Irwin Financial has been hit hard by the downturn in the mortgage industry.

Press Release

Irwin Financial Corporation (NYSE: IFC), today announced a loss of $54 million or $1.85 per share during the third quarter of 2008, a reduction from the second quarter loss of $107 million.

Consolidated total capital to risk weighted assets ratios remained essentially unchanged at 10.8% versus 10.7% in the second quarter. The third quarter loss principally reflected charges associated with the sales of the Corporation's small ticket leasing portfolios and operations as part of the strategic restructuring of the company and provisions for credit losses in its commercial banking segment and in its liquidating home equity portfolio. The Corporation continued to reduce exposure to its national home equity portfolio through the securitization of $268 million of these loans. In recent weeks, the Corporation has obtained standby commitments for an additional $6 million in connection with its previously announced $50 million shareholder rights offering, raising the total level of commitments to $37 million or 74 percent of the planned offering.

"Despite the economic head-winds, we made substantial progress on our strategic restructuring during the third quarter," said Will Miller, Chairman and CEO of Irwin Financial. "We exited the small-ticket leasing business. We securitized 85 percent of our remaining home equity whole loans, thereby capping our credit loss exposure on those loans. With the home equity portfolio in run-off mode, our credit exposure to the national home equity industry is shrinking.

"Plans to further strengthen our capital base are moving ahead," Miller continued. "We filed a registration statement with the Securities and Exchange Commission relating to a $50 million rights offering to our shareholders. On November 3rd, we received shareholder approval to increase our authorized shares, which provides us the flexibility to pursue our rights offering or other capital raising activities. We were also pleased to secure additional commitments from investors for our previously announced shareholder rights offering, increasing the total standby commitments from $31 million to $37 million.

"We believe that through our strategic restructuring we will return to profitability by simplifying our business and returning to the core principles that have driven our success for the past 137 years: serving small businesses and consumers in our branch communities," said Miller.

"As an example of this renewed focus on our traditional branch-based business, in the third quarter we expanded our loan portfolio in our headquarters community of Columbus, Indiana. We were pleased that Irwin Union Bank was the leading producer of consumer residential mortgage loans to our neighbors in the community during the third quarter-producing 44 percent more residential loan volume than the next largest competitor locally," Miller concluded.

Net interest income of $48 million was lower in the third quarter,
reflecting the sale of the equipment leasing portfolio, the securitization of $268 million of home equity loans, and a reduced level of loans. Non-interest expense increased on a sequential quarter basis reflecting restructuring activities.

The consolidated net interest margin declined to 4.16 percent as
compared to 4.38 percent during the second quarter, reflecting a smaller loan portfolio and excess liquidity retained to address environmental conditions in the banking industry during the quarter. Reflecting the strategic restructuring and the sale of small-ticket leasing businesses, the consolidated loan and lease portfolio declined nearly $800 million during the quarter, totaling $4.7 billion as of September 30. Both loans and deposits fell about ten percent during the quarter as we de-levered the balance sheet.

The Corporation had $274 million or $8.82 per share in common
shareholders' equity as of September 30. At quarter-end, the Corporation's Tier 1 and Total Risk-based Capital Ratios were 6.8 percent and 10.8 percent, respectively, compared to 7.4 percent and 10.7 percent as of June 30, 2008. The capital ratios of Irwin Union Bank and Trust were 9.3 percent and 11.3 percent, respectively at September 30, 2008 and the same ratios for Irwin Union Bank, FSB were 11.2 percent and 12.4 percent.

The Corporation's third quarter allowance for loan and lease losses increased substantially. The allowance totaled $232 million as of September 30, 2008, up from $216 million at the end of June and $104 million a year earlier. This increase in allowance was necessitated primarily by an increase in non-performing loans in its commercial banking segment. In that segment, non-performing loans have increased 385 percent year-over-year. That deterioration has been addressed, however, by the specific reserves taken on non-performing loans, which have increased by 522 percent during the same period.

Segment Results

The commercial banking segment lost $15.1 million during the third quarter, reflecting increases in loss provisions primarily for commercial real estate related loans. The segment added $20 million to loan loss reserves in excess of quarterly charge-offs of $9 million, through a total loan loss provision of $29 million. The segment's allowance for losses grew to 2.57 percent of loans as of September 30, up from 1.75 percent as of June 30. Thirty-day and greater delinquencies increased from 0.87 percent at June 30 to 1.13 percent at September 30.

The commercial banking segment's loan balances declined during the quarter as it worked to reduce its concentration of commercial real estate loans. Net interest margin was 3.58 percent during the quarter, down from 3.66 percent during the second quarter, reflecting unsettled conditions in the markets and a decline in earning assets.

The commercial finance line of business reduced its loss to $2 million in the third quarter of 2008, compared to a loss of $23 million in the second quarter. The loss in each quarter reflected the costs of exiting the equipment leasing channels. Net interest margin for the line of business was 4.31 percent, up modestly from 4.24 percent in the second quarter.

The franchise finance channel, a continuing part of Irwin Financial
included in the commercial finance line of business, earned $3.3 million during the third quarter, up from $1.7 million during the second quarter.

The franchise finance portfolio totaled $611 million at September 30, compared to $651 million as of June 30. Credit quality in the franchise finance portfolio declined in third quarter as some franchisees were affected by slowing consumer demand and rising food costs. Thirty-day and greater delinquencies were 1.31 percent, compared with 0.27 percent at June 30 and 0.55 percent at the end of March. Charge offs in the third quarter were an annualized 0.57 percent compared to the allowance for loan losses of 0.96 percent at September 30. Franchise loan sales totaled $48 million, with a net gain on sales of 3.2 percent of loans sold.

The home equity segment lost $24 million during the third quarter, compared to a loss of $44 million during the second quarter. Results during the quarter were negatively affected by loss provisions of $27 million and restructuring charges related to the planned exit of the segment of $15 million.

Thirty-day and greater delinquencies on the total portfolio increased from 6.06 percent at June 30 to 7.43 percent at September 30. The allowance for loan losses totaled $155 million at September 30 or 12.1 percent of the portfolio. The segment continues to see historically high levels of losses from customers who had strong credit characteristics at origination. The weighted-average FICO score of borrowers who defaulted during the third quarter of 2008 was 688. The home equity portfolio is in run-off mode.

The other bank and non-bank consolidating entities lost $14 million during the third quarter, compared with $30 million during the second quarter. The loss was primarily due to a deferred tax valuation allowance of $8 million and other-than-temporary impairment of $2 million on a portion of the securities portfolio which has not traded in several quarters due to market conditions. Notwithstanding the mark-to-market impairment of this portfolio to approximately 15 percent of its face value, these securities remain current on scheduled interest.

The company will host an investor conference call at 1:00 p.m., EST, November 10, 2008, to discuss third quarter results. The toll-free number for the call is (800) 640-9765; please tell the operator you would like to join the Irwin Financial call, confirmation #23194149. A replay of the call will be available on the Irwin Financial Corporation website at: http://www.irwinfinancial.com/investors/index_ir.htm.

About Irwin Financial

Irwin(R) Financial Corporation (http://www.irwinfinancial.com) is a
bank holding company with a history tracing to 1871. The Corporation provides banking services to small businesses and consumers in selected markets.

Source: Irwin Financial Corp.