UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2007

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

For the transition period from                     to                     .

IRWIN FINANCIAL CORPORATION

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

Indicate by check mark whether the Registrant (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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

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).

o Yes þ No

As of April 24, 2007, there were outstanding 29,539,804 common shares, no par value, of the Registrant.

 

 

FORM 10-Q

TABLE OF CONTENTS

						PAGE
						NO.
PART I				FINANCIAL INFORMATION		3
Item 1				Financial Statements		3
Item 2				Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3				Quantitative and Qualitative Disclosures About Market Risk		47
Item 4				Controls and Procedures		47
PART II				OTHER INFORMATION		48
Item 2				Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 6				Exhibits		49
				Signatures		52
Certification by CEO
Certification by CFO
Section 906 Certification of the CEO
Section 906 Certification of the CFO

 

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

		March 31,				December 31,
		2007				2006
		(Dollars in thousands)
Assets:
Cash and cash equivalents		$	61,821			$	145,765
Interest-bearing deposits with financial institutions			43,393				53,106
Residual interests			9,619				10,320
Investment securities- held-to-maturity (Fair value: $17,766 at March 31, 2007 and $17,893 at December 31, 2006)			18,038				18,066
Investment securities- available-for-sale			116,659				110,364
Loans held for sale			44,906				237,510
Loans and leases, net of unearned income — Note 3			5,414,778				5,238,193
Less: Allowance for loan and lease losses — Note 4			(84,876	)			(74,468	)
			5,329,902				5,163,725
Servicing assets — Note 5			30,105				31,949
Accounts receivable			70,591				208,585
Accrued interest receivable			24,567				26,470
Premises and equipment			38,671				36,211
Other assets			188,008				139,314
Assets held for sale — Note 2			41,456				56,573
Total assets		$	6,017,736			$	6,237,958
Liabilities and Shareholders’ Equity:
Deposits
Noninterest-bearing		$	336,298			$	687,626
Interest-bearing			1,748,012				1,756,109
Certificates of deposit over $100,000			1,363,087				1,107,781
			3,447,397				3,551,516
Short-term borrowings — Note 6			619,304				602,443
Collateralized debt — Note 7			1,102,025				1,173,012
Other long-term debt			233,885				233,889
Other liabilities			102,256				146,596
Total liabilities			5,504,867				5,707,456
Commitments and contingencies — Note 11
Shareholders’ equity
Preferred stock, no par value — authorized 4,000,000 shares; none issued			—				—
Noncumulative perpetual preferred stock - 15,000 authorized and issued			14,446				14,518
Common stock, no par value — authorized 40,000,000 shares; issued 29,890,917 shares and 29,879,773 shares as of March 31, 2007 and December 31, 2006; 430,316 shares 143,543 shares in treasury as of March 31, 2007 and December 31, 2006			116,246				116,192
Additional paid-in capital			1,688				1,583
Accumulated other comprehensive loss, net of deferred income tax benefit of $4,003 and $4,813 as of March 31, 2007 and December 31, 2006			(3,785	)			(4,364	)
Retained earnings			393,564				405,835
			522,159				533,764
Less treasury stock, at cost			(9,290	)			(3,262	)
Total shareholders’ equity			512,869				530,502
Total liabilities and shareholders’ equity		$	6,017,736			$	6,237,958

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

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

		For the Three Months Ended March 31,
		2007				2006
		(Dollars in thousands, except per share)
Interest income:
Loans and leases		$	119,349			$	97,886
Loans held for sale			4,942				11,406
Residual interests			270				664
Investment securities			2,457				1,485
Federal funds sold			20				26
Total interest income			127,038				111,467
Interest expense:
Deposits			33,451				29,682
Short-term borrowings			7,806				4,106
Collateralized debt			15,815				11,111
Other long-term debt			3,838				4,990
Total interest expense			60,910				49,889
Net interest income			66,128				61,578
Provision for loan and lease losses — Note 4			23,208				9,193
Net interest income after provision for loan and lease losses			42,920				52,385
Other income:
Loan servicing fees			5,912				8,108
Amortization and impairment of servicing assets			(4,950	)			(5,902	)
(Loss) gain from sales of loans and loans held for sale			(5,907	)			2,768
Trading losses			(264	)			(219	)
Derivative (losses) gains, net			(1,089	)			2,768
Other			5,484				6,473
			(814	)			13,996
Other expense:
Salaries			25,735				25,303
Pension and other employee benefits			7,738				7,773
Office expense			2,337				2,094
Premises and equipment			5,628				5,035
Marketing and development			1,209				668
Professional fees			2,086				2,398
Other			7,552				9,543
			52,285				52,814
(Loss) income before income taxes from continuing operations			(10,179	)			13,567
Provision for income taxes			(4,085	)			4,877
Net (loss) income from continuing operations			(6,094	)			8,690
Loss from discontinued operations, net of $2,742 and $7,026 income tax benefit, respectively — Note 2			(4,035	)			(10,548	)
Net loss		$	(10,129	)		$	(1,858	)
Earnings per share from continuing operations: — Note 9
Basic		$	(0.22	)		$	0.30
Diluted		$	(0.22	)		$	0.30
Earnings per share: — Note 9
Basic		$	(0.35	)		$	(0.06	)
Diluted		$	(0.36	)		$	(0.07	)
Dividends per share		$	0.12			$	0.11

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

IRWIN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended March 31, 2007, and 2006

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

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

CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

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

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

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 (IMC). 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.

     Because we are in the process of exiting the mortgage banking line of business, the financial statements and footnotes within this report conform to the presentation required in Statement of Financial Accounting Standard (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Certain of the balance sheet assets 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.

     Cash and Cash Equivalents Defined: For purposes of the statement of cash flows, we consider cash and due from banks to be cash equivalents.

     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. Prior to the January 1, 2007, all servicing rights were carried at lower of cost or fair market value. 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. Prior to January 1, 2007, all servicing assets were amortized over the period of and in proportion to estimated net servicing income.

     For servicing assets associated with second mortgages and high loan-to-value first mortgages, the fair value measurement method of reporting these servicing rights was elected beginning January 1, 2007, in accordance with SFAS 156, “Accounting for Servicing of Financial Assets.” Under the fair value method, we measure servicing assets at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur. All remaining servicing rights follow the amortization method for subsequent measurement whereby these servicing rights are amortized in proportion to and over the period of estimated net servicing income.

     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.

     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: 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 elected 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. Implementation of the fair value treatment under SFAS 156 resulted in a one-time increase to retained earnings of $1.7 million. This represents the after-tax effect of the $2.9 million fair value adjustment to the mortgage servicing asset as of January 1, 2007.

     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 February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to choose to measure certain financial instruments at fair value. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is permitted as of January 1, 2007. We elected not to early adopt this statement. We are currently evaluating this new statement and have not yet determined the ultimate impact it will have on our financial statements once it becomes effective in 2008.

     Effective January 1, 2007, we adopted FASB Interpretation Number 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” (“FIN No. 48”), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on its tax returns. Upon adoption of FIN No. 48, we did not recognize any material adjustment in our liability for unrecognized tax benefits. As of January 1, 2007, our unrecognized tax benefits were $10.7 million, $0.7 million of which would, if recognized, favorably affect the effective tax rate in future periods. As of March 31, 2007, our unrecognized tax benefits were $15.9 million, $0.7 million of which would, if recognized, favorably affect the effective tax rate in future periods.

     Our continuing practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of January 1, 2007, we had approximately $0.8 million accrued for interest and no accrual for penalties related to unrecognized tax benefits. As of March 31, 2007, we have approximately $1.0 million accrued for interest related to unrecognized tax benefits.

     Tax years 2003-2006 remain open to examination by major taxing jurisdictions. Certain state tax returns remain open to examination for tax years 2002-2006.

     Reclassifications: Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 presentation. These changes had no impact on previously reported net income or shareholders’ equity.

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, as well as the majority of this segment’s capitalized mortgage servicing rights to five separate buyers. In January 2007, we transferred a nominal amount of assets associated with this segment’s servicing platform (but not mortgage servicing rights) to a sixth buyer. We have some staff continuing to work at IMC through the wind-down of our remaining assets, such as construction loans and repurchased loans. The majority of the cash proceeds from the sales have been collected.

     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. .

		Three Months Ended March 31,
		2007				2006
Net revenues		$	(4,721	)		$	8,361
Other expense			(2,056	)			(25,935	)
Loss before income taxes			(6,777	)			(17,574	)
Income taxes			2,742				7,026
Net loss from discontinued operations		$	(4,035	)		$	(10,548	)

		March 31,				December 31,
		2007				2006
		(Dollars in thousands)
Loans, net of allowance, and Loans held for sale		$	33,983			$	48,555
Net servicing asset			135				385
Other assets			7,338				7,633
Assets held for sale		$	41,456			$	56,573

Note 3 — Loans and Leases

     Loans and leases are summarized as follows:

		March 31,				December 31,
		2007				2006
		(Dollars in thousands)
Commercial, financial and agricultural		$	2,258,059			$	2,249,988
Residential real estate-construction			379,064				377,601
Residential real estate-mortgage			1,685,549				1,522,616
Consumer			29,600				31,581
Commercial financing
Franchise financing			696,445				699,969
Domestic leasing			302,080				296,056
Canadian leasing			367,687				358,783
Unearned income
Franchise financing			(215,153	)			(211,480	)
Domestic leasing			(43,433	)			(42,782	)
Canadian leasing			(45,120	)			(44,139	)
Total		$	5,414,778			$	5,238,193

Note 4 — Allowance for Loan and Lease Losses

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

		March 31, 2007				December 31, 2006
		And the Quarter				And the Year
		Then Ended				Then Ended
		(Dollars in thousands)
Balance at beginning of year		$	74,468			$	59,223
Provision for loan and lease losses			23,208				35,101
Charge-offs			(15,167	)			(30,810	)
Recoveries			2,697				11,208
Reduction due to reclassification or sale of loans			(351	)			(246	)
Foreign currency adjustment			21				(8	)
Balance at end of period		$	84,876			$	74,468

Note 5 — Servicing Assets

     We adopted the fair value treatment for servicing assets associated with our second mortgage and high loan-to-value first mortgage portfolios as of January 1, 2007. The effect of remeasuring the selected servicing assets at fair value was reported as a cumulative-effect adjustment to retained earnings, increasing retained earnings $1.7 million, net of tax. Changes in fair value subsequent to adoption were recorded through “amortization and impairment of servicing assets.” All other first mortgage loans continue to be accounted for using the amortization method with impairment recognized. These mortgage servicing assets are recorded at 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 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 adversely affect our results of operations. For servicing rights accounted for under the amortization method, we also review these mortgage servicing assets for other-than-temporary impairment each quarter and recognize a direct write-down when the recoverability of a recorded valuation allowance is determined to be remote. Unlike a valuation allowance, a direct write-down permanently reduces the unamortized cost of the mortgage servicing rights asset and the valuation allowance, precluding subsequent reversals.

     Changes in our fair value servicing assets are shown below:

		March 31, 2007				December 31, 2006
		And the Quarter				And the Year
		Then Ended				Then Ended
		(Dollars in thousands)
Beginning balance		$	27,725			$	—
Gain from initial adoption of SFAS 156			2,905				—
Changes in fair value			(4,566	)			—
Mortgage servicing asset from continuing operations		$	26,064			$	—

 We have established a gain (loss)account to record servicing assets at their fair market value in “amortization and impairment of servicing assets.”

Changes in our amortizing servicing assets are shown below:

		March 31, 2007				December 31, 2006
		And the Quarter				And the Year
		Then Ended				Then Ended
		(Dollars in thousands)
Beginning balance		$	31,949			$	34,445
Initial adoption of SFAS 156			(27,725	)			—
Additions			201				17,884
Amortization			(316	)			(21,027	)
(Impairment) recovery			(68	)			647
Mortgage servicing asset from continuing operations		$	4,041			$	31,949

     We have established a valuation allowance to record amortizing servicing assets at their lower of cost or market value. Changes in the allowance are summarized below:

		March 31, 2007				December 31, 2006
		And the Quarter				And the Year
		Then Ended				Then Ended
Balance at beginning of year		$	483			$	1,152
Transfer of assets from amortizing to fair value			(332	)			—
Impairment (recovery)			68				(647	)
Reclass for sales of servicing and clean up calls			—				(22	)
Valuation allowance from continuing operations		$	219			$	483

Note 6 — Short-Term Borrowings

     Short-term borrowings are summarized as follows:

		March 31,				December 31,
		2007				2006
		(Dollars in thousands)
Federal Home Loan Bank borrowings		$	537,211			$	371,693
Federal funds			82,000				230,500
Other			93				250
Total		$	619,304			$	602,443
Weighted average interest rate			4.93	%			4.49	%

     Federal Home Loan Bank borrowings are collateralized by loans and loans held for sale.

     We also have lines of credit available to fund loan originations and operations with variable rates ranging from 5.6% to 6.2% at March 31, 2007.

     We have three lines of credit subject to compliance with certain financial covenants set forth in these facilities including, but not limited to, net income, consolidated tangible net worth, return on average assets, nonperforming loans, loan loss reserve, Tier 1 leverage ratio, and risk-based capital ratio. Due to our net loss in the first quarter of 2007, we requested and obtained waivers for a parent company credit facility with respect to certain profitability-based covenants. As a result of these waivers, we are in compliance with all applicable covenants as of March 31, 2007.

Note 7 — Collateralized Debt

     We pledge or sell loans structured as secured financings at our home equity and commercial finance lines of business. Sale treatment is precluded on these transactions because we fail the true-sale requirements of SFAS 140 as we maintain effective control over the loans and leases securitized. This type of structure results in cash being received, debt being recorded, and the establishment

of an allowance for credit losses. The notes associated with these transactions are collateralized by $1.2 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 at a fixed and floating rate. Collateralized debt is summarized as follows:

						Weighted
						Average
						Interest Rate at
		Contractual				March 31,				March 31,				December 31,
		Maturity				2007				2007				2006
										(Dollars in thousands)
Commercial finance line of business
Domestic asset backed note										$	—			$	5,797
Canadian asset backed notes:
Note 1		revolving					5.5				33,576				30,611
Note 2			3/2012				4.1				183,113				179,508
Note 3			10/2009				4.5				6,866				8,157
Home equity line of business
2004-1 asset backed notes:
Variable rate senior note			12/2024-12/2034				5.7				40,472				50,072
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				28,974				40,972
Fixed rate senior note			6/2035				5.0				90,487				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											(82	)			(90	)
2006-1 asset backed notes:
Variable rate senior note			9/2035				5.5				85,762				102,252
Fixed rate senior note			9/2035				5.5				96,561				96,561
Fixed rate lockout senior note			9/2035				5.6				24,264				24,264
Unamortized premium/discount											(16	)			(19	)
2006-2 asset backed notes:
Variable rate senior note			2/2036				5.4				121,408				136,386
Fixed rate senior note			2/2036				6.3				80,033				80,033
Fixed rate lockout senior note			2/2036				6.2				21,348				21,348
Unamortized premium/discount											(18	)			(21	)
2006-3 asset backed notes:
Variable rate senior note			1/2037-9/2037				5.5				116,550				130,326
Fixed rate senior note			9/2037				5.9				67,050				67,050
Fixed rate lockout senior note			9/2037				5.9				18,000				18,000
Unamortized premium/discount											(10	)			(11	)
Total										$	1,102,025			$	1,173,012

Note 8 — Employee Retirement Plans

     Components of net periodic cost of pension benefit:

		For the Three Months Ended March 31,
		2007				2006
		(Dollars in thousands)
Service cost		$	1,129			$	1,054
Interest cost			686				581
Expected return on plan assets			(638	)			(603	)
Amortization of prior service cost			12				12
Amortization of actuarial loss			176				284
Net periodic benefit cost		$	1,365			$	1,328

     As of March 31, 2007, we have not made any contributions to our pension plan in the current year and currently do not need to contribute to this plan in 2007 to maintain its funding status.

Note 9 — Earnings Per Share

     Earnings per share calculations are summarized as follows:

		Three Months ended March 31, 2007
										Basic								Diluted
		Net				Preferred				Earnings				Effect of				Earnings
		Loss				Dividends				Per Share				Stock Options				Per Share
						(Dollars in thousands, except per share amounts)
Net loss available to common shareholders:
From Continuing Operations		$	(6,094	)		$	(352	)		$	(6,446	)		$	(189	)		$	(6,635	)
From Discontinued Operations			(4,035	)			—				(4,035	)			—				(4,035	)
Total Net Loss for All Operations		$	(10,129	)		$	(352	)			(10,481	)			(189	)			(10,670	)
Shares											29,623				134				29,757
Per-share from Continuing Operations										$	(0.22	)		$	—			$	(0.22	)
Per-share amount for All Operations										$	(0.35	)		$	(0.01	)		$	(0.36	)

		Three Months ended March 31, 2006
										Basic								Diluted
		Net				Preferred				Earnings				Effect of				Earnings
		Loss				Dividends				Per Share				Stock Options				Per Share
						(Dollars in thousands, except per share amounts)
Net income available to common shareholders:
From Continuing Operations		$	8,690			$	—			$	8,690			$	(70	)		$	8,620
From Discontinued Operations			(10,548	)			—				(10,548	)			—				(10,548	)
Total Net Loss for All Operations		$	(1,858	)		$	—				(1,858	)			(70	)			(1,928	)
Shares											28,939				208				29,147
Per-share from Continuing Operations										$	0.30			$	—			$	0.30
Per-share amount for All Operations										$	(0.06	)		$	(0.01	)		$	(0.07	)

     At March 31, 2007 and 2006, 1,876,880 and 1,660,179 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.

Note 10 — 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 provides consumer mortgage products and services.

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

Note 11 — Commitments and Contingencies

Culpepper v. Inland Mortgage Corporation

     In this lawsuit, filed in April 1996, the plaintiffs had obtained class action status for their complaint alleging that Irwin Mortgage violated the federal Real Estate Settlement Procedures Act (RESPA) relating to Irwin Mortgage’s payment of broker fees to mortgage brokers. On February 7, 2006, the United States District Court for the Northern District of Alabama dismissed this case 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. 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 a case similar to ours would support a decision in our case affirming the trial court in favor of Irwin Mortgage. In the similar case, the 11^th Circuit expressly recognized it was, in effect, overruling its prior decision in our case. 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 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.

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 settlement agreement is being 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.

Item 2. 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 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 the valuation of such portfolios;
	•		borrowers’ refinancing opportunities, which may affect the prepayment assumptions used in our valuation estimates and which may affect loan demand;
	•		unanticipated deterioration in the credit quality or collectibility of our loan and lease assets, including deterioration resulting from the effects of natural disasters;
	•		unanticipated deterioration or changes in estimates of the carrying value of our other assets, including securities;

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