation from Service.

(i)

In the event of “separation from service,” as such term is set forth in Section 409A(a)(2)(a)(i) of the Code, for reasons other than death, Disability, retirement, or Company-initiated separation from service unrelated to job performance, the participant forfeits all Performance Units in effect immediately on separation.

(ii)

In the event of separation from service by reason of death, Disability, retirement or Company-initiated separation from service unrelated to job performance, the participant shall vest, if at all, in a percentage of each Performance Unit based solely on the participant’s period of employment and ROE performance during the applicable Plan Cycle. The vesting percentage for each Performance Unit for a participant in such event shall equal 1) multiplied by 2), where:

1)	equals the participant’s number of completed months of employment during the Plan Cycle applicable to the Performance Unit divided by thirty-six, and
2)	equals the percentage determined in a manner consistent with the rules set forth under paragraphs i), ii) and iii) of Section 6(f) based solely on actual ROE performance while the participant was employed by the Company during the applicable Plan Cycle, determined in good faith by the Committee or, in the case of a Covered Officer, the IFC Committee.

Such participant shall be entitled to receive a cash payment equal to the value of the vested percentage of his or her Performance Units under Section 6(i) below. All remaining unvested Performance Units are immediately forfeited on separation from service.

3. Section 6(h) is hereby deleted in its entirety and replaced with the following:

h) Transfers to a Non-eligible Position. A Participant’s transfer to a non-eligible position under the Plan during a Plan Cycle shall be treated as a Company-initiated separation from service under Section 6(g) above for purposes of determining such Participant’s vested percentage of Performance Units.

4. Section 6(i) is hereby deleted in its entirety and replaced with the following:

i) Payment of Awards. The value of a participant’s vested Performance Units with respect to a Plan Cycle will be paid out in a cash lump sum payment based on the most recent valuation on or immediately prior to the Triggering Event (as defined below) as soon as administratively practicable after such valuation is approved by the Board, but no later than March 14th of the first calendar year immediately following the Triggering Event; provided, however, that any such payment on account of a participant’s transfer to an non-eligible position under Section 6(h) shall be paid as soon as administratively practicable after the earlier of such participant’s separation from service or the expiration of the applicable Plan Cycle, but no later than December 31st of the calendar year in which such separation or expiration, as applicable, occurs. Payment may be delayed by the Company (and not the participant) after the applicable payment due date described above only as permitted under Section 409A of the Code and regulations, rulings, notices and other guidance issued thereunder. The value of the award is determined by the most recent valuation under Section 6(d) as approved by the Board. The award is subject to all required tax deductions. Awards payable to Covered Officers are subject to Section 6(j) and 6(l) below. For purposes of this Section 6(i), the “Triggering Event” shall mean (i) in the case of a payment under Section 6(f), the last day of the applicable Plan Cycle, and (ii) in the case of a payment under Section 6(g), the participant’s separation from service, and (iii) in the case of a payment under Section 6(h), the participant’s transfer to an a non-eligible position.

IN WITNESS WHEREOF, Irwin Commercial Finance has caused this First Amendment to be executed on its behalf by its duly authorized officer this 31st day of October, 2006.

IRWIN COMMERCIAL FINANCE
By:	Joseph R. Laleggia
	Its: President and CEO

Attest:
 

Steven R. Schultz  

Date: October 31, 2006

EX-10.45

Exhibit 10.45

MEMORANDUM

DATE:	January 25, 2007
TO:	Jocelyn Martin-Leano
FROM:	Tom Washburn
SUBJECT:	Supplemental Performance Unit Grant

Dear Jocelyn:

This letter sets forth the terms of the Supplemental Performance Unit Grant approved by the Compensation Committee of Irwin Financial Corporation (the “Committee”) and granted to you in connection with your appointment as President of Irwin Home Equity.

1. Grant Size. The number of “performance units” being granted to you under this letter is 231. This grant is effective as of July 1, 2006 and the initial valuation will be as of June 30, 2006. For purposes of this letter, the “performance periods” and number of performance units subject to each performance period are as follows:

Performance Period	Performance Units
7/1/2006 — 12/31/2008	15
1/1/2007 — 12/31/2009	108
1/1/2008 — 12/31/2010	108

Each “performance unit” represents a contractual right to receive a cash payment from Irwin Home Equity based on its incremental cash value as described below. You will only be entitled to payment under this agreement only to the extent you vest in your performance units as described below. Each “performance period” represents the period of time during which Irwin Home Equity must meet certain performance requirements described below in order for you to be eligible to earn a vested right to performance units.

2. Vesting Requirements — In General. You will be entitled to receive a cash payment with respect to a performance unit only if:

(a)	you remain employed throughout a performance period as Irwin Home Equity’s President and Irwin Home Equity meets the performance requirements as described in paragraph 3 below,
(b)	you separate from service under certain circumstances or assume another position with Irwin Financial Corporation or its subsidiaries prior to the end of a

performance period and Irwin Home Equity meets the performance requirements as described in paragraph 4 below, or

(c) there is a Change of Control of Irwin Home Equity as defined in the exhibit while you are employed as President of Irwin Home Equity before the end of a performance period and Irwin Home Equity meets the performance requirements as described in paragraph 3 below.

The Committee shall determine in its sole discretion the extent to which you have earned a vested right to receive payment for your performance units.

3. Vesting if You Remain Employed as Irwin Home Equity’s President at the End of a Performance Period. Your performance units vest to the extent that Irwin Home Equity meets the performance requirements for a performance period and you remain employed as Irwin Home Equity’s President at the end of that period. The performance requirements for vesting are based on the extent to which Irwin Home Equity attains the performance goals under the Irwin Home Equity Short-Term Incentive Plan (“STIP”). This will be measured based upon the actual STIP payouts during the performance period. Your vesting percentage will be equal to the average payout as a percentage of target over the performance period up to a maximum of 100%. For example, if the payouts were 75%, 100%, and 110%, the average would be 285%/3=95%. In the case of the 15 units with the performance period of 7/1/06 — 12/31/08, the total of the STIP payouts will be divided by 2.5. The vested portion can not be less than 0% nor greater than 100%.

4. Vesting if You Are Not Employed as Irwin Home Equity’s President at the End of a Performance Period.

(a)

In the event of your “separation from service” (as such term is defined in Section 409A(a)(2)(a)(i) of the Code) from Irwin Home Equity prior to the end of a performance period for reasons other than death, “disability” (as defined in the STIP) or employment termination initiated by Irwin Home Equity for reasons unrelated to your job performance, you will forfeit all performance units subject to that performance period immediately upon separation. For avoidance of doubt, your separation from service due to misconduct or engaging in criminal conduct shall be considered a reason related to job performance.

(b)

If you separate from service by reason of death, disability or an employment termination initiated by Irwin Home Equity unrelated to job performance, then you shall vest, if at all, in a percentage of each performance unit based solely on your period of employment and Irwin Home Equity’s performance during the applicable performance period. Your vesting percentage for each performance unit in such event shall equal (1) multiplied by (2), where:

(1) equals your number of completed months of employment during the performance period applicable to the performance unit divided by the number of months in that performance period, and

(2) equals the vesting percentage determined in a manner consistent with the rules set forth under paragraph 3 above based solely on Irwin Home Equity’s actual performance while you were employed by Irwin Home Equity as its President during the applicable performance period, as determined in good faith by the Committee.

You shall be entitled to a cash payment under paragraph 6 below for each vested performance unit as determined under this paragraph 4(b). All remaining unvested performance units are immediately forfeited on separation from service.

(c)

If you accept a position with Irwin Financial Corporation or one of its direct or indirect subsidiaries during a performance period and are no longer President of Irwin Home Equity at the end of a performance period, your change of position shall be treated as a separation from service initiated by Irwin Home Equity for reasons other than job performance under paragraph 4(b) above solely for purposes of determining the vested percentage of your performance units. You shall be entitled to a cash payment under paragraph 6 below for each vested performance unit as determined under this paragraph 4(c).

5. Change of Control. All of your performance units shall fully vest upon a “Change of Control of Irwin Home Equity” (as defined in the attached Exhibit), provided that you are then employed as Irwin Home Equity’s President. You shall be entitled to a cash payment under paragraph 6 below for all your vested performance units as determined under this paragraph 5. The Committee has final authority to construe and interpret whether there has been a Change of Control event under this paragraph 5 and the date of such Change of Control.

6. Payments. To the extent that you have earned a vested right with respect to a performance unit, you will receive a cash lump-sum payment equal to the value of that unit, determined as of the “applicable valuation date” under paragraph 7 below, as follows:

(a)	any payment pursuant to paragraph 3 shall be made as soon as administratively practicable after the end of the applicable performance period, but no later than March 14th;
(b)	any payment pursuant to paragraph 4(b) shall be made as soon as administratively practicable after your separation from service, but not later than March 14th following your separation from service;
(c)	any payment pursuant to paragraph 4(c) shall be made as soon as administratively practicable after the earlier of your separation from service or the expiration of the applicable performance period, but no later than December 31st of the calendar year in which such separation or expiration, as applicable, occurs; and
(d)	any payment pursuant to paragraph 5 shall be made as a soon as administratively practicable after the applicable Change of Control, but in no event more than 60 days after such event.

Payment may be delayed by Irwin Home Equity (and not you) after the applicable payment due date described above only as permitted under Section 409A of the Code and regulations, rulings, notices and other guidance issued thereunder. In that regard, Irwin Home Equity shall delay any payment that, if made prior to a Change of Control, would not be deductible due to Section 162(m) of the Internal Revenue Code, and any such delayed payment will be made when deductibility will not be limited by Section 162(m), as reasonably determined by the Committee. The maximum payment that you may receive with respect to all performance units subject to this letter is $7,000,000.

7. Valuation of Units. The initial value of each performance unit granted to you is $1,000. The value of each outstanding performance unit as of the applicable valuation event (as defined below) for a performance unit will be calculated by multiplying $1,000 by a fraction, the numerator of which is the Irwin Home Equity line of business value as of the prior quarter’s valuation unless the applicable valuation event occurs on a quarter end date, and the denominator of which is the Irwin Home Equity line of business value on June 30, 2006. For purposes of this paragraph 7, the “applicable valuation event” shall be:

(a)	the last day of the applicable performance period for any payment pursuant to paragraph 3;
(b)	your separation from service for any payment pursuant to paragraph 4(b);
(c)	the date you accept a position with Irwin Financial Corporation or one of its direct or indirect subsidiaries other than as President of Irwin Home Equity for any payment pursuant to paragraph 4(c); and
(d)	the Change of Control of the Company or the Change of Control of Irwin Home Equity, as applicable, for any payment pursuant to paragraph 5.

8. Valuation Methodology. The standard value is fair market value. Valuations may be done by an outside appraiser in conformity with the Uniform Standards of Professional Appraisal Practice or by the use of publicly available data such as industry price-earnings multiples if, in the sole discretion of the Committee, it is believed that publicly available data will reasonably approximate a valuation done by an outside appraiser. If an outside appraiser is used the appraiser will recommend a valuation approach or approaches, such as the combination of a market approach, income approach and net asset approach. Valuations are performed annually unless the Committee determines that significant volatility suggests the need for more frequent valuations. Valuations should be adjusted for any capital contributions.

9. Tax Withholding. Irwin Home Equity may withhold from any amounts payable under this letter or otherwise such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

10. Assignment. You may not pledge, assign, or transfer any of the performance units prior to payment, except by will or the laws of descent and distribution.

11. No Rights to Future Employment. This letter shall not be construed to grant you the right to be retained as President of Irwin Home Equity or as an employee of Irwin Home Equity or its affiliates.

12. Unfunded Obligation. All payments to be made under this letter shall be paid from the general funds of Irwin Home Equity and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts. You will not have a right, title, or interest whatsoever in or to any investments which Irwin Home Equity may make to aid it in meeting its obligations under this letter.

13. Entire Agreement: Modification. This letter contains the entire agreement between you, Irwin Home Equity and its affiliates concerning the matters set forth herein and supersedes any other discussions, agreements, representations or warranties of any kind with regard to these matters. If for any reason any provision of this letter shall be held invalid, that invalidity will not affect the remainder of this letter.

14. Acknowledgment. You acknowledge that you have had an opportunity to fully discuss and review the terms of this letter with an attorney of your own choosing. You further acknowledge that you have carefully read this letter, understand its contents and freely and voluntarily assent to all of its terms and conditions, and sign your name of your own free act.

15. Governing Law. The provisions of this letter shall be governed by the laws of Indiana (excluding conflicts of laws).

Please review this letter carefully and, if it correctly states our agreement, sign and return to me the enclosed copy.

Best regards,

/s/ Tom Washburn

Tom Washburn, Executive Vice President

Read, accepted and agreed to this 6th day of February, 2007

/s/ Jocelyn Martin-Leano  

Jocelyn Martin-Leano 

EXHIBIT

CHANGE OF CONTROL OF IRWIN HOME EQUITY

A “Change of Control of Irwin Home Equity” for purposes of this letter shall mean the occurrence of any of the following events:

(a)

Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of Irwin Financial Corporation or any of its subsidiaries, or (ii) an entity owned directly or indirectly by the stockholders of Irwin Financial Corporation in substantially the same proportions as their ownership of stock of Irwin Financial Corporation, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of Irwin Home Equity representing 50% or more of the total voting power of the then outstanding shares of capital stock of Irwin Home Equity entitled to vote generally in the election of directors (the “Voting Stock”); or

(b)

Irwin Home Equity shall become a party to an agreement of a reorganization, merger or consolidation or the sale or other disposition of all or substantially all of its assets (a “Business Combination”), in each case, unless all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns Irwin Home Equity’s or all or substantially all of Irwin Home Equity’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of the Company.

EX-11.1

Exhibit 11.1

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11(a) — COMPUTATION OF EARNINGS PER SHARE

Year Ended December 31,	2006			2005		2004
Average number of shares outstanding		29,501			28,518		28,274
Net income from continuing operations	$	37,401		$	36,247	$	48,724
Basic earnings per share from continuing operations	$	1.27		$	1.27	$	1.72
Net income from all operations	$	1,727		$	18,987	$	68,445
Basic earnings per share from all operations	$	0.06		$	0.67	$	2.42
Diluted shares outstanding
Average number of shares outstanding		29,501			28,518		28,274
Assumed conversion of preferred shares		—			—		2,607
Assumed conversion of convertible trust preferred shares		—			—		—
Assumed exercise of stock options		189			323		397
Total shares		29,690			28,841		31,278
Net income from continuing operations	$	37,401		$	36,247	$	48,724
Effect of stock options		(303	)		—		—
Add back interest on convertible shares		—			—		2,712
Net income from continuing operations	$	37,098		$	36,247	$	51,436
Diluted earnings per share from continuing operations	$	1.25		$	1.26	$	1.64
Net income from all operations	$	1,727		$	18,987	$	68,445
Effect of stock options		(303	)		—		—
Add back interest on convertible shares		—			—		2,712
Net income from all operations	$	1,424		$	18,987	$	71,157
Diluted earnings per share from all operations	$	0.05		$	0.66	$	2.28

(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)	2006			2005			2004			2003			2002
Including Interest on Deposits
Earnings:
Earnings from continuing operations before income taxes	$	56,271		$	56,842		$	80,216		$	(9,462	)	$	15,428
Fixed charges from below		242,089			137,121			80,137			80,946			87,096
Earnings from continuing operations	$	298,360		$	193,963		$	160,353		$	71,484		$	102,524
Fixed charges:
Interest expense	$	242,089		$	137,121		$	80,137		$	80,946		$	87,096
Ratio of earnings to fixed charges		1.23	x		1.41	x		2.00	x		0.88	x		1.18	x
Excluding Interest on Deposits
Earnings:
Earnings from continuing operations before income taxes	$	56,271		$	56,842		$	80,216		$	(9,462	)	$	15,428
Fixed charges from below		109,868			53,260			35,650			38,581			32,735
Earnings from continuing operations	$	166,139		$	110,102		$	115,866		$	29,119		$	48,163
Fixed charges:
Interest expense, excluding interest on deposits	$	109,868		$	53,260		$	35,650		$	38,581		$	32,735
Ratio of earnings to fixed charges		1.51	x		2.07	x		3.25	x		0.75	x		1.47	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.

1

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

2

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.

3

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 Committee¹ to determine whether a waiver to the Code is warranted with respect to the proposed gift.

¹ Effective February 15, 2007, charters for two committees, the Audit Committee and Risk Management Committee, were approved. References to the Audit Risk Management Committee in this Code now refer to the Audit Committee.

4

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.

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	Kelly Bley
Senior VP — Ethics	Associate Counsel, Irwin Financial
(812) 376-1934	(317) 610-8010
matt.souza@irwinfinancial.com	kelly.bley@irwinfinancial.com
Steve Schultz	Terry Hall
1st VP — General Counsel	VP — Human Resources, Irwin Financial
(812) 376-1891	(812) 376-1974
steve.schultz@irwinfinancial.com	terry.hall@irwinfinancial.com
Brian Cline
VP — Corporate Compliance
(925) 790-4675
brian.cline@ihe.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
Lorraine Sumulong	VP, Human Resources
Deputy Chief Counsel	(604) 646-2233
(925) 790-5532	gdimanis@irwincf.com
lorraine.sumulong@ihe.com
	IUB
Suzanne Mercier	Joan Tupin-Crites
Associate Director, Corporate Counsel	Senior VP — Legal
(925) 790-4452	(812) 376-1896
suzanne.mercier@ihe.com	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;

19

     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 25, 2006
Approved by the IUBT Board of Directors August 29, 2006
Approved by the IFC Board of Directors August 30, 2006

20

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 VI	Delaware

	State or Other Jurisdiction of
Name	Incorporation or Organization
IFC Statutory Trust VII	Connecticut
IFC Capital Trust VIII	Delaware
IFC Capital Trust IX	Delaware
IFC Capital Trust X	Delaware
IFC Capital Trust XI	Delaware
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 consent to the incorporation by reference in the following 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. 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. 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;

of our reports dated March 5, 2007, with respect to the consolidated financial statements of Irwin Financial Corporation, Irwin Financial Corporation management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Irwin Financial Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP  

Chicago, Illinois
March 5, 2007

EX-23.2

Exhibit 23.2

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, except for the effects of discontinued operations in Note 2 to the consolidated financial statements, as to which the date is February 27, 2007, relating to the consolidated financial statements which appear in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

New York, New York
March 8, 2007

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. 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. 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 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 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 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 Miller  

WILLIAM I. MILLER 

Chairman and Chief Executive Officer 

Date: March 2, 2007

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 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 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 

Chief Financial Officer 

Date: March 2, 2007

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, 2006 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 2, 2007	/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, 2006 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 2, 2007	/s/ Gregory F. Ehlinger
	Gregory F. Ehlinger
	Chief Financial Officer